Mohammad Basir Saud

ABSTRACT This study provides a demographic and psychographic profile of Malaysian dietary supplement users. There were significant differences between regular and non-regular users were only noted in terms of age, marital status, number of children and personal income while there was no significant difference for other demographic variables. Six psychographic dimensions were identified. Regular users of dietary supplements could be considered as price conscious and brand triers.

Gender diversity and inclusion programs have been implemented in the workplace, however achieving gender equality in the workplace are rather slow. Thus, in order to achieve gender equality and sustainable development, it is crucial to optimise female talents and leverage diversity. This conceptual model explores and examines the relationships of discriminatory organisational culture as well as motherhood and pregnancy stereotype on female inequality in organisations.

Literature review is an excruciating part in the process of research. It requires an analysis of published material on the topic on interest. Moreover, for a new researcher, it is challenging extract a great number of required objectives, including the problem identification, commonly known as ‘gap’ in research. Searching and locating most appropriate literature is no more great deal in this era of Information and Communication Technology (ICT), instead overloading of the literature is a major problem and the great change to be handle. Often postgraduate research students raise three questions to their peers and supervisors. First, how many articles are sufficed for a good literature review? Second, how many past years literature will be enough to meet the required level for a good literature review? And third, what if, literature referred is published in the language other than researchers’ language? In this research paper a novel hypothetical model is proposed to answer first two questions; the number of articles required for a good and reasonable literature review and number of years backward the analysis of articles required for the same. Our results indicate that analysis of data partially support our hypothetical model and its assumptions.

ADVANCES IN GLOBAL BUSINESS RESEARCH Vol. 3 No. 1 ISSN 1549 - 9332 Edited by: Dianne H.B. Welsh University of Tampa Mohamad Shukri Ab Yajid University College of Technology and Management Malaysia Valentin H. Pashtenko Clayton State University, Georgia Zafar U. Ahmed Texas A&M University at Commerce Advances in Global Business Research Vol. 3 No 1 ISSN 1549 - 9332 Proceedings of the 2006 Academy for Global Business Advancement Third World Congress, Held at Kuala Lumpur, Malaysia, on January 4—6, 2006. Edited by Dianne H.B. Welsh, Mohamad Shukri Ab Yajid, Valentin Pashtenko, and Zafar U. Ahmed These proceedings are prepared from material supplied by the authors. Manuscripts that were not sent to the editors in time for production may not appear in the proceedings. In accordance with editorial policy, some tables, graphs, figures, or references may have been edited or omitted. In the case of errors, or omissions, please contact the respective author(s) directly. Copyrights remain with the author(s) of each article. Every effort has been made by the editors, publishers and printers of these proceedings to see that no inaccurate data, opinion, or statement appears in the proceedings, and the data and opinions appearing in the articles herein are the responsibility of the author(s). Accordingly, the publishers, printers, editors, and AGBA officials accept no liability whatsoever for the consequences of such inaccurate or misleading data, opinion or statement. ii Welcome to 3rd AGBA World Congress! We would like to take this opportunity to welcome all delegates to the 2006 AGBA World Congress in Malaysia! You are taking part in a wonderful program! The main theme of our conference is “Business and Entrepreneurship Development in a Globalized Era”. Our conference will feature competitive papers and special sessions. We are surely going to offer something for everybody! Our conference’s primary goal is to provide a unique global platform and forum to facilitate the exchange of leading-edge ideas for effective advancement of knowledge in global business and global entrepreneurship. This will be achieved through multidisciplinary presentations and discussions of current business and development issues in emerging and developed countries. Your participation is helping us achieve these goals: Thank you for coming to Malaysia! Dianne H.B. Welsh Mohamad Shukri Ab Yajid 2006 Conference Co-Chairs iii AGBA Overview AGBA – the Academy for Global Business Advancement – is a worldwide network of professionals committed to facilitate dissemination of scholarly research findings in the filed of global business and global entrepreneurship. The main purpose of AGBA is to provide ongoing open forums to discuss and analyze global business and global entrepreneurship from different perspectives and viewpoints, and thus to improve understanding of the underlying forces that (1) have an impact on global developments and (2) shape the destiny of emerging countries in the contemporary globalized economy. AGBA bridges geographic, cultural, disciplinary, and professional gaps by integrating the business disciplines while actively enhancing practitioner-academician interaction on a global basis. The objectives of AGBA are to foster education and to advance professional knowledge and standards in various areas of global business and global entrepreneurship by: • Serving as a global platform for the interaction of professionals hailing from emerging countries such as Malaysia and the developed countries such as US, • facilitating the exchange of information and ideas among educators and professionals, entrepreneurs, and bureaucrats, and between the business and academic fields; • encouraging and assisting basic and applied research activities that advance knowledge of global business and entrepreneurship development and operations, and increase the available body of teaching materials; iv • facilitating the interdisciplinary dialogue concerning global business and global entrepreneurship issues as they relate to academic, business and government sectors. Due to its innovative and integrative approach to research, education, and professional practice, we envision AGBA to be growing into one of the leading academic organizations investigating and analyzing contemporary global business and global entrepreneurship challenges. For additional information, please contact: Prof. Zafar U. Ahmed BBA (New York), MBA (Texas), Ph.D., (Utah) Professor of Marketing and International Business President: Academy for Global Business Advancement (www.agba.us) Editor-in-Chief: Journal for Global Business Advancement (www.inderscience.com/jgba) Editor-in-Chief: Journal for International Business and Entrepreneurship Development (www.inderscience.com/jibed) Department of Marketing and Management Texas A&M University at Commerce Commerce, Texas 75429-3011, USA Tel : (1-903)-886-5697, Fax :(1-903)-886-5702 E-Mail : Zafar_Ahmed@tamu-commerce.edu http://www.agba.us v 3rd AGBA World Congress 2006 Leadership for Malaysia CONFERENCE CO-CHAIR CONFERENCE CO- CHAIR KEYNOTE SPEAKER GUEST OF HONOR Prof. Dianne Welsh President: US Association for Small Business & Entrepreneurship University of Tampa Prof. Dato’ Mohamad Shukri Ab Yajid President University College of Technology and Management Malaysia Prof. Shawn Carraher President: South-West Academy of Management Cameron University, Oklahoma Prof. John Parnell University of North Carolina at Pembroke CONFERENCE DIRECTOR CONFERENCE PRESIDENT Associate Prof. Dr. Mohamad Zainul Fithri Dato' Othman Deputy Vice Chancellor/Vice President University College of Technology and Management Malaysia Prof. Zafar U. Ahmed Texas A&M University at Commerce, Texas vi AGBA Patrons Prof. Hal Langford Prof. Dato’ Mohamad Shukri Ab Yajid Prof. Said M. Elfakhani Dean College of Business and Technology Texas AM University –Commerce Commerce, Texas President University College of Technology and Management Malaysia Associate Dean Suleiman Olayan School of Business American University of Beirut Lebanon Prof. Dato’ Daing Nasir Ibrahim Dr. Salem Al-Ghamdi Dr. Abdulla S. Al-Khulaifi Dean School of Management Universiti Sains Malaysia Associate Dean College of Industrial Management King Fahad University of Petroleum and Minerals, Saudi Arabia Former President University of Qatar Doha, Qatar vii AGBA Sponsors • CIBER, University of Connecticut • CIBER, University of Memphis • Texas A&M University at Commerce • University College of Technology and Management Malaysia • Value-One Infotech (Pvt) Ltd. • International University of Human Transformation, India viii AGBA Sponsors • CIBER, University of Connecticut • CIBER, University of Memphis • Texas A&M University at Commerce • University College of Technology and Management Malaysia • Value-One Infotech (Pvt) Ltd. • International University of Human Transformation, India ix AGBA Executive Board Chair Deputy Chairs President Managing Director Prof. Subhash C. Jain Director: CIBER University of Connecticut Prof. Ben Kedia Director, CIBER University of Memphis Prof. Zafar U. Ahmed Texas A&M University at Commerce, Texas Dr. Valentin Pashtenko Clayton State University, Georgia Prof. C. P. Rao Kuwait University Prof. Rajan Varadarajan Texas A&M University at College Station Vice President Global Programs Vice President for Global Conferences Vice President for Global Operations Director for Global Communication Wolfgang Hinck Louisiana State University -- Shreveport Dr. M. Sadiq Sohail King Fahad University of Petroleum and Minerals, Saudi Arabia Dr. Valentin Pashtenko Clayton State University, Georgia Syed Arshad Raza King Fahad University of Petroleum and Minerals, Saudi Arabia x AGBA Journals Published by AGBA Journals Published by Inderscience Publishing Co. of Switzerland and UK Journal for Global Business Advancement (JGBA) ISSN (Online): 1746-9678 - ISSN (Print): 1746-966X http://www.indersciene.com/browse/index.php?journalCODE=jgba Journal for International Business and Entrepreneurship Development (JIBED) ISSN (Online): 1747-6763 - ISSN (Print): 1549-9324 http://www.inderscience.com/browse/index.php?journalCODE=jibed xi Journal for Global Business Advancement (JGBA) ISSN (Online): 1746-9678 - ISSN (Print): 1746-966X Journal for Global Business Advancement is the official organ of the Academy for Global Business Advancement and is published two times in a year by the Inderscience Publishing Company of Switzerland and UK. The aim of JGBA is the advancement of contemporary research in the field of global business from the standpoint of both western and emerging countries vigorously participating in the globalized world. JGBA is an international refereed journal dedicated to the advancement of the theory and practice of global business with an emphasis on developing countries attempting to assert themselves on the global stage. Firms, institutions, governments, organizations, agencies, and individuals are participating in the globalization of world economy through a variety of forms, shapes, and styles, necessitating the initiation of an innovative dialogue between them with the goal of resolving conflicts, promoting world peace and harmonizing relations. JGBA wishes to act as a global platform for the pursuance of dialogue between different countries at dissimilar stages of economic development. JGBA aims to inspire both new and expert researchers to submit their empirical, conceptual and applied papers and case studies for publication. Preference will be given to papers examining conflicts between western firms and developing countries’ institutions, communities and firms, papers examining struggles confronted by new multinational firms emanating from developing countries and new scholars from emerging countries, as reflected by the accreditation of business programs across the world by the AACSB–International. Appropriate topics for manuscripts include challenges being encountered by western firms in newly emerging countries, firms from developing countries trying to penetrate world markets and attempting to build their own brands, non-western scholars attempting to examine the applicability of western models in eastern, socialist and southern hemisphere countries. Collaborative manuscripts between scholars and entrepreneurs, between western and non-western scholars, and between scholars and professionals, are particularly favored. JGBA invites and welcomes research papers encompassing all areas of global business studies, such as marketing, management, organizational behavior, finance, accounting, MIS, economics, and cultural anthropology. JGBA also welcomes research papers that transcend single countries, and single discipline. Accordingly, it has a special interest in the publication of multidisciplinary and multinational research emanating from innovative scholars and business schools accredited by the AACSB around the world. You are invited to submit your manuscript to: Editor-in-Chief IEL Editorial Office PO Box 735 Olney, Bucks MK46 5WB UK E-mail: jgba@inderscience.com xii Journal for International Business and Entrepreneurship Development (JIBED) ISSN (Online): 1747-6763 - ISSN (Print): 1549-9324 Journal for International Business and Entrepreneurship Development is sponsored by the Academy for Global Business Advancement and is published two times in a year by the Inderscience Publishing Company of Switzerland and UK. The JIBED addresses the advancement of contemporary research in the field of international business and international entrepreneurship. JIBED is an internationally-competitive, peer-reviewed journal dedicated to the advancement of practice and theory of international business, international entrepreneurship and international franchising with an emphasis on developing countries attempting to assert themselves on the global stage. Firms, institutions, governments, organizations, agencies and individuals are participating in the globalization of world economy through variety of forms, shapes, and styles, necessitating the initiation of new dialogue between them with the goal of resolving conflicts, promoting world peace and harmonizing relations. As a result, JIBED wishes to act as a global platform for the pursuance of dialogue between different countries at dissimilar stages of international development, entrepreneurship development, and franchising development. JIBED aims to inspire the full range of scholars to submit their empirical, conceptual and applied papers and case studies for publication. Preference will be given to papers examining conflicts between western firms and host countries and between western institutions and host communities and firms, challenges being confronted by firms emanating from developing countries and penetrating other developing countries and by new scholars from newly emerging countries as reflected by the accreditation of business programs across the world by AACSB–International. Appropriate topics for manuscripts include challenges being encountered by international entrepreneurs in newly emerging countries, international entrepreneurs from developing countries trying to penetrate world markets and attempting to build their own brands, non-western scholars attempting to examine the applicability of western models of entrepreneurship across Asian, African, East European, Middle Eastern, and South American countries. Collaborative manuscripts between scholars and entrepreneurs, between western and non-western scholars, and between scholars and professionals are particularly encouraged. JIBED invites and welcomes research papers encompassing different areas of international business studies, such as marketing, management, organizational behavior, finance, accounting, MIS, economics, and different dimensions of international entrepreneurship, such as venture capital formation, franchising, small business management, family business management, and technopreneurship. JIBED particularly welcomes research papers that transcend single countries and single disciplines. JIBED also has a special interest in research emanating from business schools accredited by the AACSB across the world. Submit your manuscript to: Editor-in-Chief IEL Editorial Office PO Box 735 Olney, Bucks MK46 5WB UK E-mail: jibed@inderscience.com xiii Reviewers • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Subhash C. Jain, University of Connecticut Gary Cunningham, Bilkent University, Turkey Ben Kedia, University of Memphis C.P.Rao, Kuwait University, Kuwait Rajan Varadarajan, Texas A&M University, College Station Klaus-Peter Wiedmann, Hanover University, Germany Hiroshi Kosaka, Chuo University, Japan Lee Jang Ho, Sogang University, South Korea Jan-Åke Törnroos, Åbo Akademi University, Finland Daing Nasir Ibrahim, Universiti Sains Malaysia John Hadjimarcou, University of Texas at El Paso Lars G. Hassel, Åbo Akademi University, Finland Anne Perry, American University Syed H. Akhter, Marquette University Mahmoud Haddad, University of Tennessee at Martin Osman Mohamad, Universiti Sains Malaysia Alma Mintu-Wimsatt, Texas A&M University at Commerce Patriya Tansuhaj, Washington State University Gerard Mcelwee, University of Lincoln, UK James P. Johnson, Rollins College Ibrahim Akoum, Arab Monetary Fund, United Arab Emirates Valentin H. Pashtenko, Clayton State University Anthony C. Koh, University of Toledo Piotr Chelminski, Providence College, Rhode Island Yunus Ali, Queensland University of Technology, Australia Xia Yang, Bloomsburg University of Pennsylvania Ahmad Jamal, Cardiff Business School, UK Ghingold, Morry, Bloomsburg University of Pennsylvania Razali Bin Mat Zin, King Fahad University of Petroleum and Minerals, Saudi Arabia Peter Maresco, Sacred Heart University, Connecticut A.S. Malar, CB consultancy, Malaysia Rafikul Islam, International Islamic University -- Malaysia Adel Salih Al-mfarjy, University of Qatar Elie Virgile M. Chrysostome, State University of New York College at Plattsburgh * AGBA’s Executive Board wishes to express its thanks to all the reviewers who participated in refereeing these proceedings. xiv AGBA’s 3rd World Congress Program Day # 1, January 4, 2006 8 – 10 a.m. Registration Desk Opens 10 – 12 noon Conference Inauugration 12—1:30 p.m. Luncheon Time Session Room 1:30 --- 3 p.m. Session 1: Abstracts and Research in Progress Presentations #1 Session Chair: Yunus Ali: Queensland University of Technology Wan Zawiyah Wan Halim, Universiti Utara Malaysia Afta And Trade Liberalization - Challenges And Prospects For Malaysian Automobile Industry: The Case Of Proton Yuserrie Zainuddin, Salmiah Che Putih, Hasnah Haron and Sofri Yahya, Universiti Sains Malaysia Propensity To Create Budgetary Slack In Public Higher Learning Institutions Ahmad Hisham Zainal Abidin and Abd. Rahim Romle, Universiti Utara Malaysia Emerging Technology For Service Quality: Pda’s As Your Devices In Mobile Internet Banking Environment Razmi Chik and Hj Hazman Shah Abdullah, Universiti Teknologi MARA, Malaysia and Universiti Teknologi MARA, Malaysia Intraprenuership And Innovation In Small And Medium Companies: A Study Of A Technology Based Sme In Malaysia Doni Sagitarian Warganegara and Osman Mohamad, Universiti Sains Malaysia Role Of Transaction Cost, Economies Of Scale: Organizational Capabilities And Production Cost Factors In Determining Distribution Integration Channel Choices Syed H. Akhter, Marquette University, USA The Expectations Model Of Economic Nationalism: An Empirical Investigation xv 1:30 --- 3 p.m. Session 2: Abstracts and Research in Progress Presentations #2 Session Chair: M. A. B. Siddique: The University of Western Australia M. A. B. Siddique: The University of Western Australia Immigration And International Business: Is There A Link? Evidence From Australia Mohammad K. Najdawi and Adel H. Salih Al-Mfarji, University of Qatar Skills And Competencies For The Next Decade: Views Of Business Leaders Rafikul Islam & Ahmad Zaki Hj. Ismail, International Islamic University, Malaysia Employee Motivation: A Malaysian Perspective Ven Sriram, Tigi Mersha and Lanny Herron, University of Baltimore, USA Entrepreneurial Opportunities And Challenges In Emerging Markets:Some Preliminary Lessons From India Gary Cunningham and Lars G. Hassel, Bilkent University, Turkey and Abo Akademi University, Finland Compliance With Group Accounting Standards, The Vertical Adjustment Issues: Field Studies Of Swedish Multinationals 3 --- 3:30 pm. Coffee/Tea Break Time Session Room 3:30 p.m. --- 5 p.m. Session 3: Entrepreneurship Track #1 Session Chairs: Dianne H.W. Welsh, University of Tampa, USA and Shawn Carraher, Cameron University, USA J. Mark Munoz & Dianne H.B. Welsh, Millikin University, USA and University of Tampa, USA International It Outsourcing: A Comparison Of Malaysia And The Philippines Lai Yeng Chai and Ahmad Zohdi Abd Hamid, Universiti Tun Abdul Razak, Malaysia and ALHOSN University, Malaysia Conceptualizing Entrepreneurial Orientation Of Malaysian Chinese Firms Bambang N. Rachmadi, Faculty of Economy, University of Indonesia Developing Model Towards Franchise Performancein Indonesia: The Role Of Governance Structure, Entrepreneurial Orientation And Knowledge-Based Resources xvi Time Session Room 3:30 p.m. --- 5 p.m. Session 4: Finance Track #2 Session Chair: Said M. Elfakhani: American University of Beirut Imad B. Baalbaki, Said Elfakhani and Hind Rizk , American University of Beirut Gold Price Determinants: An Expanded Model Suhaiza Zailani, R. Premkumar & Roaimah Omar, Universiti Sains Malaysia The Status Of The Environmental Management System (Iso 14001) Programmes Implemented By The Manufacturing Firms In Malaysia Mahmoud Arayssi, American University of Beirut Gulf Financial Institutions: A Comparative Look Time Session Room 3:30 p.m. --- 5 p.m. Session 5: International Business Track #3 Session Chair: M. A. B. Siddique: The University of Western Australia K. K. Karthick and K. K. Ramachanan, St. Peters Engineering College, India and GRD College of Science, India An Exclusive Study On International Trade Fair - Japan Zizah Che Senik, Lanny Entrekin and Brenda Scott-Ladd, Universiti Kebangsaan Malaysia and Murdoch University, Australia (2) Exploring The Internationalisation Of Small To Medium-Sized Enterprises (Smes) In Malaysia: A Preliminary Finding Tony Feghali and Shireen Halawani, American University of Beirut Export Marketing Readiness Of Lebanon’s Ict Firms: An Empirical Investigation Evariste Habiyakare, Åbo Akademi University, Finland A Teleological Approach To The Expansion Process Of Finnish -Based Corporations To The Republic Of South Africa Time 5 p.m. Explore KL On Your Own Dinner On Your Own xvii Day # 2, January 5 , 2006 8 – 10 a.m. Registration Desk Opens Time Session Room 9:00 --- 10:30 a.m. Session 6: International Business and International Marketing Track #1 Session Chairs: Valentin H. Pashtenko, Clayton State University, USA and Abdullah S. Al-Khulaifi, University of Qatar Fadi Asrawi and Valentin H. Pashtenko Haigazian University, Lebanon and Clayton State University, USA Arak Ksara: A Global Promotion Challenge Valentin H. Pashtenko and John Newhouse Clayton State University, USA and Texas A&M University- Commerce A Strategic Approach Toward Focused Internet Marketing: The Use Of Rich Media Enhancements To Increase Marketing Effectiveness Sak Onkvisit and Howard W. Combs, San Jose State University, USA Internationalizing Marketing Communications: A Study-Abroad, Direct-Experience Approach Shah Azam , University of Rajshahi, Bangladesh Implementation Of B2c E-Commerce In Bangladesh: The Effects Of Buying Culture And E-Infrastructure Session Chair: Said M. Elfakhani: American University of Beirut Imad B. Baalbaki, Said Elfakhani and Hind Rizk , American University of Beirut Gold Price Determinants: An Expanded Model Suhaiza Zailani, R. Premkumar & Roaimah Omar, Universiti Sains Malaysia The Status Of The Environmental Management System (Iso 14001) Programmes Implemented By The Manufacturing Firms In Malaysia Mahmoud Arayssi, American University of Beirut Gulf Financial Institutions: A Comparative Look Time Session Room 9:00 --- 10:30 a.m. Session 7: Strategic Management Track #2 Session Chair: John Parnell: University of North Carolina at Pembroke Osman Mohamad, T. Ramayah, Yeap Hock Cheng and Razli Che Razak, Universiti Sains Malaysia (3) and Universiti Utara Malaysia xviii Does Iso 9001 Certification Matter In Company Performance? Gengeswari, K and Abu Bakar, A.H., Universiti Teknologi Malaysia Electronic Data Interchange (EDI) Implementation: Views From Manufacturing Firms In Malaysia Evariste Habiyakare, Abo Akademi University, Finland Growth Triangle Strategies - A Critical Realist View To The Prospect For Growth In Sub- Saharan Africa: Research Agenda John A. Parnell and John E. Spillan, University of North Carolina at Pembroke, USA and Pennsylvania State University-DuBois, USA Strategy Through The Eyes Of The Consumer: An Exploratory Study Across Emerging Economies Time Session Room 9:00 --- 10:30 a.m. Session 8: Marketing Track #3 Session Chair: Ahmad Jamal, Cardiff Business School, UK and Ven Sriram, University of Baltimore, USA Ahmad Jamal, Cardiff Business School, UK Shopping Motivations: An Investigation Of Indian Retail Shoppers Nor Khomar Ishak, Dilip Mutum & Cheong Khai Fan, University of Malaya, Malaysia, Universiti Utara Malaysia and University of Malaya, Malaysia CRM Implementation By Malaysian Automobile Distributors Ezlika Ghazali, Dilip Mutum and Lee Lai Ching, University of Malaya, Malaysia, Universiti Utara Malaysia and University of Malaya, Malaysia Dietary Supplement Users Vs Non-Users In Malaysia: Profile Comparisons For Marketing Purposes 10: 30 – 11a.m. Coffee/Tea Break Time Session Room 11:00 --- 12:30 p.m. Session 9: Marketing Track #1 Session Chair: C.P.Rao, University of Kuwait Mohammad Basir Saud and Mohd. Azwardi Md. Isa, Universiti Utara Malaysia Malaysian Small And Medium Industries: Factors And Priorities In Designing Products Tony Feghali and Shireen Halawani, American University of Beirut Determinants Of Lebanon’s Ict Export Competitiveness: Evaluating A Country’s Readiness To Export ICT xix Madya Abdul Jumaat bin Mahajar, and Shawn M. Carraher, Universiti Utara Malaysia and Cameron University, USA The Effectiveness Of Small And Medium Development Corporation (Smidec) Export Assistance Programs On Malaysian SME’s Time Session Room 11:00 --- 12:30 p.m. Session 10: Marketing Track #2 Session Chair: Xia Yang, Bloomsburg University, USA Xia Yang, Bloomsburg University, USA East Timor – A New Nation In The Making Dilip Mutum and Ezlika Ghazali, University Malaya, Malaysia Online Shoppers Vs Non-Shoppers: A Lifestyle Study Of Malaysian Internet Users Time Session Room 11:00 --- 12:30 p.m. Session 11: Export Marketing Track #3 Session Chair: Yunus Ali, Queensland University of Technology Mohammad Emdad Ullah Mian, Quamrul Alam and M. Yunus Ali, Monash University, Australia (2) and Queensland University of Technology, Australia Foreign Direct Investment Regime In Malaysia: Can Bangladesh Learn From It? A.K. Shamsuddoha and M Yunus Ali, University of Rajshahi, Bangladesh and Queensland University of Technology, Brisbane, Australia How Export Promotion Programs Influence Firm Export Performance Md Abu Saleh and M Yunus Ali ,Queensland University of Technology, Australia Shoving Factors Of Importer Commitment: An Empirical Investigation Of Interrelationships And Mediating Roles 12:30—1:30 p.m. Luncheon Time Session Room 1:30 --- 3:00 p.m. 12 International Accounting Track #1 Session Chair: Daing Nasir Ibrahim, Universiti Sains Malaysia xx Daing Nasir Ibrahim, T. Ramayah, Ishak Ismail and Quah Chun Hoo, Universiti Sains Malaysia Coming Of A Giant Retailer: Are Small Retailers Running Scared? Ruzita Jusoh, Daing Nasir Ibrahim and Yuserrie Zainuddin, University of Malaya, Malaysia The Moderating Effect Of Balanced Scorecard Measures On Strategy-Performance Relationship: An Empirical Study Of Malaysian Manufacturing Firms Khalid Ismail, Rosli Samat, Norizan Saad and Nooraisah Katmun, Sultan Idris Education University, Malaysia The Usage Of Accounting Software By The Small And Medium Enterprises (SMEs) In Perak Azham Md. Ali, Mohd. Hadafi Sahdan, Mohd. Hadzrami Harun Rasit, Aryati Juliana Sulaiman, Norhaiza Khairudin and Fariza Hanim Rusly, Universiti Utara Malaysia Audit Market In Malaysia: The Case Of Tight Oligopoly? Time Session Room 1:30 --- 3:00 p.m. 13 Finance Track #2 Session Chair: Said M. Elfakhani: American University of Beirut Rosli Mahmood and Ghazali Abdul Rahman, Universiti Utara Malaysia The Effect Of Bank Mergers On Small Business Lending In Malaysia Norashfah Hanim Yaakop Yahaya Al’Haj and Muhammad Iskandar Hamzah, UiTM, Malaysia The Impact Of Crude Oil Price Changes Towards The Stock Returns Of Oil And Gas Companies In Malaysia Norashfah Yaakop Yahaya Al’Haj, UiTM, Malaysia Performance And Trend Of Technological Innovation In Malaysian Banks Time Session Room 1:30 --- 3:00 p.m. 14 Operation Management Track #3 Session Chair: Imad J. Zbib, American University of Beirut Imad J. Zbib, Yusuf Sidani and Karla Farhat-Atallah, American University of Beirut Country Of Origin And National Loyalty Effects On Consumers’ Evaluation Of Airlines Serving Lebanon xxi T. Ramayah, Imad Zbib and Sawaridass Arokiasamy, Universiti Sains Malaysia, American University of Beirut, Lebanon and Universiti Sains Malaysia Critical Success Factors For Successful Implementation Of Enterprise Resource Planning Systems In Manufacturing Organization Imad J. Zbib and Tony Feghali, American University of Beirut Global Information Systems Failure Sphere: A Forecasting Model 3 --- 3:30 pm. Coffee/Tea Break Time Session Room 3:30 --- 5:00 p.m. 15 Human Resources Track #1 Session Chair: Roselina Ahmad Saufi, Universiti Malaysia Sabah T. Ramayah, Noornina Dahlan, Noorliza Karia and Normalini Md. Kassim, Universiti Sains Malaysia (3) and Universiti Utara Malaysia Perceived Characteristics Of Innovating (PCI): The Case Of The Human Resource Information System (HRIS) Imad B. Baalbaki; Azza Yehia and Tarek Kettaneh, American University of Beirut Perceptions Of Gender Inequality In The Mena Region Workplace: A Case Of Lebanon Azman Ismail, M. Faizil M. Faisal, Asfah Roziati Ismail and Ali Boerhannoeddin, Universiti Malaysia Sarawak (3) and Universiti Malaya, Malaysia The Relationship Between Adequacy Of Pay, Perceived Distributive Justice And Individual Attitudes And Behaviours: A Study Of The Headquarters Of Malaysian Post Office In Kuching, Sarawak Time Session Room 3:30 --- 5:00 p.m. 16 Marketing Track #2 Session Chair: Samsinar Mohamad Sidin, Universiti Putra Malaysia Norazah Mohd Suki, Mohd Ismail Ahmad and Venu Thyagarajan, Universiti Tenaga Nasional, Malaysia Role Of Friends, Family, And Media In Classification Of Malaysians Online Shopper Innovativeness xxii Yusuf Munir Sidani, American University of Beirut Work Values In The Arab Culture Time Session Room 3:30 --- 5:00 p.m. 17 Finance and Marketing Track #3 Session Chairs: Gary Cunningham, Bilkent University, Xia Yang, Bloomsburg University, USA and Daing nasir Ibrahim, Univeriti Sains Malaysia Said M. Elfakhani and Zeina A. Halabieh, American University of Beirut, Lebanon The Value Of Successive Analysts’ Recommendations Samsinar Md. Sidin and Ainul Zakiah Abu Bakar, Universiti Putra Malaysia The Effects Of Parent Characteristics On Consumption Attitudes Of Urban Malaysian Children T. Ramayah, Chin Yee Ling, Norazah Mohd Suki and Amlus Ibrahim, Universiti Sains Malaysia (2), Universiti Tenaga Nasional, Malaysia and Universiti Sains Malaysia Pressured For Time: Usefulness Of Online Bill Payment System For Part-Time MBA’s Time 5 p.m. Explore KL On Your Own Dinner On Your Own xxiii Day # 3, January 6, 2006 8 – 10 a.m. Registration Desk Opens Time Session Room 9:00 --- 10:30 a.m. 18 Human Resources Track #1 Session Chair: Roselina Ahmad Saufi, Universiti Malaysia Sabah Roselina Ahmad Saufi and Liew May Wei, Universiti Malaysia Sabah, Malaysia Developing Human Capital Towards Learning Organisation Mohd Khairuddin Hashim and Sa’ari Ahmad, Universiti Utara Malaysia An Assessment Of The Training Practices Among Malaysian SMEs Mahiah Said, Suhaimi Sudin and Ibrahim Ali, University of Tenaga Nasional, Malaysia Measuring The Level Of Customer Satisfaction Among Employees Of A Human Resource Division Time Session Room 9:00 --- 10:30 a.m. 19 Finance Track #2 Session Chair: Said M. Elfakhani, American University of Beirut Noor Aini Khalifah and Radziah Adam, Universiti Kebangsaan Malaysia Productivity Spillover from Foreign Direct Investment in Malaysian Manufacturing Industries During the 1990s: A Preliminary Result Rusnah Muhamad, S.Susela Devi and Abdul Mu’min Abdul Ghani, University of Malaya, Malaysia Religiosity And The Malaysian Malay Muslim Investors: Some Aspects Of Investment Decision Marwan N. Al Qur’an, Curtin University of Technology, Australia The Development Of Location Decision Factors As A Critical Managerial Procedure Involved In The Foreign Investment Decision-Making Process:Three Exploratory Case Studies Imad J. Zbib and Tony Feghali, American University of Beirut Global Information Systems Failure Sphere: A Forecasting Model 10: 30 – 11:00 p.m. Coffee/Tea Break xxiv 11 – 12: 30 p.m. Award and Closing Ceremoney 12: 30 p.m. – 1:30 p.m. Luncheon Time Session Room 1:30 p.m. --- 500 p.m. 20 Networking # 4 21 Entrepreneurs # 5 Chaired by Lavanya Rastogi, President and CEO, Value-One Pvt. Ltd. And Tung Anh Hoang (Robert), President and CEO, Twenty Four-Seven Chain Stores of Vietnam 22 Exporters/Importers # 6 Time 5 p.m. - Explore KL On Your Own Dinner On Your Own The End See you at AGBA’s 4th World Congress in Malaysia in 2007 xxv A TELEOLOGICAL APPROACH TO THE EXPANSION PROCESS OF FINNISH -BASED CORPORATIONS TO THE REPUBLIC OF SOUTH AFRICA Evariste Habiyakare Åbo Akademi University, Finland ABSTRACT A quick look at the existing literature shows that it is characterized by a limited scope given to the strategic aspects of expansion process towards emergent markets especially in Africa. In this paper, I argue that foreign- market expansion process of firms to emergent market is based on the search for creation of value (Moran and Ghoshal 1999) through the development, transfer and use of resources across countries. I make explicit that the objective of creating value, creating resources, using resources, guide the expansion- process of foreign firms to emergent market. My position is that value- creation is a driving force in the expansion process of foreign firms to emergent markets. However, due to different institutional changes within the host market, foreign firms face new drivers in the value- creation process and this may affect their strategic behaviour. Thus my central thesis is that foreign- market expansion does not follow an a priori prescribed manner, but rather a set of principles that guide the evaluation of actions of the firm (Van de Ven and Pooler, 1995) and that there is a possibility of multiple, rather than a merely unitary, progression (Van de Ven 1992). Using a teleological process approach to analyze one illustrative case, this paper contributes to the broader theme of transformation and management of current business in a global arena with focus on the key contingencies of effective relationship management in emergent markets. INTRODUCTION The existent internationalization literature proposes that the internationalization decisions of firms are based on a complex calculation governed by risk aversion and expectations [Johansson and Vahlne,1977; Johanson and Vahlne, 1990], by the costs of producing within the company compared to externalizing [Andersen, Erik and Gatignon, Hubert, 1986], by rational economic analyses of ownership, location and internalization advantages in which the firm locates in foreign markets where its advantages can best be exploited [Dunning, 2000], or based on a network strategy where the firm uses its business relationships to move to lucrative markets [Johanson and Mattsson, 1995]. While the propositions above are applicable to all markets, contextual studies have concentrated on studies of developed markets. Even though research interest in emerging and transitional markets has recently been expanding, very little of the contextual research deals with African business issues, and internationalization of foreign business in Africa is still under- researched (Owhoso et al. 2002). Arnold and Quelch [1998] stress the potentials of all emerging and developing markets and suggest that firms should move in early to gain a first-mover advantage. Awuah [1997] studied how the capabilities of local firms sub- contracting to a multinational located in Ghana developed through their market relationships. He found that the both the local firms and the foreign investor benefited from the relationships. Owusu [2002] suggested that project marketing by industrial firms that were not ready to invest in the African market could provide them a valuable knowledge of the African market and relationships that they could build on later for greater involvement there. Boateng and Glaister [2002] studied the performance of joint ventures (JVs) between foreign investors and local companies in West Africa. They found that success was constrained by lack of capital in the African market, the capabilities of the JV partners, and the level of mutual goals and motives. Some of these problems were a result of the national policy environment. When dealing specifically with business encounters, the preoccupation and problems surrounding the question on how firms create value, by whom and for whom, is central. Researchers posit that value is directly or indirectly created by activities and resources of the partners involved in a relationship (Anderson & Narus 2004, Ford, Gadde, Håkansson & Snehota 2003). A number of studies of the relationships between supplying firms (in business markets) and their customers, have demonstrated that such relations are often long- lasting (Carlton,1986:Hallén,1986, Håkansson,1982). They also concluded that a limited set of customers account for a dominant share of each supplier’ s business and vice versa (Håkanson,1989) and that the relations have strong 1 implications for the strategies of the exchange partners involved (Anderson and Narus,1991). As suggested by Barney (1996), close relationships with customers are resources with a specific value. What seems fascinating is the fact that researchers use different perspectives when approaching business relationship phenomena. Nevertheless, by looking at these different perspectives, it is possible to observe some characteristics combined with business relationships: market, competition, customers, suppliers, actors and so on. These multifaceted perspectives require a careful sedimentation. Through this kind of analysis, we can get a clearer picture on the business relationships and on how these different perspectives relate to each other. Through the analysis of the business relationships and the perspectives used to tackle these issues, we enter into a not well studied area; namely identification of the key processes involved in business-to-business value creation in the context of emergent markets. AIMS AND OBJECTIVES This paper has two interrelated objectives: To identify and to analyze the key processes and mechanisms in the foreign- market expansion process of Finnish- based firms to the Republic of South Africa and their strategic responses to the local institutional changes during 1990 - 2004. To identify specific marketing strategies used to ensure success in the South African market. The ultimate aim is to increase the understanding of the dynamics and strategic behavioural aspects of expanding business operations in emergent / developing markets. In this research project, I recast the foreign- market expansion process of firms to emergent markets under a new theoretical light which uses the resource- based view (Penrose, 1959) in its recent application to entry modes and expansion process (Kogut and Zander, 1992; Anand & Delios 2002, Madhok, 1997; Peng 2001, Tallman, 1991). However, the RBV is yet underexploited as a tool to analyze how different resources endowment would lead firms to pursue alternative strategies in response to institutional changes in the host market. I make explicit the teleological process of organizational change underlying the resource- based view (RBV) to be applied in the FME- process. This theoretical stand allows me to generate a better understanding of the foreign- market expansion process to emergent markets and to explain variations occurring in the expansion process. I argue that foreign- market expansion process of firms to emergent market is based on the search for creation of value (Moran and Ghoshal 1999), through the development, transfer and use of resources across countries. I make explicit that the objective of creating value, creating resources, using resources, guide the expansion- process of foreign firms to emergent market. Thus, my central thesis is that foreign- market expansion does not follow an a priori prescribed manner, but rather a set of principles that guide the evaluation of actions of the firm (Van de Ven and Pooler, 1995) and that there is a possibility of multiple, rather than a merely unitary, progression (Van de Ven 1992). Basically, I agree with the basic assumptions of the incremental internationalization process, specifically, the discussion of knowledge generation through international development as presented by Johansson and Vahlne, 1997. However, I depart from the life cycle (LC) approach taken within this Uppsala Model (UM) to explain foreign market expansion process to emergent markets. Further more, I depart from the fact that the model does not include strategic decision- making (Johansson and Vahlne, 1990:12). As Lorange and Probst (1987) stated: “ an organisation must adapt and evolve on its own to meet the new environmental circumstances” This brings forth an important aspect of foreign- market expansion process in foreign market: the context dependency. Therefore, through the analysis of the expansion process of Finnish firms to the Republic of South Africa, I illustrate my arguments that foreign- market expansion process to emergent markets is a teleological process. A long this entire research project, I illustrate the usefulness of the RBV and the teleological process arguments for understanding the expansion process to emergent market. Further more; my position is that value- creation is a driving force in the expansion process of foreign firms to emergent markets. However, due to different institutional changes within the host market, foreign firms face new drivers in the value- creation process and this may affect their strategic behaviour. Thus, this research contributes to the broader theme of transformation and management of current business in a global arena with focus on the key contingencies of effective relationship management in emergent markets. 2 DEFINITIONS OF THE KEY CONCEPTS Resource based- view (RBV) The Resource based view (RBV) is one of the latest strategic management concepts which I believe, holds much promise as a tool for understanding strategic foreign- market expansion to emergent markets. The common themes in the RBV are: firm heterogeneity, barriers to duplication, sustainable competitive advantage and Ricardian rents. Rather than emphasize on market structures, these economists highlighted firm’ s heterogeneity and proposed that the unique assets and capabilities of firm were important factors giving rise to imperfect competition and the attainment of rents (Penrose 1959). For example, Chamberlin (1933) identified that some of the key capabilities of firms include technical know -how, reputation, brand awareness, the ability of managers to works together and particularly, patents and trademarks (Day 1994; Hall 1992). Penrose (1959) conceptualized the firm as a pool of productive resources organized within an administrative framework. According to her, these productive resources are imperfectly divisible in as much as the firm has incentives to expand and enhance the productivity of its resources (Penrose 1959). Depending on the nature of the under-utilized resources and demand conditions, the expansion or growth of a firm arises either from the greater output of existing resources or through diversification. The growth of the firm is only constrained by the environment that is, its available productive opportunities. Similarly, she argues that “internal ” resource configurations both facilitate and constrain the direction of expansion of the firm and contrasts this with the prevailing external inducements to expand such us growing demand and change in technology, etc”. Further more, she goes on to argue that firm’s own previously acquired or inherited resources and those it must obtain from the market in order to carry out its production and expansion programmes have deep influence on its expansion process. The RBV emphasizes rationality and views organizational actors as rational beings assessing choices and making decisions that maximize their self- interests. However, Nelson (1991) argues that it is non-sense to presume that a firm can calculate an actual “best” strategy. In support of Nelson (1991), I do no believe in the existence of rational organization. My understanding of this rationality is that decision- makers believe they are making rational decisions. Due to the impossibility of obtaining all perfect and accurate information from the external environment, this rationality cannot be totally rational. Decision- makers have also their own histories and characteristics which may have influence on the output of the decisions they make. Business Relationship In this paper, I use the business relationships to denote these important long-lasting exchange relationships between two or many firms doing business with each other. We could see the business relationships as a kind of channels through which the involved parties are eager to achieve some of their goals. My assumption is that organizations can pursue different relationships to achieve different objectives. Consequently, organizations use relationships both at the managerial level and at the lower level of hierarchy in the connected relationships. Value -Creation There are many different definitions of value in a business relationship. For instance, Forsström, 2005, p59 defines value in a business relationship as: “an assessment of the benefits and sacrifices of being involved in a particular activity, a subjective assessment that is time and context dependent and relying on a specifically chosen logic applied for focal situation”. I admit that business relationship is a very broad concept that contains very different point of emphasis. For instance, Monroe (1991) defines customer‫ۥ‬s perceived value as “the ratio between perceived benefits and perceived sacrifice as expressed in the following relationship: Perceived benefits/ Perceived sacrifice” In this definition, the customer‫ ۥ‬s perceived sacrifice includes all costs the customer faces when making preparations, negotiations and purchase: purchase price, acquisition costs, transportation, installation, order handling, repairs and maintenance, risk of failure or poor performance. The perceived benefits are some combination of physical attributes, service attributes and technical support available in relation to the particular use of the product as well as the purchase price and other indicators as perceived quality and performance. If we consider value creation for the involved parties as an objective in itself then the function of business relationships would become somehow obvious i.e to create monetary value. When we combine the two concepts and try to see value creation (or not value creation) as the outcome of business relationship, we could say that value- creation cannot and should not be researched as a 3 separate object from the relationship in which it is embedded. The concept of value is inherently difficult to gauge in precise terms, it is a composite concept and is “perceptual” in nature (Andersson & Chintagunta, 1993). Teleological approach According to the teleological conception, the development of an organization entity proceeds towards a goal or an end state (Van de Ven & Poole 1995). It socially constructs an envisioned end- state and selects from alternatives course of action to reach the objective (Van de Ven, 1992, p 178). Purposeful cooperation is the grounding idea behind the teleological theory where the goal formulation, implementation, evaluation and modification of goal is based on what was learned repeated in sequence. Added to that, the developing entity is purposeful and adaptive by itself or in interaction with others (Van de Ven 1992). This view allows the participants to be more innovative and free to choose their goals as well as their means to achieve it. This approach enables the more explorative ideas for new established entities in the foreign market to search for their future strategy. However, there is also risk and danger, as the entities (companies) do not control their process in an envisioned manner. Disatisfaction Implement Goals Search or interact Set envisioned Goals Figure1: Teleological theory (Van de Ven & Poole 1995, 520) The teleological view does not specify or presume any necessary sequence of events and it needs no assumption about historical necessity. Still, it implies a standard for judging the change, i.e the development is something that moves the entity towards its final state. Teleology emphasizes the purpose of the actor or unit as the motor for change and recognizes the limit to action. The environment and the resources at disposal may constrain the actor’s possibilities and manoeuvre. But in the teleological perspective the actor operates under the assumption of equifinality i.e, there are several equally effective ways to achieve a given goal. Thus, in the teleological approach, the trajectory is not determined in advance (Van de Ven 1992) like in the life cycle process. The expansion process could then be analysed by purpose, goal, function and desired final state of the process. CONCEPTUAL FRAMEWORK Business relationships evolve and change over time according to the strategic drivers, goals and events within the context the relationships occur. In the following fig.2, let me present a hypothetical path of a business relationship distance between a given supplier and customer. The aim here is not to introduce another stage model but to present a possible path that a business relationship may take. As it is shown in the figure 2 below, the desired position would be to reduce the relationship distance and to get closer and closer in a given business relationship. The objective of such a move is to get intimate knowledge about the given business partner. However, given the strategic drivers of each partner, the relationship may move forward or backwards over time. A relationship distance denotes the level of interaction between the involved partners in the search to increase value for each other. The relationship distance would go through five interrelated situations with possibility to be in different situations at the same time depending on the kind of the core object of interaction. A relationship or cooperation may prove to be more advanced in some areas (products) or it may be at the early stage in some other areas. Thus, the following framework should not be taken as a stage model, but as a presentation of a possible evolution of a dynamic relationship according to a supplier’s point of view. Situation 0: No (business) Interaction In this situation, the relation distance would be “very high”. This implies that the partners to become do not have business interaction at all and that distance would diminish towards zero according to the intensity of the 4 relationship. If the relationship distance is very high i.e, no business interaction, then there is no value adding activities between the entities (but firms may perceive some potential for interaction in the future). The relationship (interaction) starts exactly once the contacts (or agreements) are initiated and it is assumed that value -increasing activities would develop with diminishing the distance in forming a relationship. The ‘real’ value creation path starts once the interacting parties have taken decisions to buy or sell products and / or services to each other. Situation 1: Buyer and product supplier relationship Following the first steps, the supplier and the customer (seller and buyer) have developed a contact with each other. The interaction may be sporadic and may be based on the effort from the supplier to demonstrate its capabilities and the kind of solution it offers to solve the customer’s problems. The intensity of interaction from a single actor’s point of view is dependent on who initiated the process and how willing and prepared they are to interact. The duration of this phase will depend not only on the product(s), but also on many other factors like alternative supplies, legal requirements, function of the products and the involved know -how, the existence of close substitute(s) and the general infrastructure in the customer ‫ۥ‬s business environment, just to name few key factors. In this situation, the value adding activities for the customers reside at its initial phase. tion Direc n i a M ers gic Driv e t a r t S y iversit mer´s ltural d Custo and cu plexity 1 Supplier 4 Exclusive Supplier 3 Solution Developer 2 3 Preferred Supplier Solution Provider 2 People to people Buyer 1 Product Supplier Relational Distance Customer Awareness, Dialogue, Networking, onal com anizati sing org Increa 4 Integrated Resource 5 partner Corporate s river d c i g ate r s str e i l p Sup e Tim Figure 2: Relationship distance in a dynamic business relationship Source: Modified from Wilson / Speare / Reese 2001 Situation 2: Awareness and dialogue, networking people to people In this situation, the supplier moves to hard “man-to-man” argumentation and convincing to get the customers formulate their own opinions that might support the supplier’s offering and capabilities. In this phase, the supplier would try to gain intimate knowledge of all the different forces at work of the customer’s organization. This situation might prove to be crucial as the customer (buyer) enters a bargaining phase before making important and decisive decisions to use the product offered by the supplier. In this paper, I do not analyze other potential forces at work and other drivers influencing the decision- making. However, different attributes like technical solution, quality and price, the after sale services and maintenance and the overall function of the product within the customer’s production system have a bearing on these decisions. 5 Situation 3: Solution Provider / Preferred Supplier In this situation, the interaction process develops and manifests itself in different meetings and discussions. The customer becomes almost dependent on the supplier and may fear changes. The customer relies on the supplier and usually do not have any reasons to talk to other competitors. To enter into this situation, requires that the customer would be satisfied not only on the performance of the product offered by the supplier, but also on the overall services rendered in the period after sales. Situation 4: Solution Developer / Exclusive Supplier In this situation, the supplier who occupies the position of a solution developer not only listens to the customer’s formulation but also tries to anticipate customer’s problems and tries to find solutions before problems arise. Both the supplier and the customer would be well acquainted with each other and would work together in a mutual understanding and cooperation. In this phase, the relational distance has became very short and the supplier is considered almost as one part of customer ‫ۥ‬s own resources or resource creating entity. Situation 5: Integrated Resources / Corporate Partner During this “mature” situation, the involved partners have their resources largely integrated. They may conduct many value-enhancing activities together, such as research and development, tests of other solutions that could add value and other activities related to the marketing of the final products. In this situation, both partners would increase their value and their own capabilities by sharing information. To keep up to the competitive edge, a broad cooperation with key customers may also trigger innovative capabilities and other functions that the supplier could not perform alone. In a hypothetical sense, we could imagine a situation when this kind of relationship develops and ends up with total vertical integration on the part of the customer. If the customer is global and has no financial problems, it may prove to be worthy to consider the move to acquire the supplier to diminish the risk of loosing that supplier to somebody else (a competitor). However, customers might still like to have other cards to play. They want to keep their options open so that they can always use their bargaining power to squeeze the supplier through price bargaining. In the evolution of a relationship (which sometime may develop in other manner), the risk of interruption is always present, but diminishes with time when the partners move to a higher degree of cooperation (towards a lower relationship distance) My conclusion is that foreign- market expansion to emergent market could be better understood using a teleological process of organizational change. FME into other countries, for instance to emergent markets, is motivated by an over reaching final objective; the creation of value, being for itself and for others involved. The motivation, methods and mode of operations to achieve that objective are evaluated in terms of their ability to lead to the achievement of that ultimate goal. According to Van de Ven (1992) that process allows for the transformation of the firm as the environment changes, not assuming a necessary sequence of stages but rather a set of standards and objectives by which to evaluate the actions and modify them accordingly. Consequently, there are several alternatives the FME process could take place. This FME process leads then to the equi- finality rather than similarity in the transformation process. Accordingly, there are no pre- determined stages that must be followed, like predicted in the incremental models, but rather, a set of possible paths between which firms choose based on their aspiration to create value by using and by creating resources. Firms take then into consideration they existing resources and capabilities and consider the possibility of acquiring other necessary resources and they consider the conditions in the home and foreign environment. The foreign- market expansion process requires a sequence of decisions about motivation, methods and modes of operation to reach the goal (s). RESEARCH METHOD This research is based on qualitative research methodology. The ontology of this study emphasizes the importance of the subjective meanings and of social, political and symbolic action in the process through which humans construct and reconstruct their reality. The epistemology of this work is interpretive as it adopts the position that knowledge of reality is a social construction by human actors [Remenyi et al, 1998]. Data Collection & Analysis The empirical data has been collected through qualitative research undertaken with seven companies in Finland and at their subsidiaries in the Republic of South Africa. A total of 27 interviews of about 1-2 hours each were made 6 with senior managers and other relevant people in Finland and in South Africa during two separate time periods in 2002 and 2004. In addition to interviews, secondary data material from the companies and desk research has been used. Empirical data has been analyzed and interpreted through a multiple-step qualitative process of data reduction, data display and conclusion- drawing by the authors as suggested by Miles and Huberman, 1994; Ghauri, 2004. The empirical part concerns the expansion process of Finnish- based firms in the mining and pulp and paper industry. The research process could be characterised as abductive (Pierce 1931, Kirkeby 1994, Alvesson & Sköldberg 1994, Gummesson 2001, Dubois & Gadde 2002). In this kind of process, the researcher navigates forward and backwards between theory and empirical research as the research process evolves. In summary, the analysis follows a qualitative content analysis as suggested by Holsti 1969, Kolbe & Burnett 1991, Morris, 1994, Harwood & Garry 2003. For the reasons of space, I present only one case of the 7 Finnish companies which have expanded business activities in the Republic of South Africa. Table 1’s formatting does not permit its inclusion in the Proceedings. Please contact the author(s) for a summary of Table 1 ONE ILLUSTRATIVE CASE: THE LAROX - ANGLO PLATINUM CASE Anglo platinum is a worldwide mining house and does occupy position number one on the African market. The relationship between Larox and this particular customer started in the beginning of 1990s. Since 1994, the relationship between these two partners has been governed by a contractual agreement which has, according to involved parties, developed into a partnership. In the following, I present an analysis of the evolution of that partnership. The objective is to lay grounds for discussion on how the involved partners have increased value for each other. The analysis follows the framework presented earlier in figure 1. In this study, I use different levels of analysis: (i) business relationships at the firm level, (ii) the individual actor-level and (iii) the external environment level. The embedded ness of levels of analysis allows us to better capture the dynamics and mechanisms underlying the value creation phenomena in this particular emergent market context of South Africa. As Forsström, (2005, p 100) put it: “the underlying idea of partnership between two companies is that there is something to gain from cooperating in the long- run by pursuing a high - involvement strategy, instead of working short sighted to optimize each transaction. The logic is that those companies need each other’s resources, and high involvement is seen to be the best way to make use of the resources i.e. the trade- off between benefits and sacrifice of involvement is positive”. The process depends on the involved actors, time and on the institutional changes in the context where the partnership takes place. Looking at the development of relationships between Larox and Anglo- platinum, I was able to identify four crucial and interrelated situations. In the following, I present the evolution of this business relationship through these situations and their development over time. The evolution of the business relationship Situation 0: Non- interaction situation (before the end of apartheid to1991) Before the end of UN- sanctions against South Africa, Larox had succeeded into selling only 3 filters through one agent called Batman. During the period of sanctions (between 1985-1990) nothing was really happening and the installations suffered quite a lot as no spare- parts or services to maintain them existed. From 1990, positive signs about the political development in South Africa encouraged Larox Oy and other companies as well to make enquiries about the possibility of doing business in the Republic of South Africa again. 7 Situation 1: Buyer and product supplier relationship during the period of 1992 –1993 During this period, Mr Jay managed to get into contact with many potential customers and made quite many fieldtests to make the big mining houses believe in Larox’ solutions. Little by little, Larox inspired the confidence on its ability to supply spare- parts and to service the existing installations. At the same time, it started to collect inquiries on projects that could apply its products. Larox segmented the South African market, identified companies and industries with high potential and then started to knock on their doors. Larox Southern Africa used an approach that worked very well which consisted in showing the customer a proof of the equipment’s performance before the customer could buy it. “Each and every young sales man must learn and possess these key skills of making a test work” interview with Jay, 2002 Larox South Africa did hundreds and hundreds of such tests for all the highest potential customers and then orders started to roll in. When such orders started, Larox Southern Africa started to grow. It took time before Larox´s equipments started to take off. It took 4-5 years to get orders and since then the growth path could begin. “I think the biggest challenge for the first 5- 6 years was to convince these larger mining companies that this small African operation, and this small Finnish company has something to offer that they can trust that we stand for something if we get orders then we also service them” (interview ,Jay) During the first years of operation, Larox Oy supported very much the local activities. Later on, Larox Oy could give Mr Jay, the independence and possibility to hire additional workforce. He was then able to build the current organization in the Southern Africa. During this first phase, it became clear that the big giant in the mining industry were used to local solutions developed during the time of sanctions. By offering Larox pressure filters to the market, these customers, especially Anglo- platinum saw new possibilities to upgrade their mining capacity. This coincided with the fall of prices for gold worldwide and the rise of platinum worldwide. Situation 2: Awareness Dialogue, Networking People to Peoples (1994 -1998) During the period of 1995- 2000, Larox Southern Africa did extremely well. It had succeeded in getting orders from the biggest customers and other major mining companies in South Africa and was even penetrating other markets in Southern Africa. Mr Jay, with support of Larox management had succeeded to convince the mining industry both in South Africa and in the surrounding countries. During this phase, Larox was able to sell several new pressure filters to that key customer. Each sale specifies the kind of after sale services Larox would provide through its SBU in South Africa. Larox Oy could provide for the spare- parts to the local subsidiary. Added to that, sales and technical people were ready to solve “any problem” having to do with pressure filter. The key actors in this phase were Finnish engineers and a dedicated sales team in South Africa. The key success in this situation depends on how well Larox people knew the key people who represented the customer organization. Eighty per cent (80%) of Larox’ s Southern Africa business is service related. Larox SA teaches each individual internally about how to conduct field tests, how to make sales operations and negotiations and how to identify the key decision- makers on the customer side. “So we have to know those people very well. In fact our employees not only know the guy but they also know that guy’s wife’s favorite flower” interview Jay. Situation 3: Solution provider / Preferred Supplier (1998- to the present) In this situation, Larox has succeeded to convince its customers of the solution it is offering. Larox has succeeded into selling 15 filters to the same customer and in the year 2004, they signed a guaranty of maintenance and sparepart services. In all, Larox has fifty five(55) filters installed across Africa and about 40 - 45 of those are located in South Africa. The rest are in Zimbabwe, Zambia and Tanzania, and one in Botswana. Asked about the evolution of such a relationship Jay comments: “Well, I suppose if you take an overview it’s something like motorcars; if you sell motorcars you soon find out that it’s difficult to sell motorcars if there are no service stations….. So, we understood that we needed to have 8 service centers and those service centers couldn’t only be located with our offices here in Midrand, our service centers needed to be located where our filters are installed, which means in Puluquaile, up in the north west province, in Rustenburg right near our customers” interview Jay The parent company has a strategy to reduce costs through reducing employees (Like in Germany). This becomes difficult for a subsidiary in South Africa to hire additional peoples even if its business there is booming. Larox Southern Africa accounts for 15 - 20% of the whole Group annual sales operations. To maintain the level of value creation at the expected level, Larox Southern Africa, which is a small sized organization, had to find an innovative way to deal with its customers. “Well, we start a subcontracting network which consists in interviewing qualified service people as if they are going to be our employees. After the recruitment, we teach them to start up their own businesses. They then become self-employed and their business invoices our business, and we invoice the customer then we can go to our customer and sell our services. Of course, our contracted network provides for the services. They meet the mines and they carry a Larox business card” Interview Jay These self- employed subcontractors would visit the actual filters on the sites and fix them whenever required. “they would meet people who are in charge of operating these assets and making platinum, and staying in touch with the decision that needs to be made regarding the equipment” Interview, Jay. Larox Products in the Customer‫ۥ‬s Operation Process Larox Oy sees its products as a key component in the mining process. Mining activities are complex in nature and include among others: drilling, floating and loosening the rock. Almost at the end of the process, the material pass through a pressure filter installed by Larox Oy or by a competitor. In the case of platinum mine, a pressure filter is crucial. The filtered cake, which is sold to the international markets passes through the filter. Should that filter stop functioning, the mine would be paralyzed and would stop immediately. “I could say that even though these pressure filters typically make a rather simplistic due to the process, very often the material flow based on which the customer gets his money is going through a filter, so it is like a cash flow machine” interview Karpanen “If the filter stops, then the mine must stop. They are really dependent on us, that our equipment works really well, and it’s reliable. Of course it is large equipment, it’s very expensive. You don’ t just buy another one and keep it as a spare- part. If Larox equipment proved unreliable, it would even take them a long time to motivate to spend the money again to buy another piece of equipment. They are very expensive equipment” Interview, Jay. This fact may explain why it takes a long time to get started and to develop a long- lasting relationship with new customers. It’s hard to get them to change and in most cases where Larox is involved, eighty percent of Larox sales come from own field installations. With experience and hard work Larox equipment proved to be much better than that the equipments offered by most of its competitors. And many customers have been very much interested in Larox equipment. “We are now quite well practiced in telling what those advantages can be of modernizing, and we have a very long list of satisfied customers who have done that change and can recommend it” Interview, Jay. Key Events in the Development of the Relationship With every new customer, there is a point where the relationship becomes intense both in a positive and in negative way. With time and experience, Larox has learned the ways to circumvent the negative and accentuate the positive. Once a filter is sold the customer gets a guaranty for one year which accompanied by services. If something happens during that time, Larox would fix it immediately. 9 “We are not scared to get resources when the situation demands it, in fact our spare parts guy has permission to hire a helicopter, if that is what it takes to fix the customer‫ ۥ‬s problem. So, we overcome that by selling the services to guarantee that they never feel that hard time”” Interview Jay The next progression, after having sold the services with the filter for the first year, the customer always gets used to the services and they may renew that service after one year, but, “Quite often those customers would like to think that it’s free of charge, it’s included, so that’s one place they have to understand that that’s not free, it’s available if they buy it” interview, Jay For the time being (2005), Larox has succeeded to secure all the service contracts with all the installations owned by Anglo- platinum. In terms of the relationship between Larox Southern Africa and the subcontractors there have never been any really negative times. The Larox SA has taken an approach to teach all the involved people to be accountable to customers. “Probably the one thing that really makes me cross as the managing director is if the customer calls me instead of calling that subcontractor…because then I would like to know why it is that the relationship has broken down and the customer thinks that it is necessary to call me and not you” Interview, Jay. In this sense, Larox Southern Africa has grown its internal service department more as a maintenance planning division. They have had to adopt some high-tech or latest technology computer maintained service software to generate different job cards per day for many installations (machines) at the same time they have developed a reporting and feedback system to let service men report what was done and predict what needs to be done next so that the whole system improves. Power structure in existing relationships In the daily work the subcontractors are not seen as outsiders, in the mines they are full time Larox people. The business organization is simple and the power structure reflects a bottom-up structure. In this kind of structure, “There’s only one; and that’s the customer and the next person in charge is the person who speaks to the customer: that’s the subcontractor. In that relationship, I am really a number three or number four in the chain. And further down the chain is the factory in Finland actually. Of course when they draw that organization structure they are on top and they are the bosses but we don’t see it quite that way” Interview, Jay. Larox set quite tough objectives for example for spare parts they aim for a hundred percent on time deliveries. Larox Southern Africa has internal projects to improve the company and the services it renders. The role of the South African Government and the Trade Unions South African government has put forward a legislation requiring the mining companies to have not only have 15 26 % black empowerment equity, but also that to do affirmative purchasing. This means they must buy from previously disadvantaged people or companies with black ownership. This may prove to be difficult. The reason for this difficulty may come from the lack of many qualified black owned companies. This process of transferring ownership to the previously disadvantaged groups also proves to be disconnecting instead of connecting the formerly disadvantaged to the after apartheid economy. “Unfortunately there are still those stories where very few government connected black people are getting most of the businesses…and there isn’t real empowerment happening in that there are not many small self employed, medium or large to medium- sized companies. Most of the people who have got rich are only the government connected people” Interview Jay. 10 Supplier ´s suppliers Suppliers Home and abroad Other ancillary firms Financial Institutions and other profit generating Units Finnish Based Corporation Other Customers Home country and a broad Subsidiary in the host country Self Employed contractors in the host country Institutional authorities Trade Authorities Trade Unions INTERMEDIATE ACTORS In the host country & Third part in common Customer in the host country COMPETITION Competing Supplies Competign Customers Competing Contractors OTHER ACTORS Supplementary Suppliers Customer´s customers Other Units in focal customer Other Ancillary Firms Figure 3: Structure of business relationships in the Republic of South Africa In that regard, Larox Southern Africa being a wholly owned subsidiary of a Finnish company might be at a disadvantage compared to local South African companies especially if the local firms are owned by the previously disadvantaged. Larox has a challenge to think about how to solve that problem in the long- term. One option would be to sell some shares in the South African company to previously disadvantaged (like blacks) investors to make that more viable. The other option would be to change the way they do business like to distribute to black - owned companies who then would sell to the mines. That is not an easy task either and this proves to be one of the toughest issues at the moment with regards to the South African market. “No, you have to make them more, you have to train them more…the extreme is that you actually give them your company. That is not something we are interested in doing at least not for now” Interview, Jay Government has not yet succeeded into curbing the crime level and AIDS situation. Mining field is particular sensitive to these issues. Added to that, South African government is seen to be too bureaucratic and that it takes time to get the piece of paper signed. At the operational level, business peoples in South Africa (mostly whites) work very fast as in other West European countries. “At the operation level the South African work very fast” interview Karpanen. Strategies to manage key relationships and to increase value As Larox is using sub-contractors, it trains them so that they understand the core ideas around a filter and its operation. They recruit people with engineering skills and put them together with an experienced service- man. That new service man gets one or two customers to start with. As the abilities increase, they get up to three, four or five. “So actually we are training guys all the time and if it is new products…we get industry experts to come and train them or we send them to Finland for specific training sessions, for example on hydraulics or automation, Interview, Jay. 11 This learning process is not a one way process, in most cases the whole Group benefits from these training and experiences: “Actually nowadays it’s more and more of a trend that when our guys go to Finland where they give different presentations on servicing filters interview, Jay” According to Mr Jay, Larox Oy may be an expert in making filters and delivering them to the customer wherever situated in the world. But, once the operation starts it is the people in the field who work with these filters in a given context and most of the engineers who put up the filter may not really know how to service them. “But nowadays like I said, Larox Group as a whole are experts in maintaining what they manufacture” Interview, Jay. Larox trains the user on how to operate machines and in many cases, the customer has a feed-back to give to Larox, which may be taken into consideration when manufacturing products. The flow of ideas is both ways and benefit both mutually. The aim of this approach is to produce long-term relationships with customers. It encourages Larox to work more effectively with customers and to become a key member of their supply chain. In this kind of relationship, the supplier seeks ways to improve the efficiency of the application and to reduce operational costs. To achieve this, Larox and Anglo- platinum use proactive application consulting even after the warranty period is over. Added to that, this overall strategy provides for a platform for cooperative innovation and continuous improvement. Through seminars, group forums and think tanks, the customer may realize that the supplier cares a lot about the whole operation. On the supplier side, it plays a feedback role in that it helps the group members to develop similar service strategies globally. The South African team has made several presentations to the global customer relationship management meeting where they discuss the global CRM- project and strategy. The South African organization is not big in itself. The management is responsible for both planning executing and the operations strategies. The most active people in such a network are the managing director and the service director. “Our customers have a very strong ethical code…code of ethics. In other words, no gifts to our customers, no behind-the-back bribery must go on, and so on, and they also have whistle-blowing help lines and that kind of thing to stop that sort of business from going on. But, we often have the opportunity for instance to go fishing with our customers, and obviously we sponsor some prices and so on and attend as a company, and they are as a company, and so there is no chance for anybody to say that that is bribe or some kind of unethical behavior. Interview, Ian Added to that, there is an intensive networking between the key members in these organizations. Following statement illustrates the fact that most of the business originates from such interactions: “We also do a lot of fishing, golfing…that kind of things where we sponsor as a company; and there we meet those key customer-guys and often we have some beers, and that kind of things. So, that is very much a part of our business. I believe it is very good for our business and you could say that a lots of deals are done non – verbally. In other words, ‘I know that guy we played golf with and here is this spare- part and I know he is okay´ so there is the order’. You know, it’s not spoken…you have that personal relationship; the guy trusts you, you trust him, and business goes well”. Interview Ian CONCLUSION AND IMPLICATIONS This paper identified five interrelated hypothetical situations in a developmental process through which business relationships may develop. Each relationship may have its own path and the duration of each situation depends on many factors. Suppliers, customers and users create value for each other through cooperative activities. This leads to the reduction of the relational distance between these entities. Advanced relationship, i.e high level of interaction would be hard to break. The Republic of South Africa is in good position and may serve as a gateway to the other parts of the African continent. The companies that have been “first movers” and that have understood that it will bear fruits to be present on the continent act as forerunners for developing businesses there. Taking mining as an example, the exploitation of these mineral resources is yet to be done. If the African continent gets rid of the problems associated to bad policies for example; corruption, democratization issues, human right abuse, crime, health care (like HIV) problems, if the African continent can improve its governance in a transparent way and if it 12 could improve physical and intellectual infrastructure, the coming years could bear fruits for many businesses. Countries like Mozambique, Tanzania, the Republic of Congo and Angola to name some few, offer good opportunities for companies like Larox and for other Finnish companies as well. What these countries need is to reform their mining investment bill so that mining activities become more transparent and clear. Crime level may also act as a deterrent of the free flow of business interaction and this may lead to low level of commitment from the investors‫ ۥ‬side. Countries like Zimbabwe are spoiling the image of Africa. Nobody would dare to invest into mining in that country. Building the mines requires a capital intensive investment and unless there is a clear protection of the investments, investors may remain scared to come in. The Larox- Anglo platinum case shows that partners benefit mutually through developing a cooperative environment based on “win-win” principles. The cooperative environment requires a shared responsibility and accountability among the key members. Through different situations of relationship among partners, I could demonstrate that involved partners could benefit mutually from the development of common vision, goals, objectives and action plans. This is done through shared information and knowledge, shared risks (and costs) where feasible and through incentives for improvements. Through the different relation situations as described in the figure 1, the involved partners foster a sense of trust and commitment and they jointly manage the commodity. To achieve a well functioning business relationship, any kind of Customer Relationship Management should not only involve bosses but also the customers and users on the operation level. By this interaction, the business relationship moves towards the next situation as presented in fig. 1, this in turn may reduce costs and may lead to improved efficiency and innovation. From the discussion through this paper, let me propose a partnering framework for partners aiming at reducing the relationship distance through value adding cooperation especially in a turbulent market like South Africa. The host institutional framework, like the Equity Act and other black empowerment programs should take into consideration the realities and the wish of the investors. The investors have always possibilities to find other alternative investment markets where they can invest their resources. A positive institutional environment acts as a pull for business interaction. It might lead to successful operations. Thus, it seems imperative to work through cooperation to solve any problem that may cause trouble in the relationship through different situations as discussed in fig 2. To strengthen the created relationship, partners must make its priority to create an interaction environment and interaction process enhancing mutual cooperation which creates value. This paper identifies knowledge sharing, information sharing, costs reducing, benefit sharing and future care as the main mechanisms in the value creating process. To complete the whole process involved, partners need joint- action in solving their business problems. 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Pashtenko Clayton State University, USA John Newhouse Texas A&M at Commerce, USA ABSTRACT As an ever rapidly increasing percentage of the American and world population have become fully integrated users, the Internet has become one of the most dynamic and transforming market engines in market capitalism. Statistics reveal that, in September 2002, there were an estimated 605.6 million Internet users.1 Since that time, this number of users has increased at an accelerated rate. Predictably, the growing use of this medium, along with its relatively low cost of market entry initially, became the focus of an unprecedented effort to use the Internet as a global sales venue to increase profits. Regardless, as with any global marketing strategy that assumes a monolithic customer base, early attempts yielded failures and erratic results. Consumers soon became inundated and summarily discounted the resulting masses of untargeted solicitations that they received because this venue was not clearly understood. Furthermore, diminished consumer tolerance for nonspecific advertising has paralleled the increase of Advanced Users (AU). The result is that there is an increased need for marketing researchers to focus upon targeted, Rich Media Enhanced (RME), which is being employed with greater frequency and effectiveness on the Internet among the AU. This focus is critical as the number of Beginning and Intermediate Internet Users (BIU) become more adept in the Internet’s current demographic. Subsequent growth of this sales venue will then be from a dissimilar demographic mix, which will – in parallel – require a dissimilar, targeted focus. Clearly, there is a need to understand what focused Internet advertising is successful among the AU, a market segment that disparagingly refers to unfocused media as “spam,” that responds to a focused approach while requiring consumer privacy, and that favorably responds to affinity advertising as the AU spend more time on the Internet. As a result, the intent of this article is to explain the different approaches that have been used to market by means of the Internet, to explain the succession of approaches, to describe the difference between the diminishing number of BIU – and growing number of AU in the existing and future demographic mix. Finally, it is to show the marketing approaches that have been the most successful to date and that show promise in marketing to the growing number of Internet Advanced Users (AU). Hypotheses are offered, tested, and the results are presented. INTRODUCTION As stated, with the introduction of the Internet, a new business phenomenon has evolved: e-business. E-business occurs when a company utilizes electronic or digital platforms to conduct business affairs. Within the dimensions of e-business lie e-commerce and e-marketing. E-commerce “is more specific than e-business; it means that in addition to providing information to visitors about the company, its history, policies, products, and job opportunities, the company or site offers to transact or facilitate the selling of products and services online.”1 E-marketing is simply the business firm’s plan to inform and advertise its products or services over the Internet medium. The literature reveals that, within e-business and e-commerce exist four major business applications for the Internet: business to consumer, business to business, consumer to consumer, and consumer to business. While most attention has been given to business to consumer company websites, more business activity is actually being conducted on business to business sites.1 As a result, a large amount of business firms are abandoning the traditional “brick and mortar” business model and integrating product and service ordering websites into their business operations. 17 Consequently, the trend has been to focus on the relatively new advertising medium of the Internet as well as current advertising mediums, such as billboards, print media, radio, and television. For this reason, some of the issues that need to be addressed by firms are: Is Internet advertising as a whole effective? If so, to whom is it most effective and why? How does Internet advertising affect consumer purchasing behavior? What can business firms do to improve the effectiveness of their Internet advertisements to their end consumer while lowering costs? Existing Research and Issues of Privacy The existing literature concerning Internet advertising tends to fall into seven diverse areas as well: 1) The demographical information of Internet users; 2) Issues reflecting the regulation and ethical standards in Internet advertising; 3) The diverse advertisements of the Internet; 4) The introduction and use of rich media enhancements into Internet advertisements; 5) The economic and financial data regarding Internet advertising (in the areas of revenues, trends and pricing practices); 6) The affinity level Internet users have for various websites and how (or if) it impacts the effectiveness of Internet advertisements; and 7) The aggregate effectiveness and efficiency levels of Internet advertising compared to that of established advertising mediums. Within each area, the central problem for researchers as well as for practitioners lies in the ability to collect data without making their respective customers vulnerable or have their privacy invaded. The Electronic Monitoring of Internet Users Much like television viewers and radio listeners, Internet users are a highly diverse demographic group ranging in extremes in areas such as age, race, religion, ethnicity, education, consumer preferences, etc. Advertisers within this media are well aware that strategically placed ads could possibly be viewed by millions around the globe and not just their respective country’s population. Thus, an attractive advertisement placed on a high traffic website could expand a business firm’s customer base nationally and internationally. At the same time, this exposure is not without its costs: advertisers increasingly insist that ads be targeted at their intended audience. This, in turn, has become more important as the costs of running these ads are directly correlated to the ad’s “click-through” rate, that is to say, the number of times that a specific advertisement is selected and viewed on the Internet. As a result, there is an increasing need for Internet advertisers to find improved ways on how to characterize Internet users in order to more effectively reach them with their advertisements. 4 As a result, customer Internet viewing and shopping habits and where the sessions are being conducted are repeatedly monitored since there is a correlation to the type of online session the user is involved in (research, communication, shopping, entertainment/leisure, etc.).4 & 5 While ethical standards and guidelines are still emerging for Internet advertisements, at issue are questions concerning consumer privacy. This goes far beyond the right of consumers to be left alone and not bothered by solicitations. 8 In fact, in recent research consumers have explicitly stated that they are highly apprehensive about the loss of privacy due to electronic monitoring. 8 In addition, consumers also fear that electronic monitoring could result in their loss of the ability to control personal information. 9 Internet users have every right to be concerned about the issue of privacy after several well-publicized faux pas were made during the infancy of Internet advertising. To their surprise, consumers were educated to the fact that Internet applications such as cookies and assorted tracking programs had recorded Internet consumer viewing and purchasing behavior without that public at large having previously been informed of it.9 This was then still further reinforced through well-publicized case of DoubleClick in 1999. 4 Rodgers, S., & Sheldon, K.M. (2002). An Improved Way to Characterize Internet Users. Journal of Advertising Research, 42, 5, 85 (10). Business Source Premier Database. 5 Sheehan, K.B. (2002). Of Surfing, Searching, and Newshounds: A Typology of Internet Users’ Online Sessions. Journal of Advertising Research, 42, 5, 62 (10). Business Source Premier Database. 8 Wang, H., Lee, M.K., & Wang, C. (1998). Consumer Privacy Concerns About Internet Marketing. Association for Computing Machinery: Communications of the ACM, 41, 3, 63-70. 8 Wang, H., Lee, M.K., & Wang, C. (1998). Consumer Privacy Concerns About Internet Marketing. Association for Computing Machinery: Communications of the ACM, 41, 3, 63-70. 9 Charters, D. (2002). Electronic Monitoring and Privacy Issues in Business Marketing: The Ethics of the DoubleClick Experience. Journal of Business Ethics, 35, 4, 243-254. 18 In November of that year, DoubleClick, Inc., an Internet advertising company that specialized in banner and interstitial ads, started matching anonymous user profiles with personally identifiable information and generate consumer Internet profiles to design advertisements aimed at the specific consumers. In doing so, it conceded that it had the technology to track individuals without their knowledge or consent.9 Only after intervention by the Electronic Privacy Information Center, a privacy watch-dog group, did DoubleClick retract this effort. Regardless, irreparable damage had already been done to consumer confidence. Another reason Internet advertisers need to be sensitive to consumers’ privacy desires is because a consumer’s desire for privacy directly effects his/her comfort level of whether or not he/she will purchase a product or a service through the Internet. If the consumer deems an advertisement as intrusive or unwanted, he/she will simply ignore it. 10 A CHRONOLOGY OF INTERNET ADVERTISING Banner Ads and Smart Banner Ads The first type of Internet advertising was the classic banner ad (text or image boxes that appear on a Web site linking them to the advertiser’s site). 12 When banner ads first appeared, they were well received as a novelty. In 1996, about 7% of Internet users were clicking on banner ads; however, by 2001, the response rate had plummeted to .5%. 13 Most recently, research has shown that Internet users’ eyes have become so accustomed to seeing banner ads integrated into a website, that the likelihood of a busy Internet user actually noticing a banner ad was only 50%.13 In addition, only 11% of Internet users who actually noticed the banner ads could remember the advertisement and what it was promoting without any assistance. 13 However, one recent study suggests that if a banner ad is presented in a forced scenario, a roadblock to further viewing, Internet users will view the banner ad and click on it. 14 As a result of banner ad ineffectiveness, Internet advertisers then resorted to an improved version of the ad: the “smart” banner ad, essentially a banner ad linked to a search engine. 16 In effect, when the consumer visits a search engine and types in a search string, the results are posted in with a parallel banner advertisement on the website.16 Though vastly ineffective, these ads provide much needed revenue for website operators, without which would be forced to shut down their website. Hence, a substantial and lasting decline of banner ad revenues will more than likely result in a serious decline in the number of free websites offered to the Internet viewing population. 17 Browser Ads The second Internet advertisement type is the browser ad; an advertisement that pays the viewer to watch it. 12 Browser ads are not widely used because they are expensive to implement. In addition to the initial advertisement, the advertiser must pay the consumer. Consequently, these ads are increasing in rarity and have all but disappeared. Unsolicited (i.e. “Spam”) and Solicited Commercial E-mail Advertising While most business-to-consumer commercial e-mails are massively distributed and unwanted (disparagingly referred to as “Spam”), some commercial e-mail advertisements are sent at the request of customers who ask to be informed. For example, J.C. Penney and Sears allow customers to submit their email addresses to the company in return for advanced announcements on special sales or new product introductions. In parallel with this are a great 10 Bush, V.D., Venable, B.T., Bush, A.J. (2000). Ethics and Marketing on the Internet: Practitioner’s Perceptions of Societal, Industry, and Company Concerns. Journal of Business Ethics, 23, 3, 237248. 12 Kotler, P. (2003). Adapting Marketing to the New Economy. In, Marketing Management 11th ed (p. 50). Upper Saddle River, NJ: Prentice Hall. 13 Mechanic, M. (2001). Measure for Measure. The Industry Standard.com. 28, 2003. LexisNexis Database. 14 Cho, C., Lee, J., & Tharp, M. (2001). Different Forced-Exposure Levels to Banner Advertisements. Journal of Advertising Research, 41, 4, 45 (12). Business Source Premier Database. 16 Dou, W., Linn, R., & Sixian, Y. (2001). How Smart are “Smart Banners”? Journal of Advertising Research, 41, 4, 31 (13). Business Source Premier Database. 17 Riggins, F.J. (2002). Market Segmentation and Information Development Costs in a Two-Tiered FeeBased and Sponsorship-Based Website. Journal of Management Information Systems, 19, 3, 69-86. 12 Kotler, P. (2003). Adapting Marketing to the New Economy. In, Marketing Management 11th ed (p. 50). Upper Saddle River, NJ: Prentice Hall. 19 number of business-to-business solicited e-mail advertisements routinely advising customers of product changes, availability, a delivery dates. These last commercial e-mail advertisements can be quite effective since they are being distributed to a consumers who have expressed and interest and solicited the sender for the information they contain. Interstitial (i.e. “Pop-Up”) Ads The forth and most controversial Internet advertisement type is the interstitial (“Pop-Up”) ad. Interstitial ads are advertisements that pop-up between changes on a Web page. 12 Pop-up ads were more than likely created due to the ineffectiveness of banner ads to capture the attention of Internet users. These ads effectively force the Internet user to view them by appearing on the screen before they can be deleted, or it simply minimize themselves in the operating system toolbar until the advertisements are maximized and deleted. In the event that this is not regularly done, system resources are continually used until the computing system effectively grinds itself to a halt. A recent Internet survey by the NUA found that 78% of respondents found pop-up ads to be “very annoying,” while only 49% of respondents found banner ads to be “very annoying.” 18 However, with advertising revenues correlating to a specific ad’s click-through rate, the fact that pop-up ads generate almost twice the number of clicks when compared to the banner as banner ads indicates that Internet users should expect to see more of these ads in their future.19 Finally, while some Internet service providers, like Earthlink, 20 and some websites, like iVillage, 21 have taken the task upon themselves to block or ban these ads, other providers facing stagnant sales are using their inclusion to generate additional revenues. Most recently, AOL has only blocked these ads among business-tobusiness customers but has allowed all other methods of “Pop-Up” advertisement between/among different customers. Sponsorship Ads The fifth type of Internet advertising, sponsorship ads, usually take place when a specific advertiser sponsors the content of another company’s website. 12 Sponsorships were the original form of advertising for both radio and television when these two mediums began to emerge, so it should come as no surprise that they are being adopted by Internet advertisers and are once again on the rise.25 Rich Media Enhancements “Rich Media Enhancement” advertisements do not fit into the category of Internet advertisements types in that they are a variation of existing types. By definition, they are advertisements that support “Rich Media” capabilities, such as HTML, Flash, and Java. 26 For example, these enhancements can be added to banner ads, interstitial ads, sponsorship ads, and can include flashing banner ads with sound or pop-up ads without borders that seemingly emerge out of the middle of the Internet user’s computer screen. In research studies by DoubleClick, Inc., the use of rich media in Internet advertising was found to have increased 25% during the third quarter of the 2002 fiscal year; in addition, rich media Internet advertisements had an astounding click-through rate of 2.7% compared to .4% of non-rich media Internet advertisements. 27 Further, 12 Kotler, P. (2003). Adapting Marketing to the New Economy. In, Marketing Management 11th ed (p. 50). Upper Saddle River, NJ: Prentice Hall. 18 Pop-Up Ads are Annoying, but Effective. (2003). http://www.nua.com/surveys/index.cgi?f=VS&art_id=905358708&rel=true. 22, 2003. 20 (2003). Earthlink to Offer Ad-Blocking Tools. Wall Street Journal Online. http://online.wsj.com/article. 13, 2003. 21 Elkin, T. (2002). iVillage Drops Pop-Up Ads: Cites User Complaints for Move. Advertising Age Online. http://www.adage.com/news.cms?newsId=35617. Accessed January 17, 2003. 12 Kotler, P. (2003). Adapting Marketing to the New Economy. In, Marketing Management 11th ed (p. 50). Upper Saddle River, NJ: Prentice Hall. 26 IAB Standards and Guidelines – Rich Media Guidelines. (2003). http://www.iab.net/standards/guidelines.asp. . 27 Rich Media Ad Use on the Up. (2002). http://www.nua.com/surveys/index.cgi?f=VS&art_id=905358648&rel=true. 27, 2003. 20 Jupiter Research predicted that spending on rich media advertisements would continue to increase until 2008. 28 Hence, rich media enhancements are emerging as the way to attract Internet users for Internet advertisers in the years to come. To meet advertiser demand, Internet service providers like AOL and MSN are now scrambling to convert their systems to support larger amounts of rich media because they believe it will translate into more effective advertisements for the Internet advertiser, which will directly improve their Internet advertising revenue. 29 & 30 Finally, research has shown that rich media improves the odds that an Internet advertisement and the brand being advertised will be remembered by the Internet user, thus improving its effectiveness. 52 REVENUE TRENDS AND PRICING ASSOCIATED WITH INTERNET ADVERTISING Since the dot.com busts of the late 1990’s, Internet advertising revenues have been stagnant. However, recent figures show that Internet advertising revenue has rebounded, and is starting to climb; for example, Internet advertising in the United States totaled $1.47 billion in the third quarter of 2002, which corresponded to a 1% increase from the second quarter of 2002. 31 & 32 In another sign of improvement, nine of the top fifteen Internet advertising business firms recorded a 66% increase in collected revenue in the third quarter of 2002 compared to the same quarter of the previous year. Further, Internet advertising revenue in the United States was estimated to have increase by in 2003 to reach $5 billion in revenues with increases projected to 2009. 33 While Internet advertising may be a minor advertising medium for many years to come, many advertising executives are keeping their eyes to the future. Realizing that the Internet will continue to grow in importance as the business world becomes more and more digital, certain advertising executives are advising their respective corporate boards not to write off the Internet, but actually embrace its applications even more. 34 Pricing The pricing of Internet advertisements is dependent upon multiple variables, such as the type of advertisement, location, duration, and so forth. 35 Further, Internet advertising suppliers measure the effectiveness of online ads through various means like the click-through rate (which measures how many times an Internet user clicks on the ad’s link to the product) 19. However, due to plummeting click-through rate figures, Internet advertisers are starting to abandon the click-through rate and embrace pay-for-performance rates, such as Cost Per Click (CPC) and Cost Per Action (CPA) where the advertiser is only required to pay for the advertisement if the Internet user actually responds to the advertisement with the prescribed action. 36 In 2001 this migration from the click-through rate and the CPM (Cost Per Thousand Impression) toward CPC and CPA began. At that time, the click-through rate accounted for 40% of all sold Internet advertisement inventories, while the combined CPC and CPA amounted to 28 Rich Media Ads to Gain Market Share. (2002). http://www.nua.com/surveys/index.cgi?f=VS&art_id=905358615&rel=true. . 29 Elkin, T. (2002). AOL Beefs Up Its Rich Media Capabilities: Reorganized Sales Staff to Push Flashier Ads. Advertising Age Online. http://www.adage.com/news.cms?newsId=35762. . 30 Elkin, T. (2002). The Race to Rich Media Quickens: MSN, AOL, and Yahoo! Expand Support for Rich Media Ads. http://www.adage.com/news.cms?newsId=36114. . 52 31 Russell, M., & Keith, R. (2000). The E-Marketing Report. Morgan Stanley Equity Research. http://a1408.g.akamai.net/7/1408/770/03614ac390dcc9/www.morganstanley.com/institutional/techresearch /pdfs/emarketing.pdf. . Online Ad Recovery Begins. (2002). http://www.nua.com/surveys/index.cgi?f=VS&art_id=905358686&rel=true. . 32 Elkin, T. (2002). Internet Advertising Revenue Shows Slight Improvement: IAB/PricewaterhouseCoopers Issues Latest Report. Advertising Age Online http://www.adage.com/news.cms?newsId=36801. . 33 Internet Ad Spending to Rise in the US. (2002). http://www.nua.com/surveys/index.cgi?f=VS&art_id=905358607&rel=true. . 34 Cuneo, A.Z. (2002). Creative Execs Stress Importance of Internet: Agencies Told They Must Think Beyond TV. Advertising Age Online. http://www.adage.com/news.cms?newsId=36553. Accessed February . 35 Elkin, T. (2003). Web Ads: Size Does Matter, So Does Price – Banners Still Have Their Place as Buyers Figure Out What Works Best. Advertising Age Online. Accessed March 3, 2001. Lexis-Nexis Database 19 Green, H. (2001). Get Used to those Pesky Pop-Up Online Ads. BusinessWeek Online. Accessed February 25, 2003. Lexis-Nexis Database 36 Stevens, R.P. (2001). Pay for Play: Clickthroughs and CPM’s Give Way to Cost-Per-Action Pricing. Internet World. Accessed March 1, 2003. . 21 about 22% of all sold Internet advertisement inventories. 37 However, the forecast indicates that CPC and CPA will increase to 30% as soon as 2006, and could entirely replace CPM and the click-through rate if it continues to prove more beneficial to Internet advertisers.37 As evidence of this trend, recently ESPN.com sold banner advertisement space to video game manufacturer Sega for $100,000 for a 24 hour time period; ESPN.com was able to charge this premium price because it could prove to Sega that the banner advertisement would have at least 4.5 million impressions over the 24 hour time period. 35 When compared to other advertising mediums, this is a rather cheap price. For example, a 30 second television commercial on ESPN would probably costs Sega $100,000 and be seen by an audience of no more than 1 million viewers at a given time. In this respect, one can understand why business firms have not abandoned Internet advertising and are still trying to find ways of making the advertisements more effective. Effectiveness Now, what can Internet advertisers do now to improve the effectiveness of the online advertisements? Internet advertisements can be improved in two ways. First, the Internet as an advertising medium is most effective and useful for products and services where consumers desire convenience, low cost, or need information; whereas it is not highly useful for products that need a tangible evaluation before purchase. 1 So, the Internet is presumably highly useful for products that are high in consumer involvement. As previously mentioned, the advertisement location is highly important. In one such recent study, it was found that banner ads that promoted high-involvement products that were strategically placed onto websites with relevant user content were greeted with higher attitudes toward the advertisement and the brand that was being advertised. 64 Also, advertisements that promote familiar brands are more likely to be clicked upon by Internet users. 15 & 65 When taking these factors together in summation, if an Internet advertiser is advertising a well-known brand product on a website with product relevant content, the advertisement will be more effective than non-brand Internet advertisements (that are subsequently placed on websites with irrelevant content). Second, improving the imagery of the website and the Internet advertisement could lead to higher levels of advertising effectiveness. Some research has proposed that effective websites should display seven design elements; they are: 1.) 2.) 3.) 4.) 5.) 6.) 7.) Context: Layout and design. Content: Text, pictures, sound, etc. Community: Does the site provide user feedback or communication? Customization: Can users personalize the website to their preferences? Communication: Again, how does the site provide user communication?. Connection: Is the site connected to the advertiser or other relevant informational links? Commerce: Can the website handle transactions? 66 Internet advertisers can further enhance the curiosity factor by basing their advertising strategy on four key elements: 37 Lefton, T. (2001). How Do You Price an Ad, By Performance or Placement? The Industry Standard.com. Accessed March 1, 2003. . 35 Elkin, T. (2003). Web Ads: Size Does Matter, So Does Price – Banners Still Have Their Place as Buyers Figure Out What Works Best. Advertising Age Online. Accessed March 3, 2001. Lexis-Nexis Database 1 Kotler, P. (2003). Adapting Marketing to the New Economy. In, Marketing Management 11th ed (pp. 40-47). Upper Saddle River, NJ: Prentice Hall. 64 Shamdasani, P.N., Stanaland, A.J.S., &Tan, J. (2001). Location, Location, Location: Insights for Advertisement Placement on the Web, Journal of Advertising Research, 41, 4, 7 (15). Business Source Premiere Database. 15 Dahlen, M. (2001). Banner Advertisements Through a New Lens. Journal of Advertising Research, 41, 4, 23 (8). Business Source Premier Database. 65 Gallagher, K., Parsons, J., & Foster, K.D. (2001). A Tale of Two Studies: Replicating “Advertising Effectiveness and Content Evaluation in Print and on the Web.” Journal of Advertising Research, 41, 4, 71 (11). Business Source Premiere Database. 66 Rayport, J.F., & Jaworksi, B.J. (2001) E-Commerce (p.116). New York: McGraw-Hill. 22 1.) 2.) 3.) 4.) Highlighting a gap in extant knowledge. Provide a further hint of elaboration for full knowledge revelation. Allow the consumer time to try and resolve their curiosity on their own. Find ways to appropriately measure the consumers curiosity and learning patterns. 71 In conclusion for this segment, while one could decipher a trend in the current literature that the Internet is currently (and will be) an effective and efficient medium for advertising, and that it will grow in stature to become a major advertising medium, many that attempted to measure the effectiveness and efficiency of the Internet as an advertising medium have drawn far too many conflicting results to determine who is correct and who is wrong; thus, much of the current literature concludes that business firms should not be in a rush to embrace Internet advertising or create an organizational website just because their competition is doing so. 74 & 76 HYPOTHESES The Existing Knowledge Gap Clearly, throughout a review of the existing literature, there remains a gap with respect to the influence that the Internet user level of expertise had upon determining outcome attitude toward Internet advertisements. Specifically, while some studies 72 focused upon consumer weekly Internet hour usage, level of education (or knowledge), and frequency of website visitations and their respective impact, no research was found that specifically assessed how user level of expertise impacted his/her attitude toward Internet advertisements. The reason that understanding this is important is that the initial Internet advertising approaches mentioned above appear to have been initially successful due to their novelty. Subsequent approaches then appear to have been successful due to their ability to subtly suggest alternatives. And, when consumers became experienced enough to restrict their searches – to limit the amount of date being thrown at them – Internet advertising became adversarial. A generation ago, the more data an individual had, the more knowledge he possessed. At present, the Internet has changed this balance. Consumers now exist in a state of non-linearity. That is to say, knowledgeable consumers have more than enough information available to them on the Internet and, consequently, additional information or advertising is actually counterproductive, unwanted, and rejected. In fact, in business-to-business Internet exchanges it is filtered, restricted, or banned. DETERMINING THE ADVANCED USER Beginner and intermediate user visitations impact the effectiveness of Internet advertisements, this researcher was unable to locate any research study that measured how (or if) an Internet user’s level of expertise impacted his/her attitude toward Internet advertisements. With that reasoning stated, this research decided to propose the following theories (correlated to the stated hypotheses): H1: Beginner and Intermediate Internet users are less likely to be concerned w/ respect of consumer privacy than are Advanced Internet users. As stated early in the report, Internet advertisers must be weary that they do not cross the line between respecting an Internet user’s privacy and invading it. Thus, this hypotheses was formed to test whether or not any significant difference existed between Beginner/Intermediate and Advanced Internet users’ attitudes regarding whether or not Internet advertisements were seen as respectful or invasive of consumer privacy. The definitions of Beginner, Intermediate, and Advanced users were established within the questionnaire; in addition, Beginner and Intermediate 71 Menon, S., & Soman, D. (2002). Managing the Power of Curiosity for Effective Web Strategies. Journal of Advertising, 31, 3, 1-14. 74 Liu, Y., & Shrum, L.J. (2002). What is Interactivity and Is It Always Such a Good Thing? Implications of Definition, Person, and Situation for the Influence of Interactivity on Advertising Effectiveness. Journal of Advertising, 31, 4, 53 (12). Business Source Premiere Database. 76 Bellizzi, J.A. (2000). Drawing Prospect to E-Commerce Websites. Journal of Advertising Research, 40, ½, 43 (11). Business Source Premiere Database. 72 Bhat, S., Bevans, M., & Sengputa, S. (2002). Measuring Users’ Web Activity to Evaluate and Enhance Advertising Effectiveness. Journal of Advertising, 31, 3, 97 (10). Business Source Premiere Database. 23 were merged together due to the low number of questionnaire respondents claiming to be Beginner users (thirteen in all to be exact). This researcher’s theory is that the higher the level of expertise an Internet user possesses, the higher the degree the Internet user will find Internet advertisements as invasive of his/her privacy. H2: Beginner and Intermediate Internet users are less likely to have a positive attitude toward Internet advertisements than are Advanced Internet users. Hypothesis 2 was designed to test whether or not any significant difference existed between Beginner/Intermediate and Advanced Internet user’s attitudes regarding whether or not their overall impression of Internet advertising was favorable. This researcher’s theory is that the higher the level of expertise an Internet user possesses, the higher degree of negativity he/she holds toward Internet advertisements. H3: An Internet user’s level of expertise has no bearing on his/her overall reasons for using the Internet. Hypothesis 3 was designed to test whether or not any significant difference existed between Beginner/Intermediate and Advanced Internet user’s reasons for using the Internet. The reasons behind why an Internet user utilizes the Internet could have serious implications for Internet advertisers. For example, if consumers used the Internet for shopping, they might actually seek out ads; on the other hand, if consumers are only interested in research data collection, they might find Internet advertisements as annoying or simply not give any attention to them. This researcher’s theory is that Advanced Internet users find the Internet to be a more positive he/she holds towards the Internet medium. H4: Intent to purchase Internet advertised products are positively influenced by: a.) Increase in overall attitude towards Internet advertising. b.) Increase in weekly Internet hour usage. c.) Propensity to click Internet advertisement on high affinity website. d.) Increase in consumer trust of Internet advertisements. e.) Increase in perceived consumer value of Internet advertisements. Hypothesis 4 was designed to calculate if any significant positive relationship existed between the independent variable (Internet advertised products/services) and the dependent variables listed in a, b, & c. This researcher’s theory is that if all a, b, & c variables experience a simultaneous increase, then the sale of Internet advertised products/services will also experience an increase. METHODOLOGY Primary data was collected via a questionnaire (see Appendix A & B) distributed mainly to a convenience sample of undergraduate and graduate students at the University of Tulsa in Tulsa, Oklahoma, Texas A&M University – Commerce in Commerce, Texas, and Chapman University in Seattle, Washington. A pre-test of the questionnaire was distributed to 10 undergraduate marketing students at Texas A&M University – Commerce. After completing the questionnaire, the students were asked for their thoughts and recommendations on how to improve it. The only recommendation to the students suggested concerned question #31’s “Entertaining / Distracting.” The students did not agree with the wording of this question. The question was later dropped from all statistical analysis. 420 questionnaires were deemed usable for statistical analysis in determining whether or not to reject the various null hypotheses. In determining whether or not to reject the various null hypotheses, an alpha (α; level of significance) of .05 (α=.05) was established and used in all statistical analyses; therefore, when a null or alternative hypothesis is accepted (or rejected), it should be noted that it was done so with 95% certainty. The hypotheses were tested using the following statistical tests: ANOVA, Factor Analysis, and multiple linear regression. 1. Analysis and Results. H1: Beginner and Intermediate Internet users are less likely to be concerned with respect of consumer privacy than are Advanced Internet users. was tested using the ANOVA analysis option (in SPSS statistics software) using the data from questionnaire question #31: “Respectful of Consumer Privacy / Invasive of Consumer Privacy” as the dependent variable and the 24 recoded data from questionnaire question #4 (“Recodex”) as the independent variable. The following is the SPSS calculations and tables: Descriptives Respectful / Invasive 2.00 3.00 Total N 214 197 411 Mean Std. Deviation Std. Error 5.00 1.594 .109 5.70 1.406 .100 5.33 1.546 .076 95% Confidence Interval for Mean Lower Bound Upper Bound Minimum 4.78 5.21 1 5.50 5.90 2 5.18 5.48 1 Maximum 7 7 7 ANOVA Respectful / Invasive Between Groups Within Groups Total Sum of Squares 51.008 928.325 979.333 df 1 409 410 Mean Square 51.008 2.270 F 22.473 Sig. .000 With the α at .05, H1 is rejected due to the significance shown in the ANOVA chart of .000. Hypothesis 1: H1: Beginner and Intermediate Internet users are less likely to be concerned with respect of consumer privacy than are Advanced Internet users. was tested using the ANOVA analysis option (in SPSS statistics software) using the data from questionnaire question #31: “Respectful of Consumer Privacy / Invasive of Consumer Privacy” as the dependent variable and the recoded data from questionnaire question #4 (“Recodex”) as the independent variable. The following is the SPSS calculations and tables: Descriptives Respectful / Invasive 2.00 3.00 Total N 214 197 411 Mean Std. Deviation Std. Error 5.00 1.594 .109 5.70 1.406 .100 5.33 1.546 .076 95% Confidence Interval for Mean Lower Bound Upper Bound Minimum 4.78 5.21 1 5.50 5.90 2 5.18 5.48 1 ANOVA Respectful / Invasive Between Groups Within Groups Total Sum of Squares 51.008 928.325 979.333 df 1 409 410 Mean Square 51.008 2.270 25 F 22.473 Sig. .000 Maximum 7 7 7 With the α at .05, H1 is rejected due to the significance shown in the ANOVA chart of .000. Hypothesis 2: H2: Beginner and Intermediate Internet users are less likely to have a positive attitude toward Internet advertisements than are Advanced Internet users. was calculated using Factor Analysis and ANOVA. In order to test this hypothesis, Factor Analysis was needed. As such, questionnaire questions #12 – 25 were placed in SPSS’s Factor Analysis generated as the dependent variable. The following is the SPSS calculations and tables. Correlation Matrix ke Interne Increase Positive Use in Ads A AttentioPersuasio Read IAsit Web Silick Banneew Pop-Uiew Ema Awareness Associationand Like Aonvenien RealiabilitDecision CorrelatioLike Internet 1.000 .508 .523 .497 .397 .398 .324 .401 .410 .354 .380 .053 .095 .134 IA Attention .508 1.000 .486 .459 .308 .334 .307 .294 .445 .421 .381 .178 .136 .196 IA Persuasio .523 .486 1.000 .520 .392 .384 .226 .274 .443 .307 .397 .130 .128 .214 Read IA .497 .459 .520 1.000 .480 .373 .358 .334 .434 .298 .364 .024 .020 .112 Visit Web Sit .397 .308 .392 .480 1.000 .467 .349 .411 .391 .271 .260 .065 .050 .110 Click Banner .398 .334 .384 .373 .467 1.000 .321 .340 .376 .224 .253 .037 .078 .080 View Pop-Up .324 .307 .226 .358 .349 .321 1.000 .287 .256 .165 .126 -.127 -.030 -.034 View Email .401 .294 .274 .334 .411 .340 .287 1.000 .447 .272 .282 .041 .072 .092 Increase Awa .410 .445 .443 .434 .391 .376 .256 .447 1.000 .478 .405 .214 .099 .270 Positive Asso .354 .421 .307 .298 .271 .224 .165 .272 .478 1.000 .489 .261 .124 .298 Brand Like A .380 .381 .397 .364 .260 .253 .126 .282 .405 .489 1.000 .258 .229 .242 Convenient .053 .178 .130 .024 .065 .037 -.127 .041 .214 .261 .258 1.000 .588 .534 Realiability .095 .136 .128 .020 .050 .078 -.030 .072 .099 .124 .229 .588 1.000 .508 Use in Decisi .134 .196 .214 .112 .110 .080 -.034 .092 .270 .298 .242 .534 .508 1.000 Sig. (1-ta Like Internet .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .142 .027 .003 IA Attention .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .003 .000 IA Persuasio .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .004 .005 .000 Read IA .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .317 .342 .011 Visit Web Sit .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .094 .154 .012 Click Banner .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .228 .058 .052 View Pop-Up .000 .000 .000 .000 .000 .000 .000 .000 .000 .005 .005 .275 .243 View Email .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .201 .072 .032 Increase Awa .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .023 .000 Positive Asso .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .006 .000 Brand Like A .000 .000 .000 .000 .000 .000 .005 .000 .000 .000 .000 .000 .000 Convenient .142 .000 .004 .317 .094 .228 .005 .201 .000 .000 .000 .000 .000 Realiability .027 .003 .005 .342 .154 .058 .275 .072 .023 .006 .000 .000 .000 Use in Decisi .003 .000 .000 .011 .012 .052 .243 .032 .000 .000 .000 .000 .000 Inverse of Correlation Matrix ike Interne Increase Positive Use in Ads A Attentio A PersuasioRead IAsit Web Sit Click Banneiew Pop-U View Emai Awareness Associationrand Like C Aonvenien Realiability Decision Like Internet A 1.827 -.357 -.399 -.243 -.069 -.150 -.108 -.260 .010 -.132 -.128 .138 -.081 .014 IA Attention -.357 1.724 -.298 -.235 .106 -.074 -.200 .009 -.168 -.272 -.065 -.147 -.022 .019 IA Persuasion -.399 -.298 1.797 -.382 -.146 -.163 .087 .117 -.225 .100 -.201 .029 -.024 -.133 Read IA -.243 -.235 -.382 1.818 -.374 -.021 -.199 -.008 -.176 .051 -.191 .093 .096 -.027 Visit Web Site -.069 .106 -.146 -.374 1.638 -.382 -.195 -.281 -.075 -.076 .037 -.086 .046 -.013 Click Banner -.150 -.074 -.163 -.021 -.382 1.478 -.151 -.095 -.177 .043 -.028 .055 -.090 .057 View Pop-Up -.108 -.200 .087 -.199 -.195 -.151 1.335 -.105 -.059 -.039 .090 .241 -.087 .068 View Email -.260 .009 .117 -.008 -.281 -.095 -.105 1.459 -.403 -.014 -.093 .088 -.090 .044 Increase Awar .010 -.168 -.225 -.176 -.075 -.177 -.059 -.403 1.837 -.371 -.111 -.200 .208 -.200 Positive Assoc -.132 -.272 .100 .051 -.076 .043 -.039 -.014 -.371 1.640 -.482 -.179 .202 -.231 Brand Like Ad -.128 -.065 -.201 -.191 .037 -.028 .090 -.093 -.111 -.482 1.574 -.110 -.191 .053 Convenient .138 -.147 .029 .093 -.086 .055 .241 .088 -.200 -.179 -.110 1.880 -.801 -.465 Realiability -.081 -.022 -.024 .096 .046 -.090 -.087 -.090 .208 .202 -.191 -.801 1.751 -.514 Use in Decisio .014 .019 -.133 -.027 -.013 .057 .068 .044 -.200 -.231 .053 -.465 -.514 1.641 26 Communalities Like Internet Ads IA Attention IA Persuasion Read IA Visit Web Site Click Banner View Pop-Up View Email Increase Awareness Positive Association Brand Like Ad Convenient Realiability Use in Decision Initial 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Extraction .547 .490 .498 .551 .463 .409 .369 .369 .524 .413 .432 .716 .605 .622 Extraction Method: Principal Component Analysis. Total Variance Explained Component 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Initial Eigenvalues Total % of Variance Cumulative % 4.876 34.832 34.832 2.133 15.236 50.068 .980 7.003 57.071 .846 6.043 63.114 .735 5.252 68.365 .649 4.634 72.999 .626 4.471 77.471 .597 4.265 81.736 .505 3.608 85.344 .495 3.539 88.883 .429 3.066 91.949 .410 2.926 94.875 .371 2.653 97.528 .346 2.472 100.000 Extraction Sums of Squared Loadings Total % of Variance Cumulative % 4.876 34.832 34.832 2.133 15.236 50.068 Extraction Method: Principal Component Analysis. 27 Rotation Sums of Squared Loadings Total % of Variance Cumulative % 4.551 32.506 32.506 2.459 17.562 50.068 Component Matrixa 1 Like Internet Ads IA Attention IA Persuasion Read IA Visit Web Site Click Banner View Pop-Up View Email Increase Awareness Positive Association Brand Like Ad Convenient Realiability Use in Decision Component 2 .718 .700 .704 .698 .638 .598 .450 -.407 .580 .724 .615 .626 .794 .731 .696 Extraction Method: Principal Component Analysis. a. 2 components extracted. Rotated Component Matrixa Like Internet Ads IA Attention IA Persuasion Read IA Visit Web Site Click Banner View Pop-Up View Email Increase Awareness Positive Association Brand Like Ad Convenient Realiability Use in Decision Component 1 2 .735 .664 .681 .742 .681 .640 .563 .607 .674 .512 .519 .403 .846 .778 .781 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 3 iterations. 28 Component Transformation Matrix Component 1 2 1 2 .939 -.345 .345 .939 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Through Factor Analysis, it was determined after three iterations that questionnaire questions #12 – 25 could be loaded onto two factors. Questionnaire questions #12 – 22 were loaded on Factor 1, which will be named “Attitudes and Behavior of Internet Users,” and questionnaire questions #23 – 25 were loaded on Factor 2, which will be named “Reasons for Internet Usage,” (please see charts “Component Matrix” & “Rotated Component Matrix” shown above). The next step is to transform the variable outputs into data that can be used for an ANOVA tests. This can be done in SPSS by placing the following formula into the software’s “Transform : Compute” function: ((Like Internet Ads * .735) + (IA Attention * .664) + (IA Persuasion * .681) + (Read IA * .742) + (Visit Web Site * .681) + (Click Banner * .640) + (View Pop-Up * .563) + (Increase Awareness * .674) + (Positive Association * .512) + (Brand Like Ad * .519)) / 11 The resulting data is then labeled “Atti1,” which will now allow for an ANOVA test with “Recodeex” (the recoded expertise level) as the independent variable and “Atti1” as the dependent variable. The following ANOVA test calculations and tables are generated by SPSS: Descriptives ATTI1 N 2.00 3.00 Total 215 198 413 95% Confidence Interval for Mean Mean Std. Deviation Std. Error Lower Bound Upper Bound 1.3720 .40912 .02790 1.3170 1.4270 1.2891 .41591 .02956 1.2309 1.3474 1.3323 .41397 .02037 1.2923 1.3723 Minimum .64 .64 .64 Maximum 2.52 3.19 3.19 ANOVA ATTI1 Between Groups Within Groups Total Sum of Squares .708 69.895 70.603 df 1 411 412 Mean Square .708 .170 F 4.165 Sig. .042 With the α at .05, H2 is rejected due to the significance shown in the ANOVA chart of .042. Hypothesis 3: H3: An Internet user’s level of expertise has no bearing on his/her overall reasons for using the Internet. utilizes the second loaded factor in the Factor Analysis, “Reasuse1.” The data from “Reasuse1” for the ANOVA test was derived from the following formula placed into SPSS’s “Transform : Compute” function: ((Convenient * .846) + (Use in Decision * .781) + (Reliability * .778)) / 3 The data from this formula was then placed into an ANOVA tests with “Reasuse1” as the dependent variable and “Recodeex” (the recoded expertise level) as the independent variable. The following calculations and tables were generated using SPSS: 29 Descriptives Reasuse1 N 2.00 3.00 Total 218 197 415 Mean 2.7524 3.1230 2.9283 Std. Deviation Std. Error .71441 .04839 .67967 .04842 .72150 .03542 95% Confidence Interval for Mean Lower Bound Upper Bound 2.6570 2.8477 3.0275 3.2185 2.8587 2.9979 Minimum .80 .80 .80 Maximum 4.01 4.01 4.01 ANOVA Reasuse1 Between Groups Within Groups Total Sum of Squares 14.216 201.295 215.512 df 1 413 414 Mean Square 14.216 .487 F 29.168 Sig. .000 With the α at .05, H3 is rejected due to a significance of .000 given in the ANOVA chart. Hypothesis 4: H4: Intent to purchase Internet advertised products are positively influenced by: a.) Increase in overall attitude towards Internet advertising. b.) Increase in weekly Internet hour usage. c.) Propensity to click Internet advertisement on high affinity website. d.) Increase in consumer trust of Internet advertisements. e.) Increase in perceived consumer value of Internet advertisements. was tested using SPSS’s multiple linear regression tool. To test the validity of this hypothesis, variables a (“Atti1”), b (“Hour Usage”), c (“Affinity Attention”), d (“Trust1”), and e (“Value1”) were deemed the independent variables, while “Recoprod” was labeled the dependent variable. Through Factor Analysis, it was determined after three iterations that all elements of questionnaire question #31 could be loaded onto two factors. Factor 1, which will be named “Trust1,” encompassed the following variables: “Respect / Invasive,” “Reliable / Unreliable,” “Valuable / Worthless,” and “Safe / Dangerous.” Factor 2, which will be named “Value1,” included the following variables: “Convincing / Unconvincing,” “Entertaining / Not Entertaining,” “Informative / Uninformative,” “Interesting / Uninteresting,” “Artful / Artless,” and “Attractive / Unattractive.” Please note that these are the recoded variables and not the original. Trust 1 was calculated as follows: ((Recoded Respect * .558) + (Recoded Reliability * .774) + (Recoded Value * .707) + (Recoded Safety * .873)) / (4) Value1 was calculated as follows: ((Recoded Convincing * .684) + (Recoded Entertaining * .807) + (Recoded Informative * .640) + (Recoded Interesting * .810) + (Recoded Artful * .688) + (Recoded Attractive * .843)) / (6) 30 a Correlation Matrix Correlation Recoded Respect Recoded Reliable Recoded Value Recoded Safe Recoded Convincin Recoded Entertaini Recoded Informativ Recoded Interestin Recoded Artful Recoded Attractive Sig. (1-tailed Recoded Respect Recoded Reliable Recoded Value Recoded Safe Recoded Convincin Recoded Entertaini Recoded Informativ Recoded Interestin Recoded Artful Recoded Attractive Recoded Recoded Recoded Recoded Recoded Recoded Recoded Recoded Recoded Respect Reliable Value Recoded Safe Convincing Entertaining Informative Interesting Artful Attractive 1.000 .430 .476 .406 .480 .407 .361 .458 .323 .404 .430 1.000 .660 .563 .550 .384 .532 .488 .412 .419 .476 .660 1.000 .523 .651 .504 .628 .583 .385 .521 .406 .563 .523 1.000 .342 .232 .391 .296 .220 .242 .480 .550 .651 .342 1.000 .579 .649 .663 .449 .598 .407 .384 .504 .232 .579 1.000 .531 .692 .450 .650 .361 .532 .628 .391 .649 .531 1.000 .693 .399 .573 .458 .488 .583 .296 .663 .692 .693 1.000 .498 .660 .323 .412 .385 .220 .449 .450 .399 .498 1.000 .600 .404 .419 .521 .242 .598 .650 .573 .660 .600 1.000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 .000 a. Determinant = 3.686E-03 Inverse of Correlation Matrix Recoded Respect Recoded Respect 1.534 Recoded Reliable -.090 Recoded Value -.175 Recoded Safe -.338 Recoded Convincing -.298 Recoded Entertaining -.116 Recoded Informative .247 Recoded Interesting -.266 Recoded Artful -.036 Recoded Attractive -.101 Recoded Reliable -.090 2.214 -.717 -.613 -.287 .102 -.181 -.098 -.329 .102 Recoded Value -.175 -.717 2.645 -.448 -.573 -.167 -.442 -.108 .107 -.187 Recoded Safe -.338 -.613 -.448 1.663 .168 .051 -.239 .160 .019 .111 Recoded Convincing -.298 -.287 -.573 .168 2.543 -.244 -.517 -.385 -.078 -.265 Recoded Entertaining -.116 .102 -.167 .051 -.244 2.263 .042 -.893 -.037 -.659 KMO and Bartlett's Test Kaiser-Meyer-Olkin Measure of Sampling Adequacy. Bartlett's Test of Sphericity Approx. Chi-Square df Sig. .912 2268.392 45 .000 31 Recoded Informative .247 -.181 -.442 -.239 -.517 .042 2.491 -.951 .100 -.314 Recoded Interesting -.266 -.098 -.108 .160 -.385 -.893 -.951 3.075 -.217 -.378 Recoded Artful -.036 -.329 .107 .019 -.078 -.037 .100 -.217 1.676 -.757 Recoded Attractive -.101 .102 -.187 .111 -.265 -.659 -.314 -.378 -.757 2.539 Communalities Recoded Respect Recoded Reliable Recoded Value Recoded Safe Recoded Convincing Recoded Entertaining Recoded Informative Recoded Interesting Recoded Artful Recoded Attractive Initial 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Extraction .443 .704 .726 .762 .681 .685 .632 .758 .497 .746 Extraction Method: Principal Component Analysis. Total Variance Explained Component 1 2 3 4 5 6 7 8 9 10 Initial Eigenvalues Total % of Variance Cumulative % 5.466 54.656 54.656 1.169 11.685 66.341 .687 6.868 73.209 .657 6.572 79.781 .459 4.593 84.374 .390 3.904 88.278 .339 3.388 91.667 .309 3.093 94.760 .287 2.869 97.629 .237 2.371 100.000 Extraction Sums of Squared Loadings Total % of Variance Cumulative % 5.466 54.656 54.656 1.169 11.685 66.341 Extraction Method: Principal Component Analysis. Component Matrixa 1 Recoded Respect Recoded Reliable Recoded Value Recoded Safe Recoded Convincing Recoded Entertaining Recoded Informative Recoded Interesting Recoded Artful Recoded Attractive Component 2 .629 .733 .409 .810 .545 .682 .823 .748 .795 .834 .637 .780 Extraction Method: Principal Component Analysis. a. 2 components extracted. 32 Rotation Sums of Squared Loadings Total % of Variance Cumulative % 3.833 38.330 38.330 2.801 28.010 66.341 Rotated Component Matrixa 1 Recoded Respect Recoded Reliable Recoded Value Recoded Safe Recoded Convincing Recoded Entertaining Recoded Informative Recoded Interesting Recoded Artful Recoded Attractive Component 2 .476 .684 .807 .640 .810 .688 .843 .558 .774 .707 .873 .462 .472 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. a. Rotation converged in 3 iterations. Component Transformation Matrix Component 1 2 1 2 .787 -.616 .616 .787 Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. After Factor Analysis for variables “Trust1” and “Value1” were calculated, a linear multiple regression in SPSS was performed. As previously stated, , variables a (“Atti1”), b (“Hour Usage”), c (“Affinity Attention”), d (“Trust1”), and e (“Value1”) were deemed the independent variables, while “Recoprod” was labeled the dependent variable. The following calculations and tables were generated from SPSS: Descriptive Statistics Purchase Atti1 Hour Usage Affinity Attention Trust1 Value1 Mean 2.32 1.3322 3.74 2.05 2.4715 2.7216 Std. Deviation .897 .41031 1.114 .619 .86743 .98153 N 341 341 341 341 341 341 33 Correlations Pearson Correlation Sig. (1-tailed) N Purchase 1.000 -.234 -.061 -.198 -.069 -.175 . .000 .130 .000 .102 .001 341 341 341 341 341 341 Purchase Atti1 Hour Usage Affinity Attention Trust1 Value1 Purchase Atti1 Hour Usage Affinity Attention Trust1 Value1 Purchase Atti1 Hour Usage Affinity Attention Trust1 Value1 Atti1 -.234 1.000 .052 .405 .401 .511 .000 . .169 .000 .000 .000 341 341 341 341 341 341 Hour Usage -.061 .052 1.000 .049 .005 .079 .130 .169 . .184 .463 .072 341 341 341 341 341 341 Affinity Attention -.198 .405 .049 1.000 .181 .287 .000 .000 .184 . .000 .000 341 341 341 341 341 341 Trust1 -.069 .401 .005 .181 1.000 .637 .102 .000 .463 .000 . .000 341 341 341 341 341 341 Value1 -.175 .511 .079 .287 .637 1.000 .001 .000 .072 .000 .000 . 341 341 341 341 341 341 Variables Entered/Removedb Model 1 Variables Entered Value1, Hour Usage, Affinity Attention, Atti1, a Trust1 Variables Removed Method . Enter a. All requested variables entered. b. Dependent Variable: Purchase b Model Summary Model 1 Change Statistics Adjusted Std. Error of R Square Durbin-W R R Square R Square the Estimate Change F Change df1 df2 Sig. F Change atson .277a .077 .063 .869 .077 5.578 5 335 .000 1.979 a. Predictors: (Constant), Value1, Hour Usage, Affinity Attention, Atti1, Trust1 b. Dependent Variable: Purchase 34 ANOVAb Model 1 Sum of Squares 21.042 252.752 273.795 Regression Residual Total df 5 335 340 Mean Square 4.208 .754 F 5.578 Sig. .000a a. Predictors: (Constant), Value1, Hour Usage, Affinity Attention, Atti1, Trust1 b. Dependent Variable: Purchase a Coefficients Unstandardized Standardized Coefficients Coefficients Model B Std. Error Beta 1 (Constant) 3.301 .254 Atti1 -.361 .142 -.165 Hour Usage -3.12E-02 .043 -.039 Affinity Attentio -.165 .084 -.113 Trust1 9.215E-02 .071 .089 Value1 -.102 .067 -.112 t 13.018 -2.546 -.734 -1.965 1.296 -1.512 Correlations Sig. Zero-order Partial .000 .011 -.234 -.138 .464 -.061 -.040 .050 -.198 -.107 .196 -.069 .071 .131 -.175 -.082 Part Collinearity Statistics Tolerance VIF -.134 -.039 -.103 .068 -.079 .656 .989 .826 .583 .507 1.524 1.011 1.211 1.715 1.974 a. Dependent Variable: Purchase Coefficient Correlations Model 1 Correlations Covariances Value1 Hour Usage Affinity Attention Atti1 Trust1 Value1 Hour Usage Affinity Attention Atti1 Trust1 Value1 1.000 -.082 -.105 -.306 -.552 4.547E-03 -2.35E-04 -5.94E-04 -2.92E-03 -2.65E-03 a Hour Usage -.082 1.000 -.022 -.012 .060 -2.354E-04 1.808E-03 -7.804E-05 -7.417E-05 1.821E-04 Affinity Attention -.105 -.022 1.000 -.315 .039 -5.94E-04 -7.80E-05 7.020E-03 -3.74E-03 2.321E-04 Atti1 -.306 -.012 -.315 1.000 -.121 -2.92E-03 -7.42E-05 -3.74E-03 2.009E-02 -1.22E-03 Trust1 -.552 .060 .039 -.121 1.000 -2.65E-03 1.821E-04 2.321E-04 -1.22E-03 5.057E-03 a. Dependent Variable: Purchase a Collinearity Diagnostics Condition Index (Constant) Model Dimension Eigenvalue 1 1 5.688 1.000 .00 2 .121 6.866 .02 3 7.891E-02 8.490 .00 4 4.659E-02 11.049 .02 5 4.032E-02 11.877 .06 6 2.554E-02 14.923 .90 Atti1 .00 .01 .08 .62 .24 .05 a. Dependent Variable: Purchase 35 Variance Proportions Affinity Hour Usage Attention .00 .00 .29 .02 .25 .42 .03 .28 .04 .11 .40 .16 Trust1 .00 .13 .10 .29 .28 .20 Value1 .00 .10 .02 .06 .72 .09 Residuals Statisticsa Minimum 1.60 -1.80 -2.879 -2.077 Predicted Value Residual Std. Predicted Value Std. Residual Maximum 2.94 1.38 2.502 1.585 Mean 2.32 .00 .000 .000 Std. Deviation .249 .862 1.000 .993 N 341 341 341 341 a. Dependent Variable: Purchase 2. When taken in aggregate with the α at .05, H4 is rejected due to a significance of .000 given in the ANOVA chart. Implications and Conclusions. H1: Beginner and Intermediate Internet users are less likely to be concerned with respect of consumer privacy than are Advanced Internet users. was tested using the ANOVA analysis option (in SPSS statistics software) using the data from questionnaire question #31: “Respectful of Consumer Privacy / Invasive of Consumer Privacy” as the dependent variable and the recoded data from questionnaire question #4 (“Recodex”) as the independent variable. The following is the SPSS calculations and tables: Descriptives Respectful / Invasive 2.00 3.00 Total N 214 197 411 Mean Std. Deviation Std. Error 5.00 1.594 .109 5.70 1.406 .100 5.33 1.546 .076 95% Confidence Interval for Mean Lower Bound Upper Bound Minimum 4.78 5.21 1 5.50 5.90 2 5.18 5.48 1 Maximum 7 7 7 ANOVA Respectful / Invasive Between Groups Within Groups Total Sum of Squares 51.008 928.325 979.333 df 1 409 410 Mean Square 51.008 2.270 F 22.473 Sig. .000 With the α at .05, H1 is rejected due to the significance shown in the ANOVA chart of .000. Implications for H1: Since H1 was rejected, we can conclude that an Internet user’s level of expertise does in fact have an effect on whether or not an Internet user views an Internet advertisement as respectful or invasive of his/her privacy. More specifically, we can conclude that Advanced Internet users appear to be more concerned about data privacy than Beginner/Intermediate Internet users. By viewing and comparing the means of Beginner/Intermediate users to Advanced users in this category, it can be concluded that while both groups (on the average) have a corresponding value of “Somewhat Negative” (Beginner/Intermediate - μ = 5.00; Advanced - μ = 5.70), we can conclude that Advanced Internet users hold a significantly higher degree of negativity towards Internet advertisements. The statement that both groups found Internet advertisements to be somewhat invasive should not come as a surprise when compared against to the histogram below which captures the initial response of all questionnaire respondents. 36 160 140 120 100 80 60 40 Std. Dev = 1.55 20 Mean = 5.3 N = 412.00 0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Respectful / Invasive 300 200 100 Std. Dev = .50 Mean = 2.48 N = 419.00 0 2.00 2.50 3.00 Recoded Expertise Level 37 300 200 100 Std. Dev = .56 Mean = 2.45 N = 419.00 0 1.00 1.50 2.00 2.50 3.00 Expertise Implications for H2: Since H2 was rejected, we can conclude that an Internet user’s level of experience does have an effect on how his/her attitude toward the implications and factors of Internet advertising. More specifically, we can conclude that Advanced Internet users are less likely to hold a positive attitude towards Internet advertisements. By viewing the means between Beginner/Intermediate users and Advanced users, we can conclude that Beginner/Intermediate users hold Internet advertising (and its outcomes and objectives) to a lower degree of negativity than Advanced users (Beginner/Intermediate users - μ = 1.372; Advanced users - μ = 1.2891; according to the questionnaire, the lower the value, the higher the degree of negativity); in other words, Advanced users assign a significantly higher degree of negativity to Internet advertising than do Beginner/Intermediate users. Implications for H3: Since H3 was rejected, we can conclude that an Internet user’s level of experience does have an effect on why he/she uses the Internet. Once again, by viewing the means between Beginner/Intermediate users and Advanced users, we can conclude that Advanced users (μ = 3.123) hold a significantly higher positive attitude concerning the uses and advantages of the Internet compared to that of Beginner/Intermediate users (μ = 2.754). Implications for H4: When taken in aggregate H4 was rejected, thus we can conclude that the sale of an Internet advertised product/service is not positively/negatively effected by the increase/decrease of the distinguished variables. However, at the micro variable level, the picture changes somewhat. For example, “Att1” has a significance value of 0.011 (thus, we reject this variable, which illustrates that an increase/decrease in consumer attitudes toward Internet advertisements will not increase Internet advertised products). Yet, we failed to reject “Hour Usage” (.464), “Affinity Attention” (.05), “Trust1” (.196), and “Value1” (.131). The failure to reject these variables at an α of .05 means that we are 95% confident that an increase/decrease in the FTR variables will lead to an increase/decrease in the sales of Internet advertised products. Conclusions: Significant differences exist between the levels of expertise in Internet user’s. Beginner/Intermediate users appear to be more willing to tolerate Internet advertisements and their implications and objectives, while Advanced users appear less willing to tolerate or give attention to Internet advertisements. 38 Thus, due to Advanced user’s apparent refusal to serve the monkey, the most effective Internet advertisement will be geared toward Beginner/Intermediate users. With that said, Internet advertisers should bear in mind one important factor: With each passing day, more and more Internet users will advance in their level of expertise; thus, Beginner/Intermediate stages only appear in the short-run, and with increasing number of Internet users adopting the Internet at an earlier age (children), this segment could soon be out of reach due to advertising laws designed to protect minors. FURTHER RESEARCH The study was limited to the sample size and sample population. A sample size of 500 would have yielded more significant findings; the vast majority of the sample population consisted of current or former undergraduate and graduated students. Thus, the attitudes, behaviors, and preferences of lesser-educated Americans were not measured. Since a large segment of the national population does not have a college education or posses an undergraduate, graduate, or terminal degree, this population was basically ignored in this study. 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Journal of Advertising Research, 40, ½, 55 (10). 42 DIETARY SUPPLEMENT USERS VS NON-USERS IN MALAYSIA: PROFILE COMPARISONS FOR MARKETING PURPOSES Ezlika Ghazali University of Malaya, Malaysia Dilip Mutum Universiti Utara Malaysia Lee Lai Ching University of Malaya, Malaysia ABSTRACT This study provides a demographic and psychographic profile of Malaysian dietary supplement users. There were significant differences between regular and non-regular users were only noted in terms of age, marital status, number of children and personal income while there was no significant difference for other demographic variables. Six psychographic dimensions were identified. Regular users of dietary supplements could be considered as price conscious and brand triers. This study suggests some implications for marketers to think about when marketing dietary supplements. INTRODUCTION Available in many forms such as tablets, capsules, softgels, gelcaps, liquids, or powders and are easily obtained from pharmacies, health food stores, clinics, Chinese medical halls, supermarkets/hypermarkets or even from many direct-selling agents, there is increasing trend among Malaysians to use dietary supplements and herbal medicines to improve their well-being. A dietary supplement is defined in the United States under the Dietary Supplement Health and Education Act (DSHEA) 1994, as a product (other than tobacco) which is ingested and contains a "dietary ingredient" intended to supplement the diet. These dietary ingredients include vitamins, minerals, herbs or other botanicals, amino acids, substances such as enzymes, organ tissues, glandular, metabolites, extracts or concentrates (FDA, 1994). In Malaysia the dietary supplement market is huge. In 2002, it was reported that Malaysians spent an average of US$17.30 a month on health supplements with the market for traditional medicines and other health foods, such as herbs, foods, and beverages enriched with supplements was estimated to be worth US$526 million (Ahmad, 2002). Over-the-counter (OTC) healthcare grew by 6% in current value terms to reach RM1 billion in 2003. It is expected that Malaysian OTC healthcare would show moderate growth by 18% to reach RM1,283 million by 2008 (Euromonitor, 2004). In view of the growing importance of this industry, this study specifically attempts to distinguish consumers along demographic characteristics and psychographic dimensions in regards to dietary supplements. This study also seeks to suggest some marketing implications from findings of this study for marketers to think about when marketing dietary supplements. As many studies have also shown that supplement users differ from non-users in demographic and lifestyle factors (Lyle et al., 1998; Ishihara et al., 2003), it is hoped that a better understanding of consumer lifestyle profiles coupled with better insights on consumers will allow marketers to develop appropriate products as well as position their products better in the mind of the consumers. 43 LITERATURE REVIEW One of the biggest trends in the healthcare industry is that consumers are now taking charge of their health and they are seeking alternative forms of medicines including dietary supplements, nutraceuticals and functional foods (Greger, 2001). Definition of Dietary Supplement User: Different researchers have defined ‘a user of dietary supplement’, differently. A study in Korea by Kim et al. (2003) looking at the use of vitamins, minerals and other dietary supplements by students, defined a user of vitamin and mineral supplements as a person who took vitamin and mineral on more than 1 or 2 days per week for more than 1 month within the previous 12 month period. On the other hand, Gunther (2004) studying herbal and specialty supplement use in Washington defined current user of supplements as “use at least weekly over the past year”. Another study profiling dietary supplement users in Japan by Ishihara et al. (2003), defined users of dietary supplements as subjects who used at least one category of dietary supplement for more than 1 week and more than 1 year. A report based on a compilation of 30 consumer surveys in America entitled “Consumer Research in the Nutrition Industry II”, indicates that 70% of American adults could be characterized as supplement users (NBJ, 2002). Supplement users can be further classified into sub-segments based on their volume of purchases as shown in the Table 1.1 below. Table 1.1: Classification of Dietary Supplement User Based on Volume of Purchase Type of User Average Number of Purchases Per Month Heavy User (4.3%) Five purchases or US$43 per month Regular User (32%) One and two purchases or US$11 per month Occasional User Once every two months Rare User Once every five months For the purpose of this study, a “user” of dietary supplement will be defined as those who use dietary supplements for at least a week in the past one-year whereas regular usage would mean using it on daily or at least few times in a week basis. Any other pattern of dietary supplement consumption of less than weekly will be defined as non-regular user. Demographic Characteristics of Users: Use of dietary supplement including vitamins and minerals, has been reported to be strongly affected by several demographic characteristics, including gender, socioeconomic status, age among others. Gender: Females have been found to be more likely to take supplements than males in many studies (Patterson et al., 1998; Xue et al., 1999 Greger, 2001). However, this has not always been the case. In the study by Kim et al. (2003) on use of vitamins, minerals and other dietary supplements by students in Korea, it was found that gender did not influence the use of supplements. Age: Age has also been shown to be strongly associated with supplement use in some population groups. Dietary supplements are widely used by the elderly in the USA and Australia (Subar and Block, 1990; Patterson et al, 1998). Furthermore, the first study to look at supplementation usage among the elderly in UK also found that a high proportion of the elderly takes supplements to maintain good health (Johnson et al., 2000). A study in Japan by Ishihara et al., (2003) also showed that prevalence of users was higher among the elderly respondents. However, Xue et al. (1999) showed that typical Australian supplement users were younger (49 to 70 years) rather than older (more than 70 years). In Malaysia, among the few studies conducted, Chong (1994), showed that the older respondents (between 36 and 55 years) reported more frequent consumption of OTC products. Residence Area: Ishihara et al., (2003) found that a high prevalence of dietary supplement users was observed in metropolitan regions in Japan and in areas strongly influenced by Western lifestyles with ready access to dietary supplements. 44 Socioeconomic Status: A number of studies have also indicated a strong association between supplement use with higher income level (Kim et al., 2002). Studies by Lyle et al., (1998) and Kirk et al., (1999) showed that women who use supplements tend to have an income that is greater then the median United States income. Kim et al. (2003) also reported a positive association between use of vitamin/mineral supplement use and socioeconomic status of the family. Education: Sveral studies have shown that supplement users tend to be more educated (Koplan et al., 1986; Patterson et al., 1998; Lyle et al., 1998; Kirk et al., 1999 and Xue et al. 1999). Profession: Usage of supplements is also relatively high among health professionals, including doctors, dietitians and pharmacists. This is a further indication that supplement use is strongly associated with increased knowledge about nutrition and health. In a survey involving 4501 female physicians participating in the Women Physicians’ Health Study, it was found that half of them took a multivitamin-mineral supplement (Frank 2000). Xue et al., (1999) found that Australian supplement users were clerks or sales persons. Race: Some studies also found that usage varied among ethnic groups too. Lyle et al. (1998) and Kirk et al. (1999) showed that women who use supplements in US tend to be Caucasian. A Malaysian study by Chong (1994), found that Malays tend to have the lowest frequency of usage of OTC products (including supplements) as compared with Chinese, Indians and other races. Psychographics of Users: The basic premise underlying psychographic research is that the more marketers understand their consumer, the more effectively they can communicate and market to them (Plummer, 1974). Even though there are attempts to differ between lifestyle and psychographics, the two terms are often used interchangeably (Wells and Tigert, 1971). An individual’s view about the health benefit of dietary supplement is recognized to be an important motivational factor for dietary supplement use. Unfortunately, a review of the literature found that only a few psychographic or lifestyle studies have been carried out on dietary supplement users in Malaysia as well as in other Asian countries. Studies have revealed that supplement users consume moderate amounts of alcohol, are nonsmokers and more likely to engage in physical activities (Lyle et al, 1998; Kirk, et al., 1999; Greger, 2001; Subar & Block, 1990; Ishihara, 2003). Users are also generally more likely to be more health conscious than non-supplement users (Lyle et al., 1998; Patterson, 1998 and Xue et al., 1999). However, there are also indications that dietary supplements are likely to be used by individuals who do not fit in the initial target group. Individuals might actually use functional foods and/or dietary supplements as a means to compensate for an unhealthy lifestyle (Kirk, et al., 1999). Consumer segments: Psychographics in research typically seeks to identify a limited set of distinct consumer types to which marketers may direct different marketing efforts. In Singapore, Chan (1988) conducted a study to determine the consumer’s orientation towards over-the-counter analgesics and antipyretics. Using 25 activity, interest and opinion (AIO) statements to map out the psychographic profiles of the consumers, five patterns of shopping orientation were identified, viz., ‘information seeker’, ‘brand trier’, ‘health and safety consciousness’, ‘healthy lifestyle’ and ‘stressful lifestyle respondents’. Another study on OTC pharmaceutical products (including dietary supplements) conducted by Chong (1994) among Malaysian and French consumers utilized 57 AIO statements to study the profile of the respondents. Based on conceptual attributes of the AIO statement grouped by factor analysis, 12 lifestyle dimensions were identified among Malaysian respondents, viz., ‘health but busy worrier’, ‘exerciser’, ‘opinion leader’, ‘reader’, ‘dieter’, ‘neighbourhood brand adviser’, ‘insurance believer’, ‘traditionalist’, ‘self medicators’, ‘cautious individuals’ and ‘sin avoider’. The results of this study showed that only the self medicator and cautious individual factors were significant in determining the frequency of usage. Among the studies in the US include that of Miller and Russell (2003), which looked at the decision-making criteria used for dietary supplements at the point of purchase. The study involved 51 women aged 25 to 45 years who consumed a supplement at least four times per week. Qualitatively, five homogenous subgroups of shoppers were identified, viz., ‘Brand Shopper’, ‘Bargain Shopper’, ‘Convenience Shopper’, ‘Information Gatherer’ and ‘Quality 45 Shopper’. Another study involved comprehensive research and statistical analysis within the Health and Wellness Trends carried out by the Natural Marketing Institute (2004), five mutually exclusive segments were identified. These were ‘Well Beings’, ‘Food Actives’, ‘Magic Bullets’, ‘Fence Sitters’ and ‘Eat, Drink and be Merrys’. RESEARCH METHODOLOGY Research instrument: The survey instrument was a twelve-page questionnaires which was divided into three parts: A, B and C. Part A was designed to measure the psychographic characteristics of the respondents based on the findings of past research on over-the-counter pharmaceutical products and other products. This section consisted of 42 AIO statements. Respondents were required to rate their level of agreement to each statement on a 5-point Likert type scale ranging from 1 (strongly disagree) to 5 (strongly agree). Inputs for the AIO statements used were drawn from several sources, viz., Chan (1988), Chong (1996), Wells & Tigert (1971), Reynolds (1974), Chong (1994), Tam and Tai (1998) and Kaur (1990). Most of the statements were taken from Chan’s (1988) study. Five statements were slightly modified to suit this study to measure information seeker consumer, brand trier consumer and stressful lifestyle consumer. The word ‘dietary supplements’ was used instead of ‘medicines’. Four statements were taken from Chong (1996) study on lipstick and face powder consumers in the Klang Valley. Ten other statements were adopted from another study on Malaysian and French customers of OTC Pharmaceutical products (Chong’s, 1994). A further five statements were adopted from the AIO inventory developed by Wells and Tigert (1971). A statement each was adopted from Reynold’s (1974) and Kaur (1990). Further two statements were adopted from Tam and Tai’s (1998) study. Table 2.1 below shows a summary of the AIO statements used in the study. Part B is not relevant for this paper. Part C was designed to collect the demographic information of the respondents and contained nine questions. Pilot Test: Prior to the actual survey, a pilot test was conducted with five respondents who fulfilled the criteria of the sample regarding the clarity of instructions and statements. Based on the feedback, the final questionnaire was developed in two versions: English/Bahasa Melayu (230) and Chinese (170) via translation and retranslation procedure. Table 2.1: Details of Lifestyle Items Adopted In the Study Statement 1. I usually watch the advertisement for sales. 7. I can save a lot of money by shopping around for bargains. 14. I find myself checking the prices even for small items. 20. I usually compare prices before buying. 24. I shop a lot for “specials”. 4. I like to try new and different products. 6. When I see a new brand on the shelf, I often buy it just to see what it is like. 38. I often try new brands before my friends and neighbours do. 2. My choice of brands for many products is influenced by advertisements and commercials. 22. My friends usually give me pretty good advice on what brands of things to buy. 39. I often seek out the advice of my friends regarding which brand to buy. 35. I spend a lot of time talking with my friends about products and brands. 46 Adapted from Chong (1996) Chong (1996) Measuring Price consciousness Chong (1996) Wells & Tigert (1971) Wells & Tigert (1971) Chong (1996) Reynolds (1974) Price consciousness Brand Trier Wells & Tigert (1971) Chan (1988) Chan (1988) Wells & Tigert (1971) Wells & Tigert (1971) Information seeker 3. Everyone should take vitamins. 5. I often read books and articles on “health” matters. 36. I am more health conscious than most of my friends 31. I frequently purchase “health food”/”natural food” 11. I believe that a person’s most important asset is his/her health. 21. Alcoholic drink is undesirable for health. 8. Smoking is bad for health. 23. I prefer to buy quality products even though they maybe high priced. 37. I generally try to buy products known for its quality. 40. I do not mind to pay extra for quality. 41. You get what you pay for. 42. Knowing a salesperson in the store makes my shopping far more enjoyable. 9. I exercise regularly. 16. I hardly ever get a headache. 13. I am careful about my diet 26. I do not smoke. 10. I worry a lot. 32. My daily schedule is very hectic. 12. I catch a cold very often. 27. I hate to lose at anything. 17. Everything is changing too fast today. 24. I walk or jog for exercise. 33. I do other exercise besides walking/jogging. 18. I exercise to keep fit. 28. I enjoy outdoor activities. Chan (1988) Chan (1988) Health and safety consciousness Tam and Tai (1998) Tam and Tai (1998) Chong (1996) Chong (1994) Chong (1994) Kaur (1990) Quality minded Chong (1994) Quality Minded Chong (1996) Quality Minded Chan (1988) Healthy Lifestyle Chan (1988) Stressful Lifestyle Chong (1994) Exerciser Chong (1994) Exerciser Sampling Procedure and Data Collection Method: Convenience sampling was employed for the study. The sample selected was confined to residents in urban areas of Kuala Lumpur, Selangor and Perak: Kuala Lumpur, Damansara, Petaling Jaya, Shah Alam, Ipoh and Taiping. Based on the assumption that the self-administered questionnaire would require a certain level of maturity and understanding from the respondents, the age of 16 was set as a reasonable cut-off point as was employed in the study by Chong (1996). Another condition was that they should have used dietary supplements before. The survey was conducted over a 4-week period in February 2005. 400 copies of the twelve pages questionnaire were distributed to the targeted sample with the hope of obtaining at least 250 copies. A total of 269 responses were received. RESEARCH RESULTS Characteristics of the Respondents: Of the total number of respondents, 247 respondents were found to be users while 22 were non-users of dietary supplements. As the study attempts to study only users of dietary supplements, the final data were analyzed using a sample size of 247 respondents. This sample comprised of 165 regular users (66.8%) and 82 non-regular users (33.2%) of dietary supplements. Users of dietary supplements in this study were identified through their response to the question: In the past one year, have you taken any dietary supplements before for at least a week? Table 3.1: Characteristics of the Respondents 47 Characteristics Gender Male Female Freq. % Freq. % 41.3 58.7 Characteristics Education Level Primary school SRP/PMR/LCE 102 145 10 18 4.0 7.3 Malay Chinese Indian 98 114 30 39.7 46.2 12.1 SPM/SPVM/MCE STPM/HSC/A-Levels College Diploma University Degree/Professional 64 27 51 77 25.9 10.9 20.6 31.2 Others 5 2.0 Occupation 12 44 62 69 39 21 4.9 17.8 25.1 27.9 15.8 8.5 Professional Administrative/Managerial Sales/Marketing Supervisory Teacher/Lecturer Technical Own business 26 30 35 8 32 18 35 10.5 12.1 14.2 3.2 13.0 7.3 14.2 Single 70 28.3 Not working Others 36 27 14.6 10.9 Married without Children Married with Children Divorced/Widowed/Separated 27 144 6 10.9 58.3 2.4 No Income Less than RM1,000 38 42 15.4 17.0 85 15 48 58 41 34.4 6.1 19.4 23.5 16.6 RM1,000-RM1,999 RM2,000-RM2,999 RM3,000-RM3,999 RM4,000-RM4,999 RM5,000 and above 55 48 28 21 15 22.3 19.4 11.3 8.5 6.1 Ethnic Group Age Less than 20 20-29 30-39 40-49 50-59 60 and above Marital Status No of Children None One Two Three Four & above Personal Income More than half or 58.7% of the respondents were females. In terms of ethnic group, 46.2% of the sample was Chinese followed by 39.7% Malays, Indians 12.1% and others at 2.0%. In terms of age, majority of the respondent population were middle aged (30-49 years), representing 53.0% of the sample. More than half or 69.2% of the respondents were married. Out of that, 58.3% were with children, 10.9% were without children while divorced/widowed/separated made up only 2.4%. In terms of number of children, 23.5% of the respondents had three children, 19.4% had two children and 16.6% have four children and above. More then a third or 37.2% of the sample had moderate level of education (SPM and below), 31.5% had Form Six/ Diploma qualification while 31.2% had tertiary education. As for occupation, the respondents came from various backgrounds. In terms of personal income, 58.7% of the respondents earn less then RM3,000 per month, 19.8% earn RM3,000-RM4,999 and only 6.1% earns more than RM5,000 and above. A large number of respondents (15.4%) indicated have no income at all because they are students, housewives, retired or unemployed. As for the household income, it was removed from the analysis 48 because many respondents refused to provide information about their household income or provided inaccurate information on their household income in the questionnaire. Demographic Comparison- Regular and Non-Regular Users: To compare and distinguish the two groups along their demographic characteristics, Chi-square analysis was employed to test the significance of demographic differences between the two groups of users. Some of the demographic categories were collapsed and reclassified for purpose of better analysis. For ethnic group, “Indians” and “Others” were collapsed and classified as “Indian and others”. For the age, “50-59” and “60 and above” were collapsed and reclassified as “50 and above”. For marital status, the “single” and “divorced/widowed/separated” were combined into one category to be reclassified as “single” whereas “married without children” and married with children” were reclassified as “married”. With regards to number of children, the original 5 categories were reclassified into two categories with “1” and “2” children collapsed to form “1-2” and anything above 2 classified as “3 and above”. In terms of education, the first three category of “primary school”, “SRP/PMR/LCE” and “SPM/SPVM/MCE” was combined into one category called “Low education. “STPM/HSC/A-Levels” and “college diploma” category combined to be called “medium education” and the rest for “university degree/professional” classified as “High education. Table 3.2: Demographic Comparison of Regular and Non-Regular Users Characteristics Gender Male Female Race Malay Chinese Indian and others Age Less than 20 20-29 30-39 40-49 50 and above Marital Status Single Married No of Children None 1 to 2 3 and above Education Low Middle High Occupation Professional Administrative/Managerial Sales/Marketing Supervisory Teacher/Lecturer Regular user % Non regular user % 70.6 66.2 29.4 33.8 62.2 73.7 65.7 37.8 26.3 34.3 41.7 63.6 61.3 68.1 83.1 58.3 36.4 38.7 31.9 16.9 56.6 73.1 43.4 26.9 57.6 77.8 70.7 42.4 22.2 29.3 64.9 67.9 70.7 35.1 32.1 29.3 72.2 64.7 72.2 50.0 70.0 27.8 35.3 28.0 50.0 30.0 49 X2 not significant, p =0.467 X2 not significant, p =0.195 X2 significant, P =0.033 X2 significant, p =0.010 X2 significant, P =0.026 X2 not significant, P =0.730 X2 not significant, P =0.295 Technical Own business Not working Others Personal Income No Income Less than RM1,000 RM1,000-RM1,999 RM2,000-RM2,999 RM3,000 and above 67.0 76.7 79.0 52.4 33.0 23.3 21.0 47.6 55.9 67.7 65.4 86.2 80.6 44.1 32.3 34.6 13.8 19.4 X2 significant, P =0.034 The personal income “RM4000-RM4999” and “RM5000 and above” was combined to be classified as RM4000 and above. The summary of the chi-square test results is presented in Table 3.2. It was found that there is no significant difference with regards to use of dietary supplements with regards to gender, race, education and occupation. This is in contrast to some other studies, which show some association between usage of dietary supplements with gender, race, education and occupation (Greger, 2001; Lyle, 1998). However, the results show that there are indeed differences between the two groups of users with regards to some variables. It was found that only age, marital status, number of children and personal income were found to be significant at p ≤0.05 between the regular and non-regular users of dietary supplements. Older individuals tend to use dietary supplements more regularly compared to the younger individuals; a finding also consistent with previous studies, which indicated higher usage of dietary supplements among the older individuals (Subar and Block 1990; Lyle 1998). Moreover, those married with children seem to make up a higher proportion of regular buyers of dietary supplements compared to the singles. Concern for the family’s health that has prompted more regular usage of dietary supplements in the family could be one possible explanation for this. Those who have higher income levels also seem to be more regular users of dietary supplements. This confirms the findings of some previous studies (Kim et al., 2002; Ishihara 2001; Greger, 2001; Johnson et al., 2000; Kirk, 1999 and Lyle, 1998), which found that users of dietary supplement had higher income levels and social class. Underlying Buying Behaviour Dimensions: Factor analysis was performed on the 42 AIO statements in order to identify the underlying buying behavior dimensions and also to determine if the dimensions could be summarized into smaller sets of factors. The initial principal components analysis model performed extracted 14 factors with eigenvalues of 1 and above and a total variance explained of 63.0%. As one of the goals of factor analysis is to represent relationship among sets of variables, the 14 factors initially extracted were too many to provide a good analysis. Based on the criteria that the factors should represent about 50% of the total variance explained and that the factor should have at least three significant factor loadings (Norusis, 1985; Hair et al., 1987), six factors were derived. Only items with a factor loading of 0.35 and above in the rotated factor matrix were considered as significant in interpreting the factors. The total variance of these six factors was 39.8%. The rotated factor matrix showed that several items were loaded mainly on three factors. This indicates that while there are some activities shared commonly across the psychographic dimension, there are also other activities not shared across the psychographic dimension. The items reflecting each of the six factors together with the significant factor loadings are presented in Table 3.3. Factors I comprised of six items, Factor II comprised of five items and Factor III was comprised of seven items and explained 14.5 %, 6.7 % and 5.5 % of the variance respectively. Factors IV, V and VI were comprised of three items for each factor and explained 5.0, 4.2, and 3.9 % of the variance respectively. Cronbach’s coefficient alpha was used to test for the internal consistency reliability of each of the dimension. The alpha scores for each dimension are as shown in Table 3.4. The alpha score for all factors except Factor V and VI were able to meet Nunnally’s (1978) guideline that modest reliability in the range of 0.50 to 0.60 will suffice for exploratory research. However, these two factors were retained as a psychographic dimension in the end after taking into consideration Guilford (1954) suggestion that an alpha value of 0.3 can be accepted as reliable. 50 Table 3.3: Factor Analysis Results of AIO Statements Statement I exercise regularly. I exercise to keep fit. I do other exercises besides walking/ jogging. I walk or jog for exercise. I enjoy outdoor activities. I am careful about my diet. I do not mind to pay extra for quality. I prefer to buy quality product even though they maybe high priced, I generally try to buy products known for its quality. You get what you pay for. Knowing a salesperson in the store makes my shopping far more enjoyable. I often read books and articles on “health” matters. I usually read the words on the label of the dietary supplements which I buy/take. Everyone should take vitamins. I believe that a person’s most important asset is his/her health. I am more health conscious than most of my friends. I frequently purchase ‘health food’/ ‘natural food’. I find myself checking the prices even for small items. I usually compare prices before buying. I can save a lot of money by shopping around for bargains. When I see a new brand on the shelf, I often buy it just to see what it is like. I often try new brands before my friends and neighbours do. I will try samples of dietary supplements if given. I usually watch the advertisement for sales. My choice of brands for many products is influenced by advertisement and commercials. Alcoholic drink is undesirable for health. I 0.768 0.730 0.695 0.694 0.678 0.352 II III IV V VI 0.407 0.761 0.755 0.719 0.521 0.420 0.606 0.549 0.499 0.487 0.486 0.455 0.731 0.669 0.659 0.726 0.641 0.411 0.733 0.683 0.453 Table 3.4: Psychographic Dimensions and Internal Consistency Reliable Coefficients Factor Number of Items Psychographic Dimension I Exerciser 6 II Quality Minded 5 III Health & Safety Conscious 7 IV Price Conscious 3 V Brand Trier 3 VI Price/Safety Conscious 3 Alpha Score 0.792 0.678 0.714 0.622 0.482 0.496 Based on the conceptual attributes of items loaded on each dimension, the six dimensions were labeled as shown in Table 3.4. Factor I, labeled the “exerciser” reflects those who lead an active lifestyle and are also health conscious. They tend to do more physical exercise as part of their healthy lifestyle. Factor II, the “quality minded” are those 51 who give priority to quality when purchasing and are willing to pay for using familiar quality branded products. Factor III, labeled “health and safety conscious” are those who are very concerned with their health. As they are also conscious about side effects of the product they buy, the salespeople who know their needs can influence them. Factor IV, the “price consciousness” are those who considers the price factor when purchasing dietary supplement. They are typically bargain shoppers who are always on a lookout of good package. Factor V, the “brand triers” are those who are inclined to try new products. For this type of consumers, strong messages in advertisements can entice them to try the product. Finally, Factor VI is the price and safety conscious type where they look at these two factors in deciding their purchase. Psychographic Comparison: The mean values of the two groups of users (regular and non-regular users) of dietary supplement were compared along the six dimensions identified. A summary of the analysis is provided in Table 3.5. Table 3.5: Psychographic Dimensions of Regular and Non-Regular Users Dimension Regular User Non-Regular User Exerciser 12.57 6.96 Quality Minded 3.80 3.80 Health & Safety 3.76 3.74 Conscious Price Conscious 3.27 3.52 Brand Trier 2.34 2.63 Price/Safety Conscious 3.25 3.41 * Higher scores represent greater level of agreement with the dimensions. ** Level of significance, using t-test. Sig. ** 0.271 0.962 0.557 0.022 0.007 0.159 The differences in group means were statistically significant at p≤0.05for two out of six psychographic attributes of the dietary supplement users, viz., “price conscious” and the “brand trier”. This finding is consistent with those of Miller (2003), which found these factors as important in the purchase of dietary supplement. No significance was found between regular and non-regular users in terms of the health conscious, quality minded and health and safety conscious dimensions. Based on the group differences in mean values of the lifestyle attributes, a profile of the dietary supplement regular user can be drawn. The psychographic profile of dietary supplement regular users as a group could be considered as price conscious and are brand triers. DISCUSSION The present study attempted to profile the dietary supplement users in terms of their demographics and psychographics. A review of previous studies on dietary supplements had shown that there are differences in demographics between users and non-users of dietary supplements. It has also been noted that studies using AIO statements to profile the psychographics of dietary supplements users were lacking in Malaysia. The important finding of this study is that regular and non-regular users are different in their demographic and psychographics characteristics. Significant differences between the two groups of users (regular and non-regular users) were only noted in terms of age, marital status, number of children and personal income. Marketers can use the results of this study to segment their market accordingly. For example, in order to target older individuals who consider taking dietary supplements as “nutritional insurance”, marketers may look into providing more information about the various dietary supplements available. This is because as they age, they will be more concerned about their health and will take a proactive role to learn more about alternative medicine. Marketers can consider bundling together various dietary supplements together in a “health package promotion” to deal with certain conditions of aging such as for osteoporosis and heart problems. Such condition-specific marketing strategy may help to increase product usage among elderly users when compared to marketing those products separately. Since many of them will be retired, retailers can also consider offering loyalty programs such as senior citizen privileges to encourage greater consumption of products. As for advertisers, advertising themes for products targeting older consumers can be designed by taking into consideration their concern on health issues. 52 For the married consumers with children, marketers can also employ the condition-specific marketing strategy or some other strategies to reach them. As these group of consumers are likely to lead a hectic lifestyle dealing with stress at work and at home, dietary supplements promoted to them should be identified and actively promoted using various advertising medium. Increasing energy, improving well being and coping with stress are some of the aspects that can be considered when designing an advertising campaign for these groups of consumers. For the high income earners with more disposable income, marketing activities targeted at securing brand loyalty may be considered. Marketers may consider working together with health clubs where high potential customers may be around or by becoming sponsors of sports events to improve brand profile. Besides demographics, knowledge of psychographics information is also valuable to dietary supplement marketers when developing promotional strategies. Sales and special discounts would definitely appeal to the bargain shoppers. The product’s value and the company’s reputation to provide quality dietary supplement can be emphasized in advertising messages to appeal to these group of consumers. As for the brand triers, they would welcome trial samples of new brand products. As brand triers may not be brand loyal, strategies should be made to gain their loyalty after trying out samples. In this case, perhaps a special introductory price could be given to them after finish trying the sample. 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Shah Azam University of Rajshahi, Bangladesh ABSTRACT The use of computer and the knowledge on IT related activities are increasing exponentially among the peoples of different countries of the world. The experience of Bangladesh’s people is not quite different in this regard. Meeting opportunities created by the advent of computer and many other digital devices, organizations are going to establish computer driven control and management supports. The time demands for rapid establishing the internet reliant business and transaction systems, e-commerce, to quicken the searching, ordering and delivery. Many forces and factors affect the adoption of e-commerce. This study examines the effects of buying cultural and infrastructural forces in implementing B2C e-commerce in Bangladesh. A Multiple regression model was estimated on the variables distilled through factor analysis. The study reports that buying culture of the country’s citizenry is negatively related to the implementation of B2C e-commerce in Bangladesh while infrastructural forces are significantly positively related. INTRODUCTION The advent of Information and communication technology and its rapid utilizations in different sectors witnessed phenomenal changes in many sectors specially in business and communication. The world’s trends are to reaching information intensive operations replacing the old fashioned labour intensive modes in various sectors from day to day house hold activities to managing high level of scientific innovations. These changes demand a paradigm shift in business operations and communication. The demand of the society comes to reality by the innovation, rapiadoption and diffusion of internet as well as World Wide Web by different stake holders. The use of internet as a mode of communication and transaction has changed the pace and style of transactions. The benefits of the utilisation of internet make it a popular medium of communication. The ICT particularly Internet is a highest diffussionary technology until 21st century (Azam, 2005). At the end of 2003, nearly 676 million people (or 11.8 per cent of the total population of the world) had access to the internet; this represents an increase of 49.5 million people or 7.8 per cent compared with the figures at the end of 2002. The total internet users were 675 678 000 in 2003, 626 579 000 in 2002, 495 886 000 in 2001 and 387 532 in 2000 show 7.84%, 26.36% and 27.96% changes respectively (UNCTAD 2004, UNCTAD, 2003). The internet user per 10000 observed 4495 in 2003 and 4474 in 2002 show .48% growth in developed countries while 501 in 2003 and 429 in 2002 show 16.78% growth in developing countries. The increasingly growing number of internet users and the developed world’s evidence in successfully operating various internet dependant activities insist individual internet users, business institutions and retailers’ of the developing countries and LDCs in general and Bangladesh in particular to be optimist to transact B2C e-commerce as the volume of B2C e-commerce are growing every year in the United States and EU countries 1. Thus this paper looks at the implementation of the B2C e-commerce in Bangladesh focusing on the effects of buying culture and infrastructural forces. RESEARCH BACKGROUND AND MOTIVATION 1 According to E-commerce and Development Report 2003 of UNCTAD the total volume of e-commerce are constituting 93.3% by B2B operation and rest are by B2C. 55 In pessimistic views, numerous constraints and hazards are inhibiting the growth and adoption of B2C e-commerce in developing countries. Most e-commerce transactions occur between customers and sellers in the advanced economies of the United States, Canada and Western Europe (Montealegre, 2001). Experts opined that the B2C ecommerce operation is not viable in Asian regions rather B2B e-commerce has the potentials to gain stakeholders acceptance in respect of profitability and efficiencies in business 2. Business-to-consumer (B2C) e-commerce still accounts for only a small share of e-commerce, but is growing steadily. It is highest in Denmark, Sweden, United Kingdom and United States and covers mainly computer-related products, clothing and digitized products. In some countries, retail transactions are used as proxies for measuring B2C electronic transactions. The results show that they account for a small proportion of total sales, with the highest figures in the United States. 1.9 per cent of total retail sales are due to online in 2004. Despite the low value of its transactions, B2C e-commerce has received most attention, partly because issues such as consumer trust and data protection have received considerable attention from policy makers (UNCTAD, 2004). Lack of telecommunication infrastructure, shortage of qualified human resources to develop and support ecommerce sites, lack of skills among consumers needed in order to use the internet, lack of timely and reliable systems for the delivery of physical goods, low bank account and credit card penetration, low income, and low computer and internet penetration are the challenges which inhibit the use of e-commerce (Anigan, 1999, Bingi ant et. al, 2000, Panagaria, 2000). Low income is most obvious inhibitors of transacting over the net. Another vital problem is with culture. In many developing countries people with lower or fair income consider shopping as social activity, and the face to face contact with seller is an important part of this social custom which provides satisfaction as well as security (Hawk, 2004). Many constraints, although acute in nature, have some solutions, but it has no direct solution, if people consider shopping is a social activity, so face to face contact is must. In another way when consumers make purchase decision, one shortcoming of internet is its ability to touch and experience the product before purchase (Blackwel, Minard and Engel, 2001). Looking at Bangladesh’s different business sector it is evident that still there remains a vast scope for development in the B2B sector (Times, 2005). B2B e-commerce is presently existent in a limited scale in the country’s RMG and lather sector 3. Limited accessibility to internet, poor teledensity, poor electricity network, limited affordability of computer and knowledge, inadequate legal and regulatory supports, inefficient and traditional banking and financial support and payment mechanism, lack of human resource for operating the technology smoothly, high internet usage cost as well as security concerns in transaction are the inhibiting factors that made B2C e-commerce operation in Bangladesh impractical (Hossain, 2000, Lutfar, 2001, Azam and Lubna, 2005, Raihan, 2001, BTRC, 2000). However, the government of Bangladesh has given highest priority in developing the country’s ICT sector in view of making high speed online connectivity with the international community to utilise ICT’s potentials in the country’s economic development. The country’s national ICT policy reiterates the necessity of establishing ecommerce environment in view of gaining economic potentials and emphasises on formulating appropriate government policies and strategies for facilitating e-commerce operation and e-governance (GOB, 1999). Rapid growing numbers of internet users in developing countries make Bangladesh’s initiative towards online business imperative. Despite its development in ICT sector standing at lowest level in south Asia and almost same in Asia, Bangladesh has developed optical fiber link in-between its two big cities Dhaka and Chittagong and is going to establish submarine optic fiber cable network with information super highway through Malaysia and Singapore under SEAMEWE Project 4. The fiber optic network of BTTB 5 is not in a position to meet the need of other telecom operators under private ownership, unless they are upgraded and expended (Ahmed, 2003). Bangladesh government recently passed national optic fiber cable guidelines to admit private entrepreneurs’ involvement in providing internet connectivity to the interior locations of the country (Star, 2005a). The govt. has also taken telephone 2 An article written on Development and Future of E-Commerce sited at http://web.singnet.com.sg/~ernap/index.html. 3 RMG and Lather industries in Bangladesh are mainly involved in export oriented activities. Most of their activities like, customer searching, communication, ordering etc., some times communication and transactions in delivery of raw materials for the industry are being performing through internet. Beside this many other organizations, involved in foreign buying selling activities, are using internet which ensures their involvement in e-commerce. 4 The project is, popularly known as South East Asia- Middle east - West Europe (SEAMEWE), was expected to be completed by June 2005. Due to some administrative constraints it is yet to be completed. 5 Bangladesh Telegraph and Telephone Board is only service provider under government owernership. 56 authority deregulation strategy allowing private operators to provide fixed land telephone connections while the mobile operators are existent as market leader under private ownership. The above functions will help provide high speed connectivity with a lower price in a competitive environment. Although B2C operations are not viable in Bangladesh, according to many experts, a hype regarding B2C electronic commerce is noticed. Many intuitive domain names relating to Bangladeshi institutions and businesses have been registered in short period of time (ITRC, 2000). Over last five years, several B2C portals have been launched in Bangladesh, mostly targeting non resident Bangladeshis. Although some have not been very financially viable, some information portals are quite popular and self-sustaining; some portals in specific markets such as, traders’ jobs etc. have also come up with some level of success (Times, 2005). In this view, another potential area of Bangladesh’s export sectors which can embrace huge SMEs sectors in B2C e-commerce, especially in targeting the international Diaspora. Recent success of Bangladeshi B2C portals targeting the Diaspora shows potential for this sector even within the limitation of information and payment structure. THEORIES AND EMPIRICAL EVIDENCE Numerous researches have been initiated to study e-commerce adoption and implementation in different part of the world both in academic and professional purposes (kendall et al, 2000, Sathye and Beal, 2001, Kolete, 2003, Limthongchai and Speece, 2002, Azam and Lubna, 2005, Hossain 2000). The absence of an agreed-upon definition for e-commerce creates a challenge when comparing e-commerce modalities in different countries. Some people limit e-commerce in credit-card transactions that take place over the Internet. Some other people mean e-commerce as using any electronic device to purchase goods or services. The entire e-commerce process is complex and requires meticulous and well-informed planning to succeed. Businesses need to look beyond issues such as what products and services to offer, how to design and maintain a portal, and how to handle security issues. They must closely examine less tangible, but equally important issues, such as social and cultural norms in the region; sustainable funding strategies, and the formation of strategic partnerships (Lafond and Sinha, 2005). Electronic commerce (e-commerce) is increasingly discussed and written about in today’s knowledge-based economies. Although there are currently no internationally agreed-upon definitions of e-commerce, many researches use the definition of OECD (Organization for Economic Co-operation and Development) which explores ecommerce transactions as: the sale or purchase of goods or services, whether between businesses, households, individuals, governments, and other public or private organisations, conducted over computer-mediated networks. The goods and services are ordered over those networks, but the payment and the ultimate delivery of the good or service may be conducted on or off-line1. The concept of e-commerce extends into communications, promotion, customer service, statistics, and usage patterns. However, often overlooked when examining e-commerce acceptance or failure is the social and cultural impact of conducting conventional business transactions over the Internet. For the purpose of this study e-commerce is considered as the business activities those are performed trough internet. It may be full fledged operation or a part there of. E-commerce activities may be exist either or in combination of the followings: ¾ ¾ ¾ ¾ ¾ ¾ ¾ Searching customers/producers/ sellers through internet. communication for business made through internet, Selecting products /services through internet. Placing the order through internet. Making payments through internet or any other means. Delivery of the required products through internet, couriers or other means. Sales service through internet or other mean. E-commerce activities may be appeared in the following three forms: Business to Business (B2B) e-commerce: While transactions or communication through internet has been made among organization to organization. 57 Business to Consumer (B2C e-commerce: While transaction and or communication has been made between business organization and consumer. Business to Government(B2G) E-commerce: While Communication for business or transaction has been made between business organization and government. Huge potentials have been observed in B2G e-commerce since the government of developing country procures large volumes of product and services from business organization (Efraim et al, 2000, Joseph, 2002). Besides these three categories many people opine that there may be other types of e-commerce such as C2B, C2G and C2C. One important e-commerce, still untouched, is C2C e-commerce. In this environment a customer can make e-commerce activities with other customers. One very popular portals, e-bay.com, supports this communication and transaction (Joseph, 2002). Though it has unique flexibility and opportunity to perform online business activities in a specialised form but included as B2C e-commerce in a broader respect. E-commerce implementation and adoption have been studied in different countries that considered good numbers of diversified variables to be studied for contributing to the existing literature of knowledge. Among many other variables perceived relative advantage of the e-commerce operations considered as the key driving force of ecommerce adoption (Kendal et al, 2000, Limthongchai and Speece, 2002, Sathye and Beal, 2001). Perceived Compatibility of the technology with the existing value, norms and practice is another factor that influences the rate of adoption of e-commerce and implementation (Kendall et al, 2000, Sathye and Beal, 2001). Security in ecommerce operation has been given the highest priority in deciding whether to operate e-commerce (Kendall et al, 2000, Sathye and Beal, 2001). The complexity in operating online technology for communication, placing order and payment can make negative impact in order to implement e-commerce (Kendall et al, 2000, Sathye and Beal, 2001). Existing legal support, human resource and internet connectivity have the influence in implementing e-commerce in Bangladesh (Hossain, 2000, Azam and Lubna, 2005, Rahman, 2002). Low credit card and poor delivery system are widely viewed as serious problem for B2C e-commerce in developing country (Hawk, 2004). In Bangladesh context the evidence of academic research or professional research on e-commerce is inadequate. A few research studies though be sited in the country most of them are related to ICT adoption in Bangladesh, the fact proves the rationale of the study. Addressing the e-commerce adoption and implementation in Bangladesh we can refer out comes of the previous researches those were initiated to study personal computer or internet as e-commerce is highly computer and internet reliant. Perceived relative advantage and perceived compatibility have considered as a driving force to the adoption of personal computer and Internet in Bangladesh while the Perceived complexity of the innovation has been observed as the negative force to adopt the technology in Bangladesh (Azam, 2004, Azam, 2005). However the age of the user, his financial ability, and experience in ICT has been studied as the influencer in studying the adoption of e-commerce as well as ICT adoption. The behavioral pattern of the consumer, especially in developing as well as in least developed countries, has not yet been considered as the vital factor to study e-commerce implementation. In many countries the customers’ usual behavior is to comparing and checking the product physically before selecting the right one. It may be considered as the vital influencer in implementing the online buying, selling and transactions. Thus the buying culture may defer e-commerce adoption and implementation. Beside this infrastructural forces like connectivity, technology accessibility, its availability, the required legal supports, its effectiveness to regulate e-commerce operations and dispute settlements, status of human resource, financial and banking mechanism, delivery system, level of average computer literacy, general peoples ability in conducting an ecommerce operation and the provisions of institutional supports for technological education and training may have the strong influence in B2C e-commerce implementation in Bangladesh. Successfully implementation is perhaps the major obstacle to the increased take up of IS’s. Given the impact of implementation failure a considerable amount of studies have investigated the difficulty of implementation with a view of providing guidelines for implementation success. Practical experience and research have indicated that the more serious obstacles to implementation success lay out side the technical boundary. It is evident that the information systems implementation complexity lies not with technical issues but with organizational issues, the process of implementation i.e. roles adopted by the participants becomes a greater concern than the particular techniques employed during an information technology dependant system implementation (Nasirin, Zainuddin and Baharuddin, 2000). Thus the study considers behavioral patterns and related customs, legal issues, financial 58 mechanism, delivery system, status of human resource with technological issues in examining B2C e-commerce implementation in Bangladesh. In this study implementation issues of B2c e-commerce have been studied in the light of its adoption by the prospective customers. MODEL SPECIFICATION AND HYPOTHESES It is predicted that the buying culture of Bangladesh’s citizenry have the negative influence in the implementation decision of B2C e-commerce in Bangladesh (hawk, 2004) while the e-infrastructural forces have the strong positive influence in implementing B2C e- commerce in Bangladesh (Hossain, 2000, Raihan, 2001, Azam and Lubna, 2005). The implementation issues i.e.’ the adoption of B2C e-commerce have been considered as the explained variable in the model, where infrastructural forces required for establishing e-commerce as well as customers’ buying culture have been considered as explanatory variables(see Figure-1). Technology Infrastructure Legal Infrastructure Delivery Infrastructure Infrastructural Forces Human resource Infra. H1 (+) (-) Buying Culture Face to faceFigure: contact 1 (Social activity) Financial Infrastructure B2C E-Commerce Implementation H2 Physical existence for right product Influence of Infrastructure Infrastructure refers to the macro supports which are necessary for establishing a communication networks fit for ecommerce operation and possible transactions as well as ordering and delivery. Personal computer penetration, facility for internet connections, telephone services, appropriate legal supports for regulating and resolving the difficulties arisen out of online transaction are essential for e-commerce operation. Human resource is another vital part of infrastructure in e-commerce as the buying selling technique inclined the Information and communication technology i.e., personal computer and internet and other ICT driven technologies. In this context ICT literate people is needed for online operation. The people having no skill in ICT operation and fear in technology handling will decline to enjoy the newer mode of transactions though it has many benefits. The status of computer literacy of the general people of this country, the national and organizational supports for increasing the computer literacy are considered as vital issue in infrastructure. Since monetary transactions are a fundamental issue in any business deal, the financial mechanism of the country can influence the operation of e-commerce thus included in the einfrastructure. Financial mechanism compatible with the online communication can be the cause of rapid adoption and implementation of e-commerce. The above arguments are summarised as: 59 H1: The infrastructural forces have the direct positive effects on the implementation of B2C ecommerce in Bangladesh Influence of Buying Culture Buying culture is the set behavioral pattern of a customer, customs or norms that are followed in buying any product or services. That norms, customs, behaviors or social prejudices are transmitted socially over a period of time which established some psychological values. These values affect every buying situation. In Bangladesh people consider shopping as a social activity so they need face to face contact. Beside this most of the people feel secured in direct transaction. The above discussions lead to the following hypotheis: H2: The Buying culture of the Country’s Citizenry has the strong negative effect on the implementation of B2C e-commerce in Bangladesh. RESEARCH METHODOLOGY A survey instrument was formulated to obtain responses from the professionals engaged in different positions in Bangladesh, assessing their perception on the legal, financial, human resource and technological infrastructure, present level of technology usage and intention as well as adoption of internet dependant business and transactions. The questions have been designed as to get responses specific to hypotheses that are proposed to test. A multiple regression model was estimated to ascertain the degree of the influence of infrastructural forces and buying culture on the implementation of B2C e-commerce in Bangladesh. Measurement tools Operationalisation of the model takes the form of a linear relationship: Y = A 0 + A 1X 1 + A 2 X 2 + Є Where, Y is defined as Implementation of B2C e-commerce, X 1 is defined as Infrastructure, X 2 is defined as Buying Culture while, A 0 - A2 are coefficients measuring the strength of relationship and Є is regression error. Population and Sample The study considers individuals engaged in different professions and served at various positions in Bangladesh as subject of the research. The following arguments are the rationale of considering the professionals in Bangladesh as population: Firstly, low per capita and literacy hinders general people’s accessibility to ICT services. The study includes specialised segment of the country’s citizenry considering their advantages in getting ICT facility, skills and knowledge on technology handling. Secondly, Transactions over internet requires certain level of purchasing power and adoption of the newer financial and payment mechanism such as credit card, internet banking etc. Thirdly, Knowledge on IT and online contract as well as certain level of literacy is required understanding the environment for participating in e-commerce transactions since it is operated through online. Fourth, Internet connectivity and online banking services are exist in a very sophisticated high income educated groups in urban areas only. Basing on the above logic professionals are considered as innovators and/ or early adopters in B2C e-commerce adoption and can act as reference group in defusing the technology to general mass through their colleagues, subordinate, fellow, assistant, students etc. and also performing as a part of think tank of the society, thus, included in the samples. Purposive sampling technique was used to determine samples from highly internet dense urban areas particularly Dhaka and Rajshahi 6. Data Collection 6 Samples are selected from Dhaka and Rajshai as digital divide exists in Bangladesh in between rural and urban areas, poor and rich population and in Dhaka and other small cities (Rahman, 2003). 60 A structured questionnaire was formed, using six point likert scale in gaining the respondents perception on different statements in relation to the implementation of B2C e-commerce in Bangladesh. Direct interview approach was administered in view of collecting accurate data. Variables measurement Customers’ attitude to implement e-commerce has been used as dependent variable. A multiple regression was used since the dependent variable Y is being formulated from five questions. Dependent variable is arrived as an average of responses to a set of five questions included to gauge implementation or willingness to implement B2C e-commerce. The explanatory factors which affect e-commerce implementation were measured on a six point likert scale in which 1 indicate strongly agree, 2 indicate agree, 3 indicate somehow agree, 4 indicate somehow disagree, 5 indicate disagree and 6 indicate strongly disagree. Infrastructure: This construct was measured in asking the professionals about their perceptions on using ecommerce and various other associated technology and infrastructural supports. respondents were asked whether the connectivity of internet are available in Bangladesh, the per unit usage cost and band width of internet, legal supports for meeting any disputes arising out of an e-commerce operation, legal protection to protect hackers intervention and protect online consumers right in making digital contract, financial mechanism of Bangladesh, physical delivery system, status of human resource for e-commerce operation and scope for providing IT education and/ or training to the general people of Bangladesh. Buying culture: The construct buying culture was measured in collecting responses of professionals about their perceptions on buying a product or services using e-commerce. The perceptions on the behavioral customs were known asking whether customer feel physical presence is required at the time of buying or selling for secured transaction as well as appropriate product or services and whether they feel face to face contract with seller is must considering shopping as a social activity RESULTS AND DISCUSSIONS 142 professionals engaged in different professions and various positions have been surveyed. The possible measures were taken to avoid undue bias in data collection. Of 142 respondents the survey reports that 90.14% professionals have the experience of using internet at residence, office, cyber cafes or other sources, among them 12.5% started internet operation before 1994, 18.75% in 1994-1998, 27.34% in 1999-2003 and 41.41% respondents started after 1994. Again, 9.38% of the respondents who have the technology accessibility are almost computer and internet dependent while 22.66% use internet more than 30 hours in a week, 25.78% use 20-30 hours in a week and 34.38% are less frequent in internet using. 92.19% of the respondents who have the internet accessibility are using e-mail. 53.91% web browsing, 72.66% business and education while 32.03% respondents are confined in entertainment. Only 7.03% respondents have the direct experience on full fledged online purchasing, 14% respondents have part experience. The study survey includes 19.72% engineer, 23.24% Doctors, 35.21% Teachers and Researcher and 21.83% Business persons and others categories in the samples. Factor analysis and Reliability 8 items were generated to obtain the respondents perceptions on the factors of e-infrastructure and buying culture. Another 5 items were also generated to measure the respondents’ involvement in e-commerce and or intention to adopt the online technology in performing various business (buying selling) activities. To ascertain the correlation of the items related with the two explanatory factors according to the proposed model, the techniques, thus, facilitates distillation of the items into two factors or components that are associated with the proposed model (Table:1). These factors embodying the essence of the items, grouped by attribute, then serve as independent variable in the proposed regression model7. The model runs showed that all questions correlate well in various steps for factor analysis (Table: 2). Component 7 Table: 1 Principle Component Analysis Extraction Sums of Squared Loadings Rotation Sums of Squared Loadings Factors were extracted basing on the eigen value minimum 1 or more. 61 % of Variance Total 1 2 Cumulative % % of Variance Total Cumulative % 5.297 66.210 66.210 5.184 64.802 64.802 1.524 19.055 85.266 1.637 20.464 85.266 Extraction method: Principal Component Analysis; Rotation Method: Varimax Observations. 142 Table: 2 Factors Item Correlation Matrix (For Explanatory variables) Factors Infrastructure (1) Buying Culture (2) Item. 1 Item. 2 Item. 3 Item. 4 Item. 5 Item. 6 Item. 7 Item. 8 .940 .909 .939 .888 .964 .925 -.141 -.019 -.180 -.207 -.048 .021 .056 .030 .874 .890 Extraction method: Principal Component Analysis; Rotation Method: Varimax with Kaiser Normal, Rotation converged in 3 iterations Summary results of the factor analysis for the items generated to study of Buying culture and e-infrastructure show the evidence and theoretical backup to retain two factors. Table:3 Reliability Variables Items Reliability Infrastructure 1, 2, 3, 4, 5, 6 .9677 Buying Culture 7, 8 .6936 Implementation (S ti 1, 2, 3, 4, 5 .8948 The results of the rotated matrix of the factor analysis run shows that items 1, 2, 3, 4, 5, 6 and items 7, 8 are grouped in component 1 (Infrastructural forces); and Component 2 (Buying culture) respectively. Table:4 shows internal item reliability of the items associated with the explanatory variables. Cronbach Alpha value stand at .9677 for infrastructural forces and .6936 Stand for Buying culture are satisfactory and acceptable (Nunnally, 1978). Another five items designed to understand the respondents’ willingness to implement or use e-commerce as a medium of communication and transactions, have been purified by principal component analysis and grouped all in one component (Table:4 and Table:5). The Cronbach alpha was calculated as .8948 for the explained variable express highly satisfactory inter item reliability. Table: 4 Principal Components Analysis for Dependant variable Componen t Initial Eigenvalues 62 Extraction Sums of Squared Loadings Total % of Varianc e Cumulativ e% Tota l % of Varianc e Cumulativ e% 3.80 76.052 76.052 3 Extraction method: Principal Component Analysis; Rotation Method: Varimax 1 3.803 76.052 76.052 Table: 5 Component Matrix for B2C Implementation Factor B2C Implementation Item.1 Item.2 Item.3 Item.4 Item.5 .907 .907 .907 .907 .907 Multiple Regression Analysis Multiple regression analysis was carried out investigating the joint effect of the factors account for e-commerce implementation. Taking a 5% significance level, the model shows the two macro factors, considered in the proposed model, account for 81% explaining B2C e-commerce implementation by the professionals in Bangladesh. The proposed predictors for e-commerce implementation, e-infrastructure and buying culture of Bangladeshi customers’, were considered statistically significant (Table:6). The beta weight indicates that infrastructural forces are the strong predictor followed by buying culture. The VIF and tolerance value decline the existence of multicollinearity among the explanatory variables 8. Table: 6 Regression Summary Constant Infrastructure Buying Culture Co-efficient .032 .885** -.11* t value .294 20.363 -2.524 .988 .988 1.012 1.012 tolerance VIF 2 Adjusted R = F statistics = Durbin waston = .813 218.836** 1.546 ** Significant at the .01 level, * Significant at 0.10 level. Observation= 142 Y = .032 + .885 X 1 + -.11 X 2 + Є R2= .817 Therefore the study reports that hypothesis 1 and 2 are supported at .01 level and .05 level of significance respectively. The hypotheses testing thus are concluded as: H1: The infrastructural forces have the direct positive effects on the implementation B2C e-commerce in Bangladesh Supported H2: The Buying culture of the Country’s Citizenry has the strong negative effect on the implementation of B2C e-commerce in Bangladesh. Supported 8 The higher the VIF value, mostly VIF = 10.00 and above and the lower the value of tolerance, .2 or less, indicates the existence of multicollinearity. The regression model run results proof the linearity. 63 The regression analysis reports that there is a significant correlation between implementation intention of B2C ecommerce and e-infrastructural forces as well as buying culture. E-infrastructural forces are positively correlated which means that the development of infrastructural supports would led to higher adoption and implementation rate. On the other hand, buying culture is negatively correlated with adoption and implementation rate, which means that the existing buying culture and psychological values of the customer in Bangladesh would be the cause of lower adoption of e-commerce or delaying or refusing implementation. The infrastructural forces emerged as the strong predictor to explain the adoption and implantation of B2C ecommerce in Bangladesh, because e-commerce entails the use of computer, networking, internet and other mode of ICT devices to make the communication and transaction easier and secured. It incorporates specialised operations in banking and money transfers as well as in delivery system, to facilitate the activities consistent with online communication and transaction systems. Again, buying culture of the country’s citizenry would effect the implementation of e-commerce negatively. The nation’s major portion of the population stayed below the poverty level. A countable portion of the people though staying above the poverty level, are not in a position having satisfactory income. The major portion of the people of the country is deprived from having the source of entertainment. In this situation many people of this country enjoy visiting market choosing the product comparing physically with the others. It has become as a part of our culture. The regression result of the study complements this context. The model shows significant effects of the buying culture in the implementation of B2C e-commerce. It explains inverse relationship. CONCLUSIONS AND IMPLICATIONS E-commerce encourages the users to perform various operations at office, house or cyber cafe regardless of time, place and even national boundary. By nature it is international operations which need to be supported by appropriate legal mechanism to facilitate smooth and undisturbed operations. Bangladesh, like many other LDCs, has lack of appropriate legal mechanism facilitating e-commerce operations and online dispute settlement. Bangladesh’s existing legal provisions are not adequate in order to regulate e-commerce operation within the country. Country’s existing Evidence Act declines digital contracts thus hinders e-commerce operation and any kinds of contract in eenvironment, as digital signature is not legally valid for making any contract under the act (Hossain, 2000). Inadequate and old fashioned legal provisions in Bangladesh fail to accommodate required services to operate ecommerce, therefore, hinder its implementation. Beside the legal infrastructure financial mechanism is another important part of e-commerce since money transfer is a vital issue in every business deal. If communication, searching, ordering and other business tasks have been performed through internet and payment is made using traditional tools, the ultimate delay in operation is obvious. Smooth and quickened operations in this regard require digital monetary transactions. Digital monetary operations are not available in Bangladesh, recently a few banks in Dhaka and some other big cities started digital monetary operations in a limited scale (Rahman, 2000). E-Commerce requires customers’ skills and knowledge on information and communication technology operation. People having knowledge and skills on computer and internet technology are seen more fluent and encouraging in e-commerce operations regardless of their status and nationality. Literacy in information and communication technology is prescribed at certain level for fostering the pace of ecommerce development. Level of IT literacy as well as scope of training and education would influence the implementation of e-commerce, as physical distribution is one of the vital parts of business. Delivery in some service products are also performed through internet. Although digital delivery quickens the performance of entire business activities, are not possible for all types of products. When physical distribution is obvious, the facilitating parts of the value chain i.e., courier service, postal service, transportation companies and overseas courier such as DHL etc. can extend their support in this regard. Delivery system also is considered as another important influencer in e-commerce implementation. Bangladesh’s current trend in the above context, although not satisfactory, facilitating the implementation in Bangladesh. The traditional custom made psychological prejudice to the people to conduct unseen contract and transaction. This should be considered as a valid question on the assumption of viability and the growth of B2C e-commerce in Bangladesh, thus, refer to the fact that the viability of B2C e-commerce in Bangladesh as a domestic mode of business is questionable. It requires to change our buying culture for the adoption and diffusion of the new technological innovation. Nationwide various changes can provide psychological security and logic to adopting the newer fastest mode of business and communication. The changes although possible but impractical in the present 64 context of Bangladesh’s frustrating position in achieving targets set for different sectors including millennium development goal (MDG) 9. The frustrating achievement in fundamental poverty eradication programmes put question mark on the viability of B2C e-commerce in Bangladesh in near future. Since the implementation of e-commerce is significantly related with e-infrastructure, the establishment of the submarine optic fiber connectivity may influence fostering the receptivity and implementation of B2C e-commerce in Bangladesh. The linkage with information super highway through submarine optic fiber networks will provide easier internet connectivity throughout the country, reduce internet usage cost and provide high bandwidth. Easier connectivity with lower cost and high bandwidth will stimulate the adoption and diffusion of internet and welcome peoples’ involvement with various internet options that will ultimately boost up peoples motivation towards working in electronic environment. Basing on the above arguments B2C e-commerce operation is forecast as viable in a limited scale in near future. Business to consumer ecommerce,thus, may be worth performing in Bangladesh confining its operation in Dhaka and other big cities like, chittagong 10. Understanding the changing patterns and worlds trends in digital developments, Bangladesh is forecast to open a new avenue for gaining the export potentials of its huge SMEs sector attracting the international Diaspora by implementing B2C e-commerce. Keeping in mind the hindrances as well as the factors stimulating the adoption and implementation of B2C e-commerce concern authorities can initiate future policy and programmes that may help develop the overall environment of the country in favour of establishing electronic transactions, contracts and communication. The results of the study also have implications to the academics and researchers those are interested in looking at the inhibitors and stimulators to the implementation of B2C e-commerce. REFERENCES Ahmed, Faruk (2003) ‘The Technical Issues Related to ICT development in Bangladesh’, in The Proceedings of the National Conference of Inter-University IT Professionals in Bangladesh, 30 September– 1October 2003; Dhaka, Bangladesh; Dhaka: UGC of Bangladesh, pp.49-58. Anigan, G. (1999) ‘Views on Electronic Commerce’, International Trade Forum, Issue 2: 23–27. Azam, Md. Shah (2004) ‘factors Influencing the Adoption of Internet: An Inquiry into the Perceptions of University Academics in Bangladesh’, in Volume. IV, Proceedings of the 10th International Conference on Information Systems Analysis and Synthesis (ISAS) and International Conference on Cybernetics and Information Technologies, Systems and Applications (CITSA ); 21-25 July 2004; Florida, USA. pp 138-143. ----------------- (2005) ‘Adoption of Personal Computer in Bangladesh: The Effects of Perceived Innovation Characteristics’, in Noorhayati Mansor, Lim Thien Sang, Mohd Safri Saiman and Kalsom Abd Wahab (eds.) Capitalizing the Ptentials of Asian Integrated Market, Proceedings of the 2nd International Conference of the Asian Academy of Applied Business (AAAB), 28 -30 July 2005; Padang, Indonesia. Indonesia: AAAB, pp. 647-655. --------------- and Lubna, Nasrin (2005) ‘E-Commerce in Bangladesh: Concerns and Constraints’, Insurance Journal, vol. 56 (Forthcoming). Bingi, P., A. Mir, and Khamalah, J. (2000) ‘The Challenges Facing Global E-Commerce’, Information Systems Management, 17(4): 26–35. 9 Bangladesh’s achievement have been evaluated and ranked in the 5th worst countries among 125 countries of the world in context of going towards eradicating poverty by 2015 (Star, 2005). 10 More than 80% of the total internet users of the country are residing at Dhaka and chittagong and by the implementation of submarine optic fiber connectivity chittagong will come first in the network in online operation. Internet banking as well as digital money transfer systems, although in limited scale, is used in Chittagong and Dhaka. Beside this, numerous units of RMG and many other industries and business organisations are situated in Chittagong as it is the biggest port city in Bangladesh. 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Raihan, Anayna (2001) ‘Information and Communication Technology Technology: Bangladesh Meeting the Challenges of Globalisation’, in Bangladesh Facing the Challenges of Globalisation A Review of Bangladesh’s Development 2000, Dhaka: Center for Policy Dialogue, pp. 273-312. Sathye, Milind and Beal, Diana (2001) ‘Adoption of Electronic Commerce by SMEs: Australian Evidence’, Journal of E-Business, 1(1): 1-11. Star (2005a) The Daily Star [A national english daily newspaper], Dhaka, 7 October. Star (2005b) The Daily Star [A national english daily newspaper], Dhaka, 18 September. Times (2005) The Executive Times, [www documents] http://www.exectimes.com/diplay_news.asp?conid=474&edid=58 (accessed 23 October 2005). UNCTAD (2003) ‘E-Commerce and Development Report 2003’, Internet edition prepared by the UNCTAD secretariat, New York and Geneva: United Nations, [www document] http:// www.unctad.org/ecommerce ( accessed 12 December 2004). UNCTAD (2004), E-Commerce and Development Report 2004, Geneva: United Nations, [www document] http://www.unctad.org (accessed 10 October 2005). 66 SHOPPING MOTIVATIONS: AN INVESTIGATION OF INDIAN RETAIL SHOPPERS Ahmad Jamal Cardiff Business School, UK ABSTRACT A stream of research has investigated the reasons which motivate consumers to shop and has offered some interesting insights into consumers’ motivations for shopping. Unfortunately, most of the existing literature is North American in origin and application. The paper uses data from Indian retail shoppers to profile them into different segments. Using Cluster Analysis, the paper identifies and discusses five homogeneous groups with different emphasis on different shopping motives. The paper discusses the relevance of these segments to both the traditional and modern retail formats in India and discusses implications for retail brand managers and suggests future research directions. INTRODUCTION There is a growing need to investigate the real drivers of shopping behaviour in non Western contexts where traditional retail formats characterised by high levels of personalised service increasingly co-exist with new Western style retail formats (Jamal et al., 2006; Sinha and Baneriee, 2004). Furthermore, the aggressive geographic market expansion of successful retail organizations, the internationalization of retail practices and the development of a global consumer market (Dawson, 1990; Severin, Louviere and Finn, 2001) have led many to call for investigating consumer behaviours in specific cultural contexts (de Mooij and Hofstede, 2002). Others argue that the management of retail firms in other cultures requires an understanding of, and responding to, the local consumers’ motives, value, lifestyles, perceptions, attitudes and needs (Byoungho and Kim, 2003; Hofstede, 1980; Prahalad and Doz, 1987). However, most of the existing shopping literature is North American in origin and application. There remains a need to investigate consumes behaviours in specific cultural contexts and the current paper is one such attempt to provide insights into some of the psychological reasons which appear to motivate consumers in India. The objective of this study is to profile shoppers based on their psychological motives for shopping and to examine similarities and differences among shopper segments based on demographic characteristics. In doing so, the paper extends our knowledge of consumer profiling to the India market for which no related research has been published. India is currently attracting considerable international interest and investments where an understanding of consumer profiling schemes is likely to provide an essential understanding of the way Indian shoppers can be effectively segmented and targeted. Indian consumers are increasingly facing the choice of shopping at a variety of retail contexts including the traditional corner shops, the internet and the modern retail formats. The new shopping malls are effectively catering to the desires of India’s growing middle class, which after the recent economic reforms have increased disposable income and a much greater exposure to the Western lifestyle and shopping patterns (Bailay, 2003; Jordon, 1999). Hence, there is a growing need to investigate the shopping behaviour of Indian consumers and discuss their implications for brand managers. In response, the paper investigates the shopping motivations of Indian consumers, profiles them into different segments and discusses implications for retail managers. Literature Review on Shopping Motives A number of researchers have sought to highlight the utilitarian and hedonic aspects of shopping experiences (Arnold and Reynolds, 2003; Babin et al., 1994; Batra and Ahtola, 1991; Langrehr, 1991; Roy, 1994; Wakefield and Baker, 1998). In doing so, they have profiled consumers using shopping motivations in order to explain the consumer psyche and subsequently the retail strategy formulation (Bloch et al, 1994; Reynolds et al, 2002; Reynolds and Beatty, 1999). The utilitarian aspects of shopping experience are often characterised as task-related, rational and whether or not a product acquisition related mission is accomplished (Arnold and Reynolds, 2003; Batra and Ahtola, 1991; Babin et al., 1994). On the other hand, the hedonic aspects reflect shopping’s potential entertainment and emotional worth and can involve increased arousal, heightened involvement, perceived freedom, fantasy 67 fulfilment, and escapism (Arnold and Reynolds, 2003; Babin et al., 1994; Bloch and Richins, 1983; Holbrook and Hirschman, 1982). According to Arnold and Reynolds (2003), hedonic shopping motivations could be classified into six broader categories. These include adventure shopping (to seek stimulation, adventure, and feelings of being in a different world), social shopping (for enjoyment of shopping with friends and family, socializing while shopping and bonding with others), gratification shopping (for stress relief, to alleviate a negative mood and as a special treat to oneself), idea shopping (for keeping up with trends and new fashions and to seek new products and innovations), role shopping (for getting enjoyment as a consequence of shopping for others) and value shopping (reflecting shopping for sales, looking for discounts, and hunting for bargains). However, an earlier work by Tauber (1972) highlighted the importance of personal and social motives related to shopping behaviour. The personal motives include the needs for role playing, diversion, self-gratification, learning about new trends, physical activity and sensory stimulation. The role playing motive highlights activities that are learned and are expected as part of a certain role or position in society such as mother, housewife or husband. Diversion highlights shopping’s ability to present opportunities to the shopper to escape from the routines of daily life and therefore represents a type of recreation and escapism. Self-gratification highlights shopping’s potential to alleviate depression as shoppers can spend money and buy something nice when they are in a down mood. Physical activity highlights consumers’ need for engaging in physical exercise by walking in spacious and appealing retail centres, particularly when they are living in urban and congested environments. Sensory stimulation highlights the ability of the retail institutions to provide many sensory benefits to consumers as they can enjoy the physical sensation of handling merchandise, the pleasant background music and the scents. The social motives identified by Tauber (1972), on the other hand, include the needs for social experiences, communication with others, peer group attractions, status and authority, and pleasure for bargaining. The social and communication motives highlight the shopping’s potential to provide opportunities to socialise meet and communicate with others with similar interests. The peer group attraction highlights consumers’ desires to be with their reference group whereas status and authority reflect shopping’s ability to provide opportunities for consumers to command attention and respect from others. The pleasure of bargaining reflects consumers’ desires and abilities to make wiser decisions by engaging in comparison shopping and special sales. Others such as Westbrook and Black (1985) advanced Tauber’s (1972) work and proposed motives such as anticipated utility (the benefits provided by the product acquired via shopping), role enactment (identifying and assuming culturally prescribed roles), negotiation (seeking economic advantage via bargaining), choice optimization (searching for and securing precisely the right products to fit one’s demands), affiliation (with others directly or indirectly), power and authority (attainment of elevated social position), and stimulation (seeking novel and interesting stimuli). In a related domain, some have attempted to segment consumers on the basis of their decision making styles, which is considered to be a mental orientation characterizing a consumer’s approach to making choices (Lysonski et al., 1996; Sproles and Sproles 1990; Sproles and Kendall, 1986). The underlying idea is that consumers engage in shopping with certain fundamental decision making styles including rational shopping, brand conscious, quality conscious and impulsive shopping. The present paper mainly focuses on the hedonic shopping motivations identified recently by Arnold and Reynolds (2003) and seeks to utilise their framework in an effort to understand shopping motivations of Indian consumers. RETAILING IN INDIA The India’s retail industry is worth around $280 billion in annual sales (the eighth largest in the world) and is expected to increase about 5% a year in the next decade (Bellman, 2005). The country has the highest number of retail outs in the world with traditional and small entrepreneurs still dominating the marketplace ((Sinha and Baneriee, 2004). While the modern retailers account for less than 5% of the industry sales (Bellman, 2005), a recent report by AcNielsen indicates that the modern retailers are growing in numbers steadily with a number of players entering the market with innovative retail formats and shopping malls offering new but consistent consumer experience across the chain (Business Today, 2005). An increasing numbers of Indian consumers are shopping at the mall or the supermarket and the modern retail sector is expected to grow more than 25% a year (Bellman, 2005). There are attempts by many (e.g., Shopper's Stop Ltd., Pantaloon Retail (India) Ltd.) to create Indian brands and 68 nationwide retail chains (Bellman, 2005; Bailay, 2003; Jordon, 1999). This is complimented with a growing trend among the traditional formats to expand in size, allow self service, offer deeper and wider assortments, and additional services such as home delivery, product replacement and use of credit card (Sinha and Baneriee (2004). Consequently, more and more Indian shoppers are expected to shop at the mall. With the improvements in the disposable income and the Indian retail infrastructure, consumers are likely to experience more variety and hence there is an ever growing need for exploring the major motives that drive shopping behaviour in the Indian retail environment. Shopping Motives in Specific Cultural Contexts Since shopping motives can be driven by cultural, economical or social environmental factors, a number of studies have investigated shopping motives in specific cultures. For instance, Jamal et al., (2006) while investigating the shopping motives of Qatari consumers reported that gratification seeking, social shopping, high quality seeking, confused by over choice, value seeking, brand loyal, brand consciousness, utilitarian shopping, hedonic shopping and role playing were important motives that drove Qatari consumers to shop. They also classified the Qatri consumers into six major segments: socializing shoppers, game shoppers, independent perfectionist shoppers, escapist shoppers, apathetic shoppers, budget conscious shoppers. Similarly, Jin and Kim (2003) investigated the Korean shoppers’ shopping motives and their shopping typologies based on their shopping motives. Findings identified three important motives for patronizing discount stores: socialization, diversion and utilitarian whereas major shopper typologies included leisurely-motivated shoppers, socially-motivated shoppers and utilitarian shoppers. In a related domain, Sinha and Baneriee, (2004) investigated the drivers of retail store choice among a sample of Indian shoppers and found that both the proximity and the quality of merchandise were the key reasons for choosing retail stores. They went on to speculate that the impact of store features such as store ambience and entertainment on store loyalty would be moderated by hedonic motives whereas the impact of store features such as convenience and store format on store loyalty would be moderated by utilitarian shopping motives. Others such as Tuli and Mookerjee (2004), investigated the retail patronage behaviour of rural Indian consumers and reported that cost of shopping activity and the availability of bargains associated with a particular retail format were important drivers. Unfortunately, very little research has investigated shopping motives in the Indian context. The current paper aims to fill this gap in the literature by investigating a number of important research questions. For instance, first, “which shopping motives drive Indian consumers to shop?” second, “what are the consumer segments that could be developed on the basis of these shopping motives?” third, “what are the similarities and differences between consumer segments based on individual characteristics such as demographics?” and finally, “what are the guidelines for retail strategy formulation”. Answers to these questions are likely to be relevant to not only the multinationals operating in India but also to the local businesses in terms of understanding of the dynamics of consumer behaviour of Indian shoppers. METHODOLOGY First, a questionnaire in English was drafted containing Likert-scaled items scoring from 1 (strongly disagree) to 7 (strongly agree) to measure seven shopping motivations: adventure shopping, value shopping, role shopping, gratification shopping, social shopping, idea shopping and utilitarian shopping (Reynolds et al., 2002; Babin et al., 1996). The motivations were selected on the basis of our prior understanding of Indian society, its cultural values and a review of the relevant literature. Measures were also included to capture frequency of shopping, number and types of stores visited during a typical shopping trip, amount of money spent, and demographics. Measures for other factors such as attributes associated with shopping centres, shoppers’ levels of expertise, store satisfaction and behavioural intentions were also included. A total of 20 pilot tests were then conducted with consumers who were seen as similar to the population for the study. The purpose of the pre-testing was to refine the questionnaire and to assess the validity and applicability of measures; corresponding amendments were made to the questionnaire after the pilot tests. Following Reynolds et al., (2002), a mall intercept procedure was used to collect the data in Delhi whereby shoppers who had finished their shopping and were leaving the shopping mall were randomly approached and asked to fill in 69 self administered questionnaires. Data was collected over a three-week period covering both busy days (e.g. weekends) and normal weekdays. All of the shopping malls had a movie theatre, restaurants, food courts, parking facilities, branded stores and a variety of other stores. The procedure resulted in 271 usable questionnaires. Overall, the sample is primarily aged 20-39 (71%); 53% single and 47% married; highly educated (81% had college or university degrees), covered different occupations (46% professionals or senior managers, 27% students and 14% housewives), and 53% male and 47% females. DATA ANALYSIS AND FINDINGS Exploratory Factor Analysis The 26 items used to measure the seven shopping motivations were all subjected to exploratory factor analysis with principal axis factoring and varimax rotation with scree test criterion and Eigen values used to confirm the number of factors to extract (Hair et al., 1998). The main purpose of the exploratory factor analysis was to confirm whether items loaded correctly to the corresponding factors as identified by previous research. The procedure resulted in the estimation of a final seven-factor model, while none of the items exhibited low factor loadings (<0.40) or high crossloadings (>0.40). The seven factor solution accounted for 73.4% of the total variance, and exhibited a KMO measure of sampling adequacy of 0.805. In order to quantify the scale reliabilities of the factors identified, Cronbach alpha coefficients were computed; all of the alpha coefficients easily passed the minimum level of 0.70 recommended by Nunnally (1978) indicating acceptability and reliability of all of the scales. Results of factor analysis together with the percentage of total variance for each of the factor and calculated Cronbach alpha scores are shown in Table 1. Cluster Analysis In order to classify respondents into groups based on their responses to the shopping motivations, a multi-step cluster analysis was utilized (Hair et al. 1988; Reynolds and Beatty, 1999). Using Ward’s method in hierarchical clustering procedure, clusters were formed based on factor scores. An examination of the distance between two clusters for three, four, five and six cluster solutions resulted in the determination of a five-cluster solution (Sharma, 1996; Reynolds et al. 2002, Reynolds and Beatty, 1996). Then a K-means clustering procedure with the initial seeds provided by the hierarchical analysis solution was conducted to obtain the final clusters. The results of cluster analysis are reported in Table 2. We interpreted the clusters as follows: Stylish Role Performers: This is the first group of shoppers, which makes up the second largest percentage (24%) of the respondents scoring the first highest on role shopping and the second highest on idea shopping. However, they scored gratification shopping as the lowest followed by value shopping as the second lowest. Highly Rationalists: This is the second group of shoppers, which makes up the smallest percentage (11%) of the respondents scoring the lowest on idea shopping, value shopping and role shopping, but scoring the highest on utility shopping. Role Oriented Bargainers: This is the third group of shoppers, which makes up 15% of the respondents scoring the lowest on utility, idea and social but moderately highest on value, role and adventure shopping. Self Oriented Idealists: This is the fourth group of shoppers, which makes up 13% of the respondents scoring the lowest on role, utility and social and moderately highest on idea shopping. Happy Shopping Lovers: This is the fifth group of shoppers, which makes up the largest percentage (38%) of the respondents scoring every aspect as above average and in particular the gratification, value and utility. See Table 2. 70 DISCUSSION, CONCLUSIONS AND IMPLICATIONS The five segments that emerged from our analysis are quite different from one another and are significant for marketers in a number of important ways. For example, the happy shopping lovers, report their primary shopping motivations to be gratification, value, utility, and social. An important point to note about this segment is that they did not score any aspect of the shopping environment in a negative manner. It might be that they feel happy and appear to enjoy the shopping surroundings so much so that they ignore any negative aspect of shopping. Like respondents in Babin et al.’s (1994) study, respondents in this segment appear to recognise the shopping activity as a self-gratifying and therapeutic activity. This suggests that these customers view shopping as an escape mechanism to get their minds off their problems and as a way for relieving stress and alleviating negative mood. The findings are also similar to the ones reported by Jamal et al., (1996) whereby responded perceived shopping to be an alternative activity whereby they could forget the daily routines of their lives by indulging in shopping related social experiences outside their homes. The implications are that the retail managers need to focus on improving store atmospherics, introducing recreational and fun activities adding to the entertainment and emotional worth of shopping experiences (Wakefield and Baker, 1998). In terms of relevance to the growing modern retailing sector in India, this segment appears to be the most relevant one as they are likely to appreciate the innovative retail formats and new Western style shopping malls (see, Bellman, 2005). They are also likely to respond very positively to the attempts of the traditional formats to expand in size and introduce modern retail practices (see for instance, Sinha and Baneriee, 2004). Since these customers also appear to actively seek value and utility, managers need to make sure that their products are not very expensive and that they provide sales promotional opportunities to their customers on a regular basis. A good strategy to target this segment would to emphasise the overall shopping experiences using experience-based advertising by focusing on what it feels to use a brand or service as these customers are likely to value messages that are perceived to be not only self relevant, self fulfilling and idealistic but also contributing to their overall shopping experiences. Similarly, the second largest segment, stylish role performers, report their primary shopping motivations to be role and idea shopping with least value attached to gratification seeking and value seeking. Therefore, these shoppers appear to see shopping as a leisure activity (Martin and Mason, 1987), fulfilling some important role in family and social life. These findings are in line with those reported by Jamal et al., (2006) who reported that a segment of Qatri consumers also perceived shopping to be an important leisure activity. The respondents in our study also appear visit the marketplace seeking for new ideas and to keep up with trends and new fashions. Since they do not value social aspect of shopping, one might argue that they appear to fulfil the family roles as part of their responsibilities and may not engage in fashion and style consumption for the sake of others but rather for self fulfilment and self enhancement. The best way to target these customers, therefore, is to emphasis the connection of brands to their self concept while depicting new fashion ideas and trends in communication messages. Role oriented bargainers, on the other hand, appear to be quite unique because while they seek value, role, and adventure, they do not attach importance to utility and social aspects of shopping. In other words, the segment is largely motivated to shop for sales looking out for discounts, promotions and bargains. They appear to do so as they may have a role in their families to do the shopping and feel a need to seek bargains while they are shopping for other family members. Therefore, one could speculate that these consumers are likely to swap in between the traditional and the modern retail formats in India to seek better value and bargains. They could probably be best targeted by developing marketing communication messages that offer price promotions and which reinforce family related roles. Similarly, self oriented idealists are also unique because while value shopping to keep up with trends and new fashions, they do not value other aspect of shopping encounters. In other words, the only reason they like going shopping is when they are seeking out for new products, new trends and new fashion items but only for self consumption. They place very low value to role shopping which might be due to the fact that they might be unmarried, single and students. One could speculate that these customers are likely to engage in window shopping within the newly emerging modern retail sector in India. The best way to attract this segment is to use self relevant imagery in advertising emphasizing the novelty and newness of shopping experiences. 71 Finally, the highly rationalists, represent a very unique set of customers: those who view shopping as a purely rational and task related activity that needs to be done as soon as possible. They appear to have a work mentality and might use shopping lists to reduce their shopping fatigue. In other words, they appear to perceive shopping to be a routine and a habitual activity. They are very likely to evaluate brands very carefully and pay great attention to product benefits and features while shopping. They might may feel happy when they realise that their particular shopping need was accomplished in an effective and efficient manner. They are likely to finish off their shopping quickly by patronizing same brands and stores to minimize their cognitive efforts. It is very likely that like the respondents in Sinha and Baneriee’s (2004) study, these consumers would value proximity and quality of merchandise while choosing where to shop. The implication is that the brand managers have to make sure that they improve the store layout to make it easier for such consumers to shop and by training the staff to provide additional information needed by such group of customers. A message strategy using highly rational information processing approach (with high information content) would suit best for this segment. As with all research projects, the findings presented are characterized by limitations that restrict the extent to which they can be reliably generalized. The paper is based on a research project which is still in progress and has not reported here the cluster validation procedures due to shortage of space. Similarly, the data analysis was limited to Indian shoppers only and future research could incorporate multi-country data to compare and contrast similarities and differences in shopping motivations across different countries. However, despite the limitations, the current study has provided significant insights into the nature and types of shopping motives that drive Indian consumers to shop. The study has identified five important shopper segments and has discussed their implications for the Indian retail industry. This is highly significant in the context of the recent geographic market expansion of successful retail organizations and the development of a global consumer market whereby marketers and retail brand managers are keen to learn and understand the dynamics of buying behaviour patterns of consumers of different cultural backgrounds (Jamal, 2003; Jamal et al., 2006). 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Table1: Results of Exploratory Factor Analysis Items IS1 IS2 IS3 IS4 VAL1 VAL2 VAL3 VAL4 SOC1 SOC2 SOC3 SOC4 ROL1 ROL2 ROL3 ROL4 ADV1 Factor Loadings (n=271) Factor 1 –Idea Shopping (Alpha Reliability = 0.90) I go shopping to keep up with the trends I go shopping to keep up with new fashion I go shopping to see what new products are available I go shopping to experience new things Factor 2 –Value Shopping (Alpha Reliability = 0.89) For the most parts, I go shopping when there are sales I enjoy looking for discounts when I shop I enjoy hunting for bargains when I shop I go shopping to take advantage of sales Factor 3 –Social Shopping (Alpha Reliability = 0.88) I like shopping with my friends or family to socialize I enjoy socializing with others when I shop To me, shopping with family and friends is a social experience Shopping with others is a bonding experience Factor 4 –Role Shopping (Alpha Reliability = 0.87) I like shopping for others because when they feel good, I feel good I feel good when I buy things for the special people in my life I enjoy shopping for my family and friends I enjoy shopping around to find a perfect gift for someone Factor 5 –Adventure Shopping (Alpha Reliability = 0.84) To me shopping is an adventure 73 Variance Explained 0.817 0.849 0.890 0.829 11.9% 0.839 0.859 0.845 0.849 11.9% 0.814 0.849 0.836 0.815 11.7% 0.735 0.870 0.812 0.859 11.2% 0.808 ADV1 ADV1 ADV1 GF1 GF2 GF3 UT1 UT2 UT3 I find shopping stimulating Shopping is a thrill to me Shopping makes me feel I am in my own universe Factor 6 – Gratification Seeking (Alpha Reliability = 0.83) When I am in down mood, I go shopping to make me feel better To me shopping is a way to relieve stress I go to shopping when I want to treat myself to something special Factor 7 – Utilitarian Shopping (Alpha Reliability = 0.75) While shopping, I try to accomplish just what I want to as soon as possible While shopping I try to find just the items that I am looking for I feel happy when my shopping trip is over quickly Total Variance 74 0.750 0.820 0.761 10.5% 0.818 0.845 0.794 8.7% 0.760 0.856 0.792 7.7% 73.4% Table 2: Results of the Non-Hierarchical Cluster Analysis (n=271) Cluster Means Shopping Motivations Cluster 1 (Stylish Cluster 3 Cluster 4 Role Cluster 2 (Role (Self Performers (Highly Oriented Oriented Rationalists) Bargainers) ) idealists) Idea .53709 -1.45759 -.82535 .63435 Shopping Value -.56831 -.61484 .49171 -.28630 Shopping Social .06598 -.15952 -.50736 -.46344 Shopping Role .72074 -.46419 .39677 -1.51290 Shopping Adventure -.20341 -.30124 .31262 -.22470 Shopping Gratification -.64865 -.35680 -.33043 .11973 Shopping Utility .07013 1.07551 -1.10124 -.90744 Shopping Cluster 5 (Happy Shopping Lovers) F-value P< .18258 57.094 .000 .43530 20.631 .000 .35329 8.775 .000 .02118 56.629 .000 .16595 3.577 .007 .59860 24.551 .000 .38014 57.546 .000 Cluster Size 65.000 29.000 40.000 34.000 103.000 Percentage of respondents (%) 24% 11% 15% 13% 38% 75 AN ASSESSMENT OF THE TRAINING PRACTICES AMONG MALAYSIAN SMES Mohd Khairuddin Hashim Sa’ari Ahmad Universiti Utara Malaysia ABSTRACT Although training has attracted much attention, the review of the small business literature in Malaysia reveals scant research attention has been given to investigate training practices among SMEs as a means of improving their effectiveness and competitiveness. This study attempted to address this issue by examining the training practices of 41 SMEs in the manufacturing sector. Findings of the study suggested the following: the SMEs have various needs for training; emphasized on training; adopted different methods and types of training; selected suitable training programs for their employees; and provided limited training mainly in the form of short courses. INTRODUCTION Over the years, emphasis on the importance of training and learning in organizations has attracted much attention in the literature. More and more employers from both small and large firms are acknowledging the need for training and continuous learning in their organizations. There is in fact a continue awareness of the need and value of training and learning among organizations now more than ever before in terms of changing workforce, skills, and knowledge requirements of organizations, as well as the aspirations of the employees in the organizations. At the same time, more and more business organizations are beginning to realize the need to increase their human capital and sustained their competitive advantage by stimulating learning behaviour through formal training. Business organizations depend on the accumulation of human capital of their employees to promote higher productivity and quality, as well as to compete more effectively in the global business environment. Through effective formal training and learning, firms can acquire not only new skills and knowledge, but also change their employees’ attitudes. Nevertheless, in the absence of appropriate and effective human resource training, firms tend to repeat old ineffective and inefficient practices (Henry, Hill and Leitch, 2004; Devins and Johnson, 2003; Kok, 2002; Devins and Johnson, 2003; and Gibb, 1996). Previous studies on training appears to focus largely on large organizations (Kok, 2002; Patton, Marlow, and Hannon, 2000; and Black, Noel and Wang, 1999). Although past studies have mainly concentrated on large firms, lately, the literature review reveals that increasing numbers of researchers are acknowledging the need for training in small businesses as well. In fact, more recent studies conducted in the area of small businesses have indeed indicated the need for more research to examine issues relating to training within small and medium-sized enterprises (Henry, Hill and Leitch, 2004; Devins and Johnson, 2003; Kok, 2002; Devins and Johnson, 2003; and Gibb, 1996). The review of the small business literature in Malaysia, however, suggests that training within SMEs has not received much attention. Despite the significance role of small and medium-sized enterprises in the Malaysian economy, training in SMEs has not attracted much research efforts. As a result, little is known about the training practices within SMEs in the Malaysian context. This study attempted to address this issue. The purpose of the present study is to examine the following aspects of training in small and medium-sized enterprises: 1) needs for training; 2) emphasis on training; 3) methods and types of training; 4) suitability of training; and 5) frequency and duration of training. LITERATURE REVIEW 76 Entrepreneurship and small enterprise training can be approached from three different aspects. First, business skills training covers all the conventional management training areas (such as legal, production/operation, and sales) in a business. Second, technical skills training address the ability to use knowledge or techniques of a particular discipline to achieve specific objectives. Third, entrepreneurial skills training include the skills that enhance entrepreneurial performance such as strategy, planning, marketing, financial, project management and time management and skills (leadership, motivation, delegation, communication and negotiation)in dealing with people (Chaganti and Malone, 1991; and Nieman, 2001). The review of past studies on training by Barry and Milner (2002) uncovered several interesting features of training among SMEs. First, small firms provide less training to their employees due to industry and size effects. These affects may be attributed to practical and financial considerations of the SMEs. For instance, small firms were not able to release employees to attend training programs that were too expensive and too technical. Second, the training provided may be “too general” in nature and not relevant to the specific needs of the SMEs. Third, SMEs faced strong disincentives to train. Issues such as limited internal promotions, smaller pay and benefits for employees, and increased risk that their employees may be poached discouraged training in small business. Fourth, training in smaller enterprises is also most likely to be informal than formal. In general, small firms were not attracted to formal training approaches for a variety of reasons which were associated to time and resource constraints. In another study, Hashim (2002) indicated that many problems experienced by small business owners and managers were related to inadequate training. Shortage of skilled workers, inadequate infrastructure, lacked of managerial and technical expertise, marketing constraints and knowledge, and limited application of new technology are some of the problems associated with the lacked of skills and knowledge that training can help overcome. The study by Lawless et al. (2000) indicated that small businesses were less likely to demand or provide training for their employees because of the following three reasons: 1) owners of small firms were more concerned with short term survival issues, whereas many training benefits are long term; 2) there is a high probability that trainees or trained workers in the small firms would be poached by other or larger employers; and 3) the absence of better job opportunities in small firms and for their managers, promotion (example the top managerial position) is less likely to occur in small firms where in most cases the top managerial posts are often being held by the owners themselves. According to Nolan (2002), since many SMEs operate in an informal, flexible and unstructured way, small business owners and managers expect training within their firms to fit into this pattern. Nolan further indicated that small firms can benefit from informal training in three ways. These include: 1) informal training can be more easily integrated into the small firms’ day-to-day activities; 2) it can be undertaken in modules over short time periods, as well as be synchronized closely with the firm’s production cycle; and 3) it can be more easily fitted into the individual worker specific work role needs. RESEARCH METHODOLOGY Sampling Frame and Sample This study is based on a sample survey. The data for this study was gathered via a postal survey involving small and medium-sized enterprises (SMEs) in the Malaysian manufacturing sector. The primary data was collected from the structured questionnaires mailed to SMEs located in the states of Kedah and Perlis in Northern Malaysia. In the present study, an SME was defined as a firm with 300 or fewer employees and as one which is actively managed by its owner/s. Based on this selection criteria, 113 SMEs were selected from the total number of 249 firms registered with the State Economic Development Corporations in Kedah and Perlis. The structured questionnaires were sent by mail to the 113 firms in Kedah and Perlis. The questionnaires were addressed to the owners and executives in charge of human resources in the 113 firms. The mailing of the 113 survey questionnaires resulted in the return of 41 usable questionnaires. The 41 returned questionnaire represented a response rate of 36.3%. Out of the total number of 41 returned questionnaires, 28 were from the firms in Kedah and the remaining 13 from the firms in Perlis. 77 Questionnaire The structured survey questionnaire adopted in this study consisted of two sections with a total number of 47 questions. Questions 1 through 10 in section one of the questionnaire was used to obtain the general information concerning the firms and the respondents’ characteristics. The remaining 37 questions in section two were designed to capture the respondents’ training needs, their emphasis on training, the methods and types of training, suitability of training, and frequency and duration of training. The 37 items, which were adapted from the earlier works served as a basis for querying the training practices found in the selected SMEs. The respondents were requested to rate each item on a five-point scale ranging from (1) strongly disagree to (5) strongly agree. The questionnaire was tested prior to mailing to the respondents. Characteristics of the Respondents Table 1 displays the personal characteristics of the 41 respondents that participated in the survey. As shown in Table 1, of the 41 respondents, 36 were Malays, three were Chinese, one was Indian, and the other one was a Thai. Twenty six of the respondents interviewed were male and the remaining fifteen were females. Of the 41 respondents, 29 were married and 12 were single. The age of the respondents ranged from less than 30 to more than 50 years old. As far as their education is concerned, 20 had obtained their bachelor’s degree, 11 had their diploma, six had their school certificates, and the remaining four had other qualification. Characteristics of the Sample Firms Table 2 summarizes the characteristics of the 41 firms that participated in the study. Out of the 41 firms, 26 firms were private limited companies; nine were sole proprietorship and the remaining six partnerships. The number of products produced by the firms ranged from one product to as many as 400 products. In terms of employment, 23 firms employed between 51 to 300 employees. The remaining 18 firms had less than 50 employees. As shown in Table 2, 14 firms had operated between 6 and 10 years, another 14 firms operated between 11 and 15 years, nine firms operated more than 15 years, and four firms operated between one and 5 years. Eighteen (43.9%) of the 41 firms have sales of less than RM500,000 for the year 2003. Another four firms (9.76%) had sales between RM500,001 and RM1,000,000. Only one firm had sales between RM1,000,001 and RM1,500,000. The remaining 14 firms (35.15%) had more than RM2,000,000 in sales. Needs for Training Following Table 2, Table 3 provides the mean and standard deviation (SD) scores of the needs for training obtained from the 41 firms in the study. To determine the training needs of the firms in this study, the respondents were asked to rate each of the statement on the need for training on a five-point scale ranging from strongly disagree (1) to strongly agree (5). As indicated in the Table 3, the mean scores for the nine items on the needs for training ranged from 3.36 to 4.58. In general, these positive high mean values suggest that majority of the 41 firms that participated in the study agreed that their firms had different needs for training. Table 1: Personal Characteristics of the Respondents Characteristics Frequency Percentage Age Less than 30 31-39 40-49 50 and above 17 12 10 2 41.5% 29.3% 24.4% 4.9% Gender Male Female 26 15 63.4% 36.6% 78 Marital Status Single Married 12 29 29.3% 70.7% Education Level SPM Diploma First Degree Other 6 11 20 4 14.6% 29.3% 48.8% 9.8% Race Malay Chinese India Others (Thai) 36 3 1 1 87.8% 7.3% 2.4% 2.4% Table 2: Characteristics of the Sample Firms Frequency Percentage % 9 6 26 22.0 14.6 63.4 Number of employees 10-50 51-300 18 23 56 44 Total Sales Less than RM500,000 RM500,001-RM1,000,000 RM1,000,001-RM1,500,000 RM1,500,001-RM2,000,000 More than RM2,000,000 18 4 1 4 14 43.9 9.76 2.44 9.76 35.15 Age of Firms 1-5 years 6-10 years 11-15 years More than 15 years 4 14 14 9 9.76 34.1 34.1 21.9 Characteristics Legal status Sole proprietorship Partnership Private limited No. of products produced (1 to 400) Table 3: Needs for Training Needs for Training Mean SD 1. Learn new skills. 2. Enhance skills. 3. Improve knowledge. 4. Training programs can be applied in daily jobs. 5. Change employees’ attitudes toward work. 6. To make employees more effective in their job. 4.46 4.39 4.26 4.07 4.04 4.00 .50485 .58643 .50122 .60788 .58954 .50000 79 7. To motivate employees. 8. Inadequate training. 9. Need more training in information technology 3.82 3.63 3.48 .54325 .73335 .89783 Emphasis on Training Responses to the five-point strongly disagree/ strongly agree questions on the emphasis on training gathered from the 41 respondents are condensed in the following Table 4. As indicated in Table 4 below, the mean scores of between 3.36 and 3.87 suggest strong emphasis on training among the participating firms. Table 4: Emphasis on Training Emphasis on Training 1.Based on the needs of the company. 2.Encourages employees to attend training. 3.Has a Human Resource Department to monitor the training need. 4.Provides training opportunities. 5.Willing to pay for employees training programs 6.Willing to discuss suggestions from the employees about training. 7.Gven equal opportunity to attend training programs. 8. Stable work schedule allows employees to attend in training. Mean 3.87 3.78 3.75 3.60 3.58 3.58 3.46 3.36 SD 0.8780 0.7805 0.7561 0.6098 0.5854 0.5854 0.4634 0.3659 METHODS OF TRAINING As shown in Table 5, the mean and standard deviation scores for the four items on the methods of training ranged from 2.78 to 3.87. These results indicate that on-the-job training, audio/video and lectures as the most important methods of training for the SMEs in the study. Table 5: Methods of Training Methods of Training 1. On-the-job training is more suitable. 2. Audio/video as a training method is more effective. 3. Lectures as a training method is more effective. 4. Off-the-job training is more suitable for company. Mean 3.87 3.85 3.04 2.78 SD .74817 .65425 .92063 .90863 Types of Training Table 6 summarizes the types of training provided in the SMEs that participated in the study. The figures in Table 6 indicate that the firms tend to focus on training related to quality, entrepreneurial training, and financial/auditing. The other types of training provided in the firms are listed in Table 6. Suitability of Training Following Table 6, Table 7 presents the mean and standard deviation scores for the suitability of the training programs to the SMEs. The mean scores 3.92 and 4.00 as shown in Table 8 below suggest that the training given to employees of the SMEs was suitable for the firms. 80 Table 6: Types of Training Types of Training ISO, TQM (quality) Entrepreneurial Financial/Audit Packaging/Label Management Skill Information Technology Motivation Communication Technical Skill Safety and Health Planning, control, production activities Sales, marketing Legal and Act Attitudes Total Frequency Percentage % 12 10 10 8 8 7 6 6 6 5 4 4 2 1 107 11.2 9.3 9.3 7.47 7.47 6.54 5.6 5.6 5.6 4.67 3.73 3.73 1.87 0.93 100.0 Table 7: Suitability of the Training Programs Suitability of Training Programs 1. Training given to employees is suitable for our company. 2. Training programs fit the current needs of our company. Mean 4.00 SD .63246 3.92 .64770 Satisfaction with Training Programs Apart from the suitability of the training programs, the respondents indicated that they were also satisfied with the training programs provided to their firms. As shown in Table 8, majority of the respondents (78%) in the study indicated that they were satisfied with the training programs. Table 8: Satisfaction with Training Programs Satisfaction with Training Program Frequency Percentage 32 5 1 3 41 78% 12.2% 2.43% 7.31% 100% Very satisfied Satisfied Less satisfied Not satisfied Total Training Providers This study also attempted to identify the agencies that provided the training programs to the SMEs. From the study, 22 training providers were identified. Table 9 below lists the agencies that offered training programs to the SMEs in the study. Out of the total number of 22 agencies, the study indicated that the SMEs obtained most of their training from the Majlis Amanah Rakyat (13 firms) and the Federation of Malaysian Manufacturers (9 firms). Perceived Benefits of the Training Programs 81 Table 10 presents the benefits of the training programs as perceived by the respondents in the study. The information in Table 10 suggests the small business owners and managers in the study viewed various benefits from training their employees. Table 9: Agencies that Provided Training to SMEs Agency 1. Majlis Amanah Rakyat (MARA) 2. Federation of Malaysian Manufacturer (FMM) 3. Kedah Regional Development Authority (KEDA) 4. Standards and Industrial Research Institute of Malaysia (SIRIM) 5. Neville Clark 6. Times Management Consultant 7. Human Resources Development (HRD) 8. National Institute of Occupational Safety and Health (NIOSH) 9. Malaysian Agricultural Research and Development Institute (MARDI) 10. Federal Agricultural Marketing Authority (FAMA) 11. Small Medium Industries Corporation (SMIDEC) 12. Malaysian Entrepreneurial Development Centre (MEDEC) 13. National Productivity Centre (NPC) 14. Prima Link 15. Jaya Chacko 16. Northern Training 17. Progeny Training & Consultant 18. Irshad Consultant 19. Informatics 20. SQC Consultant 21. Quest Consultant 22. BUQI Quality Total Frequency Percentage % 13 9 5 4 20.3 14 7.8 6.25 4 4 3 3 6.25 6.25 4.68 4.68 3 4.68 2 2 2 3.12 3.12 3.12 1.56 1 1 1 1 1 1 1 1 1 1 64 1.56 1.56 1.56 1.56 1.56 1.56 1.56 1.56 1.56 100 Table 10: Perceived Benefits of the Training Programs Benefits of Training Program Increased job performance and quality of work Reduced uncertainty among employees Improved skills Enhanced knowledge Fulfilled the needs, scope of the job-mission, objectives of the companies Motivated employees Assisted in continuous improvement Total Frequency and Duration of Training 82 Frequency Percentage 9 8 5 5 5 21.9& 19.5% 12.2% 12.2% 12.2% 5 4 41 12.2% 9.75% 100 The information on the frequency and duration of training conducted by the 41 SMEs is presented in the following Table 11. As shown in Table 11, majority of the firms (35 firms) provided less than five times a year training to their employees. The information gathered from the firms suggested that the duration of the training was less than a week. In addition, the information presented in Table 11 suggests that the training were meant for changing the attitudes of their employees, increasing knowledge and upgrading skills. Table 11: Frequency and Duration of Training Training 1.Average number of training attended by employees. 2.Training on changing attitudes. 3.Training on increasing knowledge. 4.Training upgrading skills. 5. Duration of training <5 times 35 5 to 10 times 5 >10 times 1 39 31 32 5 10 7 2 < 1 week 37 1 to 3 weeks 1 > 1 month 3 DISCUSSION AND CONCLUSION This study attempted to assess the training practices among 41 SMEs located in Kedah and Perlis. On the basis of the results of this study, several findings can be summarized. First, the findings of the study suggest that majority of the SMEs in the study indicated that their firms have various needs for training and that they emphasized on training their employees. Second, the findings of the study indicated that the SMEs that participated in this study utilized different methods, as well as types of training in their firms. The results of the study showed that the SMEs mainly adopted three different methods of training, namely; on-the-job training, audio/video, and lectures. For the types of training, the results suggested that training in quality, entrepreneurial training and financial/auditing as most important. Third, the results of the study suggested that majority of the SMEs were satisfied with the training programs conducted in their organizations. According to the results of the study, the training programs given to their employees were not only suitable for their firms, but also fulfilled the currents needs of their firms. Fourth, the results of the study, however, indicated that limited numbers of training were provided to the employees of the SMEs that participated in this study. Most of the respondents indicated that their employees attended training program for less than five times a year. Furthermore, the results of the study showed that majority of the employees of the firms attended short courses. These short courses were less than a week. This study which is based on a small sample focused only on SMEs in Kedah and Perlis. Given this limitation, more research is needed on assessing the training practices in SMEs. Further studies may pursue several directions. For instance, replications of this study using a bigger sample would help clarify the findings of this study, and overcome the limited generalizability of the present study. Examining the training practices of SMEs in sectors other than manufacturing such as retailing, wholesaling, and construction may also be useful. Additionally, future research may also focus on other issues such as the effectiveness of the training programs in improving the SMEs performance. It will also be worthwhile to investigate why the owners and managers of SMEs are still not willing to further invest in training their employees even though they are aware that training can provide them various benefits. REFERENCES 83 Barry, B. & Milner, B. (2002). SMEs and electronic commerce: A departure from the traditional prioritization of training?. Journal of European Industrial Training. Vol. 26, No. 7, pp. 316-326. Black, D.A., Noel, B.J. & Wang, Z. (1999). On-the-job-training, establishment size, and firm size: Evidence for economies of scale in the production of human capita. Southern Economic Journal 66 (1), pp. 82-100. Chaganti, R. & Malone, S. (1991). High performance management strategies for entrepreneurial companies. New York: Greenwood Inc. Devins, D. & Johnson, S. (2003). Training and development activities in SMEs. International Small Business Journal, 21 (2), pp. 213-226. Gibb, A. (1996). Small firms’ training and competitiveness. Building upon the small business as a learning organization. International Small Business Journal 14 (3), pp. 13-29. Hashim, M. K. and Wafa, S. A. (2002). Small and Medium-sized Enterprises in Malaysia: Development Issues. Kuala Lumpur: Prentice Hall. Henry, C., Hill, F. M., & Leitch, C. M. (2004). The effectiveness of training for new business creation. International Small Business Journal 22 (3),pp. 249-267. Kok, J.D. (2002). The impact of firm-provided training on production. International Small Business Journal, 20 (3),pp. 271-292. Lawless, N., John, A. & Dwyer, M. (2000). Face-to-face or distance training: two different approaches to motivate SMEs to learn. Journal of Training and Education. 42 (4), pp. 308-316. Nieman, G. (2001). Training entrepreneurs and small business enterprises in South Africa: A situational analysis. Journal of Educational and Training. 43 (8), pp. 445-450. Nolan, C. (2002). Human resource development in the Irish hotel industry: The case of the small firm. Journal of European Industrial Training. 26 (2) pp. 88-99. Nubler, I. (1992). Training micro entrepreneurs: Does it pay?. Journal of Small Enterprise Development. 3 (4), pp. 34-44. Patton, D., Marlow, S. & Hannon, P. (2000). The relationship between training and small firm performance; Research frameworks and lost quests. International Small Business Journal. 19 (1), pp. 11-27. 84 DEVELOPING HUMAN CAPITAL TOWARDS LEARNING ORGANISATION Roselina Ahmad Saufi Liew May Wei Universiti Malaysia Sabah, Malaysia ABSTRACT The concept of the learning organisation emerged in the research literature in late of 1980s. Learning organization (LO) is a multivalent term that drives myriads of interpretations. It is defined as an organization skilled at creating, acquiring and transferring knowledge at modifying its behavior to reflect new knowledge and insights (Garvin, 1993). Senge (1990) is amongst the most influential writers to promote the concept of the learning organization. He argues that five dimensions are present in a learning organization, namely, systems thinking, personal mastery, mental models, shared vision and team learning. Learning organisations will foster learning at all levels, develop new and innovative processes and continually reflect and transform themselves (Senge, 1990; Garvin, 1993). Since the concept of learning organization is considered new, it has to be promoted and explained. Hence, the European Consortium for Learning Organizations (ECLO) has been set up in year 1993 to implement this task. It is essentially a forum for discussion on the concept of “the learning organization”. It has run a number of workshops to promote the concept and to assist in the process of cultivating a shared understanding of the concept and how it should be delivered (ECLO, 2005). Companies such as Motorola, Zytec and Toyota have moved from a total quality approach to a learning approach because they not only adapt to change but they learn and stay ahead of change (Hodgetts, Luthans and Lee, 1995). They are not content simply to build products to meet quality expectations, they are continually increasing quality in order to exceed and anticipate customers’ demands. In order to achieve it, a learning climate in which employees find new, creative ways of doing the work. Recruitment information for a Director for Policy Studies and Management Development on behalf of the United Kingdom Government, mentioned clearly that the UK government intend to become a learning organization (Kelleher, 1996). INTRODUCTION Most of the researchers have agreed to the notion that learning organization, will move far ahead in their development in comparison to those organizations which do not facilitate learning (Saxena, Kukreti and Gihar, 2005). It will furnish a background to minimize problems and complexities associated in organization with the modern corporate management. Senge (1990) popularized the theory of learning organizations as it incorporates some qualities which are necessary at present for the success of any organization such as team work, empowerment, participation, flexibility and responsibilities. Hawkins (1994) defined learning organization as a change at the heart of employees understanding of learning, a shift from viewing learning as being abrupt facts to learning as a more dynamic process. The approach adopted by theorists is that those organizations that learn can manage the change process more effectively than those who do not (Cullen, 1999; Massey and Walker, 1999). Most researchers suggest that learning at the levels of the individual, team and organisation can be identified and that effective learning fosters individual learning and also helps create a learning culture within the organisation. Daniels (1994) identified key characteristics that learning organizations possess in common: i) ii) iii) Values individual and organizational learning as a prime means of delivery of the organizational mission Involves all its members through continuous reflection in process of continual review and improvement Structures work in such a way that work tasks are used as opportunities for continuous learning. 85 A numbers of the literature does suggest that there are three key dimensions in learning organizations which are used to illustrate the concept (Kelleher, 1993). The model is based on the integration of strategies in the domains of individual, team and organizational learning. The emphasis of the model is on learning and not training. The three dimensions in learning organizations as explained by the model are individual learning, tam learning and organization learning (Refer to figure 1). Figure 1: A three dimensional model of a learning organization Individual Learning Senge (1990) suggested that it is people who learn, and ‘not organizations’ under the learning organization concept. It is vital that organisations aim to become learning organisations must support and sustain the learning of all its employees. Personal development plans, such as those employed by many organisations in the UK, serve as excellent platforms for creating environments in which all members of staff consider their own growth though learning. Such initiatives should also involve an increased responsibility for managing individual’s own learning. Traditional education and training programmes still play an important role in the individual learning dimension. Informal learning, especially learning integrated into work tasks and responsibilities, also significant to implement learning organization. Whilst the control of formal learning lies with the professionals responsible for teaching and training, individuals will obviously experience less control and quite possibly less ownership over their learning. A shift in the locus of control over learning will place demands on vocational training providers to develop new roles and skills in facilitating effective and long-term learning (Kelleher & Griffey, 1997). Team Learning Teams can be referred as a collection of individuals and also an entity in their own right. As more and more working situations are organised through teams of varying sizes and duration, team learning has become an important factor in organizational development. The transfer of learning experiences between the team members and also between other teams is a key ingredient here. Creating the ideal environment for effective learning in groups and teams is as important as ensuring that individual learning takes place. Team learning has different components to individual learning that, naturally, involve the social affects of learning with others (Unger, 1996). Pooling knowledge, understanding the limits to the team’s knowledge of any given situation and the sharing of possible solutions to any given problems are all key components in team learning environments. The views of the minority should not neglect as these can help the team to view alternative perspectives and options. According to a research at Tavistock Institute, it shows that the ideal team size for learning is between five and seven members. ORGANIZATIONAL LEARNING 86 It is within this dimension that the learning of individuals and teams becomes embedded into the fabric of the organization. There are four components in the dimension of organization learning: i) New systems and structures ii) New processes iii) New values iv) New roles New systems and structures It is at this level that the learning of individuals and teams becomes embedded into the fabric of the organization. Systemic thinking allows analysis of organizational obstacles to learning. Communication systems need to be implemented which allows for free and lateral communication flows in order to enhance learning at all levels in the organisation. Information technology systems can be appropriate but will probably depend on the size of the organisation and the extent to which the interface between humans and the technology lends itself to good internal communications. The key to this is to create effective storage and retrieval systems so that material can be accessed at the right time, by those who need it and in a format that enables easy understanding. This generates the need to consider the processes of knowledge management alongside those of organisational learning. New processes The establishment of environments in which learning is maximised and made most effective is an important ingredient. Learning how learning has taken place and supporting individuals and teams to understand how they have learned new tasks and responsibilities will be vital. It is important to learn how best to scan the boundaries of the organisation. This involves the examination of good practice elsewhere, becoming alert to market and other economic factors that may impact on the organisation and understanding more fully the impact that existing practices may have on customers and suppliers. Changes desired by organisations may also have implications on relationships between those organisations and external agencies and institutions upon which they may be dependent in the future. The involvement of suppliers, customers and other agencies in collaborative organisational learning and knowledge creating processes is a desirable extension of this increased environmental awareness. New values All of the above require individuals to commit themselves to behaving in an honest way and to build levels of trust in order to maximise learning opportunities. Trust has been identified as the most important ingredient in successful innovatory companies. Seeing mistakes as key learning experiences will assist organizations to prevent blame cultures and to create an environment which risk taking and experimentation are seen as healthy and necessary for organizational growth. New roles A shift from control mechanisms to empowerment are needed to develop leadership skills among managers and team leaders. However, the role managing should not completely abandoned in favour of leading but that the whole balance of the role of senior employees should be refocused in favour of the latter. STRATEGIES RECOMMENDED TO ACHIEVE LEARNING ORGANIZATION Individuals play a significant role in the development of organizational learning since the organization would not exist without them. Therefore, human resource systems can contribute to the capability of the organization to learn by facilitating the development of organization-specific competencies that will create social relationships based on company’s history and culture and generate tacit organizational knowledge (Barney, 1992; Wright and Mcmahan, 1992). Human resource management can be considered as personnel management with an emphasis on the acquisiton, organization and motivation of human resource. 87 Several measures are recommended to assist organizations to achieve learning organization status. It includes: A learning organization has a culture and value set that encourage learning. A learning culture is characterized by: a) b) c) openness to experience encouragement of responsible risk-taking willingness to acknowledge failures and learn from them Learning culture encourage management, employees, customers and suppliers to see opportunities to learn and grow. In order to instill a learning culture, managers must set aside their penchant for discussion, embracing conversations and dialogues instead (Mcgill and Slocum, 1993) The managers must realize that face-to-face meetings are more functional than e-mail or the distribution of computer printouts to create conditions that foster conversation and dialogues. Dialogue provides can act as a forum for people to talk and think about problems together to build shared visions through face-to-face meetings. Besides, managers should publicly speak about the importance of learning to the employees increase their commitment to learn. Continuous Experimentation Strategy in a learning organization is predicated upon a recognition and acceptance that learning is the only source of sustainable strategic advantage. Therefore, management of a organization is committed to continuous experimentation as a means of institutionalizing learning. A learning organization will relentlessly pursue new solutions to problems that their own product or service has just solved. Network Intimacy A learning organization should have a permeability, flexibility and network intimacy structure. Learning 0rganizations create the means for recognizing and embracing ideas that originate outside the company. Information Systems A learning organization should be managed accurately, timely, easily available to staffs that who need it and presented in a format that facilitates its use. A learning organization should combine detailed product knowledge with operational flexibility to those who need it. Therefore, managers of a learning organization should open to external data regarding the industry, markets, competition and customers and prepare to channel that information to the appropriate employees. Moreover, internal information processes must be systematic for the usage of employees. Reward Systems A learning organization must possess a reward system that recognize and reinforce employee’s learning. Hence, learning organizations should tie employee’s salary increment and promotion practice to risk-taking, flexibility and continuous improvement that it requires. Punishment for failure and dissent must be avoided to encourage diversity for maximum learning. Employee Selection A learning organization should select employee, beside for what they know, but also include whether they ate able to learn. The management of a learning organization should realize that ability to learn is in great supply in the workforce. Measure, benchmark and track learning The use of process measures can build the learning commitment. For example, in one of the General Electric manufacturing facility, employees track cycle time on a number of processes, including inventory turns, order-toremittance time, receivables and payables. By plotting cycle times, they also track their ability to respond, a process of learning. Moreover, the firm also benchmarks itself again its two top competitors score on the same processes. Besides, General Electric also ask customers to compare the top three competitors in the industry on process indicators such as responsiveness, promises kept and service-call time. In shortm these measures enable General Electric to monitor how well it is learning, compare to its competitors (Ulrich, Jick and Glinow, 1993) 88 Create symbols of learning Symbolic events can keep employees attention focused on the importance of sharing ideas across boundaries within the organization. For instance, the human resources department of AT&T has created awards for outstanding individual, team and business-partner performance. A panel of internal and external judges scores the nominees and the winners receive awards at an annual event, the symbolic nature of the event encourages the dissemination of the selected ideas throughout AT&T (Ulrich, Jick and Glinow, 1993) CONCLUSION Learning organization involves continuous learning which emphasizes on continuous evaluation and improvement in ongoing process towards the objective of the organization. The incremental improvements enable organizations to give more attention to the possibility of changes in customer behaviours and product service’s technology improvements for survival in fast changing and unpredicted business environment. REFERENCES Addleson, M. 1995, “What is a learning organization”, www.psol.gmu.edu Cressey,P. and Kelleher,M., 2003, “Social Partnership and Human Resource Development”, www.eclo.org Cullen, J. 1999, “Socially Constructed Learning : A Commentary on The Concept, of the Learning Organization”, The Learning Organization, Vol.6, No.1, pp.45-52 Garvin,D.A., 1993, “Building a Learning Organization”, Harvard Business Review, July-August 1993. Hawkins,P. 1994,”The Changing View of Learning Towards the Learning Company: Concepts and Practices”, McGraw, London Hodgetts, R.M., Luthans,F. and Lee, S.M., 1995, “New Paradigm Organizations: From Total Quality to Learning to WorldClass” Jones, A.M. and Hendry, C., 1994, “The Learning Organization: Adult Learning and Organizational Transformation”, British Journal of Management, Vol.5, pp153-162 Levinthal, D.A. and March, J.G., 1993, “The Myopia Of Learning”, Strategic Management Journal, Vol. 14, pp. 95-112. Kottler, J., 1995, “Leading Change:Why Transformation efforts fail,” HBR, pp. 59-67 Massey,C. And Walker,R., 1999, ” Aiming for Organization Learning: consultants as Agents of Change”, The Learning Organization, Vol. 6, No.1, pp.209-220. McGill, M. and Slocum,J. 1993, "Unlearning the Organization", Organizational Dynamics. Saxena, M.K., Kukreti, B.R., and Gihar, S., 2005, “Correlates of Learning Organization: A Critical Review”, 2005. Senge,P.M. 1990, “The Leader’s New York:Building Learning Organizations”, Harvard Business Review. Senge, P.M., 1990, “The Fifth Discipline: The Art and Practice of Learning Organization”, Doubleday, New York. Ulrich, D., Glinow,M.A.V. and Jick, T. 1993, “High impact learning: Building and diffusing learning capability” Organizational Dynamics. 89 THE EFFECTIVENESS OF SMALL AND MEDIUM DEVELOPMENT CORPORATION (SMIDEC) EXPORT ASSISTANCE PROGRAMS ON MALAYSIAN SME’s Abdul Jumaat bin Mahajar Shahmir Sivaraj Abdullah Jasmani binti Mohd Yunus Universiti Utara Malaysia ABSTRACT This paper examines the effectiveness of Small and Medium Development Corporation export assistance programs on Malaysian Small and Medium Sized Enterprises (SME). The mean and standard deviation scores showed that slight awareness amongst the SME of the twelve types of assistance programs offered by SMIDEC. Therefore, it shows that the existing export assistance programs are not reaching the SME. In order to increase the SME’s awareness of export assistance programs, SMIDEC needs to increase their efforts in pursuing promoting the export assistance programs effectively amongst the SME. INTRODUCTION SME plays a significant role in the overall economic development of the country. Briefly, small and medium sized firms employ more workers per unit of capital, they help to increase total savings in the economy; they have a favorable impact on income distribution, they serve as a training ground for developing the skills of industrial workers and entrepreneurs and finally, they play an important complementary role to large firm in the economy. SME’s seemed to be lagging in the area of international business, especially in the exporting. For example, although SME’s made up of more than 90 percent of the total manufacturing firms in Malaysia manufacturing sector, they managed to export about 20.8 percent of their total output in the sector. This amount contributed to only about 10.8 percent of the country’s total export of manufactured products. Malaysian firms need to internationalise their operation, in order to survive as well as to become more competitive. In an effort to assist the SMEs in their exporting activities, the Malaysian government has introduced various export assistance programs. Over the years, the Malaysian government has introduced these export assistance programs to support and encourage more SMEs to export as well as to enable them to increase their share of the country’s total export. The purpose of this exploratory study was to evaluate some of the recurring questions about level of awareness of the programs offered by SMIDEC to SME’s. Which programs are most active? What factors influence the effectiveness of government export assistance programs ? The study specifically examine SMIDEC assistance programs designed to stimulate exporting activities amongst SME’s. REVIEW OF THE LITERATURE A number of empirical studies (Moini 1998, Kotabe and Czinkota 1992, Howard and Herremans 1988, Kedia and Chhokar 1986) have explored the efficacy of export assistance programs, implicitly offering guidance to export assistance providers regarding the allocation of their resources and the content of their programs. Both Moini (1998) and Kedia and Chokar (1986) found low levels of awareness of export assistance programs, implying that assistance providers are not doing an adequate job promoting their programs. Usage of export assistance programs was very high for firms that were aware of the services. Kotabe and Czinkota (1992) found that assistance providers were not targeting their resources consistent with the export assistance needs of firms and Howard and Herremans (1988) found that successful exporters did not find government assistance providers to be particularly helpful. 90 Substantial research has attempted to identify and explain exporting decisions of business. Growing evidence suggests that firms pass through several stages on the way to becoming actively involved in export activity. Therefore, export assistance programs should vary in nature to provide the type of assistance best suited for a particular group of firms (Moini,1995). The first major study dealing with the stages of export development among manufacturing firms was conducted by Bilkey and Tesar (1977). They believe that firms gradually move through six levels of commitment to exporting, ranging from complete unwillingness to export to a full large scale commitment. Bilkey (1978) has suggested that for maximum success export stimulation programs should be tailored to the export development position of the firms to be stimulated. He argues that if export assistance programs are formulated in terms of the export internationalization process, then: (1) experienced exporters would be stimulated to increase exports by devaluating the currency and by removing perceived obstacles to exporting. (2) non-exporters would be stimulated to begin exporting by providing managerial assistance (such as export extension programs and export consulting services). (3) firms that have not attempted to export would be stimulated to explore the feasibility of exporting by programs promoting the attractiveness of exporting. Welch and Wiedersheim-Paul (1979) suggested that to obtain maximum expansion in exports and numbers of exporters, different policies need to be devised that reflect the differences in operative forces on the export decision process. According to Tesar (1975) companies offering product with unique features are more likely to become exporters. Finally, Reid (1981) argues that the decision-makers attitude, experience, motivation and expectation are primary determinants in firms engaging in foreign markets activity. He suggests that the innovation adopting behavior model of export behavior and foreign entry decision is consistent with exporting behavior as a process described by Bilkey and Tesar (1977). He argues, however that research on exporting, particularly when small firms are beinginvestigated, must pay attention to individual characteristics and how these effect processing of exportrelated information and influence exporting behavior. METHODOLOGY The research reported in this study was confined to selected small and medium sized enterprises in the Malaysian manufacturing sector. In this study, SME’s is defined as a manufacturing firm with an annual turnover of less than RM25million and as one which is actively managed by its owners. Based on this definition, 300 SME’s were identified from the listing obtained from Federation of Malaysian Manufacturers (FMM) Directory 2003. By using the structured questionnaire, data was collected through personal interviews with the Chief Executive Officers and Senior Executives of the selected firms. The respondents were contacted by telephone and informed of their selection as part of the present study. Through the telephone conversation and a follow-up letter, the participation of the respondents was requested and confirmed. Of the total number of 300 SME’s, 76 confirmed their participation and completed the questionnaires during the interview. This resulted in the overall response rate of 25 percent. Before the survey proper, a pilot study was conducted to pre-test the questionnaire to ensure that the final version of the questionnaire is easily understood and contains no vague or sensitive questions from a cultural point of view. Questionnaire consisting of 17 items were used to obtain the general information concerning the background of the respondents (7 items) and the firms characteristics (10 items). The remaining questions in section three, four, five and six of the questionnaire were designed to capture the respondents assessments of the government export assistance programs provided by the SMIDEC. SURVEY QUESTIONNAIRE Section three of the questionnaire focused on capturing the information on the awareness of the programs offered by the SMIDEC. Section four of the questionnaire emphasized on obtaining information on the importance of the export assistance programs among the SMEs. Section five of the questionnaire seeks to obtain information on the usage of the export assistance programs among the SMEs. Finally, section six of the questionnaire focused on obtaining the information on the benefits received by the SMEs from using the export assistance programs provided by the SMIDEC. 91 DATA ANALYSIS Data from the questionnaire were coded and entered accordingly into the SPSS statistical software. The descriptive statistics such as mean, standard deviation and frequency distribution were utilized to analyze the data collected from the participating SMEs. Table 1 summarizes the characteristics of the respondents in this study. The respondents consisted of manager but not owner (42.1%), export executive (22.4%), owner and CEO (15.8%), owner and manager (14.5%) and owner but not manager (5.3%). Malays constituted majority of the respondents (65.8%), followed by Chinese (21.1%), Indians (7.9%), and others races (5.3%). Forty-one respondents were female and 35 male. Of the 76 respondents, 41 were single, 33 were married and two remarried. Majority (57.9 %) of the respondents had one to three years work experience, another 18 (23.7%) had between four to six years, five respondents had between seven to nine years and the remaining three respondents had between 10 to 12 years of working experience. Forty-two respondents never owned any business, 19 respondents had one business, six had two businesses, four had three businesses, and five had more than five businesses. In term of level of education, 64 respondents obtained bachelor degrees, four respondents each had school certifications and master’s degrees, three respondents had PhD degrees and one respondent had a diploma. As shown in the above Table 2, 44 of the 76 sample firms were private limited companies, 19 were sole proprietors, and 13 were partnerships. Fifty-eight companies had between one to 300 employees and 18 companies had more than 300 employees. Forty-one were start up companies, 19 companies were joint ventures between domestic and foreign private investors, seven were privatized government companies, five were subsidiary of private companies, and one company was a subsidiary of a formerly government-owned firm. The respondents indicated that they owned from less than 10% to more 40% of the ownership of their firms. Of the 76 companies, 15 firms had total sales of less than RM500,000.00, 23 firms had sales between RM500,001 to RM5 million, 13 firms had total sales of between RM 5 million to RM10 million, four firms had between RM10 million to RM 15 million, two firms between RM 15 million to RM 20 million, and 19 firms had more than RM20 million in total sales for the year 2002. Nineteen firms (25%) had net profit of between RM10,001 to RM100,000, nine firms (11.8%) had net profit of less than RM10,000, eight firms (10.5%) had net profit of between RM200,001 to RM300,000, seven firms each (9.2%) had net profit of between RM300,001 to RM400,000 and RM400,001 to RM500,000. The remaining four firms (5.3%) had net profit of between RM100,001 to RM200,000. Of the 76 firms, 44 firms did not have any operation in other countries. Thirty-two firms indicated that they had operations in other countries. Thirty-three firms reported that they were presently involved in exporting. Of these 33 firms, 10 firms (13.2%) had their percentage of total sales in export (2002) of between 21 to 30%, nine firms (11.8%) with more than 40%, seven firms (9.2%) had 1 to 10%, six firms (7.9%) had between 11 to 20% and two firms (2.6%) had between 31to 40%. Awareness of the Export Assistance Programs The responses to the questions on the awareness of the various government export assistance programs are presented in the following Tables 3 and Table 4. The export assistance programs included those offered by the SMIDEC. Awareness of the SMIDEC Export Assistance Programs The following Table 3 provides the percentages of the awareness of the 12 assistance programs provided by SMIDEC among the 76 respondents. The mean scores of the awareness of the 12 export assistance programs offered by MIDA are ranked in Table 3 below. The mean scores vary from 2.46 to 3.05. Overall, these results indicate slight awareness of the 12 assistance programs among the respondents. Table 3 : Mean and Standard Deviation Scores of Awareness of the MIDA Programs 92 Program Industrial Linkage Programme (ILP) Soft Loan Scheme for Factory Relocation Enterprise 50 Grant for Productivity and Quality Improvement and Certification (ITAF 3) E-Manufacturing Grant (ERP) Grant Rosetta Net Standard Implementation SME Expert Advisory Panel (SEAP) Grant for Business Planning and Development (ITAF 1) Grant for Product and Process Improvement (ITAF 2) Factory Auditing Scheme Grant for Upgrading Engineering Design Capabilities Headstart 500 Mean 3.05 2.99 2.95 2.93 Standard Deviation 1.33 1.34 1.25 1.34 2.92 2.89 2.89 2.86 2.83 2.80 2.79 2.47 1.37 1.39 1.38 1.36 1.30 1.27 1.26 1.35 Helpfulness of the SMIDEC Export Assistance Programs Table 4 below summarizes the mean scores of the helpfulness of the export assistance programs offered by SMIDEC. The mean scores vary from 2.54 to 4.00. These results in general suggest that the respondents perceived the export assistance programs as helpful. Table 4 : Mean and Standard Deviation Scores of the Helpfulness of the MIDA Program Grant for Productivity and Quality Improvement and Certification (ITAF 3) Grant for Upgrading Engineering Design Capabilities SME Expert Advisory Panel (SEAP) Grant Rosetta Net Standard Implementation Enterprise 50 Factory Auditing Scheme Head Start 500 E-Manufacturing Grant (ERP) Soft Loan Scheme for Factory Relocation Industrial Linkage Programmed (ILP) Grant for Business Planning and Development (ITAF 1) Grant for Product and Process Improvement (ITAF 2) Mean 4.00 Standard Deviation 1.10 3.97 3.01 2.93 2.92 2.92 2.88 2.82 2.71 2.70 2.61 2.54 1.11 1.05 1.09 1.13 1.15 1.13 1.05 1.11 1.07 1.10 1.08 Programs DISCUSSION These results suggest that the level of awareness of the export assistance programs offered by the SMIDEC in this study was low. This finding appear to be consistent with the earlier observations made by Moint (1998), Crick (1997), De Nobel et. al (1989), and Kedia (1986). Helpfulness of the Export Assistance Programs In terms of the helpfulness of the export assistance programs, the results of the research in general reveal that the SMEs in the study perceived the export assistance programs as helpful. The percentages and mean scores of the responses to the questions on the usefulness of the export assistance programs not only vary among the respondents, 93 but also suggest the SMEs perceived the programs as helpful to their firms. This finding add support to the findings of earlier studies conducted by Bilkey & Tesar (1977) and Moini (1995). Usage of the Export Assistance Programs As far as the usage of the export assistance programs are concerned, the results of the study suggest that moderate level of usage of the export assistance programs among the SMEs in the study. The results of study indicate higher percentages and mean values for the usage of the assistance programs provided by the SMIDEC among the responding firms in the study. Benefits Received from Using the Assistance Programs The results of the study indicate that the SMEs that used the export assistance programs have benefited from the programs. Among the types of benefits that the SMEs received from using the various export assistance programs included the following: (1) increased export sales; (2) penetration new foreign market; (3) increased production; (4) gained new foreign customers; (5) increased net profit; (6) improved market growth; (7) improved product; (8) improved exporting process; and (9) improved international networking. CONCLUSION Based on the results of this study, the following findings may be summarized. First, at the general level, the results of the study suggest that the level of awareness of the various export assistance programs among the SMEs is still low. Second, the results of the study in general indicate that to certain extent the SMEs in the study perceived the export assistance programs provided by SMIDEC is helpful to their firm. Third, in term of the usage level of the export assistance program among the responding firms, the results of the study suggest that the SMEs in the study have been using the programs to a certain degree. Finally, the results of study appeared to suggest that the SMEs that used the various export assistance programs provided by the SMIDEC had received various types of benefits from the programs. REFERENCES Alexandrides, C.G. (1971). How the Major Obstacles to Expansion Can Be Overcome, Atlanta Economic Review, May, 12-15. Bauerschmidt, A,,Sullivan D., and Gillespie K (1985). Common Factors Underlying Barriers to Export Studies: In the U.S Paper Industry, Journal of International Business Studies, 111-123. Bilkey, W.J. (1978). 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International Market Entry Development. Englewood Cliffs, N.J.: Prentice Hall. 95 Table 1 : Characteristics of Respondents Position: Race: Gender: Marital Status: Years of Experience: Number of Businesses Owned: Level of Education: N 12 11 32 4 17 76 50 16 6 4 76 35 41 76 33 2 41 76 44 18 5 3 5 1 76 42 19 6 4 5 76 4 1 64 4 3 76 Owner and CEO Owner and Manager Manager but Not Owner Owner but Not Manager Others Total Malay Chinese Indian Others Total Male Female Total Married Remarried Never Married Total 1-3 years 4-6 years 7-9 years 10-12 years 13 and Above No Experience Total Never own any 1 2 3 More than 5 Total School Certification Diploma Bachelor Degree Master Degree PhD Degree Total Percentage 15.8 14.4 42.1 5.3 22.4 100.0 65.8 21.1 7.9 5.3 100.0 46.1 53.9 100.0 43.4 2.6 53.9 100.0 57.9 23.7 6.6 3.9 6.6 1.3 100.0 55.3 25.0 7.9 5.3 6.6 100.0 5.3 1.3 84.2 5.3 3.9 100.0 The characteristics of the 76 SMEs that participated in this study are summarized in the following Table 2. Table 2 : Characteristics of the Sample Firms Legal Form in Business: Sole proprietor Partnership Private Limited N 19 13 44 76 Percentage 25.0 17.1 57.9 100.0 22 28.9 Total No. of Employees: 1-30 employees 96 31-100 employees 101-200 employees 201-300 employees More than 300 employees 15 9 12 18 76 19.7 11.8 15.8 23.7 100.0 41 19 53.9 25.0 7 3 1 9.2 3.9 1.3 5 76 6.6 100.0 28 48 36.8 63.2 76 100.0 6 10 6 6 48 76 7.9 13.1 7.9 7.9 63.2 100.0 30 46 39.5 60.5 76 100.0 Less than 10% 15 19.7 11-20% 21-30% More than 40% Not Relevant 7 5 6 43 76 9.2 6.6 7.9 56.6 100.0 15 23 13 4 19.7 30.3 17.1 5.3 Total Firm Established: Originally private, from time of start up Joint venture, domestic and foreign private owners Privatization of a state-owned firm Private subsidiary of a foreign-owned firm Private subsidiary of a formerly stateowned firm Others Total Government Agency/ State Body Have A Financial Stake: Yes No Total Percentage of Total Ownership: Less than 10% 11-20% 21-30% More than 40% Not Relevant Total Foreign Company/ Individual Have A Financial Stake: Yes No Total Percentage of Total Ownership: Total Total Sales of Business (2002): Less than RM500,000 RM500,001-RM5,000,000 RM5,000,001-RM10,000,000 RM10,000,001-RM15,000,000 97 RM15,000,001-RM20,000,000 More than RM20,000,000 2 19 76 2.6 25.0 100.0 9 19 4 8 7 7 22 76 11.8 25.0 5.3 10.5 9.2 9.2 29.0 100.0 32 44 76 42.1 57.9 100.0 33 43 76 43.4 56.6 100.0 7 6 10 2 9 42 76 9.2 7.9 13.2 2.6 11.8 55.3 100.0 Total Net Profit (before tax) (2002): Less than RM10,000 RM10,001-RM100,000 RM100,001-RM200,000 RM200,001-RM300,000 RM300,001-RM400,000 RM400,001-RM500,000 More than RM500,000 Total Operation in Other Countries: Yes No Total Exporting Activity: Percentage of Total Sales in Export (2002): Yes No Total 1-10% 11-20% 21-30% 31-40% More than 40% Not Relevant Total 98 STRATEGY THROUGH THE EYES OF THE CONSUMER: AN EXPLORATORY STUDY ACROSS EMERGING ECONOMIES John A. Parnell University of North Carolina at Pembroke, USA John E. Spillan Pennsylvania State University-DuBois, USA ABSTRACT Most published business strategy studies assign strategies to organizations by examining their competitive behaviors. In contrast, we argue that a richer conceptualization of strategy might be found by considering buyer behaviors as well, especially at the consumer level and in the global arena. A survey of consumers in Puerto Rico, Guatemala, Peru, and India demonstrates two distinct types of strategic factors also inherent in the purchase decision, (1) those directly related to the product or service such as price and quality, and (2) those indirectly related to the product or service such as advertising and brand reputation. In some but not all nations these factors were directly related to consumer preferences related to price orientation, independence, and brand consciousness. It is suggested that an organization’s business strategy may be better understood by creating a profile of the customers it serves along the lines of such preferences. In addition, future strategy-performance studies may benefit by incorporating perspectives of the buyers in the assessment of competitive strategy. INTRODUCTION The literature is replete with studies that identify associations between a firm’s competitive strategy and its performance. Indeed, the measurement of both sides of the linkage has been an issue of great concern in recent years (Ketchen & Shook, 1996). Researchers have traditionally measured business-level strategy by examining factors directly associated with the organization, such as accounting measures and top executive perceptions (Chattopadhyay, Glick, Miller, & Huber, 1999; Dess & Davis, 1984; Hillman & Klein, 2001; Spanos & Lioukas, 2001). At its core, business strategy research has been concerned with the relationship between the competitive strategy adopted by an organization and its performance. As such, a focus on the organization appears to be appropriate within the field. Defining an organization’s strategy by analyzing its characteristics has its shortcomings, however. Using accounting measures as strategy surrogates assumes that strategic thinking necessarily translates into financial data. Research utilizing executive perceptions as measures of strategy and/or performance has also been criticized on validity and reliability grounds. Many of these studies surveyed only the chief executive officer of an organization and ignored other members of the top management team and middle- and lower-level managers. Although these studies assumed that CEO accounts of strategy were accurate, recent research has seriously challenged the over-reliance on CEO perceptions. Golden (1992) found that 58 percent of CEO's he surveyed did not agree with the previously validated accounts of their organizations’ past strategies. Every successful business transaction must have a seller and a buyer, however. In general, the strategy literature has been content to focus on the seller, relegating the analysis of buyers to other disciplines and approaches. However, we argue that the integration of buyer perceptions and attributes can lead to a richer understanding of the strategyperformance relationship, particularly in the global arena. This paper represents an attempt to lay the foundation for such a perspective by exploring alternative conceptualizations of competitive strategy through the eyes of the buyer. Toward this goal, the remainder of this paper is organized as follows: First, a brief overview of the business-strategy performance literature is outlined. Second, an overview of the four locales represented in the sample is provided. Third, research methods and data analysis are addressed, and results of the analysis are presented. Fourth, conclusions and directions for future research are elaborated. 99 REVIEW OF THE LITERATURE Placing this study into context necessitates brief discussions of three literature streams. First, it is important to understand how research on business strategies has evolved over the past few decades and the assumptions on which this stream is based. Second, to consider strategy from the perspective of the consumer, an outline of developments in consumer lifestyle research is germane. Finally, an overview of economic societies assessed in this paper is appropriate. Business Strategy The current state of the business strategy-performance literature can be traced to Bain (1956) and Mason’s (1939) seminal work in industrial organization (IO) economics. Inherent in the IO approach is the assumption that buyers will inevitably behave in a rational manner, and organizations should make strategic decisions accordingly. Within the IO framework, industry-level factors have the greatest influence on this relationship. Early strategy researchers noted the inability of the IO framework to explain large performance variances within a single industry. Case studies highlighted firm-level behaviors associated with performance that were not readily addressed in IO models. As a result, the strategic group level of analysis was proposed as a compromise between IO’s deterministic, industry level of analysis and the organization level of analysis inherent to the strategic management discipline (Hergert, 1983; Porter, 1981). Strategic groups describe apparent clusters of firms that exhibit similar or homogeneous behavior within a somewhat heterogeneous industry environment (Fiegenbaum, McGee, & Thomas, 1988). This perspective maintained a focus on groups of organizations, but acknowledged the existence of multiple groups within a single industry due to differences in factors such as organizational goals, strategies, and collections of resources. Early research identified relationships between strategic group membership and performance in a number of industries (Dess & Davis, 1984; Hambrick, 1984; Hatten & Schendel, 1977; Hatten, Schendel, and Cooper, 1978; Hunt, 1972; McGee & Thomas, 1986; Newman, 1973; Porter 1973). As strategic group assessments identified clusters of businesses employing similar strategies, researchers began to categorize similarities within the strategic groups across studies. Business strategy typologies—also referred to as gestalts, frameworks, and archetypes—identified several generic strategic approaches and were developed and utilized as a theoretical basis for identifying strategic groups in industries. Although strategic groups are an industryspecific phenomenon, many researchers began to utilize approaches believed to be generalizable across industries. Porter’s (1985) generic strategy typology is most notable. According to Porter, a business can maximize performance either by striving to be the low cost producer in an industry or by differentiating its line of products or services from those of other businesses; either of these two approaches can be accompanied by a focus of organizational efforts on a given segment of the market. The discussion of generic strategies is based on the activities of and alignment within the organization. As with the pure IO approach, buyers are presumed to act in a rational manner. This reality can be illustrated by examining Porter’s perspective on combining low cost and differentiation strategies. According to Porter, a business attempting to combine the two approaches will invariably end up “stuck in the middle” (Porter, 1980, p. 41). This notion received considerable early support (Dess & Davis, 1984; Hambrick, 1981, 1982; Hawes & Crittendon, 1984), but was later challenged by a number of studies (Buzzell & Gale, 1987; Buzzell & Wiersema, 1981; Hall, 1983, Hill, 1988; Miller & Dess, 1993; Murray, 1988; Parnell, 1997; Parnell & Wright, 1993; Phillips, Chang, & Buzzell, 1983; Proff, 2000; White, 1986; Wright, 1987). Whereas Porter contends that the assumptions associated with low costs and differentiation are incompatible because the two approaches create trade-offs within the organization. Most of Porter’s opponents—those in the “combination strategy school”—have argued that businesses successfully combining low costs and differentiation may create synergies within the firm that overcome any tradeoffs that may be associated with the combination. Hence, conceptual pillars on both sides of the issue were based on factors associated with how organizations formulate and execute strategies, not how these strategies are viewed by prospective customers (see Miller, 1986). Dissatisfaction with the limited emphasis placed on the role of organization-specific factors in strategic group analysis and typology extensions may have been the primary impetus for a renewed interest in firm resources, not strategic group membership, as the foundation for firm strategy (Barney, 1986, 1991; Camerer & Vepsalainen, 1988; 100 Collis, 1991; Grant, 1991; Hatch & Dyer, 2004; Lawless, Bergh, & Wilstead, 1989). The resulting paradigm, resource-based theory, drew from the earlier work of Penrose (1959) and Wernerfelt (1984) and emphasizes unique firm capabilities, competencies, and resources in strategy formulation, implementation, and performance (Dutta, Narasimhan, & Rajiv, 2005; Kor & Mahoney, 2005; Mahoney & Pandian, 1992). A growing body of empirical literature supports link between firm-specific resources and firm performance (Ray, Barney, & Muhanna, 2004). Although the three major streams of competitive strategy-performance research—IO economics, strategic groups, and resource-based theory—differ markedly in their assumptions concerning organizational performance, they agree that firm performance is primarily a function of firm behaviors, either individually or collectively. Throughout the evolution of the field, however, the presumption that buyers behave in a rational manner remains. Consumer Lifestyle Examining competitive strategies from the perspective of the consumer suggests that a number of buyer-level attributes be examined. These not only include important factors in weighing purchase decisions, but “softer” lifestyle variables. Lifestyle has been defined simply as “how one lives” and includes the products one buys, how one uses them, how one thinks about them and how one feels about them. Lifestyles are an expression of an individual’s self-concept. It is the total image one has of him or her self that is a result of how one was socialized in his or her culture. In essence, it is the culmination of a person’s past decisions and future plans (Gonzalez & Bello, 2002; Hawkins, Best, & Coney, 2004). Individuals and families exhibit unique lifestyles. Frequently these lifestyles are labeled as “career oriented individuals” or “family oriented”. These orientations are generally determined by conscious and unconscious decisions. Sooner or later the lifestyle produce needs and desires that ultimately affect the decision making of each consumer. The feelings and emotions are very important in consumer purchase decisions and have an effect on the analysis of product attributes. A popular approach to lifestyle measurements has been activities, interests, and opinions (AIO) rating statements (Wells & Tigert, 1977). The focus of marketers and consumer researchers has generally been on identifying the broad trends that influence how consumers live, work, and play. It allows a population to be viewed as distinct individuals with feeling and tendencies, addressed in compatible groups (segments) to make more efficient use of mass media. In general, researchers tend to equate psychographics with the study of lifestyles. Psychographic research is used by market researchers to describe a consumer segment so as to help an organization better reach and understand its customers. Hence, lifestyle patterns provide broader, more three-dimensional views of consumers so that marketers can think about them more intelligently. The basic premise of lifestyle research is that the more marketers know and understand about their customers, the more effectively they can communicate with and serve them (Kaynak and Kara, 1996). Lifestyles relate closely to consumer’s values and personal states or characteristics. Lifestyles are manifestations or actual patterns, of behaviors, and are represented by consumer activities, interests, and opinions. What people do in their spare time is often a good indicator of their lifestyle. One consumer might like outdoor activities such as skiing or diving while the other my like movie going or card playing. Consumer who engage in different activities and have differing opinions and interests may in fact represent distinct lifestyle segments for marketers (Hoyer & McInnis, 2004). Consumers in different countries may have characteristics lifestyles. Consider as an example a recent study examining buyer behaviors among women from several nations. Compared to their counterparts in other countries, Japanese women were more home focused, less likely to visit restaurants, less price sensitive and less likely to drive or go to the movies. This lifestyle would imply that Japanese women would probably spend more time than American women preparing meals at home and would there for pay more for goods/products that enhanced meal quality. In contrast, the typical Russian consumer often enjoys going to the movies and theater or participating in sports such as soccer, ice hockey, and figure skating (Hoyer & McInnis, 2004). Much of the research on consumer lifestyles has been published in marketing journals. In general, these studies conclude that consumer marketing success hinges on the ability to dissect markets of consumers into lifestyle groups, each of which ostensibly requires a different marketing mix, especially when consumer groups in different nations are considered. These lifestyle variables are far more than just demographic and socioeconomic characteristics (Westfall, 1962). Demographic dimensions have received broader acceptance and have lent themselves easily to quantification and easy consumer classification. However, the usage of demographics, for 101 instance, has been questioned, and it has been argued that demographic profiles have not been deemed sufficient because demographics lack richness and often need to be supplemented with additional data (Wells, 1975). Social class adds more depth to demographics, but it, too, often needs to be supplemented in order to obtain meaningful insights into audience characteristics. Indeed, “lifestyle segmentation” has been a widely useful concept for marketing and advertising planning purposes (Wells and Tigert, 1977; Kaynak and Kara, 1996). Economic Societies: Puerto Rico, Guatemala, Peru, and India The extent to which buyer perspectives can augment strategy-performance research can be investigated by examining disparate global markets. Four such markets—Puerto Rico, Guatemala, Peru, and India—are considered in the present study. The type of lifestyle depends in many ways on the culture, political and economic characteristics of the society. Because each society has unique dimensions, it is important to provide a general outline of its characteristics, geography and economic situations that are determinants of lifestyles. Puerto Rico is an economy that has many Latin American lifestyle characteristics with a clear United States influence. Puerto Rico is a Spanish speaking island, 100 miles long by 40 miles wide located to the east of Hispaniola in the Caribbean. With a population of about four million people, Puerto Rico has been a U.S. possession since the Spanish-American War of 1898. Puerto Ricans were granted U.S. citizenship in 1917 and as U.S. citizens and can travel between the Puerto Rico and the U.S. without requiring a passport or visa. Traveling outside the U.S. requires Puerto Ricans as does all U.S. citizens, to obtain a U.S. passport through the U.S. State Dept. Products entering the U.S. from Puerto Rico have free access to the U.S. market and the official currency is the U.S. dollar (Welcome to Puerto Rico). Puerto Rico is a lucrative market for U.S., European and Asian manufacturers who have targeted Puerto Ricans' high standard of living in comparison to its less affluent Caribbean neighbors. Fast-food restaurants such as McDonald's, Burger King, Pizza Hut and Kentucky Fried Chicken flourish in Puerto Rico as do retail giants such as Wal-Mart, KMart, Sears, JC Penney, Home Depot and Macy's who have all been operating in Puerto Rico for many years (Puerto Rico –The World Factbook). Puerto Rican behavior and buying behavior in particular are influenced by two cultures. The Spanish, whose influence extends for four hundred years over Puerto Rico, and the American which has existed for over one hundred years. The mix of both of these cultures makes Puerto Rico a unique market for products and services. Puerto Ricans' love for American foods such as hamburgers and pizza is matched but could never surpass their love for the traditional accompanying plate of rice and beans. The dual cultural influences—Spanish and American—seem to be most pervasive among young buyers. Internet connectivity, MTV, VH1, are available to young consumers who like their American or European counterparts relate to global brands such as Nike, Coca-Cola, and McDonalds to a greater extent than older consumers. This phenomenon notwithstanding, there remains a dearth of research on buyer behaviors of your Puerto Ricans. It is hoped that this study will be the first of many that will assist marketing and communications managers in designing more effective marketing and communications strategies for this developing and intriguing market. In contrast to Puerto Rico, Guatemala is much poorer and has deep roots in its indigenous heritage. Guatemala is the largest and most densely populated country in Central America. Of its almost 13 million people, however, 62 percent live in the rural areas (Mahler, 1999). People in rural areas must endure incredible inconveniences because of the lack of running water and electricity. Low wages and poor quality of life are clearly visible. Guatemala is considered the fifth poorest country in Latin America and is plagued by educational challenges. Fifty-two percent of its population above the age of 15 is illiterate. Among the total population, approximately 37 percent of the men and 53 percent of the women are in the same situation (Mahler, 1999). More than half of all Guatemalans are indigenous and descendants of Mayan Indians. Many of the “indigenous people of Guatemala” live in the rural areas, but migration to the cities has been accelerating in recent years (Background Note - Guatemala). While illiteracy reaches 72 percent in the rural areas, indigenous women have a higher illiteracy reaching 74 percent. Four out of 10 children do not attend school, and for those who do, only 30 percent complete primary school (Mahler, 1999). This major weakness in education levels has had a direct impact on Guatemala’s economic progress. An illustration of the economic disparity is that just over two percent of the 102 landowners cultivate 65 percent of the land. Moreover, 10 percent of the people earn 44 percent of the income (Mahler, 1999). Guatemala’s economy is built on two major economic sectors: agriculture and retail. Both of these segments provide the engine for economic development. While the agricultural sector is significant because of its export capabilities, the retail sector is broad and deep in the Guatemalan economy. Additionally, the nation enjoys significant factors of endowment and is rich in mineral, oil, and other natural resources. This, together with low cost labor, means Guatemala now has a fast growing light industry sector. It has the largest industrial base in Central America, being an important manufacturer of pharmaceuticals, chemicals, clothing, wood, and food products, (Mahler, 1999). Peru, like Guatemala is has deep linkages to its history and indigenous culture. Peru is South America’s third largest country. It has a diverse geography divided into three distinct regions, the central high sierra of the Andes, the lowland costal region which extends to the northern Atacama Desert, and the dense forest that surrounds the headwaters of the Amazon beneath the slopes of the Andes. A striking feature of contemporary Peruvian society is the massive scale of the informal economy. The decay of the national economy has led to an abundance of traditional market street trade and bartering at market stalls as an integral part of daily life. Ambulantes (street vendors) can be found on every corner selling a huge variety of goods (Peru, People and Preserved Culture). Despite decades of political upheaval and social unrest, Peru can now be seen to be entering a more stable phase in its history. An increasing level of governmental consistency and growing economic strength has led to growing confidence from within. Of its 23 million people, 7 million live in the capital city of Lima. The Peruvian population is mainly mixed with an important native minority living mainly in the Andean south and the Amazon (GOLATINPeru). Peru has a dual economy. There is a relatively modern sector on the coastal plains and a subsistence sector in the mountains of the interior that is isolated by poor transportation and communication. Services account for 65 percent of the gross domestic product, while industry including mining, accounts for 26 percent and agriculture for 9 percent. Mining is important for the balance of payments providing 48.6 percent of Peru’s merchandise export earnings in 2002. Manufacturing industry is fairly diverse, with food, fishmeal, metals, steel, textiles and petroleumrefining being the largest sectors (Peru - Country Briefings). The workforce is largely a land of peasant farmers and underemployed shantytown dwellers. Unemployment has hovered around 8-9 percent annually. The service sector employs about half of the economically active population in Lima. This figure conceals the fact that most of those included in this figure eke out a precarious existence selling low-value consumer items in the informal economy or driving unlicensed taxis. Primary products represent the bulk of Peru’s export earnings with mining and fisheries production the two major export categories (Peru - Country Briefings). While India is much different than the Latin American societies of Puerto Rico, Guatemala and Peru, it is also very similar in that it has retained its culture and has very deep roots to its history and heritage. It is a country with unique lifestyle dimensions, located in Southern Asia bordering the Arabian Sea, between Burma and Pakistan. Its huge geography displays a large rural area with 28 states and 7 territories (India – The World Fact book). Its population (over a billion people) has a medial age of 24.66 years and a per capita GDP of $3,100. Its economy is comprised of 60 percent agriculture, 17 percent industry, and 23 percent services, with the service sector the fastest area of economic growth. The economy has posted significant growth with an average of 6.8 percent. India has been capitalizing on its large number of well-educated people skilled in the English language to become a major exporter of software services and software workers (India – The World Fact book). With a very large and growing population, however, India is facing significant social, economic and environmental challenges. As one of the most populated countries in the world, India offers an incredibly large consumer market. Its ancient culture intertwined with four major religions dominates the society and has a significant impact on the cultural values and lifestyles of the Indian population (India – The World Fact book). 103 METHODS A total of 768 individuals were surveyed, 239 from Puerto Rico, 200 from Guatemala, 253 from Peru, and 76 from India. A convenience, non-probabilistic approach was employed whereby surveys were left with respondents on the first visit and collected on a subsequent visit (Stover & Stone 1978; Imperia, O'Guinn, & MacAdams 1985). Given the exploratory nature of the study, specific propositions were not developed. The majority of the respondents were female (67.6%) and married (60.7%). Occupations were diverse, led by professional (38.0%) and followed by full time students (11.6%), service positions (11.0%), and those not currently employed (10.0%). The sample was well educated overall, with 49.6 percent having graduated from college and another 26.0 percent having completed some college. Respondents represented age categories predominantly between 20 and 59, with 28.5 percent in their twenties, 13.3 percent in their thirties, 28.9 percent in their forties, and 19.9 percent in their fifties. TABLE 1 FACTOR ANALYSES OF PURCHASE DECISION IMPORTANCE ITEMS Item Single-factor Loading Two-factor Solution Loadings on Single Scales* Price Quality Workmanship Performance .544 .743 .563 .740 .712 .844 .684 .825 .191 .177 .307 .241 .730 .854 .768 .857 Advertised Brand Prestige of Brand Choice of Model/Service .719 .772 .577 .200 .177 .400 .824 .860 .646 .827 .858 .785 *Cronbach’s alpha for the “Product” scale containing the first four items was .812, and for the “Marketing” scale containing the last three items was .764. Respondents were asked to evaluate the importance of seven factors in making purchase decisions along a threepoint scale. Initially, a score of 1 represented “very important,” 2 represented “important,” and 3 represented “not important.” These scores were reverse coded for consistency purposes, however, so that a higher score represents greater importance for all of the items. An initial single-factor analysis demonstrated that one factor accounted for 51.8 percent of the variance, with the second factor adding 14.7%. The eigenvalues for the first three factors were 3.628, 1.029, and 0.638 respectively, suggesting the existence of two factors. A varimax rotation was applied to the two-factor solution. The results of the rotation are presented in table 1. Because the first four items demonstrated high loadings on the first factor and the remaining three items demonstrated high loadings on the second factor, they were factor analyzed as a single four-item and three-item scales. Loadings on these scales range from .730 to. 858 and also appear in table 1. Coefficient alphas of .812 and .764 were calculated for these scales, demonstrating high levels of internal consistency. Factor scores (regression method) were also calculated for each scale to serve as composite measures for the two factors in subsequent analysis. 104 TABLE 2 FACTOR ANALYSES OF LIFESTYLE ITEMS Loading Item Price Consciousness (alpha = .632) I shop for specials I find myself checking the prices in the grocery store even for small items. I usually watch the advertisements for announcements of sales. A person can save a lot of money by shopping around for bargains. .713 .636 .757 .656 Independence & Leadership (alpha = .744) I think I have more self-confidence than most people. I am more independent than most people. I think I have a lot of personal ability. I like to be considered a leader. .740 .804 .791 .679 Influence & Brand Awareness (alpha = .633) My friends or neighbors often come to me for advice. I sometimes influence what my friends buy. People come to me more often than I go to them for information on brands. I often seek out the advice of many friends regarding which brand to buy. .605 .768 .748 .569 A clear distinction in the loadings was evident, resulting in the separation of the seven items into four-item and three-item scales. The first four items are directly associated with the product or service itself, and include price, quality, workmanship, and performance. The remaining three items are indirectly associated with the product or service, are related to various aspects of marketing, and include advertising, prestige, and choice of model or service. Hence, the first scale is labeled as the “purchase decision—product” scale because it reflects items directly related to the product purchase, whereas the second scale is labeled as the “purchase decision—marketing” scale. Respondents also responded to three sets of four lifestyle items. A five-point Likert scale was utilized for each of the items. Each set of items was factor analyzed. Factor scores were computed via the regression method to serve as measures for subsequent statistical tests. Loadings and scale reliabilities were deemed acceptable for further analysis, as depicted in table 2. The nations were alsocompared along each of the two purchase decision factors (product and marketing) and the three lifestyle factors (price, independence/leadership, and influence/brand awareness). The results of these comparisons appear in table 3. Significant differences were found among all five factors when the score of the low nation was pitted against that of the nation. TABLE 3 PURCHASE DECISION & LIFESTYLE FACTORS ACROSS LOCALES Factor Puerto Rico Guatemala Peru India Significance Purchase DecisionProduct .093 -.104 -.005 -.017 Yes 105 Purchase DecisionMarketing .112 .013 -.099 -.091 Yes LifestylePrice Cons. .140 -.063 -.044 -.141 Yes LifestyleIndep. & Leader. -.052 -.348 .356 -.039 Yes LifestyleBrand -.139 -.066 .184 .058 Yes FINDINGS & DISCUSSION The analysis presented in the previous section suggests that a conceptual link between consumer purchase decisions factors and organizational strategies. Because such a link has not received considerable attention in the literature, its implications for strategy-performance research are worthy of discussion. Utilizing Porter’s low cost-differentiation framework as a base of comparison, the “product” purchase decision factor demonstrates an interest in price- and quality-related product attributes, factors that are generally incorporate into low cost and differentiation strategies. In contrast, the “marketing” purchase decision factor represents a distinct consideration of issues associated with a form of differentiation. This finding has key implications for the conceptualization of business-level, or competitive strategies. Following this logic, one might suggest that competitive strategies could be measured not only by examining characteristics managers intend to incorporate into a firm’s competitive position, but also by examining how purchase decisions are based on the strategy actually realized (see Mintzberg, 1987). TABLE 4 CORRELATIONS Factor Pur. Decision Product Pur. Decision Marketing Lifestyle Price Cons. Lifestyle Indep. /Lead. Lifestyle Brand Purchase DecisionProduct 1.00 .588** .121** .129** .053 1.00 .079* .078* .074* 1.00 .148** .162** 1.00 .380** Purchase DecisionMarketing LifestylePrice Cons. LifestyleIndep. /Lead. LifestyleBrand 1.00 106 * Significant at the .05 level. ** Significant at the .01 level. The links between lifestyles and purchase decision factors are also noteworthy. If successful strategies are linked to purchase behavior, and purchase behavior emanates from lifestyle, then one could argue that business performance—especially at the retail level—is inexorably linked to consumer lifestyles inherent in the various markets served by the organization. Consumer lifestyles have a major impact on purchase and consumption behavior, and ultimately on organizational success of failure. At the functional level, marketers can use lifestyle analysis with respect to specific areas of consumers’ lives, such as fashions and outdoor activities. Lifestyle analyses can help marketers understand relationship of people’s lifestyles and the products and services they sell. In marketing, “lifestyle,” however, describes the behavior of individuals, a small group of interacting people, and large groups of people (e.g. market segments) acting as potential consumers (Gonzalez & Bello, 2002). Thus, the concept of the lifestyle represents a set of ideas quite distinct from that of personality. Lifestyle relates to the economic level at which people live, how they spend their money, and how they allocate their time (Anderson & Golden, 1984). Specifically, lifestyle segmentation research measures people's activities in terms of (1) their interests and the importance level placed on their immediate surroundings, (2) how they spend their time, (3) how they views themselves and their world, and (4) their core demographic characteristics. These factors are directly related to the organizational success and should be a part of the firm’s competitive strategy development efforts. CONCLUSIONS & FUTURE RESEARCH The present study demonstrated significant differences between competitive strategy-related purchase decision factors and lifestyle factors across four emerging economies: Puerto Rico, Peru, Guatemala, and India. In addition, significant correlations were found between purchase decision factors and lifestyle factors. Significant differences and correlations were not found in all instances, however. Given the nexus between the three consumer lifestyle factors examined in this paper and purchase behaviors associated with the strategy dimensions of product attributes and marketing, one can make a case for the inclusion of buyer-level factors in models that link competitive strategy and performance. Until now, these issues have generally been addressed in different streams of research, with buyer-related factors examined only in consumer behavior studies. This phenomenon may be due to complexities in research design or differences in expertise between streams. Nonetheless, integration can improve the quality and richness of strategy-performance models. Several key challenges exist for future research, however. First, the scales presented in the present study were only preliminary. Further refinement and development of these scales, as well as the incorporation of scales that measure other factors associated with purchase decisions and lifestyles, is appropriate. Second, there is a need to test for the moderating or mediating effects of purchase decision and lifestyle factors in the strategy-performance relationship. The present study did not provide empirical evidence to substantiate such relationships. We believe the analytical approach proposed in this paper can help to increase the understanding about consumer and market places in different cultures, and ultimately how firms can formulate strategies to address these differences. International marketers should study differences in consumers buying roles, which may exist in other countries than the home country to which they are accustomed, especially those where vastly different social, behavioral, cultural and economic conditions exist. In the light of the pronounced similarities and differences, appropriate target marketing strategies need to be found. In cases of distinct similarities between the two countries, standardized marketing strategies may be used where identical advertising copy and thrust will be put in place. In 107 addition, marketers of these products should possibly target most of their marketing and communications strategies on the partner who has most influence. However, as certain phases of the decision processes are characterized by more joint decision making than the others, it would be unwise to ignore the wife’s input completely. Finally, marketing strategies and in particular communications strategies should reflect this effect on the buying decisions. Despite the fact that the results of this study may substantially fit a pattern already articulated by scholars, societal and cultural factors are very important in consumer buying. This is a significant dimension that must be understood so that marketers can do a more effective job of marketing their goods and meeting company needs. Additionally it must be recognized that spousal decision influence as remaining constant over all product categories. IMPLICATIONS, LIMITATIONS, & FUTURE RESEARCH We believe the analytical approach proposed in this paper can help increase the understanding the relationship of consumer behavior and strategy development across four different cultures. Appropriate strategy development in global markets require managers to study differences in buying behaviors, which may exist in other countries than the home country to which they are accustomed, especially countries that possess vastly different social, behavioral, cultural and economic conditions. In the light of the pronounced similarities and differences, appropriate target marketing strategies are essential. Understanding the relative purchase decisions is important in determining to whom and how marketing efforts should be directed. In cases of distinct similarities between the two countries, standardized marketing strategies may be used where identical advertising copy and thrust will be put in place. In addition, marketers of these products should possibly target most of their marketing and communications strategies on the partner who has most influence. Marketing strategies and in particular communications strategies should reflect this effect on the how different societies make purchase decisions. Despite the fact that the results of this study may substantially fit a pattern already articulated by scholars, societal and cultural factors are very important in consumer buying. This is a significant dimension that must be understood so that marketers can do a better job of markets and company needs. Marketers have to evaluate the buying decisions at each stage so that they can direct energies towards developing the correct strategy that is most likely to enhance the firm’s overall performance. Three limitations of the study suggest caution when generalizing outside of the context of the present analysis. First, this study was exploratory in nature and specifically focused on how consumer-level factors can influence competitive strategy development. Second, because the levels of strategy development may be influenced by a number of additional variables, however, an integrated approach should be used to isolate the impact of consumer behavior. Finally, while the dataset used in this study was diverse in geography, a probabilistic rather than a convenience sample may be needed for more conclusive results. Two avenues of future research are suggested based on above findings. First, the consumer scales could be tested across other societies and refined as appropriate. 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However, these students would not survive the demands of the academic and external world if they did not know how to manage their time effectively. The focus of this paper therefore, is to share some insights on how time is managed by a selected group of Malaysian students. Teaching the ethics of time management is not without its challenges and it is for this reason that such challenges will be highlighted. The paper will also focus on the prospect of teaching time management in the context of a developing nation. INTRODUCTION Malaysia in the Era of Globalization During the last decade, Malaysia has made substantial progress towards achieving wide-ranging economic objectives and social transformation. Nevertheless, the forces of globalization, liberalisation and information and communications technology (ICT) are changing the rules and nature of global trade resource flows and competition. The Prime Minister of Malaysia, Dato’ Seri Dr. Mahathir Mohammed has warned Malaysians that countries which are able to rise to these challenges will grow in success and prosperity, while those failing to do so will be marginalised and languished in the back waters of development. (New Straits Times, 2001). Therefore, to respond to such challenges, Malaysians are urged to make continuous efforts to up-date themselves with adequate skills and new knowledge. The Malaysian Government too is making viable efforts in continuing preparing Malaysia to face the various consequences of globalisation. For example, under the Third Outline Perspective Plan 2001 – 2010 (OPP3), the Malaysian government has identified crucial areas to be concentrated to accelerate the development of a knowledge based economy. (The Star, 2001). Those identified areas in the OPP3 are human resource development, science and technology, research and development (R & D) infrastructure and financing. In view of focusing the discussion to the main theme of this paper, the area of human resource development is discussed extensively. KNOWLEDGE-BASED ECONOMY, KNOWLEDGE-BASED SOCIETYAND HUMAN RESOURCE DEVELOPMENT The 21st century Malaysia focuses on human resource development in order to support progressive and positive development of a knowledge-based economy. The crust of human resource development is to prepare a strong workforce that is capable of meeting the challenges of a knowledge-based economy, well equipped with technological skills and expertise and high level of thinking skill. Human capital will determine the competitive position of the nation. The successful development of a knowledge-based economy will depend on the quality of the education and training system provided to the society. Thus the society should be prepared to be an information society. On the other hand, unless a country develops its own information society, it will become actively disadvantaged in the global economic terms. Information society (UK Reports 1997) is described as an economy and a society in which the acquisition, storage, processing, transmission, dissemination and utilisation of knowledge and information is done in an interactive communication. If a country does not take charge in developing its own information society, it will have to depend to other foreign countries. Information society will 112 need lifelong learning society i.e. individuals who have the responsibilities to develop new skills and take part in education courses. The process of transforming information into knowledge can only be done by “knowledge workers” - or better termed as “knowledge society”. Szarina Abdullah (1999) identifies traits for people in a knowledge society which are: (i) a reading public (ii) high regard for data and information (iii) a willingness to sharing resources (iv) high regard for continuing education and life-long learning. With the traits identified above, it is crucial to have reliable quality of human capital to determine the competitive position of Malaysia in facing the global era. Thus successful development of a knowledge economy and knowledge society will depend on the quality of education and training system invested. The Malaysian government acknowledges that the education and training system needs some re-orientation so that knowledge, skills and expertise acquired will effectively support the development of a knowledge-based society. In the OPP3, the key areas for review in the education sector have been identified (New Straits Times, 2001). Those areas are the curriculum, the teaching methods, students’ enrolment at tertiary level and the quality of the teaching profession. UNIVERSITY STUDENTS - MALAYSIA FUTURE HUMAN Resource As there will be an increased investment in the capital-intensive and knowledge-based industries thus the demand for highly-skilled manpower will be increased. In order for Malaysian to move forward to be a knowledge-based society, ample preparation must be made in order to ensure that the society is ready mentally, emotionally and psychologically. No doubt, young Malaysian especially the university students must possess not only the correct skill and knowledge, but also the required characteristics and personality to function in a new environment and working culture. Such concern is to ensure that the new workforce is capable of meeting the challenges of a knowledge-based economy so as to enhance Malaysia economic productivity and competitiveness. Thus positive efforts in the universities must be focused to build a resilient nation which rests upon human resources imbued with positive values and attitudes. Such values and attitudes are crucial in the course of the free flow of information arising from an increasing borderless world. With doubt, university courses which combines civics with religious or moral education are highly required to inculcate values such as discipline to strive for excellence, loyalty and love for the country, unity, good citizenship as well as respect for leaders and elders. A competent and highly skilled labour force need to be developed with strong ethical and moral values to finally produce commitment to excellence. With the right exposure in the universities, knowledgeable manpower can support new industries, competitive economic activities which will then make Malaysia a developed nation by the year 2020. STRENGTHENING THE HUMAN RESOURCE: TEACHING UNIVERSITY STUDENT THE ETHICS OF TIME MANAGEMENT Why the Ethics of Time Management? Generally most people either they are working or studying, they will experience increased workloads and reduced resources to achieve challenging goals. University student either in Malaysia or in other countries are not excluded from this scenerio. In addition to the continuing demands which required them to face the era of globalisation, university students who are the future human resources need to be exposed to the ethics and the skills associated with time management. Before the writer further discusses the skill associated in time management, the term ‘ethics’ of time management need to be defined. The term ‘ethics’ as defined in Collins Co build Dictionary (1988) in an idea or moral belief that influences the behaviour, attitudes, and philosophy of life. ‘Ethics’ is also considered as moral beliefs and 4 rules about right and wrong. For the term Time Management, Croft, S. (1986) defines it as “the ability to use time on the things that matter”. Blair, G.M (2001) defines time management as “controlling the use of your most valuable (and undervalued) resource”. Thus in view of focussing to the theme of discussion, the writer adopts the following meaning on the ethics of timemanagement i.e. “the moral beliefs and rules about the ability to control the use of time on the things that matter”. Thus teaching the ethics of time management to university students literally means teaching the university students 113 the moral beliefs and rules on the ability to control the use of time appropriately according to the context of the student’s environment. In the context on teaching university students to the ethics of time management, students need to be exposed first on the criteria of time. Mackenzie (1990) explains the three criteria of time as follows: Time is an invisible resource as it is unique and finite. Time is finite because there are only 24 hours in a day. Time is unique as it is the only resource that it must be used the instant it is received and it must be used effectively. Time cannot be controlled. No one can control time. Managing time actually relates to one’s selfdiscipline i.e. having adequate knowledge and the ability to control and manage how time is used. Time cannot be replaced. One should be well-aware that once the time is wasted and gone, it is impossible to be replaced. In teaching the ethics of time-management, the writer is advocating that the students need to be aware and fully understand the three criteria of time as suggested by Mackenzie (1990) in order for them to anticipate challenges and reinforce positive attitude towards their time management. In addition to the knowledge regarding to the criteria of time. Students also need general guidelines in order to help them shape their skills and ability in effectively managing their time. Such guidelines can further expose them to several factors that will give impact to the way their time is managed. The writer is proposing in the course of teaching the ethics of time management, four vital guidelines in time-management. Those guidelines are: 1. the four time management DON’TS for students 2. setting goals and setting priorities 3. tools for time management 4. identifying time-wasters THE FOUR TIME MANAGEMENT DON’T FOR STUDENTS 1. Starting the day without a plan of action A proper managed day should not begun by responding to the loudest voice demanding attention such as responding to other people’s and events’ demands. If there is no plan earlier, the student has little idea as to what to focus. Thus, when a student is left with lesser time he may need to work rigorously (may be carelessly) with the lesser time his now have. 2. Get out of balance in life A person life is made of seven vital areas to be concentrated on. The seven vital areas one on health, family, financial, intellectual, social, professional and spiritual (Wetmore, 1999). It may not be necessary to spend time every day in each area or equal allocated amount of time in each area but in the long run time for each area should not be neglected. The concept of the seven vital areas is illustrated in Diagram 1. 3. Work with a messy study area Studies have shown that the student who works with a messy study area spends, on an average one hour per day looking for things or being distracted by things. Keep the study area organized is a positive sign of time 114 management. This is an indication that the student is in control of the situation for he knows where to find his things. 4. Insufficient sleep Studies show that nearly 75% of students complain on regular basis that they are flat-out tired due to their academic activities. For most, they may get the quantity of sleep but not the quality of sleep. They need to be in control of their time so that they are less stress by working smarter. Thus when the work is done it will be much easier for them to get a full night sleep and rest. Having exposed the students to the ethics of time-management in general, the students should now have a global idea on the right way of managing their time. Now they are set to be in control of their time. The next step is to set goals and priorities in their university life. Setting Goals and Setting Priorities By engaging in a program of study in a university, a student is embarking on a journey of discovery. However, unlike a journey across distances, this journey is through time. The course and the future of the journey depends on the students decisions and actions of today. The students need to identify short term and long term goals that need to be accomplished within the years in the university. Then they need to consider all the component parts that the goals are made of i.e. the goal can be broken down into further sub-goals. These sub-goals can be further broken down into individual courses for each year. The process of setting goals can be continued by identifying the attainment of grade for an individual course as the main goal. The process for detailed goal breakdown is illustrated as in Diagram 2 below. Student need to be taught to carefully clarify their time perspective in doing activities in terms of the importance and urgency of those activities. Thus student time should be spent on crucial things while avoiding things that are not important or related to their goals. This is also known as prioritizing their activities in line with their goals. Knowing what to prioritize is a crucial skill as it will keep the students from being side-tracked by the urgent and unimportant things. However how do a student keep track and get control over his time? It is by learning to use effectively structured detailed time tools. 115 Tools for Time Management There are many available tools for time-management in the market. Examples of time management tools are monthly planner, weekly objectives list, weekly planner, time log, notebooks, day planners, diaries and organisers, electronic organisers and the list is not exhaustive. The most important thing is that these are tools that can be exploited to their fullest advantage i.e. each of them is a means to an end and not an end itself. The main thing is the self-discipline that the students have in order to keep track and control the time that they possess. Once the time is properly planned and keep tracked by the tools, the tendency to be distracted will be reduced and the student will be more certain of doing the activities that he had planned. However it is also necessary for students to be aware of some of unique challenges that they have to face as universities students on what is termed “time wasters”. Identifying Time Wasters Time wasters are situations or activities that take times and those times are not put into good use. Examples of time wasters are the amount of time used while waiting in line-ups, commuting or even the telephone (interruption). Line-ups What will a student do while lining-up at the library check-out or waiting for a bus. According to a survey done by York University (2001) a student spend approximately 8 years waiting in lines over the period of his life. Time queing such as this could be put into effective use by engaging to some productive and appropriate activities such as reading articles or journals. Listening to taped cassettes of the lectures is also an ideal way to fill times while lining up and the review will profoundly aid the recall during exam time. While some people in the line get frustrated and leave and others wait unproductively, the student who is in control of his time will use the time to expand his mind and enrich his education in what is normally considered as wasted time. Commuting Most North Americans spend between 1 and 2 hours commuting from home to work or school every day (York University, 2001). For some Malaysian, this is a similar experience. If a student commute, he will probably find 5 to 10 hours is taken up in a car or bus. In one year, the commuting time will easily be between 250 and 500 hours. Think of the work that could be done with these hours. Even 5 minutes and a few of pages will work out to hours and several pages of a project work. The key to commuting time is simply either use it or lose it. Interruptions Interruptions could be anything coming from unwanted guests, strangers, friends and the telephone. Interruptions do more than just lose a few minutes as they may break study concentration and they give a chance to procrastinate study or work. Always establish a time limit for the interruption at the start. This is good manners, because it is an indicator that people know where they stand and can plan the pace of their talk and respect other peoples’ time. A local study was made by a group of Malaysian students on the time management patterns of Malaysian university students using handsets. (Ahmad Tarmizi Ujang et al, 2001). It was found that at an average 6 to 10 calls were made which lasted about 20 to 30 minutes. Thus approximately about 120 minutes to 300 minutes were used for these calls. This could easily be from 2 hours to 5 hours per day, time is wasted on social calls. Although such study needs further investigation, this is an alarm call. Students should spend more of their time on their academic matters so as to enhance a more positive and effective future human resource to the nation. Teaching the ethics of time management to university students is now becoming a crucial task in order for Malaysia to face the challenges on the global world. Young Malaysians are Malaysia future generation that needs proper guidance and education to adequate them with strong discipline for excellence. Proper time-management is indeed one of the needed values that need to be inculcated. Thus, teaching the ethics of time managements will be more effective when some of the challenges are minimized. CHALLENGES IN TEACHING THE ETHICS OF TIME MANAGEMENT 1. Strengthening the self-discipline To many young Malaysian students, university life means having more freedom at hand (Muhammad Hassan, 2001). In reality however, life at the university is challenging and demanding and the students may fall back in their academic work if they do not have strong self-discipline in themselves. Self-discipline is referred here as a 116 resilient attitude to negative influences that could contribute to negative impacts to the students. Having strong selfdiscipline imbued in the personality of every student will positively encourage the acceptance of ideas such practicing the ethics of time management until it become part of their daily habit. 2. Inculcating the reading habits A reading public is one of the necessary criteria before a society can become a knowledge-based society. Malaysian students must have a natural love for reading habit and not do reading only for preparation for examination. Reading habits must be inculcated at a young age and all concerned parties such as the parents, the non-government organization and government agencies alike join effort in inculcating the reading habits among Malaysian. Teaching the ethics of management will be more effective as these young students are more receptive to different views and ideas and their scope and perception to different thinking is wider made possible through their wide readings. 3. A positive paradigm shift Good self-discipline and strong reading habits will be a realization when there is a positive paradigm shift or clear awareness in these students. Clear thinking will produce appropriate altitude change which will initiate appropriate behavior. Malaysian university students need to be exposed in making informed decision in managing their time effectively. Their precious time at university is to be spent on the things that matters to their well-being as students and as social agents for the nation. Malaysian students need to realise that they are the future generation that will soon take the lead to realise Malaysia as a developed nation. THE PROSPECTS OF TEACHING THE ETHICS OF TIME MANAGEMENT Without doubt, Malaysians at large, have high regards and great respects for the objective of gaining new knowledge. This could be seen with the mushrooming numbers of new universities and communities colleges built to cater for the large number of student population. Life-long learning such as opting for distance learning program is now one of the popular options for many Malaysians. Teaching them the ethics of time management will definitely help them to manage their time effectively and purposively. Clear and strong commitment from the Malaysian government has shown in the OPP3 plan (mentioned earlier) where education is placed as the priority area. The call for the setting-up of a knowledge-based society by the Malaysian government requires strong commitment and dedication from young Malaysians. Teaching them the ethics of time management will not only help the nation to achieve this objective but certainly guide young Malaysians to be more productive and proactive due to their good time management abilities. Overall the prospect of teaching the ethics of time managing is encouraging if not positive. Malaysia is now preparing to participate confidently in the knowledge-based economy. Young university students will definitely be the main source of human expertise to be the active players in the economy. The right quality of human resource become pertinent factor to maintain a sustainable economy. With strong based in good ethics of time management such a demanding challenge may not be too difficult for young Malaysians to face. REFERENCES Ahmad Tarmizi Ujang et al. 2001. Pengurusan masa oleh mahasiswa UKM yang menggunakan telefon bimbit. Projek Ilmiah Kursus ZT2393 Pengurusan Masa. Universiti Kebangsaan Malaysia. Unpublished. Blair, G.M. 2001. Personal Time Management for Busy Managers. http://www.ee.ed.ac.uk/~gerard/Management/art2.html Collins Cobuild English Language Dictionary. 1988. London: William Collins Sons & Co. Ltd. Good progress made towards achieving national objectives – Foreword by Prime Minister Dato’ Seri Dr. Mahathir Mohamed. 2001. New Straits Times, April 4: Page One. Mackenzie, A. 1990. The Time Trap. London. 117 Muhamad Hasan Abdul Rahman. 2001. Cabaran pelajar bergelar mahasiswa. Utusan Malaysia, 5 Mac: 4 (Pendidikan). Szarina Abdullah. 1999. Building a knowledge society: Challenges for universities in Malaysia - Syarahan Perdana. Universiti Teknologi MARA. 1999. The third outline perspective plan 2001-2010. The Star, April 4: Page One. U.K. Report Library and Information Commission. 1997. New Library. The People’s Network. http://www.ukoln.ac.uk/services/lic/new Library Wetmore, D.E. 1999. Four time management don’ts for students. Time M a n a g e m e n t S e m i n a r. wysiwyg://14/http://www.balancetime.com/article-month.htm York University. 2000. Counselling and Development Centre. Time M a n a g e m e n t f o r U n i v e r s i t y S t u d e n t s http://www.yorku.ca/cdc/lsp/tm/tm5.htm 118 RISK AND PERFORMANCE OF ISLAMIC BANKS VURSUS TRADITIONAL BANKS: THE CASE STUDY OF QATAR AND UNITED ARAB EMIRATES Turki Raji Alhmoud Qatar University and Yarmouk University ABSTRACT The purpose of this study is to investigate the performance and risk of Islamic banks and compare it with traditional banks to see whether Islamic banks outperform the traditional banks so it would be attractive. To achieve this objective, annual reports of 17 banks will be studied for a period of five years. Different performance measures are used including: liquidity, profitability, activity, debt and market ratios. The main findings of this research are that Islamic banks outperform traditional banks in terms of Cash/Deposits, Loans/Deposits, Dividend Yield, however the traditional banks outperform Islamic banks in terms of Return on Assets. In terms of risk the results show that Islamic banks are more stable and less risky in terms of the variances of Cash/Deposits, and Loans/Deposits. However Islamic banks are less stable and more risky than traditional banks, in terms of the variances of: Cash & Inv/Deposits, Return on Equity, and Equity/Assets. INTRODUCTION During the last 30 years , Islamic banking has become part of the banking industry not only in the Islamic countries but also in most countries around the globe . Emling (2005) mentioned that Islamic banking assets reached $300 billion, and these assets are growing at 15% annually. In a special report in (the middle east (2002) it was mentioned that aside from key regional players like NCB , Arab Bank Group and Arab Banking Corp., many multinational banks have also opened separate divisions , commonly known as Islamic windows . Among the most active western banks in this market are Citibank, JP Morgan/Chase, Goldman Sachs, HSBC, Barklays Capital, ANZ Grindlays, ABN Amro, BNP Paribas, Societe General, Germany's Commerzbank, and Deutshe Bank, UBS Warburg and Japan's Nomura Securities. Professor Samuel Hayes of Harvard Business School said " The Islamic banks are proud to see the growth and the legitimacy of the sector enhanced by the entry of the western banks" for conventional banks , Islamic banking serves as powerful sign of differentiation and opportunities for tapping rich deposits"(the middle east (2002) The question now is what make Islamic banks attractive to investors and bankers in and out the Islamic world? Is it the size of savings and the size of the market or the performance of these banks compared to its risk? The purpose of this study is to investigate the performance and risk of Islamic banks and compare it with traditional banks to see whether Islamic banks outperform the traditional banks so it would be attractive. This study will provide us with an insight of an important growing segment of the banking industry in the Islamic word in particular and in the world in general. It is likely that Islamic banking is as profitable as traditional banking, otherwise we would not have seen Islamic banks assets and numbers increased substantially during the last thirty years. PREVIOUS STUDIES 119 There are two point of views among Islamic sholars regarding risk . Qureshi (1984) and Nagvi (1981 and 1982) claim that equity based financing in the Islamic framework will increase the exposure of Islamic banks to risk. However, the consensus among Islamic scholars is that the elimination of interest tends to increase stability ,therefore too excessive fluctuations in rates of return can be prevented. (see Chapra(1982 and 1985),Kahf(1982), Khan(1982),Mohsen (1982), Pervez (1990),Siddiqi (1983) and Zarka (1983)) Turen (1995) investigated quantitatively the claim that Islamic banking offers high performance and stability. He used financial ratios , stock analysis, and portfolio analysis for Bahrain Islamic bank (BIB). Turen concluded that BIB offers a higher return and a lower coefficient of variation and better portfolio diversification than other commercial banks. However Turen (1995) used only three financial ratios were used. The performance of Islamic and mainstream banks in Malaysia was also investigated by Rosely and Abu Bakar (2003). They found that Islamic banking Scheme (IBS) banks have recorded higher return on assets as they are able to utilize existing overheads carried by mainstream banks. However they concluded that that the higher ROA ratio does not imply efficiency. It is also inconsistent with there relatively low asset utilization and investment margin ratios. They asserted that this finding confirmed their contention that Islamic banking that thrives on interest-like product (credit finance) is less likely to outshine mainstream bank on efficiency terms. However only few measures were used in this study. HYPOTHESES The following hypothesis will be tested in this paper: 1H1: mean performance measure of Islamic banks is equal to mean performance measure of traditional banks. H0: mean performance measure of Islamic banks is not equal to mean performance measure of traditional banks. 2H1: Variance of performance measure of Islamic banks is equal to variance performance measure of traditional banks. H0: Variance of performance measure of Islamic banks is not equal to Variance performance measure of traditional banks. RESEARCH METHODOLOGY The evaluation of performance and risk of Islamic and traditional banks is made by using ratio analysis. The ratios are divided into five groups mainly: liquidity, profitability, activity, dept, and market ratios. The following ratios will be included: 120 Liquidity : Cash/Deposits(%) Cash & Inv/Deposits(%) Profitability: Return on Assets(%) Return on Equity(%) Return on Revenue(%) Activity: Assets Turnover Loans/Deposits(%) Debt: Equity/Assets(%) Market: Payout Ratio(%) Dividends Yield(%) Price/Earning Ratio (low) Price/Earning Ratio (high) Price/Book Value Ratio (low) Price/Book Value Ratio (high) Capital Gain(%) Rate of Return (%) The ratios were collected or calculated from Zughaaibi and Kabbani Financial Consulting (2003) , for five years 1998-2002. The data was collected for banks in Qatar and United Arab Emirates which are distributed as in table 1 . Table 1: Distribution of banks in Qatar and UAE Country No if Islamic banks Qatar UAE 2 2 No of traditional banks 4 9 The statistical package of social sciences (SPSS) is used to analyze data and to find means, standard deviation, and to apply t-test to see whether there is a statistical difference between the performance and risk of Islamic banks when compared with traditional banks. 121 RESEARCH FINDINGS Means and stability of performance measures Table 2 shows the means of performance measures of Islamic Banks vs Traditional banks in Qatar and UAE. It shows the st. dev. and the coefficient of variation for each measure for each group of banks. Table 2 Means of performance measures of Islamic Banks vs Traditional banks in Qatar and UAE Performance measures Islamic Banks Traditional banks No Mean St. Dev CV No Mean St. Dev CV Cash/Deposits(%) 20 9.36f 3.3 0.35f 65 34.84 13.18 0.38 Cash & Inv/Deposits(%) Profitability: 20 89.64f 85.25 0.95u 65 50.29 19.56 0.39 Return on Assets(%) 20 1.53u 1.41 0.92u 62 2.03 0.54 0.27 Return on Equity(%) 20 13.21u 7.76 0.59u 62 14.7 3.73 0.25 Return on Revenue(%) Activity Assets Turnover 19 22.82u 10.91 0.48f 65 31.44 18.88 0.60 19 5.84u 1.34 0.23u 65 6.18 1.31 0.21 Loans/Deposits(%) 10 102f 5 0.05f 65 78.11 21.36 0.27 20 15.54f 16.62 1.07u 65 14.14 4.13 0.29 Payout Ratio(%) 15 50.61f 20.98 0.41f 60 46.83 20.56 0.44 Dividends Yield(%) 15 3.83f 1.38 0.36f 60 2.82 1.82 0.65 Price/Earning Ratio (low) Price/Earning Ratio (high) Price/Book Value Ratio (low) Price/Book Value Ratio (high) Capital Gain(%) 15 10.67u 4.17 0.39f 31 13.45 12.73 0.95 15 14.33u 5.04 0.35f 31 23.84 38.94 1.63 15 1.5u 0.35 0.23f 33 1.95 1.83 0.94 15 2.09u 0.49 0.23f 33 3.14 3.95 1.26 16 10.12f 29.03 2.87f 52 -2.21 35.89 16.24- Rate of Return (%) 16 13.92f 29.98 2.15f 49 0.84 37.92 45.14 Liquidity : Debt: Equity/Assets(%) Market: f: favorable compared to other type of banks u: unfavorable compared to other type of banks It appears from table 2 that eight out of sixteen means of performance measures (50%) ,marked with f, are in favor of Islamic banks, compared with 50% of measures which are in favor of traditional banks. However when 122 it comes to coefficient of variance 11 out of sixteen measures (69%) ,marked with f are in favor of Islamic banks compared to 31%, marked with u, in favor of traditional banks. However the question would be whether the differences are significant? Equality of means of performance measures: Table 3 shows T-Test for equality of means for performance measures of Islamic banks vs traditional banks in Qatar and UAE .It appears from table 3 that four of sixteen mean measures ( 25%) show statistical difference between Islamic banks and traditional banks at the 5% level of significance. These measures are : Cash/Deposits, Return on Assets, Loans/Deposits, Dividend Yield. Therefore the null hypothesis "mean performance measure of Islamic banks is not equal to mean performance measure of traditional banks." will be accepted regarding these ratios. Table 3 shows that six measures of performance show statistical difference between Islamic banks and traditional banks at the 10% level of significance. I t might be concluded from the above discussion that the Islamic banks outperform traditional banks in terms of Cash/Deposits, Loans/Deposits, Dividend Yield , however the traditional banks outperform Islamic banks in terms of Return on Assets, Table 3 Test for equality of means for performance measures of Islamic banks vs traditional banks in Qatar and UAE performance measure df Mean Sig. (2Difference (tailed Liquidity: Cash/Deposits(%) 83 -25.4751 .000#fa Cash & Inv/Deposits(%) 83 39.3561 .054*fb Profitability: Return on Assets(%) 80 -0.5019 0.021ua Return on Equity(%) 80 -1.4942 .415* Return on Revenue(%) 82 -8.6227 0.062ub Assets Turnover 82 -0.3458 0.318 Loans/Deposits(%) 73 23.8923 .001#fa Equity/Assets (%) 83 1.3981 Market: Payout Ratio (%) 73 3.7817 0.528 Dividend Yield (%) 73 1.0167 0.047fa Price/Earning Ratio (low) 44 -2.7849 0.415 Price/Earning Ratio (high) 44 -9.5054 0.354 Price/Book Value Ratio (low) 46 -0.4485 0.354 Activity: Debt: 123 .713* Price/Book Value Ratio (high) 46 -1.0558 0.31 Capital Return(%) 66 12.3243 0.215 Current and capital Return(%) 63 13.0837 0.214 # : No difference whether equal variance assumed or not * : Equal variances assumed a: significant at the 5% level b: significant at the 10% level f: Islamic banks outperform traditional banks at that level of significance u: traditional banks outperform Islamic banks at that level of significance 3-Equality of variances of measures of performance: Table 4 Levene's test for equality of variances of measures of performance of Islamic banks vs traditional banks in Qatar and UAE F Sig. Performance Measures Liquidity: Cash/Deposits(%) 15.909 0fa Cash & Inv/Deposits(%) 28.651 0ua Return on Assets(%) 1.731 0.192 Return on Equity(%) 28.795 0ua 1.5 0.224 Turnover Assets 0.116 0.735 Loans/Deposits(%) 8.358 0.005 fa 19.506 0ua Payout Ratio(%) 0.351 0.555 Dividend Yield(%) 1.886 0.174 (Price/Earning Ratio (low 0.693 0.41 (Price/Earning Ratio (high 2.333 0.134 Profitability: Return on Revenue(%) Activity: Debt: Equity/Assets(%) Market: 124 (Price/Book Value Ratio (low) 1.346 0.252 (Price/Book Value Ratio (high) 2.489 0.122 Capital Return(%) 0.531 0.469 Current and capital Return (%) 0.781 0.38 a: significant at the 5% percent level f : Islamic banks are more stable than traditional banks u: : Islamic banks are more stable than traditional banks Table 4 shows the result of Levene's test for equality of variances of measures of performance of Islamic banks vs traditional banks in Qatar and UAE. It appears from the table that there are five measures of sixteen (31.25%) that show statistically different variances between Islamic and traditional banks at the 5% level. Therefore the null hypothesis, variance of performance measures of Islamic banks is not equal to variances of performance measures of traditional banks, will be accepted regarding these ratios which include: Cash/Deposits, Cash & Inv/Deposits, Return on Equity, Loans/Deposits, and Equity/Assets,. It can be concluded from table 4 that Islamic banks are more stable and less risky in terms of the variances of Cash/Deposits, and Loans/Deposits. However Islamic banks are less stable and more risky than traditional banks, in terms of the variances of: Cash & Inv/Deposits, Return on Equity, and Equity/Assets. CONCLUSIONS The results of this paper are not decisive. Eight out of sixteen means of performance measures (50%) are in favor of Islamic banks, compared with 50% of measures which are in favor of traditional banks (see table 5). However, four measures namely: Cash/Deposits, Return on Assets, Loans/Deposits, and Dividend Yield showed statistically significant difference of means between Islamic banks and traditional banks at the 5% level (see table 3). When it comes to coefficient of variance 11 out of sixteen measures (69%) are in favor of Islamic banks compared to 31% in favor of traditional banks( see table 2). However, five measures only showed statistically different variances between Islamic and traditional banks at the 5% level (see table 4). Table 2 shows that the profitability ratios are in favor of traditional banks and that the market ratios are in favor of Islamic banks ,although not significant, this might be explained by behavioral reasons resulting from high demand on Islamic bank . i e the investors seem to demand shares of Islamic banks regardless of its performance. The result indicate that the Islamic banks outperform traditional banks in terms of Cash/Deposits, Loans/Deposits, Dividend Yield, however the traditional banks outperform Islamic banks in terms of Return on Assets. In terms of risk the result shows that Islamic banks are more stable and less risky in terms of the variances of Cash/Deposits, and Loans/Deposits. However Islamic banks are less stable and more risky than traditional banks, in terms of the variances of: Cash & Inv/Deposits, Return on Equity, and Equity/Assets. REFRENCES Anderson, Amyle,(1999) ,“Islamic Fund Seem Ready to Emerge in U.S. Market”, American Banker, Vol.169,No 246(December:8). 125 Barakat , Muneer and Eugene Server,(1997), Western Banks Taking 1st Step into Islam’s ‘No Interest’ Word”, American Banker Vol. 162,No. 20,January 30,:9-13. Chapra, M. Umer (1982) Money and Banking in an Islamic Economy, in: Mohammad Ariff, ed.. Monetary and Fiscal Economics of Islam, (International Centre for Research in Islamic Economics. King Abdulaziz University Press. Jeddah), pp. 145-176. Chapra, M. Umer (1985) Toward a Just Monetary System, The Islamic Foundation, Leicester. UK. pp. 107-139. Council of Islamic Ideology (1980) Report of the Council of Islamic Ideology on the Elimination of Interest from the Economy, Islamabad, p. 15. Emling, Shelley (2005), Islamic banks', growth strong Interest-free policies conform to religious law, For the JournalConstitution Sunday, May 22, Kahf, Monzer (1982) Fiscal and Monetary Policies in an Islamic Economy, in: Mohammad Ariff, ed.. Monetary and Fiscal Economics of Islam, International Center for Research in Islamic Economics. King Abdulaziz University Press. Jeddah. pp. 125-137. Khalaf, Rula, (1995) Banking the Islamic Way”, Word Press Review Vol. 42,No.1,January:35. Khan, Mohammed A. (1982) Inflation and Islamic Economy: A Closed Economy Model, in: Mohammad Ariff ed.. Monetary and Fiscal Economics of Islam. International Centre for Research in Islamic Economics. King Abdulaziz University Press, Jeddah, p. 242. Mohsin, Mohammed (1982) A Profile of Riba-Free Banking, in: Mohammad Ariff ed.. Monetary and Fisical Economics of Islam, International Centre for Research in Islamic Economics, King Abdulaziz University Press, Jeddah, pp. 187-203. Naqvi, Syed Nawab H. (1981) Ethics and Economics: An Islamic Synthesis, The Islamic Foundation, Leicester, UK, pp. 127 and 136. Naqvi, Syed Nawab H (1982) Money and Banking in an Islamic Economy: Comments, in: Mohammed Ariff ed., Monetary and Fiscal Economics of Islam, International Centre for Research in Islamic Economics, King Abdulaziz University Press, Jeddah, p. 182. Pervez, A. Imtiaz (1990) Islamic Finance, pp. 7-9, paper submitted to the International Bar Association Seminar on "International Finance and the Arab World in the 1990's" Paris, France, 20 June 1990. Qureshi, D.M. (1984) Capital Financing in Islamic Banking, Pakistan and Gulf Economist, December 15. p. 8. Siddiqi, Moin A., “Banking on Shari’ah Principles” , The Middle East, No. 325, July/August, 2002. Siddiqi, Mohammed N. (1983a).Issues in Islamic Banking, The Islamic Foundation, Leicester, UK, pp. 118-121. Siddiqi, Mohammed N. (1983b) Banking Without Interest, The Islamic Foundation, Leicester, UK. pp. 25-46, 136 and 174. Zarqa, Mohammad A. (1983) Stability in an Interest-Free Islamic Economy: A Note, Pakistan Journal of Applied Economics, Vol. II, No. 2, pp. 181-88. The middle east, (2002), special report: Islamic banking, Julu/August, p37 Zughaaibi and Kabbani Financial Consulting (2003) , Gulf Investment Guide, 1st edition 126 PERFORMANCE AND TREND OF TECHNOLOGICAL INNOVATION IN MALAYSIAN BANKS Norashfah Yaakop Yahaya Al’Haj UiTM, Malaysia ABSTRACT This paper studies the performance of banks in Malaysia and addresses the current trend towards a knowledge-based economy to survive in a highly competitive environment. Thus, the first step is to investigate the cost efficiency and further, relating it to the current technological innovation in the country’s banking sector. The data utilized is from the year 1990 – 2005 for all banks listed in the Bursa Malaysia first board. The study will also examine the characteristics of inefficient banks. The size variable tests whether X-efficiency is related to bank size. The deposit and loan ratios capture the banks funding mix and loan portfolio composition. The loan loss provision captures the quality of the loan portfolio. Finally, the loan growth variable tests the relation between operating performance and growth. X-efficiency is found to be related to certain bank characteristics. Malaysia banking sector plays an important role as financial intermediary and is a primary source of financing for the domestic economy. Thus, efficiency and stability of the financial system and its institutions is seen as one of the core elements of the country’s growth. This is the motivation behind the research, examining performance of banks in the light of technological innovation prospects of Malaysian banking sector. INTRODUCTION The most critical resource of the modern world is of course knowledge. This gives the implication that the firm is increasingly finding difficulty to attain and sustain a reasonable amount of competitive advantage through the reallocation of capital and other assets of the balance sheet. In most developed countries those who have gained a competitive edge over their rivals, have increasingly done so through an innovative recombination of knowledge 11. However, in Malaysia the findings are yet to be discovered. Following the start of mid-1997 financial crisis, the Malaysian government has adopted a sequence of measures to address the risks and challenges to the economy and businesses in the millennium, especially. Of course, these policy measures were aimed at strengthening the economic fundamentals and chiefly, directed to the financial systems. The reason being, in Malaysia the banking sector plays an important role as financial intermediary and is a primary source of financing for the domestic economy sharing about 80% of the total assets of the financial system as at the year-end 2001 12. Thus, any change on the micro, macro and economic factors of the banking sector will have a great impact on the economy as a whole. Efficiency and stability of the financial system and its institutions is seen as one of the core-elements of today’s world economy. One dimension of banking efficiency that brings in a lot of researchers’ consideration is scope efficiency and scale efficiency 13. Scope efficiency deals with the mix of outputs while scale efficiency refers to the relationship between banks’ per unit average input cost and production output 14. While scope and scale efficiency are about whether a banking firm has the right size, a potentially more important question is whether the bank produces as efficiently as it possibly can, given its size 15. The study of Berger, Hunter, and Timme (1993) indicated 11 There is evidence suggesting that the winners in tomorrow’s market place will be the masters of knowledge management see Nonaka and Takeuchi, (1995); Arthur, (1996). 12 See the Quarterly Bulletin, BNM September (2001). 13 There has been a great deal of scale and scope studies, see Mester (1987), Clark (1988), Evanoff and Israilvich (1991) and Berger and Humprey (1992) for summaries of these studies’ results. 14 See for example, Humprey (1990), “Why do estimates of bank scale economies differ” 15 There is much smaller number of banks X-inefficiency studies, see Berger and Humprey (1992), Evanoff and Israilvich (1991), and Mester (1993) for reviews of these studies. 127 that X-efficiency in the U.S banking industry accounts for approximately 20 percent or more of banking costs, while scale and scope efficiencies, when they are accurately estimated-are usually found to account for less than 5 percent of bank costs. This is the motivation behind the research paper here, examining X-efficiency in the light of technological innovation prospects in the banking sector. X-efficiencies also have potential important implications on bank management and public policy-making since there has been researchers who had linked X-efficiencies to organizational structure [Cebenoyan, Cooperman, Register, and Hudgins (1993) and Mester (1993)], executive compensation [Pi and Timme (1993)], market concentration [Berger and Hannan (1996)], risk-taking [Kwan and Eisenbeis (1996)]. The plan of the paper is as follows. In section II, III and IV of the paper will go over respectively on the problem statement, the objectives of study and explain the significant contributions of the paper. Section V summarizes the econometric method employed. Section VI presents data analysed and section VII presents the results. Section VIII surrounds some concluding remarks. PROBLEM STATEMENT Relating to the overall present theme of the management conference knowledge-based social and economic change 16, Malaysia can be seen as one of the developing countries in need of further reinforcement in this light in order to fully address the challenges to the economy and business of the present time. Even though, growth in the country has been seen to continue relative to the neighbouring countries Malaysia is still not immune to other downturns such as those which have plagued the US, Europe and Japan progressively in the first quarter of the 1990’s until now. Ample capital and a healthy balance sheet of course, should be a good thing. Nevertheless, foremost importance is not to see past mistakes to recur in considering the competitive environment of the Malaysian banking scene. As normally when bankers talk about the strategic importance of the banking markets, they are usually about to cut prices or weaken covenants in loan agreements leading to pricing anomalies. In the end, the strategic importance will become short lived. Therefore, the X-efficiency measurement will at least justify how efficient banks are run in the increased competitive pressures in response to the general globalisation of markets. Objectives of Study The general objective of this study is to measure the performance of the Malaysian banks using a stochastic econometric cost frontier. The goal is to be able to investigate the cost efficiency of banks in Malaysia. The analysis is confined to the banks in Malaysia listed in the KLSE stock market. The primary reason for this selection bias is mainly for robustness purposes, as smaller banks will normally work in a different cost frontier. In addition, commercial banks are the dominant financial institutions in the country’s monetary system and are the source of a substantial part of credit to the business sector. Therefore, by concentrating on this group of financial institutions, this study will get the most mileage in addressing the question of performance and technological innovation in the sector. Secondly, the study will examine the characteristics of inefficient banks. The size variable tests whether Xefficiency is related to bank size. The deposit and loan ratios capture the banks funding mix and loan portfolio composition. The loan loss provision captures the quality of the loan portfolio 17. Finally, the loan growth variable tests the relation between operating performance and growth. Finally, the study will also attempt to address some strategic response for future improvement in the banking systems in order to remain competitive especially in a borderless environment. The Significance Contribution This study will extend the literature in several dimensions. Firstly, this study fills the gap in the literature by studying the aspects of performance assessment in the Malaysian banking sector in relation to technological 16 In order to respond to the current trend towards a knowledge-based economy and to survive in a highly competitive environment, it is a need to improve job competency. Promoting innovation will act as one the driving force of the progress; see report of APEC Economic Committee, November (2000). 17 Because the definition of bank outputs does not include any off-balance sheet activities, which are costly to produce, the offbalance sheet ratio is expected to be positively related to X-efficiency. 128 innovation. The key insights offered by the model lies in the estimation of the deviation from the cost-efficient frontier that depicts the lowest production cost for a given level of output in terms of the numerical efficiency value. X-efficiency is traditionally estimated using the translog function by employing input and output variables to form a cost efficient frontier of all banks. Secondly, in order to measure the efficiency of individual banks, the study employs an econometric technique that involves the estimation of the cost function and the derivation of Xefficiency estimates from the residuals 18. Thus, the study adopts a more effective method. Lastly, the understanding of the measure of X-efficiency will not only give a better insight of the technological innovation in the banking sector of the Malaysian economy, but also allow better and more-informed microdecisions to be made by policy makers in the country. In other words, an understanding as to the level of Xefficiency of the banking sector is essential in suggesting appropriate policies in the formulation of knowledge based banking society. This will also be the focus of the present study examining the level of efficiency of the banking sector in quantitative terms. METHODS Banking cost or X-efficiency is dependent upon the frontier analysis method used to measure the efficient frontier. The cost frontier means that the observed production cost must lie everywhere above the cost frontier but no points can lie below it. The concept of measuring inefficiency dates back to the work of Farrell, (1957) which proposed specific measures of technical and allocative efficiency. Using this concept, Leibenstein (1966) term the Xefficiency and recognized that, for a variety of reasons, people and organizations normally work neither as hard nor as capably as they could. This question can be answered by measuring X-efficiency, which in technical terms refers to deviations from the cost-efficient frontier that depicts the lowest production cost for a given level of output. Xefficiency stems from technical efficiency, which measures whether the right levels of various inputs are used 19. The stochastic econometric cost frontier technique engages the estimation of the cost function and the derivation of X-efficiency estimates from residuals is employed. In the general, log form: ln C n = f (ln y i , n , ln w j , n ) + ε n , (1) Where Cn is the total cost for bank n, yi , n measures the ith output of bank n, and ε wj, n is the price of the j th input of bank n. The error term, n has two components: εn = μ n + υ n (2) The first component, μn, captures the effects of uncontrollable (random) factors while the second component, νn, represents controllable factors [Aigner, Lovell and Schimdt (1977)]. It is assumed that μ is distributed as a symmetric normal N (0, σ μ 2) and that υ is independently distributed as a half-normal, |N (0, σ υ 2)|. Following Jondrow, Lovell, Materov, and Schmidt (1982), an estimate of the nth bank’s X-efficiency can be derived from the composite error term as follows: ΧΕ n = Ε [υ n | ε n ] = σλ ⎡ φ (ε n λ / σ ) ε n λ ⎤ − (1 + λ 2 ) ⎢⎣ Φ (ε n λ / σ ) σ ⎥⎦ (3) where ΧΕn is the X-efficiency of bank n, E(·) is the expectation operator, λ is the ratio of the standard deviation of υ to the standard deviation of μ (i.e. συ /σμ), σ2 = συ2 + σμ2, φ and Φ are the standard and cumulative normal density functions, respectively. The X-efficiency estimate has the interpretation of the percent of total costs that could have been reduced from the cost efficient frontier. 18 This method, developed by Aigner, Lovell, and Schimdt (1997) has the virtue of allowing for “noise” in the measurement of efficiency, and has been shown to be more robust than the alternative method of data envelopment, see also the example, Eisenbeis, Ferrier and Kwan (1998). 19 A number of studies have investigated the X-efficiency of U.S. banks; see the study of Berger, Hunter and Timme (1993), Allen Berger (1997). 129 DATA Micro banking data from 1990 to the 2005 sourced from Bloomberg databank used to estimate the model. The method assumes that all banks have the same access to the underlying production technology and therefore, confront the same cost frontier. For robustness, the banks that listed in the KLSE 1st board selected. In choosing what comprise the outputs and inputs in a banking firm, an intermediation approach is used20. Berger, Hanweck, and Humprey (1987) examined the competitive viability in the banking industry by using the intermediation approach. The bank acts as an entity employing labour, physical capital, and borrowed funds to produce earning assets 21. This is the method most commonly used in the conventional bank cost function literature. Two outputs are included in the model: y1 = total loans which includes commercial loans, consumer loans and other loans y2 = total other earnings which includes securities and inter bank assets The inputs (whose prices are used to estimate the cost frontier) include labour, physical capital, and borrowed money (including deposits and all other interest bearing liabilities) used to fund the outputs. The price of labour, w1 is proxied by [staff expenses/number of employees]. The price of capital, w2 is composed as [rental and other expenses/number of employees]. While the on loan money w3, is structured as [interest expenses/total liabilities]. RESULTS In Table 1 summarizes the descriptive statistics of the 72 bank years as of end year 1997. The median asset size is about 14 million ringgit and the average assets size is about near the median this imply the symmetric nature of the distribution. Therefore, the X-efficiency analysis will be quite robust without having to classify them. Table 2 shows the mean and the median of the X-efficiency estimates as of year end between 1990 and 1997, for the 72 bank years. The average X-efficiency declined from 1990 to 1997 at about 81 percent. Further, a number of observations are evident as in Table 3. First, X-efficiency is falling, suggesting that banks in Malaysia on average are now operating closer to the cost efficient frontier than before. This is not surprising because in using the pooled time series cross-section data to estimate the efficient frontier, the production technology is restricted to be constant throughout the estimation period. During this estimation period, if technological innovation had occurred in the Malaysian banking industry, the X-efficiency estimates for the earlier time periods may be biased upward. This is because banking operation during the earlier time periods would be compared adversely to banking operation in more recent periods, even to the most efficient bank at that time, Thus, the falling X-efficiency seems to be capturing the trend of banking technological improvements in Malaysia. Secondly, the average of X-efficiency estimates about 12 to 15 of total costs in more recent time periods, is similar to the range documented in research based on US banking data. In addition to providing some contentment to the X-efficiency estimates, it appears that the underlying forces contributing to X-efficiency may be quite similar across countries. The slight increase in X-efficiency in the 1994 may be related to most banks in the early 1993, when Malaysia experienced massive and destabilizing capital inflows. This could also be due to the uncertainties of the Malaysian market from the downturns which plagued the US, Europe and Japan progressively in the first part of the 1990’s. Following this a slowdown or destabilizing condition banks may have incurred additional operational costs to deal with the mounting bad loan problems or reduction in the banking outputs due to the falling of US, UK and Japan economic activity. 20 The overall costs of banking are the concern of the intermediation approach, which is appropriate for describing the problems related to the economic viability of banks. 21 See for example in Sealey and Lindley (1977) 130 In investigating for how long an inefficient bank remain inefficient. The correlations of the X-efficiency estimates between 1990 and subsequent sampling periods is as shown in Table 4, the correlation are insignificant for most of the full sample and is in a declining pattern. However, towards the mid-1997 financial crisis the X-efficiency estimates increased and back to the declining trend in less than three years. This indicates the X-inefficiency is not quite persistence among the banks in Malaysia. The banks remain inefficient banks only for the duration range of three years or less and change direction, afterwards. The final set of the analysis is to examine the characteristics of inefficient banks. First, simple correlation between the X-efficiency estimate and a set of bank characteristics is calculated. Then, X-efficiency estimates are regressed against the set of bank characteristics in a multiple framework. It should be important to note that the statistical relationship need not imply causality. Thus, any revealed relationship does not mean that those characteristics cause banks to be inefficient. Rather, these characteristics appear to be more familiar among inefficient banks. In addition, inefficiency may be endogenous in bank characteristics so that the causality may run in either direction. The set of bank characteristics examined includes: (1) bank size, measured by the log of total assets to look into size variable test whether X-efficiency related to bank size (2) deposit to asset ratio captures the banks funding mix and loan portfolio composition (3) ratio of total loans to total assets (4) ratio of loan loss provision to total loans captures the quality of loan portfolio (5) loan growth, measured by the growth rate of total loans over the last seven years from the year 1991 to year 1997 to test the relations between operating performance and growth The correlation between the X-efficiency estimates and bank characteristics are shown in Table 5. The correlation between X-efficiency estimates and bank size is significantly positive consistent with previous literature, those large banks are associated with higher X-efficiency estimates. On the other hand, the positive correlation of deposit to total asset ratio, of which peculiar to the Malaysian banking business environment implies that the banks in Malaysia are highly geared to fund their assets, and this positive correlation also indicates that the more highly geared banks tend to be less efficient. In contrast, the strong negative correlation between the X-inefficiency and provision of loan loss ratio suggests that banks with more problem loans are more efficient. This may be due to banks that spend small fraction on credit underwriting and loan monitoring are cost efficient but at the expense of more problem loans. On the loan growth test, the negative correlation suggests that the cost efficient banks are associated with fast growing banks, explains the nature of banks in Malaysia. CONCLUDING REMARKS This paper used the stochastic econometric cost frontier approach to investigate the cost efficiency of banks in Malaysia. The earlier research from the author in the time period of 1990 to 1997 found that the average efficiency of Malaysian banks are about 12 percent slightly lower to the findings in the U.S that is about 20 to 30 percent. In addition during this time period, on the time series dimension, X-efficiency is found to decline over the sampling period indicating that the banks in Malaysia are now operating closer to the cost frontier than before. This is consistent with the existence of technological innovation signs in banking industry during the sampling period. Further, X-efficiency is found to be related to certain bank characteristics. In association to the Malaysian banking environment, the X-efficiency tends to decline with total loans to asset, provision of loan loss to total loans and loan growth. Whereby, the X-efficiency tends to increase with bank size and deposits to total assets of which peculiar to the Malaysian banking scene. In utilizing the updated time period that is 1990-2005 the trend will not be of much difference but perhaps be better enriched. The results will be addressed during the coming conference 2006 in Kuala Lumpur. REFERENCES 131 Aigner, D., C.A.K. Lovell, and P.Schmidt, 1977, “Formulation and estimation of stochastic frontier production function models”, Journal of econometrics 6, 21-37 Berger, MEAN MEDIAN MAXIMUM MINIMUM A.N. , 199 7, “The efficiency effects of bank mergers and acquisitions: A preliminary look at the 1990’s data”, in Y. Amihud and G. Miller, eds., Bank mergers and acquisitions, Kluwer Academic (Boston, MA), 79-111 Berger, A.N., and T.H. Hannan, 1996, “The efficiency cost of market power in the banking industry: A test of the “Quiet Life” and related hypotheses”, working paper, Federal Reserve Board Berger, A.N., and D.B. Humphrey, 1997, “Efficiency of financial institutions: International survey and directions for future research”, European Journal of operational Research 98, 175-212 Berger, A.N., W.C. Hunter, and S.G. Timme, 1993, “The efficiency of financial institutions: A review and preview of research past, present, and future”, Journal of Banking and Finance 17, 221-249 Cebenoyan, A.S., E.S. Cooperman, C.A. Register, and S.C. Hudgins, 1993, “The relative efficiency of stock versus mutual S&Ls: A stochastic frontier approach”, Journal of Financial Services Research 7, 151-170 Eisenbeis, R.A., G.D Ferrier and S.H. Kwan, 1998, “The informativeness of stochastic frontier and programming frontier efficiency scores: cost efficiency and other measures of bank holding company performance”, working paper, Federal Reserve Bank of San Francisco. Farell, M.J., 1957, “The measurement of productivity efficiency”, Journal of Royal Statistical Soceity A 120, part3, 253-281 Jondrow, J., C.A.K. Lovell, I.S., and P. Schmidt, 1982, “On the estimation of technical inefficiency in the stochastic frontier production function model”, Journal of Econometrics 19, 233-238 Leibenstein, H., 1966, “Allocative Efficiency versus “X-efficiency”, American Economic Review 56, 392-415 Mester, L. J. 1987, “Efficiency production of financial services: scale and scope economies ‘, FRB Philadelphia, Business Review, 15-25. Mester, L.J., 1993, “Efficiency in the savings and loan industry”, Journal of Banking and Finance 17, 267-286 Peristiani, S., 1997, “Do mergers improve the X-efficiency and scale efficiency of U.S banks? Evidence from the 1980s”, Journal of Money, Credit, and Banking 29, 326-337 Pi, L., and S.G. Timme, 1993, “ Corporate control and bank efficiency”, Journal of Banking and Finance 17, 515530 Sealey, C.W., and J.T. Lindley, 1977, “Inputs, outputs, and theory of production cost at depository financial institutions”, Journal of Finance 32, 1251-1266 MEAN MEDIAN MAXIMUM MINIMUM TOTAL ASSETS TOTAL COST 145814.5 9632.031 138564.8 9330.020 271330.8 17618.74 55177.89 3887.200 TOTAL DEPOSITS 96275.79 91522.01 162149.7 39739.02 132 F TOTAL LOANS 88229.80 9230.525 165675.5 34981.37 i n TOT. OTHER 41114.41 44160.93 67494.85 18234.67 a EARNING n ASSETS c TOTAL 136940.2 129334.2 248430.9 51071.22 i LIABILITIES a TOTAL LABOUR 1147.466 1100.315 1901.130 534.1000 l COST c TOTAL RENT 1847.421 1898.290 2947.150 983.5500 a EXPENSES p W1 0.290993 0.283019 0.384637 0.214174 it a W2 0.668201 0.654774 0.986515 0.503833 l ( k W3 0.422588 0.430680 0.474385 0.349606 ), T NUMBER OF 31313.50 31872.00 42957.00 19311.00 o EMPLOYEES t Non-performing 9321.222 7291.220 19549.07 2899.460 a Loans (q) l TOTAL EQUITY 11126.10 9230.525 22899.89 4106.670 c (k) o st (c), Non-performing loans (q), Price of labor (w1), Price of physical capital (w2), Price of deposits and other borrowed money (w3), Total loans (y1) and Total Other Earnings (y2). Table 1: Table 2: Time series properties of X-efficiency Estimates Year 1990 1991 1992 1993 1994 1995 1996 1997 Mean 0.6691 -0.7155 0.3494 0.1315 0.4318 -0.0763 -0.0513 0.1226 Median 0.6514 -0.7248 0.3479 0.1265 0.4320 -0.0832 -0.0589 0.1195 Table 3: Cross Sectional Properties of X-efficiency Estimates Panel A: Based on averages from 1990 to year 1997 Banks Mean 0.1077 Median 0.1013 Standard Deviation 0.0170 Panel B: As of 1997 Mean Median 133 Standard Deviation Banks 0.1195 0.1226 0.0059 Panel C: As of 1990 Banks Mean 0.6691 Median 0.6514 Standard Deviation 0.0527 Table 4: Correlation of X-efficiency estimates at 1990 and Subsequent Periods Correlation 0.9579 -0.0972 -0.1488 -0.5300 0.1014 0.5304 0.2159 1991 1992 1993 1994 1995 1996 1997 Table 5: Relations between X-efficiency and Bank Characteristics Correlation P-values Bank Size 0.500 0.045* Deposit to Asset 0.335 0.051** Total Loans to Total Asset -0.440 0.100** Loan Loss Provision to Total Loans -0.526 0.098** Loan Growth (From 1991 to 1997) -0.610 0.090** *, ** significant at 5%, 10% respectively 134 THE IMPACT OF CRUDE OIL PRICE CHANGES TOWARDS THE STOCK RETURNS OF OIL AND GAS COMPANIES IN MALAYSIA Norashfah Hanim Yaakop Yahaya Al’Haj Muhammad Iskandar Hamzah UiTM, Malaysia ABSTRACT This study investigates and determines the effect of crude oil variables towards the performance of Malaysian oil and gas companies listed in the Bursa Malaysia. This study measures the relationship amongst Kuala Lumpur Composite Index (KLCI, Crude oil prices (West Texas Intermediate), Crude Oil Futures Prices using Nymex, and the World Crude Oil Export and Production regressed against the Oil and Gas Index (OILINMY) based on past literatures. Thus, this study contributes to the current literature by examining this said effect to the developing market such as Malaysia. In addition, this study will run Granger Causality test to examine the existence of the cause-effect relationship between these variables. Further, the findings of the study will also explain the trend of the Malaysian oil and gas business that significantly contributes to the stability of the economy to survive in a highly competitive environment. INTRODUCTION The recent hike in crude oil prices can be blamed to the recent Hurricane Katrina which hits New Orleans and the ongoing political instability in Iraq. The increase in the prices has led to increase by oil & gas (O&G) services companies to conduct more exploratory and development work in the upstream value chain. The upstream value chain involves drilling, fabrication and construction of platforms, oilrig operations and maintenance. The Oil & Gas sector potential earnings are anticipated to ‘overweight’ the benchmark index of the Bursa Malaysia stock market as increase oil prices creates more supply when the issue is viewed in economic terms. Crude oil prices have soared tremendously from a low US$ 13.8 per barrel in 1998 to a record high of US$70 in September 2005. With more than RM 10 billion worth of exports, petroleum makes Malaysia’s largest commodity export followed by palm oil. With recent major offshore oil discoveries, the earnings potential for Malaysian O&G companies looks brighter than ever. This paper will discuss on the impact of crude oil prices towards the oil & gas integrated and services companies. Econometrics modeling using multiple regression analyses is applied to identify whether the impact of crude oil price is significant towards the changes in the Malaysian O&G companies’ stock returns. This paper will give an insight into the issue by explaining on the problems, objectives of the study and literature review on previous researchers on the impact of crude oil price towards the financial markets. PROBLEM STATEMENT Notwithstanding that oil plays a significant role in gearing the world economic activities, the high volatility of crude oil prices will give a great impact towards the world economic growth. On the other hand, such price changes will gives a brighter prospect for the oil and gas companies in terms of higher earnings. Stockbrokers and financial analyst have predicted that the oil and gas sector will outperforms the market index during the rising crude oil prices. Due to that, this study will attempt to further prove that the crude oil prices volatility have a significant impact specifically on the Malaysian oil and gas industry and the Malaysian stock market index. OBJECTIVES 1.1 1.2 To identify whether the changes in the movement of crude oil prices, export & production, futures oil prices and KLCI does have any impact towards the performance of Malaysian oil and gas companies. This study will investigate the significance of these relationships. 135 1.3 1.4 1.5 In addition, this study will examine the cause-effect relationships of the abovementioned variables. To also explain the trend of the Malaysian oil and gas business that plausibly have significant contribution to the stability of the economy to survive in a highly competitive environment Further to recommend strategic responses for future improvement in the oil and gas industry. SIGNIFICANT CONTRIBUTION OF THE RESEARCH The result of the study can be significant to the investors who are skeptical of including Malaysian O&G companies into their investment portfolio. If the result shows that the Malaysian Oil & Gas Integrated Index (which represents the listed O&G companies) outperforms the KLCI index, and their performance have a positive significant relationship with the rapid change of the world crude oil prices, then this research will be useful for investors and fund managers alike to diversify their portfolio which to include integrated O&G companies. LITERATURE REVIEW Despite the importance of oil consumption, there are limited researches that study the significant of crude oil prices that may influence the world equity market performance. Manning (1991) was among the earliest researchers who interested to study the sensitivity of the London quoted oil company stocks with the oil prices. He tested the market efficiency via co-integration analysis. Manning emphasized the identification of market efficiency is essential in order to determine the co-integration relation between the oil company stock values, market index values and oil prices. He used weekly data ranging between January 1986 and June 1988. Jones and Kaul (1996) carried out research on the reaction of international stock markets and oil shocks and its future changes in real cash flow and or changes in expected returns. They adopted the dividend valuation model in order to find the implication of Canadian and US stock prices to oil prices changes. Meanwhile, Huang, Masulis and Stoll (1996) determines to what extend between the US market index and few selected stock prices that are likely to be particularly sensitive to the oil prices shocks. They applied the multivariate vector autoregression (VAR) approach in their empirical research. They found that the oil futures returns are not correlated with the stock market returns but correlated with the oil companies’ return. Similarly, Syed A. B. and Sadorsky P. (2004) studied the relationship between the oil prices changes on the real stock return in United States. The research proved that the oil price changes play a significant role in determining the real stock returns. They also identified that the oil price movement is highly sensitive against the stock return after year 1986. Sadorsky (2001) extended his research into Canadian oil and gas industry. He studied the possible relationship between oil prices and Canadian oil and gas industry stock returns. The data used were between 1983 and 1999 and the method employed in the study was a multifactor market model. He included various variables which include returns on market index, oil prices, interest rate and exchange rate. In his study, he found that stock price returns show a positive relationship with the market and oil price factors, while negative relationship with the interest rate and exchange rate returns. Another empirical research by Sadorsky (2002), investigated macroeconomic determinant of US technology stock price volatility. The Technology share prices were measured using the Pacific Stock Exchange Technology 100 index within July 1986 to April 1999. The research found significant relationship between the conditional volatilities of industrial production, oil prices, the federal fund rate, the default premium, the consumer price index and foreign exchange rate on the conditional volatility of technology stock prices. Lanza, Manera, Grasso and Giovannini (2003) have study the forces that drive the oil prices toward the six major oil companies (Bp, Chevron-Texaco, Eni, Exxon-Mobil, Royal Dutch, Shell and Total Fina Elf. The researches employed multivariate co integration technique and vector error corrections models. They used weekly oil prices data from January 1998 to April 2003. Their empirical research supported previous researches on the significance of the major financial variables in explaining the long-run dynamic of oil companies’ stock value. 136 Subsequently, Boyer and Filion (2004) extended the research done by Sadorsky (2001) on the relationship of Canadian oil and gas companies and stock returns with different time period. However, both researchers employed generalized least squared (GLS) cross-sectional time series linear model in the data analysis. The test results are found consistent with Sadorsky’s where there are positive correlation between the Canadian stock market returns and the rising of crude oil prices. The pattern of the earlier researches concentrated mostly toward the developed market. The studies are mostly in the US and Canadian market. Only recently, in the year 2004 researchers have shown interest to study the impact of oil prices changes toward the emerging equity market such as Russia. Hayo and Kutan (2005) conducted study on the impact of news, oil prices and international financial market developments on the daily returns of Russian bond and stock market. The period tested were between September 1995 and November 2001. They tested the data via ARCH and GARCH model developed by Bollerslev (1986). Based on their research, they found that the Russian stock market is sensitive to oil price and suggest that oil prices movement may significantly destabilize Russian market. Basher and Sadosky (2004) extended the research on emerging market by examining the oil prices risk in 21 emerging market. Both researchers tested the data gathered between 1994 and 2003 via international multi-factor Arbitrage Pricing Theory (APT). The finding supported other researches that have tested on the developed market. METHODOLOGY Data Collection There are five main variables that are used in this research. The variables are Crude Oil Price (COP), Malaysian Integrated Oil & Gas Index (OILINMY) Futures Crude Oil Prices taken from Nymex (SPOT), World Oil &Gas Export & Production Index (EXPROD) and the Kuala Lumpur Composite Index (KLCI) using daily data January 1998 to September 2005. The various sources contributed to the gathering such as Bloomberg database, Datastream, and the Bank Negara website. Meanwhile, the world crude oil price are refined in three types; Nymex Light Sweet, Brent and West Texas Intermediate (WTI). This research will use WTI data as the standard crude oil price similar to the previous studies such as Basher & Sadorsky (2004) and Boyer & Filion (2004). The popularity of WTI arrives from the fact that its derivative, the WTI futures contract, is the most widely traded oil futures contract in the world and used as a benchmark to set other oil product related prices. Meanwhile, OILINMY is an index which represents the weighted Oil & Gas companies listed in the KLSE. These companies are involved in upstream and downstream oil and gas activities, such as exploration, platform fabrication & maintenance, hook-up and commissioning, refining, distribution and retailing of oil & gas products and services. Example of companies listed in OILINMY index are Petronas, Scomi, Wah Seong, PetraPerdana and SapuraCrest. The daily data for a period of 18 months from 1st January 1998 to 23rd September 2005 consists of 2017 samples for each variable are gathered from the abovementioned respective sources. The returns are derived from the data based on the equation below: ⎡ P − Pt −1 ⎤ Rt = ⎢ t ⎥ ⎣ Pt −1 ⎦ (Equation 1) After the return is derived, the value of the data is then modified into 5 days moving average for stronger returns relationship. The changes are gathered from the previous period forecast using two lags. The calculation is as below: 137 Rma , t = Rt − 2 + Rt −1 + Rt + Rt +1 + Rt + 2 5 (Equation 2) With this, the 2017 samples for each variable are reduced to 2013 samples after Equation 2 is applied. The first method that is adopted for this study is using simple factor linear regression. The simple factor linear regression is used to study the relationship between Malaysian Integrated Oil & Gas Index and Crude Oil Price. Next, Kuala Lumpur Composite Index is regressed against Crude Oil Price in order to justify the sensitivity of Bursa Malaysia towards the Crude Oil Price changes. The multi factor model linear regression model is then applied to investigate the impact of the Futures Crude Oil Prices (Nymex), World Oil &Gas Export & Production Index DAILY, KLCI and Crude Oil Prices towards the Malaysian Integrated Oil & Gas Index. The equations are listed as below: OILINMY KLCI = α OILINMY OILINMY = α + β COP + ε + β COP + ε = α + β KLCI + ε = α + β KLCI + β COP + β SPOT + β EXPROD + ε (Equation 3) (Equation 4) (Equation 5) (Equation 6) α – Constant β – Coefficient ε – Random Disturbance, Error OILINMY – Malaysian Integrated Oil & Gas Index KLCI – Kuala Lumpur Composite Index COP – West Texas Intermediate (WTI) Crude Oil Price SPOT – Futures Crude Oil Prices (Nymex) EXPROD - World Oil &Gas Export & Production Index DAILY In addition, the Granger Causality test are carried out similar to the one adopted by Hayo & Kutan (2004) in their research entitled “The impact of news, oil prices & global market developments on Russian financial markets”. The test, defined by Granger (1969) and Sims (1972) as when lagged values of a variable, say x, have explanatory power in a regression of a variable y on lagged values of y and x. CONCLUSION This study is intended to test whether the crude oil prices volatility have a significant impact specifically on the Malaysian oil and gas industry and the Malaysian market index. The trend analysis expected to further highlight the three major events which include the OPEC Oil Crisis, the September 11 terrorist attacks and the invasion of Iraq by US in 2003. These events have given a major impact to the volatility for the world crude oil prices. The linear regression analysis is expected to indicate the existence of the non-linear relationship between crude oil price returns and the independent variables. Meanwhile, the Granger Causality may prove that the KLCI index return changes do Granger Cause the Oil and Gas Index return based on the contribution of oil and gas companies in Malaysia. However, Malaysia is not a part of the OPEC community, and for that reason it is not considered a major world producer of petroleum. Therefore one may dispute the findings of this research. However, petroleum is the largest commodity exported by Malaysia and it is not baseless to conclude that the world oil price changes have a direct impact on the market price of the Malaysian listed oil and gas companies. Thus, this research may prove that the volatility of the world crude oil price gives a significant impact towards the returns of the Malaysian Oil & Gas companies listed in Bursa Malaysia. There may be other several variables that may be worth investigating such as the oil and gas explorations, offshore oil discoveries, exchange rates and and the production of refined oil in barrels per day. REFERENCES 138 Bernd Hayo & Ali M. Kutan ( 2005). "The impact of news, oil prices, and global market developments on Russian financial markets," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(2), pages 373-393. Boyer M. M. and Filion D. 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Lanza A., Manera M., Grasso M. and Giovannini M. (2003) “Long run Models of the Oil Stock Prices” International Energy Markets, http://www.feem.it/web/activ/_wp.html. Lee, K., S. Ni, and R. A. Ratti (1995). "Oil shocks and the macroeconomy: The role of price variability." Energy Journal, 16: 39-56. Loungani, P. (1986). "Oil price shocks and the dispersion hypothesis." Review of Economics and Statistics, 68: 536539. Mork, K. A., O. Olsen, and H. T. Mysen (1994). "Macroeconomic responses to oil price increases and decreases in seven OECD countries." Energy Journal, 15: 19-35. Online Databases & Electronic Sources: Bloomberg, DataStream, BNM website, Energy Information Administration website and reports Sadorsky, P. (1999). "Oil price shocks and stock market activity." Energy Economics, 21: 449-469. Sadorsky, P. (2000). “The empirical relationship between energy futures prices and exchange rates.” Energy Economics, vol. 22, pp. 23-26. Sadorsky, P. (2001). “Risk Factors in stock returns of Canadian oil and gas companies.” Energy Economics, vol. 20, pp. 253-266 Sadorsky, P. (2002). “Time varying risk premium in petroleum futures prices.” Energy Economics, vol. 24, pp. 539556 Syed A. Basher & Sadorsky P. (2004). "Oil price risk and emerging stock markets," International Finance 0410003, Economics Working Paper Archive at WUSTL. 140 COMING OF A GIANT RETAILER: ARE SMALL RETAILERS RUNNING SCARED? Daing Nasir Ibrahim T. Ramayah Ishak Ismail Quah Chun Hoo Universiti Sains Malaysia ABSTRACT The retail industry in Malaysia is undergoing tremendous change the last few years due to the proliferation of the giant hypermarkets which is the norm in any big city nowadays. Many reports have said that the coming of these retailers have caused many a small business to close shop or move away from their current location. This paper looks at the impact of the establishment of a TESCO hypermarket in a small town called Sungei Petani, Kedah situated in the North region of Peninsular Malaysia. The survey was conducted using interviews with small retailers around the area where the hypermarket will be situated. The findings show that except for the possibility of increase in their own sales, generally the retailers believed fairly strongly that the arrival of the new supermarket will, increase the number of people going through the vicinity of the business area, increase competition in terms of price, product variety, promotion and convenience to customers, widen the market coverage, change the purchasing patterns of customers, divert traffic from traditional retail outlets, increase property prices/rental and change customers attitude towards traditional retail. The findings show to the contrary that these small retailers are not running scared whereas they are looking forward to ride on the benefits that the supermarket will bring to the area. INTRODUCTION The emergence of superstores, especially in grocery retailing, with some extent in the context of department-based product range, is not a new phenomenon in Malaysian downtowns. Residential areas and small towns have traditionally been dominated by mini markets, night markets and mom-and-pop stores. Their line of products ranges from groceries, electrical, hardware to food and services. However, the migration of superstores to the interior making them closer to residential areas and small towns have somewhat changed the business landscape of such areas. Their presence tends to not only change the character of the area but also shopping habits of consumers within the area. In fact there are indications that such stores are able to attract customers from distant places. It is often thought that the new superstores are capable of building a sustainable competitive advantage that would allow them to capture a significant market share from at least one large market segment. The emergence of superstores in a particular area can be associated with increased activities, traffic flows as well as higher real estate value. Meanwhile the traditional existing businesses may find the arrival of a new supermarket as a threat that can lead to the closure of their business. Therefore, it is not surprising if the small business owners would react negatively to any news of the arrival of a “new big kid on the block”. Very often their reaction would be in the form of organized complaints and protest in defense of their bread and butter. This pre-opening study is part of the requirements of the Ministry of Trade and Consumer Affairs (MDTCA) before an approval for the opening of a new hypermarket is done. Study Objectives The study objectives are as follows: • To determine the impact of a new Tesco Superstore in Sungai Petani as perceived by small business owners operating within the specified vicinity of the proposed store site. • To ascertain the likely action to be taken (behavior) by the small businesses on the news of the opening of a superstore. • To assess the business strategies likely to be adopted by the existing small stores in the vicinity to remain sustainable with the advent of a new superstore. 141 STUDY DESIGN This study entails a survey of small businesses within a 4 kilometer radius of the proposed site of Tesco Supermarket in Sungai Petani. It will provide insights as to the beliefs of the owners/operators with regard to superstores’ competitive advantage. The pre opening study aims to ascertain the likely behavior of existing small business owners/operators when they are informed about the arrival of a superstore in their business area. This study involves field work using a cross-sectional design. Table 1: Research Methodology Design Decision Pre Opening Study Unit of Analysis Small business owner/operator Population All small business owners/operators within a radius of 4 kilometers from the proposed Tesco superstore Sampling Area sampling Number of Subjects 110 Instrument A questionnaire to measure specific variables of interest based on the research framework. FINDINGS Profile of the responding businesses Table 1 presents the profile of businesses that responded to the survey. Table 2: Profile of business Description Frequency Percentage Set-up of business Sole Proprietorship Partnership Limited company Others 79 21 9 1 71.8 19.1 8.2 0.9 Type of business Grocery store Mini market Electrical shop Bakery Chinese drug store Hardware store Computer store Photography store Furniture store Fruits store Shoe stores Clothing/Boutique Decorations store Accessories Baby products Personal hygiene Others (Plastic, telecommunications, 28 7 11 3 2 2 6 3 7 2 7 8 4 5 2 3 25.5 6.4 10.0 2.7 1.8 1.8 5.5 2.7 6.4 1.8 6.4 7.3 3.6 4.5 1.8 2.7 142 stationery, China products) 9 8.2 Size of premise less than 1,000 square feet 1,000 to 2,000 square feet more than 2,000 square feet 48 44 18 43.6 40.0 16.4 Years in the business Less than 1 year 1 to 3 years 4 to 6 years 7 to 9 years more than 9 years 13 32 17 6 42 11.8 29.1 15.5 5.5 38.2 7 days a week 6 days a week 5 days a week less than 5 days a week 39 70 0 1 35.5 63.6 0.0 0.9 Self-owned Rented 28 82 25.5 74.5 Days open Premise Description Frequency Percentage Ownership Bumiputera Non-Bumiputera 26 84 23.6 76.4 Own other business No Yes 87 23 79.4 20.9 Changed line of business No Yes 108 2 98.2 1.8 residential customers office/factory workers small retailers/restaurants Others residential and office residential and small retailers 72 4 4 9 18 3 65.5 3.6 3.6 8.2 16.4 2.7 less than 3.5 km 3.5km to 5 km 6km to 10km 11km to 15 km more than 15 km 33 26 9 7 35 30.0 23.6 8.2 6.4 31.8 1 – 5 years 6- 10 years 11 – 15 years More than 15 years 50 27 29 4 45.5 24.5 26.4 3.6 Major customers Furthest customer Year established Belief about the Impact of the Tesco Supermarket Table 3 shows the extent to which the respondents belief, on a scale of 1 to 5, that a new supermarket would have an effect on the business landscape of their area. The larger the rating, the stronger is the belief. With the exception of the increase in their own sales, the retailers’ belief on all other items is on the high side as represented by the mean scores. However, there seem to be quite a variation among respondents’ belief as indicated by the standard deviations. 143 Table 3: Belief about the coming of a new supermarket Mean Standard deviation Increase my sales 3.62 2.90 1.50 1.41 Increase competition in terms of Price 3.63 1.41 Product variety 3.74 1.37 Promotion 3.70 1.38 Convenience to customers 4.03 1.22 Widen the market coverage 3.77 1.30 Change the purchasing patterns of customers 3.80 1.23 Divert traffic from traditional retail outlets 3.69 1.24 Increase property prices/rental 3.59 1.20 3.71 1.22 Beliefs Increase the number of people going thru the vicinity of my business area Change customers attitude towards traditional retail outlets Note: 1= Strongly disagree and 5 = Strongly Agree The impact of the supermarket on several business variables as perceived by the retailers were measured on a scale of 1 to 5. The higher the rating the greater is the impact (operationalised as decrease or increase) perceived. Table 4 shows the results. With the exception of the number of people passing thru my business vicinity, all other items are perceived to decrease. However, the standard deviation for all items suggests that there are some variations in perceptions among the respondents. (Please refer to figure 1 to 7 for a better picture) Table 4: Perceived impact of a new supermarket Number of people passing thru my business vicinity 3.37 Standard deviation 1.41 Numbers of customers stopping at my store 2.95 1.12 Frequency of visit by my customers 2.95 1.10 Price willing to be paid by my customers 2.93 1.15 Sales of my store 2.88 1.05 Profit of my business 2.84 1.07 2.85 1.07 Impact Mean Margin of my business Note: 1= will decrease a lot, 3= no change, 5= Increase a lot 144 number of people passing thru number of customers stopping at my store 60 50 50 40 40 30 30 20 10 Frequency Frequency 20 10 0 Decrease No Change 0 Increase Figure 1 Decrease price willing to be paid frequency of visit by my customers 50 40 40 30 30 20 20 10 10 Frequency Frequency Increase Figure 2 50 0 Decrease No Change Decrease sales of my store Increase profit of my business 40 40 30 30 20 20 10 10 Frequency 50 0 Figure 5 No Change Figure 4 50 Decrease 0 Increase Figure 3 Frequency No Change No Change 0 Increase Decrease Figure 6 145 No Change Increase margin of my business 50 40 30 Frequency 20 10 0 Decrease No Change Increase Figure 7 Table 5 shows the likely actions that would be taken by the retailers in case a new supermarket comes to their area. As can be seen the retailers agreed that they are most likely to stay in the same business and do nothing whereas for the other reaction most agreed that they were not likely to engage in complaints or winding up. They have indicated that they might restructure their business, rent a lot in the supermarket or buy supplies from the supermarket. Table 5: Intention to take specific actions What are you likely reaction if a new Supermarket is set up in Mean your area? 4.82 Remain in the same business (Do nothing) 1.33 Complain to the relevant authorities (MDTCA) Standard deviation 0.47 0.93 Complain to the Member of Parliament in my area 1.37 0.97 Restructure the business 2.25 1.54 Close down 1.10 0.47 Rent a lot in the supermarket 2.35 1.54 Buy my supplies from the supermarket 2.60 1.62 DISCUSSION Belief about the coming of a new supermarket The findings show that overall the retailers somewhat believe that the coming of a new supermarket will have some impact in terms of increased competition, reduced profit and also a change in customer purchasing patterns. It will also tend to divert traffic from small retailers and change the attitude of customers towards small retailers. On the other hand they also believe that the coming of a new supermarket will increase the number of people going thru the vicinity of their business and it will also widen their market coverage. Which goes to show that the retailers are really taking the wait and see attitude? Perceived impact from the coming of a new supermarket With the exception of number of people passing thru the vicinity which showed that most of the retailers agreed that this number will increase, the other factors of sales, profit and margin of business showed the concern of the retailers and they perceive that those factors will decrease with the coming of a new supermarket. Likely reaction to the coming of a new supermarket As can be seen the retailers agreed that they are most likely to stay in the same business and do nothing whereas for the other reactions most agreed that they were not likely to engage in complaints or winding up. They have indicated 146 that they might restructure their business, rent a lot in the supermarket or buy supplies from the supermarket which is very encouraging, further depicting their willingness to fight for survival. CONCLUSION Many reports have said that the coming of these retailers have caused many a small business to close shop or move away from their current location. The findings show to the contrary that these small retailers are not running scared whereas they are looking forward to ride on the benefits that the supermarket will bring to the area. The small retailers have also indicated that they can co-exist with a bigger supermarket as they are not in direct competition with the supermarket. They think they have a loyal customer base that deems convenience and personal service as very important in their purchases and not so much the price. The supermarkets and hypermarkets are here to stay and they will increase in numbers in the near future. This study has shown that our small retailers have what it takes to compete and survive no matter who comes to town. The spirit of competition has been instilled in them and they look forward to a better life for their families. 147 DOES ISO 9001 CERTIFICATION MATTER IN COMPANY PERFORMANCE? Osman Mohamad T. Ramayah Yeap Hock Cheng Universiti Sains Malaysia Razli Che Razak Universiti Utara Malaysia ABSTRACT This study tries to compare the performance of ISO 9001 certified and non certified companies in terms of their performance. The objective is to ascertain whether this certification has an impact or otherwise to the bottom line of these companies. A total of 73 companies responded to this mail survey. The results indicate that ISO certified companies have better performance in the domestic market. A comparison of export market performance indicates that there are no differences between the certified and non certified companies. Although the certification might be helpful but it does not matter as both certified and non certified companies can perform as well in export market. INTRODUCTION The ISO 9000 series of Quality Management System Standard was established in 1987 by the International Organisation for Standardisation or ISO. The purpose of these Standards established is to provide guidelines of quality system to the organizations and to improve their performances so that they can provide better and more consistent quality products or services to their customers. The ISO 9000 requirements focus on process control, reduced wastage, improved efficiency and productivity, and more cost effectiveness in their business operation. ISO 9000 series certification has become important to exporters who wish to enter the international market especially small and medium industries. This happened because their customer mostly large organization which always requires their supplier or subcontractors to be certified. Further more, some countries or economic organization impose the rules of ISO 9000 series certification for entering their market. Besides, competitive pressures occur where firm in an industry uses the ISO 9000 series certification for marketing purpose and this forces others to follow in order not to be at a perceived competitive disadvantages. Thus the objective of this paper is to compare the performance of ISO certified and non certified companies. The research hopes to shed light on whether it is worth pursuing the certification to their bottom lines. LITERATURE REVIEW The benefits of ISO 9000 certification has been extensively discussed by many researchers, however in term of issues on exporting performance or expansion to international market is not much been examined. A survey in the UK by Lloyds Register Quality Assurance (1994) reported a highly favorable reaction to ISO 9000 certification with benefits including it being valuable public relations and marketing tool, increase ability to bid for contracts and it had helped enter international market. Similar research results has also been shown by Clare (2002) where positive feedback received from companies on the benefit factors such as greater opportunity for export and expansion to international market. Buttle (1996) report on mail surveys of 1220 certified organization in UK. Finding indicates that 58% of ISO 9000 certified organizations experience the benefit of reducing barriers to international market. However, Brown’s (1998) investigation of 160 respondents in Australia which are small and medium enterprises noted that they had not found improvement in the international marketplace. 148 Hypotheses Based on the objectives chosen for this study, the following hypotheses are set forth to facilitate the conduct of the research with the following assumptions. In order to determine the positive effects of ISO 9001 certification whether it is consistent with the researches done by Hutchins (1994), Lloyds Registered Quality Assurance (1994) and Taormina (1996) on the performance of company domestic market, export market, company operation and company personnel, hypothesis 1 and 2. H1: H2: Companies with ISO 9001 certification have better domestic market performance than companies without ISO 9001 certification. Companies with ISO 9001 certification have better export market performance than companies without ISO 9001 certification. METHODOLOGY The objective of this research was to study the impact of ISO 9000 implementation in manufacturing industries in northern Malaysia. The population targeted for this research was the ISO 9000 certified and non-certified manufacturing firms in Northern Malaysia, listed by BM Trada (Pg) Sdn. Bhd.. BM Trada is a UK based certification body which operates across a wide range of industries in both the public and private sectors worldwide, offering certification services to a vast number and variety of organizations. A sample size of 150 companies was chosen using the BM Trada customer and potential customer list to represent the population and data was collected using a mail survey with a structured questionnaire. FINDINGS Seventy-three responses were received from various manufacturing companies in northern Malaysia (Penang, Kedah and Perak). These companies were from various industries-plastics, chemicals, electronics, rubber, metal/steel, garment, paper and etc. Table 1 provides the profile. Table 1: Sample Profile ISO 9001 Export Percentage Company Ownership Size of employee) Company(full No. of year certified time Frequency Percentage Certified 50 68.5 Non-certified 23 31.5 Not exporting 7 9.6 Below 20% 19 26.0 20%-below40% 8 11.0 40%-below60% 8 11.0 60%-below80% 20 27.4 80% and above 11 15.1 Local 56 76.7 Foreign 12 16.4 joint venture 5 6.8 150 and below 61 83.6 Above 150 12 16.4 Not certified 22 30.1 3 years and below 43 58.9 Above 3 years 8 11.0 149 Years of company operate Below 5 years 11 15.1 5 to below 10 years 21 28.8 10 to below 15 years 17 23.3 15 to below 20 years 16 21.9 20 years and above 8 11.0 Hypotheses testing The 2 hypotheses developed were tested using the t-test and the result is presented in Table 2. Table 2: Results of the t-test Performance Domestic Market Export market Group mean value ISO 9001 Non ISO 9001 3.56 3.33 3.37 3.42 t-value 2.16* -0.54 *p< 0.05 The results indicate that the domestic market performance of ISO 9001 certified companies were significantly higher than the non ISO certified thus supporting H1 of this study. The export market performance was not significantly different irrespective of ISO certification thus H2 is not supported. DISCUSSION In this research we found ISO 9001 certified companies to be better non-certified companies in term of domestic market performance. This result is what most companies that implement the ISO 9001 quality management system expects. Companies that are certified ISO 9001, gains advantages or improvements which then improves the domestic market performance. However, there were no significant differences between ISO 9001 certified and non-certified companies in terms of export market performance. This result seems to conflict with other researches that claimed ISO 9001 certification could boost company in entering international market as per LRQA (1994). There is a possibility that ISO 9001 certification is used as a marketing tool to gain business in international market, however in current business world which focuses on globalization such as global sourcing and online bidding, ISO 9001 certification may only serve as one of preliminary requirements to sell products internationally. ISO 9001 certification may only allow the company to enter the international market but not guarantee the success of export market performance. ISO 9001 certified company still need to compete with many other ISO 9001 certified competitors in export market. As ISO 9001 certification becomes more and more common, its advantages for certified companies have reduced. Therefore, in this research ISO 9001 certified companies seem do not agree on ISO 9001 certification effects export market. For domestic market, ISO 9001 certification did give positive impact to the company performance; it may be due to the ISO 9001 certified companies in domestic market still do not grow as many as in export market. ISO 9001 certified did give some privilege to companies that run business locally. CONCLUSION This research has found that ISO 9001 certification improves organizational performance especially in domestic market but it does not help in export market performance. Thus companies embarking on the certification process should not be doing so on the sole pretext of improving performance as they may become disappointed. This research has shown that both ISO certified and non certified companies have the same opportunity to do well in the export market. 150 REFERENCES Abbott. L. (1955). Quality and Competition, Columbia University Press : New York. Brown, A. (1997). Smaller Enterprises’ Experiences with ISO 9000, International Journal f Quality & Reliability Management, vol15, no3, 1998, 273-285. Buttle, F. (1996). ISO 9000:Marketing Motivations and Benefits, International Journal of Quality & Reliability Management,vol. 14, No9, 1997, 936-947 Casadesus, M. and Gimenez, G. (2000). The Benefits of The Implementation of the ISO 9000 Standard: Empirical Research in 288 Spanish Companies, The TQM Maganize, vol12, no.6, 2000, 432-441. Chua, C. C., Goh, M. and Tan, B. W.(2002). Does ISO 9000 Certification Improve Business Performance?, International Journal of Quality & Reliability Management, Vol.20 No.8, 2003, 936-953 Crosby, B.P. (1979). Quality is Free : The Art of Making Quality Certain, New American Library : New York. Deming, W.E. (1982). Quality, Productivity and Competitive Position, Massachusetts Institute of Technology : Mass. Escanciano, C., Fernandez, E., Vazquez, C. (2001). ISO 9000 Certification and Quality Management in Spain: Results of National Survey., The TQM Magazine, vol. 13, no.3, 2001, 192-200. FMM (2001). FMM Business Guide - Small and Medium Size Industries, Federation of Malaysia Manufactures : Malaysia. George, D and Mallery, P. (1995). SPSS/PC+ Step by Step, A Simple Guide and Reference, Wadsworth Publishing Company, California. George, S. and Weimerskirch, A. (1994). Total Quality Management, John Wiley & Sons : New York. Green, P.E. and Tull, D.S. (1975). Research for Marketing Decision, Prentice Hall: New Jersey. Gumpp, G.B. (1994). How to Win With ISO 9000, Crescent News : Malaysia. Hutchins, G. (1994). The ISO 9000 Implementation Manual - Ten Steps to ISO 9000 Implementation, Oliver Wight Publication : U.S. ISO-the International Organization for Standardization (2000). ISO 9000 Quality Management System –Fundamentals and Vocabulary, ISO copyright office. Johnson, (1993). ISO 9000 - Meeting the New International Standards, McGraw-Hill : New York. Juran, J.M. (1974). Quality Control Handbook 3rd Edition, McGraw-Hill : New York. Juran, J.M. (1987). Management of Quality, Juran Institute Inc. : US. Juran, J.M. (1988). Quality Control Handbook 4th Edition, McGraw-Hill : New York. Karatsu, H. (1988). TQC Wisdom of Japan : Managing for Total Quality Control, Productivity Press : Cambridge. Kotler, Philip (2000). Marketing Management, Prentice Hall. Lawler, E.E. et al (1992). Employee Involvement and Total Quality Management, Jossey-Bass Publisher : San Francisco. Lloyd’s Register Quality Assurance Ltd (1994). BS 5750/ISO9000-Setting Standards for Better Business, Lloyd’s Register Quality Assurance Services, Croydon. Malhotra, N.K. (1996). Marketing Research: An Applied Orientation, Prentice Hall: New Jersey. Oakland J.S. (1994). Total Quality Management - The route to Improving Performance, Butterwarth Heinemann : London. Omachonu V.K. and Ross J.E. (1994). Principles of Total Quality, St. Lucie Press : Florida. Persico, J. (1992). The TQM Transformation - A model for Organisational Change, Quality Resources : New York. Pope, J.L. (1993). Practical Marketing Research, American Management Association:New York Rust, R.T et al (1994). Return on Quality, Heinemann Asia : Singapore. Sekaran,Uma (2000). Research Methods For Business, John Wiley & Sons, Inc. Salleh, Y. and Goh, W. K. (2000). The Implementation of an ISO 9000 Quality System, International Journal of Quality & Reliability Management, vol.18, no.9, 20001, 941-966 SIRIM (2001). SIRIM Directory of Certified Products & Companies, SIRIM : Malaysia. Singels, J, Ruel,G. and Water, H. (2000). ISO 9000 Series Certification and Performance, International Journal of Quality & Reliability Management, vol 18, no.1, 62-75. Stebbing, L. (1993). Quality Assurance - the route to efficiency and competitiveness, Ellis Horwood Ltd : Great Britain. Summers, D.C.S. (1997). Quality, Prentice Hall : New Jersey. Taormina, T. (1996). Virtual Leadership and the ISO 9000 Imperative, Prentice hall : New Jersey. Tull, D.S. and Hawkin, D.L. (1980). Marketing Research-Measurement and Method, Macmillan Publishing: New York. Wilson, L.A. (1996). Eight-Step Process to Successful ISO 9000 Implementation, Golden Books Centre : Kuala Lumpur. 151 PRESSURED FOR TIME: USEFULNESS OF ONLINE BILL PAYMENT SYSTEM FOR PART-TIME MBA’S T. Ramayah Chin Yee Ling Universiti Sains Malaysia Norazah Mohd Suki Universiti Tenaga Nasional, Malaysia Amlus Ibrahim Universiti Utara Malaysia ABSTRACT This study investigates the drivers of perceived usefulness of an online bill payment system among part time MBA students in Universiti Sains Malaysia (USM), Penang. A survey involving a total of 120 part time MBA students was conducted. Five variables were proposed to influence perceived usefulness and the results revealed that all five indeed influenced perceived usefulness. Subjective norm (β=0.141, p< 0.01), image (β=0.220, p< 0.01), result demonstrability (β=0.299, p< 0.01), and perceived ease of use (β=0.357, p< 0.01) were positively related to perceived usefulness whereas perceived risk (β= -0.155, p< 0.01) was negatively related to perceived usefulness. The most influential variables were perceived ease of use followed by result demonstrability and image. Perceived risk is an inhibitor of the perceived usefulness of the online bill payment system. Implications of the findings are further discussed. INTRODUCTION The advent of the Internet has spawned many new opportunities for businesses. The development of the Internet as the new marketplace has led to the boom of Internet payment or also known as e-payment. It was always expected that the Internet would have huge potential not only for communication (Drèze & Zufryden, 1997) but also for electronic commerce. According to a recent issue of Current Population Report on home computers and Internet use in the United States, more than 30 million adults 18 years and older used the Internet at home for shopping or paying bills online. (Yang & Lester, 2004) According to the report, shopping or paying bills online ranked fourth among 10 specific Internet uses (Bijou Yang, 2004). A recent Roper-Starch poll (Media Awareness Network, 2003) surveyed 1,000 Internet users about their perceptions of the Internet’s necessity in everyday life discovered that 71% of the respondents routinely research their product purchases online. Thus, paying bills via the Internet is one of the most rapidly growing forms of e-invoicing. Online bill payment provides the advantages of no crowds, no transportation costs, no traveling time, no physical movement for paying, no parking problem and no queuing for paying, getting your bills paid in a blink of an eye. The development of Internet has led to the birth of online payment or also known as electronic payment (epayment). Therefore, the objective of this research is to examine the factors that shape and influence online bill payment behavior among respondents. The focus is towards perceived usefulness because many previous researchers in the West and also in Malaysia have shown that perceived usefulness is the most influential predictor of intention to use and actual usage of any technology. This research is carried out with a drive to expand the benefits of online bill payment in the stream of technology advancement. RESEARCH MODEL This study investigates and examines the perceived usefulness of an online bill payment system among part time MBA students. These part time students are pressured for time as the juggle several roles in their endeavor to 152 complete a par time study programme. The play the roles of employees, husbands/wives, fathers/mothers and also students which require them to divide their time for the increasing demand from competing roles. An online bill payment system reduces the hassle of queuing to pay bills which normally takes a long time as some of the queues can take hours. There have been increases in the number of bills that have to be paid monthly with the increase in affluence among the population. There are utility bills, hand phone bills, assessment bills, insurance premiums and the list may go on. The usefulness of an online bill payment system will increase as the number of bills that need to paid increases. As such this research formulated a research model which is presented in Figure 1 based on prior literatures. Subjective Norm (SN) Image (IMG) Result Demonstrability (RD) Perceived Usefulness (PU) Perceived Risk (PR) Perceived Ease of Use (PEU) Figure 1: Research Model Subjective Norm (SN) Fishbein and Ajzen (1975) defined SN as “the person’s perception that most people who are important to him think he should or should not perform the behavior in question” (Tan & Teo, 2000). Early studies by Davis (1989) failed to show significant relationships between SN and use. Thus SN is not generally included in TAM. For this study, closest friends, family or peers are likely to have influence on potential adopters and users of an online bill payment system, thus SN is included in the research model. For instance, if a close friend suggests that a particular system (online bill payment system) might be useful, a person may come to believe that it actually is useful, and in turn form an intention to use it. Therefore, the following hypothesis is tested: H1: Subjective Norm has a positive direct effect on Perceived Usefulness of the Online Bill Payment system. Image (IMG) Moore and Benbasat (1991) define image as “the degree to which use of an innovation is perceived to enhance one’s status in one’s social system (Chan & Lu, 2004). The increased power and influence resulting from elevated status provides a general basis for greater productivity. An individual may thus perceive that using such a system will lead to improvements in his/her job performance indirectly due to system use (Chan & Lu, 2004). The identification 153 effect is captured in TAM2 by the effect of SN on IMAGE, coupled with the effect of image on perceived usefulness (Chan & Lu, 2004). Thus, this study postulates that: H2: Image has a positive effect on Perceived Usefulness of the Online Bill Payment system. Result Demonstrability (RD) TAM2 (Venkatesh & Davis, 2000) theorizes that result demonstrability, defined by Moore and Benbasat (1991) as the “tangibility of the results of using an information technology”, will directly influence perceived usefulness (PU) (Chan & Lu, 2004). Based on empirical research, Agarwal and Prasad (1997) found a significant correlation between usage intentions and result demonstrability. Therefore, the following hypothesis is proposed: H3: Result Demonstrability has a positive effect on Perceived Usefulness of the Online Bill Payment system. Perceived Risk (PR) Many people view that electronic commerce as a risky undertaking because they believe that using Internet application lacks security and privacy. Therefore, it is expected those only individuals who perceive using an online bill payment system as a low risk undertaking would have a tendency to perceive it to be useful (Chan & Lu, 2004), and it follows that: H4: Perceived Risk has a negative effect on Perceived Usefulness of the Online Bill Payment system. Perceived Ease of Use (PEU) There is empirical evidence that has accumulated over a decade that suggest PEU is significantly linked to intention to adopt a particular technology, both directly and indirectly via its impact on perceived usefulness (Davis, Bagozzi, and Warshaw, 1989; Venkatesh, 1999; Venkatesh & Davis, 2000; Chan & Lu, 2004). Therefore, consistent with past findings, it follows that: H5: Perceived Ease of Use has a positive effect on Perceived Usefulness of the Online Bill Payment system. METHODOLOGY A survey involving a total of 120 part time MBA students in Universiti Sains Malaysia, Penang, who is using the Internet, was conducted in order to determine user intention to use an online bill payment system. The questionnaires were handed out to part time MBA students and were collected immediately after they were completed. Measures of the constructs To ensure the content validity of the scales, the items selected must represent the concept about which generalizations are to be made (Bohmstedt, 1970). Therefore, items selected for the constructs are mainly adapted from prior studies to ensure content validity (Wang, Wang, Lin, Tang, 2003). A Likert scale (1-5), with anchors ranging from “strongly disagree” to “strongly agree” are used for all questions. FINDINGS Table 1: Profile of respondents Variable Gender Male Female Frequency 70 50 154 Percentage (%) 55.0 45.0 Race Age Monthly Income Malay Chinese Indian Others 30 years and less 31 to 35 years 36 to 40 years Above 40 years Less than RM24,000 RM24,00 – RM36,000 RM36,001 – RM48,000 More than RM48,000 45 47 20 8 25 65 18 12 18 52 30 20 40.0 36.7 14.1 9.20 20.83 54.17 15.00 10.00 15.00 43.33 25.00 16.67 The goodness of measure for the instruments used in this study was ascertained using the Cronbach’s alpha consistency measure. The results are presented in Table2. All the alpha coefficients were above the required level of 0.7 as suggested by Nunnally (1978) further supporting the reliability of the measures used. Factors Subjective Norm Image Result Demonstrability Perceived Risk Perceived Ease of Use Perceived Usefulness Table 2: Reliability Analysis Numbers of Item Deleted Items 3 3 4 5 4 3 - Alpha 0.77 0.82 0.79 0.79 0.84 0.90 Table 3 presents the mean and standard deviations for each of the study variables. Table 3: Descriptive Analysis Independent Variables Subjective Norm Image Result Demonstrability Perceived Risk Perceived Ease of Use Perceived Usefulness Mean 3.76 4.16 3.92 2.17 4.35 4.69 Standard Deviation 0.52 0.32 0.27 0.62 0.28 0.34 Table 4 shows the results of the regression analysis. The five independent variables could jointly explain 60.6% of the variations in perceived usefulness. From the table above, it shows that subjective norm (0.254), image (0.181), result demonstrability (0.307) and perceived ease of use (0.181) were positively related to perceived usefulness whereas perceived risk (-0.276) was negatively related with perceived usefulness. Thus H1, H2, H3, H4 and H5 of the study were fully supported. Result demonstrability was the most significant predictor of perceived usefulness followed by perceived risk and subjective norm. Table 4: Results of the regression analysis Independent Variables Subjective Norm Image Standardized Beta 0.254** 0.181** 155 Result Demonstrability Perceived Risk Perceived Ease of Use R² Sig-F Durbin-Watson *p< 0.05, ** p < 0.01 0.307** -0.276** 0.181* 0.606 0.000 1.893 DISCUSSION The results show that subjective norm is positively related to perceived usefulness of the online bill payment system. Thus it can be concluded that perceived usefulness of a system is based mainly on their own personal evaluation of the technology innovation and their subjective norm (Chan & Lu, 2004). Prior studies of TAM2 (Venkatesh & Davis, 2000) theorize that subjective norm positively influences image (Chan & Lu, 2004). This means that users feel positive about using an online bill payment system while the society is encouraging and promoting its use. This finding is different with the extended Triandis Model by Cheung, Chang and Lai (2000), and the extension of TAM by Venkatesh and Davis (2000). However, Triandis (1971) also suggests that subjective norm will have a more pronounced effect in determining behavior when the behavior is new (as in adoption). This influence on behavior decreases when users become more experienced (Chan & Lu, 2004). It is interesting to note that image perceived by the potential users were very important. (Chan & Lu, 2004). It may be due to that the part time MBA students’ fondness of high technology communication devices, such as mobile phones and innovative gadgets. Potential users may be aware of these effective or positive results. Therefore, potential users may know the benefits and advantages that they could enjoy in using an online bill payment system as a way to settle their bills. Perceived risk was significantly and negatively related to perceived usefulness similar with the findings of Chan and Lu (2004). This implies that if potential users perceive an online bill payment system as having security risks, they will be more likely to perceive it as less useful. However, users may not perceive any risk after their adoption of the system. Perceived ease of use was found to be also significant factor in affecting perceived usefulness, According to This result is consistent with most prior studies (Davis, 1989; Mathieson, 1991; Adams et al., 1992; Segars & Grover, 1993, Lu & Gustafson, 1994; Igbaria et al. 1995; Ndubisi et al., 2001; Ramayah et al., 2002; Ramayah et al., 2003a; Ramayah et al., 2003b; Ramayah and Aafaqi, 2004; Chan & Lu, 2004). A system that is perceived to be easy to use will be perceived to be more useful compared to a system which is much more difficult to use. CONCLUSION The present research is important to the policy makers and organization that provide infrastructure and services such as network infrastructure, e-payment method systems, secured web transaction and smart cards. It will provide them with insights into some problems and difficulties which respondents face in e-payment and recommend some solutions. (Yeow, Wong, Lai, Keok, Tan, 2004). Further work is required to investigate the perceptions, values, beliefs, knowledge of psychological, demographic, family characteristics background and environment (situational context) using new sets of questionnaires and large number of samples from a variety of people all along the business field. This would more properly represent the determinants of the intention to adopt an online bill payment system. 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Online Purchasing Behaviour of Malaysian tertiary Education Students (MTES), Multimedia Cyberscape Journal, 2(1), 24-34. 158 PERCEIVED CHARACTERISTICS OF INNOVATING (PCI): THE CASE OF THE HUMAN RESOURCE INFORMATION SYSTEM (HRIS) T. Ramayah Noornina Dahlan Noorliza Karia Universiti Sains Malaysia Normalini Md. Kassim AIA, Malaysia ABSTRACT Adoption and usage of a technology can be explained using many models and diffusion of innovation (Rogers, 1983) is one of the earliest models to be developed and tested for this purpose. This study uses the model as the basis of research but incorporates Moore and Benbasat (1991) which looks at “perceived characteristics of innovating” in trying to explain the usage of a Human Resource Information System (HRIS). Data collected using a self administered questionnaire reveal that compatibility (β= 0.339, p< 0.1), visibility (β= 0.311, p< 0.05) were positively related whereas complexity (β= -0.236, p< 0.1) was negatively related to extent of use of the HRIS. The model managed to explain 32.7% of the variation in the extent of usage indicating the applicability of the model in explaining usage of the HRIS. A system which is compatible and visible at the workplace with a low level of complexity will have a much higher likelihood of getting adopted. INTRODUCTION The most salient factors impacting organizations and employees today is technological change and advancement (e.g., computer-supported supplemental work-at-home, overall labor changes, organizational structure, organization of work). Information technology (IT) has grown substantially in recent years. Roach (1991), found that American service sector companies spent more than $100 billion on hardware and in 1996 American banks spent almost $18 billion on IT (The Economist, 1996). One implication is that the nature of work is likely to shift as IT has the potential to change the roles of employees within the organization. According to Temple (2000), many smaller companies already use service providers for payroll, and training departments are rapidly incorporating online classes as well as video technology (Temple, 2000). With this growth in IT utilization, practitioners and researchers alike recognize that IT may have a tremendous impact on the different functions and individuals in the organization (Gardner et al., 2003). Ulrich (1997b), for instance, has argued that, “technology will change how work is done in general and how HR (human resources) is practiced in particular”. As the human resource management function increases its use of IT, there are likely to be implications for HR professionals as well (Sparrow & Daniels, 1999). A good human resource decision is based on good human resource information system (HRIS) which should be provided to both human resource and line managers to facilitate decision making. This concept is known as decision-support-system (DSS). A HRIS is made up of numerous elements. Each element must function properly if the system is going to benefit the organization. Basically, a system is a set of activities that takes inputs, transforms them into useful items and then outputs the new items to where they can be used. The HRIS is usually a part of the organization’s larger management information system (MIS), which would include accounting, production, and marketing functions, to name just a few. The special function of HRIS is to gather, collect, and help analyze the data necessary for the human resource department to do its jobs properly (Anthony, Kacmar & Perrewe, 2002). As more HR professionals are able to be more responsive, answer queries more quickly, and provide more accurate information, HRIS may enable HR professionals to increase their responsiveness to their constituencies. Thus, the objective of this study is to investigate the determinants of the extent of use of the HRIS. 159 CONCEPTUAL FOUNDATION Rogers (1983) proposed that innovation adoption is a process of uncertainty reduction and information gathering. Information about the existence of the innovation as well as its characteristics and features flows through the social system within which adopters are situated. Potential adopters engage in information seeking behaviors to learn about the expected consequences of using the innovation: an assessment and evaluation of this information determines adoption behavior. Thus, communication channels and information processing by potential adopters play a central role in Roger’s theory. In innovation diffusion theory, a significant outcome is an individual’s decision is influenced by five key perceptions about the characteristics of the innovation which are relative advantage, compatibility, complexity, trialability, and visibility. This was also supported by the later works of Moore and Benbasat (1991) who proposed a model call Perceived Characteristics of Innovating (PCI). A short description of the constructs is presented below. Relative advantage Relative advantage is the degree to which an innovation is perceived to be better than the idea it supersedes. It can also be viewed as the degree to which an innovation is perceived to bring added benefits to the user. Hence, it is often measured in terms of economic profitability, productivity improvement and other benefits. The nature of the innovation determines which specific types of relative advantage it brings to the end user. The adoption of an innovation depends on how these benefits an innovation brings match the demand of potential adopters. In the Technology Acceptance Model (TAM) model, this particular attribute is referred to as perceived usefulness. In general, the relative advantage of an innovation as perceived by members of a social system is positively related to its rate of adoption. Compatibility Compatibility is the degree to which an innovation is perceived as consistent with the existing values, past experiences, and needs of potential adopters. An idea that is more compatible with existing values and norms is less uncertain to the potential adopters and hence fits more closely to an innovation to be easily accepted by potential adopters into part of their lifestyle. An innovation can be compatible or incompatible with (1) socio-cultural values and beliefs, (2) previously introduced ideas, or (3) client needs for the innovation. Complexity Complexity is the degree to which an innovation is perceived as relatively difficult to understand and use. Any new idea may be classified on the complexity simplicity continuum. Some innovations are clear in their meaning to potential adopters whereas others are not. In the TAM model, this attribute is referred to as perceived ease of use. Trialability Trialability is the degree to which an innovation may be experimented with on a limited basis. New ideas that can be tried on the installment plan are generally adopted more rapidly than innovations that are not divisible. Some innovations are more difficult to divide for trial than others. The personal trying out of innovation is a way to give meaning to innovation, to find out how it works under one’s own interpretation. This trial is a means to dispel uncertainty about adopting an innovation. Observability or Visibility Visibility (named as Observability by Rogers) is the degree to which the results of an innovation are visible to others. The results of some ideas area easily observed and communicated to others, whereas some innovations are difficult to observe or to describe to others. Rogers (1962, as cited by Benbasat and Moore) argued that when an innovation is easily observable or visible to potential adopters, it is more likely for the innovation to be adopted. RESEARCH MODEL The research model was developed based on the Rogers (1983) innovation diffusion model and also the PCI by Moore and Benbasat (1991) is presented in Figure 1. 160 Relative advantage Compatibility Extent of Use of HRIS Complexity Trialability Visibility Figure 1: Research Framework Hypotheses Development According to Gan (2003), if a personal digital assistant (PDA) allows user to perform both their personal and business tasks more effectively, it provides tremendous advantage to users. Thus, it would be expected that individuals who perceive PDA as advantageous would also be likely to adopt the device. Tornatzky and Klein (1982) also found relative advantage to be an important factor in determining adoption of new innovations. Choi et al. (2003) and Tan and Teo (2000) also found similar results in their studies on interactive TV and Internet banking adoption. This leads to the hypothesis of: H1: Perceived relative advantage is positively related to the extent of use of the HRIS. In Tornatzky and Klein’s (1982) meta-analysis of innovation adoption, they found that an innovation is more likely to be adopted when it is compatible with the individuals’ job responsibilities and value system. Choi et al. (2003) and Tan and Teo (2000) also supported this arguments. Thus, the next hypothesis is stated as: H2: Perceived compatibility is positively related to extent of use of the HRIS Past research has indicated that innovation with substantial complexity requires more technical skills and needs greater implementation and operational effort to increase its chances of adoption (Davis et al., 1989; Cooper & Zmud, 1990). As with any other new computing system introduced to the market, HRIS is expected to be easy to use. It is therefore expected that the less complex the HRIS is perceived to be, the more likelihood it is for individual to adopt it. This leads to the next hypothesis: H3: Perceived complexity is negatively related to the extent of use of the HRIS Rogers (1995) argues that potential adopters who are allowed to experiment with an innovation will feel more comfortable with the innovation and are more likely to adopt it. Any uncertainties about the innovation will also be reduced when trials are allowed. Tornatzky and Klein’s (1982) meta-analysis of innovation adoption also came out with similar conclusion. Thus, this becomes the basis of hypothesis four in this study which is stated as: H4: Perceived trialability is positively related to the extent of use of the HRIS Visibility measures the degree to which an innovation is visible to individuals in a social system. Gan (2003) argue that when an innovation is perceived to be more visible to members of a social system, it is more likely to be adopted. This is because visibility creates a visual impact like what advertising media does. The visual impact in turn creates awareness of the product and hence increases its likelihood to be further evaluated. Karahana et al. (1999), Venkatesh and Brown (2001) also supported the notion that visibility increases the likelihood of adoption. It 161 is therefore expected that if the HRIS is more visible to individuals, the more likely it is to be adopted. Thus, the hypothesis is: H5: Perceived visibility is positively related to the extent of use of the HRIS METHODOLOGY The populations are HR executives and HR professionals working in companies in and around Penang. The selected site for this study is Bayan Lepas Free Industrial Zone, Prai Industrial Zone. A purposive sampling technique was employed. The reason for choosing this site is due to the relevance of its working population to this study. Many of the companies operating are related to semiconductor or personal computer industry in general. The employees of these companies are largely familiar with information technology products due to the nature of their jobs. As HRIS is relatively new, selecting a site with respondents having high awareness of information technology products is important. A self administered survey questions were distributed using the drop off and pick up method. Data was collected using a questionnaire which used a 5-point Likert scale response format. Survey items will be developed from a review of the literature with HR executives from twelve organizations. Hence, very minimal changes were made to the final version of the questionnaires. The innovation characteristics instrument was adapted from Moore and Benbasat (1991) which was also used in the Malaysian context by Gan (2003). FINDINGS The demographic profile of respondents is presented in Table 1. There was equal representation from male and female, with a majority having tertiary education. Most were in the age group of between 26 and 35 years and income level of RM2000 to RM3999. Variables Gender Education Age (in Years) Income HRIS utilization Table 1: Demographic Profile of Respondents Category No. of Respondents Male 35 Female 35 Certificate/Diploma 5 Bachelor Degree 42 Master Degree 19 Ph.D 4 20-25 1 26-30 22 31-35 24 36-40 11 40 and above 12 Less than RM2000 7 RM2000-RM2999 19 RM3000-RM3999 26 RM4000-RM4999 6 RM5000-RM5999 7 RM6000 or more 1 Less than a year 6 Between one to three years 14 More than three years 50 Percentage (%) 50 50 7.1 60 27.1 5.7 1.4 31.4 34.3 15.7 17.1 10.6 28.8 39.4 9.1 10.6 1.5 8.6 20.0 71.4 To ascertain the goodness of the measures used in this study, a reliability analysis was conducted. The results are presented in Table 2. The reliability coefficients were in the range of 0.49 to 0.92. Although the reliability value for trialability was slightly low, 0.49 but for the purpose of this study it was deemed to be sufficient as there were only 2 items used to measure this variable and as this is a preliminary research into this research area thus this value is still acceptable. 162 Table 2: Result of Reliability Analysis Number of Number of Items Deleted Items 4 0 3 0 3 1 3 0 2 2 11 0 Variables Relative Advantage Compatibility Complexity Visibility Trialability Extent of use Cronbach’s Alpha 0.80 0.77 0.61 0.64 0.49 0.92 Table 3 shows the mean and standard deviation of all variables in the study and Table 4 presents the intercorrelations of all the variables. Table 3: Descriptive Statistics of all dependent and independent variables Variables Mean Standard Deviation Relative Advantage 3.91 0.73 Compatibility 3.81 0.79 Complexity 2.53 0.71 Visibility 3.94 0.68 Trialability 3.81 0.72 Extent Use 3.58 0.73 Table 4: Inter-correlations among all variables Relative Advantage Compatibility Complexity Visibility Trialability Extent of use RA COMPAT COMPLEX VISIBILITY TRIAL USAGE 1.000 0.75** 0.37** 0.55** 0.44** 0.261* 1.000 -0.24* 0.43** 0.61** 0.36** 1.000 -0.59** -0.35** -0.42** 1.000 0.47** 0.48** 1.000 0.391** 1.000 **p < 0.01, *p < 0.05. Hypotheses Testing The hypotheses generated for this research was tested using a multiple regression the results of which is presented in Table 5. Table 5: Results of the regression analysis Independent variables Relative Advantage Compatibility Complexity Visibility Trialability R2 Adjusted R2 Durbin Watson F value *** p< 0.01, **p< 0.05, *p< 0.1 Standardized Beta -0.289 0.339* -0.236* 0.311** 0.083 0.327 0.272 1.879 5.927** 163 The model could explain 32.7% of the variation of the extent of HRIS usage. The model was significant at the 0.01 level. We accepted the hypotheses based on an alpha value of 0.1 which was recommended by Shin-Yuan and ChiaMing (2005) in a research on user acceptance of wireless application protocol (WAP). Compatibility (β= 0.339, p< 0.1), visibility (β= 0.311, p< 0.05) were positively related whereas complexity (β= -0.236, p< 0.01) was negatively related to extent of use of the HRIS. Thus H2, H3 and H4 of the study were supported. Hypotheses 1 and 5 of the study were not supported. DISCUSSION Relative advantage was hypothesized to be positively related to extent use of HRIS. This study found that the hypothesis was not supported. It can be argued that the HRIS system may seem to be useful to a certain age level of professional but for the older generation it might be very hard to adapt to the new technology. They prefer the manual way of doing things. This finding contradicts (Gan, 2003; Tan & Teo, 2000; Choi et al., 2003; Tornatzky & Klein, 1982) with those who have found relative advantage to be very consistent important factor. Compatibility was hypothesized to be positively related to extent use of HRIS. This study found that the hypothesis was supported. It can be argued that the HRIS system that is compatible to an individual’s lifestyle will then the extent of use will be higher. This finding supports the works of Gan (2003), Tan and Teo (2000), Choi et al. ( 2003), and, Tornatzky and Klein (1982) who have found compatibility to be very important in adoption decisions. Complexity is hypothesized to be negatively related to extent use of HRIS. This study found that the hypothesis was supported. This is because if the HRIS system is perceived to be very difficult to use than the chances are it will not be used extensively. This observation is similar to the results of many previous studies based on TAM model (Davis et al., 1989) which have found complexity (ease of use) to be a very consistent factor influencing adoption. Trialability was also posited to be positively related to extent of use of the HRIS. Again, the findings from this study did not support it. HRIS system is a solution whose product life is short. It is not suitable for experimentation on a limited basis. As such, trialability is not perceived as an important attribute. This finding is consistent with the results of Tornatzky and Klein’s (1982) meta-analysis of innovation adoption. Visibility is hypothesized to be positively related to extent of use of HRIS. This study found that the hypothesis was supported. This could be that respondents that have used the system themselves are more likely to develop a positive impression of the system compared to those that have not. In this case, respondents that have used the HRIS system in the workplace could have developed an impression that HRIS system has certain benefits that have influenced the use of it by the people around. This is consistent with previous studies (Gan, 2003; Karahana et al., 1999; Venkatesh & Brown, 2001) which found visibility to be a significant predictor of technology usage. CONCLUSION The diffusion of innovation model managed to explain 32.7% of the variation in the extent of usage indicating the applicability of the model in explaining usage of the HRIS. A system which is compatible and visible at the workplace with a low level of complexity will have a much higher likelihood of getting adopted. Proponents of the HRIS should bear in mind these issues when promoting the use of HRIS in their organizations. 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(2001). Longitudinal investigation of personal computers in homes: Adoption determinants and emerging challenges, MIS Quarterly, 25(1), 71-102. Zmud, R. W. (1979). Individual differences and MIS success: A review of the empirical literature, Management Science, 25(10), 966-979. 165 ONLINE SHOPPERS VS NON-SHOPPERS: A LIFESTYLE STUDY OF MALAYSIAN INTERNET USERS Dilip Mutum Ezlika Ghazali University Malaya, Malaysia ABSTRACT This study is among the few to study whether there is any difference in the internet oriented lifestyles between online Malaysian shoppers and non-shoppers. It was found that most online shoppers are young males who were professionals, managers or had their own businesses. They are less concerned about online security, are competent internet users and shop online because they find it fun, easy and convenient. The study also revealed some fundamental satisfiers and dissatisfiers of shopping online. It is recommended that those companies involved in ecommerce activities should take steps to reduce the fears of the consumers with regards to online shopping. INTRODUCTION Online purchasing is growing at a dramatic rate and is well documented in literature. According to a recent study conducted by research firm ACNielsen, roughly 10 percent of the world's population (more than 627 million people) has shopped online at least once (Crampton, 2005). In Malaysia the expected explosion of internet shopping has not occurred as yet and the market share is quite negligible. It is growing slowly with an increase from 24 percent of Internet users in 2002 to 28 percent shopping online in 2003. However, an increasing number of consumers are expected to make purchases on the Internet in the future, with a majority of them doing so from international web merchants (IDC, 2004). The percentage of Malaysian consumers who shop online from the total internet population, now stands at 28.4 percent (MATRADE, 2005). Malaysian Business-to-Business (B2B) E-commerce was forecasted at RM29.6 billion (US$1= approx. RM3.77), while Business-to-Consumer (B2C) E-commerce, at RM5.7 billion. In view of this, it was considered important to investigate the fundamental satisfiers and dis-satisfiers of shopping online. This study also seeks to examine internet oriented lifestyles of both internet shoppers and non-shoppers to see whether there are any discrete market segments that seek different benefits from the internet. The study is considered significant because the role of psychographics in the adoption of e-commerce in Malaysia has been largely unexplored, even though some researchers have indeed studied the effect of psychographics in the global diffusion of e-commerce in other parts of the World, especially in the United States (Swaminathan, Anderson and Ponnavolu, 2002; Swinyard and Smith, 2003). LITERATURE REVIEW Demographics of Online Shoppers Studies have shown that online buying behavior is affected by demographics, channel knowledge, perceived channel utility and shopping orientations (Li et al., 1999; Weiss, 2001). Review of literature shows that compared with the online non-consumers, online consumers are older (Bellman et al., 1999; Donthu and Garcia, 1999; Weiss, 2001), better educated (Bellman et al., 1999; Li et al. 1999; Swinwyard and Smith, 2003), have higher income (Bellman et al., 1999; Li et al.1999; Donthu and Garcia,1999; Swinwyard and Smith, 2003), and have better knowledge of the Internet (Li et al. 1999; Swinwyard and Smith, 2003). Research has also shown that men are more likely than women to purchase products and/or services from the Web (Korgaonkar and Wolin, 1999; Van Slyke, et al., 2002). However, other studies indicated different findings. Online 166 shoppers are increasingly found in all types of consumers segments, including women, younger people as well as lower income groups (Weiss, 2001; Swinyard and Smith, 2003) Psychographic Studies of Internet Users and Online Shoppers There have been some studies to profile online users. For example, Smith and Whitlark’s (1999) study of 3090 online users identified 13 themes of Internet lifestyles using internet laddering. Another study by Mathwick (2001) used clustering technique to survey data collected online to identify segments characterized by relational norms and behavior, in order to describe online social activities. He identified four groups, namely, ‘transactional community members’, ‘socializer’, ‘personal connectors’ and ‘lurkers’. However, these studies didn’t touch on didn’t touch on online shopping behaviour. Most of the studies providing some attitudinal or lifestyle discussion of online consumers or online non-consumers, have been carried out in the developed countries especially in the United States. These studies have resulted in the identification of different online consumers groups based on their shopping orientations (Li et al., 1999; Donthu and Garcia, 1999; Smith and Whitlark, 1999; Siu and Cheng, 2001; Mathwick, 2001). Donthu and Garcia (1999) while investigating the characteristics of online consumers relating to their online shopping activities, found out that online shoppers seek convenience, innovative, impulsive, variety seekers and more risk oriented than non-shoppers. They are also less brand conscious, having more positive attitude toward advertising and direct marketing. On the other hand, Siu and Cheng (2001) while examining the personal characteristics of potential online shopping adopters and perceived innovation attributes for online individual in Hong Kong, identified as key factors in classifying potential online shoppers: economic gains, availability, compatibility, security risk, monthly income, opinion leadership on technological product, attitudes towards technological development and venturesomeness. Satisfiers and Dis-satisfiers for Online Shopping Perception towards online shopping also differs from country to country and on the products. Tan’s (1999) study on risk perception among online Singaporeans revealed that those having higher risk aversion also perceive Internet shopping to be a risky activity. The researcher suggests several vendor actions such as having good reputation and brand image and specific warranties, etc to reduce this risk aversion. While investigating risk perceptions among consumers, Miyazaki and Fernandez (2001) found evidence of relationships among different levels of Internet experience, the use of purchasing methods such as telephone and mail-order shopping, the perceived risks of online shopping, and online purchasing activity. They also found that higher levels of Internet experience may lead to lower risk perceptions regarding online shopping and fewer concerns regarding the security. Several studies have pointed out that concerns about online security and privacy as the most overwhelming barrier to online shopping (Kaur, 2005; Grunert and Ramus, 2005; Cheah, 2001; TNS Interactive-Global eCommerce Report, 2001). Highly publicized news about security breaches on the Internet has not helped either. This includes several cases where hackers accessed private financial information sent electronically for malicious purposes, (Goodwin, 1991). In general, shoppers in Malaysia are very sensitive towards revealing their personal details to a computer (Cheah, 2001). Customers in several countries often regard that it is important to be able to see, touch and smell products before buying (Dornbusch, 1997; Hean and Shieh, 2001; Ezlika et. al., 2003). As revealed in Ernst and Young's second annual Internet shopping study, preference to see products prior to purchasing was the second most popular reason for not buying online, after security issues (Ernst and Young, 2001). One of the biggest advantages of buying over the Internet is the ease by which consumers can find information. This including current and detailed information on products and services as well as enable them to compare prices against other product/service offerings. This would facilitate consumers to make more informed decisions (Peterson et. al, 1997; Strauss and Frost, 1999). Another advantage of online shopping as compared to physical shopping is the ability of consumers to carry out transactions any time of the day (Cheah, 2001; Strauss and Frost, 1999). Online stores operate 24 hours and seven 167 days a week. In fact, unlike the traditional shopping environment, consumers can enjoy window-shopping on the Internet without the pressure to purchase. Swaminathan et al. (2002) examining antecedents to online shopping identified eight factors that potentially impact e-loyalty, namely, customization, contact interactivity, care, community, convenience, cultivation, choice and character. On the other hand, Swinyard and Smith (2003) identified six key factors that serve as satisfiers and disssatisfiers for internet shopping, namely, internet shopping is easy and fun, Internet shopping is a hassle, like the energy of brick-and-mortar stores, fear of financial theft on the internet, don’t know how to shop or find things on the internet and the internet has good prices and quality. According to them, “online shoppers are most likely to patronize sites that have the most positive or the least negative performance on these factors.” RESEARCH METHODOLOGY Research Instrument The research instrument was an eight-page self-administered questionnaire. The first section measured the psychographic and lifestyle characteristics of the respondents. 36 statements were taken from Swinyard and Smith’s (2003) study to measure the internet lifestyles of the respondents. They were asked to indicate their level of agreement on a 7 point scale (1=’strongly agree’ to 7=’strongly disagree’). Based on the findings of the pilot test survey, two statements were removed: viz., ‘I buy using layaway programs’ and ‘Internet offer lower prices than local stores’. The first statement was rejected because, many respondents could not understand what it meant and the second due to the fact that it is merely a reverse of the statement, ‘Local stores has better prices’. To find out Attitude/affinity towards the internet, respondents were also asked to rate the level of agreement or disagreement of each of the following items based on Mick and Fournier (1998) Selective Paradox Dimensions with a 7 point scale (1=’strongly agree’ to 7=’strongly disagree’), as listed below: 1. 2. 3. 4. 5. 6. 7. 8. Using Internet makes me more efficient, The Internet makes me feel intelligent, The Internet enables me to do things I wouldn’t be able to do otherwise, The Internet can facilitate human togetherness and give individuals sense of belonging, The Internet is a good way to communicate and encourage human interactions, Using the Internet makes me feel incompetent, The Internet makes me feel dumb, The Internet can lead to human separation and cause individuals to withdraw from direct human interactions. Section two of the questionnaire was designed to measure online Internet usage behavior such as place of Internet usage, but is not relevant for this paper. The last section was designed to collect the demographic information of the respondents. Examples of the demographic variables measured were gender, ethnicity, marital status, employment status, education and income. The variables were measured using a close-ended multiple-choice format. Sampling Procedure and Data Collection Method The study was confined to the residents in the areas of Kedah (Alor Star, Jitra and Sintok) and Klang Valley (Kuala Lumpur and Selangor) of Malaysia. Respondents were internet users from both sexes, aged 18 and above. To provide an adequate level of confidence in the study, a sample size of 300 was targeted in both areas. In order to ensure high response rate, field interviewers were employed for data collections. The survey was conducted over an eight-week period. Prior to the actual survey, a pilot test was conducted using 20 respondents. Based on the feedback obtained from these respondents, the final version of the questionnaire was developed. The questionnaire was produced in two languages: English and Malay. The original English version of the questionnaire was translated into the Bahasa Malaysia, the national language of Malaysia, using the back-to-back translation method (Zikmund, 2000). Based on the feedback, some modifications were made to the questionnaire. This included the removal of two statements from the internet lifestyle scale as mentioned above. 168 RESEARCH RESULTS AND DISCUSSION This section presents the findings of the survey. It begins with a description of the general characteristics of the respondents. This is followed by a demographic comparison between internet shoppers and non-shoppers. The results of the factor analysis on psychographics items are then presented. Finally, a comparison is made between the two groups of internet users in terms of their lifestyle profile. Characteristics of respondents A total of 324 responses were received out of which 311 were useable for analysis. This indicates a response rate of 62.2 percent. Male respondents (53.7 percent of the total) slightly outnumbered the female respondents. Majority (50.4 percent) of the respondents were young, falling in the 20 to 29 age group, followed by those in the 30 to 39 group, which made up 34.7 percent of the total. The next largest group was the 40 to 49 group with 10.9 percent. Only 2.9 percent of the respondents were aged 50 and above. There were an almost equal number of single and married respondents, representing 50.8 percent and 46.3 percent respectively. Approximately 3 percent were divorced/widows/widowers. In terms of ethnic group, the Chinese made up the largest ethnic group of respondents (50.8 percent) followed by the Malays (39.5 percent). The two other ethnic groups (Indian and others) were merged to form a larger group named Indian and others. They made up 9.3 percent of the total valid number of respondents. When monthly personal income was examined 31.8 percent of the respondents were in the RM2001 and RM3000 income group. They were followed by those earning between RM3001 and RM3500 (17.0 percent per cent), RM 3501 and RM4500 (14.1 percent), RM1501-RM2000 (13.2 percent), RM4501 and above (12.6 percent) and less than RM1500 income groups (11.3 percent). With regards to occupation, those in ‘administrative’ positions and ‘professionals’ (doctors, engineers, lecturers etc.), made up the majority of the respondents representing 30.9 percent and 21.5 percent of the total respectively. Those in the ‘managerial’ positions made up 15.1 percent and ‘supervisory’ positions consisted of 10.9 percent. They were followed by the ‘business owners’ (8.4 percent), ‘others’ (6.8 percent) and ‘students’ (8.4 percent). With regards to educational background, the findings show that most of the respondents had a high education level with a majority of them having a degree (58.2 per cent). 19.9 percent of the respondents had a Master’s degree followed by those with a diploma (12.2 percent). Those with school leaving certificates (SPM/SPMV/MCE/O-level/ STPM/ HSC/ A-level/ Matriculation) made up 7.4 percent of the total. Only 0.6 percent of the respondents were with PhDs. The survey was conducted in two areas, namely the Klang Valley and Kedah. Out of the total, 57.2 percent of the respondents were residing in the Klang valley (Kuala Lumpur, Selangor), while the rest (42.8 percent) were residents of Kedah (Alor Star, Jitra, Sintok). Online Shoppers Vs Online Non-shoppers After examining the responses by the respondents on the frequency of buying goods and services over the internet, the study decided to divide online shoppers and online non-shoppers based on the following: online shoppers were those who replied ‘Sometimes’, ‘Often’ or ‘Always’ in terms of buying goods and services online. Online nonshoppers, on the other hand, were those who replied ‘Never’ or ‘Almost never’ in terms of buying goods or services online. Based on this categorization, the study found that 53.4 percent of the respondents were online shoppers and 46.6 percent of them were online non-shoppers. Please refer to Table 1. Table 1: Online Shoppers and Online Non-Shoppers Categories of Internet Users Frequency Percent Online Shoppers (Sometimes/always/often) 166 53.4 Online Non-Shoppers (Never/almost never) 145 46.6 169 311 100.0 Total Question: Have you ever bought product or services over the internet? (1=Never, 2=Almost Never, 3=Sometimes, 4=Always, 5=Often) Online Shoppers Vs Online Non-shoppers - A Demographic Comparison Using the Chi-square analysis, significant differences (at p < .05) were found between online shoppers and nonshoppers in five different demographic variables, namely, gender, age, occupation, personal monthly income, and place of resident. Table 2 presents the results of the analyses. In terms of gender, the study found that, in general, more male respondents tend to shop online than female respondents. This is similar to finding of other studies in the west which show that men are more likely than women to purchase products and/or services online (Korgaonkar and Wolin, 1999; Van Slyke et al., 2002). Maybe female respondents are more skeptical of online shopping as compared to males. It may also be due to the fact that more women prefer the offline shopping experience, in other words they enjoy going to the mall more as compared to men (Van Slyke et al., 2002). As for age, investors in the ‘20 and 29’ age group has the tendency to be online shoppers as compared to those in the ‘30 and above’ age group. This presents quite different results from older studies which found that online shoppers are older (Bellman et al., 1999; Donthu and Garcia, 1999; Weiss, 2001) but similar findings to that of Swinyard and Smith (2003). This may be due to the fact that online consumers are young internet savvy people who are less risk adverse. When the occupational status of the respondents was examined, a significant difference was found. Higher proportion of online shoppers were professionals, managers or owned their own business as compared to online nonshoppers. In line with several other previous studies (Bellman et al., 1999; Li et al., 1999; Donthu and Garcia, 1999; Swinwyard and Smith, 2003), it was found that a considerably higher number of online shoppers had a higher personal income as compared to online non-shoppers. In terms of ethnicity, no significant difference was found between the three ethnic groups. Similarly, there was no significant difference between the two groups of internet users, with regards to marital status. Table 2: Online Shopper and Online Non-Shopper: A Demographic Comparison Online Shoppers Online Non-Shoppers N Percent N Percent Gender (χ2 significant, p=0.047) Male 97 58.1 70 41.9 Female 69 47.9 75 52.1 Age (χ2 significant, p=0.032) 20-29 76 47.5 84 52.5 30 and above 90 59.6 61 40.4 Ethnicity (χ2 not significant, p=0.350) Malay 60 48.8 63 51.2 Chinese 87 55.1 71 44.9 Indian and Others 18 62.1 11 37.9` Marital Status (χ2 not significant, p=0.092) Single 78 49.4 80 50.6 Married 88 57.5 65 42.5 Occupation (χ2 significant, p=0.019) Professional 55 57.3 41 42.7 Administrator 3 55.2 30 44.8 Manager 30 63.8 17 36.2 Supervisory 16 47.1 18 52.9 Own Business 16 61.5 10 38.5 170 Student Personal Monthly Income (χ2 significant, p=0.014) RM1,500 and Below RM1,501 to 2,000 RM2,001 to 3,000 RM3,001 to 3,500 RM3,501 and above Education Level (χ2 not significant, p=0.651) SPM/SPMV/MCE/O-level STPM/ HSC/ A-level/ Matriculation Diploma Degree Postgraduate Place of Resident (χ2 significant, p=0.002) Klang Valley Kedah 12 29.3 29 70.7 13 16 51 33 53 37.1 39.0 51.5 62.3 63.9 22 25 48 20 30 62.9 61.0 48.5 37.7 36.1 8 8 19 92 39 61.5 53.3 50.0 50.8 60.9 5 7 19 89 25 38.5 46.7 50.0 49.2 39.1 108 58 60.7 43.6 70 75 39.3 56.4 No significant difference was also found between the two groups with regards to educational level. This showed that education had no bearing on whether a person would shop online. This is against earlier findings which revealed that online shoppers were more educated than non-shoppers (Bellman et al., 1999; Li et al., 1999; Swinwyard and Smith, 2003) When the place of residence of the respondents was examined, a significant difference was found. Higher proportion of online shoppers resided in Klang Valley (urban dwellers) area as compared to online non-shoppers who reside mainly in Kedah area (rural). Factor Analysis Factor analysis was performed on the 44 psychographic statements to identify the underlying dimensions measured by the statements. The analysis was also done to determine whether the data could be condensed or summarized into smaller set of factors or dimensions. The principal components analysis performed, extracted 11 factors having eigenvalues greater than 1.0. See Table 3. The 11 factors accounted for 57.61 percent of the total variance. Only items with factor loadings of 0.40 and above were considered as significant in interpreting the factors. The component items of each factor were tested for internal consistency reliability using Cronbach’s coefficient alpha. The alpha scores for each factor are shown in Table 3. Except for Factor 9 and 11, the alpha scores of the other four factors were between 0.5 and 0.78. Nunnally (1978) has indicated 0.7 to be an acceptable reliability coefficient but other researchers sometimes used lower thresholds. According to Churchill and Peter (1984), Cronbach’s alpha values should be more than 0.5 in scales used in marketing studies in order to obtain a reliable result. Here, those coefficient values of 0.5 or less are used to indicate unsatisfactory internal consistency reliability. Finally based on the criteria that the factors should have at least three significant factor loadings (Norusis 1985; Hair et al. 1987), factors 9, 10 and 11 were dropped from further analysis. A total of eight key factors were identified which accounted for 49.77% of the total variance. Theses key factors that serve as satisfiers and dis-satisfiers for Internet shopping are as given below, along with their associated measures: Factor 1: Vigilant of financial loss Factor 2: Satisfaction with the Internet Factor 3: Internet shopping is easy, fun and convenient Factor 4: Incompetence with Internet usage Factor 5: Internet for Product Information Search Factor 6: Shopping in Stores is a Hassle Factor 7: Internet Shopping is a Hassle 171 Factor 8: Prefer Shopping in Brick-and-Mortar Stores This indicates that these characteristics are perceived by the respondents as being related to each other and to the factor. Online shoppers are more likely to patronize online stores that have more positive or conversely, the least negative, performance of these factors. 6 items were loaded in Factors 1, explaining 15.6 percent of the variance. Factor 2, 3 and 4 were all loaded with four items each, explaining 10.2 percent, 6.2 percent and 4.4 percent of the variance respectively. Factors 5, 6, 7 and 8, comprising three loaded-items each, explained 3.8 percent, 3.2 percent, 3.1 percent, and 2.9 percent of the variance respectively. Table 3: Factor Loadings of Psychographics Items and Alpha Scores of Each Factor. Loadingsa Item/Factor Factor 1: Vigilant of financial loss I want to see things in person before I buy Internet buying has delivery problems I worry about my credit card number being stolen on the internet It’s hard to judge merchandise quality on the internet I don’t want to give a computer my credit-card number Internet has better quality than stores Factor 2: Satisfaction with the Internet Using internet makes me more efficient The internet makes me feel intelligent The internet enables me to do things I won’t be able to do otherwise The internet can facilitate human togetherness and give individuals sense of belonging The internet is a good way to communicate and encourage human interactions Factor 3: Internet shopping is easy, fun and convenience Internet shopping is easier than local retail stores I like having merchandise delivered to me at home Online buying is fun I like browsing on the internet Internet shopping offers better selection Factor 4: Incompetence with Internet usage I don’t know much about using the internet I often return items I have purchased I’m not good at finding what I want on the internet Using the internet makes me feel incompetent The internet makes me feel dumb Factor 5: Internet for Product Information Search I’d shop more on the internet if prices are lower I go to the internet to preview products I go to internet for reviews or recommendations Factor 6: Shopping in Stores is a Hassle I like not to have to leave home when shopping Shopping in stores is a hassle I like to go shopping with my friends Factor 7: Internet Shopping is a Hassle Internet ordering is hard to understand and use None of my friends shop on the internet I just don’t trust internet retailers 172 0.431 0.636 0.711 0.745 0.705 -0.470 0.636 0.692 0.663 0.763 Alpha Scoresb 0.630 0.788 0.658 0.712 0.760 0.655 0.420 0.486 0.707 0.419 0.762 0.476 0.418 0.545 0.788 0.846 0.590 0.687 -0.679 0.410 0.641 0.576 0.696 0.683 0.710 0.581 0.575 Factor 8: Prefer Shopping in Brick-and-Mortar Stores Stores has better service policies I like friendliness at local retail stores I like the energy at local retail stores Factor 9: This item was dropped I don’t like waiting for products to arrive Local stores has better prices Factor 10: This item was dropped Buying things on the internet scares me It’s a hassle to return merchandise bought online Factor 11: This item was dropped The internet makes me feel dumb The internet is dehumanizing (Note: aOnly items with factor loadings greater or equal to 0.40 are shown; bThe were tested for internal consistency reliability using Cronbach’s coefficient alpha) 0.604 0.628 0.738 0.621 0.728 0.433 0.339 0.623 0.742 0.601 0.416 0.405 0.782 component items of each factor Comparison of Lifestyle Characteristics: Online Shoppers and Non-shoppers An analysis of the lifestyle characteristics was carried out by comparing the mean values of the two groups along the eight dimensions identified using independent sample t-test. This test is used since there are only two independent groups, viz., online shoppers and online non-shoppers by examining the results of the two-tailed significance test. If it is less than p=0.05, it means that there is a significant difference between the means of the two independent groups. Table 4: Comparing the Mean Scores of Lifestyle and Activity Dimensionsa Online Online NonDimensions Significanceb Shoppers shopper Vigilant of Financial Loss 30.01 32.83 < 0.000 Satisfaction with the Internet 22.69 21.71 0.088 > Internet Shopping is Easy, Fun and 24.10 21.87 > 0.000 Convenient Incompetence with Internet Usage 15.84 17.56 < 0.002 Internet for Product Information Search 15.78 14.14 > 0.000 Shopping in Stores is a Hassle 12.87 12.42 0.085 > Internet Shopping is a Hassle 11.64 13.35 < 0.000 Prefer Shopping in Brick-and-Mortar Stores 14.16 15.06 < 0.002 (Note: a Higher scores represent greater agreement with the attributes; b Level of significance using t-Test) From the results given in Table 4, it was found that there was a significant difference between the two groups with regards to six dimensions out of the total eight. The dimensions were ‘Vigilant of financial loss’, ‘Internet shopping is easy, fun and convenient’, ‘Incompetence with Internet usage’, ‘Internet for Product Information Search’, ‘Internet Shopping is a Hassle’ and ‘Prefer Shopping in Brick-and-Mortar Stores’. No significant differences were found between the two groups with regards to the two other dimensions, namely, ‘Satisfaction with the Internet’, ‘Shopping in Stores is a Hassle’. A profile of the two groups can thus be drawn up. More specifically, online non-shoppers are more vigilant of financial loss as compared with online shoppers. In other words they are concerned with the security aspects of online shopping and afraid of making losses over the net. This indicates that the fear of financial loss resulting from online transactions depends on the online consumer type. It was observed that these are indeed issues of concern for the online non-consumers. This is related with risk taking behaviour and is in line with the findings of other earlier studies which indicated that those with higher risk aversion will perceive Internet shopping as a risky activity (Tan, 1999). However, as ecommerce gets more popular and Malaysians get more comfortable with the idea of shopping online, it is expected that this concern with the internet security will decrease. 173 The results also indicate that online non-shoppers felt that shopping on the Internet is a hassle as compared to the online shoppers. As one of the statements in this dimension is “I just don’t trust internet retailers”, this indicates that there is again an issue of trust. They also preferred to shop in the traditional brick-and-mortar stores. Definitely those who love the “energy” at local retail stores may feel that online buying is indeed boring. One of the statements included in this particular dimension is that ‘(Traditional) Stores has better service policies’. Online stores can look at ways of improving their service policies. Assurances about quality and guarantees to take back spoiled products and even “Money back guarantee if not satisfied”, can help in decreasing negative perceptions about online stores and go a long way in persuading new consumers to try out their product and services. It comes as no surprise that online non-shoppers were those who felt more incompetent with Internet usage as compared to online shoppers. On the other hand, this indicates that online shoppers are more computer and Internet savvy and can thus relate to concerns of online security as compared to online non-consumers. As Miyazaki and Fernandez (2001) noted, higher levels of Internet experience may lead to lower risk perceptions and security concerns about online shopping. As compared to online non-shoppers, the findings also indicate that online shoppers found shopping over the internet to be easy, fun and convenient. They also agree that they search the internet for product information. To this group of people shopping online is an interesting and fun way to shop. They like the convenience of having products delivered to their home and not have to go out. It also appears that online shoppers are competent users of the internet and know how to compare the products, reading reviews and search for the best prices online. CONCLUSIONS This study is among the few to look at differentiating between online Malaysian shoppers and non-shoppers demographically and from a psychographic angle. Though it can be considered an exploratory study and is quite limited in its geographical coverage, it presents some interesting findings. In conclusion there are indeed some differences between online shoppers and online non-shoppers with respect to their demographic and psychographic profile. Most online shoppers are young males who were professionals, managers or had their own businesses. They are less concerned about online security, are competent internet users and shop online because they find it fun, easy and convenient. The study also revealed the fundamental satisfiers and dis-satisfiers of shopping online. The fundamental satisfiers of shopping online here are: Internet shopping is easy, fun and convenient and Internet for Product Information Search. On the other hand, the dis-satisfiers of shopping online are: Vigilant of financial loss; Incompetence with Internet usage; Internet Shopping is a Hassle and Prefer Shopping in Brick-and-Mortar Stores. The higher the degree of identification with the satisfiers, higher would be the chance the respondents would shop online. Ecommerce companies as well as those planning to start ecommerce operations should take into consideration the needs and wants of each consumer group as well as the factors preventing them from involving in buying online. Those companies should take steps to reduce the fears of the consumers with regards to online shopping. Improving the store reputation and brand image as well as providing specific warranties, would go a long way in improving consumer confidence. Online stores must demonstrate that online shopping is not only convenient, safe, easy and fun; they must also offer other incentives and motivations to persuade consumers. Thus, besides building consumer confidence, offering more rewarding shopping experience than what is presently available would go a long way in persuading consumers to shop online and to continue doing so in the future. Online stores should enhance the quality of their products and services offered creating superior efficiency and coming up with innovative ideas to meet consumers’ unique needs. 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We spot these indicators through a literature review, categorize them under three different headings, and propose to test a model for predicting IS failure. INTRODUCTION Preventing Information Systems (IS) failure is an integral part of any operation. IS failure can range from a simple computer failure to a huge system break down. The Year 2000 or ''Y2K" problem, also called the Millenium Bug involves, jeopardized large corporations since they depended on date-sensitive databases, that could have paralyzed their businesses resulting in enormous losses (McNamara, Bartoldus, and Brock, 2000). Consequently, the Y2K menace obliged many companies to review, update and inspect their information systems in order to prevent a crash (Rakotobe-Joel, Zbib and Bakhtiary, 2002). Even though the Y2K menace passed without any significant crisis (tribulations were had by many), the preventive methods used proved to be effective. IS failure may be determined by observing key indicators such as the ones reflecting management, cultural, and technical issues. Therefore, isolating them in a clear way must constitute, in our opinion, a good framework for IT professionals and managers to prevent IS collapse in their institutions. This study identifies IS indicators through extensive literature review. Using systematic methodology, this study proposes a model to help IT managers gauge their progress in terms of preparedness to prevent and predict IS failure in their enterprises. This study defines IS failure as any phenomenon that hinders the success of an information system during development, installation, deployment, implementation and continuous use of that system. Global Information System and Information Project Indicators Mitev (1993) by using the case study method recognized four indicators of IS failure where a United States air reservation system was introduced in the French railway company SNCF. The system proved to be a failure in the French institution while it was considered a huge success in the United States. The four symptoms of failure that Mitev identified were: Cultural differences between the end users of the IS and its developers, incompatibility of an IS used for air transportation to be applied to the railway transportation, translation problems such as the difference in the cultural understanding of the system between the US way and the European way, and differences in the organizational concepts between the US and Europe. Similarly, Matheson and Tarjan (1998) used a case study with a US and a Japanese software venture to prove the importance of cultural issues in any technological cooperation. In this case, the failure was mainly due to poor translation of information acquired by the two parties, and the difference in the management culture between the US and Japanese firms. Moreover, Sauer, Southon and Dampney (1997) using the case study method, developed a model that explains IS failure. They identified five failure indicators: Weak fit of the system’s configuration; in that case, the system simply does not fit into the organization; conflicting motivation, where the team members are not motivated to achieve the same goals; uncertainty in the overall atmosphere of the work and about the end results; absence of a unified team, this implies competition between the members; and lack of organization and coordination, no clear objectives in the sense that the team working on the project is not convinced about the system itself and about the end results. Jiang et al (1999) discuss the assumption of the presence of a relationship between the system analysts’ orientation and their perceived reasons of systems failure. They used a survey that included 239 analysts. The analysts who were user oriented viewed the user as a very important factor of success or failure of the IS, contrary to the analysts who were technically oriented and disregarded all other aspects of success or failure except the technical aspect. Moreover, the study identified five indicators of failure: General environment of the IS, user behavior towards the IS, technical environment adequacy, 177 bad designers’ attitude towards the institution and the implementation of the system and rules, regulations and politics in the development environment. Irani et al. (2001) explain how an IS system failed but was at the last moment saved thanks to a number of measures taken by management. The authors developed a model that highlights the most important issues related to failure and success and isolate the following seven indicators of failure: The whole IS investment strategy, the overall company culture, the workforce education and training quality, the degree at which the consultants help and support management, lack of clear and accurate project evaluation, bad risk considerations and misperception of outcomes. Other studies focused on information project failure. For example, Mahaney & Lederer (1999) identify six organizational symptoms leading to IS failure. They based their work on two questions: “Why do IS projects fail?” and “Why are runaway IS projects allowed to continue?” The symptoms, they claim, are: Poor planning, poor estimation, high rate of turnover, poor monitoring of the project, lack of senior management leadership, and less outcome based contacts between the project manager and the developers. Goulielmos (2003) used two case studies to prove that many signs of decline in the organization become obvious before any IS development failure. The two symptoms of failure identified are the decline in the organization as a whole, and disregarding the nature and particularity of the organization with only looking on the technical aspects of the IS. In addition, Summer (2000) uses seven case studies to identify risk factors associated with implementing an IS in an organization: Organizational fit of the system in the organization (technically, managerially, culturally), and the overall strategy of the organization leading to asking how does an IS system serve the organization as a whole? Moreover, McManus and Wood-Harper (2003) elaborate on the symptoms of IS project failure and identify three main indicators of failure: Frequent requests by users to change the system, insufficient communication between the different members of the team working on the project and the end users, and no clear project requirements definitions. According to Beale (1996), Chris Sauer explored the nature and causes of information project failure by analyzing six case histories. Sauer highlights five main indicators of failure: the definition of the project’s scope and original requirements, the degree to which system specifications and project plan are agreed-upon, the committed support of senior user management, the lack of skilled IT staff, and the ability to easily abandon the project when there is no probability of success. Barry Calogero (2000) attributes the information project failure to three main reasons: focusing on technology, ignoring the importance of requirements definition, and jumping from the requirements definition to the development phase. The author, in fact, illustrates these barriers to success through the failure of the ERP implementation, and provides possible solutions to overcome these pitfalls. The first key to success is to define the ERP requirements, develop a plan, and implement. The second key is to train the users and to align IT and the new technology with business management objectives and processes. Another study by Lorin J. May (1998) illustrate the major causes of information project failure. The author generates nine causes of failure based on the input of practitioners and consultants: poor user input, stakeholder conflicts, vague requirements, poor cost and schedule estimation, lack of matching between skills and job, failure to plan, communication breakdowns, poor architecture, and late failure warning signals. Table 1 of this paper gives a brief description for each of these causes. METHODOLOGY This research was conducted as an exploratory study (Zikmund 2000). The main data set on which the work was based is the set of the reviewed papers that contributed to the area of IS failure. By using the categorization technique as a secondary data analysis, the categories on which the proposed IS-failure model were created (Goetz & LeCompte 1984, 170). The factors establish the framework for the proposed IS-failure model. The three factors are cultural, technical, and managerial. Having identified the main framework, the free listing technique was used to capture an inventory of indicators. The 29 indicators that are mostly known as having significant effect on IS failure were generated from the surveyed literature (Table 1). Indicators were classified into the three factors and are collectively exhaustive (Zikmund 2000, 178 Hunt 1976, 124). The research evaluated the indicators for clarity of notion, their sound connection to IS failure and ability to be calculated quantitatively. Seven experts in the Information Systems field were solicited at a major educational institution and asked to rank these indicators by order of importance and highest impact in terms of greatly minimizing IS failure. Their rankings were averaged and used in this model. After building the model, simulated data was used over 5 years (2001-2005) to observe its behavior. [Table 1. Indicators as listed under the proposed IS Failure model] Indicator Expectations of end users Information flow among players Confidence in the new system Cultural User behavior towards new IS Designers’ attitude Compatibility of the system with company’s culture Common understanding of organizational culture Organization’s current success Overall strategy Clear objectives Senior management leadership Conflicting motivation A unified team Rules, regulations and politics of the development environment Workforce qualities Managerial Addressing the particularity of the organization Investment strategy Level of morale Harmony in concepts organizational Description The degree to which realistic expectations are communicated to end users of the IS The extent to which information flows accurately and timely between all concerned parties How confident are end-users that the IS is designed for their benefit and how confident are they in starting to use it The level of acceptance of the new IS by users This reflects the approach that the designers are taking in their implementation of the system This reflects different languages, translation and understanding of cultural specifics Cultural difference between the end users of the IS and its developers Perceived success of the enterprise The quality of planning, estimation, monitoring, and requirements definition of the project A project is started without articulating clear objectives to all stakeholders The support of senior management towards an IS organizational initiative The degree to which team-players are in harmony in terms of their motives to work on new IS A non unified team may cause inefficiency and conflicts in the ideas of each member The degree to which the development environment adopts adequate and agreed upon rules and regulations to align itself with the IS’s ultimate environment This indicator reflects workforce education, training quality and reliability The focus on technical issues only means addressing the problem from only one point disregarding other constructs such as managerial or cultural The investment strategy determines and estimates the costs, how to pay, and when to pay What is the level of the team’s morale? Difference in the organizational concepts between developers of the system and the business 22 Ref 22 3,7 2 6 5 5 1,2,3,4 1 8 9 10 9 10 10 5,7 3,11 8 3 6 1 1. Mitev, 2. Matheson & Tarjan, 3. Irani et al., 4. Sumner, 5. Jiang et al., 6. Harris, 7. Ewusi-Mensah et al., 8. Goulielmos, 9. Mahaney & Lederer, 10. Sauer et al., 11. Whyte & Bytheway, 12. McManus & Wood-Harper 179 Purpose of introducing a new IS Technical Turnover rate Marketing of system Risk Consultant support Costs overruns User friendliness Adequacy of technical environment User modification request Reliability of the IS Reflection of the clarity of purpose of the IS installed on the development team The turnover rate of the team working on the project The extent to which the new IS is marketed internally Risk factors Consultant adequate support creates a reliable environment for upper management and employees to become familiar with a new IS Direct and indirect cost overruns The degree of user-friendliness of the IS How adequate is the technical environment in which the new IS will be installed Frequent requests by users to change the project Is the IS up when needed? Does it react consistently to requests? 6 6 3 3 3 6,7,10 11 5 12 11 The Proposed IS Failure Model The proposed information systems failure model is represented by a sphere (IS-Sphere). This three dimensional illustration, as well as the visuals that led to its formation are designed to help IT managers gauge their progress in terms of preparedness to prevent and predict IS failure in their enterprises (Fig. 1). The three values that give the coordinates of the radius of the sphere with its center at (0,0,0) are based on the three factors derived from Table 1: Managerial, Cultural and Technical. Each factor is dependent on the values of its respective indicators. Hence, if proved correct, this model will be a base for IT managers to be able to predict failure in an enterprise’s information system. We propose that the larger the IS-Sphere is the healthier it is in terms of resisting failure factors. Z (x,y,z ) X Y Fig 1: The IS-Sphere model. Finding X, Y, and Z The coordinates on the 3-dimensional factors are values generated from each factor as depicted in Table 1. Using rigorous methodology, the idea is to simplify for decision-makers the results from the IS situation at their enterprise and help them make better educated and prompt decisions. The data set Each IS-Sphere indicator is a function of several indicators in the form: y = f(x1, x2, … , xk). Given the k indicators: x1, x2, … , xk; each indicator has n recorded observations, corresponding to the n consecutive years for which data are available for a particular firm. For example, the 180 indicator x1 takes n x k dataset of the form: on the values: x11, x12, … , x1n giving a Table 2. n x k dataset x1 x11 x12 … x1n 1 2 … N X2 x21 x22 … X2n … … … … … xk Xk1 Xk2 … xkn For demonstration purposes, one can take the “managerial” factor in Table 1 that reflects all indicators that are directly linked to managerial issues at the enterprise. Table 3 shows data of 17 indicators for years 2001-2005. The indicator value per year is the average of all individuals who have given input in that particular year. For example, the value of the “senior management leadership” indicator (x3) was derived as a part of a standardized questionnaire given to a sample of employees and managers where they were told to rate this indicator on a scale of (1-7); 1 very low and 7 very high, respectively. The simulated values in 2001 through 2005 are listed under x3 in Table 3. Table 3. Data of the “Managerial” factors for a typical enterprise x1 ‘01 ‘02 ‘03 ‘04 ‘05 2. 4 2. 7 4. 3 5 5. 2 x2 x3 x4 x5 x6 x7 x8 x9 x1 0 x1 1 x1 2 x1 3 x1 4 x1 5 x1 6 x1 7 6 3.2 6.5 3 3.5 4 2.3 6 1.6 4.2 4.7 1 1.3 5.6 2 1 5.5 4.5 6 3.5 4.5 4.2 2.6 1.2 5.9 4.6 4.1 5 1.9 5.1 2.5 3 5.2 5.5 5.6 2.3 5 4.5 4.5 4.3 5.5 6.5 4.2 4.5 2.9 3.3 5.8 5.4 4.2 1.3 4.6 4.3 4.6 2.6 3.6 3.1 1.4 6 4.9 3 6 7 3.5 6.2 5.7 6.2 4.5 4.7 6.5 5 3.6 6.1 2.8 4.2 3 4.9 6.9 0 4 5.8 Ranking of Indicators The design of IS-Sphere model requires that indicators are ranked. Ranking by IS developers, experts and users is conducted according to the importance of the indicator and its highest impact in terms of greatly minimizing IS failure. For demonstration purposes, seven experts in an educational institution were asked to rank the indicators. Table 1 reflects the appropriate order of the indicators. For example, the indicator that experts thought had most impact in terms of greatly minimizing IS failure in the “Managerial” factor is “Overall strategy” followed by “clear objectives”, and so on.. The indicator found to be most relevant to its factor is given first rank and named x1. The indicator with the greatest relevance to its factor, after the effect of x1 has been discounted, is given the second rank and named x2. One continues until all k indicators have been ordered. Indicators are then scaled down to take on values between 0 and 1. Table 4. Ranked and scaled indicators x1 ‘01 ‘02 ‘03 0. 3 0. 4 0. x2 x3 x4 x5 x6 x7 x8 x9 x1 0 x1 1 x1 2 x1 3 x1 4 x1 5 x1 6 x1 7 0.9 0.5 0.9 0.4 0.5 0.6 0.3 0.9 0.2 0.6 0.7 0.1 0.2 0.8 0.3 0.1 0.8 0.7 0.6 0.8 0.9 0.7 0.5 0.6 0.6 0.8 0.6 0.6 0.4 0.4 0.2 0.8 0.8 0.6 0.7 0.7 0.6 0.7 0.7 0.5 0.3 0.2 0.7 0.7 0.4 0.9 0.4 0.5 181 ‘04 ‘05 6 0. 7 0. 7 0.8 0.3 0.6 0.6 0.9 0.6 0.5 0.8 0.2 0.6 0.4 0.4 0.9 0.4 1.0 0.9 0.8 0.9 0.6 0.7 0.9 0.7 0.5 0.9 0.4 0.6 0.4 0.7 1.0 0.0 0.6 0.8 Correlations The correlation coefficient of any consecutive pair of indicators, xi and xi+1, i= 1,2, … , k, where xk+1 = x1 is bounded between -1 and +1. x1, x2, …, xk are indicators that add to the factor and not diminish it. Therefore, it is highly likely that the correlation coefficient of any pair will be positive, but is not always the case. There might be instances where both indicators contribute positively to a particular factor but they are negatively correlated since one increases at the expense of the other. Table 4 gives the correlations between all indicators in the “Managerial” factor. Table 5. Correlation table x1 X1 x2 1.0 0.4 X4 0.3 1.0 X5 0.9 X6 1.0 X7 0.8 X8 1.0 X9 x12 0.5 0.3 0.2 0.8 x13 0.4 x14 x15 0.8 0.8 x16 0.8 x17 0.9 X3 x10 x11 x2 0.4 1.0 0.3 0.5 0.6 0.5 x3 0.3 0.3 1.0 0.3 x4 1.0 0.5 0.3 x1 0 0.3 0.5 x1 1 0.2 0.8 x1 2 0.8 0.0 0.4 0.5 0.3 0.2 0.2 0.1 0.9 0.4 0.8 1.0 0.3 0.8 1.0 0.9 0.3 0.9 1.0 0.9 1.0 0.3 0.4 0.3 0.2 0.4 0.8 0.3 0.2 0.3 0.8 0.0 0.2 0.2 0.2 0.8 0.1 0.1 0.4 0.3 0.6 0.8 0.6 0.8 0.8 0.8 0.1 1.0 0.8 0.4 0.7 0.8 1.0 0.4 0.4 0.4 0.7 0.4 0.4 0.6 1.0 0.4 1.0 0.4 0.4 0.3 0.4 0.6 1.0 1.0 0.4 0.3 0.3 0.2 0.5 0.4 0.5 1.0 0.9 0.1 0.4 0.5 0.9 x5 x6 x7 x8 x9 0.9 0.6 1.0 0.5 0.8 0.5 0.0 1.0 0.3 0.5 1.0 0.2 1.0 0.4 0.8 0.3 1.0 1.0 0.9 0.8 0.9 1.0 0.8 0.2 0.0 0.3 0.4 0.2 0.5 0.8 0.0 1.0 1.0 1.0 0.8 1.0 0.4 0.5 0.2 0.0 0.3 0.1 0.0 0.5 0.2 0.6 0.5 0.6 0.5 1.0 0.8 0.6 0.1 0.5 0.1 0.1 0.7 0.4 0.0 0.4 0.1 0.8 0.5 0.8 0.1 0.6 0.3 0.2 0.1 0.8 0.6 0.7 0.8 0.8 0.9 1.0 0.9 0.9 0.3 0.4 0.7 0.8 0.3 0.6 0.4 0.8 1.0 0.8 1.0 0.2 0.5 0.2 0.3 0.6 0.1 0.8 0.8 0.9 2-dimensional map 182 0.1 0.2 0.0 0.8 0.5 0.9 x1 3 x1 4 0.4 0.5 0.8 0.6 0.5 0.0 0.8 0.6 0.6 0.5 0.8 0.6 0.9 0.5 0.5 0.9 0.1 x1 5 0.8 0.1 0.4 0.8 0.7 0.8 1.0 0.9 0.4 0.3 0.5 0.8 0.5 0.9 1.0 0.3 0.8 x1 6 x1 7 0.8 0.7 0.1 0.8 0.9 0.4 0.7 0.8 0.8 1.0 0.3 0.8 0.6 1.0 0.4 0.3 0.1 0.5 0.2 0.2 0.2 0.9 0.1 0.5 0.4 0.3 0.9 0.8 1.0 0.7 0.7 1.0 0.1 0.9 The correlation coefficient is the cosine of a given angle. There exists an angle Θ1 є (0,∏) such that cosΘ1 = r12. For each i= 1,2, … , k, there exists an angle Θi є (0,∏) such that cosΘi = ri,i+1, the correlation coefficient of xi and xi+1. Using this paper’s methodology, it is possible that the angles of all correlation coefficients add up to more than 2π 360°, thus exceeding a full circle. Therefore, the angles фi, I = 1,2,…,k, are defined as: . Clearly, each αi = k ⋅θ i ∑θ i i =1 αi k is proportional to the corresponding Θi, and ∑α i =1 i = 2π . As a matter of convention, x1 is placed horizontally, pointing to the right (x-axis). The indicator x2 is taken in the counter-clockwise direction, so that it makes an angle of α 1 with the indicator x1. Similarly, the indicator x3 is taken so that it makes an angle of α 2 with x2. This procedure is repeated until all indicators have been included in the figure. A polygon is constructed by joining the points x1n,x2n,…, xkn. Table 6 shows the calculations for the 17-indicator example. Table 6. Calculations for the “Managerial” example Alpha Correlation Theta Alpha SinAlpha x(i,n)*x(i+1,n) Areas degrees -0.40 1.99 0.52 0.49 0.60 0.15 29.58 -0.31 1.88 0.49 0.47 0.72 0.17 28.01 -0.25 1.83 0.47 0.46 0.57 0.13 27.20 -0.95 2.84 0.74 0.67 0.43 0.15 42.26 0.93 0.37 0.10 0.10 0.62 0.03 5.58 0.83 0.60 0.16 0.15 0.66 0.05 8.91 0.94 0.36 0.09 0.09 0.37 0.02 5.29 0.34 1.22 0.32 0.31 0.45 0.07 18.20 -0.77 2.45 0.64 0.59 0.35 0.10 36.49 0.85 0.56 0.15 0.15 0.24 0.02 8.37 0.41 1.15 0.30 0.29 0.26 0.04 17.10 -0.38 1.96 0.51 0.49 0.30 0.07 29.21 0.37 1.19 0.31 0.30 0.69 0.10 17.67 -0.93 2.76 0.72 0.66 0.00 0.00 41.14 -0.28 1.86 0.48 0.46 0.00 0.00 27.65 0.71 0.77 0.20 0.20 0.47 0.05 11.54 0.92 0.39 0.10 0.10 0.62 0.03 5.82 Sum 1.18 360 The method uses the area of a polygon given by Area = 1 k ∑ xi n xi+1,n sin α i to quantitatively measure the value 2 i =1 of each factor. Angles are measured in radians. Figure 2 shows the graph produced from using table 6. The area of the polygon is 1.18; hence the value of the “Managerial” factor of the IS-Sphere model. 183 Fig. 2. The graph for the “Managerial” factor in the IS-Sphere model. As this area expands or contracts over consecutive years, one gets an idea of whether or not the organization is making progress in terms of this one indicator in that one factor. The procedure is repeated on all three factors giving the (x,y,z) coordinates of the radius “r”of the model’s sphere; where r = x2 + y2 + z2 . Behavior of the IS-Sphere The model always has three polygons reflecting the values of the three factors. As described earlier in this document, the area of these polygons gives the coordinates of the radius of the sphere. It is valid to note that the shape of the polygon is as important as the value of its area. Polygons change due to two factors: the change in ranking of the indicators, thus changing the angles between indicators; and the change in indicator values over time. Ranking of indicators should be revisited by periodically soliciting feedback from experts in the enterprise; every three to five years, for example. In order to compare IS-Spheres between different enterprises, one should use a pool of experts from all enterprises to apply the ranking of indicators and calculate the value of the polygons and their respective IS-Spheres for each enterprise. This method can also be expanded to cover a particular country, for example. Maximizing the IS-Sphere is in the best interest of the enterprise. This can be accomplished by maximizing the managerial, cultural, and technical factors. The 2-dimensional polygons checks for the individual indicators and secures that no one factor is increasing while the other is decreasing keeping the value of the IS-Sphere the same over time, given that r = x2 + y2 + z2 . 184 Z Z Z X Y X X Y Y Fig. 3. Expansion and shrinking of the IS-Sphere The IS-Sphere model may exclude some of the indicators if data were not available. It is advisable to request outside consultants to rank and provide data for a particular enterprise’s indicators. It is critical to use proper and consistent scaling of indicators throughout the IS-Sphere process. For example and in this paper, the authors divided all values of each indicator by the maximum. If indicators do not change over the period that is being investigated, then they should be dropped from the calculations. CONCLUSION, LIMITATIONS AND RECOMMENDATIONS The purpose of this paper is to find, categorize, illustrate and devise a model to measure the indicators of information system and project failure based on a literature review. By reviewing the literature, the authors were able to clearly define indicators related to IS/IP failure. The literature led to the conclusion that all the indicators of IS/IP failure can be categorized into the three dimensions: Managerial (Mahaney and Lederer 1999, Summer 2000), cultural (Mitev 1993, Matheson and Tarjan 1998, Irani, Sharif, Love 2001) and technological (Jiang, Klein, Balloun and Crampton 1999). Referring to table 1, one can reach the conclusion that the current perception that any ITrelated problem is only a technical issue is not sufficient. Every IT related issue should be looked at from the managerial, cultural and technical points of view. It is proposed that the IS-Sphere model binds all indicators together. To follow up on this research, one would develop more detailed tools (surveys, job aids, data) for every indicator listed in this model for validity and reliability purposes. It is also recommended that one develop a web-based application to input enterprise data and generate results on the fly and to compare them to similar enterprises. 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(1996) “Factors Affecting Information Systems’ Success” International Journal of Service Industry Management; 7, 1. Harris, J. (2003) “Anticipating the Risks of New Systems” Risk Management; Jul 2003; 50, 7. Hunt, S. D. “Marketing Theory: Conceptual Foundations of Research in Marketing”. University of Wisconsin, Madison, Columbus, Ohio: Grid, Inc., 1976. Irani, Z; Sharif, AM; Love, PED (2001) “Transforming Failure Into Success Through Organizational Learning: An Analysis of a Manufacturing Information System” European Journal of Information Systems; 2001; 10, 5556 Jiang, J., Klein, G., Balloun, J. & Crampton, S. (1999) “System Analysts’ Orientations and Perceptions of System Failure” Information and Software Technology; 1999; 41, 101-106. Mahaney, R. & Lederer, A. (1999) “Runaway Information Systems Projects and Escalating Commitment” SIGCPR; 1999. Matheson, L. & Tarjan, R. 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Sauer, C., Southon, G., & Dampney, C.N.G. (1997) “Fit, failure, and the house of horrors: toward a configurational theory of IS project failure”, Proceedings of the eighteenth international conference on Information systems. Sumner, M. (2002) “Risk factors in enterprise wide information management systems projects” Proceedings of the 2000 ACM SIGCPR conference on Computer personnel research; 2000. Whyte, G. and Bytheway, A. (1996) “Factors Affecting Information Systems Success”, International Journal of Service Industry Management, Vol. 7, No. 1, p74-93. Zeichick, A. (2000) “Predicting Failure” InternetWeek; September 2000. Zikmund, W. G. (2000). Business research methods (6th ed.). Chicago: Dryden Press. 186 MEASURING THE LEVEL OF CUSTOMER SATISFACTION AMONG EMPLOYEES OF A HUMAN RESOURCE DIVISION Mahiah Said Suhaimi Sudin Ibrahim Ali University of Tenaga Nasional, Malaysia ABSTRACT The study presents the outcome of an examination on customer satisfaction as perceived by employees receiving internal customer services from their organization. An examination was made on 234 respondents working in various departments in a Human Resources Division of a power utility company identified as having dealings with human resources services. Mean scores were analyzed among departments and customer satisfaction variables to determine the levels of satisfaction employees have on services rendered by the HR division. Departments rendering services to employees (internal customers) were classified into HR Planning & Recruitment, HR Development, Compensation & Benefits, Welfare & IR, Training Institute, and OSHA. Results revealed Welfare & IR department as being assessed to have given highest customer satisfaction services compared to others. Results also found RELIABILITY being the customer satisfaction variable that was indicated as most satisfied. INTRODUCTION Satisfaction is a person’s feelings of pleasure or disappointment resulting from comparing a product’s perceived performance (or outcome) in relation to his or her expectations (Kotler, 2000). Satisfaction is viewed as a function of performance and expectations. It is clear that if the performance fails short of expectations, the customer is dissatisfied, and if the performance matches the expectations, the customer is highly satisfied. Customers can be divided into two major categories, namely the external customers and internal customers. External customers are the customers who purchase an organization’s products or services, whereby internal customers are the customers who require the certain services of the organization for them selves as an employee of for the unit they are accountable of. Satisfying the internal customer is a critical prerequisite to the satisfaction of the external customers. Thus, organizations must enhance their ability to satisfy the need of the external customers by satisfying the needs of internal customers. The key to building high level of customer satisfaction within the chosen utility organization and in turn leads to higher productivity among the recipients of the services is to analyze and focus on the critical dimensions of the customer satisfaction. The concept of internal marketing was introduced by Berry (1981) and Gronroos (1981). This is a management approach, which enables and motivates all members of the organization to examine their own role and adopt a customer consciousness and service orientation to meet the needs of the external customers (Cowell, 1984). OBJECTIVE OF THE STUDY The study was conducted to measure the level of customer satisfaction towards the services offered and facilities provided by the Human Resource Division of a power utility company using the five dimensions of customer satisfaction. 187 The study also analyzed the importance and effectiveness of the perceived performance of work units based on the perceptions of those they serve in the organization by customer satisfaction dimensions. The main purpose of this paper is to test the relationships of the 5 dimension of customer service with customer satisfaction using the data collected during the study. LITERATURE REVIEW This paper aimed at finding the relationship between the dimensions of customer satisfaction and the level of customer satisfaction within a power utility company in Malaysia. Study on customer satisfaction has been conducted over and over again from every aspect a researcher could think of. Customer satisfaction is a key and valued outcome of good marketing orientation practice. Drucker (1954), Anderson and Fornell (2000) said that the principal purpose of a business is to create satisfied customers. Increasing customer satisfaction has been found to lead to higher future profitability (Anderson, Fornell, and Lehmann 1994) and reducing the cost of future transactions (Reichheld 1996; Srivastava, Shervani, and Fahey 1998). Meeting customers’ needs, which assure customer satisfaction is the ultimate goal of every organization. Pursuance to this, management is responsible in ensuring that the level of customer satisfaction is above what the customer expected. Customer Satisfaction Customer satisfaction can be defined as a state of mind set that customers have about their expectations over the lifetime of a product or service (Flott, 2002). It is a complex information process, which consists of a desired-actual comparison of a customer’s experience with the service and expectations with regards to the fitness of its intended purpose (Hermann, Huber and Braunstein, 1996). Customer Satisfaction Perspectives Customer satisfaction has been studied from various perspectives of the individual customer and what drives his or her satisfaction (Fournier and Mick 1999; Oliver and Swan 1989) as well as from an industry-wide perspective to compare customer satisfaction scores across firms and industries (Andersen, Fornell, and Lehman 1994; Fornell 1992; Mittal and Kamakura 2001). Other research has examined customer satisfaction in a single organization (Hallowell 1996; Loveman 1998) or across several organizations (DeWulf, Oderken-Schroder, and Iacobucci 2001). Most of the quoted studies were on the buying customer and there is no study here in Malaysia focuses on the internal customer satisfaction. Customer Satisfaction Approaches There are many approaches in measuring customer satisfaction, such as Confirmation -disconfirmation approach (Yuksel and Rimmington, 1998), which compare the service performance with customer prior expectations. Carman (1990) indicated that expectation needs to be measured before the service experience. Crompton and Love (1995) suggested that the inclusion of expectations should be dropped since it is likely to cause more problems. This becomes the Performance-only approach. The technical and functional dichotomy approaches are looking at customer satisfaction from 2 service components, the technical quality and the relationships between server and customer (Gwin and Lindgren, 1986; Lehtinen and Lehtinen, 1982; Nicholls, 1993; Oberoi and Hales, 1990). The service quality versus the service satisfaction approach focuses on the identification of the perceived quality and overall satisfaction with product and service features (Bou-Ilusar, 2000; Cronin and Taylor, 1992; Rust and Oliver, 1994). While the Attribute importance approach focuses on the relative weight on the importance the customer places in attributes found to be associated with service satisfaction through empirical analysis or directly questioning the respondent (Barsky and Labagh, 1992; Carman, 1990; Yuksel and Rimmington, 1998) Customer Service Customer service is all activities provided by supplier that enhance or augment the value of the product/service for the receiver, thus “Customer is king” is one of the mottos of customer service ((Koono and Yamamoto, 1992). 188 Internal Services Strauss (1995) defined internal services as services provided by distinct organization units or the people working in these departments, to other units or employees within the organization. There are various internal encounters between them and the provision of good internal services to employees are crucial to the overall success of an organization (George 1977; Gremler 1994; Heskett 1987; Schlesinger and Heskett 1991; Schneider and Bowen 1985). Employees would deliver excellent service to customers when the organization provides them with necessary resources, including logistical, administrative, equipment and management support (Schneider and Bowen, 1985). Gilbert (2000) identifies two measures of internal customer satisfaction i.e. personal service and technical competence. The quality of internal service operations has been identified as one of the essential elements of an overall service quality strategy (Feldman, 1991; Nagel and Ciliers, 1990) which would yield a long term cost savings and increasing financial gains (Davis, 1991; Rowen, 1992) The Framework Figure 1 : The Framework of SERVQUAL Dimensions contributing towards Customer Satisfaction RELIABILITY EMPATHY CUSTOMER SATISFACTION TANGIBILITY RESPONSIVENESS ASSURANCE Figure 1 summarized the main purpose of this paper and the simple framework is based on Parasuraman’s SERVQUAL (1988, 1991) customer satisfaction dimensions. SERVQUAL Dimensions Parasuraman, Zeithaml and Berry (1986) concluded that customers use the same measuring standards in assessing service quality regardless the type of industries and the criteria correspond to 10 overlapping dimensions. After conducting several more study and analysis, it was finally settled on the five dimensions of reliability, empathy, tangibility, responsiveness and assurance. These dimensions and its 22 corresponding items have captured all facets of the original ten dimensions (Zeithaml et al., 1990) and could be widely utilized in any industry with only minor modifications (Parasuraman et al., 1991). Reliability dimension is focusing on the ability of the company performing the promised service dependably and accurately. This includes following through with commitments in a timely manner, showing sincere interest in delivering the service, dependable and insists on error-free records. Empathy dimension focused on the caring, individualized attention a company provides for its customers such as giving each customer personal attention and understand their specific needs. Tangibility dimension encompassed the appearance of the physical facilities, equipment, personnel, and communication materials which includes projecting professional image and has modern and/or appropriate facilities and equipment. 189 Responsiveness dimension focused on the willingness of the service employees to help customers and provide prompt service. Customers are treated with prompt service, they are told about the time needed to perform the service and the completion period required. The service employees also showed a willingness to serve the customer willingly and whole-heartedly. Assurance dimension focused on the level of knowledge and courtesy of the service employees and their ability to inspire trust and confidence to the customer. It is vital to instill confidence in the customer and the service employees could do that through their knowledge in attending the customers. Courtesy and confidentiality also are important criteria to inspire customers’ trust in handling their matters or complaints. METHODOLOGY For the purposes of measuring the perceived customer satisfaction of the organization, A. Parasuraman’s SERVQUAL dimensions were adopted for the study. From previous research there is a general agreement on the transferability of the SERVQUAL instrument for measuring internal service quality. Sample Data were collected from employee working at the utility organization in Malaysia. The respondents selected were those who had direct contact with any of the department within the Human Resource Division of the organization. They were categorized into 3 roles; a. b. c. Union representatives Human resource Division level personnel Non-Human Resource personnel The respondents were chosen randomly from the list of these internal customers who have received and experienced the services of the respective departments within Human Resource Division. Questionnaire The measurement of the level of customer satisfaction is conducted by way of questionnaire. The instrument is divided into 2 main parts. The first part contains 37 close-ended questions and it applied Likert 5 rating scales for the five options in each statements. This first part consists of statements, which captured the content of each customer satisfaction dimension. a. b. c. d. e. Reliability dimension Empathy dimension Tangibility dimension Responsiveness dimension Assurance dimension - 7 items 6 items 6 items 8 items 9 items Question 37 is open-ended for the respondents to put in their additional comments, if any. The second part of the question has 30 questions, which measure the level of Importance, and another 30 questions measure the level of Effectiveness perceived by the internal customer towards the customer service of the Human Resource Division. Importance is the level of customer expectation perceived by the internal customers and Effectiveness is the actual level of customer satisfaction delivered as perceived by the customers. Procedures The SERVQUAL scale (Parasuraman et al., 1985, 1988, 1991) has been chosen because it has been widely accepted both by the management (Parasuraman et al., 1991) as well as the academicians (Babakus and Boller, 1992; Carman, 190 1990; Crompton and Mackay, 1989; Cronin and Taylor, 1992; Webster, 1989). The following are some of the advantages of adopting SERVQUAL scale (Buttle, 1994): i. ii. iii. iv. v. It is accepted as a standard for assessing different dimensions of service quality. It has been shown to be valid for a number of service situations. It has been demonstrated to be reliable, meaning that different readers interpret the questions similarly. The instrument is parsimonious in that it has a limited number of items. This means that the customers and employees can fill it out quickly. It has a standardized analysis procedure to aid interpretation of results. The following are the 5 dimensions of SERVQUAL (Parasuraman et al., 1988, 1991): i. ii. iii. iv. v. Reliability - refers to the ability to perform the service dependably and accurately Empathy - refers to the level of caring and individual attention provided to customers. Responsiveness - refers to the willingness to help customers and provide prompt services. Tangibility - refers to the physical facilities, equipment, and appearance of personnel Assurance - refers to the employees’ knowledge, courtesy and ability to convey trust and confidence. RESULTS Sample Profile Table 1(a) presents the profile of respondents in this study. From the table, 77% (203 nos.) of the respondents are within 20 to 49 years of age. The gender division is 62% (149 nos.) are male respondents and 37% (86 nos.) is female. There are 112 (48%) respondents who are STPM/SPM leavers and below, 108 (47%) respondents are Diploma and Degree holders. 38% (89 nos.) of the respondents have been working for the organization more than 20 years and 25% (60 nos.) are quite new, less than 5 years with the organization. There is an almost balanced percentage of the respondents’ job position, i.e. 52% (122 nos.) non-executives and 48% (113 nos.) executives including the top management. There are 140 respondents (60%) non-HR personnel and 61 (26%) respondents are Human Resource personnel. 14% (34 nos.) of the union representatives are included to represent the rest of the employees within the organization. 191 Table 1(a) – Profile of Respondents DEMOGRAPHIC FACTORS Age CLASSIFICATION Education Level % DEMOGRAPHIC FACTORS CLASSIFICATION NO % 50years & above 30 13 Less that 5 years 60 26 40 - 49 years 80 34 6 - 10 years 32 14 30 - 39 years 62 26 11 - 15 years 38 16 20 - 29 years 61 26 16 - 20 years 16 7 Less than 20 years 2 1 More than 20 years 89 38 Male Gender NO Tenure 149 63 Top Management 19 8 Female 86 37 Senior Management 9 4 Post Graduate Degree 15 6 Managers 19 8 Degree 71 30 Sr Executives/Executives 66 28 Diploma 37 16 Non-Executives 122 52 STPM/SPM 82 35 Union Representatives 34 14 HR Divisional Level 61 26 Non-HR Personnel 140 60 Others 30 13 Job Position Role Table 1(b) shows the different departments within Human Resource Division of the power utility company which providing the services to the rest of the employees in the company. Table 1(b) – Departments within Human Resource Division DEPARTMENTS DESCRIPTION HRPR Human Resource Planning & Recruitment HRD Human Resource Development CBP Compensation, Benefits & Performance WIRA Welfare, Industrial Relations & Administration ILSAS Institut Latihan Sultan Ahmad Shah OSH Occupational, Safety & Health Table 2 shows the Cronbach’s alpha of the instrument, which shows that there is an adequate internal consistency reliability of the variables in the study. Table 2 – Reliability Analysis D IM E N S IO N S C R O N B A C H 'S A L P H A R e lia b ilit y 0 .8 8 9 E m p a th y 0 .8 8 6 T a n g ib ilit y 0 .8 5 1 R e s p o n s ive n e s s 0 .9 1 9 A s s u ra n c e 0 .9 1 7 192 Table 3 show the correlation and the level of significance of the dimension and the results indicate that all the dimensions are highly correlated and very significant with one another. Table 3 – Correlation Analysis DIM ENSIONS RELIABILITY RESULTS EMPATHY COR SIG COR SIG EMPATHY 0.774 0.000 TANGIBILITY 0.623 0.000 0.660 0.000 RESPONSIVENESS 0.740 0.000 0.827 ASSURANCE 0.766 0.000 0.820 TANGIBILITY COR SIG 0.000 0.684 0.000 0.000 0.707 0.000 RESPONSIVENESS COR SIG 0.859 0.000 ASSURANCE COR SIG RELIABILITY Table 4 shows that Tangibility dimension has the highest mean score of 3.48, at 69.6%. The area for concern is the Responsiveness and Assurance dimensions which both scored at 3.29. The overall mean score for HR Division by the dimensions of customer satisfaction dimensions is 3.33, which is 67.0%. Table 4 – Mean scores and percentage of customer satisfaction by dimensions D IM ENS IO NS R EL IAB IL IT Y EM P A T H Y T A N G IB IL IT Y R ES P O N S IV ENES S A S S U R AN CE O V ERA L L M S co re 3.31 3.3 3.48 3.29 3.29 3.33 % 66.0% 66.2% 6 9 .6 % 65.8% 65.8% 67.0% Table 5 shows the perceived level of customer satisfaction of the CBP and WIRA are both at 3.44 and 3.45 mean scores respectively. While OSHA’s mean score is at 3.24, though still above average but it is the second lowest score among all the departments. The lowest mean score is from HRPR, which is only at 3.22 as compared to the overall mean score of 3.34. Overall level of customer satisfaction by departments for HR Division is 3.34, which is about 66.8% satisfaction level of the respondents. D IM EN S IO N S HRP R HRD CBP W IR A IL S A S OS HA OV E R ALL M S c o re 3.22 3.34 3.44 3.45 3.34 3.24 3 .3 4 % 64.4% 66.8% 6 8 .8 % 6 9 .0 % 66.8% 64.8% 6 6 .8 % Table 5 – Mean scores and percentage of customer satisfaction by departments Table 6 shows the perceived level of Importance of each dimension by HR Division internal customer and the perceived level of Effectiveness of the dimensions. The results indicate that the Importance of Reliability is above average at 4.00 mean score but the Effectiveness level is only 3.40. The variance of 0.60 shows the service standard/performance gap that HR Division must look into. Another area of concern is the Responsiveness dimension, which has a mean score for Importance at 3.86 and the mean score for Effectiveness is at 3.31. The variance is 0.55. Overall result shows a variance of 10.2% with 0.51 mean score variance. Table 6 – Mean scores and percentage of customer satisfaction 193 Importance vs. Effectiveness DIMENSIONS M Score Importance M Score Effectiveness VARIANCE RELIABILITY EMPATHY TANGIBILITY RESPONSIVENESS ASSURANCE OVERALL M % M % M % M % M % M % 4.00 80.0% 3.89 77.8% 3.70 75.2% 3.86 77.2% 3.81 76.2% 3.87 77.4% 3.40 68.0% 3.40 68.0% 3.26 65.6% 3.31 66.2% 3.47 67.4% 3.36 67.2% 0.60 12.0% 0.49 9.8% 0.44 9.6% 0.55 11.0% 0.34 8.8% 0.51 10.2% DISCUSSION AND CONCLUSION Results from the current study involving human resources departments support previous findings in other industries and done mostly in the developed countries that reliability, empathy, tangibility, responsiveness, and assurance are related to customer satisfaction. This study contributes to increase our understanding in two ways, firstly it confirmed the previous study using the similar approach (Parasuraman et al., 1985, 1988, 199), and secondly this study was done in the human resources departments setting in Malaysian as compared to previous study done mostly in the marketing and services setting in the west. The results of the study show the high correlations between each dimension. The practical implications of this study are far reaching. Initial results suggest that increasing the level of sophistication of reliability, empathy, tangibility, responsiveness, and assurance can increase customer satisfaction towards services rendered by the HR departments. It also shows that variance between the perceived importance of the dimensions and the perceived effectiveness of the HR performance of the dimension varies. The highest variance is on the reliability dimension (12%), followed by responsiveness (11%), empathy (9.8%), tangibility (9.6%) and assurance (8.8%). This shows the gap between what are expected form the services and what were the perceived effectiveness of the HR performance. From a research standpoint, this study represents an initial attempt to apply the proven principles in managing external customer satisfaction into managing internal customer specifically in the human resource department setting. In most study the customer identified are mostly business to consumer based, i.e. the external customer. This study shows that the SERVQUAL dimensions could be adopted with the internal customer since just a few minor modifications required. Ostroff and Bowen (2000) argued that HRM systems create efficient internal process and structures that increase productivity and overall organizational performance. Practices such as extensive training, skill-based pay, teams, and job-based appraisals create an environment where a skilled, innovative work force not only understand their jobs, but can perform them optimally. The most vital finding is that the five SERVQUAL dimensions could be use by Human Resource practitioners to develop measuring tools to identify their companies’ performance perceived by their internal customer as well as determine the weaker dimensions for corrective action purposes. Indirectly, coordinated human resources practices can increase the level of dimension studied in this research which in turn increase the level of internal customer satisfaction. Several limitations of the study, due to methodological choices, must be noted. First, this study was conducted in a specific setting. While implication can be made, the results are not directly generalizable to other organizations. Further testing of the model would be needed to confirm the relationship in other settings. Second, the human resource practices utilized in the organization may not be fully under control by the HR department. In other words, departmental performance may be affected by constrains outside the department’s control. 194 Third, specific dimensions of satisfaction have been chosen for study because of their particular relevance to HRM practices and customer satisfaction. It is possible that other dimensions of satisfaction would reflect different result. REFERENCES Anderson, E.W. and Fornell, M. 2000. Foundations of the American customer satisfaction index. Total Quality Management, 1(2): 869-83 Barsky, J.D. and Labagh, R. 1992. A strategy for customer satisfaction. Cornell Hotel and Administration Quarterly. 22(5): 32-40 Bou-Ilusar, J.C., Camison-Zornoza, C. Escrig-Tena, A.B. 2000. 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Moving HR to a higher level: HR Practices and Organizational Effectiveness. In K. J. Klein & S. W. J. Kozlowski (Eds), Multilevel Theory, Research, and Methods in Organizations :211 – 266. San Francisco: Jossey-Bass. 195 Parasuraman, A. 1998. Customer service in business-to-business markets: an agenda for research. Journal of Business & Industrial Marketing. 13(4/5): 309-321 Parasuraman, A., Zeithaml, V.A., Berry, L.L. 1986. SERVQUAL: A Multiple–item Scale for Measuring Consumer Perceptions of Service Quality. Marketing Science Institute Cambridge, MA. :1-38 Reichheld, Frederick. 1996. The Loyalty Effect. Cambridge. MZ: Harvard Business School Press Rowen, R. 1992. Financial implications of TQM. Health Systems Review 25(2): 44-8 Schlesinger, L.A., Heskett, J.L. 1991. The Service-driven service company? Harvard Business Review.:71-81. Schneider, B., Bowen, D. 1985. Employees and customer perceptions of service in banks: replication and extension. Journal of Applied Psychology. 70: 423-33. Srivastava, Rejendra K., Tasadduq A. Shervani, and Liam Fahey. 1998. Market-Based Assets and Shareholder Value: A Framework for Analysis. Journal of Marketing. 62(1): 2-18 Strauss, B. 1995. Internal services: classification and quality management. Journal of Service Industry Management. 6(2): 62-78. Yuksel, M. and Rimmington, M. 1998. Customer-satisfaction measurement. Cornell Hotel and Restaurant Administration Quarterly. 39(6): 60-71 Zeithaml, V.A. Parasuraman, A., Berry, L. 1990. Delivering Quality Service. Free Press. New York, NY: 26 196 RELIGIOSITY AND THE MALAYSIAN MALAY MUSLIM INVESTORS: SOME ASPECTS OF INVESTMENT DECISION Rusnah Muhamad S.Susela Devi Abdul Mu’min Abdul Ghani University of Malaya, Malaysia ABSTRACT Culture is often cited as one of the powerful determinants in shaping personality and behavior of individuals. Religion, being an important element of culture, is seen as playing an important role in determining how people behave in certain situations. It is argued that religion plays an important role in the life of the Malays in Malaysia. This study investigates the impact of the religion of Islam, in particular religiosity on some aspects of investment decision-making of the Malaysian Malay Muslim investors. INTRODUCTION The relationship between the cultural environment and ethical perceptions and behavior has been widely explored (see for example Hunt and Vitel, 1986 and Choi, 2001). Culture, through its components, elements and dimensions, is seen to dictate the organizational structures, the micro-organizational behavior, and the cognitive functioning of individuals, in such a way as to ultimately affect the judgment or decision made (Choi, 2001). According to Berry and McGreal (1994) investment involves the commitment of a capital sum for benefits to be received in the future in the form of an income flow or capital gain or a combination of both. In economic terms investment means utilizing capital for maximum possible return. Schwartz (2003) defines ethical investment as a set of approaches that include social or ethical goals or constrains in making investment decision. An Islamic perspective of ethical investment would be investment that is made in compliance with the shariah framework. This study investigates the influence of religiosity on the investment decision-making among the Malaysian Malay Muslim investors. Specifically, this study explores the types of instruments preferred for investment, objective(s) of investment as well as sources of information utilize in making such investment. This study highlights the impact of Islamic religion on the investment behavior of the Malay Muslim investors as represented by the Malay accountants and further reinforces the findings from previous research on the impact of religion on ethical judgments of the Malays in Malaysia (see for example, Goodwin and Goodwin, 1999; Md. Zabid and Ho, 2003; Rusnah and Wan Sabri, 2004; Rusnah and Susela, 2005). The paper is organized as follows. First section discusses the impact of culture, religion, religiosity and the Islamic ethical values. It further espouses attempts to measure religiosity as drawn from the literature. The research framework is described in the second section, followed by a discussion of the research design, data collection and method of analysis in the third section. Fourth section discusses the findings, followed by the conclusion in the final section. BACKGROUND Culture, Religion and Religiosity Hofstede (1980) defines culture as the norms, values and beliefs of a particular group or community in a particular area or geographic location, and shared by its members. More importantly, values are viewed as the deepest level of culture and the most difficult to change, and in turn would affect social systems and institutions in a particular country. Values are defined as the core set of beliefs and principles deemed to be desirable (by groups) of 197 individuals (Mason, 1992). Furthermore, values are considered to be general beliefs that define right or wrong (Md Zabid and Ho, 2003). Arguably, therefore, values could affect how individuals perceive the form of behavior considered appropriate and effective in any given situation. Religion has been identified as one of the critical elements in the cultural environment (Hunt and Vitel, 1986; Sood and Nasu, 1995) since religion affects the way in which people behave (Sadler, 1970), and it is perceived that it may affect an individual’s perception. It is claimed that religion would affect individual behavior (Sood and Nasu, 1995) directly, through the rules and taboos it inspires (Harrell, 1986) and indirectly through classification of all phenomena, development of code of conduct, and establishment of priorities among these codes (Sood and Nasu 1995). More importantly, for the Muslims, Akhlaq (moral and values) provides a framework that shapes the moral and ethical behavior of Muslims in the conduct of all aspects of their life (Abd Halim, 1990 and Saeed et al., 2001). Furthermore, according to Abdullah and Siddique (1986) unlike other cultural factors that may be influenced by changes in the economic and political environment, it is observed that the Holy Quran clearly provides Muslims with a stable and flawless set of values that remain unchanged under all circumstances. Measures of religiosity Religiosity is a difficult construct to measure (Scutte and Hosch, 1996) since there are several definitions of religiosity. Caird (1987) proposes three different measures of religiosity: cognitive (focus on religious attitudes or beliefs), behavioral (evaluate church attendance or private prayer), and experiential (query as to mystical experiences). Mookherjee (1993) defines religiosity in terms of public or participatory (based on church membership and the frequency of church attendance) and private or devotional religious behavior (based on the frequency of prayer, bible reading, and a cumulative score of devotional intensity). Besides, it is argued that religiousness (or religiosity as used in this paper) as an important value in the individual’s cognitive structure can influence an individual’s behavior (Delener, 1994). It is argued that the pro-religious (the term used in this paper is the devout) individuals are likely to be more dogmatic and more conservative than are the non-religious (or casually religious as used in this paper) subjects. Thus, it is expected that the more religious person would more likely to align their behavior in compliant with their religious belief and practices. It is further suggested that those who are strongly committed to religion are both attitudinally and behaviorally capable of making decisions consistent with moral conscience (Delener, 1994; Pargament et al., 1988). A simple paradigm showing that the religious variable as a possible factor influencing the decision-makings process as hypothesized in the study is illustrated in Figure 1. With regard to this study, it is expected that the investment behavior of the devout respondents would be in conformance with the ‘desirable’ as outline by the shariah. Figure 1: Religiosity and Decision-makings (Adapted from Delener, 1994) R E L I G I O N Highly Religious • More conservative • More traditional • More dependent High Dogmatic • Less tolerance • Less flexible • More rigid Least Religious • Less conservative • Less traditional • Less dependent Low Dogmatic • More tolerance • More flexible • Less rigid In examining religiosity in the context of the Malay Muslims society, religiosity measures adapted from Wilde and Joseph (1997) and Khashan and Kreidie (2001) that are specific for the Muslims are considered appropriate. 198 The Islamic Ethical Values The term ‘ethics’ according to Stoner et al. (1994) is concerned with “right and wrong”. It is an individual’s personal beliefs regarding what is right and wrong or good and bad (Davidson and Griffith, 2000). According to Beekun (1996) it is a normative field because it prescribes what one should do or abstain from doing. Ethics, according to Jamal Uddin (2003) governs all aspects of a Muslim’s life. Islamic ethical philosophy has been explored from 6 main axioms, namely Unity (or Tawheed), Equilibrium, Free will and Responsibility, Khilafah or vicegerency and al-adl or justice (Naqvi, 1981; Chapra 1992 and Syed Osman (1994). Tawheed or unity is the vertical dimension of Islam (Naqvi, 1981). Tawheed means that there is only one supreme Lord of the universe. He is omnipotent, omnipresent and the sustainer of the world and of mankind. Bashir (1998) noted that Tawheed entails the unity of life on earth and in the hereafter, and the unconditional surrender by all to the will of God. It integrates the political, economics, social and religious aspects of an individual’s life into a homogeneous whole, which is consistent from within the individual’s himself as well as integrated with the whole Universe. Khilafah or vicegerency is a special duty of man on this earth (see for examples the Quran 2:30; 6:165; 35:39; 38:28; 57:7). Khilafah defines man’s status and role and specifies his responsibilities (Bashir, 1998). Khilafah, according to Syed Osman (1994) implies the universal unity and brotherhood of the mankind based on the Islamic faith which claims social equality and dignity of all human being. Al-Adl or Equilibrium, on the other hand constitutes the horizontal dimension of Islam (Naqvi, 1981). Al-Adl (or justice) according to Syed Osman (1994) is the rendering of trusts where it is due. Trusts in this case refer to all aspects of human life including economics, social and legal both at the individual as well as at the societal levels. In a situation where conflict arises between individual and societal interest, the later should prevail (Syed Osman, 1994). Equilibrium is closely related with the concept of justice. The rendering of trusts where it is due is one of the criteria needed to achieve equilibrium. Free Will according to Naqvi (1981) is the freedom to choose either to become God-like by realizing his theomorphic character or to deny God. However, man’s freedom is not absolute, only God is absolutely free. Responsibility is closely related to Free Will (Naqvi, 1981) in a sense that it sets limits to what man is free to do by making him responsible for what he does as explicitly stated in the Quran “Every soul is a pledge for its own deeds” (Quran, 74:38). The recent development of Islamic resurgence throughout the Muslim world had witnesses a mounting religious commitment among the Muslim. According to Esposito (1991) this development had resulted in the increasing emphasis on the Islamic law or shariah as a main source of guidance in all aspects of life. The impact of Islamic religion on different aspects of the believers’ behaviour is quite substantial since Islam is a complete way of life (or ad-din). This study is an attempt made to investigate empirically how the Islamic faith possibly influences some aspects of investment decision-making in a Muslim majority society. Investors and Investments Decision-making Based on the amount of investment, investors can be categorized into light or heavy investors (Lim, 1992; Warrent et al., 1990). Barnewell (1987) categorizes investors as active or passive according to their investment orientation. They are considered as active investors if their investment orientation is for control, whereby 70 percent of their investments are in the higher risk type while the other 30 percent in the lower risk assets. The investment orientation of the passive investors, on the other hand are non control oriented with 70 percent of their investment in the lower risk assets and the remaining 30 percent in higher risks. In another study, Brandweek (1998) noted that in a study conducted by Yankelovich Partner of New York, investors are categorized as either “Strugglers” or “Secures”. According to this study, “Secures” are future focused and possess money to burn, while “Strugglers” have low assets to invest and limited financial savvy. The classification is based on the household income and the investible assets. 199 Lim (1992) in categorizing investors in Malaysia, classify those investors who have investment holding of less than RM 20,000 as light investors and those with investment holding of RM 20,000 and above as heavy investors. Investors need information to made investment decision and the provision of quantitative data, which will assist in making investment decision, ought to be the basic purpose of financial reporting (Dyckman, 1964). In a survey carried out in the USA by Chang et al. (1983), it was found out that the financial statements represent an important source of information for the individual investors. According to Baydoun and Willett (2000; 1997; 1993), the Western financial accounting statements (WFASs) do not fully satisfy the Muslim users information needs in making economic decision so as to be line with the shariah. THE RESEARCH FRAMEWORK The framework for this study is developed based on Hunt and Vitel (1986) and Deleney (1994). As shown in Figure 1, the model indicates that investment decision-making behavior of an individual is grounded in the unique characteristics of a specific culture of a society. Particularly, this study focuses on religion (in this context the Islamic religion) as the main element of culture in shaping personal values and belief of members of a society. Specifically, the study investigates the impact of religiosity on the investment decision-making behavior of the Malay Muslim investors in Malaysia. Figure 1: Research Framework (Adapted from Hunt and Vitel, 1986 and Deleney, 1994). Highly Shariah Compliance Investment Religion Islamic Shariah Least NonCompliance Investment Hypothesis development Prior research suggests that the degree of religiosity is a possible influence on ethical judgments and behavior of individuals. However, it is difficult to build up on the findings of previous studies of the relationship between religion and ethical judgments in the Muslim society context, because there is almost no research done in this area. Works on religiosity has tended to focus almost exclusively on Christianity (Wilde and Joseph, 1997). For this reason the nature of the study is exploratory, and is aimed to investigate if the: H1: The choices of investment for the highly religious Malay Muslims investors is significantly different from the least religious Malay Muslim investors. H2: The investment objective for the highly religious Malay Muslims investors is significantly different from the least religious Malay Muslim investors. H3: The sources of information to facilitate investment decision-making for the highly religious Malay Muslims investors is significantly different from the least religious Malay Muslim investors. 200 RESEARCH DESIGN, DATA COLLECTION AND METHOD OF ANALYSIS The investment behavior is focused on the types of investment invested, objectives of investment and source of information utilizes to make such decision. The Pearson product-moment correlation coefficient and chi-square analysis were conducted to examine the relationship between the investment decision-making and religiosity of respondents. Research design The questionnaire for this study is divided into three parts. Section A is related to the personal background of respondents, Section B is related to the investment decision-making of the Malay Muslims investors. Finally, Section C measures the religiosity score of the respondents. A total of 262 usable questionnaires were received from a total of 950 questionnaires sent to respondents that were selected using a convenience sampling method among the Malays around Klang Valley. The Federal Constitution (Article160 [2]), states that one of the main criteria in the definition of a ‘Malay’ is that he or she must be a Muslim (Mohamed Suffian et al., 1978; Mutalib, 1990). Once gathered, the data were tested for normality, validity and reliability. An examination of the histogram output indicates that all items are reasonably normally distributed. Factor analysis was conducted to determine the validity of the religiosity instrument while the Cronbach alpha coefficient was ascertain to establish its reliability. FINDINGS A detail analysis of the respondents reveals that only 237 from a total of 262 respondents responded have investment holdings. As indicated earlier investors can be categorized into light or heavy investors based on the amount of investment. The result presented in Table 1 reveals that 66.8% of the respondents belong to the light investors group (investment holding of less than RM20,000) and another 23.7% are heavy investors (investment holding of more than RM20,000). In terms of types of investments, more than half of the investors (61.2%) invested in shariahapproved instruments only, 5.5% of the respondents invested in conventional instruments only and another 33.3% of the respondents have investment holdings in both shariah and conventional instruments. Table 1: Category of Investors Variables Amount of Investment Types of Instruments Categories Below RM 20,000 RM 20,000 and above No investment Shariah approved only Conventional only Shariah approved and conventional Frequency 175 62 25 145 13 79 Percentage 66.8 23.7 9.5 61.2 5.5 33.3 Factor Analysis The principal components analysis performed extracted four factors having eigenvalues greater than 1.0. The four factors accounted for 56.25 % of the total variance. The orthogonal Varimax rotation approach was subsequently applied on the unrotated factors to obtain simpler and more meaningful factor solutions. Thus, only those items with factor loading of 0.4 and above on a single factor were retained in this study (Hair et al., 1998). The component items of each factor were tested for internal consistency reliability using Cronbach’s alpha coefficient. As reflected in Table 1, the alpha scores for the four factors are all well above 0.6. According to Nunnally (1967) coefficient of 0.6 or 0.5 will suffice. 201 Table 2: Muslim Attitudes Towards Religiosity Scale (MARS) Items Factor 1: Perception on faith and believes (α = 0.8825) 1. Islam helps me lead a better life 2. Saying my prayers helps me a lot 3. Quran is relevant and applicable to modern day 4. I will continuously seeking to learn about Allah 5. I believe that Allah helps me 6. The supplication (dua') helps me 7. The five prayers help me a lot 8. I believe that Allah listens to prayers 9. I believe that Allah helps people 10. Muhammad (peace be upon him) provides a good conduct for me 11. Performing hajj will be my priority the moment I've fulfilled all the necessary conditions 12. I read the Quran for inspiration and motivation Factor 2: Highly recommended overt religious behavior (α = 0.8533) 1. I regularly perform my qiamullail (such as praying/reciting Quran/dua’ after midnight) 2. I regularly perform my recommended prayer (i.e. sembahyang sunat such as Isra’, Dhuha and Rawatib) 3. I often fast outside the month of Ramadan 4. I performed my daily prayers in the mosque regularly 5. I read the Quran everyday 6. I regularly spend some amount from my monthly income for charity/sadaqah Factor 3: Mandatory overt religious behavior (α = 0.7572) 1. I fast the whole month of Ramadan 2. I pray five times a day Factor 4: Mandatory financial religious behavior (α = 0.6103) 1. I performed the obligation of zakat fitrah annually 2. I performed the obligation of zakat maal (asset/income) annually Factor loading 0.801 0.784 0.752 0.730 0.721 0.695 0.677 0.664 0.654 0.562 0.484 0.400 0.866 0.818 0.753 0.746 0.664 0.523 0.667 0.618 0.694 0.665 Religiosity Scores of the Respondents The religiosity of the respondents was determined by using percentile (Rusnah, 2005) whereby the upper and the lower thirds of the distribution are identified as the devout and casually religious. Thus, respondents with scores of 101 and more were labeled as devout and those with score of 66 to 94 were considered as casually religious. 32 % (83 respondents) of the respondents were devout while 34 % (88 respondents) were casually religious. Table 3: Investment Holdings Types of Investments (χ 2 not significant, p=0.153) Shariah approved only Conventional only Shariah approved and conventional No answer Total Casually Religious Freq % 41 46.6 6 6.8 34 38.6 7 8.0 88 100 202 Devout Freq 55 2 18 8 83 % 66.3 2.4 21.7 9.6 100 The result of the Chi-square analysis presented in Table 3 reveals that there was no significant difference between the devout group and the casually religious group of Muslim investors in terms of their preferences for different types of investments. Table 4: Investment Goals Investment goals To have some savings for the future To ensure shariah compliance To earn steady income To safeguard capital To have a balance portfolio For speculative gains Mean Med. Coeff. of Variance 3.70 Rank 6 Stand Dev 1.92 1 Corr. Coef. -0.106 5.17 5.12 5 1.86 3.45 2 0.326** 4.64 4.60 3.04 5 5 3 1.72 1.82 1.73 2.95 3.31 3.00 3 4 5 -0.056 -0.066 -0.072 2.58 2 1.35 1.81 6 -0.183** It was observed that in Table 4, speculative gain was ranked number six among the six investment goals listed, while to have some savings for the future was ranked the first. The respondents ranked ensuring shariah compliance in the second place supporting the findings from previous research that concluded religion has got an impact on the behavior of the Malays in Malaysia (see for examples Md Zabid and Ho, 2003; Goodwin and Goodwin, 1999). The respondents rated earning steady income, safeguarding capital and having a balanced portfolio in the third, fourth and fifth places respectively. The result of the Pearson product-moment correlation coefficient reveals that religiosity is significantly correlate with investment objectives for speculative gains and to ensure shariah compliance. There is a small, negative correlation between investment objective for speculative gains and the level of investors’ religious commitment (r = -.183, p< .005). While in the case of investment objective to ensure shariah compliance, there is a medium, positive correlation (r = .326, p< .005). Thus, provides further support that religion do have influence on the Malays in Malaysia. The financial statements were ranked as the most important source of information for investment decision. Newspaper and other media publications and specialists’ advice (advisory services and stockbrokers’ advice) were also considered as other important sources of information when making investment decision. The investment advisory service is regarded as one of important sources of information for investment decision-making as it was ranked number three by respondents. It was observed that tips and rumors were rated as the last sources of information utilized for investment decision-making. Tips and rumors were normally related to speculative activities and thus are prohibited in Islam. This is also in line with the God’s commands that are stated clearly in the Quran (17:36; 49:6). The Muslims are commanded to probe and verify any given statement or piece of information before making a decision or taking any action accordingly. The majority of the Muslim investors in this study have rated investment objectives for speculative gains as their last investment goal. Thus, consistence with the above result that rated tips and rumors as the last source of information used in investors’ investment decision-making. Table 5: Sources of Information Sources information Mean Med. Var. Rank 4 5 5 5 Standard Deviation 1.79 1.69 1.45 1.45 Stockbrokers advice Advisory services Your analysis of financial statements Newspaper and other media publications Proxy statements 4.19 4.60 5.05 4.76 3.21 2.86 2.09 2.10 4 3 1 2 3.73 4 1.49 2.23 6 203 Advice of friends Tips and rumors 3.84 3.24 4 3 1.46 1.74 2.13 3.04 5 7 CONCLUSION The study suggests that the degree of religiosity has significant influence on the investment decision-making of the Malay Muslims investors in Malaysia. The concern, however, is that religiosity only explained less than 5 % in their investment decision-making. The Malays uphold strongly the value of self-respect or preserving face as one of the important values (Asma, 1992). As such they would not willingly disclose information regarding unacceptable religious behavior. Another possible explanation is that the Malay Muslims are deeply embedded in the various systems inherited from the British colonial that are incompatible with the Islamic values (Hussin, 1990). The findings reported in this study are consistent with Mohd Kamal’s (1986) observation of Malaysian Muslims. According to him, Islam does not influence all aspects of the behavior of Malay Muslims in Malaysia. Furthermore, only God knows the most pious individuals, because the seat of Iman or Taqwa is in the heart (Philips, undated). Man can only judge people by each other’s outwards deeds, which may or may not be misleading. As stated in the Quran, “There is among people in this life, he whose speech will dazzle you. And he will call on Allah as a witness to what is in his heart; yet he will be among the most vicious of enemies” (2:204). Future research may be extended to investigate the influence of other factors on investment decision-making such as age, professions and income. 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As many primary products of developing countries become the end products of developed countries, most promotion is limited to mentions of origin in developed country promotion. Nonetheless, the rules still apply for effective promotion, whether it is of limited or more extensive nature. When organization apply a promotion strategy across international boundaries a number of important factors have to be taken into consideration. Whilst the process is ostensibly straightforward, (that is someone (seller) says something (message) to someone (buyer) through a medium) the process is compounded by certain factors. INTRODUCTION & DESIGN OF THE STUDY The trade fair is one of the most important elements of the communication mix and yet is frequently overlooked in the formation of communication strategy. Trade fairs provide a unique opportunity for buyers and sellers to come together in an environment where buyers are actively looking for product information, new products, or new sources of supply. The economic development includes not only production of different types of goods required by the society to satisfy its variety of needs and wants, but also the proper distribution of goods to the needy persons at right time, at right place and at right price.Customers attend the trade fairs for two main reasons, they are 1.To update their knowledge in the field. 2.To shop for the goods and services they need. Although exhibiting in a trade show may be expensive, and certainly marketers should choose carefully which fairs are likely to be beneficial, the returns can be lucrative. The typical trade show features many booths where producers, suppliers, and other marketers display and provide information about their products, in effect using the booths as temporary bases of sales operations. Most trade fairs are not open to the general public because marketers use these fairs to distribute literature, obtain sales leads, and sell products to wholesalers, retailers, organizational buyers, and other members of the trade. The main purpose of a trade show is to serve as a central market place where trade members can view many products and discuss industry trends with other professionals. Many trade associations at both the wholesale and the retail levels hold annual conventions at which numerous wholesale or retail organizations in the particular trades are represented. By attending the convention, a manufacturer has access to a wide variety of potential channel members brought together at one place and time. Such fairs can be especially beneficial to small manufacturers. These manufacturers, who are often unknown in their industries, have a chance at the fairs to meet face to face many wholesalers and retailers who might be interested in carrying their products. NEED FOR THE STUDY 207 Demand for trade promotion is exploding as business and consumers are increasing the embracing the on-line medium of commerce. New economy companies are trying out different promotional strategies to widen their market and in order to achieve core competence. A new trade promotional strategy is evolving that accommodates industries rapid growth. Such growth prospects are attracting a lot of attraction; this gives the researcher an inquisitive interest to know the ground rooms relating to trade promotion. OBJECTIVES 1. To identify the impact or the benefits of India Home Furnishing fair-Japan 2.To find out the opinions of the participants and the visitors 3.Role of India Trade Promotion Organization (ITPO) in export promotion 4.Role of Handloom Export Promotion Council (HEPC) in promoting exports SCOPE OF THE STUDY As the study is to identify the impact or the benefits of trade fair, to find out the opinions of the participants and visitors and to study the role of ITPO and HEPC in export promotion, it's got varied scope. The study gives a wider knowledge for the people participating in trade fair. The study gives a new approach and a different insight for researchers about trade fairs. The research gives new ideas to pursue further research in this topic or topics relevant to this study. The study gives a new perspective for the people related to trade promotional activities. METHODOLOGY The present study is descriptive, analytical and empirical in nature based on survey method. Area of the study Tokyo-Japan Sources of data and collection Primary data and Secondary data are used in this study. Primary data were collected in the form of questionnaire method. Secondary data was collected from ITPO and HEPC booklets, journals, past records and Internet. Sample size A sample size of 30 exhibitors of the trade fair and 40 Visitors/buyers of the trade fair were taken for the study. Research instrument The research instrument used for collection of data is through questionnaire. A review on india home furnishing fair at japan about the fair India Home Furnishing Fair is conducted every year for the past 13 years. On persistent demand from many of the buyers, ITPO started organizing in Japan. ITPO organized 14th India Home Furnishing Fair 2003 from 27-29 May 2003 at Sunshine city world import mart, 4f Hall A, Tokyo. Approximately 70 exhibitors participated in this 14th India Home Furnishing Fair and nearly 1200 visitors visited the fair. Products such as interior fabrics, bed linen, table linen, kitchen fabrics, curtains, cushion covers, rugs, carpets, etc were displayed by the exhibitors. The Indian Textile Industry has been playing an increasingly important role in the national economy, while accounting for 15% of the country's industrial output and nearly 30% of its overall exports. The Indian Home Furnishing Fair has been offering an excellent interactive platform for Indian exhibitors and Japanese buyers and has in the process acted as a worthy catalyst for promoting India's stakes in the high- profile and quality-conscious Japanese market. The Fair presents the wide range of furnishings and made-ups that are tailor-made to meet Japanese requirements in terms of quality and price competitiveness 208 Buyer-Seller Meets organized by ITPO have been a highly successful method of market penetration. The popularity of the BSMs can be gauged from the fact that the number if Indian companies aspiring to participate has been increasing each year and many companies have, in fact, to be kept on the waiting list. Significantly, the profile of buyers has improved substantially to include some of the best importers, wholesalers, trading companies, department stores, supermarkets and other retailers. Details of the visitors on all the three days of the Fair were as below: Role of HEPC in India Home Furnishing Fair on a special case, ITPO allots 10 booths to HEPC to participate in the Fair. HEPC will then take delegation of 10 exporter members and the participation fee for exporters through HEPC will be charged at the rate of 50%. And the exporters may also get MDA (Marketing Development Assistance) through HEPC. It is clearly explained in chapter 3. Indian textile industry The Indian textile industry is one of the oldest in the country with the first mill in the organized sector being set up in 1854. The industry is the second largest in the world with a presence of around 2600 mills. Chart omitted due to formatting incompatibilities Please contact author for details for copy Today is not only self reliant, but also complete in value chain in all aspects, right from growing its own raw materials-cotton, jute, silk and wool to providing the highest value added products to the consumers like fabrics, garments, made ups, etc. The Indian textile industry exhibits a very complex sectoral dispersal matrix. While hand-spun and hand-woven sector form the basic end of the spectrum, the capital-intensive sophisticated mill sector is at the other extreme, with the decentralized power loom and knitting sectors coming in between. Even in the organized sector, several islands of excellence exist which use highly sophisticated information technology-based equipment with facilities for ERP/SAP, which are second to none in the world. The fiber specific configuration of the textile industry includes almost all types of textile fibers from natural fibers like cotton, jute, silk and wool to wide range of synthetic/man-made fibers like polyester, viscose, nylon, acrylic, polypropylene and the multiple blends of such fibers and filament yarns. The production of textiles involves many processes such as ginning, reeling, spinning, weaving, processing and garment manufacturing. The diverse structure of the industry coupled with its close linkage with our ancient culture and tradition provides it with the unique capacity to produce, with the help of latest technological inputs and design capability, a wide variety of products suitable to the varying consumer tastes and preferences, both within the country and overseas. The Indian textile industry has a significance presence in the Indian economy as well as the international textile economy. Its contribution to the Indian economy is manifested in terms of its contribution to the industrial production, employment generation and foreign exchange earnings. The textile industry in India accounts for over four per cent of GDP, 14 per cent of industrial production and over 27 per cent of export earnings. It employs about 35 million persons directly and has wide spread forward and backward linkages with the rest of the economy, thus providing indirect employment to several million more in allied sectors. It is the second largest employment provider in India after agriculture. Exports of Textiles Through export friendly government policies and positive efforts by the exporting community, textile exports increased substantially from US $ 5.07 billion in 1991-92 to US $ 12.10 billion during 2000-01. The readymade garment sector is the biggest segment in India's textile export basket contributing over 46 per cent of total textile exports. Exports of cotton-based items continue to pre-dominate which is natural in view of India's competitive advantage in terms of cotton. Textile trade, over the last decade, has contributed substantially in realizing India's share in total exports. It has been contributing about 27 per cent to India's overall exports. The world trade in textiles and clothing is around US $ 350 billion of which our country's share is 3.3%. Indian textiles 209 known for captivating designs and colours are exported world over. However, USA has been the largest importer with 17.54% share followed by UK (6.79%), Germany (6.74%), UAE (5.37%), Italy (4.28%), Hong Kong (3.86%), S.Korea (3.68%), Bangladesh (3.48%) and Japan (2.74%). Belgium, France, Spain, Canada and Australia are other important markets for Indian made ups. The export committee on New Textile Policy has projected the export target for Indian textiles and clothing at US $ 50 billion by 2010. Textile exports, on an average, have grown at a rate of 11 per cent per annum over the last few years, even as world textile trade has grown only about 5.4 per cent per annum in the same years. This magnificent growth of India's home furnishing items and made ups was due to the widening range adapted to the latest design and colours, sought by India's potential markets and also improved quality, attractive prices and ability to supply consignments both big and small. Another interesting feature of India's export of home furnishings and made-ups is the wide variety of international clientele, which includes some of the leading prestigious retail outlets such as Harrods, Liberty, Selfridges, The Pier, Laura Ashley and Habitat, etc.(UK); Calvin Klein, Ralph Lauren, Blooming dales, J.C.Penny and Sears (USA), galleries Lafayette, La Ridaudt, A.U.printemps (France), Coin, Le-Risasse-ente (Italy). This impressive list of clients runs all over the world and encompasses not only the trading and up market department stores, but also the major furnishing boutiques and specialized stores in several countries. Japanese market The Japanese economy is now the world's second largest, and trends in Japan have a major impact on the rest of the world. It is essential to improve relationships based on mutual reliance and to form beneficial external economic relationships by expanding imports. Japanese industry is now capable of producing inexpensive, competitive products of superior quality by using high quality, inexpensive products and parts from overseas. The consumers' range of product choices expands when a diversity of overseas goods enter the market. This enriches the daily life of the consumer. Japan is the world's third largest trading country in both exports and imports, following the United States and Germany. Poor in natural resources, Japan maintains a traditional industrial and trading pattern of importing raw materials and energy resources for use in the manufacture of export products. As a consequence, the share of manufactured products in Japan's total imports is low, giving rise to much foreign criticism. Development in Japanese market for Indian Textile Interior Goods The yearly 2000 was a significant year for Indian interior textiles in Japan as it marked the reversal of the falling trend over three years before that. For the first time since 1997 these exports grew over the previous year significantly by 4% to yen 6.7 billion. Although in absolute value terms, this figure is still less than the value of exports in 1996, 1997 and 1998, the fact that the falling trend was reversed in 2000 is in itself good news. This was in line with the trend of total Japanese imports of these products, which also rose for the first time in last 4 years, by 11% over the preceding year. India's share for Japanese imports for textiles was 1.3% in the year 2000, which remained the same (1.3%) during the year 2001 also. However, in terms of value, it increased from Yen 35,033 million (in 2001), with improvement in ranking also i.e. from No. 9 to No. 8. But the ranking came back to No. 9 with 1.2% share (Yen 32,483 million) in the year 2002. Among the textile interior goods coming to Japan, India has been the major supplier of table linen, both in value and quantity for long time. India also retained its place as the second largest supplier of bed linen and furnishing article being second to China in 2002. In the category of curtain and blinds, ranked at No. 3, imports from India were Yen 771 million. AN OVERVIEW OF THE ITPO AND HEPC INDIA TRADE PROMOTION ORGANISATION ITPO provides a wide spectrum of services to trade and industry and acts as a catalyst for growth of India's trade. As a nodal agency of the Government, ITPO approves holding of international trade fairs in India and regulates holding of various expositions in India primarily to avoid any duplication of efforts and ensure proper timing. It manages India's only world class exhibition complex which is constantly upgraded to keep it in a high standard of readiness. Spread over 149 acres of prime land in the heart of India's capital, NewDelhi, Pragati maidan offers about 62650 sq.mtrs. of covered exhibitions in 17 halls, besides 10,000 sq.mtrs. of open display area. The state-of-the-art exhibition halls have enhanced the appeal of Pragati Maidan as the ideal business center for an increasing number of fair organizers and business visitors from different parts of the world. The fair complex offers the kind of ambience 210 that is conducive to a variety of exhibitions featuring gigantic machinery and equipment, to delicate exhibits having handle-with-care tags besides a whole range of engineering products. ITPO has an extensive infrastructure as well as marketing and information facilities, which are availed both by exporters and importers. IT Po's overseas offices assist buyer seeking information relating to sourcing products from India-their availability, prices, reliable sources, delivery schedules and exporters credit worthiness, India's liberalized industrial, trade and investment polices, suitable companies for joint ventures and investment, etc. ITPO's overseas offices at New York, Frankfurt, Tokyo, Moscow and Sao Paulo(Brazil) are pursuing investment opportunities, besides their activities aimed at promoting India's exports. Main activities and services of ITPO 1. Managing the extensive trade fair complex, Pragati Maidan in the heart of Delhi. 2. Organize various trade fairs and exhibitions at its exhibition complex in Pragati Maidan and other centers in India. 3. Extend use of Pragati Maidan for holding of trade fairs and exhibitions by other fair organizers both from India and abroad. 4. Identify and nurture specific export products with long-range growth prospects. 5. Cultivate overseas buyers through timely and efficient services. 6. Establish durable contacts between Indian suppliers and overseas buyers. 7. Assist Indian companies in product development and adaptation to meet buyers requirements. 8. Organize Buyer-Seller Meets and other exclusive India shows with a view to bringing buyers and sellers together. 9. Organize India promotions with department stores and mail order Houses abroad. 10. Participate in overseas trade fairs and exhibitions. 11. Arrange product displays for visiting overseas buyers. 12. Invite overseas buyers and organize their meetings with Indian suppliers. 13. Assist in locating suitable foreign collaborators for transfer of technology, joint ventures, marketing tie-ups and investment promotion. 14. Organize seminars/conferences/workshops. 15. Encourage and involve small and medium scale units In export promotion efforts. 16. Conducting in-house and need-based research on trade and export promotion. 17. Enlisting the involvement and support of the State Governments in India for promotion of India's foreign trade. 18. Trade information services through electronic accessibility at Business Information Centre. About HEPC-a gateway to handloom exporters Handloom Export Promotion Council (HEPC) is a statutory body constituted under The Ministry of Textiles, Government of India to promote the exports of all handloom products like fabrics, home furnishings, carpets and floor coverings, etc. HEPC was constituted in the year of 1965 with 65 members and its present membership is around 2000 spread all over the country. The Handloom industry mainly exports fabrics, bed linen, table linen, toilet and kitchen linen, towels, curtains, cushions and pads, tapestries and upholstery's, carpets and floor coverings, etc. The basic objective of HEPC is to provide all support and guidance to the Indian Handloom exporters and International buyers for trade promotion and International marketing. HEPC has its head office at Chennai and regional offices at New Delhi and Mumbai. Administration HEPC is incorporated as a non profit making company under section 25 of the Companies Act, 1956 and governed by the Memorandum and Articles of Association framed by the Council. An Executive Committee consisting of elected representatives from the export trade, exofficio members and nominated Government officials administers it. Chairman heads the Committee. The Chairman and Vice Chairman hold office for a period of two years. The 211 secretary (Executive Director) of the Council, an IAS cadre officer appointed by the Government, assists the Council to run the administration. HEPC OBJECTIVES Organizing participation in trade fairs, exhibitions and buyer-seller meets in India and Abroad. Providing guidance, consultancy and support to handloom exporters to promote handloom exports. Conducting propaganda regularly and popularise Indian Handloom products abroad though various means of publicity. Collect, collate and disseminate trade data and commercial intelligence to improvement, standards and specifications, product development, diversification and innovations, etc. Undertaking market studies in individual foreign countries.Sending trade missions to the foreign countries. Bringing out useful publications like colour catalogue, colour trends catalogue, importers and exporters directories etc. Laying down standards of quality and packaging in respect of Indian Handlooms for export. Approving agents, representatives or correspondence in foreign markets for continuously and regularly reporting the price, market preferences and reception accorded to Indian Handloom products. Undertaking or assisting in research on schemes of technological nature designed to improve the efficiency of the handloom sector. To advise the Government, local authorities and public bodies on the policies adopted by them in relation to their effect on industry or commerce and other measure including direct and indirect taxation in so far as such policies or measure having a bearing directly or otherwise on export of Indian Handloom products Inquiring and investigating into complaints received from foreign buyers or Indian exporters and act as arbitrators if asked for it. HEPC STRATEGIES Arrange for the participation of member exporters in the important trade fairs, organising buyerseller meet (BSM), business missions.exporters. Facilitate the upgrading, popularisation and adoption of technology, quality and design Provide financial grants to the exporters with market development assistance for under taking salecum- study tours, participation in international fairs, publicity etc. Popularise Indian Handloom products abroad through website publicity, advertisements in commercial portals, trade magazines, conducting exclusive hand woven shows, and through Council publications. Dissemination of trade information like market studies, colour trends, design trends, export trends, standards and specifications, Government policies, circulars etc. through publications and news letters. Conducting workshops, seminars on upgrading technology in pre-loom, loom, post loom practices to improve quality and productivity, popularising modern dyeing practices, product innovations, diversifications and improvement, quality compliance, better merchandising practices, packaging methods and so on to improve the competitiveness of Indian Handloom products. Promote product innovation, diversification and improvement in the selected handloom clusters under Development of Exportable Products and Marketing scheme (DEPM) for promoting the production of exportable products. 212 Providing design support to develop new designs, fabric simulation colour printouts, peg plan graph outputs, layout information and computer aided colour matching etc. to the exporters. Generating and dissemination of trade enquiries for facilitating International buyers to source the handloom products from Indian Handloom exporters. Liaison with Government for strengthening infrastructure facilities in handloom export production centers, take efforts to improve forward and backward linkages in handloom sector. Serve as a link between trade and Government to formulate appropriate policies to promote handloom export growth. Inquiries into the complaints made against exporters and take up the exporter's problems related to the buyers with respective embassies. EXPORT SUPPORT 1. MARKET DEVELOPMENT ASSISTANCE MDA is provided by Council for sale-cum-study tours, participation in fairs and buyer-seller meets and publicity subject to the condition that intimation application must be submitted to Council with a minimum of 14 clear days of advance notice excluding the date of receipt of application in the office of the Council. The assistance is on reimbursement basis. Assistance for sale-cum-study tours up to 90% of air travel expenses in economy class in case of Small Scale Industries (SSI) units and 75% in case of other units subject to the maximum of Rs.60,000 per tour (Rs.90,000 for Latin American Countries (LAC) region) and such assistance is limited to only two tours including past cases to a particular country and tour shall be minimum of four nights stay abroad excluding journey period. Over and above this one more tour can be undertaken in the LAC region. For participation in trade fairs, exhibitions we assist in air travel expenses in economy class and/or charges of the built-up furnished stalls up to 90% for exporters with SSI units and 75% for others subject to an upper ceiling of Rs.1,10,000 per participation (Rs.1,40,000 for LAC region) and limited to three participations in a particular trade fair/ exhibition including past cases. Assistance for publicity through printed material like product catalogues, brochures, information handouts, etc. for use abroad during sale-cum-study tours or while participating in fairs/BSMs up to 25% of the cost, subject to an upper ceiling of Rs.15,000. 2. DUTY DRAW BACK (DBK) DBK assistance is provided to the exporters as an reimbursement of the incidence of excise duty levied on the raw materials used for the production of the products that are exported. The rates of draw back, for each item is announced by the Ministry of Finance, Department of Revenue every year in June. Council publishes the rate in force periodically in its news letter titled "Handloom Export". The draw back is sanctioned by the Customs Department through which shipments are effected on submission of relevant documents as indicated in the drawback schedule notified by the Ministry of Finance, Department of Revenue, Government of India. 3. DUTY ENTILEMENT PASS BOOK (DEPB) DEPB is provided to neutralise the incidence of Customs Duty on the import content of the export products. The neutralisation is provided by way of grant of duty against the export product. The credit shall be available against such export products and at such rates as may be specified by the Director General of Foreign Trade from time to time and these rates are published in the news letter viz, "Handloom Export". The DEPB shall be valid for a period of 12 months from the date of issue and can be used for duty-free imports. DEPB is transferable. The DEPB license is issued on each shipment after clearance by Customs Department and the Joint Director General of Foreign Trade of the area concerned issues the license. The exporter has an option to claim either DBK or DEPB and not both. 4. OTHER SUPPORT The Council provides up to 50% assistance on the expenses incurred by exporters for their participation in International Trade fairs and BSMs, in which Council arranges for participation either with MDA grants or with assistance from Development Commissioner (Handlooms). 213 Assistance to the exporters who participate in the trade delegation arranged by the Council. Access to the trade data, trade information, market study reports of importing countries. Access to the trade enquiries received from international buyers, copies of the latest of colour forecasts, design development help through council's CAD center, etc. Support the exporters to seek financial assistance from the Development Commissioner (Handlooms) under DEPM scheme for the development of innovative exportable products and their marketing. SUMMARY OF FINDINGS The following are the main findings of the study: The majority of the respondents who participated in the trade fair were belonged to the category of small sector. The majority of the respondent's method of production is semi-automatic. 67% of the respondents have been in export business for more than 9 years The majority of the respondents, who participated in the trade fair, export their goods to Japan and Europe. 60% of the respondents sales turnover is with in 1-5 crores The majority of the respondents who visited the trade fair were importers The majority of the respondents import their goods from India The majority of the respondents who visited the trade fair has the turnover in million yen Trade fair participation provide high benefits in establishing personal contact between buyers and sellers Trade fair participation provide high benefits in creating an awareness about the product and the producers among the visitors Trade fair participation provide normal benefits in reaching the public Trade fair participation provide normal benefits in creating demand for the products Trade fair participation provide high benefits to increase the sales turnover of the concern Trade fair participation provide low benefits to get immediate feedback Trade fair participation provide very high benefits in generating new idea for product updation and development Trade fair participation provide very high benefits in serving as the channel for entering into the international market Trade fair participation provide high benefits in exhibiting the products impressively Trade fair participation provide high benefits in promoting the business as a whole Trade fair participation provide high benefits to identify the tastes and preferences of the buyers 214 Trade fair participation provide high benefits in creating opportunities to meet different type of customers Trade fair participation provide normal benefits to create an interest in the minds of the buyers to buy the product Trade fair participation provide normal benefits in knowing the competitive strength if the concern Trade fair participation provide high benefits in sourcing the technology Trade fair participation provide normal benefits for imparting large amount of information Trade fair participation provide normal benefits to get knowledge about the business opportunities Trade fair participation provide normal benefits in long run sustained business relations The majority of the respondents feel that the trade fair entry procedure is easy The majority respondents feel that the support extended by ITPO for participation is high The majority respondents feel that the support extended by HEPC for participation is high Visiting the trade fair provide high benefits in the minds of the visitors to buy the product Visiting the trade fair provide normal benefits in creating opportunities to meet different types of sellers Visiting the trade fair provide high benefits to build sound buyer-seller relationship SUGGESTIONS The following are the researcher has given the suggestions: The cost involved in participation of trade fair is high so the cost can be minimized to encouragemore number of exhibitors and also to increase the country's export India Trade Promotion Organisation should take effective steps to get immediate feedback by the exhibitors. Adequate steps have to be taken by the participating firms to ensure better demonstration of their products and processes, so that they can convert large number of visitors as their potential buyers. The exhibitors have to display quality products to impress the buyers and to create an interest in the minds of the buyers to buy the product. CONCLUSION The India Home Furnishing Fair has offered an excellent interactive platform for Indian exhibitors and Japanese buyers and acted as a worthy catalyst for promoting India's stakes in the high profile and quality-conscious Japanese market. The Fair presents a wide range of furnishings, fabrics and made-ups that are tailor-made to meet Japanese requirements in terms of quality and price competitiveness. The Fair provided a good opportunity for buyers and sellers to gain better knowledge about home furnishing sector. From the study the researcher has come to the conclusion that with the benefits of trade fair, the opinions of the exhibitors and visitors, to study the role of ITPO, HEPC in export promotion has got varied scope. It also gives a wider knowledge for both exhibitors and visitors of the Trade Fair. This study will give a lead to those who wish to know all about trade fairs and all those researchers who would like to do a study on trade fairs. BIBLIOGRAPHY 215 ITPO's - 14th India Home Furnishing Fair 2003 Composite Edition booklet Emerging Business opportunities in Japan, MIPRO, Tokyo Handloom Export 2003 Journal India Export Bulletin 2004 Jornal 216 GROWTH TRIANGLE STRATEGIES - A CRITICAL REALIST VIEW TO THE PROSPECT FOR GROWTH IN SUB- SAHARAN AFRICA: RESEARCH AGENDA Evariste Habiyakare Abo Akademi University, Finland ABSTRACT The objective of this research proposal (projects) is to examine African regional development processes in order to draw conclusions about the factors that facilitate and /or impede growth triangle type of developments in Africa. The units of analysis are informal and formal regional integrations of 3 blocs in Africa i.e. the Central African Economic Community of Great Lac Region (CEPGL) the East African Community (EAC) and the Southern African Development Community (SADC). This research project understands this type of regional development within globalization, as the trend to increase interdependencies among participating and neighboring countries and markets. It is widely believed that by increasing regional co-operations, the consequences would be among others; diffusion of new ideas, technologies, products, services and lifestyles through neighboring markets. Furthermore, it is widely believed that regional developments and cooperation would enhance the competitiveness and involved countries members would attain high employment standards in certain core areas. However, through the past, we have witnessed failure to make these regional co operations work in the positive direction. This failure has been attributed to among others, a lack of political commitments and to internal rivalries among the key participating countries and to the former role of colonial powers. Thus, there is a need of studies, which can explain whether using Asian strategies would really raise local entrepreneurial capacity and would attract new investments from local and foreign investors towards Africa. This research projects aims at finding answers to the following questions: - Will the increased aspiration for broader regional co operations in Africa increase the chance for creating growth triangles 23 to foster growth? - In the case of yes, would these growth triangles create job opportunities as well as the income levels of the participating member countries and would it raise the living standard and the quality of life of the population in the border areas? - In turn, would these potential growth triangles (zones) cope better with shifting and volatile patterns of international demand through their diversified and flexible production? INTRODUCTION While total foreign direct investments [FDI] to emerging, transitional and developing countries in general increased heavily from the mid-1990s, FDI to Africa decreased or stagnated [UNCTAD, 2001]. This happened despite the implementation of political and economic liberalization since the mid-1980s in many African countries [UNCTAD, 1999; World Bank, 2002]. Furthermore, this was despite the finding of the World Bank to the effect that “the least known fact about FDI in Africa is that the profitability of foreign affiliates of multinational Enterprises (MNEs) in Africa has been high, and that in recent years it has been higher than most other host regions of the world” 23 A Growth Triangle (GT) is an economic concept underpinned by political motivation. It involves linking adjacent areas of separate countries with different endowments of factors of production such as, land, labor and capital and different source of comparative advantage, to form a sub region of economic growth. GT seeks to reduce regulatory barriers to the exploitation of economic complementarities in order to gain a competitive edge in attracting domestic and foreign investments, and to promote exports for mutual benefits of areas and countries involved. Empirical studies based on this model of economic complementarities, geographic proximity, political commitment and infrastructure development as a key factor determining the success of GT. While GT are facilitated by governments, they must be private sector driven making the most critical factor to be private sector commitment. 217 [UNCTAD, 1999: 17].” Owhoso, et al.(2002) have suggested that international development banks and organizations should publicize Africa’s profitable business opportunities. Even though, a 21% increase in FDI for Africa to $15 billion was recorded for 2003 compared with 2002, total foreign direct investments in Africa is still only about 2% of the world total [UNCTAD, 2004]. It is, however, noteworthy that the increase in investment for Africa in 2003 happened at the same time as total FDI to developed countries decreased by 25%. A major reason for the relatively low level of FDI to Africa is the perception of the continent as risky and unstable, and therefore the low positive expectations for the medium to long - term by the international business community. According to the World Bank, [2003] investors were choosing mainly highreturn projects due to the perception of risk and low positive expectations. In other words, most of the investment went to areas that brought high levels of profit – mainly in oil drilling and mining. Relatively very few foreign companies have gone into market development within the local African market in either business-to-business or business-to-consumer areas. Thus, Owhoso et al, 2002 called Africa the last frontier for the internationalization of US firms. Nwankwo & Richards (2004) outlined the poor economic performance of many African countries since early 1970s and referred to a general sense of “afro pessimism”. They argued that cautious optimism is recently developing and that the right policies could lift Africa from its economic difficulties. This cautious belief has prompted many actors like UN, USA, EU and other personal actors like the British prime minister to put forward propositions on the way forward for the African continent. However, there are many different views on how to achieve a long standing development and growth. Looking at the other continents, it is possible to detect some regional behaviour and strategies that may have contributed to the regional development of the involved members. For instance, the there have been processes of large- scale and formal regionalization (e.g APEC, ASEA and EU. At the same time, there are other smaller scale “informal” processes of regional integration, such as the formation of trans- border industrial districts, economic growth areas or “growth triangles”. The growth triangle idea originally has been applied by some Asian regions with very positive results. With the assumptions derived from the experiences of Asian growth triangles, it is widely believed that the same concept may be applied in other contexts as well. If applied properly, it is believed that it could enhance competitiveness and attain a high employment standards in certain regions where applied. Strategies may be directed towards attracting new investments from local, national and foreign investors which in turn, create new job opportunities as well as increase incomes. It is then assumed that the involved actors in these areas, due to their joint efforts, would be able to cope better with shifting and volatile patterns of international demand better, because of their diversified and flexible production factors and would also live in peace with each others. In other words, by clustering, by sharing work, expertise collective services and risk, inter- firm network should be able to demonstrate their ability to resist market shocks and adapt to rapid changes worldwide changes. The ultimate goal of these clustering is to improve the standard of living and quality of life of the population in these areas and their borderlines. Keeping these assumptions in mind, my objective is to critically examine some African development processes with a critical- realist perspective, in order to draw conclusions about the factors that facilitate and / or impede growth triangle types of developments on the African continent. The unit of analysis will be both the informal and formal regional integration, i. e existing and potential growth zones in the area of sub- Saharan Africa. This research project understands this type of regional developments within globalization it emphasizes the trend towards increasing interdependencies among neighboring markets and the diffusions of new ideas, technologies, products, services and lifestyles through the neighboring markets. This paper is devoted to present the initial arguments in relation to larger research project, which I am initiating at Åbo Akademi University in Finland. Accordingly, this paper is structured as follow: in the first section, I discuss some of the success factors of Southeast Asian regional development. Second, I will present some of the “failed” African regional clustering and would then move to compare the Asian success factors to the factors that might support or impede similar kind of developments in Africa. Third, I outline my objectives leading to the central propositions of this entire research project. As the project is at its initial stage, in the following sections, I propose many necessary pilot studies and swill end this paper by a short summary. The South East Asian example Dahles, 2003, argues that Asian growth triangles (AGT) are distinctly Asian form of regional co-operation, which has evolved from the area’s experience in export processing zones (EPZ), industrial and technological parks. These 218 growth triangles are localised economic co-operation zones that exploit complementarities between geographically contiguous areas of different countries to gain competitive edge in export promotion. Consequently, trans- border areas are comprised of elaborate network relations, public- private partnerships, in forms of subcontracting, outsourcing and franchising. Thus, these relations of economic co-operations bind together large- scale enterprises as well as multinational corporations. There are several conditions that led to the emergence of South East Asian growth triangles And Hiroshi, 1997, outlined some of the factors which determined success of growth triangles in the Asian context. Main factors of the Asian GTs Key Drivers GTs are informal developments Strong cultural and social ties The driving ideology is that of a shared growth spreading the benefits of growth to all These ties are key factors, they come about from the geographical proximity and complementarities To ensure a functional institutional framework for cooperation among the key actors: the central governments, the private sector and residents of the GT Labour, technology and location ( similar competitive industrial structures lead to the propensity of creating GT High degree of Political commitment Existence of complementarily relationships in the resource endowments Existence of an active private sector Regions within the GT must be contiguous to each others Existence of dynamic spill over effects A reasonable well- developed infrastructure Functions as an engine for development Easy access to inter regional boundaries or complete permeability There must exist at least one metropolitan centre able to create and diffuse dynamism within the GT Infrastructure and finance for that infrastructure, through projects must be justifiable on the basis of the net financial internal rate of return on capital Looking at these key factors, there is no doubt about the fact that the traditional notions of comparative advantage can not fully explain Asian success. For example, Singapore’s and Hong Kong’s (in) actions reflected state and firm concerns about their relative- absolute positions in the regional- global hierarchy and show how small states can change their position in the division of labour. Asian developments need more elaboration at this point. Based on the Asian experience, we could conclude that choices about what to sell and make are not templates of natural resources (Chong 1996). Relative domestic scarcity of capital and labour are product of development, not inherent future of any given territory. In turn, a country’s position in the global division of labour is a cause of development, not only a result further more, some economic sectors seem to have higher profits and capital accumulation and they can mould political interests into developmental coalition and facilitate the achievement of social welfare goals. Constructing greater comparative advantage, through growth zones (GZ), requires and understanding of social and political institutions because a simple assessment of relative resource endowments will not indicate which states or regions have comparative advantages in services and manufactures. All in all, doing business across borders implies not only relocation of production process but also relocation of labour and management models and strategies, i.e. dynamic relationships between organisations and people with different cultural backgrounds, both within and outside their states. Sub- Sahara- African regional developments As stated in the introductory chapter, the African continent has witnessed various regional groupings. For instance the sub- Saharan Africa alone has witnessed the formation and the cessation of several groupings, which were created, according to the political motivation behind their creation, to promote trade, security, prosperity and growth for their members. In the following table, let me give examples of some of these regional groupings: 219 CEEAC CEMAC CEPGL COMESA EAC SACU SADC Webb Addresses Economic Community of Central African States www.ceeac-eccas.org Central African Economic and Monetary www.icicemac.com/cemac Community Economic Community of the Great Lakes Countries Common Market for Eastern and Southern Africa www.comesa.int East African Community www.eachq.org South African Custom Union Southern African Development Community www.sadc.int Sub- Saharan African institutional Groupings Date accessed 15.11.2005 15.11.2005 15.11.2005 16.11.2005 18.11.2005 18.11.2005 The origin of these regional groupings is fundamentally linked to two historical facts: - The zones of influences created during and after the British, French and Belgian presence in Africa (CEMAC, CEPGL, CEEAC, EAC) The second is South Africa’ s post apartheid position and influence ( SACU, SADC,COMESA) Institutional background- historical landmarks For the reason of space and focus of this research, I concentrate only on 3 different regional groupings and would only introduce some of these regions. My interests, is to see if we could observe some similarities in these African grouping with the GT that have taken places in Asia some decades ago. a) Central African Economic and Monetary Community (CEMAC) CEMAC has the longest history among these groupings. In year1910 as a result of the Berlin Conference, French Congo was replaced by the AEF (French Equatorial Africa) a region which covers today Gabon and Congo (Brazzaville). In 1964, the UDEAC was created to fill the vacuum left created when the AEF disappeared with each of the participating members being independent states from their colonial masters. In 1994 the CEMAC replaced UDEAC and is comprising of 6 central African countries: Congo (Brazaville), Gabon, the Central African Republic, Equatorial Guinea, Cameroon and Chad In the 1990s, CEMAC included about 40million inhabitants, half of which were living in Cameroon. As it s composed of 6 independents states, that grouping associates vastly different environments and cultures. Economically, the region uses the same currency, the CFA and this demonstrates both strong regional inter linkages and tight links with France, especially since the French treasury was the currency guarantor. b) The Economic Community of the Great Lakes Countries CEPGL unites the ex- Belgian colony of Congo with two UN- mandated territories of Rwanda and Burundi (formerly Ruanda- Urundi). During the Berlin Conference in 1885, the Etat Indépendant du Congo (EIC) - Congo Free State) was created and the Berlin Conference granted the Belgian King the responsibility for its management. In Year 1908: Belgium inherited the EIC, which became then the Belgian Congo and later in 1918, Belgium obtained a mandate over Rwanda- Urundi former German colonies. The former Belgian Congo was renamed the Republic of Zaire (1971-1997) under Mobutu who was ousted by a rebellion lead by Laurent Désiré Kabila who changed the name back to the Democratic Republic of Congo before he was assassinated. The regional entity, the CEPGL was created in 1976 to promote co-operation and management of common interests, especially the Rusizi river hydraulic generators, which supplied electricity to the three states of Rwanda, Burundi and the Eastern part of Congo. Due to political turmoil between the member states and the conflicting political interests among these members, CEPGL died paralyzed by the conflict in the Great Lakes Region After many years of paralysis; there is different voices to revive that cooperation among the 3 states. Belgian is alleged to play an integral part in facilitating the revival of that co operation. As it is indicated in his speech on the 11th July 2005, Belgian deputy foreign minister indicated that the CEPGL could not only lead to economic integration, but also to creating a long lasting peace between the member states and within the Great Lac Region. He expressed this issue in following terms: “The Economic Community of the Great Lakes Countries (CEPGL) was established in September 1976 and comprises institutions shared by Congo, Rwanda and Burundi. Its main aim is to foster economic integration and facilitate the movement of goods and people. Mr Michel maintains that "there is a vicious circle of 220 underdevelopment and war, with war feeding on misery, and misery feeding on war. The fact that the mistrust and animosity of recent years has all but killed off the CEPGL is a clear illustration of this". The minister saw the reactivation of the region’s economic structures as a vital complement to the peace process and transition currently under way. He goes on to affirm that, "The war can only be stopped in the long- run if we eradicate poverty and exclusion, nurturing confidence and building bridges. Naturally, the European Union is the most frequently cited example, but there are plenty of other instances of brave peacemaking through economic cooperation on the other four continents, like Mercosur, the SADC and ASEAN. What is more, rather than being a natural border, the Great Lakes have always been a focus of trade and a meeting place, so it is fair to talk of an entity dubbed 'the Great Lakes” c) The Economic Community of Central African States (CEEAC) The CEEAC was created in the 1983 and joins together members of CEMAC (Congo, Gabon, the Central African Republic, Equatorial Guinea, Cameroon and Chad),of the CEPGL (the democratic Republic of Congo, Rwanda and Burundi), Sao Tomé and Principe and Angola. During many years the CEEAC was inactive due political rivalries among different member states. However it was again revived in 1998 and its potential relations with the CEMAC are being re-evaluated. In year 2003, the European Union finalised an agreement with CEEAC and CEMAC stipulating that the two merge into one organisation. If this happens properly, this great region could function as a cross roads of central Africa. d) The East African Community (EAC) The EAC was created in 1967 and includes Kenya, Uganda, and Tanzania all former British colonies. It revives those institutions created before independence in the 1960s, dealing mainly with transport, customs, and the East African High commission. Due to the political problems among member states the EAC was dissolved in 1977 and has been revived in the 1999. The tiny countries of Rwanda and Burundi being landlocked and heavily dependent on these EAC countries for land transit of foreign trade; they have initiated talks to join the EAC. e) The role of the Republic of South Africa (RSA) The end of apartheid in South Africa, and the end of occupation of South African troupes of other neighbouring countries have led to new forms of regional organizations. The Southern African Development Community (SADC) market the end of the “ Front Line States” which have been grouped within the Southern African Development C operation Conference) with main objective to coordinate opposition to South Africa. The new SADC includes all Southern African countries, Tanzania and the Democratic the Republic of Congo. Another grouping that came about 1994 is the Common Market for Eastern and Southern Africa (COMESA) including a large number of countries along a North- South axis from Egypt to Namibia. Botswana, Mozambique, and the Republic of South Africa have not yet joined. Comparisons of Asian growth zones and the African potential growth zones (APGZ) There are several differences between the Asian and African regional developments. One of the most apparent differences could be the reasons behind the trans- border organisational co-operation, i.e. the coalition between organisations. In the case of Asia, these kind of co- operations seem to be a result of “cultural” consideration that prioritises personal relations, family obligations and trust. Further more, the cross- border flows in the most successful GT of Southeast Asia could only occur because the (implicit) co- operation by states to provide the institutional framework for market to flourish. The Asian Example suggests that there may be room for agents and economic hierarchies are not all structurally determined by comparative advantages. In Africa the development of growth triangles has not really taken off despite many efforts leading to inter regional links. One of the most apparent reasons for failure could be identified as a lack of determination of tangibles objectives and a lack of political and entrepreneurial commitment whose the implementers within the member states. The other apparent reason may be found in the existing perceptions of the fact that most of these regional clustering (co- operations) have been created or promoted by the colonial powers associated with the objective of controlling their former colonies rather than promoting stronger economic development and co operation among the member states. Thus, most of these groupings created by colonial powers have died have died before being operative. Most of them have remained as political forums, without any capabilities of fostering mechanisms that should lead to economic growth within these regions. Most of these groupings have been characterised by personal political rivalries among the key 221 member states to control the whole grouping. Efforts to promote really productive entities (enterprises) and the required infrastructure much needed to foster economic activities within the integrated region have been characterised by their absence. The dissolution of most of these co operations and wars between some member states indicate a lack of maturity in the fundamental reasons for creating such co- operations in the first place. Whereas the South Eastern culture emphasised taking responsibility for the people working and living in these regions, several African cultures favours opportunism and struggle to control political power and to control production means. In most of the cases this combination may lead to exclusions of some of the people living in these areas and the neglect of certain key areas which could, if well managed function as hubs for industrial developments. Further comparisons can be made, in considering similarities and differences between the Asian and African developments. While most of the Asian countries protected their infant industries, their post war strategies were to acquire latest foreign technologies via licensing and to commercialize that into successful products. The case of Japan is telling in this perspective, but it did not imitate western technique of commercialization, arrangements of productions process, and plant-layout techniques from the west. In this perspective, we could say that Japan acted as a knowledge source for most of the Asian countries. Further more, Japan acted as a role model for most of the other Asian countries, in that both supply side and demand sides both developed at the same time. Moreover, there was willingness from the United States of America, to disseminate growth stimuli overseas and to provide demand for Asia‫ۥ‬s trade surplus in the 1970 -1980 (as predicted by the Product Life- Cycle Theory by Vernon, 1966, 1979). In contrast, Africa lacks a role model of the Japanese calibre. In most cases, Africa has been trying to imitate the West without much positive results, except in some few cases. Republic of South Africa is expected to act as a role model for the continent, but its advanced first world economy is difficult to imitate for most of the African countries, and due to South African past behaviour during the apartheid era most of the African countries may feel a sense of mistrust. However, as South Africa becomes more and more open and accepted buy the other African countries it is expected to play a leading role in fostering businesses activities through providing cheap technologies and management expertise in most of these Sub Saharan African countries. Whereas Asian enjoyed trust from the US and Europe, Africa has been lacking the conditions that favoured FDI for many years ago. Whereas US firms moved their production to Asia and also have been favouring cheap import from Asia, African manufacturing has not taken of and when exports exist, they have been mostly in raw material to the most advanced economies. After their independence, mostly in 1960s and 1970, most of the African governments acted to protect their infant industries, but these policies did not bring any positive results either. To be successful, infant industry protection policy must be accompanied by other measures to promote growth; otherwise these policies may lead to inefficiency and frustration in the production capacity. Today, except some vague formulations and promises the result show that either Europe or USA and other trading blocs would really interested in opening their markets for the African products. Instead, they unanimously insist on the fact that African markets should open up for foreign products. This leads to eternal trade deficit in favour of the other blocs than the African continent. There is a lack of fundamental work being done to create basic condition for private productive entities in Africa. For seek of comparison, we can see that the liberalised trade regime, export oriented FDI (foreign direct investments) and actors commitments to export characterises the Asian development, which means of making use of the free market elsewhere. The question here, is to what extend can African made products reach other markets out of Africa? In case the African made products do not find other external markets, there is always a danger to foster internal rivalries among the countries competing instead of cooperating to foster trade and growth. Added to that, Asian political framework in these growth triangles is not comparable to the political frameworks in the potential African growth triangles. In the Asian growth triangles, the macro- stability required control of personal consumption and standard of living. These are constrained democracies, while commercial expansion was not hurt. Further, the Asian growth triangles were characterized by a relatively high level of national saving, while resources were geared into industrial growth. In the African case, political developments in most of these potential growth triangles, indicate that most of them have been hurt by internal conflicts and inter states and regional conflicts or different military coups which have at different period of time acted as deterrent of FDI. The existence of powerful state authorities in most of the African countries reminds that of the Asian countries, however, the African regimes have failed to save or to foster industrial 222 growth within their national boundaries. When financial means exist, it is said it has been misused and corruption has acted as deterrent for growth. Interdependency does not always lead to co- operation or have favourable consequences, in this; Hong- Kong’s and Singapore’s ties with neighbours have special attributes. The logic behind state intervention was that when the competition between states changed, authority of society and economy become asymmetrically diffused. The actions of Hong- Kong and Singapore, in terms of sub-regional growth zones, can therefore be seen as realist efforts to manage the erosion of sovereignty and emerging complex interdependencies arising from both scientific and technological advances in communication and transportation. The participating governments in each zone then, tried, to manage change or uncertainty, maximise benefits from international exchanges, maintain policy autonomy and occupy a desired niche in the Asian production hierarchies. The successful Asian states did not adopt free market policies as understood in the Europe and in North America. Their domestic economies’ flexible rigidities allowed firms to upgrade their products and technologies though learning. This includes the capacity to change the policy framework within which the economy operates without undue social upheaval. Private sector behaviour and industry policies both created individual, sector or national rigidities that laissez- faire economists expected to dampen growth but aided the long- term flexibility of actors to deal with future changes. The economic flexibility of Hong- Kong and Singapore, based on coherent, strong, insulated ruling authorities capable of adapting to both short and long- term pressures, is an important influence on their decision to participate in the creation of these triangles. However, the capacity to create new economic opportunities and comparative advantages for other triangles participants may be obvious. The Asian crisis in 1997 is telling in this perspective. Africa lacks a Hong- Kong, Singapore model of engine of development except South Africa which is also struggling to redress its past. However, at least some regions may act as potential candidates who, if well managed, could act as promoters for economic growth. In this perspective, it is possible to identify at least 4 regional centres in the sub Saharan Africa, that could act to promote such growth- triangles wise developments. 1) Kenya- Uganda- Tanzania with GT ( Nairobi.- Kampala- Dar Es Salam) 2) Rwanda, Burundi and Congo ( Kigali- Bujumbura- Kisangani) 3) South Africa- Lesotho, Mozambique, Botswana, Namibia, Angola and Zimbabwe In sum, it could be said that with “global war on terror” and the end of cold war, the role of Africa in the global scene has changed. Most of the African countries are still under influences (positive, negative) from their colonial power, which are not really showing any positive sign of investing in their former colonies. At the same time African countries are struggling to impress Washington to become allies and these factors together with the general lack of commitment to create growth in their respective countries create a more volatile business environment in which it is prove difficult to develop Asian like Growth Triangles in the Sub- Saharan Africa. OBJECTIVES OF THE RESEARCH PROJECT In this project, I suggest a critical- realist approach, with the aim of understanding the disparities and complementarities in regional developments, and accordingly analyze the possibilities for developing growth triangles in 3 African regions: 1) The Southern Africa (SA), 2) The central Africa (CA) and the Eastern Africa (EA). The significance of the critical realist perspective in creating alternative explanations of regional development processes may be manifold. First, it is giving about a realist consideration of the applicability of South East Asian examples to the above regions in Africa of today. Further more, my concern also a concern which precipitated this research project is whether imitating complex multifaceted strategies of Asian countries, which were implemented 20-30 years ago, would bear fruit as a strategic tool on the African continent. Thus, this research project allows me to critically assess the theory that suggests the possibility of implementing those Asian strategies in Africa. It is expected that this critical assessment, would allow me to offer novel alternatives. Admittedly, my belief is that one may achieve better understandings by contrasting alternative solutions than with the Asian experience learning, both in practice and in scientific terms. However competitive and successful the Asian form of regional form of co-operation used to be many years ago, the actors on 223 the African continent should adopts such strategies with care. The point of departure as indicated in the introduction, suggests that Africa needs to invent its growth strategies. So the first research could be stated as follow: To which extent the Asian examples are applicable in the chosen African regions? In respect of this question, it is necessary to search first for success factors, which may be present in both areas and to search for the differences which may hamper the growth to occur especially in Africa. - The second question concerns when do these success occurs and what would be reasons for them not to occur? At the same time this research project would allow me to discuss the success factors that are important for companies to consider when they assess global-local mixes in a particular region. The other objective is the explicit analysis of the dynamic relationship that emerges between different actors, within and without organisation in a cross - border arrangements. This to be seen in relation to further questions such as: - how and why certain countries in Africa may or may not react to various economic changes developing a subregional economic growth zones than political zone. As the discussion continues the integration of certain African regions could be seen as independent while participant’s production profile of each participant would be intervening and the potential growth triangle development is dependent variables. Key Propositions The emergence of growth triangles could be seen as example of co-operation in managing economic interdependencies. They may be seen as a part of a changing regional and global division of labour, where industrial restructuring, in growth zones participants‫ ۥ‬economies are driven by the political, technological and economic factors. In terms of research propositions, this research project discusses the process of growth- triangle developments and proposes that the comparison to Asian development may not be appropriate. So far, there has not been either any major regional co operation which has succeeded into attracting foreign direct investment in Africa to suggest that the Asian example may be followed. The process of growth triangle development Growth zone development may be seen as a result of responses to external events, with the concern of maximizing relative and/or absolute gains and minimizing losses to their production profiles. The proposition is that growth triangles are driven by changing production profiles In their core states or metropolitan hubs and are responses to external economic changes. The dependent variable is the emergence of a sub-regional growth zone or a triangle, as a reaction to external economic changes, influenced by the participant‫ۥ‬s respective production profiles. The intervening variables are the societal groups and state institutions that affect domestic interest formation, aggregation and articulation of policy responses as domestic production profile change. This reasoning could be depicted in the following figure: Participating Countries Interest formation Aggregation and articulation of Policy response Regional Integration CEPGL, SADC, EEA Participants‫ ۥ‬Production Profile 224 Emergence of subregional growth zones or Growth Triangles Societal Group State institutions My pre- assumption is that the outmost important events are the agreement on the formation or revival of the regional integrations, in this research the CEPEGL, EEA and SADC. Other important events will be identified as the project proceeds; my assumption is that there are other international and domestic events that affect individual country members and the integrated regions they agree to form. While I assume that growth areas may develop in response to external stimuli when the involved countries production profiles within the proposed regions change, I can then posit that external changes in form of regional integration spur the relocation of manufacturing production to nearby jurisdictions. In the case of Asia, foreign firms that moved from their home markets to establish their production there, were those in declining industries in their home base (Cfr Vernon, Product Life Cycle 1969,1977). Their aim was to shift their production to areas in which production costs were lower, as well as avoiding host market entry barriers and circumventing export market‫ ۥ‬s (non) tariff barriers. My argument is that in the African context, potential growth zones development to a large extent differ from those prosperous ones in Asia and that in some of the envisioned African regions such development is not achievable in this near future. Consequently, I propose that any regional development within Africa needs a novel strategy. The role of enterprise and FDI in the integrated African Regions Different ways to move the integrated regions are recognised. It is widely believed that local growth could be achieved through promoting local entrepreneurial capacity and through promoting foreign direct Investments towards a given region. Local entrepreneurial development within these integrated areas is no longer seen merely as an isolated and discontinuous innovative effort made by some individuals who are different from everybody else and pursue them single-mindedly. The received understanding today is that successful entrepreneurs engage in continuous discovery, involving both cumulative improvements and radical departures from established routines (Woo, Daellenbach and Nicholls-Nixon 1994). Institutional economists join economic sociologists to argue that all economic activities are embedded in social contexts and institutions and can therefore not be studied in isolation from their ambient context. The second strand of research is based on the resource-based perspective (RBP) of firms that has been popularized through the seminal works of Teece (1980) Wernerfelt (1984) as well as Prahalad and Hamel (1990). Scholars focusing attention on inter-firm linkages argue that such linkages allow for inter- firm resource creation and sharing thereby bridging resource gaps that firms may have without depending on the market. The significance of the resource gap bridging advantages that inter firm relations offer must be seen in the light of the fact that firms in developing countries frequently lack critical resources and capabilities. So far, there have not yet been any visible efforts from either the USA or the European Union to invest heavily in any of the potential growth zones in Africa. However, there have been several attempts to help participating countries to establish market economy and to establish institutional frameworks capable of fostering growth in the future. Most of the investments have come through aid and through credits, but the private business investments have been characterized by their absence in the last 20 years. Meanwhile, several countries within these envisaged regional integrations have been at war with it neighbour or have participated in a regional war for different interests. Also most of these countries have experienced internal political problems and those have acted as deterrent to foreign investments. The several scenarios are to be expected: first it may be possible that the renewed interest in regional integration may lead to some regional configuration which could reshape foreign direct distribution in these regions. Countries at war are slowly making piece and the politicians are at least weakening up for promoting business on the continent. In this perspective, former colonial powers should not be distanced in these developments. However, doubts prevail about the possibility of relaying again on the colonial powers to boost economic growth. The critics say the African problem was created by colonial powers at the first hand. There is no reason to deny that African countries should improve the business environment fast and radically, since the FDI absorption capacity depends on building the institutions to deal with increased financial and legislative demand. Further more, free trade 225 is inevitably crucial to the investments success, since most of the countries involved are economically too small to attract significant foreign investments just to their own local markets. Although it seems a logical assumption that these regional integration move to bigger and wider regional integrations to be able to create many different growth zones, I can not be sure whether present signs point to a long- term structural change within these regions or if it is just an other “political game” aimed at fooling the otherwise fooled participants about the dream of becoming prosperous. The extent to which FDI is growth enhancing appears to depend on country-specific characteristic (Zhang 2001). The question raised here is whether FDI and the market could be a regional integrator and guarantor for stability which is widely needed within these countries. All in all, these are the key thoughts that have prompted this research project, to my best of my knowledge these theoretical perspectives have not been explicitly introduced into the conceptual and analytical framework in studies of the possibility for potential growth zones in Africa. Their usefulness to policy, strategy and research can hardly be denied. The awareness that African countries differ in terms of culture and political as well as economic history from the rest of the world makes it imperative to emphasize contextuality in potential growth Zone model. In addition to this, the need for resource leveraging through inter firm collaboration within specific African countries and across countries in Africa as well outside Africa can hardly be gainsaid. METHODOLOGY With the critical- realist perspective on regional development, I envisage studies on macro-, institutional, industry— and micro levels. As it can be seen, my focus is on the processes of regional development through regional integration rather than on their strategic effects. However, as I set my objectives, I cannot deny my concerns about competitiveness of certain regional areas. It is not yet for sure if the competitiveness (or lack of competitiveness) in some African regions could be created by imitating the Asian example. In accordance, I understand that a strategy is always about creating something new and an approach to implement something that already exists may not bring real strategic results. The above argument serve as a base in all stages as well as in the micro-, institutional, industry- and micro- level studies related to this wider research project. In this entire project, different studies will be conducted which together would make the entire research project I envisage conducting a pilot study which would concentrate on the available data from international organization. Governments, industry organizations, labor Unions and University statistics. The analysis will be made in simple descriptive terms and though partial or multiple regression where possible and suitable. Value added and firm size statistics, for selected industries in the 3 integrated regions, may indicate an increasing integration and shifting production profiles. Employment data (wherever they exist) would include indicators of increasing integration and shifting production profiles. The project as whole would need to be supported with historical studies. Those are to review the post colonial historical developments of the involved country members. At the same time, indicators of increasing integration and shifting production profiles should be searched for. e.g. official policy statements regarding regional developments. Also there is a need to elaborate on cultural affinity and kinship ties within the integrated areas. For instance, we need to elaborate on which role does culture in terms of personal connections, family obligations, ethnic affinity, religion and trust play? In respect of kinship ties, a preliminary assumption is that the type of ties, which created success in Asia, might not exist in Africa and to develop those might take a long time and some time could prove impossible. The historical studies should anyway be able to map the potential metropolitan centers and their complementary and contradicting interests (Nairobi- Kampala). The research focus is not only on the potential core states, but also on how other countries play a role in the emergence of the potential growth zone. In this sense, it is important to consider, the zonal- trade and investment partners as well. 226 Beyond analysis of the available statistical data and historical descriptions, I will conduct survey and cases studies about the region in focus (CEPEGL, EEA, SADC). The focuses, the preliminary assumptions and research questions of these studies are not the subject of this paper since this research project is in its initiation phase. Nevertheless, it can be mentioned that four sub- projects are envisioned. One will incorporate studies of states, elites and institutions. Other project will focus on the industry level changes in the potential growth zones within the integrated area. The third sub-project will include micro- level studies. And the fourth will include the impact of context – political, economic, social and cultural on entrepreneurial activities in the involved African countries, Resource leveraging mechanisms, Determinants of collaboration (or lack thereof) between entrepreneurs within and across individual participants countries REFERENCES Awuah, G. B., 1997. Promoting Infant Industries in Less Developed Countries. International Business Review , Vol. 6, pp. 71-87. Chong, Allen (1996) Theory, methodology and History for growth Triangles Analysis. Presented at Acadia University for the October Order & disorder Conference of the Atlantic Political Science Association Dunning, John H. (1995), "Trade, Location, and Economic Activity and the Multinational Enterprise: A Search for an Eclectic Approach." In Drew, John, eds: Readings in International Enterprise, London, pp. 250-274. Hiroshi, Kakazu (1997) Growth Triangles in ASEAN, a New Approach to regional Co-operation, APEC, discussion paper Series International Monetary Fund (2003). Foreign Direct Investment, Trends and Statistics, Washington D.C, IMF Kojima, K (2000) the “Flying Geese” Model of Asian economic development: Origin, theoretical extensions and Regional Policy Implications. Journal of Asian Economics. Vol.11,No.4 Winter, 375- 401 Nwankwo S & Richards.D (2004). Institutional paradigm and the management of transitions: A sub-Sahara African perspective. International Journal of Social Economics, Vol. 31, No.1/2, pp.111-130 Owhoso V, Kimberly G.c, Mathur. I Malgwi. C (2002). Entering the last frontier: expansion by US multinationals to Africa. International Business Review, Volume No.11, pp 407- 430 Padmanabhan, P.& K.Cho (1999). Decision specific experiences in foreign ownership and establishment strategies: evidences from Japanese firms. Journal of international Business Studies 30:1, 25 - 36. United Nations Conference on Trade and Development (UNCTAD), (1999). Foreign direct investment in Africa: Performance and Potential. New York and Geneva: United Nations United Nations Conference on Trade and Development (UNCTAD), (2004). World Investment Report. New York and Geneva: United Nations United Nations Conference on Trade and Development (UNCTAD), (2001). World Investment Report. New York and Geneva: United Nations United Nations Development Programme (UNDP), (2004). Human Development Report. New York and Geneva: United Nations Vernon, Rymond (1966). International investments and international Trade in the Product Life Cycle. Quarterly Journal of Economics, Vol 80, No.2, 190 - 207 Vernon Raymond, (1979) the Product Life Cycle Hypothesis in a New international Environment. Oxford Bulletin of Economics & Statistics, Vol.4 No-4, 255-267 World Bank, 2002. African Development Indicators 2002: Making Monetary Work for Africa, Washington, D.C World Bank World Bank, 2003. World Development Report. Washington, D.C World Bank. Prahalad C.K. and G. Hamel (1990) ” The Core Competence of Corporations” Harvard Business Review Vol. 66 May/June pp: 79-91 Wernerfelt, Birger (1984) ”A Resource-Based View of the Firm” Strategic Management Journal Vol. 5 No. 2 pp. 171-180 Woo, Carolyn Y., Deallenbach, Urs and Nicholls-Nixon, Charlene (1994) "Theory Building in the Presence of "Randomness": The Case of Venture Creation and Performance" Journal of Management Studies 31 Zhang, Kevin H. (2001) Does foreign direct investments promote economic growth? Evidence from East Asia and Latin America, contemporary Economic Policy, Vol. 19 no 2, 175- 185 227 THE RELATIONSHIP BETWEEN ADEQUACY OF PAY, PERCEIVED DISTRIBUTIVE JUSTICE AND INDIVIDUAL ATTITUDES AND BEHAVIOURS: A STUDY OF THE HEADQUARTERS OF MALAYSIAN POST OFFICE IN KUCHING, SARAWAK Azman Ismail M. Faisal Asfah Roziati Ismail Universiti Malaysia Sarawak Ali Boerhannoeddin Universiti Malaya, Malaysia ABSTRACT This paper discusses the moderating role of distributive justice in the relationship between adequacy of pay and personal outcomes. This relationship was tested using data gathered from the in-depth interview and survey research methods. As a result of survey method, 137 questionnaires were gathered from employees who had worked in the Headquarters of Malaysian Post Office in Kuching, Sarawak (MPOS).The outcomes of hypotheses testing using multiple regression analysis showed that interacting variable (interaction between adequacy of pay x distributive justice) significantly correlated with individual attitudes and behaviours. These results demonstrate that the adequacy of pay has invoked employees perceptions of justice and this feeling may lead to increased both job satisfaction and job commitment in the organization. In addition, implications of this study to compensation theory and practice, conceptual and methodological limitations, and directions of future research in this area are also discussed in this article. INTRODUCTION Compensation is a critical human resource management function (Anthony, Perrewe & Kacmar, 1996; Henderson, 2000; Noe, Hollenbeck, Gerhart & Wright, 2004) where it emphasises planning, organising, and controlling the various types of pay systems (i.e., monetary versus non-monetary rewards or direct versus indirect payments) for rewarding employees who perform work or service (Cascio, 1995; Henderson, 2000; Milkovich & Newman, 2005; Wallace & Fay, 1988). Within organisations, individual employees often view pay systems as a tool that can be used to fulfil their expectations and aspirations (Adams, 1963 & 1965; Cascio, 1995; Herzberg, 1959 & 1968; Maslow, 1943 & 1954). For example, non-monetary and monetary rewards can be a powerful tool to capture the minds and hearts of workers and that may strongly increase their satisfaction and thus lead to increased productivity. This idea is viewed as bridging the gap between organisational and individual goals in an employment relationship (Cascio, 1995; Folger & Greenberg, 1985; Young, 1999). In order to increase and sustain organisational competitiveness in a global world, many organisations shift their human resource management paradigms from traditional to business strategy and culture (Gomez-Mejia & Balkin, 1992a & 1992b; Kanter, 1989; Lawler, 1990; Schuster & Zingheim, 1992). Under a strategic human resource management perspective, an employer often uses both performance and job based structures as a mean to allocate the type, level and/or amount of pay (i.e., non-monetary and monetary rewards) to employees (Anthony et al., 1996; Henderson, 2000; Milkovich & Newman, 2005; Rajkumar, 1996). If employees feel that their non-monetary rewards and monetary rewards are adequately distributed this will help employees to fulfil their needs and expectations (Henderson, 2000; Mamman, 1997; Maslow, 1943 & 1954; Lawler, 1981). As a result, this feeling may lead employees to support the major goals of organisational pay system (e.g., efficiency, fairness and compliance with law) (Henderson, 2000; Maurer, Shulman, Ruwe & Becherer, 1995; Milkovich & Newman, 2005). This main objective of this paper is to quantify the moderating role of distributive justice in the relationship between adequacy of pay and individual attitudes and behaviours. The nature of this relationship has not been thoroughly studied in past research (Adams, 1963 & 1965; Allen & White, 2002; Maslow, 1943 & 1954). Relationship between Adequacy of Pay, Perceived Distributive Justice and Individual Attitudes and Behaviours 228 Distributive justice theories state that perceptions of fairness about pay allocations can be an important link between adequacy of pay and individual attitudes and behaviours. For example, when employees perceive the distributions of pay based on salient criteria (e.g., length of service, seniority, performance and/or organisations needs) as fair, this will motivate them to improve job satisfaction and job commitment (deCarufel, 1986; Folger & Greenberg, 1985; Giacobbe-Miller, Miller, & Victorov, 1998; William, 1995). Adams (1963 & 1965) equity theory falls into a distributive justice theory which states that when employees perceive the interaction between output and input ratio as equitable, it may motivate employees satisfaction and commitment. When employees perceive the interaction between output and input ratio is not equitable, it may cause discomfort. When employees perceived other employees are rewarded more for the same effort, they will react negatively (such as shirk) to correct the output to input balance. In this theory, employees feelings of equity or inequity about pay level has been much emphasised as a major determinant of satisfaction or dissatisfaction with pay level. If employees perceive that they receive unfair pay levels, this feeling may increase negative behavioural outcomes such as decreased job satisfaction and job commitment (Cowherd & Levine, 1992; Glass & Wood, 1996; Janssen, 2001; Pfeffer & Langton, 1993). The notions of distributive justice theories are also consistent with compensation research literature. For example, Bloom (1999) studied about the pay gap in the Indiana State University based on the report of the consultants 199394 work prepared by the Offices of Provost and Planning and Budgets. This study indicated that adequacy of pay between professors who had been promoted in the institution since the beginning of their academic career and professors who were recently hired by the institution could be a major factor of motivating dissatisfaction with job. Besides that, Allen and White (2002) examined the equity sensitivity theory based on a sample of 240 business students at an urban public university and found that pay less for working had decreased employees feelings of injustice and this may lead to decreased job commitment. However, this theory only tested individuals attitudes to pay less for doing works. Its finding supported Adams (1963 & 1965) equity theory where feelings of inequity and dissatisfaction to pay level can decrease employee commitment to an organization. Based on the evidence, a main hypothesis will be tested is that: H1: Perceptions of distributive justice affect the relationship between adequacy of pay (as measured by nonmonetary rewards and monetary rewards) and individual attitudes and behaviours (as measured by job satisfaction and job commitment). RESEARCH METHODOLOGY AND PROCEDURE This study used a cross-sectional research design which allowed the researchers to integrate compensation research literature, the in-depth interviews and the pilot study as a main procedure to gather data from employees who had worked in MPOS (a national post office company operated in Kuching, Sarawak, West Malaysia). As advocated by many researchers, the use of such methods may gather accurate and less bias data (Creswell, 1998; Davis, 1996; Sekaran, 2000). In this study, in-depth interviews were first conducted involving 7 experienced employees who held management and non-management positions in the organisations. Their views were sought to understand compensation system practices, perceptions of justice about the pay allocation rules, job satisfaction characteristics and job commitment characteristics in the organisations. The information gathered from this method was used to develop a survey questionnaire for this study. Secondly, a pilot study was conducted involving 5 experienced employees who had worked in different positions in MPOS. Their feedbacks were used to verify the content of research questions developed for the survey. The research questionnaire had four sections. Firstly, adequacy of pay (i.e., non-monetary rewards and monetary rewards) had 7 items that were developed based on compensation management literature (see Guthrie, 2000; Pettijohn, Pettijohn & dAmico, 2001; Tata, 2000; Young, 1999; Williams, 1995), the in-depth-interviews and the pilot study responses. Secondly, distributive justice had 4 items that were developed based on distributive justice literature (Adams, 1963 & 1965; Folger & Cropanzano, 1998 & 2001; Moorman, 1991), the in-depth-interviews and the pilot study responses. Thirdly, job satisfaction was measured using a 7-item Overall Job Satisfaction scale developed by Warr, Cook, and Wall (1979). Fourthly, job commitment was measured using a 3-item Organisational Commitment Scale developed by Mowday, Steers, and Porter (1979). These items were measured using a 5-item scale ranging from most disagree/dissatisfied (1) to most agree/satisfied (5). 229 This study used a simple random sampling to gather 137 usable responses from employees who had served in MPOS. In terms of theoretical perspective, the number of this sample is more than the minimum sample size of 30 participants as recommended by many statisticians (Leedy & Ormrod, 2005; Salkind, 2003). A Statistical Package for Social Science (SPSS) version 11.5 was used to analyse questionnaire data gathered from the survey. In terms of sample profile, most respondents characteristics were male (75%), age less than 40 years old (56%), secondary school education (86%), length of service was less than 5 years (71%), monthly salary was less than RM2000 per month (77%), and most of them were operational supporting staff (70%). FINDINGS AND DISCUSSIONS Prior to the hypotheses testing, the psychometric properties for measurement scales were assessed. There are no strict guidelines to determine the level of validity for each item (Cooper & Schindler, 2003; Gravetter & Forzano, 2003), but the items that have factor analysis values of 0.40 or greater are considered to have achieved the validity standard (Hair, Anderson, Tatham & Black, 1998). A value of Cronbach alpha of more than 0.63 for a set of items (variables) indicates that the relatively high reliability of the measurement scales (Nunally & Bernstein, 1994). Table 1 presents the items that had high validity and reliability standards were used as a baseline to test correlation between variables. Table 1: Preliminary Validity and Reliability Analyses for Measurement Scales Variable Item Validity (Factor Loadings) A Set of Items Reliability (Cronbach Alpha) Monetary Rewards a1 .59 a2 .66 4 .63 a6 .70 a7 .46 Non-Monetary Rewards b1 .80 3 .67 b2 .86 b5 .52 Distributive Justice c1 .73 c2 .80 4 .81 c3 .76 c4 .59 Job Satisfaction d2 .71 d4 .68 7 .86 d5 .70 d7 .68 d8 .81 d10 .72 d13 .68 Job Commitment k1 .73 k2 .56 3 .69 k3 .65 Next, Pearsons correlational analysis was reviewed. Table 2 presents the mean values of each non-demographic variable are 3, indicating that employees perceive the adequacy of pay, distributive justice, job satisfaction and job commitment are from high (3) to highest (5) level. The correlation coefficients between the independent variable (adequacy of pay) and the dependent variable (i.e., distributive justice, job satisfaction and job commitment) were less than 0.90, indicating the data are not affected by a collinearity problem (Hair et al., 1998). These correlations also provide further evidence of validity and reliability for measurement scales used in this research (Barclay, 230 Higgins & Thompson, 1995; Hair et al., 1998). The variables that had the high validity and reliability were used as a baseline to test research hypotheses. Table 2: Means, Standard Deviations, and Correlation between Variables N=137 Variable M SD Pearson Correlation Coefficients (Pearsons r) 1 2 3 4 5 6 7 8 9 10 1. Sex 1.3 .45 1 2. Age 3.5 1.27 .38** 1 3. Education 4.4 .80 .05 .26** 1 4. Length of Service 4.3 1.86 .38** .88** .15 1 5. Salary 1.8 .80 .50** .66** -.04 .70** 1 6. Position 2.7 .55 -.66** -.26** -.00 -.32** -.42** 1 7. Adequacy 3.0 .66 .12 .12 .07 .14 .22** -.12 1 8. Distributive Justice 2.7 .91 .26** .13 -.01 .05 .18* -.14 .60** 1 9. Job Satisfaction 2.9 .88 -.13 -.04 -.00 -.11 .05 .13 .61** .61** 1 10. Job Commitment 3.2 1.11 -.20* .03 .05 .06 .07 .18* .38** .15 .45** 1 Note: ** p<0.05; **p<0.01=Significant Correlations M=Mean Value Applicable SD=Standard Deviation NA=Not Reliabilities represented on diagonal (1) Values of Pearsons r between -1 to indicate the strength of the linear correlation between two variables. Negative or positive correlation coefficients indicate a negative or positive linear way. HYPOTHESES TESTING RESULTS Moderating effects are a type of interaction where the strength of the relationship between an independent variable and a dependent variable is changed when other variables are present (Jaccard, Turrisi, & Wan, 1990; Kleinbaum, Kupper, & Muller, 1988). A moderated hierarchical regression analysis (as recommended by Cohen and Cohen (1983) was undertaken to test the indirect relationship hypotheses. A moderation effect is present in the hypothesized model if the relationship between interacting terms and the dependent variable is significant. Although the significant main effects of predictor variables and moderator variables simultaneously exist in analysis, it does not affect the moderator hypothesis and is significant to interpret the interaction term (Baron & Kenny, 1986). The inclusion and exclusion of distributive justice in the hypothesized model were simultaneously tested using the hierarchical regression analysis. This analysis showed the relationship between variables into three steps. Firstly, respondents characteristics were entered into Step 1 as a controlling variable. Secondly, adequacy of pay and distributive justice were entered into Step 2 as a response variable (main effect). Thirdly, interaction between adequacy of pay and distributive justice was entered into Step 3 as an interacting variable (interaction effect). Job satisfaction and job commitment were used as the dependent variable in the regression analysis. This study tests two specific hypotheses. The first hypothesis is that: H1: Perceptions of distributive justice affect the relationship between adequacy of pay and job satisfaction. Table 3 presents the results of hierarchical regression analysis for the MPOS with job satisfaction as the dependent variable. Standardized coefficients (standardised beta) were used for all analyses (Jaccard et al., 1990). Table 3: Hierarchical Regression Results for Job Satisfaction As a Dependent Variable Independent Variable Dependent Variable Step 1 Step 2 Step 3 Sex -.16 -.26* -.24** Age .18 .09 .15 Education .04 .01 -.02 Length of Service -.43* -.27* -.31* 231 Salary .35** .18* .16 Position .08 .07 .08 Response Variables Adequacy of Pay .38*** .82*** Distributive Justice .43*** 1.11*** Interactions Adequacy of Pay x Distributive Justice -1.02** R Squared .09 .58 .60 Adjusted R .05 .55 .58 F 2.13* 7.68*** 21.46*** R Square Change .09 .49 .03 F Change R 2.13* 74.09*** 8.07** Note: *p<0.05; **p<0.01;***p<0.001 Step 3 presents the results of regression analysis for three major relationships: Firstly, employees who have different sex and length of service negatively and significantly correlated with job satisfaction (B=-.24, p=.01; B=-.31, p=.02). These results demonstrate that employees who have different sex and length of service have influenced job satisfaction. Secondly, the main effect of adequacy of pay positively and significantly correlated with job satisfaction (B=.82, p=.000). These results demonstrate that the type, level and/or amount of pay that are adequately distributed according to employees contributions have motivated them to increase job satisfaction. Next, a conditional role of distributive justice in the hypothesized model needs to be tested in order to avoid confounding results before making a final conclusion for this study. Thirdly, the interacting terms (adequacy of pay x distributive justice) significantly correlated with job satisfaction (B=-1.02, p=.01), therefore this hypothesis was fully accepted. The nature of this relationship was negative. These results demonstrate that the type, level and/or amount of pay that are adequately allocated according to employees contributions have invoked employees feelings of justice about the allocation systems. As a result, this feeling may lead to increased job satisfaction. These findings also have gained strong support from compensation research literature (see Bloom, 1999; Glass & Wood, 1996). H2: Perceptions of distributive justice affect the relationship between adequacy of pay and job commitment. Table 4 presents the results of hierarchical regression analysis for the MPOS with job commitment as the dependent variable. Standardized coefficients (standardised beta) were used for all analyses (Jaccard et al., 1990). Table 4: Hierarchical Regression Results for Job Commitment As a Dependent Variable Independent Variable Dependent Variable Step 1 Step 2 Step 3 Sex -.24* -.24* -.21 Age -.15 -.09 -.03 Education .09 .04 .01 Length of Service .13 .11 .06 Salary .26* .15 .12 Position .13 .14 .14 Response Variables Adequacy of Pay .40 .91*** Distributive Justice -.03 .75* 232 Interactions Adequacy of Pay x Distributive Justice -1.18* R Squared .10 .23 .27 Adjusted R .06 .19 .22 F 2.37* 4.88*** 5.15*** R Square Change .10* .14*** .03* F Change R 2.37 11.27 5.83 Note: *p<0.05; **p<0.01;***p<0.001 Step 3 presents the results of regression analysis showed for the three major relationships: Firstly, employees who have different backgrounds insignificantly correlated with job satisfaction. These results demonstrate that employees who have different backgrounds did not influence job satisfaction. Secondly, the main effect of adequacy of pay positively and significantly correlated with job commitment (B=.91, p=.000). These results demonstrate that the type, level and/or amount of pay that are adequately allocated according to employees contributions have motivated them to improve job commitment. Next, a conditional role of distributive justice in the hypothesized model needs to be tested in order to avoid confounding results before making a final conclusion for this study. Thirdly, the interacting terms (adequacy of pay x distributive justice) significantly correlated with job commitment (B=-1.18, p=.02), therefore this hypothesis was fully accepted. The nature of this relationship was negative. These results demonstrate that the type, level and/or amount of pay that are adequately allocated according to employees contributions have increased employees feelings of justice about the systems. Thus, this feeling may lead to increased job commitment. These findings also have gained strong support from compensation research literature (see Adams, 1963 & 1965; Allen & White, 2002). According to the in-depth interview results, MPOS uses standardised pay policies and procedures as a mean to allocate pays to employees who have served in different job groups. For example, the type, level and/or amount of non-monetary rewards (e.g., salary and bonus) and monetary rewards (e.g., leave, health care, loan and retirement plans) are distributed to employees based on the standardised criteria such as position, length of service, seniority, performance and/or organisations needs (as described in Table 2, mean value for adequacy of pay is 3). Besides that, employees who have worked in different job groups perceive that they receive adequate pays and this may increase their feelings of justice about the allocation systems (as described in Table 2, mean value for feelings of distributive justice is 3). These conditions further explain that the type, level and/or amount of pays that are adequately allocated to employees based on standardised pay criteria has invoked employees feelings of justice about the systems. Thus, this feeling may lead to increased positive attitudinal and behavioural outomes (i.e., job satisfaction and job commitment) in the organisation. IMPLICATIONS OF THE STUDY The implications of this study can be divided into three categories: theoretical contribution, robustness of research methodology, and practical contribution. In terms of theoretical contribution, this study has extended previous research conducted in most Western countries and provided great potential to understand the notion of distributive justice in the MPOS-compensation management model. The results of this study advocate that the effect of adequacy of pay on job satisfaction and job commitment is strongly influenced by individuals feeling of distributive justice. With respect to the robustness of research methodology, the data gathered from compensation management literature, the in-depth interviews and the survey questionnaire have exceeded a minimum standard of validity and reliability analyses. These can lead to the production of accurate findings. Regarding practical contributions, findings of this study may be used by HR officers and/or managers to improve the rules of allocating pays to employees within organisations. According to this perspective, distribution of pays according to external (e.g., 233 market or competitors pays) and internal (e.g., nature of work and employees knowledge, skills and abilities) organisational factors will help employees to fulfil their needs and expectations. For example, the amount of salaries, yearly bonuses, pay rises and benefit entitlements (e.g., health care, children education, outstation allowances, and retirement plans) should be revised according to the following factors: (1) employees workloads and job difficulties, (2) employees qualifications and experiences, and (3) local costs of living (e.g., basic necessity expenses). If these suggestions are heavily considered this will increase employees type, level and/or amount of pay and that may help employees to meet basic needs, improve their standards of living and status in society. When employees fulfil their objectives, this condition will increase employees positive feelings about the pay allocation systems. This feeling may lead to increased positive subsequent attitudinal and behavioural outcomes (e.g., satisfaction and commitment). Hence, these positive outcomes may help managers to achieve organisational and human resource management’s goals and strategy. LIMITATIONS OF THE STUDY The conclusion drawn from the results of this study should consider the following limitations. Firstly, this study was a cross-sectional research design where the data were taken one time within the duration of this study. This research design did not capture the developmental issues (e.g., intra-individual change and restrictions of making inference to participants) and/or causal connections between variables of interest. Secondly, this study only examines the relationship between latent variables and the conclusion drawn from this study does not specify the relationship between specific indicators for the independent variable, moderating variable and dependent variable. Thirdly, the outcomes of multiple regression analysis have focused on the level of performance variation explained by the regression equations and it is also helpful to indicate the amount of dependent variable variation not explained (Tabachnick & Fidell, 2001). Although a substantial amount of variance in dependent measure explained by the significant predictors is identified, there are still a number of unexplained factors that can be incorporated to identify the causal relationship among variables and their relative explanatory power. Therefore, one should be cautious about generalising the statistical results of this study. Finally, the sample for this study was taken from one organisation that allowed the researchers to gather data via survey questionnaires. The nature of this sample may limit the ability of generalizing the results of this research to other organisational settings. DIRECTIONS FOR FUTURE RESEARCH The conceptual and methodological limitations of this study need to be considered when designing future research. Firstly, this study sets a foundation for research on relationships between adequacy of pay, distributive justice, job satisfaction and job commitment. It has raised many questions as well as confirming initial propositions. A few research areas can be further explored as a result of this study. Secondly, the organisational and personal characteristics as a potential variable that can influence the adequacy of pay needs to be further explored. Using these organisational (e.g., division) and personal (e.g., sex and length of service) characteristics may provide meaningful perspectives for understanding of how individual similarities and differences affect pay systems distribution within an organisation. Thirdly, the cross-sectional research design has a number of shortcomings, therefore other research designs such as longitudinal studies should be used as a procedure for collecting data and describing the patterns of change and the direction and magnitude of causal relationships between variables of interest. Fourth, the findings of this study rely very much on the sample taken from the MPOS. To fully understand the effect of adequacy of pay on individual attitudes and behaviours via its impact upon feelings of distributive justice, more organisations (e.g., local authorities, non-profit organisations and business firms) need to be used as a pay referent in future study. Fifthly, as an extension of the distributive justice studies, the theoretical construct of procedural justice needs to be considered in future research because it has been widely recognised as an important link between adequacy of pay and individual attitudes and behaviours. For example, perceptions of fairness about the process and systems of distributing pays may strongly induce positive personal outcomes such as decrease job dissatisfaction, intention to leave organisation as well as increase job performance (Greenberg, 2003; Jarrel & Stanley, 1994; McGrath, 1994; Summer & Miller, 2000). Finally, job performance, turnover, and deviant behaviours have been found to be important outcomes of the effect of distributive justice in compensation management literature (see Ambrose, 2002; 234 Sweeney & McFarlin, 1993; Tang & Chiu, 2003; Tang, Kim, & Tang, 2000). The importance of these issues needs to be further elaborated in future research. CONCLUSION This research had used the high psychometric properties of measurement scales as a baseline to test the research hypotheses. The outcomes of regression analysis showed that the inclusion of distributive justice in the hypothesized model had increased the effect of adequacy of pay on individual attitudes and behaviours. These results confirm that distributive justice does act as a moderator in the relationship between adequacy of pay and job satisfaction and job commitment. These results have also gained strong support from compensation research literature and the in-depth interview responses. 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Zbib Yusuf Sidani Karla Farhat-Atallah American University of Beirut ABSTRACT The study reported here examines country of origin and national loyalty effects on Lebanese consumers’ quality perceptions, attitudes, and purchase intentions with respect to airline industry in the Middle East. Results show that factors other than personal experience do impact customer perception when selecting the airlines of preference. National loyalty was a key factor in affecting consumers’ perceptions when selecting the preferred airline, rating the quality but not the price. Furthermore, national loyalty was not related to demographic variables. Country of origin was the key informational cue. Product knowledge, brand awareness and the purpose of flying were other influencing factors. Brand awareness effect is mediated by the country of origin. The direct role of personal experience could not be proved. However, in the presence of personal experience, demographic variables influenced customer perceptions, whereas in its absence, the country of origin effect was dominating. INTRODUCTION Previous research showed that the country of origin of a product affects its evaluation with respect to the consumer. Along with country of origin, other factors do influence product evaluation such as the brand (Okechuku, 1994) and the extent to which a consumer is familiar with the product (Schaffer 1997), the degree of sophistication of product (Kaynak and Cavusgil, 1983; Wall, Liefeld, and Heslop, 1991), the availability for imported versus home made products (Han, 1990; Parameswaran and Yaprak, 1987), the price (Okechuku, 1994), the level of ethnocentrism the consumers have (Han, 1990; Shimp and Sharma, 1987), the economic status of the product’s manufacturing country (Schooler, 1971; Wang and Lamb, 1983), and the degree of similarity between the foreign and the home country; being culturally, politically or economically (Wang and Lamb, 1983). Crawford and Lamb (1981) suggested that buying a product which is foreign in origin and is domestically available may have an emotional notion, especially when the consumer is unemployed or his national security is compromised. Olson and Jacoby (1972) distinguished between intrinsic cues such as performance and styling, and extrinsic cues such as the availability of product, the prestige and associated with that product, and its price. In the absence of intrinsic cues, extrinsic cues are adopted by consumers to evaluate a product. Quality is rarely evaluated without the consumer actually experiencing the product especially in a repurchase situation (Herche, 1994). LITERATURE REVIEW The Airline Industry The airline industry has dramatically changed throughout the past few decades with extraordinary growth, intense competition, and vulnerability. (Vellas and Becherel, 1995). The 1991 Gulf war followed by the September 11, 2001 terrorist attacks incurred great losses on this industry. Moreover, the fierce competition between the different airline companies providing the much needed services with the lowest possible costs, along with soaring fuel price, has driven many airline companies to slash their overhead costs (Gourdin, 1988, IATA 2004) and limit their services which customers had been previously used to in the past. There was a decrease in the overall quality of services provided. Airline companies started to establish alliances with foreign airlines (Bartlet and Ghoshal, 1987). Since the establishment of the “open skies” in Lebanon, the local carrier, Middle East Airlines, is facing tougher competition by the day. Most world airlines are competing for the Lebanese passengers with the exception of North American carriers who are yet to establish direct routes from Beirut to North American cities. However, these North 238 American airlines are venturing the local market through world alliances which they have developed with European and other international airlines operating the Lebanese market. Middle East Airlines Middle East Airlines (MEA) was established in 1945, the same year in which Lebanon gained its independence. Early on, the airliner launched its very first service routes between Beirut and the neighboring cities of Syria, Cyprus, and Egypt. Thereafter, MEA expanded its routes to include regular passenger services to Saudi Arabia, Kuwait, and other vital gulf destinations. The merge with Air Liban in 1963 allowed MEA to add even more European and Middle Eastern destinations to its worldwide list of destinations including a variety of African cities. Despite the regular closure of Beirut international airport during Lebanon’s civil war between 1973 and 1990, MEA managed to survive through the renting out of its fleet along with its stuff to other international carriers operating in different regions in the world. With the return to the normal order of business operations in the early 90s, MEA slowly but incessantly, re-established itself as one of the Middle East’s premium carriers. Today, MEA’s fleet consists of nine new Airbus aircrafts, three A30-200s and six A321-200s (www.mea.com.lb). Country of Origin A study performed in the United States, Canada, Germany, and the Netherlands, revealed that the country of origin is considered to be one of the most important factors in product evaluation (Okechuku, 1994). Roth and Romeo (1992) defined country of origin as the consumers’ perception of products manufactured in a particular country based on his/her initial perception of that country’s strengths, weaknesses and image in the market place. Zhang (1995) mentioned that consumers usually have different perceptions regarding products manufactured in different countries. These perceptions, in turn, lead to different evaluations of the products based on the origin of the manufacturing countries. Erickson et al. (1984) highlighted a distinction between the “belief” and the product evaluation carried out. It is the belief that is usually influenced by the country of origin rather than the real evaluation of the product (Erickson et al., 1984). Bruning (1997) indicated that the decision to choose a product that is locally manufactured versus a foreign one is highly influenced by one’s country of origin He claimed that “country of origin cues trigger a global evaluation of quality, performance, or specific product/service attributes”. He added that experiences with different products together with stereotyping of certain countries affects consumers perception of product attributes in that country. Bilky and Ness (1982) and Hong (1987) indicated that in the absence of specific product information; country of origin plays a major role in country stereotyping. When evaluating foreign products, consumers tend to create dissimilar evaluations regarding different products having the same county of origin (Okechuku, 1994) indicating that country of origin effects differs from one product to another. Other researchers argue that the extent to which country of origin influences product selection is dependent on the degree of complexity of different products (Kaynak and Cavusgil, 1983; Wall, Liefeld, and Heslop, 1991). The impact of country of origin diminishes when evaluating apparel products compared to the evaluations of televisions and automobiles (Okechuku, 1994). Zhang (1995), indicated that when consumers are evaluating a sophisticated product with complex features, they are more likely to depend on country of origin information readily available to evaluate this product and decide on a purchase choice. Furthermore, country of origin effects seems to be country-dependent, that is, they vary significantly between different countries (Nagashima, 1970; Cattin, Jolibert, and Lohnes, 1982). Consumers are more likely to purchase products manufactured by countries having distinctive image for that product rather than countries that do not possess a good reputation for producing the same product (Roth and Romeo, 1992). Zain and Yassin (1997) concluded in their study that the products of well developed countries (USA and Japan) are relatively highly evaluated by consumers. On the other hand, products manufactured by less developed countries (China, India, and Uzbekistan) were perceived as low quality products. Zhang (1995) claimed that usually developed countries have more access to information and product attributes than developing countries thus driving developing nations towards relying more on country of origin as cues to evaluate products. Lin and Sternquist (1994) argued that consumers of the developing countries are more likely to be influenced by the country image in their behavior. Other studies revealed that consumers usually give a higher 239 evaluation to products manufactured in developed countries than that given to products manufactured in developing countries (Schooler, 1971; Wang and Lamb, 1983). In their study, Bilkey and Nes (1982) indicated that when country of origin is solely used as the criteria for the selection of a certain product, consumers tend to exaggerate its effect. Realizing that single cue researchers have a high tendency to render biased results, it became evident that co-joint analysis would produce better, more realistic, and less biased results relative to consumers’ purchasing behavior (Ettenson, Wagner, and Geath, 1988). Consumer Knowledge Country of origin becomes of less significance when the product is widely known (Cordell, 1992). According to Schaefer (1997), consumer knowledge significantly impacts country of origin effects. Yet, this knowledge comes in different forms and dimensions resulting in a variety of consumer behaviors. Consumer knowledge of a product could be broken into product knowledge and consumer’s own experience with the product (Schaefer, 1997). Marks and Olson (1981) defined product knowledge as the residual attributes preserved in the consumers’ minds from past product experiences. Knowledge, however, is a perspective based on brand name, attributes, general information about product class, and decision making rules (Marks and Olson, 1981). Okechuku (1994) questioned the effect of consumers’ information about prices, brands and other products’ attributes on the impact of country of origin. Bilkey and Nes (1882) argued that consumers tend to exaggerate the effects of country of origin when it is the only information available to them. Etterson, Wagner and Gaeth (1988) concluded in their study that when country of origin is the only information given to consumers, 40% of participants felt that this aspect represents an important factor in their selection of apparel products. However, a co-joint analysis of another experiment revealed that the country of origin factor only influenced 6% of the consumers’ purchase decision (Etterson et al., 1988). Hong and Wyer (1989) concluded that country of origin acts as an extrinsic cue to consumers just like brand name and price. In the absence of products’ intrinsic cues, consumers tend to use country of origin in their evaluation of products (Han, 1988; Lawrence, Marr, and Prendergast, 1992). When product attributes information cues are available to consumers, the weight placed on a country of origin in the process of product evaluation diminishes (Lim et al., 1994). The product image preserved in a consumer’s mind could involve information directly linked to country of origin (Schaefer, 1997). He concluded that consumers who are characterized as possessing a high level of subjective knowledge rely more on country of origin cues than those with inferior subjective knowledge. FitzGerald and Arnott (1996) claimed that “personal experience is a key driver in the repeat purchase of service products”. Results of the study also revealed that both males and females in similar percentages, considered personal experiences to be the most important criterion which acted as a basis for their selection. Alba and Hutchinson (1987) claims that different consumer knowledge dimensions are the direct result of different experiences. Diverse consumer knowledge dimensions will ultimately affect product evaluation and consumption differently. National Loyalty In 1996, Bruning claimed that a consumer with a high sense of national loyalty is more likely to be drawn into promotional campaigns that target national themes than a consumer with a lower sense of national loyalty. Other cues such as brand, country image, and product display could prove influential on consumers who are characterized by a low sense of national loyalty. These consumers could usually be easily persuaded to purchase foreign imported products which are domestically available. The basic criteria used to access national loyalty in the airline industry are sex, income, flying frequency and occupation. Females appear to have an edge in their sense of nationality over males; furthermore, people who rarely travel have high national loyalty; the lower the income was, the higher was an individual’s national loyalty; and finally, national loyalty were timid among people who were professionals when compared to those figures among the unemployed. In the end, the study concluded that Canadians with high national loyalty were among those who are more likely to choose a national carrier regardless of the availability of foreign competitors (Bruning, 1997). 240 Brand Awareness Along with country of origin, other factors do influence product evaluation such as brand awareness (Okechuku, 1994). Ahmed et al. (2002) that brand name had a more significant influence on consumers’ choices than country of origin did. Furthermore, it became evident that brand and country of origin interact in such manner to suggest that the better the country of origin is, the weaker the effects of brand on consumers’ behavior. Ahmed et al. (2002) suggested that consumers seek reliable information such as known brand rather than a stereotype country of origin in their purchasing behaviors. It is imperative to highlight the distinction between general product knowledge and familiarity with specific brands (Schaefer, 1997). Consumers who are familiar with specific brands tend to evaluate a product through their familiarity with the brand name rather than the product’s attributes and country of origin (Schaefer, 1997). The same study concluded that familiarity with the brand is inversely related to the reliance on country of origin. Consumers tend to link well-established brands with specific countries when evaluating different product categories (Okeschuku, 1994). However, consumers, when selecting products, tend to rely more on their knowledge of the country of origin rather than attempt to discover the manufacturing origin (Okechuku, 1994). Han and Terpstra (1988) said that since country of origin is a more important cue in products’ evaluation than the brand name, consumers who are more knowledgeable about the country of origin, would not highly regard a product with a strong brand name but poor country image. Brand name is very much influenced by its country of origin. That’s why marketers tend to highlight the origins of certain brands in the presentation of products to their audience. In general, country of origin tends to be emphasized in marketing campaigns when that country has a prominent reputation for its high quality of products. (Thakor and Lavack, 2003). Cultural Factors Cultural factors affect consumer behavior to buying products. Wang and Lamb (1983) discovered the presence of a certain degree of bias judgments on the part of consumers in the sense that they preferred purchasing products from countries that were culturally similar to their own home country. This further emphasized the significant role cultural ties play in the development of national loyalty of consumers. As acknowledged by Pizam et al. (1997), it is the collective nations of norms, beliefs and values that distinguish one group of people from another. Crotts and Erdman (2000) conducted a study to assess national culture influence on consumers’ evaluation of travel services. The highly-male dominant societies, consumers did not hesitate to declare dissatisfaction with products or services as compared to societies with moderate to low male-dominant cultures. Moreover, consumers coming from low to moderate muscularity cultures are more likely to be loyal customers as compared to consumers coming from high masculine cultures who usually display less loyal attitude. Perceived Price and Perceived Quality Along with country of origin, price impacts consumer evaluation (Okechuku, 1994). A study carried out on Polish consumers found that Polish consumers found that Polish consumers are usually aware of prices when buying necessary products for daily life. These consumers perceived western products to be of higher prices (Woodruff, Drake, Condon, and Simpson, 1998). Furthermore, buyers perceive a positive relationship between price and quality of products (Tull et al., 1964; McConell, 1968; Monroe and Krishman, 1985). Researchers verify the existence of a positive relationship between price and quality of a product (Chen et al., 1994) where the higher brand price of a product was, the more likely it would be chosen by the respondents (Leavitt, 1954). In assessing the degree of positive correlation between the quality of a product and its price for 145 products, Gerstner (1985) found that quality-price relationship turned to be product-oriented and rather weak in general. Chen et al. (1994) concluded that some products have a positive relationship between quality and price while others do not. The assumption of perfect information is a key difference between the economic concept and the behavioral concept in the study of price and purchase decisions (Chen et al., 1994). Jacoby et al. (1971) acknowledges from the above assumption that consumers are not completely familiar with products and product alternatives. This assumption suggests that the effect of price on perception of quality is mediated through consumer expertise or familiarity. 241 Demographics Demographic considerations and characteristics play an important role in the advertising and the pricing of products and services (FitzGerald and Arnott, 1996). Females who travel on business today constitute around 24% of the overall business travelers (Fitzgerald and Arnott, 1996). Moreover, after analyzing variable demographic data related to utilizations of the airline industry, they concluded that female frequent flyers generally earn less than their male counterparts and relatively report lower earnings especially the young generation. Furthermore, as the earned income declined, so did the number of flights made per year. In addition to this, males tend to travel more often than females, yet, failed to disclose any correlation between product adoption and age.Extra attention should be awarded to demographic research to avoid what has been taking place for a long time and that is advertisements targeted at frequent male business flyers. RESEARCH OBEJCTIVE & HYPOTHESIS The aim of this study comes to examine the country of origin effects and patriotism effects on the Lebanese consumers’ quality perceptions, attitudes, and purchase intentions with respect to airlines serving Lebanon. And, in order to do so, the Lebanese consumers’ attitudes and perceptions towards Middle East (MEA), Jordanian, Syrian, Emirates, Qatar and Kuwait Airlines were examined. Jordanian and Syrian airlines were grouped under the Arab Neighboring airlines whereas Emirates, Qatar and Kuwait airlines were grouped under Arab Gulf airlines. Nine hypotheses were formulated to examine the relationships between the different demographic variables and the various aspects of airline services and other factors like the purpose of traveling and patriotic feelings. The following hypotheses were tested: Hypothesis 1: There is no significant relationship between any of the demographic variables and the importance of statements related to airline service in general. Hypothesis 2: There is no significant relationship between any of the demographic variables and the patriotic feeling. Hypothesis 3: There is no significant relationship between any of the demographic variables and the perceived level of price for MEA, neighboring Arab airlines and Arab Gulf airlines. Hypothesis 4: There is no significant relationship between any of the demographic variables and the perceived level of quality for MEA, neighboring Arab airlines and Arab Gulf airlines. Hypothesis 5: There is no significant relationship between being or not a frequent flyer and the airline preference. Hypothesis 6: There is no significant relationship between the purpose of flying and the airline preference. Hypothesis 7: There is no significant relationship between the patriotic feeling and preferred airline. Hypothesis 8: There is no significant relationship between any statements related to the patriotic feelings and perceived level of price of MEA. Hypothesis 9: There is no significant relationship between any statements related to the patriotic feelings and perceived level of quality of MEA. METHODOLOGY Research Method The research comprised formulation of a detailed questionnaire that covered almost all aspects related to the consumers’ perceptions of the airlines serving Lebanon. The focus was on regional airlines in comparison with the local carrier, Middle East Airlines. Eighteen detailed questions embodied age groups, education levels, genders, professional experience and position, level of income, and acquisition of other nationalities. The questions also focused on the frequency of flights, the preferences among local and regional carriers, and the rating of these carriers in terms of quality and price. A section was devoted to the consumers’ conception about the flight services and their relative importance; it included questions about airplane and technology, procedures and systems, ground services, on board services, and staff. A sample of three hundred and sixty persons was selected to be interviewed. The questionnaire was self administered; hence there was no interference or influence from the interviewer. The respondent could easily answer all the questions and were given enough time to contemplate and answer each question properly. The questionnaires 242 were either delivered by hand or sent via email. They were also collected by hand or email. Of the three hundred and sixty persons interviewed, three hundred and twenty nine responded. Of the three hundred and twenty nine questionnaires, three hundred and two questionnaires were completely filled as per the requirements and were usable. Any questionnaire that had the same answer for all questions in one section was discarded. Consequently, the response rate was 83.88%, a percentage that can be considered acceptable and representative. Analysis Method Evaluation of the degree of patriotism, the services provided, the importance of quality attributes, the perceived level of price and the perceived level of quality were accessed using Likert-type scales. Score for patriotism was calculated for each respondent generating a scale from 6 to 30. A mean rating of the quality attributes was calculated for each attribute and the mean ratings compared. The mean levels of perceived price and quality for each airline were calculated. The following tests were used to test whether there is any significant relationship; where sig.<0.05 rejects the null hypothesis @ 95% confidence limit : T-test or one-way ANOVA were conducted to test for the significant differences between means: HYP1, HYP2, HYP3, HYP4 & HYP7. Chi-square for bivariate tabular analysis: HYP5 and HYP6. Pearson correlation to test relation between two variables: HYP8 & HYP9. RESULTS Table I shows the demographic variables of the 302 Lebanese respondents, the responses to the second section of the questionnaire. TABLE I - Demographic Variables of the Respondents Demographic Variables 1. Gender Male Female 2. Age Less than 25 years 25-35 years 36-50 years 51 years and above* 3. Education High-school or less** Bachelor’s degree Post graduate 4. Current Work Experience Less than 1 year 1-5 years 6-10 years 11 years and more*** 5. Current Position Managerial level Professional Clerical Student Unemployed Retired Home maker 6. Monthly Income Less than $500 $500 - $1000 $1000 - $2000 $2000 - $5000 243 Number 149 153 302 50 172 51 29 302 44 156 102 302 43 87 96 76 302 79 153 15 24 10 4 17 302 31 109 72 74 Percentage 49.3% 50.7% 100.0% 16.6% 57.0% 16.9% 9.6% 100.0% 14.6% 51.7% 33.8% 100.0% 14.2% 28.8% 31.8% 25.2% 100.0% 26.2% 50.7% 5.0% 7.9% 3.3% 1.3% 5.6% 100.0% 10.3% 36.1% 23.8% 24.5% More than $5000 16 5.3% 302 100.0% Yes 79 26.2% 7. Second Nationality No 223 73.8% 302 100.0% 125 41.4% 8. Lived Outside Lebanon For More Yes Than 2 Years No 177 58.6% 302 100.0% * Age 51 and above is a combination of: 51-65 years (21, 7.0%) and More than 65 years (8, 2.6%). ** Education High school or less is a combination of Less than a high school (7, 2.3%) and High school diploma (37, 12.3%). *** Current Work Experience 11 and more years is a combination of 11-15 years (31, 10.3%) and More than 15 years (45, 14.9%). During the past five years, 89 of the 302 respondents (29.5%) flew more than 6 times. These were categorized under frequent flyers. Two hundred respondents (66.2%) flew between 1 to 6 times while the remaining 13 (4.3%) did not fly at all. These 213 respondents were categorized under non-frequent flyers. Fifty-five different airlines were used for flying during the past five years: the majority of the respondents (88.1%) have had the personal experience from using MEA during the past five years. Furthermore, the majority of the respondents (68.9%) did not have the personal experience from using Emirates airlines during the past five years, 85.4% did not have the personal experience from using Qatar airways, 89.1% did not have the personal experience from using Kuwait airways, 89.1% did not have the personal experience from using Jordanian airlines and 96.0% did not have the personal experience from using Syrian airlines during the past five years. Despite the exposure level during the past five years, the results showed that from the 302 Lebanese respondents, 288 (95.4%) considered MEA as of top preference: 144 considered MEA as the first preferred airline, 122 considered MEA as the second preferred airline and 22 considered MEA as the third preferred airline. Only 14 respondents (4.6%) did not choose MEA as that of preference. The same data revealed that from the 302 Lebanese respondents, 272 (90.0%) considered Emirates as of top preference- despite the low exposure to this airline in the past five years: 144 considered Emirates airlines as the first preferred choice, 108 considered Emirates airlines as the second preferred choice while 19 considered that Emirates airlines as the third choice. Only 30 respondents (10.0%) did not choose Emirates airlines as that of preference. The same data revealed that from the 302 Lebanese respondents and despite the low exposure to those airlines in the past five years, 205 (67.9%) considered Qatar airways as of top preference, 112 respondents (37.1%) considered Jordanian airlines, 85 respondents (28.1%) considered Kuwait while 26 respondents (8.6%) considered the Syrian airlines. The main purpose of air travels during the past five years was for pleasure or vacation (38.1%), business (29.8%), visiting friends or relatives (23.8%) then for other reasons (8.6%) as education (4.0%), relocation (1.0%), medical treatment (0.7%) or others (2.6%). From these findings a score of patriotism was calculated for each respondent thus generating a scale for the 302 Lebanese respondents (Table II): Up to 74.2% of the 302 Lebanese respondents scored between 6 and 17 and hence showed patriotic feelings. TABLE II- Patriotism Scale Patriotic Scale 6.00 7.00 8.00 9.00 Frequency 1 6 7 12 Percent 0.3 2.0 2.3 4.0 Cumulative Percent 0.3 2.3 4.6 8.6 VERY PATRIOTIC 244 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00 19.00 20.00 21.00 22.00 23.00 24.00 26.00 27.00 30.00 Total 11 13 21 28 31 41 24 29 28 12 12 9 5 3 4 2 2 1 302 3.6 4.3 7.0 9.3 10.3 13.6 7.9 9.6 9.3 4.0 4.0 3.0 1.7 1.0 1.3 0.7 0.7 0.3 100.0 12.3 16.6 23.5 32.8 43.0 56.6 64.6 74.2 83.4 87.4 91.4 94.4 96.0 97.0 98.3 99.0 99.7 100.0 NEUTRAL NOT PATRIOTIC When the 302 Lebanese respondents were asked to evaluate the services provided by the selected airlines from airplanes & technology, procedure and systems, ground services, staff and on-board services, less than 15% of the 302 respondents disagreed or strongly disagreed on any of the statement related to the 3 airline groups selected. For the Neighboring Arab countries group of airlines which constitute the Jordanian and Syrian airlines, and for all the statements, between 58.6% and 71.9% of the respondents had a neutral rating, while only up to 26.2% of the respondents agreeing or strongly agreeing on the service provided. This finding comes in parallel with the lack of personal experience with these airlines by the majority of the Lebanese respondents, and hence can reflect the importance of personal experience on Lebanese customers’ perceptions used for the evaluation of the services provided by Syrian and Jordanian airlines. The majority of the respondents agreed or strongly agreed that MEA and Arab Gulf airlines were providing all the services. Furthermore, in all the services provided that we have tested for and despite the variation in the level of personal experience by the same respondents for these two airlines, the results obtained (% of respondents) were very close. This can be an indicative that there were other factors besides personal experience that were influencing the Lebanese customers’ perceptions used for evaluating the different services provided by MEA a Lebanese airline and AGA which constitute an Emirates, Qatar and Kuwait airlines. When asked to rate the quality attributes, a scale from 1 to 5 was used, 1 standing for very important, 2 for fairly important, 3 for of average importance, 4 for not important, 5 for not important at all. The mean rating of the attributes was calculated and the attributes were listed in importance order with the most important rated first and least important rated last (Table III). This table as well reveals for us that all the services selected were perceived by the respondents as very important to fairly important. Table III- Service Quality Provided By Importance Mean±Std. STATEMENTS Deviation Has excellent safety records 1.22±0.76 Handles customer problems 1.36±0.66 Has a good airline reputation 1.38±0.63 Has comfortable seats 1.38±0.61 Uses comfortable new airplanes 1.42±0.62 Its flights are always on time 1.44±0.68 Handles the baggage carefully 1.46±0.69 245 Has good reservation services Has polite ground staff Has polite cabin staff Calls customers back quickly in case of any changes in schedule Has knowledgeable cabin staff Has courteous cabin staff Has efficient check-in procedures Has convenient flight connections Has convenient schedules Offers fast services Has excellent in-flight services Provides special attention to children Uses the shortest routes Provides individualized attention Has frequent flights Has excellent entertainment program Service is easily accessible by phone Serves tasty food Recognizes the regular customer Has excellent frequent flyer programs Serves alcoholic beverages 1.46±0.63 1.48±0.69 1.48±0.73 1.50±0.74 1.52±0.76 1.55±0.75 1.58±0.74 1.61±0.75 1.67±0.71 1.68±0.73 1.68±0.80 1.68±0.94 1.72±0.90 1.82±0.83 1.82±0.83 1.84±0.84 1.88±0.88 1.89±0.95 2.12±0.96 2.28±1.12 3.16±1.46 As for the perceived level of price and on a scale of 1 to 5, where 1 stands for a very low price, 2 for a low price, 3 for a fair price, 4 for a high price and 5 for a very high price, the mean level of prices for the three airline groups was calculated (Figure 2). Neighboring countries had the lowest level of perceived price (2.72±0.73), followed by MEA with a price level of 3.53±0.85 and then that of Arab Gulf countries was 3.56±1.00. The level of price of Neighboring Arab countries was perceived as a fair to a low price. Those of MEA and Gulf airlines were perceived as very close and as between a fair price and a high price. MEA v. low low fair high v. high 1 2 3 4 5 Figure 2: Perceived Level of Price As for the perceived level of quality and on a scale of 1 to 5, where 1 stands for a very high quality, 2 for a high quality, 3 for a fair quality, 4 for a low quality and 5 for a very low quality, the mean level of quality for the three airline groups was calculated (Figure 3). Gulf Airlines had the highest level of perceived quality (1.92±0.86), followed by MEA with a quality level of 2.26±0.75 and then that of Neighboring Arab countries was 3.12±0.93. Therefore, the quality of Gulf airlines was perceived as a very high to a high quality. The quality of MEA was perceived as high quality whereas that of Neighboring Arab airlines was perceived as fair quality. MEA AGA v. high high fair NAA low v. low 246 Figure 3: Perceived Level of Quality 1 2 3 4 5 ANALYSIS Hypothesis 1. There is a significant relationship between some of the demographic variables and the importance of statements related to airline service in general. Table I summarizes these results. TABLE I- DEMOGRAPHICS & AIRLINE SERVICES Is there any significant relation? AIRPLANES & TECHNOLOGY Has good airline reputation Uses comfortable new airplanes Has excellent safety records PROCEDURES & SYSTEMS Offers fast services Service is easily accessible by phone Its flights are always on time Calls customer quickly in case of any changes in schedules Handle customer problems such as missing baggage Has good reservation services Has convenient flight connection Has excellent frequent flyer program Has frequent flights Uses the shortest routes Has convenient schedules GROUND SERVICES Has efficient check-in procedures Handles the baggage carefully Has polite ground staff STAFF Has polite cabin staff Has courteous cabin staff Has knowledgeable cabin staff ON BOARD SERVICES Provides individualized attention Recognizes the regular customer Provides special attention to children Has excellent in-flight services Has excellent entertainment Age Education Gender Current Position Current work experience Income Having second nationality Living outside Lebanon No No No No No No No No* No No No No No No No No No* No YES YES No YES YES No No* No No No No No No No No No No No No No No No YES No No No No No No No No YES YES No No* YES YES YES No No YES No No YES No No No No* No No YES YES No No No* No YES YES No No No No No No YES No No No No YES No No No* No* No No No* YES YES No No No No No No No* No No No No No No No No No No No No No No YES No YES No No No No No No YES YES YES No No No No YES No No No No No No No* YES No* No No No No No No No YES YES No* No No No No No No No No No No YES YES No No No No No* No No No No No No No YES No No No No No* No No No No No No No No No No No YES No No* YES No 247 program Serves tasty food No No No Has comfortable seats No No No Serves alcoholic beverages No No YES * Significant at 90% confidence limit No No No* No No YES No No No YES YES No* No* No No The results showed that the age group 51 and above were the most demanding and highly valued the services provided relative to the other ages. Calling the customer back quickly in case of changes was highly valued by the education group High school or less relative to the others. Females were more demanding than males on all the services studied except: Have good airline reputation and have comfortable seats where both males and females valued them equally. Whereas for the services have excellent entertainment programs, serve tasty food, and serve alcoholic drinks, males valued these services more than females. The different position groups have valued the services provided in similar rates. The different work experience levels have valued serving alcoholic beverages differently. The different income groups have valued some the services provided in different rates Those having no second nationality were more demanding than those not having a second nationality with the exception for have excellent entertainment program where those having a second nationality valued this quality attribute more. Those who lived outside Lebanon for at least two years were less demanding than those who did not live outside Lebanon and have given these quality attributes less importance. Hypothesis 2 There was no significant relationship between any of the demographic variables and the patriotic feeling. The patriotic feeling is not related to variations in age, education, Gender, current position, current work experience, having or not a second nationality nor living or not outside Lebanon but is built-in the respondents and gained from other factors. Table 2 summarizes the results. TABLE 2 DEMOGRAPHICS & PATRIOTISM Is there any significant relation? Age Education Gender Current Position Current work experience Income Having second nationality Living outside Lebanon PATRIOTISM No No No No No No No* No * Significant at 90% confidence limit Hypothesis 3 There is a significant relationship between some of the demographic variables and the level of price for MEA and neighboring Arab airlines (NAA) but not for Arab Gulf airlines (AGA). Table 3 summarizes the results. TABLE 3 DEMOGRAPHICS & LEVEL OF PRICE Is there any significant relation? Age Education Gender Current Position Current work experience Income Having second nationality Living outside Lebanon Price of MEA No No No No YES No YES No YES No YES No YES YES YES No No No No No No No No No Price of Neighboring Arab Airlines Price of Arab Gulf Airlines 248 For MEA, the mean level of price perceived by the work experience groups was 3.53 ± 0.85 which is a price mid way between a fair and a high price (F=1.413, sig. 0.239). That perceived by those who do not have a second nationality (3.6 ± 0.8) was higher than that perceived by those who have a second nationality (3.3 ± 0.9). Both perceived a fair to a high price (t=-2.635, df=300, sig. 0.009). For Neighboring Arab airlines, the mean level of price perceived by the 4 age was 2.72 ± 0.73 which is a price between a fair and a low price. The groups perceived a fair to a low price (F=4.249, sig. 0.006). The mean level of price perceived by females (2.8 ± 0.7) was higher than that perceived by the males (2.6 ± 0.7). Both groups perceived a fair to a low price (t=-2.894, df=299.370, sig. 0.004). The mean level of price perceived by the 4 work experience groups was 2.72 ± 0.73 which is a price between a fair and a low price (F=1.628, sig. 0.183) whereas that perceived by the 5 income groups was 2.72 ± 0.73 which is a price between a fair and a low price (F=2.714, sig. 0.030). The mean level of price perceived by those who do not have a second nationality (2.8 ± 0.7) was higher than that perceived by those who have a second nationality (2.5 ± 0.7). Both groups perceived a fair to a low price (t=2.501, df=300, sig. 0.013). Hypothesis 4 There is a significant relationship between some of the demographic variables and the level of quality for MEA and neighboring Arab airlines but not the Arab Gulf airlines. Table 4 summarizes the results. TABLE 4 DEMOGRAPHICS & LEVEL OF QUALITY Is there any significant relation? Quality of MEA Quality of Neighboring Arab Gulf Airlines Quality of Arab Airlines Age Education Gender Current Position Current work experience Income Having second nationality Living outside Lebanon No YES YES No No No YES No No No YES No No No* No No* No No No No No No* No No For MEA, the mean level of quality perceived by the 3 education level groups ranked as follows: the highest (2.2 ± 0.7) was perceived by those having Bachelors degree and Post graduates, followed by those with High school or less (2.6 ± 0.8). The mean of the 3 educational level groups was 2.26 ± 0.75 which is a quality level mid way between a high and a fair quality closer to a high quality (F=6.664, sig. 0.001). The mean level of quality perceived by the 2 genders ranked as follows: the highest (2.1 ± 0.7) was perceived by the males, followed by the females (2.4 ± 0.8). Males perceived a high quality while females perceived a quality midway between a high to fair quality (t=2.718, df=296.928, sig. 0.007). For MEA, the mean level of quality perceived by those who do not have a second nationality (2.2 ± 0.7) was higher than that perceived by those who have a second nationality (2.4 ± 0.8). Both perceived a high to a fair level of quality, closer to the high level (t=2.123, df=300, sig. 0.035). For Neighboring Arab airlines, the mean level of quality perceived by the females (3.0 ± 0.9) was higher than that perceived by the males (3.2 ± 1.0). Females perceived a fair quality while males perceived a fair to a low quality but closer to a fair quality (t=2.210, df=300, sig. 0.028). Hypothesis 5 There is no significant relationship between being or not a frequent flyer and the airline preference. There is no significant relationship at all between being or not a frequent flyer and MEA as the airline of preference. This is 249 because when MEA was selected as first preference, Chi square =0.754 and φ=1. For significance at 0.05, Chisquare should be ≥ 3.84. Hence, the distribution is not significant p≤1. Furthermore, when MEA was selected as second preference, Chi square =0.277 and φ=1. For significance at 0.05, Chi-square should be ≥ 3.84. Hence, the distribution is not significant p≤1. There is no significant relationship at all between being or not a frequent flyer and Emirates airlines as the airline of preference. This is because when Emirates airline was selected as first preference, Chi square =0.020 and φ=1. For significance at 0.05, Chi-square should be ≥ 3.84. Hence, the distribution is not significant p≤1. Furthermore, when Emirates airline was selected as second preference, Chi square =0.232 and φ=1. For significance at 0.05, Chi-square should be ≥ 3.84. Hence, the distribution is not significant p≤1. This implies that being or not being a flyer will not impact the customer perceptions used for selection of airlines. Hypothesis 6 There is a significant relationship between the purpose of flying and the airline preference There is a significant relationship between the purpose of flying and MEA as the airline of preference, when MEA was selected as first preference or as second preference. This is because when MEA was selected as first preference, Chi square =8.810 and φ=3. For significance at 0.05, Chi-square should be ≥ 7.82. Hence, the distribution is significant p≤0.05. Furthermore, when MEA was selected as second preference, Chi square =9.81 and φ=3. For significance at 0.05, Chi-square should be ≥ 7.82. Hence, the distribution is significant p≤0.025. There is a significant relationship between the purpose of flying and Emirates airline as the airline of preference, when Emirates airline was selected as first preference.This is because when Emirates was selected as first preference, Chi square =9.236 and φ=3. For significance at 0.05, Chi-square should be ≥ 7.82. Hence, the distribution is significant p≤0.05. However, when Emirates airline was selected as second preference, Chi square =6.071 and φ=3. For significance at 0.05, Chi-square should be ≥ 7.82. Hence, the distribution is not significant p≤0.20. Hypothesis 7 There is a significant relationship between the patriotic feeling and airline of preference. There is a significant relationship between the patriotic feeling and MEA as the airline of preference, when MEA was selected as first preference or as second preference. This is because when MEA was selected as first preference, the mean level of patriotism perceived by the two airline groups ranked as follows: the highest (14.1 ± 3.7) was perceived by the MEA, followed by the Others (16.2 ± 4.0). Both groups showed patriotic feeling with those traveling on MEA more than those traveling on Others, hence there were significant differences between the means for the two groups (t =-4.711, df=300, sig. 0.000) and hence the null hypothesis was rejected @ 95% CL. Furthermore, when MEA airline was selected as second preference, the mean level of patriotism perceived by the two airline groups ranked as follows: the highest (14.7 ± 4.1) was perceived by the Others group, followed by the MEA (15.8 ± 3.7). Both groups showed patriotic feelings with those traveling on the Others more than those traveling on MEA, hence there were significant differences between the means for the two groups (t =2.426, df=299, sig. 0.016) and hence the null hypothesis was rejected @ 95% CL. There is a significant relationship between the patriotic feelings and Emirates as the airline of preference, when Emirates airline was selected as first preference or as second preference. This is because when Emirates airline was selected as first preference, the mean level of patriotism perceived by the two airline groups ranked as follows: the highest (14.3 ± 4.0) was perceived by the Others, followed by the Emirates (16.1 ± 3.8). Both groups showed patriotic feelings with those traveling on Others more than those traveling on Emirates, hence there were significant differences between the means for the two groups (t=3.805, df=300, sig. 0.000) and hence the null hypothesis was rejected @ 95% CL. Furthermore, when Emirates airline was selected as second preference, the mean level of patriotism perceived by the two airline groups ranked as follows: the highest (13.7 ± 3.6) was perceived by those traveling on Emirates airline group, followed by the Others (16.0 ± 3.9). Both groups showed patriotic feelings with those traveling on the Emirates airlines more than those traveling on Others, hence there were significant differences between the means for the two groups (t =-4.976, df=299, sig. 0.000) and hence the null hypothesis was rejected @ 95% CL. Those selecting MEA as 1st preference showed higher patriotism than those selecting Emirates as 1st choice. It can be an implication that those with higher patriotism have selected MEA as 1st preference and those with lower patriotism- although showed patriotic feelings- have selected Emirates as 1st preference. Furthermore, those 250 selecting MEA as 1st preference (14.1 ± 3.7) or as second preference (15.8 ± 3.7) showed higher degree of patriotism than those selecting Emirates as 1st preference (16.1 ± 3.8). Hypothesis 8 There is no significant relationship between the patriotic feeling and perceived level of price of MEA. There is no correlation between the patriotic feeling and the perceived level of price of MEA; Pearson correlation =0.098 sig. 0.090. Hypothesis 9 There is a significant relationship between the patriotic feeling and perceived level of quality of MEA. There is a correlation between the patriotic feeling and the perceived level of quality of MEA; Pearson correlation =0.241 sig. 0.000. DISCUSSION The results of this study prove that despite the political instability the country has been passing through the past years, the globalization and enormous competition in the airline industry together with numerous managerial changes within the Middle East airlines, Middle East airlines has established itself as one of the Middle East’s premium carriers in the Middle East. MEA was the airline of preference for the majority of the Lebanese traveling for pleasure or vacation, business or visiting friends and relatives. Middle East airlines provided good quality services, the five very important as our findings reveal were having excellent safety records, handles customer problems, has a good airline reputation, has comfortable seats and uses comfortable new airplanes. This is thanks to MEA new fleet of airbuses. The MEA was of high quality and good prices. This, together with being of top preference, makes MEA the most convenient airline with the best price to value ratio for the Lebanese. Another major finding discovered in this study was the striking variation in the evaluation of the different airlines despite the difference in the exposure to those airlines. Going through the responses, we have found that the majority of the Lebanese respondents have traveled on MEA. MEA was rated of top preference. It had good quality and good prices. Next, although the majority of the respondents traveled on MEA but did not travel on the Arab Gulf Airlines: Emirates airlines were rated as of top preference, equal to MEA for their first choice and secondary to MEA for their second choice of most preferred airlines. Qatar airways were rated as of top preference (secondary to Emirates airlines) and Kuwait airways (by a lesser percentage of respondents) as well. Furthermore, Arab Gulf airlines were perceived to be providing good quality services matching those provided by MEA. They were perceived to be of high quality with good prices. On the other hand, although the majority of the respondents traveled on MEA but did not travel on the Neighboring Arab Airlines: Jordanian airlines were rated as of top preference while the Syrian airlines were not. Furthermore, the majority of the respondents took the neutral position when evaluating quality of services provided by these airlines. They were perceived to be of fair quality and of fair prices. This finding is a direct implication that factors other than the personal experience did impact the customer’s perceptions when evaluating the different airlines. This finding comes in line with the literature review where we explored the several factors that affect the customer evaluation of products from country of origin which can be product dependent or country dependent, consumer knowledge from product knowledge and/or personal experience, national loyalty, brand awareness, cultural factors, consumer ethnocentrism, perceived price or quality. Other factors can affect in the service industry, the service quality, the physical environment, switching costs, level of customer expectation and satisfaction. National Loyalty This study proved that there is a significant relationship between patriotism and selecting MEA as airline of preference (Hypothesis 7). The Lebanese with higher patriotism have selected MEA as first preference and those with lower patriotism- although showed patriotic feelings- have selected Emirates as first preference. Furthermore, those selecting MEA as first preference or as second preference showed higher degree of patriotism than those selecting Emirates as first preference. This comes in line with Brunings findings (1997) that those with high national loyalty are more likely to choose a national carrier regardless of the availability of foreign competitors. 251 It also investigated whether patriotism was a driver behind the rating of the level of MEA high quality and good prices. We have discovered that patriotism had no relation with the good price rating (Hypothesis 8) but had a significant relation with the high quality rating (Hypothesis 9). Accordingly, national loyalty was a key factor in affecting the Lebanese consumers’ perceptions when selecting the airline of preference and when rating the quality but not the price. However, selecting Emirates as of top preference, matching that of MEA for the first choice of preference, proved that national loyalty is not the only driver. Having a closer look on the respondents’ profiles, we have discovered that the majority of the respondents showed patriotic feelings. However, contrary to the literature, the patriotism was not related to variations in age, education, gender, current position, current work experience, having or not a second nationality nor living or not outside Lebanon (Hypothesis II). In the study conducted on the Canadian people, Bruning (1997) found that females were more patriotic than males, people who rarely travel are more patriotic, the lower the income was, the more patriotic, patriotism was low among professionals when compared to those figures among the unemployed. We conclude that patriotism for the Lebanese is built-in and gained from other factors possibly culture.. Country of Origin Ranking the Arab Gulf airlines as of top preference with a high quality and a high preference matching that of MEA and exceeding that of Neighboring Arab countries’ airlines can imply a country of origin effect that is countrydependent as per Nagashima, (1970) and Cattin, Jolibert, & Lohnes (1982). The product image preserved in a consumer’s mind could involve information directly linked to country of origin (Schaefer, 1997): The Lebanese respondents have rated high the Gulf airlines affected by the countries’ distinctive image, strengths and richness comparable with the low rating of the Neighboring Arab airlines affected by the countries’ lower image, lower strengths and richness. The finding is also in line with Bruning studies (1997) who confirmed that “country of origin cues trigger a global evaluation of quality, performance, or specific product/service attributes”. Accordingly, the country of origin affects the consumers’ perceptions when rating airliners. Furthermore, it was a key driver that enabled Emirates airlines to match in preference MEA and the Arab Gulf airlines to exceed those of Neighboring Arab airlines. However, was the country of origin factor the only key driver? Product Knowledge & Brand Awareness Other researchers have found that country of origin plays an extrinsic cue role in product’s evaluation when intrinsic cues are not readily available (Zhang, 1995) (Hann, 1988; Lawrence, Marr, and Prendergast, 1992), intrinsic cues such as performance, which can be gained through product knowledge or personal experience knowledge. When the product attributes are well known, less weight is placed on country of origin in the process of product evaluation (Lim et al., 1994). Hence, product knowledge and brand awareness may as well be a factor affecting the high rating of the Emirates airlines and Qatar airways with the exposure of the Lebanese people via the cable network to the continuous advertising campaigns done by those countries to their airlines and countries. However, we have to keep in mind the fact that the brand carries the name of the country, and consumers tend to link the brand name with the reputation and image of the country when evaluating different product categories (Okeschuku, 1994). Accordingly, product knowledge and brand awareness can be other factors that affect the consumers’ perceptions when selecting airlines of preference however in our case their impact is mediated by the country of origin. Personal Experience As we have implied before, personal experience had little to do when evaluating the Arab Gulf Airlines and Neighboring Arab Airlines. With the majority of the Lebanese flying on MEA, we could have concluded that the rating of MEA as of top preference was driven by personal experience. However, our findings have negated this possibility by proving that being or not being a frequent flyer, knowing that the majority flew on MEA, did not have any significant relationship with MEA being selected of top preference (Hypothesis 5). These findings come in disagreement with many researchers who give high importance to personal experience as basis for selection (FitzGerald and Arnott, 1996, Lim et al., 1994). Our conclusion is that in the absence or presence of personal experience, the country of origin and national loyalty had key roles in the selection process for the 252 Lebanese. However, in our scenario, the majority of the respondents traveled on MEA and gave a good evaluation for the quality services provided by MEA. Accordingly, we can conclude that they had the personal experience with MEA which was a satisfactory experience. What if it was not a satisfactory experience? Only by proving that despite an unsatisfactory experience, the respondent is still traveling via MEA that we can prove that personal experience does not affect the customer perceptions in selecting the airlines. This will require a different experimental setting. Demographics A major finding from our study was that there was a significant relationship between the demographic variables gender, income, having or not a second nationality, living or not outside Lebanon, and the importance of several airline quality attributes which may affect their selection of airlines (Hypothesis 1). Females were more demanding than males on the majority of the services, the different income groups valued services provided at different rates, those having no second nationality were more demanding than those not having a second nationality, and those who have lived outside Lebanon for at least two years were less demanding than those who did not live outside Lebanon. A second finding was that there was a significant relationship between some of the demographic variables and the perceived level of price of MEA and Arab Neighboring airlines but not with the perceived level of price of Arab Gulf airlines (Hypothesis 3). So, it is interesting to find that different levels of work experience and having or not a second nationality influenced Lebanese customer perceptions of MEA level of price, that different ages, gender types, work experiences, incomes, and having or not a second nationality influenced Lebanese customer evaluation of neighboring Arab airlines level of price. However, all ages, education levels, gender types, positions, years of work experience, incomes, having or not a second nationality and living or not outside Lebanon had the same evaluation for the perceived price of Arab Gulf Airlines. A third finding was that there was a significant relationship between some of the demographic variables and the perceived level of quality of MEA and Arab Neighboring airlines but not with the perceived level of quality of Arab Gulf airlines (Hypothesis 4). So, it is interesting to find that different levels of education, gender types and having or not a second nationality influenced Lebanese customer perceptions of MEA level of quality, that different gender types influenced Lebanese customer evaluation of neighboring Arab airlines level of quality. However, all ages, education levels, gender types, positions, years of work experience, incomes, having or not a second nationality and living or not outside Lebanon had the same evaluation for the perceived quality of Arab Gulf Airlines. These findings prove to us that demographic variables were another factor that did impact the selection of MEA airline as of top preference and to a lesser extent did have some impact on the evaluation of Arab neighboring airlines. However, demographic variables had no impact on affecting customer perceptions in selecting the Arab Gulf airlines. In conclusion, in the presence of personal experience knowledge, demographic variables had an impact on consumer’s perceptions. Whereas, in the absence of personal experience knowledge, country of origin effect was the dominating factor. Purpose of Flying Another factor that is proved to influence the selection of the airline of preference was the purpose of flying (Hypothesis 6). The main purpose of air travels during the past five years was primarily for pleasure or vacation, secondarily for business and then for visiting friends or relatives. There was a significant relationship between the purpose of flying and selecting Middle East or Emirates airline as the airline of preference. However still, the majority of the Lebanese were using MEA for their travels. Accordingly, the purpose of flying can have an influence but is not a key influence. Furthermore, it is worth mentioning that another reason for not selecting the Syrian or Jordanian airlines can be because of the impact of the purpose of travel on the selection of the travel mode as well. The majority of the Lebanese do not travel to Syria or Jordan for pleasure or vacation and when they do for business or visiting they travel by road. CONCLUSION 253 This study proves that country of origin and national loyalty were the key drivers that influence the consumers’ perceptions when evaluating airlines and selecting the airlines of preference. Product knowledge, brand awareness and the purpose of flying were other influencing factors. 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European Journal of Marketing 30, 12: 50-68. 255 THE USAGE OF ACCOUNTING SOFTWARE BY THE SMALL AND MEDIUM ENTERPRISES (SMEs) IN PERAK Khalid Ismail Rosli Samat Norizan Saad Nooraisah Katmun Sultan Idris Education University, Malaysia ABSTRACT This study is aimed to determine the level of usage of accounting software by SMEs in Perak. The study was carried out as a survey study that involved a sample size of 97 respondents ranging from the owners, managers, and account clerks of SMEs. Questionnaires were used as an instrument which consists of 25 subjective items that were classified into 4 sections (Section A: about organization; Section B: about respondents; Section C: about accounting department; and Sections D: about the level of usage of accounting software). The data was analyzed descriptively by using frequency and percentage. The cross tabulations analysis was employed to determine the relationship between dependent variables with an individual independent variable. The regression analysis was carried out in order to get a linear regression model, which can be used to predict the level of usage of accounting software by SMEs in Perak. The study reveal a linear regression model of Level of Usage j = α + ß1 Age j + ß2 Size j + ß3 Academic Qualification j + ej. The findings of this study indicate that the level of usage of accounting software by SMEs in Perak is at higher level. Thus, the study has proven that the business characteristic has a significant relationship with the level of usage of accounting software. INTRODUCTION The Small and Meduim Enterprises (SMEs) are believed to ignore the importance of the accounting software package due to lack of accounting knowledge and experience, Khalid (2004). Many researchers found that the level of adopted of accounting software package among SMEs is considered low (World Bank, 1978; Haron et al., 1994; Bourke, 1998; Ismail & Darawi, 1998; Kalesnikoff, 1998; Abdullah, 2000a; Chirathivat & Nathavit, 2000; Khalid, 2004). Therefore, the SMEs normally will record their daily transaction manually and keep the entire document using the traditional method. This situation will make the documentation progress seems improper and high manpower is needed to maintain the record. Furthermore, the bad documentation also will contribute to the inefficient audit work. Haron, et al. 1994 and Khalid 2004 found that, the commercial banks normally are reluctant to provide credit facilities to SMEs due to inadequate accounting record, less profitable, and the ratio of business failure is higher compared to other enterprises. This present study is based on the previous researches that believe that the level of usage of accounting software package data by SMEs is lacked, very small, and at low level. According to Holmes and Nicholls (1989), the organizational characteristics are factors occurring inside the organization that can strongly influence the level of usage of accounting software package by SMEs. However, this phenomenon has change dramatically due to the awareness of SMEs on the importances and efficiencies of accounting software. Therefore, this present research tries to investigate whether SMEs have improved their level of usage of accounting software in their daily business endeavor. The first objective of this study is to determine the level of usage of accounting software package by the SMEs in Perak, Malaysia. The second objective is to examine the relationship between the business characteristics to the level of usage of accounting software package. The third objective is to determine what accounting software package mostly used by SMEs. 256 LITERATURE REVIEW Generally, SMEs is defined based on the number of employees, amount of capital, total of assets and sales turnover (Hashim & Abdullah, 2000a). According to Ministry of International Trade and Industry of Malaysia (MITI, 2002): “a small scale enterprise is an enterprise which has less than 50 full time employees with an annual turnover not more than RM10 million, whereas a medium scale enterprise is an enterprise that has between 51 and 150 employees with an annual turnover of between RM10 million and RM25 million” The definition given by MITI is used in this study. DeLone (1981) tries to investigate whether firm size is associated with the dissimilarity in the organization of computers by the firms. The sample comprises of 74 Los Angeles manufacturing firms with a various sizes. The general hypothesis in his study is that the computer usage characteristics are different in firms of different sizes. While the specific hypotheses are; firstly, smaller firms have been adopting computers for a shorter period of time compare larger firms, secondly, smaller firms are more dependent on external programming services, thirdly, smaller firms allocate a smaller amount of their revenues to total electronic data processing expenditures, fourthly, smaller firms normally spend a big portion of their computer expenditures on computer hardware alone, and finally small business can implement a decision to invest in computers faster than larger businesses. The sample comprise of 240 listed manufacturing firms, which are randomly selected from the California Manufacturing Register. The respondents of DeLone (1981) research are the person in charge with Electronic Data Processing (EDP) in the sample firms.As findings, he found that there is a significant relationship between firm size and age of the EDP operation, dependence on external programming and the relative expenditure on computer hardware. In contrast, the association between firm size and the relative EDP budget and investment in computers are found to be not significant. In addition to the above, DeLone (1981) also tries to do another additional test by dividing the major application of computers into two categories, that are basic applications and advance applications. He tries to test the relationship between the firm size and EDP maturity with the firm’s most important application. He found that the firms which have used computer in a long runs (average eight years, five month) claims that the advance application are their most important application while the firms that used computer for a short run (average four years, three months) states that basic application are their most important. As a nutshell, firm size found to be a significant variable in influencing the variations on how the firms manage their computer usage. DeLone (1981) empirically found that smaller firms are normally used computers for a less time, and focusing on the basic application (e.g., payroll, general ledger) compare to large firms and vice-versa. DeLone (1981) also realized that the restriction of single industry (i.e., manufacturing) in his research to be the limitation of his study. Jui-Chih (1993) tries to investigate on the extent of microcomputer-based usage by small businesses in England 10 years after its introduction. The sample comprise of 216 small companies that are randomly selected based on Norfolk Industrial Directory (Norfolk County Council 1990). The questionnaire has been sending to the sample and 67 firms returned the complete questionnaire. The independent variables in his study are the business age, types of industry, and the suppliers of the equipment to the firm, the users and the functions of accounting packages used by the firms. Jui-Chih (1993) runs a descriptive statistics to analyze the data. As findings, Jui-Chih (1993) found that the extent of microcomputer usage is not influence with the type of industry, the number of employees, total assets posses by the firms, or the amount of sales generated. Nevertheless, his study reveals that firms that have been operated during last ten years will have a tendency to adopt computerized systems in their operations. In addition, most of the microcomputer users claims that they have been exposed in computerization since last three years and the selection of the current systems are based on the advices given by the 257 equipment suppliers. The main functions of the system are for word processing and accounting packages like general ledger, account receivable and account payable, and the main users of the systems are top management staff. From the interviews, the respondents from companies which had not used a computers quote that the main reason on why they are not installing a microcomputers are due to the small size and the special attributes of their company as well as the adequacy of manual systems that are currently implemented by their firms. On the other hands, companies which adopted computerized systems believe that the extents of satisfaction of computerizations depends on the users experience and computers literacy. The interviewees also agreed that the best way in implementing computerization systems was to purchase a quality application packages from a famous supplier and try to manage the company system to fit the package. The good service after the sales that provides by the suppliers is also important according to them. As a conclusion, research by Jui-Chih (1993) proves that the usages of microcomputers by small firms are mainly for basic and operational purposes, rather than decisional purposes. He also realized that the various definitions on small business makes the research that involves small industry is quite difficult to be done. Business Characteristics The business characteristics are factors occurring inside the organization that can strongly influence the level of usage of accounting software package. It contains business ages, business sizes and academic qualifications. Holmes and Nicholls (1989) pointed out that the organizational characteristics are strongly influencing the usage of accounting software by SMEs. They have discovered the organizational characteristics are business sizes, business ages, number of employees, and training of the staffs. According to them, the best approach to conceptualize the interaction of business entity to the usage accounting software package is by using the term of organizational characteristics. The business characteristics tested in this study consist of business ages, business sizes, and academic qualifications. Business Ages The business ages ascertain as how long they are in the business. It is measured by the number of years the business has existed. The studies by Holmes and Nicholls (1988, 1989), indicated the usage of accounting data is strongly influenced by business ages. They found that firms, which are established in recent years, use less accounting data compared to businesses, which are established in longer period. This can be concluded that the younger firms tend not to use extensive accounting data compared to the older firms. Wijewardena and Tibbits (1999), has done a study in Australia relating business growth with the numbers of years business is established. They found that the younger firms are expected to grow rapidly due to innovative ideas and dynamic management. On the contrary, the older firms may in better position to achieve business growth because of their greater expertise and feel that they have enough experience to make decisions without having to use extensive accounting data. Consequently, the results of the study suggest that there is a negative relationship between business ages and the usage of accounting data due to expertise and experience factor. Business Sizes The business sizes determine as how big the business is. Are they a small or medium enterprise? According to Holmes and Nicholls (1988, 1989), the business sizes is measured based on the number of employees, amount of capital, total of assets and sales turnover. The study done by Holmes and Nicholls (1988, 1989) on SMEs conducted in Australia found that business sizes is positively related to the degree of using accounting data. According to them, the usage of accounting data by SMEs depends on whether the business is small, medium, or large. The results of their studies found the size of the business has proportion with the usage of accounting data. An empirical research by Gorton (1999) in determining the usage of accounting data in United Kingdom; he found that the larger firms used less accounting data compared to the smaller firms. In another study, Calderon (1990) examined the association between accounting data by the bankers in loan evaluation process in United Kingdom. The results of the study indicated that the need of accounting data by the bankers to access the credit worthiness of a small and a large company are relatively similar. Hence, the results do not support the theory that the need for accounting data is linked to the business sizes. Academic Qualifications 258 The academic qualification represents the level of education the employee has. In normal way, academic qualification acquired from formal education, whereas the skills and competencies of the workers are adopted from working experiences, attending training, seminar, workshop, courses, self-learning, etc. According to Campbell, Dunnette, Lawler & Weik, (1970), defined academic qualification as: “the exposure of knowledge or skills, then one can master in the field and then applying to the organization” According to British Qualification (1998) the academic qualification: “is a certified endorsement from a recognized body that an individual has achieved a level of academic quality of accomplishment” Christopher Winch & John Gingell, (1999), agree on that and added: “…..the outcomes of academic qualification are usually characterized as the achievement of those who have been educated” “….these may be expressed in terms of whether or not the aims of education were fulfilled in relation to those individuals and to what degree” “….in order to find out what has been achieved one require some form of assessment” According to Din & Gibb, (1998): “….the individual is able to adjust themselves to the problems arises from business operations” “….the higher academic qualification will benefit to the SMEs as well business growth” The present study intends to examine the contribution of academic qualifications to the level of usage of accounting data by SMEs. As shown in most research, most of entrepreneurs and employees of SMEs are not getting enough higher education, but they rely on the informal training and experience acquired from running the business (Abdullah, 2000a). According to Nor Aishah Buang (2002), the lower academic qualifications become a major factor an entrepreneur failed to manage business effectively. She had revealed that the management skills have positive relationship with the level of academic. In her research, she found out about 70 percent of SMEs in Malaysia are managed by MCE holders and below. Therefore, the SMEs were not well managed. In another research done by Box, T.M., Beisal, J.L., and Watt, L.R (1995) in Thailand, they found that the academic achievement plays a primary role in ensuring the success of a business. Thus, this study concludes that the higher the staff with a sound academic qualification participated in management, this will contributed to the betterment of the preparation, documentation and recording of accounting data in the their business. RESEARCH METHODOLOGY The study based on selected SMEs in Perak. There are 5 districts in Perak. It includes North, South, East, West and Central of Perak. In this study only 87 represents the sample size. Questionnaires are distributed to obtain the data. The respondents consist of the owners, managers, financial controllers, accountants, account executives or any related discipline in SMEs. The study attempts to test the null hypotheses as follow: HO1 There is no significant relationship between business ages and the level of usage of accounting software package. 259 HO2 HO3 HO4 There is no significant relationship between business sizes and the level of usage of accounting software package. There is no significant relationship between academic qualifications and the level of usage of accounting software package. There is no significant relationship between business characteristics and the level of usage of accounting software package. Model Development A regression model is specified as below: Level of Usage j = α + ß1 Age j + ß2 Size j + ß3 Academic Qualification j + ej Whereby; Level of Usage = level of accounting software uses by SMEs in Perak Age = age of SMEs; new is coded as 1, moderately new is coded as 2, old is coded as 3 Size = size of enterprise; medium size is coded as 1, small size is coded as 0. Academic qualification = primary is coded as 1, secondary is coded as 2, and diploma to professional is coded as 3. e = error term FINDINGS AND DISCUSSIONS Introduction Several statistical tools have been used to obtain the findings of the study. Descriptive statistics, cross-tabulation and regression tests were run to investigate the relationship between the dependent variable (usage level) and independent variables (business age, types of business and academic qualification). Descriptive Analysis Business Age Table 1.1 shows the respondents business age. From the sample, 81 companies or 93.1% are considered as an old business while 4 companies or 4.6% are categorized as moderately new business. The status of another 2 companies is unknown. None of the respondents are categorized as new. Table 1.1 Business Age No of Years Frequency Percent Category New 1–2 0 0 Moderately new 3–4 4 4.6 Old 5 and above 81 93.1 Unknown 2 2.3 Total 87 100 Business Size There are two types of business size, namely small and medium size that are differentiated by their number of employees and turnover. Descriptive statistics show that 39 companies or 44.8% are categorized as small firms 260 while another 48 companies or 55.2% are categorized into medium size of industry. The following table shows the details. Table 1.2 Business Size Types Small Medium Total No of fulltime employees Less than 50 50 – 150 Annual Turnover Not more than 10 mil 10 – 25 million Frequency Percent 39 48 87 44.8 55.2 100 Academic Qualification Academic qualification is ranked according to the level of qualification gained by the respondents. Most of the respondents are regarded as well educated whereby 70 of them or 80.5% possessed a high level of education, 14 respondents or 16.1% in secondary education while another 3 or 3.4% in lower education as shown in table 1.3. Table 1.3 Academic Qualification in Accounting Department Level of Education Qualification Lower Up to LCE Secondary MCE to HSC Higher Diploma to professional Total Frequency 3 14 70 87 Percent 3.4 16.1 80.5 100 Does Accounting Department Use Accounting Software? Most of the accounting departments use accounting software in their operations. A total of 76 companies or 87.4% are using accounting software where as another 9 companies or 10.3% are not using it and 2 companies or 23% unknown as shown in table 1.4. This result is consistent with Noor Azizi et al. (2001) result that reveals 92% of the respondents have implemented Computer Based Accounting System in their operation. Table 1.4 Percentage of Accounting Software Used by Accounting Department Use software Yes No Unknown Total Frequency 76 9 2 87 261 Percent 87.4 10.3 2.3 100 The most popular types of implementation methods are combination of manual and computerized, and fully computerized with 49.4% and 41.4% respectively. The finding also indicate that 41.6% of the respondents prefer to purchase ready-made packages of accounting software rather than internally developed (27.3%) and purchase with modification (31.2%). This finding is also consistent with the result found by Noor Azizi et al (2001), which shows that respondents prefer to purchase ready-made packages of accounting software. This result might happen due to some reasons. Firstly, user-friendly accounting software that meet the need and requirement of the users are easily obtained in the market nowadays. This step will help the SMEs to implement the usage of accounting software in their daily operations. Secondly, the affordable price offered by the vendor also plays a vital role that contributes to this scenario as mentioned by Montazemi (1988) study. His study also reveals the same findings that most of the respondents prefer to choose package software that relatively low in cost rather than developed their own software internally. Level of Usage of Accounting Software Accounting software is used in many purposes such as preparing general ledger, account receivable and payable, inventory management, payroll, manufacturing, distribution, quality management, transportation, production planning and scheduling, sales forecast, budgeting and consolidation. The degree of the usage of accounting software is divided into three categories that are known as higher (75% and above), medium (50% – 74%) and lower (below 50%). Categorization of the usage level is done through respondents answer towards question about types of modules used by them. There are twelve modules in the questionnaire distributed as stated above. As shown in table 1.5, 69 companies or 87.3% of the respondents are those who used accounting software at higher level of the usage, 8 companies or 10.1% are in medium and the rest are classified as lower usage level of accounting software. This finding shows that the usage of accounting software among respondents is found high. However, this finding is quite contradict to previous findings where it is found not consistent with findings reveal by Noor Azizi et. al (2001) study where the SMEs accounting package normally used for certain purposes only. The same findings highlighted by Haswell & Holmes (1989) and Withman (1983), which stated that the usage of accounting software package by SMEs is still at infancy stage. Most of the respondents are having the same problems at the implementation stage of accounting software; that are lack of skill and knowledge among employees and poor support or service after sales from vendor. One of the reasons contributed to this new finding is probably the awareness of the society towards the important of computer in doing things have been improved. Furthermore, they are slowly realized the advantages of accounting software packages on their routine work. Table 1.5 Level of Accounting Software Usage Degree of usage (%) 75 - 100 50 – 74 0 – 49 Total Level of usage Higher Medium Lower 262 Frequency 69 8 2 79 Percent 87.3 10.1 2.6 100 The most popular brand name of accounting software among SMEs is UBS Accounting Software. This is because 38 companies or 43.7% are using this software while the rest of the companies are using many other types or brand names of accounting software such as FACT (8%), Peach Tree (3.4%), ERP (2.3%), GSN (2.3%) and so on. The main reason contributed to this finding is because UBS accounting software is the best user-friendly accounting package available in the market today. Cross-Tabulation Cross-tabulation test has been done to find the relationship between dependent variable (usage level) and independent variables (business age, business size and highest academic qualification in accounting department). The results are as follows; Age and Usage Level The firm’s age indicates more interesting result. Result shows accounting software is widely used among firms when they are becoming old as shown in the Table 1.6. Table 1.6 Age and Usage Level Relationship Age Usage Level Lower Medium Higher Total Moderately New 0 0% 4 5.2% 0 0% 4 5.2% Old 1 1.3% 4 5.2% 68 88.3% 73 94.8% Total 1 1.3% 8 10.4% 68 88.3% 77 100% Chi-square = 0.000 *Chi-square is significant at the 0.01 level (2 tailed) There are 77 companies that are valid for the cross-tabs test between firm’s age and usage level. The strong correlation result (r = 36.390, n = 77, p = 0.000, p < 0.01) between age and the usage level of accounting software at confident level one percent as shown in table 4.6 is consistent with previous study done by Jui-Chih (1993), which reveals that firms that have been operated during last ten years will have a tendency to adopt computerized systems in their operations. Therefore, null hypotheses 2 is rejected. Business Size and Usage Level The cross-tabs test has been done and a total of 79 companies are valid for the test. Table 1.7 shows that 44 companies or 55.7% in the sample are firms with medium in size and posses high-level usage of accounting software. The remaining 25 companies or 31.7% are considered as small firms but with high-level usage of accounting software. Usage Level Table 1.7 Size and Usage Level Relationship Size Small Medium 263 Total Lower Medium Higher Total 2 2.5% 6 7.6% 25 31.7 33 41.8% 0 0% 2 2.5% 44 55.7% 46 58.2% 2 2.5% 8 10.1% 69 87.4% 79 100% Chi-square = 0.026 *Chi-square is significant at the 0.05 level (2 tailed) Table 1.7 shows that there is a positive relationship between size and usage level where Pearson chi-square correlation value is 7.290. The relationship between these two variables is found to be significant (r = 7.290, n = 79, p = 0.026, p < 0.05). Therefore, null hypotheses 1 is rejected. Academic Qualification and Usage Level Table 1.8 Academic Qualification and Usage Level Relationship Academic Qualification Usage level Lower Secondary Higher 0 1 1 Lower 0% 1.3% 1.3% 3 1 4 Medium 3.8% 1.3% 5.1% 1 6 62 Higher 1.3% 7.5% 78.5% 4 8 67 Total 5.1% 10.1% 84.9% Chi-square = 0.000 *Chi-square is significant at the 0.01level (2 tailed) Total 2 2.6% 8 10.1% 69 87.3% 79 100% The cross-tabulation table above shows that academic qualification among accounting department members will also influence the usage level of accounting software in respondent firms. Table 1.8 shows that 62 companies or 78.5% of the sample posses high academic qualification and at the same time implementing a high level usage of accounting software, while companies that have staff with low and secondary level of academic qualification (5 companies) use very minimum accounting software in their operations (6.4%). The finding above shown that there is a positive relationship between academic qualification and the usage level of accounting software. It means that the higher academic qualification that they have, the higher-level usage of accounting software in their accounting department (r = 23.465, n = 79, p = 0.000, p < 0.01). Therefore, null hypotheses 3 is rejected. This is consistent with study done by Noor Azizi at al (2001) that revealed that most of the companies facing problems at the implementation stage of accounting software, that are, lack of skill and knowledge among internal employees. Therefore, the companies have sent the respective employees for training and course on how to handle the accounting system. Regression Analysis Table 1.9 Empirical Test on the Relationship Between Usage Level of Accounting Software and Business-specific Characteristics. 264 Model 0.621 (-0.496) 0.000*** (4.084) 0.015** (2.502) 0.000*** 3.698 37.4% Intercept Age Size Academic qualification r² *** Significant at one percent level ** Significant at five percent level Table 1.9 reports the result of the linear regression analysis for the usage of accounting software among SMEs. The independent variables are size, age and academic qualification. The sample comprises 76 firms that are categorized as SMEs in Perak in 2004. According to table 1.9, it can be concluded that all independent variables are having significant influence on the usage level of accounting software among SMEs at confident level one percent for age and academic qualification of the respondents whereas size of respondents is significant at five percent confident level. The r² of the model is 37.4 percent. Therefore, hypothesis 4 is rejected. Age of companies is found having significant influence (p<0.01) on the usage of accounting software and this result is consistent with previous study done by Jui Chih (1993), which reveals that firms that have been operated during last ten years will have a tendency to adopt computerized systems in their operation. Similar to the age of the firms, firm’s size is also indicated having significant influence (p<0.05) on the usage of accounting software. This finding is consistent with a study done by DeLone (1981). The result of his study shows that firm size found to be significant variable in influencing the variations on how the firms manage their computer usage. DeLone empirically found that smaller firms are normally used computers for a less time, and focusing on the basic application. The education level among accounting department staff of the companies is also found having significant influence (p<0.01) on the usage of accounting software. Noor Azizi et al (2001) found that most of the respondents facing implementation stage of accounting software problems due to lack of skill and knowledge among internal employees. It supports the finding of this study that educational level is important variable to influence the usage level of accounting software. Foong (1991) found that the users’ satisfactions of using the computer package is depend on several attributes including level of education, system sophistication, and extent of computerization. As a conclusion, that business characteristic which comprises of business size, age of the firm and academic qualification among members of the accounting department have significant influence on the usage level of accounting software among small and medium entrepreneurs. REFERENCES Abdullah, M. A. (2000)a. Small an d Medium Enterprises : Some Pertinent Issues. Small and Medium Enterprises in Asia Pacific Countries: Roles and Issues, Vol. 1. Huntington, NY : Nova Science Publishers. Abdullah, M.A. (2000)b. Myths and Realities of SMEs in Malaysia. Small and Medium Enterprises in Asia Pacific Countries: Roles and Issues, Vol. 1. Huntington, NY: Nova Science Publishers. Anonymous, (1997). Top Ten Mistakes for SMEs. Australian Accountant, 67(10), 80-81. Anthony, R.(1965). Planning and Control System: A Framework for Analysis. Boston Harvard Business School. 265 Anthony, R.N, Hawkins, D.F. and Merchant, K.A (1999). Accounting: Text and Cases. (Tenth Edition), Boston: Irwin/McGraw-Hill. Arnold, J. and Hope, T.(1990). Accounting for Management Decisions. (Second Edition), New York: Prentice Hall. Belkaoui, A.R. (2000). Accounting Theory. Fourth Edition, Business Press, Thomson Learning. Bourke, P. (1998). The Contribution of Universities to the Development of Small and Medium Scale Enterprise: The European Experience Proceedings: International Conference on Small and Medium Scale Enterprises, Vol.1 .Universiti Utara Malaysia. British Qualification (1998), A Complete Guide To Educational Technical, Professional And Academic Qualifications In Britain. (28th Edition), London: Kogan Page Box, T.M., Beisal, J.L. and Watts, L.R (1995). Thai Entrepreneurs: An Empirical Investigation of Individual Differences, Background and Scanning Behavior, Academic of Entrepreneurship Journal, Vol. 1, pp. 18-25 Campbell, J.P., Dunnette, M.D., Lawler, E.E. and Weik, K.R., Jr. (1970). Managerial behavior, performance and effectiveness. New York: McGraw Hill. Carlson, P. and Ooi, S.K. (2000). Setting Financial Reporting Standards. The Banker’s Journal. Calderon, T.G. (1990). Reporting Entity Size and the Need for Accounting Information. Akron Business ad Economic Review, 21(1), 104-118. Chirathivat, S and Chantrasawang, N. (2000). Experience of SMEs in the Financial Crisis in Thailand. Small and Medium enterprises in Asia Pacific Countries: Role and Issues, Vol. 1. Huntington, NY: Nova Science Publishers. Christopher Winch & John Gingell, (1999), Key Concepts In The Philosophy of Education, New York: Rontledge DeLone, W. H. 1981. Firm size and the characteristics of computer use. MIS Quarterly. December: 65-77. Din, M.S. and Gibb, A.A. (1998). Small Business and Entrepreneurship Education: An Innovative Approach. Proceedings: International Conference on Small and Medium Scale Enterprises, Vol. 1. Universiti Utara Malaysia . Foong, S. Y. 1999. Effect of end-user personal and systems attributes on computer-based information system success in Malaysian SMEs. Journal of Small Business Management. July 37(3): 81-87. Gorton, M. (1999). Use of Financial Management Techniques in the U.K-based Small And Medium Sized Enterprises: Empirical Research Findings. Journal of Financial management & Analysis, 12(1), 56-64. Hashim, M.K. and Abdullah, M.A. (2000)a. A Proposed Framework o Redefining SMEs in Malaysia : One Industry, One Definition. Asian Academy of Management Journal, 5(1) 65-74. Hashim, M.K. and Abdullah, M.S. (2000)b. Development of SMEs : Research Issues and Agenda. Small and Medium Enterprises in Asia Pacific Counties: Roles and Issues, Vol. 1. Huntington, NY: Nova Science Publishers. 266 Haswell, S. and Holmes, S. (1989). Estimating the Small Business Failure Rate: A Reappraisal. Journal of Small Business Management, 68-74. Haron, Sudin, Shanmugam and Bala, (1994). Lending to Small Business in Malaysia. Journal of Small Business Management . 32(4), 88. Holmes, S. and Nicholls, D. (1988). Modeling the Accounting Information Requirements of Small Business. Accounting and Business Research, 19(74), 143-150. Holmes, S. and Nicholls, D. (1989). An Analysis of the Use of Accounting Information by Australian Small Business. Journal of Small Business Management, 26(2), 57-69. Honrgren, C.T., Harrison, W.T. & Bamber, L.S. (1999). Accounting (Fourth Edition) Prentice Hall. Horngren, C.T., Sundem, G.L. & Elliot, J.A. (1996). Introduction to Financial Accounting (Sixth Edition). Prentice Hall. Igbria, M., Zinatelli, N. and Cragg, P. 1997. Personal computing acceptance factors in equation model. MIS Quarterly. September: 279-305. small firms: A structural Ismail, R. and Darawi, Z. (1998). Linkages of SMEs : Where are They Heading. Proceedings: International Conference on Small and Medium Scale Enterprises, Vol. 2. Universiti Utara Malaysia. Jui-Chih, C. 1993. The impact of microcomputer systems on small business: England, 10 years later. Journal of Small Business Management. July 31(3): 96-102. Kalesnikoff, D. (1998). The Role of Consultants with Small and Medium Scale Enterprises. Proceedings: International Conference on Small and Medium Scale Enterprises, Vol. 2. Universiti Utara Malaysia. Kitching, J. (1998). Investing in Training and Small Firm Growth and Survival: An Empirical Analysis for the UK 1987-97. International Small Business Journal, 17(1), 110-113. Khalid, I. 2004. The Usage of Accounting Data by SMEs in Malaysia. Ph.D. dissertation, Washington International University, USA. Lavigne, A..(1999). Standards with Differential. CA Magazine, 132(8), 49-50. Ministry of International Trade and Industry of Malaysia (MITI, 2002) Montazemi, A. R. 1998. Factors affecting information satisfaction in the context of the environment. MIS Quarterly. June: 238-256. small business Nor Aishah Buang (2002). Asas Keushawanan. Kuala Lumpur: Fajar Bakti Noor Azizi, I., Shamsul Nahar, A. and Mahamad, T. 2001. The extent of I.T use in among SMIs. Akauntan Nasional. July: 44-47. Sekaran, U. (1992): Research Methods for Business. (Second Edition), John Wiley & Sons, nc. Simons, R. (1991). Strategic Orientation and Top Management Attentions to Control System. Strategic Management Journal, 49-62. 267 accounting Turner, R. (1997). Management Accounting and SMES : A Question of Style? Management Accounting, 75(7), 24-25. Wijerwardena, H. and Tibbits, G.E. (1999). Factors Contributing to the Growth of Small manufacturing Firms: Data From Australia. Journal of Small Business Maangement, 37(2), 88-95. Withman, H. (1983). Accounting and Marketing – Key Small Business Problems. American Journal of Small Business, 7, 19-26. World Bank. (1978). Employment and Development of Small Enterprises, Sector Policy Paper. 268 INTERNATIONALIZING MARKETING COMMUNICATIONS: A STUDY-ABROAD, DIRECT-EXPERIENCE APPROACH Sak Onkvisit San Jose State University, USA Howard W. Combs San Jose State University, USA ABSTRACT International experiences are requisite to understanding the interdependence of nations and markets as well as the concepts of the various disciplines. Universities must play an important part in educating future business and non-business managers to meet international challenges. To extend a student's frame of reference to the global market, American universities in particular need to differentiate between business and communication techniques that are universal and those that are unique to a particular country or region. This paper discusses a direct-experience, hands-on approach that involves an American university's faculty-led study-abroad program to Thailand, one of the world's fastest-growing economies during the last few decades. The components of a sixunit experimental course, titled “Cross-Cultural Marketing Communications in Southeast Asia,” are described. The paper also covers the collaboration, impact, evaluation plan, and implications. NEED FOR OVERSEAS EXPERIENCE Policy makers, educators, and students alike have a basic obligation to take advantage of the opportunities to learn and transmit the knowledge of the world. College education is not immune to the force of globalization. According to Dan Okimoto, a professor of political science at Stanford University, "universities in the 21st century will have to be international universities serving a collective good, not simply a national good." International experiences are not luxuries; they are a necessary condition to the full understanding of the various academic disciplines and their concepts. One discouraging fact is that the overseas experience of American chief executives is quite limited. As reported by Business Week (1991), of the 1,000 largest U.S. corporations, only 13 percent of the chief executives have had overseas assignments during their careers. One slightly positive note is that 20 percent of those who became CEOs in 1990 had worked outside the United States. On the negative side, most CEOs with overseas experience acquired it in Canada and Europe and not in the fast-growing Asia or Latin America. According to a 2005 survey, about 90% of Europe’s largest companies have at least one director from outside their home country (The Wall Street Journal, 2005a). In contrast, only 35% of 149 large U.S. corporations have at least one non-American director, thus limiting their views of the rest of the world. As commented by the chairman of the supervisory board of N.V. Philips' Gloeilampen-fabrieken, "if Americans started doing business with other countries, they would develop greater understanding as well as more trade. And that is the most important thing, after all--that societies be open to each other. To close yourself off is the worst thing that can happen" (Stone, 1989, 95). Based on a study by the MIT Commission on Industrial Productivity, U.S. firms need a global outlook and should make a stronger effort to understand foreign languages, culture, and business practices (Dertouzos, Lester, and Solow, 1989). Sadly, as commented by Porter and McKibbin (1988, 319), "it is our impression from our extensive interviewing that business schools, collectively, have not yet become really serious about the international dimension of management." They further state: "This is an area of the curriculum where we found a considerable amount of, at worst, lip service, and, at best, serious concern on the part of deans and faculty. ..... The problem, as most acknowledge, is how to implement this" (Porter and McKibbin, 1988, 85). There is definitely a need to teach American students to be more aware of the world. 269 Several well-known business schools see no need for international courses with the rationale that basic disciplines (and principles of marketing, management, and so on) are universal. In a perfect world, there should be nothing international or domestic about the discipline of business administration as all international and domestic activities are supposed to be naturally and seamlessly integrated. Any business concepts and theories should thus be covered as global activities that are applicable everywhere regardless of the national context. As a consequence, business courses should be taught as discipline-based courses by having the international nature fully woven or incorporated into all courses (Onkvisit and Shaw, 2004). Unfortunately, because of the dominance of American textbooks (and European textbooks to a much lesser extent), business administration has always been taught from either the U.S. or European perspective. Consequently, "international business courses become intellectually isolated" from the discipline-based (functional-area) faculty (Jacob, 1993). Part of the problem is that most business professors failed to take any graduate courses related to international business. As noted by the AACSB International, during their graduate studies, only 17 percent of the 1984 business doctoral candidates had taken any international courses. Given the fact that it was 25 percent in 1976, the new figure was discouraging. In all likelihood, the next generation of faculty members will encounter difficulty in introducing international content into the courses they teach. Consequently, "most of our new teachers are entering the profession knowing only a subset (the domestic-U.S. portion) of their fields, and that's all they are likely to teach" (Nehrt, 1988). As can be expected, their lack of interest is manifested in the material they choose to teach. The AACSB International and the efmd, the two most prestigious accreditation agencies of business schools, have urged their member schools to incorporate the international dimension into the curriculum. Since 1980, the AACSB International (no longer calling itself the American Assembly of Collegiate Schools of Business) has required a new accreditation standard based on the international concern by stating that "every student should be exposed to the international dimension through one or more elements of the curriculum." In effect, the AACSB wants the curriculum to include a worldwide dimension and encourages efforts to internationalize the curriculum accordingly. INTERNATIONAL ORIENTATION AND SENSITIVITY: A STUDY-ABROAD, DIRECT EXPERIENCE APPROACH Universities are in an excellent position to play an important part in educating future business and non-business managers to meet international challenges. A key ingredient in this process is that a student's frame of reference must be extended to the global market. To both the universities and students, global--not national--orientation is essential. Universities in this millennium, instead of being parochial, should strive to offer international education and differentiate between business and communication techniques that are universal and those that are unique to a particular country or region. As explained by Christensen (1988), "an internationalized curriculum can provide students with a strong awareness of cultural and economic differences among nations, a deep appreciation of how professions operate on an international basis, and a burning desire to interact with colleagues on a worldwide basis. Hopefully, graduates of professional curricula will recognize that there are no geographical borders between them and their professional counterparts." Traditionally, and to a great extent today, U.S. universities' study-abroad programs have been Euro-centric with few opportunities for American students to study in other regions of the world such as Africa, South America, and Asia. During the 2003-2004 academic year, more than two-thirds of some 190,000 American college students who studied abroad went to Europe, primarily Western Europe (The Wall Street Journal, 2005b). This particular study-abroad program addresses this imbalance by focusing on an Asian nation, Thailand, which is rich in culture and history. It is also a democratic, vibrant nation that is an active player in the global economy. A summer-study tour aims to give American students the following benefits: (1) an opportunity to expand their basic knowledge about marketing and communications in the international context, (2) how professional practices are shaped by languages, national values, and culture, and (3) better understanding of the complexities of conducting marketing and communications objectives, on an international basis. Direct experience abroad is arguably the most effective way to enable students to truly appreciate a host country's history, language, economy, politics, international relations, and other cultural aspects. Students can immerse themselves in an ancient Asian culture while experiencing a modern city. They participate in seminars and get first- 270 hand information on government-sponsored campaigns regarding AIDS, literacy, and rural development. Another very valuable experience is an opportunity to interview top executives at some of the largest marketing, public relations, and advertising firms in Southeast Asia. Several of these firms are affiliates of multinational corporations. The implementation of this project, by going beyond a classroom discussion in the U.S. setting, offers direct experience overseas which should make students much more enthusiastic and active. This paper describes a study-abroad summer institute of one comprehensive university on the West Coast of the United States. The program was designed to provide an opportunity for American students with limited means to learn first-hand about a vibrant and emerging market. Only slightly more than 10% of the 85,000 undergraduates who studied abroad in 1995-96 were students of color, and the ethnic composition is as follows: Asian American (4.9%), Hispanic (4.5%), African American (2.8%), and Native American (0.03%) (Jenkins, 1997). For the 20032004 academic year, the Commission on the Abraham Lincoln Study Abroad Fellowship Program, appointed by the U.S. Congress, noted that African Americans and Hispanic Americans accounted for only 3.4% and 5% respectively of 190,000 American college students who studied abroad (The Wall Street Journal, 2005b). The objectives of the program focus on a number of international and educational activities. First, the project is a partnership between a U.S. university and an overseas institution of higher education. Second, the project involves the planning, development, and carrying out an international program to strengthen undergraduate and graduate instruction in international studies and foreign languages. Third, the project includes the activities that establish internship/study abroad opportunities for faculty and students in domestic and overseas settings. On the one hand, the participating students have an opportunity to study in Thailand in both the classroom and outside environments. On the other hand, their visits to a number of companies and nonprofit organizations allow them to make an inquiry regarding internship opportunities. In addition, the faculty and students participating in this project are able to conduct group projects abroad, and the experiences can be used for training and curriculum development. THAILAND: A VIBRANT MARKET Thailand is a desirable destination in Asia for a number of reasons: (1) Bangkok, the capital, is an international airline hub for all of Asia, (2) the nation is relatively modern with a good infrastructure for transportation, accommodations, and organized tourism, (3) it has a stable, democratic government, (4) the favorable exchange rate makes most products and services in Thailand very inexpensive, and (5) it is a favorite among international youth (backpackers) because of the culture, history, and friendliness of the Thai people. In fact, Thailand receives more international visitors than any other nation in Southeast Asia. It is important to note that Thailand is one of the world's fastest-growing economies during the last few decades. The host institution is Chulalongkorn University, Thailand's oldest university. Chulalongkorn offers programs in 350 areas of study to approximately 27,500 students. A growing number of programs are designated as “international” with instruction in English. The 500-acre campus is located in central Bangkok, a city of about 8 million. In terms of logistics, Chulalongkorn University allows study-group participants to live in on-campus university housing for the duration at the very reasonable rate of approximately $350-500 per person. These housing facilities are walking distance to all campus buildings as well as several major shopping malls complete with restaurants and movie theaters. Since the campus is in the middle of the city, it is conveniently connected to public transportation. Therefore, other areas of the city can be easily reached via the sky train, subway, bus, or easy-to-find taxi. Most signs and directions are in English making it is easy for visitors to navigate the city. Known locally as the “City of Angels,” Bangkok is the political and economic capital of Thailand. This soon-to-be mega-city is the ideal location for a study-abroad program focusing on the advertising, public relations, and marketing industries. It is the site of government ministries, national and international advertising and public relations firms, and the headquarters of many national and multinational corporations. Some of the most creative advertisements in the world originate from the advertising agencies in Bangkok. For instance, a TV commercial for Sealect tuna in Thailand has been duplicated (with American actors) for the Chicken of the Sea brand for the U.S. market. Therefore, this location gives easy access to many sources that are important to the content of this course. CROSS-CULTURAL MARKETING COMMUNICATIONS: 271 ELEMENTS OF THE COURSE The title of the six-unit experimental course is “Cross-Cultural Marketing Communications in Southeast Asia.” The seminar course was designed to primarily attract students majoring in advertising, public relations, marketing, international business, history, and area studies. The course was taught jointly by the American and Thai faculty members. There was a close working relationship between American and Thai faculty to assure a significant crosscultural experience. A major effort was made to have joint classes and seminars with Thai and American students. There were several pre-trip sessions before leaving for Thailand. The pre-departure class sessions covered such topics as Thailand's culture and history, Thailand’s current economy and international trade issues, the status of the marketing and communications industry in Southeast Asia, health and security issues, and a round-table discussion with local Thai students about their nation, customs, foods, etc. The program has daily field trips--to advertising agencies, marketing firms, government ministries. A unique and significant dimension of the course is the tapping of the leading professionals in the advertising, public relations, and marketing industry to give talks about their work and the industry in Thailand. This is a very rare and valuable opportunity for American students to interact with leading executives who are opinion leaders. These professionals are supplemented by senior communications officials from the various government ministries who discuss various governmental information efforts in the areas of health, voting, literacy, AIDS, to improve the welfare of the Thai people. For example, the deputy governor of the Tourism Authority of Thailand (TAT) gave a briefing on how the country marketed itself for tourism and economic development. He described Thailand's effort to cultivate a number of market segments (e.g., female tourists, medical tourists, spas and traditional massage, etc.). There was an interesting discussion of the economic and social impacts of the 2004 tsunami. A SAMPLE VISIT: THE WORLD'S MOST INTERNATIONAL HOSPITAL Students made a number of corporate visits, and they were pleasantly surprised by being greeted and briefed by top executives, an unlikely occurrence in the United States. Their visits to several advertising agencies and public relations firms (affiliated with well-known multinational corporations) revealed the creative and sophisticated operations of these agencies which could rival the very best in the world. The faculty leaders were fortunate in successfully arranging a visit to Bumrungrad International. Bumrungrad is a pioneer of a product concept which makes a hospital appear to be more like a luxury hotel. It has Starbucks and McDonald's on premise, and the escalator takes visitors to the various departments. It offers valet parking, guest chefs from 5-star hotels, and airport transportation. The hospital was featured on 60 Minutes, a top-rated TV program in the United States. On the day after the broadcast, it received some 3,000 e-mail inquiries from Americans seeking medical treatment. Bumrungrad's American CEO was kind enough to talk in depth about the hospital's marketing strategies, and the students found his presentation to be very educational and enlightening. Severely and adversely affected by the Asian economic crisis in the late 1980s, Bumrungrad turned its adversity into a great opportunity. Using the devaluation of the local currency to its advantage, Bumrungrad became international. It began attracting the "medical tourists"--those who wanted both health services and vacations. The hospital offers world-standard medical treatments at about one-tenth of what U.S. hospitals charge. It trains doctors, nurses, and staff members to be sensitive to the various cultures. Arguably, Bumrungrad is the world's most international hospital, with 360,000 of the one million patients being foreigners. Bumrungrad also has a sophisticated information system. It seemed counter-intuitive when Bumrungrad began to woo patients from Bangladesh. However, the hospital recognized that 5 percent of Bangladesh's 140 million people could afford to seek medical treatment anywhere in the world. As a result, this group is now the hospital's second largest segment (after Thai customers). PLAN OF EVALUATION 272 Students were required to keep an extensive daily journal regarding the content of lectures, seminars, field trips, etc. They were asked to do interpretative analysis and commentary on what they saw and heard. Students were also required to conduct research on a particular topic and write a comprehensive “term” paper. The faculty leaders conducted an in-depth evaluation of the project by gathering information about the targeted constituents and their personal and professional developments. The data were cross-tabulated by behavioral responses and respondent demographics. The results offer a baseline for subsequent study-abroad groups. Both qualitative and quantitative data were collected. However, due to the small sample size, rigorous statistical methodologies were basically precluded. One way to assess the success of the program is to measure the participating students' degree of international sensitivity--before, during, and after the study tour. In the future, it is desirable to develop a measuring instrument to evaluate their international perspective in general and their sensitivity to the Thai culture and legal/political dimensions in particular. For this recent trip, only a post-trip measurement was made. Still the responses clearly showed that the participating students were highly satisfied with the educational value and their personal as well as professional growth. Conceivably, a longitudinal follow-up study can be done after student graduations. The purpose is twofold. On the one hand, the study will determine whether the participating students have found their study-abroad experiences to be helpful in their professional careers--either directly or indirectly. On the other hand, the study will assess how these students have changed--personally and socially. This dual assessment relies on a stated performance indicator by evaluating whether the project has succeeded in training those with area expertise who can contribute to the needs of the U.S. government, academic, and business institutions. CONCLUSION The purpose of any international study program, including this one, is to give American students an opportunity to expand their knowledge of other nations and cultures. The American Council on Education (ACE) said it best in a 1995 report. It called for colleges and universities to provide students with a “powerful, deep-rooted understanding of other languages, diverse cultures, and global issues” (Jenkins, 1997). According to the director of international programs at Virginia Military Institute, "studying abroad opens students' eyes to the world of international ideas. They learn to understand how people of other nations view the world and why different people view the United States in a different way. Especially in today's political climate, students are learning that the international community is not necessarily behind the United States. They are seeing the other side" (Snead, 2004). Likewise, the vice president of the Council on International Education Exchange echoes: the study-abroad experience, whether positive or negative, can be "life-changing" (Wamunyu, 2004). While most U.S. colleges probably have some international aspects in the curricula (either as free-standing courses or as part of other courses), a study tour to an Asian nation would greatly enhance the internationalization of the curriculum. This hands-on approach gives students an exposure to a culture that few have ever had the opportunity to experience first-hand. Upon completion of their study tour, students were able to verbalize their learning experiences and generally talk about how the trip had changed their perceptions or expanded their knowledge base. Ultimately, the students may be able to advance beyond their American citizenships to also consider themselves the citizens of the world. REFERENCES Business Week. 1991. The corporate elite. 25 November, 182. Christensen, George C. 1988. International curriculum for the professions. National Forum, LXVIII (Fall): 27-30. Dertouzos, Michael L., Richard K. Lester, and Robert M. Solow. 1989. Made in America: Regaining the productive edge. Cambridge, MA: MIT Press. 273 Nehrt, Lee C. 1987. The internationalization of the curriculum. Journal of International Business Studies, 18 (Spring): 83-90. Porter, Lyman W. and Lawrence E. McKibbin. 1988. Management education and development: Drift or thrust into the 21st century? New York: McGraw-Hill. Jacob, Nancy L. 1993. The internationalization of management education. Selections 10(1): 18-22. Jenkins, Karen. 1997. Preparing Students of Color for Global Opportunities. Black Issues in Higher Education, 14 (13 November): 33. Onkvisit, Sak and John J. Shaw. 2004. International marketing: Analysis and strategy, 4th ed. London/New York: Routledge. Snead, Sande. 2004. Study abroad programs afford a broader view. Richmond Times-Dispatch, 10 October. Stone, Nan. 1989. The globalization of Europe: An interview with Wisse Dekker. Harvard Business Review, 67 (May-June): 90- 95. The Wall Street Journal. 2005a. Globalizing the boardroom. 31 October. The Wall Street Journal. 2005b. Overseas education gets panel’s support. 14 November. Wamunyu, Wambul. 2004. A world of opportunity: Study-abroad programs gain popularity with Boston-area collegians. Herald, 5 October. 274 AN EVOLUTIONARY ALGORITHM BASED TOOL FOR DATA VISUALIZATION WITH APPLICATION IN BUSINESS Syed Arshad Raza King Fahd University of Petroleum & Minerals, Saudi Arabia Muhammad Sarfraz King Fahd University of Petroleum & Minerals, Saudi Arabia M. Sadiq Sohail King Fahd University of Petroleum & Minerals, Saudi Arabia ABSTRACT There are multi-disciplinary applications where finding an approximated curve description of data is beneficial. These applications include geometric modeling in shape design and recognition problems in the area of computer science and engineering, determining data behavior over time or any other parameter and predicting future market trends in business etc. Irrespective of the area of application, such visualization problems usually deal with large and complicated data, which can not be approximated by a single polynomial. In such cases, spline is one of the most appropriate approximating functions. This paper presents a tool for data visualization using an evolutionary technique called Genetic Algorithm (GA). The tool accepts input data and parameter values through a GUI and approximates it with a B-spline. The paper starts with the introduction to some evolutionary models applied to 2D data for smooth closed shapes like fonts or images with some results obtained. Then, a GA based data visualization tool has been discussed with its potential application in business. The tool gives a smooth B-spline approximation even if the data contains some noise. The paper also gives implementation summary including necessary technical details and concludes with some possible future work. INTRODUCTION The applications dealing with large number of measurement data need tools based on mathematical models to help in data visualization. Data having complicated underlying function can not, of course, be approximated by a single polynomial. The use of spline in such problems is well known. For large data to be fitted with a spline, we need to determine appropriate number and locations of knots simultaneously, making it a non-linear, multivariate optimization problem “Yoshimoto et al. (1999)”. In such cases, evolutionary algorithms such as Simulated Evolution (SimE), Simulated Annealing (SA), Ant Colony Optimization (ACO), Genetic Algorithm (GA) etc. have proven to be useful in finding a desired solution from a large solution space with an acceptable computational cost. The coming section discusses data approximation, involving closed shapes, with Non-uniform Rational B-spline (NURBS) and B-spline using simulated evolution “Sarfraz et al. (2005) and genetic algorithm “Sarfraz & Raza (2002)” as a brief literature review. Then the paper specifically puts lights on the implementation summary of the GA based tool developed for noiseless or noisy data with a complicated underlying function. Such data mostly have open ends as they are usually collected over time or some other parameter. In business application like marketing, data representing market trend over time falls into same category. The tool is helpful in coming up with a desired solution using a fitness function, thus determining the over all picture of the data behavior. Then it gives implementation summary and explains the interface details with an example. Finally the paper concludes, indicating some possible improvements that could be made to the existing tool and some future research directions. EVOLUTIONARY HEURISTICS IN DATA VISUALIZATION In evolutionary techniques, the problem at hand is first mapped to the solution space according to the steps of the heuristic being used. In curve fitting problems every data point is a candidate to be selected as a knot. Following subsections show the applications of data visualization for closed shapes using SimE and GA respectively. 275 Simulated Evolution (SimE) SimE is a powerful general iterative heuristic for solving combinatorial optimization problems “Ralph & Benerjee (1999)”. The algorithm executes by taking one initial solution consisting of segments. The goodness g i of each segment Si is determined by a goodness function. The algorithm then seeks to reach better assignments from one iteration (generation) to the next “Sait & Youssef (1999)”. For curve fitting problems using SimE, the data points at hand are partitioned into various segments. Each segment starts with a data point selected as a knot and ends at another. This initial solution is the starting point of the algorithm. In each iteration, the algorithm tries to seek for a solution having a less sum square error as compared to the solution found in the previous iteration. Figures 1 & 2 show how a SimE based curve fitting algorithm selects some points as knots for the boundary data of a jet plane. Figure 3 gives the picture of the algorithm’s performance plotting Sum Square Error (SSE) versus number of iterations. Genetic Algorithm (GA) Since the tool discussed in the paper is based on a GA, we would like to discuss this technique to quite some length including algorithm steps and the mapping scheme used for data visualization. Genetic algorithm (GA) was introduced by Holland in the 1970s “Goldberg (1989)”. Unlike SimE, a GA starts with a set of solutions called population. Each solution is represented by a bit string, called a chromosome. A GA is applied with its three genetic search operators---selection, crossover and mutation---to transform a population of chromosomes with the objective of improving their quality iteratively. The individual bits of a chromosome are called genes. Before the search starts, a set of chromosomes is randomly chosen from the search space to form the initial population. Fig. 1. During Execution Fig. 2. Final Result 276 Fig. 3. SSE Vs Number of iterations The three genetic search operations are then applied one after the other to obtain a new generation of chromosomes in which the expected quality of the newly generated chromosomes is better than that of the previous generation. Thus the process is repeated until stopping criterion is met (for example, a predefined number of generations are processed). In the end the best chromosome of the last generation is reported as a final solution. Figure 4 shows a standard GA steps. For data visualization problems using curve fitting, each data point corresponds to a single gene in the bit string of a chromosome. In this formulation, a data point is represented as 1 if selected as a knot and as 0 if not, as shown in figure 5. After the algorithm is executed, it strives to produce better solutions with the help of its search operators, thus getting closer to the desired solution. In a curve fitting application, the main objective is, of course, to minimize the error between the input data and the fitted curve. Figures 6-9 show how GA was applied to get an optimized curve fit in a font design application for the English letter “Aich” and the pound symbol. Initialization Evaluation Selection of Parents Crossover Mutation Fig. 4. AReplacement GA Outline 277 Fig. 5. Data Visualization problem mapping to a GA Fig. 6. Input Data for the letter “Aich” Fig. 7. Final Result Fig.8. Input Data for “Pound” symbol Fig. 9. Final Result A GA BASED TOOL FOR DATA VISUALIZATION This section describes the implementation summary of the GA based data visualization tool, its potential application in business and the interface details. Implementation Summary The tool has been implemented using MatLab. The work was motivated by “Yoshimoto et al. (1999)” and is based on the implementation scheme discussed in the previous section. For selection of fitter chromosomes, a Roulettewheel selection scheme has been used. For generating new population (set of possible solutions), a double point 278 crossover has been applied. The probabilities used for crossover and mutation were 0.7 and 0.001 respectively. Another control parameter called “Knot Ratio” has also been used. This parameter which was kept below 0.5 limits the number of knots in the desired solution. The algorithm, thus determines appropriate number of knots and their locations simultaneously. Tool’s Potential Business Application Unlike the data for fonts and images, business data is usually unsmooth (noisy). Such data is mostly collected over regular or irregular time intervals resulting in open ends. For example, the data collected from satellite for weather forecasting possesses the same characteristics. In order to verify the applicability of our model for such kind of data, we selected a complicated mathematical function and introduced some noise making it unsmooth simulating real conditions in such environments. Figure 10 shows the input mathematical function with noise addition while figure 11 shows the result obtained after executing the GA based algorithm. Figure 11 clearly reveals that the algorithm is capable of estimating the actual function’s pattern hidden behind the noisy input data thus exhibiting the overall behavior of data with respect to the parameter over which it is collected. Thus, the tool developed has a potential business application in areas such as data mining. For example, large data stored in a database about customers can be used as an input to the tool thus exhibiting buying patterns, market trends etc., as shown in figure 12. Tool eventually proves to be helpful to management in taking important business decisions. In such a scenario, the tool will actually play its part as a Decision Support System (DSS) rather than just a data visualizer. Fig.10. Input Function with noise addition 279 120 100 80 f(x) f(y) 60 Actual Data Knot Fitted Spline 40 20 0 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 x Fig.11. B-spline fitted to a uniformly distributed noisy data Fig.12. Tool’s potential Business Application The GUI The tool has been named as “Genetic Curve Fitter”. It accepts data and parameter values through a user-friendly interface. The main screen is shown in the following figure. 280 Plotting Start Button Fig.13. Main Screen The Parameter Window The main screen consists of the following parts: The Parameter Window The Start Button The Results' Plotting Area Various messages such as Doing Crossover, Evaluating Fitness, Generation No. etc. are also displayed as the algorithm is executed after the Start Button is pushed. Values for various parameters for the algorithm such as Order of the curve, Gene-length, Population Size, No. of generations, Knot Ratio, Probability for Crossover and Mutation are adjusted using The Parameter Window, as shown. 281 Fig.14. Program Executed Fig.15. Final Result After the algorithm is executed, a message Program Executed is displayed and a PLOT button appears above the START button, which shows various results one by one on clicking as shown in figures 14 & 15. Limitations and Future Work 282 Presently, the tool is capable of plotting 2D data. It may further be enhanced to plot data in a 3D fashion thus representing a surface showing the relation between more than two variables, as shown in figure 16. The tool may also be supplemented with other evolutionary techniques like SimE, ACO etc. Fig.16. Surface Fitting ACKNOWLEDGEMENTS The authors acknowledge King Fahd University of Petroleum and Minerals for the facilities and support in the completion of this research. The authors also extend their thankful comments to the anonymous referees for their useful and constructive input. REFERENCES Goldberg David E., 1989. Genetic Algorithms in Search, Optimization, and Machine Learning. Addison Wesley Ralph M., Benerjee P., 1991. Empirical and Theoretical studies of Simulated Evolution Method Applied to standard cell Placement. IEEE Transactions on Computer Aided Design, 10, 10 Sait Sadiq M., Youssef H., 1999. Iterative Computer Algorithms with Applications in Combinatorial Optimization Problems. California: IEEE Computer Society Press Engineering: Solving Sarfraz M., Raza S. A., 2002. Visualization of Data using Genetic Algorithm. Soft Computing and Industry: Recent Applications, 535-544. Springer Sarfraz M., Raza S. A., Baig M. H., 2005. Computing Optimized Curves using Evolutionary Intelligence. Lecture Notes in Computer Science, 806. Singapore: Springer Yoshimoto F., Moriyama M., Harada T., 1999. Automatic Knot Placement by a Genetic Algorithm for Data Fitting with a Spline. In: Proc. of IEEE Conference on Computer Graphics and Imaging, 162-169 283 DEVELOPING MODEL TOWARDS FRANCHISE PERFORMANCE IN INDONESIA: THE ROLE OF GOVERNANCE STRUCTURE, ENTREPRENEURIAL ORIENTATION AND KNOWLEDGE-BASED RESOURCES Bambang N. Rachmadi Faculty of Economy, University of Indonesia ABSTRACT The development of the franchise industry in Indonesia has undergone rapid growth over the last decade; data for the last five years shows that there has been significant growth of local franchise businesses compared to foreign franchises. The franchise outlet is a unit of a business network, however, with regard to operational activities; it is an individual who interacts with the environment where the outlet is located. Even though each outlet has the same standards to conduct its operational activities, the outlets are run by different individuals. Each individual has different capabilities, whether knowledge or entrepreneurial orientation, and consequently, each and every outlet has different capabilities to respond to market demands. Research on 141 franchise outlets from the McDonalds and RM Sederhana franchise networks indicates that the governance structure plays a role in outlet performance, while the roles of knowledge-based resources and entrepreneurial orientation by themselves did not have a significant impact on outlet performance. However, the interaction between the two plays a rather large role in outlet performance which culminates into the performance of franchise companies in Indonesia. INTRODUCTION The development of the franchise industry in Indonesia has undergone rapid growth over the last decade, and data for the last five years shows that there has been significant growth of local franchise businesses compared to foreign franchises. The franchise business is a unique business in that when choosing an expansion strategy a franchisor is able to adopt a dual structure, that is, either a company-owned outlet or a franchise outlet. The franchisor can choose the type of governance structure that is best suited to the need and capability of the company at the time of expansion. This business also offers benefits to both the franchisor as the owner/holder of the rights to the trademark, and the franchisee as a partner. For the franchisor, franchising provides solutions for business expansion, particularly problems involving agents and investment. For the franchisee, being a new business, the entrepreneur does not need to start from scratch, as an operational system and managerial assistance are provided by the franchisor. As a business network, the franchise offers uniform quality with regard to both the product and service at each outlet that bears the same trademark. To guarantee such quality, the franchisor establishes a specific system to be implemented at each its outlets, which is known as business format franchising (BFF). The franchise outlet is a unit of a business network, however, with regard to operational activities; it is an individual who interacts with the environment where the outlet is located. Even though each outlet has the same standards to conduct its operational activities, the outlets are run by different individuals. Each individual has different capabilities, whether knowledge or entrepreneurial orientation, and consequently, each and every outlet has different capabilities to respond to market demands. The knowledge-based resources of a franchise outlet reflects the capability to process information received from the environment, and to apply this knowledge to operational activities, while the behavior of the outlet in response to stimulants from the environment reflects the level of entrepreneurial orientation. Knowledge-based resources and entrepreneurial orientation are important to achieving outlet performance, but then as a unit of a franchise network, each outlet is still subject to the control and monitoring of the franchisor. To what degree the franchisor exercises control and monitoring of operational activities depends on the type of governance structure of the outlet in question. 284 The research involving 141 franchise outlets from the McDonalds and RM Sederhana franchise networks was carried out to see just how large a role governance structure, knowledge-based resources and entrepreneurial orientation play on franchise industry performance in Indonesia. GOVERNANCE STRUCTURE, KNOWLEDGE-BASED RESOURCES, ENTREPRENEURIAL ORIENTATION AND PERFORMANCE Governance Structure (GS) Governance is the process and system of governing the operational activities of an organization or society. Therefore, the governance structure is the distribution of rights and responsibilities involved in the operational activities of an organization / company. The distribution of the rights and responsibilities involved in operational activities can result in performance problems. In the Agency Theory, the problem is known as the adverse selection and moral hazard that results when a principal does not have sufficient information regarding an agent. Consequently, the company experiences uncertainty regarding whether an agent will perform as expected or not. With a fixed income, and without supervision from the principal, agents tend to act reactively or even often adapt a passive attitude, so that actual performance is not as expected (Jensen & Meckling, 1976). Faced with the situation described above, the granting of incentives is considered a key factor. Incentives / compensation based on residual claimancy can reduce the risk of moral hazard or adverse selection as the compensation truly depends on the agent’s performance (Alchian & Demsetz, 1972). However, incentives alone can not guarantee that an agent’s performance will meet expectations. Monitoring is still needed to overcome the difference of capabilities and perception that might arise during the process of transfer of procedural knowledge which could lead to inefficiencies. Monitoring can reduce the possibility of an agent making a mistake (Eisenhardt, 1989), although additional costs will be incurred as a result. Williamson (1967) stated that the choice of the structure of the relationship between the mother company and managers / agents must take into consideration the cost of lost control compared to the cost of maintaining control. According to Yin and Zajac (2004), differences in governance structure will impact the implementation of strategies at the outlet level. The more centralized the control of outlet operational activities, the higher the dependency of the outlet on the strategies set by the central headquarters. The greater the authority that is granted by headquarters, the more flexible an outlet can be in determining strategy based on market adaptability. Whether or not the decision is strategic or tactical, or whether it is made by the outlet manager / franchisee or by the franchisor for companyowned outlets, everything must be based on the performance of each outlet. From the previous analysis, we can say that the type of GS of a franchise outlet will determine the delegation of authority by the principal to the franchise outlet. Furthermore, it can be said also that the role of incentives in the motivation of outlet managers can increase outlet performance. To see just how much of an impact GS has on performance, the following hypothesis is put forth: Hypothesis 1 (H1): The governance structure of an outlet of a franchise business can have a positive impact on outlet performance (P). Knowledge-based Resources (KBR) Company resources are boundaries to the capability of a company to grow, meaning that the capability of a company depends on the resources it has and the method of taking advantage of those resources (Penrose, 1959). Even though the physical resources a company has may be the same, the processing of those resources during production can differ and in fact may be inimitable, depending on what is known as the isolating mechanism (Rumelt, 1984). Knowledge is considered to have the greatest capability of all other resources. The immobile nature of knowledge, the difficulty of transferring from company to company is a source of ongoing differentiation (McEvily & Chakravarthy, 2002). Knowledge enables a company to predict the nature and commercial potential of changes in the environment and make adjustments of strategic and tactical actions more accurately (Cohen & Levinthal, 1990). Nonaka and Takeuchi (1995) are of the opinion that it is not easy to formulate, articulate and transfer procedural knowledge within an organization. According to Nonaka (1998), knowledge consists of tacit knowledge, that is 285 knowledge stored inside an individual or organization, and explicit knowledge that stems from the articulation of tacit knowledge in a certain system or operational procedure. Furthermore, they promote the SECI model that shows the interaction between tacit and explicit knowledge in a company. The SECI model describes four phases of company learning, namely, socialization which shows the process of interaction between the tacit knowledge of among individuals wherein each of the individuals involved is learning, to the point of creating new tacit knowledge regarding the operational activities. After which an effort is made to standardize the steps of the operational activities into an overall procedural framework for the company. At this stage, the company enters the externalization phase where tacit knowledge is converted to explicit knowledge. An integrated system is usually developed using information technology as a means of information dissemination, reflects the process known as combination; the interaction between explicit and explicit. Finally, through an organizational routine (Nelson & Winter, 1982), the explicit knowledge becomes the tacit knowledge of individuals or organizations in the internalization phase. Company knowledge is developed through these phases and becomes a company asset. Based on the information above, we can conclude that knowledge of the market and technology can together represent an important knowledge-based resource that can be applied to increase the performance of a company. In addition, knowledge can also increase the capability of a company to discover and exploit opportunities and become a source of capability of the company to achieve sustainable competitive advantage. From the information above, the following hypothesis is put forth: Hypothesis 2 (H2): Knowledge-based resources of a franchise outlet have a positive impact on outlet performance (P). Entrepreneurial Orientation (EO) New combinations (Schumpeter, 1934) or entrepreneurial alertness (Kirzner, 1973) are the essence of entrepreneurship and reflect operational activities that are proactive in anticipating consumer demands that might emerge in the market, innovative activities that result in innovative products / services or work procedures, and an integrated decision making process. In their research, Miller & Friesen (1982) stated that the environment impacts on company strategy. Furthermore, Miller (1983) put forth the opinion that the entrepreneurial character of a company can be seen from the degree of proactive thinking, innovation and risk-taking. Miller’s approach then became the basis for research by other researchers, for instance, Covin & Slevin (1989) who conducted research of company performance in hostile (tight competition) and benign environments. Covin & Slevin (1989) emphasized that entrepreneurship is a part of company behavior, which they call the strategic posture. Lumpkin & Dess (1996) coined the term entrepreneurial orientation strategy to describe a strategy that uses proactive thinking, innovation and risk-taking as part of the company strategy. In their opinion, the connection between company performance and EO is context specific, where the role of EO is highly determined by market conditions. If a company is in the middle of a relatively stable environment (benign), the correlation between EO and performance is not that significant, whereas the opposite is true in the middle of a rapidly changing environment, where a high level of EO is required to support outlet performance. Based on the above, the following hypothesis is put forth: Hypothesis 3 (H3): Entrepreneurial Orientation (EO) of a franchise outlet has a positive impact on outlet performance (P). Performance (P) Company performance is determined by various factors such as market conditions, managerial and technological capabilities, available resources and both individual and group motivation within the organization. Van de Ven & Drazin (1985) put forward the opinion that company performance is the result of the combination of two or more factors of the various factors at work in a company, such as the company’s ability to adapt to its environment, the strategy that is used, the structure, the management style and the corporate culture. The performance of a franchise business is largely determined by the performance of existing outlets of the franchise network. As is the general perception regarding performance, several studies of company / outlet performance show that outlet performance can be measured by financial performance which is seen from the percentage of monthly sales and profit growth over the last two to three years (Yin & Zajac, 2004, Wiklund 286 & Sheperd, 2003). The results of interviews with franchise company executives, outlet managers and industry players in connection with this research, show that the percentage of growth of sales and profits of an outlet is a relevant variable to measure performance. In the franchise business, the performance of an outlet manager is evaluated and the manager is awarded recognition based on the outlet’s sales performance. Interaction of GS, KBR & EO Previous research has shown that a high level of EO will further increase the role of KBR to increase performance (Wiklund & Shepherd, 2003). Innovation is the result of the interaction between various elements within society such as science, technology, policies in force and the economy itself (Edquist, 1997). The interaction of the company and the various elements represents a part of the company learning process that will drive the company to make new innovative breakthroughs. From the information above, we can see that knowledge and the process of accumulation of knowledge plays quite an important role in determining strategy and innovative policies for a company. These findings are in line with the dynamic capability approach that states the dynamic capabilities enable a company “to create new products and processes, and respond to market circumstances” (Teece, Pisano & Shuen, 1997). This shows there is an interaction between EO and KBR that becomes the basis of the fourth hypothesis, namely: Hypothesis 4 (H4): The interaction between entrepreneurial orientation (EO) and knowledge-based resources (KBR) has a positive impact on outlet performance (P). The franchise business that is the object of this study is a unique type of business as it applies a dual structure for expansion. The selection of the type of governance structure for expansion also determines the intensity of the control and monitoring system at each outlet, which is the unit of analysis of this study. This shows that there is interaction between GS and EO or GS and KBR at each outlet; therefore, the following hypotheses are put forth: Hypothesis 5 (H5): Interaction between governance structure (GS) and entrepreneurial orientation (EO) has a positive impact on outlet performance (P). Hypothesis 6 (H6): Interaction between governance structure (GS) and knowledge-based resources has a positive impact on outlet performance (P). MODEL, METHOD OF RESEARCH AND ANALYSIS OF FINDINGS Research Model Based on the information above, a research model was formulated to describe the interaction between the various related variables. The research model can be mapped out using a structural equation modeling (SEM) diagram path as seen in diagram 1. 287 KBRE1 KBRE2 KBRE3 KBRC1 KBRC2 KBRC3 KBRS3 KBRI1 H3b1 KBRS2 H3b2 H3b3 H3c1 H3c2 H3c3 H3d1 H3d2 H3a3 H3a2 Social KBRS1 External Combine Internal KBRI2 H3d3 KBRI3 H3a1 H3a H3b H3c H3d KBR H4 H9 H7 P H2 H10a H10b P1 P2 H6 H8 GS EO H1a GSSPK1 H1a1 H5a H1c H5c H1c4 H1b Decision H1a2 Operation H1c2 Proactive H1b1 H1b3 H1b2 Risk GSPI3 Innovative H5a1 H1c1 H1a3 GSSPK3 H1c3 Incentive GSSPK2 H5b GSPI4 GSPI2 EOP1 H5a2 GSPI1 GSPO2 GSPO3 EOR1 H5b2 EOP1 GSPO1 H5c2 H5c1 H5b1 EOR1 EOI1 EOI2 Diagram 1. Research Model The structural model shows the interaction between the variables EO, KBR, GS, EO&KBR, EO&GS, and KBR&GS on outlet performance (P). The interaction between GS and P is described in H1 (Hypothesis 1) which was put forth previously, and consecutively the interaction between KBR and P, EO with P, EO&KBR with P, EO&GS with P, and KBR&GS with P is described in H2 (Hypothesis 2) through H6 (Hypothesis 6). Samples The research was conducted involving fast food franchises, using the franchise outlet as the unit of analysis. A foreign fast food chain and a local restaurant chain, namely McDonald’s and RM Sederhana respectively, were selected as samples based on sampling convenience (Agung 2004). The age of the outlet was generally taken into consideration, being thought to have an impact on operational stability, so that the sample selection was narrowed to only those outlets that were a minimum two years in operation. A total of 141 samples were taken for the study, consisting of 107 McDonald’s franchise outlets and 34 RM Sederhana franchise outlets. The outlets were taken from outlets in several cities in Indonesia, including Jakarta, Bogor, Depok, Tangerang, Bekasi, Bandung, Surabaya, Semarang, Yogya, Solo, Samarinda, Bali, Lombok, Makasar, Medan, Pekanbaru and Batam. Measurement and Variable Operation The measurement and operation of existing variables in the research model are as follows: (1) The variable of performance is measured by the financial performance, that is, the percentage growth of monthly sales and profits over the last two to three years. (2) The variable of GS is measure by 3 variables governing the decision making process, control of operations and the incentive scheme. These three variables are then measured using 10 items of the Likert (1-6) scale that was modified and further developed by Yin & Zajac (2004). (3) The measurement of the EO variable was adapted from the research of Covin & Slevin (1989) and Miller & Friesen (1982), consists of 9 items of the Likert (1-6) scale that are categorized as a proactive corporate orientation, a corporate tendency towards innovation, and a tendency for corporate risk-taking. (4) The measurement of the KBR variable is developed from the SECI model (Nonaka & Takeuchi, 1995), knowledge-based resources (Wiklund & Shepherd, 2003), findings of the study by Gupta & Govindarajan (2000). 288 There are 12 items of the Likert (1-6) scale which were first used to measure the variables of socialization, externalization, combination and internalization (SECI), then the SECI variables were used to measure the KBR variable. Data Collection The collection of primary data was done through the use of a questionnaire that was sent to respondents by fax and email. The 141 questionnaires that were sent, filled out and returned by respondents were inspected to determine their validity. In the case of a missing value or something suspect, further communication was made with the respondents in question in order to obtain effective research samples. Data Processing The study used Structural Equation Modeling (SEM) to build a model and process the research data using the assistance of Interactive LISREL 8.54 software. An analysis of the research model was done using a two step approach that was proposed by Anderson and Gerbing (1988), namely, (1) an analysis of the measurement model, which is aimed at proving the validity and reliability of each interaction between latent variables (LV) and measured variables (MV), and (2) an analysis of the structural model, which is aimed at studying the interaction between the LVs. Analysis of the Structural Model The analysis of the structural model simultaneously tests several of the hypothesis put forth previously. The testing of the structural model included (1) a test of the compatibility of the overall model, and (2) a test of structural compatibility. The test of the compatibility of the overall model was the same for the structural model as the measurement model. The test of the structural model was done by examining the t-value of the coefficient, and if the t-value ≥ 1.96, the coefficient variable being tested is considered significant. From the findings of the analysis we can view the significance of each interaction between the latent variables according to the research hypotheses. The findings of the processed data show that GS has a positive impact on outlet performance (P), which means that H1 is acceptable. The same is true of EO&KBR, which had a positive impact on outlet performance (P), meaning that H4 is acceptable, whereas the research data does not support the proposed H2, H3, H5 and H6. Table 1. Hypothesis Test Result Goodness of Fit RMSEA = 0.008; NFI = 0.92; NNFI = 0.92;CFI= 0.95; IFI = 0.96; GFI = 0.95; AGFI = 0.90 Model 1 Coefficient t-Value Description Hypothesis Structural Path H1 GS Æ Performance (P) 1,12 3,04 Significant H2 KBRÆ P -0,49 -1,13 Not significant H3 EO Æ P -1.02 -0.73 Not significant H4 EO&KBR Æ P 2.83 1.97 Significant H5 EO&GS Æ - 0,39 -0.33 Not significant H6 KBR&GS Æ -1.45 -1.68 Not significant 289 From the analysis of the research findings, modification were made so as to comply with the original research model, resulting in the final research model as follows: EO P GS KBR Diagram 2 – Final (Modified) Research Model DISCUSSION As was explained before, a franchise company is a business that uses vertical integration (company-owned outlet) or hybrid organization (franchise outlet) in carrying out business expansion. This means that there is a difference in the system of distribution of rights and responsibilities involving operational activities between the company-owned and franchise outlets. According to Yin & Zajac (2004), the difference in governance structure will impact on the implementation of strategy at the outlet level. Lumpkin & Dess (1996) stated that the implementation of strategy is determined by behavioral control. The operational control system, decision-making system or the incentive scheme are all instruments of behavioral control for company operational activities (Kwandalla, 1977; Brickley and Dark, 1978, Eisenhardt, 1989; Alchian & Demzets, 1972) which finally culminate in the performance of a company. The impact of EO on performance, as has been brought out previously by Lumpkin & Dess (1996) is context specific in nature, as it is outside-in in nature, so the role of EO in the company depends on the environment where the company operations and the position of the company in that market. In the case of a company that is located in an environment where the competition is hostile, the impact of EO on performance will be quite large, or vice versa. As relates to this study, even though it is clear that the level of competition in the restaurant business is quite heavy (particularly in Jakarta where a large percentage of samples were taken), both McDonald’s and RM Sederhana are companies with established, good reputations as market leaders in their respective markets. Therefore, the impact of EO on outlet performance is not that big. In addition, consumer tastes for the products being offered are relatively homogenous, enabling the outlets to depend heavily on the results of innovative discoveries at the corporate level. The impact of KBR on performance is not that large because of the impact from GS which contributes to the operational control and decision-making processes at the outlet level. The operational control of outlet activities is done through a franchise business format system, that is, a business template that is formulated by the franchisor to be implemented at each outlet. Even though a franchisor has transferred knowledge to each outlet, there is a process of learning through the interaction of individuals in the operational activities which yields new accumulated tacit knowledge in each individual. The process of accumulation of knowledge in a company occurs overtime through the interaction of individuals, groups, internally and between companies (Nonaka & Takeuchi, 1995). The structural organization of an outlet tends to be informal, as the number of employees is relatively small and the management structure is flat. Consequently, outlet managers tend to apply the knowledge they obtain in the form of verbal, unwritten and undocumented orders to outlet employees. The increase of the impact of KBR on outlet performance that occurs from the accumulation of knowledge tends to be undocumented as the knowledge is 290 considered just a part of the work routine, therefore, often the impact of KBR often can not be calculated and the role of KBR in performance becomes insignificant. The finding that shows that the interaction of EO and KBR has an impact on performance is the main finding of this study. This reality could mean that EO and KBR are like two sides of a coin. The existence of one variable without the other does not contribute much to increasing outlet performance. Due to the impact of GS, any strategy at the outlet level is more of an operational marketing strategy, so the benefits derived from KBR are highly dependent upon EO; on the other hand, the ability to understand signals from the market (EO) is dependent on the knowledge base. This study is in line with the study previously conducted by Wiklund & Shepherd (2003) of CEOs from 384 companies in Sweden. That study stated that EO acts as a mediating factor with regard to the impact of KBR on increasing company performance. In this regard, they put forward that KBR is used to discover and exploit market opportunities. In other words, the will of a company to create innovations, think proactively and take risks is the result of the KBR of the company, which finally impacts on performance. The findings of this research are backed by a study conducted by Cockburn, et.al. (2000) that states that the role of EO to assist in explaining managerial processes makes a part of the company capable of taking advantage of its resources to identify and capture signals from the market, and react before the company’s competitors. The study conducted by McEvily & Chakravarthy (2002) states that KBR is an important element to achieve the performance targeted by a company. MANAGERIAL IMPLICATIONS The final research model gives a picture of the things that impact the performance of a franchise outlet. The most important thing when choosing a strategy for an outlet is to determine how to blend the three instruments of strategy GS, EO and KBR, to achieve the maximal results, while increasing or maintaining the outlet’s competitive edge. Even though the impact of EO and KBR on their own does not have a significant impact on performance, the interaction of the two makes the impact of the variables on performance quite strong. The interaction between EO and KBR is referred to as progressive performance, in which the interaction between the two becomes an interactive learning process that results in an increase of organizational knowledge. The increase in knowledge increases the capability of the company to identify and exploit market opportunities, and then fine tune the process, and even come up with new innovations, which will eventually increase the performance of a company. When this process goes on continually in the operational activities of a company, given good management, not only can KBR be increased, but the capabilities of the company will increase along with the perspective of the dynamic capability of the firm (Teece, Pisano & Shuen, (1997). CONCLUSION Progressive performance describes the continuing improvement process (in line with the increase of KBR due to interactive learning (EO) with outside parties). Finally, in the context of a business franchise, we see that the problem is how to determine the most suitable GS, which is the most compatible with the potential EO and KBR of the company, to achieve targeted performance, maintain and develop market share and maintain a competitive edge in the midst of the company’s business environment. This study is limited by several factors, namely: 1. The research samples were only taken from two franchise companies (foreign and local) which operate in the food industry sector, and although the franchise industry in Indonesia is dominated by the food industry, the samples taken do not fully represent the franchise industry in Indonesia. 2. Because of the differences in the two franchises studied in this research, the assumptions used for the foreign franchise outlets were different that those used for the local franchise outlets. 3. 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Zahra S, & Covin J. (1995). Contextual Influence on the Corporate Entrepreneurship-Performance Relationship: A Longitudinal Analysis. Journal of Business Venturing, Vol.10: 43-58 299 FOREIGN DIRECT INVESTMENT REGIME IN MALAYSIA: CAN BANGLADESH LEARN FROM IT? Mohammad Emdad Ullah Mian Quamrul Alam Monash University, Australia M. Yunus Ali Queensland University of Technology, Australia ABSTRACT Foreign Direct Investment (FDI) is a highly topical issue in the developing world. A country with strong political commitment, a long-term visionary mission, sound economic policy, well-developed infrastructure, along with a strategic industrial policy and good governance, are able to attract exceptional FDI. This paper analyses the key issues those attract investors Malaysia as a preferred FDI location with a comparative scenario of Bangladesh. It also identifies some possible options for Bangladesh based on Malaysian experiences. INTRODUCTION Foreign Direct Investment (FDI) is an integral part of modern economic strategy for many developing countries. FDI promises key economic benefits, including conduit of capital, employment generation, technology transfer, knowledge sharing and export-led growth. Malaysia is a first rate growing country and has experienced one of the fastest economic growth rates in Asia. Its achievement in export-oriented industrialization over the past two decades has been unique in the developing world. Since the mid-1980s, FDI flows to Malaysia have been increasing at a faster rate than that to other ASEAN countries. It is evident from the literature that a country’s comparative advantages as hosts for FDI increasingly depend upon a range of qualitative factors (Mian, 2005a). It is important for the host country to create conditions for the emergence of dynamic local supporting industries and locate supply niches in Multinational Corporation (MNC) dominated manufacturing and service industries. It is also evident that beyond political stability and investment security, MNC are increasingly responsive to the quality of physical and administrative infrastructures, skill endowments and proximity to quality suppliers (Jomo, 2003). Malaysia’s rapid industrialization was the result of the country opening itself relatively early in the 1960’s to FDI. Today, Malaysia is one of the largest recipients of FDI among developing countries, because of its well-developed infrastructure and market oriented economy. This paper analyses the foreign investment policies of Malaysia and identifies the strategic, institutional and key government – business relation that facilitated Malaysia to attract FDI. It also analyses the policy and strategic lessons that countries like Bangladesh can learn from Malaysia’s experience. Malaysia is highly relevant for Bangladesh as it has religious, colonial and socio-culturally comparable issues in various aspects and FDI is one of the main engines for the economic progress of Malaysia. The Government of Bangladesh has also long been trying to improve its economic condition through attracting FDI. FDI CONTEXT IN MALAYSIA From a country dependent on agriculture and primary commodities in the sixties, Malaysia has today become an export-driven economy spurred on by high technology, knowledge-based and capital-intensive industries. The structural transformation of Malaysia's economy over the last 40 years has been spectacular. During the last decade, the Malaysian economy achieved average annual growth rates of about 7% while it’s GDP doubled to reach an estimated RM219.4 billion (US$57.7 billion) in 2002. Exports and imports have almost quadrupled to reach RM349.6 billion (US$92.0 billion) and RM298.5 billion (US$78.6 billion) respectively, placing Malaysia among the 300 world's top 20 trading nations (MSC website). FDI is one of the major engines for its economic development. The Malaysian Government has taken various initiatives and adopted different policies since the late 1960s to attract FDI. Malaysia has also implemented targeted investment incentives, creating an environment conducive for exportoriented industries, to which foreign investors were drawn (Ariff and Lim, 1987; Nunnenkamp, 1991; Gomez and Jomo, 2001). Towards the end of the 1970s the domestic market showed signs of saturation and a more outwardlooking strategy was adopted. The more liberal Investment Incentive Act of 1968 was introduced, superseding the Pioneer Status Ordinance. This act, besides incorporating tax holidays to companies, granted pioneer status, and gave additional tax holidays depending on the nature of the product, the location of the company and the local raw material content. A pay-roll tax incentive was offered to companies to encourage more labor-intensive technologies. Besides tax holidays, an alternative incentive involving the use of an investment tax credit was granted to establishments which did not qualify for pioneer status, but which the government wished to encourage. An export incentive was also offered to new industrial establishments, or to existing ones, intending to expand their facilities, whereby expenses incurred in export promotion could be deducted from tax payments. Furthermore, for companies that exported more than 20% of their production, an accelerated depreciation allowance was granted. At the same time, tariff protection was increased for infant industries. Gross investment in the manufacturing sector rose sharply from 1974 onwards after the establishment of free-trade zones, licensed manufacturing warehouses, and the availability of attractive fiscal incentives, ranging from pioneer status to investment tax credits and labor utilisation relief. With the benefit of having strong government support and encouragement, manufacturing became the fasted growing sector in the economy, expanding at over 10% per year during the 1970’s and 1980’s (Kheng, 1994). The Government of Malaysia introduced the New Economic Policy (NEP) in 1970, which earmarked manufacturing as the growth sector to spearhead economic restructuring and employment generation. The government became increasingly involved in the industrial sector with a determination to ensure the success of the NEP, initially through regulation and subsequently through direct participation in commercial enterprises. The development of Free Trade Zones (FTZs) to entice foreign investor participation in this endeavor, was a key element of the NEP (Athukorala and Menon, 1995). The trade and industry policy regime of post-independent Malaysia has consistently been more favourable to export producers than that of many other countries in the region (Riedel, 1991). Since the introduction of NEP, Malaysia’s labor market policy has been specifically geared to ensure competition in export production. Until the mid-1980s, all firms with pioneer status and those in FTZs, were exempted from mandatory collective bargaining obligations and unions were not allowed in these firms. Since then, unions have been allowed in several FTZ industries, but under very restrictive conditions (Dror, 1984). Japan has however played a prominent role in the weakening of the Malaysian labor movement and the incorporation of the Malaysian worker, into the world economy (Smith, 2000). Government, Business and FDI The government of Malaysia has long-term goal to restructure the socio-economic context of the country from the early 1970’s. The Malaysian government has taken an incremental approach and allowed FDI under some conditionality in conformity with the overall national development programs. There are guidelines and regulations governing FDI in accordance with the country’s development priorities, and overall socio-political objectives (Ariff and Lim, 1987). One of the objectives was to increase the share of the Bumiputras (Malays) in the corporate sector, from 2 % in 1970 to 30 % in 1990, and to reserve a certain percentage of employment in foreign ventures. Over the years, the government has also resorted to a more lenient policy stance relating to Bumiputra employment quotas, with a view to ameliorating its adverse impact on export-oriented FDI. Moreover, unlike governments in many other developing countries, the Malaysian government has taken care to make its policy stance towards FDI unambiguous and transparent. The government has pursued other specific objectives such as location of industries in ‘development areas’, increasing the use of local inputs, and diverting investment to certain ‘priority’ industries. But as in other Far Eastern export-oriented economies, these objectives have been pursued largely through prescriptive rather than proscriptive methods1. Guarantees against nationalization of foreign assets without compensation, are provided by the constitution and investment guarantee agreements have been concluded with several capital exporting countries (Athukorala and Menon, 1995). However, one major factor that has attracted investors to Malaysia is the government's commitment to maintain a business environment that provides companies with the opportunities for growth and profits. This commitment is seen in the government's constant efforts to obtain feedback from the business community through channels of consultation such as regular government-private sector dialogues. These allow the various business communities to air their views and to contribute towards the formulation of government policies that concern them. All these Government initiatives have made Malaysia an attractive 301 manufacturing and export base in the region. In some cases the private sector in Malaysia has become partners with the public sector in achieving the nation's development objectives (Source: MSC website). Growth Triangles Concept and ASEAN The Malaysian government has been actively promoting the concept of ‘growth triangles’ as a vehicle for speedy internationalization of the economy. There is the Singapore -Johor- Riau (SIJORI) effort, which has been in place since 1989. The SIJORI Triangle was developed by the governments of the three countries to develop trans-border infrastructure, resources and industries, reducing economic distance and enlarging investment and trade (Waldron, 1997). Later Northern Growth Triangles were important, from the viewpoint of attracting FDI, as they brought together the comparative advantages of three countries in a complementary, rather than competitive manner. The Malaysian state of Johor has an abundance of land, skilled and semi-skilled labor, as well as good physical infrastructure; Singapore has high quality human capital, sophisticated financial, marketing and service industries, and excellent supporting infrastructure; the Riau islands (particularly Batam) of Indonesia have low-cost land and low-skilled cheap labor. The creation of such a wide manufacturing base with different factor endowments in each node of the triangle provides an incentive for MNEs to consider the region as a whole, for investment (Athukorala and Menon, 1995). These initiatives facilitate vertically integrated operations and apply a ‘borderless state’ concept within the triangle. The SIJORI experience suggests that the momentum that it has built, led to further expansion of the triangle to contiguous areas (Kumar and Lee, 1991). ASEAN countries have significant business cooperation and activities that have positively impacted their economy. Reciprocal spillover benefit gave the ASEAN countries a new economic dimension and this regional association offers a wide range of opportunities to the foreign investors such as free trade, easy access to the market. Malaysia successfully attracted a large amount of FDI especially from Japan and Korea as an impact of the ‘Flying Geese’2 model due to their relocation of manufacturing sector and shifted towards the knowledge and technology intensive industries. Look East Policy and Malaysia Incorporated The formation of the Look East Policy (LEP) in the early 1980s was another new dimension and an attempt by the former Malaysian Prime Minister, Dr. Mahathir Mohamed, to start Malaysia on the road to becoming part of the Newly Industrialized Countries (NICs), by exhorting Malaysians to follow such prominent Asian role models, such as Japan and Korea (Smith, 2000). A very dynamic, strong and visionary leader he, was the main architect of modern Malaysia and its economic development. Dr. Mathathir is an inspiring contemporary example, of how a leader can bring prosperity to a country (Mian, 2005a). The Prime Minister initiated a wide range of policies, which varied in style and content. There are essentially two types: ¾ those which aimed to introduce some form of psychological dynamism as support elements for the drive towards industrialization; and ¾ those which involved a specific program of action by the government. The former includes the Look East and Malaysia Incorporated policies, and the latter, heavy industrialization (Kheng, 1994). Look East and Malaysia Incorporated, were two slogans frequently used by the government in the early 1980s. The Look East policy, introduced in 1982, was a campaign to boost labor productivity, by encouraging elements of the Japanese (or East Asian) work ethic: hard work, labor discipline, company loyalty, thrift and efficiency. They were believed to be the prerequisites for Malaysia’s drive for industrialization. For a while there was an unmistakable obsession with Japanese technology and the Japanese way of doing business. At least six trading companies based on the Japanese styled sogoshoshas had been set up by 1983, though at a heavy cost, and with limited commercial success. One outcome was a surge in Japanese and South Korean investment in Malaysia. At the same time, construction contrasts were increasingly being awarded to companies from these two countries. Education and training schemes with Japan and South Korea were also established (Kheng, 1994). Malaysia used the Look East Policy to adopt the Japanese model. It attempted to foster the closer involvement of the state in promoting private sector businesses. The private and public sector were expected to play complementary 302 roles, working “closely together in a dynamic and productive partnership”. Broadbent and Laughlin (2003) describe a public private partnership as an approach to delivering public services that involved the private sector, but one that provides for a more direct control relationship between the public and private sector, than would be achieved by a simple (legally protected) market-based and arms-length purchase. In practice, the concept has been translated successfully by the government to reduce bureaucracy. The Malaysia incorporated theme lost momentum in the mid-‘80s, but interest in it was revived with the introduction of the Vision 2020 concept in 1991. The Malaysian Business Council, comprising representatives from both public and the private sectors, was also established in late 1991. One of its major aims was to revive the principle of cooperation by promoting “a process of creative consultation and meaningful dialogue among policy-makers, civil servants, corporate leaders and statesmen” (Kheng, 1994). Moreover, improved corporate governance is being espoused, corruption is seemingly no longer tolerated, and small and medium-scale enterprises rather than big businesses are being given more government support in Malaysia (Gomez, 2004). Multimedia Super Corridor Malaysia actively woos foreign investment in the information technology industry, particularly in the Multimedia Super Corridor (MSC), an ambitious project underway which aims to transform a 15-by-40 kilometer area stretching south from Kuala Lumpur into Asia’s version of Silicon Valley (The Country Commercial Guide, 2002:34). MSC brings together a legislative framework and a next-generation telecommunications infrastructure in eco-friendly surroundings to create the best environment for the development of multimedia industries. It hosts world-class companies, innovative research and development entities and new start-ups specializing in ICT products, solutions and services. Malaysia has attracted leading ICT companies of the world to locate their industries in the MSC and undertake research, develop new products and technologies and export from this base. MSC Malaysia has created an ideal growth environment for Malaysian ICT companies to transform themselves into world-class enterprises. Foreign investors in the MSC have received a host of tax and regulatory exemptions in exchange for a commitment of substantial technology transfer to the local economy. Furthermore, the MSC has welcomed countries to use its highly advanced infrastructure facilities as a global platform for ICT applications and a hub for their global and regional operations in Asia. Located at the heart of Asia's fastest-growing markets, MSC Malaysia has become the choice location for global innovators and investors (MSC Website). The major initiatives of MSC Malaysia are to: promote Mykad, e-government, Smart School, Telehealth, eBusiness, Technopreneur development, Research and Development, Shared Services and Outsourcing and other creative Multimedia content for film, television, animation and computer generated images. However, MSC has a huge prospect in the service led economic revolution in the 21st century (MSC Website). Malaysian Industrial Development Authority (MIDA) As the government’s principal agency for promoting and coordinating industrial development of the country, MIDA has had a successful history. The government established the institution, providing sufficient authority and responsibility with appropriate human resources. Such an institutional role is very important for the economic development of any developing countries. The following are the major objectives of MIDA. • to promote foreign and local investments in the manufacturing and services sectors; • to undertake planning for industrial development in Malaysia; • to recommend policies and strategies on industrial promotion and development to the Minister of International Trade and Industry; • to evaluate applications for manufacturing licenses and expatriate posts; tax incentives for manufacturing activities, tourism, R&D, training institutions and software development; and duty exemption on raw materials, components and machinery; • to assist companies on the implementation and operation of their projects, and offer assistance through direct consultation and co-operation with the relevant authorities at both federal and state levels; • to facilitate the exchange of information and co-ordination among institutions engaged in or connected with industrial development. To further enhance MIDA's role of assisting investors, senior representatives from key agencies are stationed at MIDA's headquarters in Kuala Lumpur to advise investors on government policies and procedures. These representatives include officials from the Ministry of Finance, Ministry of Human Resources, Immigration Department, Royal Customs Malaysia, Department of Environment, Department of Occupational Safety and Health etc. 303 Hence the MIDA along with other government institutions offer a wide range of services, incentives and facilities to foreign investors when investing in Malaysia. Consequently, Malaysia has been able to attract a huge amount of FDI that has played an important role in the economic development of the country. From the above discussion it is evident that Malaysian export led investment policies, along with various incentives have led to its economic advancement. Political stability and proper implementation of its missionary policies have assisted Malaysia in achieving development. It has taken programs like the ‘Growth triangle’ in collaboration with other neighboring countries for their synergic benefit and attracting more FDI. The regional economic alliance, ASEAN, has played significant positive role to promote FDI. Furthermore, the ‘Look East Policy’ of Malaysia has provided a road map for its economic development. The Malaysian Business Council comprises both public and private sector representatives to encourage cooperation through creative consultation among policy makers, civil servants, corporate leaders and other stakeholders. Above all, political leadership and commitment with visionary mission has helped Malaysia to create a FDI conducive environment. However, Malaysia is now on the way to its long-term mission, “Vision 2020”, to be a highly developed nation within this time frame. Throughout its development process, Malaysia was always reluctant to follow IMF prescriptions or to join the, so-called Structural Adjustment Program (SAP). At the time of the South East Asian crises, Malaysia undertook the policy of capital control, rather than liberalization, maintained its stability and successfully faced the situation. Consequently Malaysia received enormous amounts of FDI. In this connection, Stiglitz (2003) argues that foreign investors are concerned about the economic stability of a country, and capital controls hardly discourage them in making their investment decisions. THE BANGLADESH SCENARIO The economy of Bangladesh is characterized by the dominance of agriculture, absence of raw materials, low investment, an over reliance in foreign assistance, low exportable items, and heavy reliance on imports of manufactured goods. With an annual per capita income of $389 (GOB, 2004), it characteristically suffers from problems relating both to shortage of savings and foreign exchange resources. Furthermore, market forces in Bangladesh are not efficient enough and are still under-developed. Free market economic activities are still in the developing stages, and the extent of international engagement is yet to reach efficient levels. Investment led growth is not gaining momentum or entrepreneurial commitment and capabilities are relatively weak. Trading is more favoured than industrial investment. Transformation of trading capital to industrial capital is not significant. There are weaknesses in national technological systems, such that domestic firms do not yet a have a strong capacity to assimilate and develop technology (Mian, 2005c). The government of Bangladesh has tried to fill the gap by attracting FDI, through various initiatives such as, offering financial incentives, establishing specialised institutions to promote and entice FDI. However, by international standards, the magnitude of FDI flowing into Bangladesh has been precariously low (Alam and Mian, 2005). Moreover, Bangladesh lags behind most of the East and Southeast Asian countries when compared in a socio-economic context, as well as in attracting FDI (Mian, 2005a). The table-1 SWOT (Strength, Weaknesses, opportunities, and Threats) chart about Bangladesh investment scenario depicts the present context, which requires detailed attention and analysis in order to improve the situation. Table: 1: SWOT chart for Bangladesh 304 Strengths • Abundance of unskilled and semi-skilled labor • Market • Macro-economic context • Natural resources (eg.Gas) • Basic infrastructure Weaknesses • Lack of political commitment • Bureaucracy and red tape • Institutional incompetence • Inadequate Infrastructure • Lack of policy implementation • Weak legal and regulatory framework • Very limited access to information • Poor governance • Shortage of skilled Human Resources • Weak market force Opportunities • Market potentiality • Geographical location • Development of human resources • Proper implementation of SAFTA Threats • Corruption • Political unrest (strike, gang action, violence) • Security (life and goods) Source: Adopted from Mian (2005a, P.69) The weaknesses and threats presented in the SWOT analysis above, illustrate the barriers to attracting FDI, currently in Bangladesh. Though, on the positive side, Bangladesh has market potential and an abundance of labor, both these factors are important determinants for a FDI location decision. However, due to its weaknesses and threats, Bangladesh has not yet been able to present itself as a desired location for foreign investors. The country needs to develop proper strategies, based on its strengths, in order to improve its climate for investment. The government faces a mammoth task ahead in the removal of the present threats and weaknesses (Mian, 2005a). COMPARATIVE STATEMENT BETWEEN MALAYSIA AND BANGLADESH It is evident from the Malaysian experience that policies based on social, political and economic contexts, and their proper implementation with the right strategies, make a country prosperous within a shorter time. Strong political commitment and stability with proper execution of the short, medium and long term polices, institutional set up, infrastructural development, economic stability etc., are the main influential factors for FDI decision in Malaysia. Table-2 indicates the various dimensions and contextual features influencing FDI in Malaysia in comparison to Bangladesh. It provides a snapshot of the major policy initiatives and socio-economic issues that reflected the commonalities and differences. Table 2: Factors that influence FDI in Malaysia and Bangladesh. Factors Government role Impact of Structural Adjustment Program (SAP) Perspective/visionary plan and policy implementation Malaysia Very strong; in a prescriptive manner. Government is the driver for development. Did not accept SAP and followed independent course Visionary plan with incorporation of various initiatives and policy implementation; almost successful 305 Bangladesh Modest and not very visible. Government yet to play role in unified manner Accepted SAP; economy heavily rely on donors assistance and conditionality. Could not adjust SAP with priority agendas properly Does not have any long term perspective / visionary plan with proper implementation strategy Political stability Very strong Bureaucracy and good governance practices Corruption Almost favorable Controlled at a standard level Frequent and a rampant Education and training Developed but further improvement needed. Government has the policies to develop human resources Well developed and needs based Lack of effective institutions, although gradually improving. No proper planning for human resource development. Infrastructure facilities Industrial estate or specialized zone Any particular initiative/ issue Role of the government FDI institution Incentives/ measure (anything special) Not strong; democratic political practices initiated, but not yet institutionalized Red tape and governance limitation highly visible Various industrial estate in different strategic regions Growth triangle, government visionary goal and proper implementation of policies, look east policy Malaysian Industrial Development Authority (MIDA) is the principal agency for promoting and coordinating the industrial development and has achieved good success Pioneer status, accelerated depreciation, tax credit, preferred location tax holiday, Very poor development, except roads; unplanned Six Export Processing Zones but only two developed Incentive initiatives Board of Investment (BOI) is the main investment promotion and facilitating centre. Yet to be successful with some exception to attract notable foreign investment Accelerated depreciation, concessionary duty on imported machinery, full repatriation allowed To be an attractive location for FDI, Bangladesh needs to fine-tune its initiatives. The reforms programs Bangladesh have taken so far were not properly designed to achieve any long-term industrial development. As a result, the institutional capacity to support the creation of a business environment conducive to FDI was not imperative. The lack of political commitment, corruption, poor governance, weak rule of law, large administrative burden, weak infrastructure, shortage of skilled labor and managerial skills have disadvantaged Bangladesh and put it on a back foot (Alam and Mian, 2005) Lessons for Bangladesh National policies and the international investment architecture are critical for attracting FDI to any developing country and for reaping the full benefits of FDI. In this respect, host countries need to establish a transparent, broad and effective enabling policy environment for investment, and need to build the human and institutional capacities to implement them. The economic success of any country is largely attributed to the choice of coherent and flexible economic policies and their effective implementation by the state. However, there are lessons to be learned from Malaysian experience; • Bangladesh should have a long-term visionary goal with a specific mission to improve the FDI climate of the country. Based on the objectives its government should take short and medium term planning to implement all necessary infrastructural development with special patronization of the prospective sectors for export oriented industrialization. Strong political commitment and political consensus irrespective of party affiliation is mandatory. The political party in power has to play the pivotal role in this respect. The Malaysian experience suggests that political commitment and dynamic leadership was the main pillar of their success. The political capacity to insulate economic decision-making and implementation from contending political and social interests is important. A large pool of policy instruments needs to be used selectively and strategically to achieve the goal. 306 • • • • • • • The role of the Board of Investment of Bangladesh should be developed, based on the success story of MIDA. Targeted investment promotion with one-stop facilitation of administrative approvals for investment needs to be ensured. Moreover, changing the mission of an investment policy from regulation, to promotion, to service, requires the transformation of deeply embedded organizational cultures within the relevant bureaucracies. Based on these aspects, the government of Bangladesh needs to develop concern agencies and empower them sufficiently with appropriate authority and responsibility to ensure the proper environment for business. Through collaborative arrangement Bangladesh must aim to achieve synergistic benefit from India, Myanmar and other neighboring countries. The government should explore ways of maximizing opportunities to invest, such as with the ‘growth triangle’ scheme used by Malaysia. In this regard, one reputed multinational company ‘Lafarge’, provides a good example. The ‘Lafarge-Surma cement factory’, located in Sunamganj, Bangladesh (border area), extracts and processes basic raw materials such as limestone and shale from its own quarry in Meghalaya, India. A possible future initiative planned is the installation of a 17km cross-border conveyor belt to link the quarry with the cement plant, for the transportation of raw materials (Lafarge Website). This kind of initiative may be taken in the future with India and Myanmar also in the areas of gas, fertilizer etc, as well as infrastructure and communication. Along with other members of the South Asian Association for Regional Cooperation (SAARC), Bangladesh needs to explore the prospective areas for economic cooperation and their synergic benefit among the member countries like ASEAN. South Asian Free Trade Agreement (SAFTA) comes into effect from January, 2006 and Bangladesh should try to maximize its benefit from this regional agreement. In this respect, Bangladesh definitely can learn lesson from Malaysian experiences in ASEAN. Bangladesh should immediately introduce an effective Business Council like Malaysia model comprises both public and private sector representatives to encourage cooperation through creative consultation among policy makers, civil servants, corporate leaders and other stakeholders. In this respect, the government needs to be guaranteed their commitment to maintain a business environment that provides companies with the opportunities for growth and profits. This commitment also should be reflected in the government's constant efforts to obtain feedback from the business community through channels of consultation such as regular government-private sector dialogues with necessary action taken. These will ultimately allow the various business communities to air their views and to contribute towards the formulation of government policies that concern them. The government should also identify and encourage private sectors to partner with public sectors where possible, to achieve the overall development objectives of the country like Malaysia has successfully done. Bangladesh should develop IT enable sector and establish an IT village in the concept of MSC with a short, medium and long term planning. Bangladesh has a huge number of educated unemployed people and the potential to transform those people to work in IT enable services. Moreover India is now becoming a world leader in the IT sector and being a neighboring country, Bangladesh could benefit in this regard. IT has ample prospects in this technology based era and it is believed that the service sector has the most potential in the 21st century. Bangladesh should effectively adjust SAP with the national socio-economic development process and it must be regulated in conformity with the policy priority agenda of the government. Provision of specialised physical, customs-related and technical infrastructure needs to be ensured and matchmaking between investors (local and foreign) and local suppliers; and other post-investment services relating to investors’ routine operations such as trouble-shooting administrative problems with other government departments should be handled properly. CONCLUSION The preceding discussion reveals that Malaysia’s political vision and commitment to translate policies into action, has created favorable connotations for FDI. Government and business relationships in Malaysia have been very supportive and complementary which has created effective institutions that facilitated a smooth and gradual improving managerial process. The Look East policies and its reflections on policy design and implementation has been a critical success factor of Malaysia’s economic growth and industrial development. The location of Malaysia in the ASEAN and the strategic role it played had a spill over effects on technology development, knowledge development, managerial practices and infrastructural development which helped Malaysia to develop a supportive industry infrastructure attractive to FDI. 307 Bangladesh on the other hand has introduced a liberal policy regime and implemented a massive structural reforms program, which was not impressive and in most cases disjointed. It also failed to make the institutions effective to perform appropriate roles to attract FDI. Moreover lack of vision and political commitment, underdeveloped infrastructure, shortage of skilled managerial and technical know how, corruption, weak governance system etc have disadvantaged Bangladesh, preventing it from becoming a preferred location for foreign investors To overcome the situation, the whole government machinery is required to work with strong commitment towards the same overall goal to improve the investment climate of the country. REFERENCES Alam, Q. and Mian, M.E.U (2005) Determinants of Foreign Direct Investment in Developing Countries: Evidence from Bangladesh, The impact of multinational enterprises on the business and social environment and Trade agreements in the Asian Region, Proceedings of the Australia and New Zealand International Business Academy (ANZIBA) Conference (in CD), Melbourne, Australia, 10-11 November, 2005. Ariff, M and Lim, C.P. (1987) ‘Foreign investment in Malaysia’, in Cable, V. and Persaud, B. (eds) Developing with Foreign Investment. London, Croom Helm. Athukorala, P.and Menon, J. (1995) Developing with Foreign Investment: Malaysia. The Australian Economic Review, 28 (1): 9-22. Broadbent, J. and Laughlin, R. (2003) Public private partnership: an introduction. Accountability Journal, 16 (3): 332-341. Accounting, Auditing & Dror, D. M. (1984) Aspects of labor law and relations in selected export processing zones. International Labour Review, 123 (6):705-22. GOB (2004) Bangladesh Investment Handbook, 2004. Board of Investment, The Government of Bangladesh, Dhaka. Gomez, E. T. and Jomo, K. S. (2001) Malaysia’s Political Economy; Politics, Patronage and Profits. Cambridge, Cambridge University Press Gomez, E. T. (2004) ‘Politics, business and ethnicity in Malaysia: a state in transition?’ in Gomez, E.T. (eds) The State of Malaysia; Ethnicity, equity and reform, London, Routledge Curzon Hossain, M., Islam, I. and Kibria, R. (1999) South Asian economic development: transformation, opportunities and challenges, London and New York, Routledge Jomo, K. S. (2003) ‘Growth with equity in Asia?’ in Jomo, K. S. (eds) Southeast Asian Paper Tigers? From miracle to debacle and beyond, London, RoutledgeCurzon Kheng, K. S. (1994) Malaysia to 2003: From redistribution to growth, Research Report, London, The Economist Intelligence Unit. Kumar, S. and Lee, T.Y. (1991) ‘A Singapore perspective’, in Lee, T. Y.(eds) Growth Triangle: The SingaporeJohor-Riau Experience, Institute of Southern Asian Studies and Institute of Policy studies, Singapore. Lafarge Website: Lafarge Surma cement project, Available at: http://www.lafargebd.com/project_summ.html Mian, M.E.U. (2005a) Foreign Direct Investment Context in Bangladesh: lessons from comparable countries. Unpublished Dissertation, Master in Public Policy and Management, Faculty of Business and Economics, Monash University, Melbourne, Australia --------- (2005b) Climate for Foreign Direct Investment (FDI) in Bangladesh: An Appraisal, Unpublished Dissertation, Master in Government Financial Management, School of Policy Studies, The University of Ulster, Northern Ireland, U.K. 308 ---------- (2005c) The role of the government institutions in Foreign Direct Investment (FDI): a case study of the Board of Investment (BOI) of Bangladesh, Business and Government in Bangladesh in the 21st Century, Proceeding of the Bangladesh conference, Department of Management, Monash University, Melbourne, Australia; 7 November 2005. MIDA website: Invest in Malaysia: your profit centre in Asia. Available at: http://www.mida.gov.my/. MSC Website: Multi Media Super Corridor (MSC) Malaysian Development Corporation, ‘Malaysia’s Economic Strength’ Available at: http://www.mdc.com.my/xtras/whymalaysia/economic.asp Nunnenkamp, P. (1991) ‘The structure of external financing in Malaysia: The policy framework for foreign direct investment and debt inflows’, in Singer, H.W., Hatti, N. and Tandon, R. (eds) Foreign Direct Investment, New World Series no.11, New Delhi, Indus Publishing Company. Riedel, J. (1991) ‘Intra-Asian trade and foreign direct investment’, Asian Development Review, 9 (1): 116-46. Smith, W. (2000) ‘Japan’s contribution to the impact of globalization on Malaysian industrial workers’, in Edwards, R., Nyland, C. and Coulthard, M. (eds) Reading in International Business: An Asia Pacific Perspective, Prentice Hall, Australia Stiglitz, J. E. (2003) Globalization and Its Discontents, New York and London, W.W. Norton & Company, Inc. The Country Commercial Guide (2002) 2001-02 Business Advisor, Malaysia, AMCHAM Publication Staff, Jointly Prepared by the American Malaysian Chamber of Commerce and the U.S Embassy, Page- 34, Available at: http://www.amcham.com.my/bizresource/Advisor2002.pdf Waldron, D. G. (1997) Growth Triangles: A strategic assessment, Multinational Business Review, 5 (1): 53-67 ______________ 1. This terminology is due to Bhagwati (1988, pp.98-100). Under proscriptive regimes, activities that are not specifically permitted tend to be prohibited. By contrast the prescriptive approach tends to rely more on incentives to achieve desired objectives. 2. In the ‘flying geese’ model, Japan is depicted as the lead goose, followed by other East Asian economies. In the post-Second World War period, Japanese industries went through a process of structural change. They started with first-tier, labor incentive industries, such as textiles. They then graduated to second-tier segments, such as steel and shipbuilding, and moved on to the third-tier activities, such as motor vehicles, electronics and machine tools. Japanese firms are now firmly entrenched in the fourth-tier, high-technology industries, such as biotechnology and superconductors. In the later stages of such structural change, Japanese firms have relocated some of these activities to the East Asian Newly Industrialized Economies (NIEs), as well as South East Asia, in response to shifting comparative advantage. The East Asian NIEs in turn have been transferring their labor-intensive activities to Southeast Asia and China (Hossain et al., 1999). 309 SHOVING FACTORS OF IMPORTER COMMITMENT: AN EMPIRICAL INVESTIGATION OF INTERRELATIONSHIPS AND MEDIATING ROLES Md Abu Saleh Queensland University of Technology M Yunus Ali Queensland University of Technology ABSTRACT Importer commitment, however, is significant because they facilitate the process of internationalisation by providing access to foreign markets. While importers are the dominant consuming counterpart in international exchange process, their role has been overlooked. Importer’s relationships with an exporter also allow the importer to attain a competitive advantage by accessing foreign supply markets. Moreover, it is found that very little attention so far has paid on the specific factors that influence importer commitment to import supplier. Hence, drawing on the literature and relevant theories there were opportunities to develop a theoretical model to investigate the spectrum of importer commitment. Accordingly, this study was examined the direct and indirect influential factors through five mediator variables of importer commitment to a foreign supplier. Samples were drawn from a developing country to justify the proposed model through Structural Equation Modeling (SEM) using AMOS software. Therefore, results were found to have significant impact on importer commitment in all dimensions which assisted in extending the application of internationalisation process theory, the resource-based theory of the firm, and transaction cost theory to the importer-supplier relationship. OVERVIEW International purchasing is important to the survival and growth of modern business organizations (Katsikeas and Dalgic, 1995). Nonetheless, an extensive examination of the international business literature identifies the paucity of empirical attention that has been devoted to the import side of the international exchange process (Karlsen et al., 2003; Liang and Parkhe, 1997). More specifically, as an important part of international business exchange, importer behavior as well as importer commitment has drawn relatively very little attention in the importer-exporter dyad (Liang and Parkhe, 1997; Skarmeas et al., 2002). Commitment in buyer-seller relationship literature refers to the extent to which a firm is dedicated to a close and enduring relationship with a supplier (Kim and Frazier, 1997; Kim and Oh, 2002; Morgan and Hunt, 1994). Importer commitment, however, is significant because they facilitate the process of internationalisation by providing access to foreign markets. Their relationships with an exporter also allow the importer to attain a competitive advantage by accessing foreign supply markets. So far not many studies have addressed the factors that influence importer commitment to import supplier. Hence, the central research question is: What are the direct and indirect influences of antecedents of commitment to an import supplier? To answer the above question, a comprehensive conceptual framework is proposed having support from the theory and literature in the section to follow. LITERATURE REVIEW, THEORETICAL BASIS AND HYPOTHESES Researchers have used internationalisation process theory (Johanson and Vahlne, 1977; Johanson and WiedersheimPaul, 1975), resource-based theory of the firm (Barney, 1991; Wernerfelt, 1984), and transaction cost economics (Williamson, 1981; 1975) to examine buyer-seller, distributor-supplier, and importer-exporter relationships either in the domestic or international context. The scope of the literature search was widened to cover this broadly defined buyer-seller relationship studies including relationship marketing, outsourcing, supply chain management, exportimport behaviour and inter-organisational relationships. Initially, a systematic search of the export-import behavior and distributor-supplier relationship provide the context and background for the present research. This search of the academic literature conjointly has revealed 78 studies that are pertinent to buyer-seller commitment relationships eight conceptual and 70 empirical studies mostly conducted in developed country contexts. Only 32 of these empirical studies have systematically examined commitment either as a dependent variable (DV) or independent 310 variable (IV) in different buyer-seller relationships perspectives, whereas other 46 studies only show conceptual links of some determinants of commitment. A total of 70 direct independent variables of commitment were examined in these 32 commitment studies - 44 were found positively related, 13 not significantly related, and three negatively related. Only 15 of these variables were tested as antecedents of commitment in more than one study, but three of them are strongly grounded in the transaction cost theory. These antecedents of commitment are: trust (examined in 15 studies), communication (examined in six studies), and opportunism (examined in three studies). Environmental volatility has been examined in a single study as an antecedent of commitment but it also has strong basis in the transaction cost theory. The proponents of the internationalisation process theory (Johanson and Vahlne, 1977; Johanson and WiedersheimPaul, 1975) assert that firms target culturally similar countries at their early stage of internationalisation to gather experiential knowledge of foreign marketing operation and enhance commitment to the market and the international operation. Though the theory so far has been widely regarded in explaining and fostering the outward operations of a firm (Karlsen et al., 2003), the same normative logic can be used to explain importing behaviour of the host side of the dyad. The impact of cultural similarity on trust has been examined in a recent commitment study (Coote et al., 2003) that may infer relevance of cultural similarity as a determinant of importer commitment. Moreover, referring to the internationalisation process, Chetty and Eriksson (2002) emphasised on how experiential knowledge influences mutual commitment in international buyer-seller relationship. This denotes that the above grounding factors might be interesting to include in a comprehensive model to test from a different context. The resource-based theory of the firm (Barney, 1991; Wernerfelt, 1984) states that the competitive advantage of the firm is based on its control of tangible and intangible resources. Firms can outsource some of these resources through collaboration such as long term supplier partnerships to create competitive advantage in the served market (Morgan and Hunt, 1994). Such a need for resources influences firms to seek relative advantage in their buyer-seller relationships in a competitive market. The greater relative advantage of importing from a specific supplier for its superior skills and resources enhances importer commitment to the supplier (Kotabe and Murray, 2004). The theoretical coherency and contemplated literature indicates that communication, opportunism, trust, and environmental volatility are well grounded in transaction cost economics and are quite meaningful antecedents of importer commitment. Similarly, cultural similarity, and knowledge and experience as determinants of importers commitment are grounded in internationalization theory. Similarly, relative advantage of importing as a determinant of importer commitment is rooted in the resource-based theory of the firm. However, the literature also hints that some of the variables are interrelated as well as interdependent. While some of the above factors have been tested, other conceptual relations need empirical validation. Accordingly, a conceptual framework has been drawn in Figure 1 the posited relationships are discussed and hypothesised in this section . Figure 1: Conceptual Framework of Shoving Factors of Commitment 311 Communication Relative Advantage of Importing Commitment Trust Opportunism Environmental Volatility Knowledge and Experience Cultural Similarity Communication, opportunism, trust, and commitment: From the human aspect of transaction cost theory (Williamson, 1985; 1975) it is inferred that human acts to further their own self-interest because by nature they behave opportunistically (Aubert and Weber, 2001). This attitude may encourage disguising information or not to revealing the true information which elicits communication impactedness in transacting parties (Mohr and Sohi, 1995; Wathne and Heide, 2000). This in turn indicates that communication might be an impetus to reduce the oppurtunistic attitude of the partners in an importer-supplier relationship. Further, it is evidenced from the transaction cost economics (Williamson, 1975) and the extant literature that communication is one of the prerequisites for building trust in an exchange relationship (Coote et al., 2003; Morgan and Hunt, 1994; Zineldin and Jonsson, 2000). Anderson and Narus (1990) composed support for communication that leads to greater trust in the distributor-supplier relationship. Furthermore, it is revealed that five studies (Anderson and Weitz, 1992; Goodman and Dion, 2001; Kim and Frazier, 1997; Mohr et al., 1996; Zineldin and Jonsson, 2000) out of six elevated positive significant relationships between communication and commitment in buyer-seller relationship studies. Given this back ground, the following three hypotheses are proposed: H1: The greater the communication between importer and supplier, the lower will be the opportunism in their relationship. H2: The greater the communication between the importer and supplier, the higher will be the trust in their relationship. H3: The greater the communication between importer and supplier, the higher will be the importer’s commitment to an import supplier. Knowledge and experience, relative advantage of importing, and commitment: A business firm is a bundle of resources and capabilities (Barney, 1991) that are used to create competitive advantage in its served markets (Day, 1994). A firm can achieve competitive advantage in its served market through efficient supply relationships for input materials, components and merchandises (Morgan and Hunt, 1994). The international supply market knowledge and experience as ‘intangible resources’ of the firm helps build an efficient import supply relationship that reduces costs and increases benefits (Homburg et al., 2002). This is an indicative that importer’s knowledge and experience about the international supply market encourage importer to seek relative advantage from the supply market. Building relations with foreign actors help firm gather knowledge about the international supply market (Karlsen et al., 2003) and evaluate potential suppliers’ resources and capabilities in satisfying its relative advantage of importing. Therefore, importer’s commitment to the supply relationship increases with its increased knowledge of relative advantage of importing from the chosen supplier (Katsikeas, 1998). The knowledge competency of an importer enables the firm to not only search relative advantage of importing but also increases commitment to the import supplier. Thus, the following two hypotheses can be tested: 312 H4: H5: The more the importer’s knowledge and experience in the relationship, the more will be the importer relative advantage of importing. The greater the importer’s knowledge and experience in the relationship, the stronger the commitment. Opportunism, knowledge and experience, relative advantage of importing, and trust: An overseas supplier may engage in opportunistic behavior by withholding critical information, misrepresenting facts, applying trickery techniques or taking advantages of trading partners (Wathne and Heide, 2000; Williamson, 1985). This attitude of the trading partner may affect their interactions, intimacies and ultimately their knowledge gathering process. In addition, this opportunistic behaviour also affects importers’ process of evaluating suppliers’ relative capabilities and advantages. Gassenheimer and his colleagues (1996) reported significant negative relationship between franchiser opportunism and franchisee satisfaction where satisfaction could be contemplated with the relative advantage of sourcing or importing (Kotabe and Murray, 2004). This connotes that suppliers’ opportunism in importer supplier relationship will affect importer knowledge and experience gathering process as well as importers assessment of relative advantage of importing. In the context of trust and opportunism, it is found that when one party perceives that another party is involved in opportunistic behaviour; such perception will lead to decreasing trust in the distributor supplier relationship (Morgan and Hunt, 1994; Zineldin and Jonsson, 2000). Therefore, the following hypotheses can be proposed: H6: H7: H8: The greater the supplier’s opportunism, the lower the importer’s knowledge and experience in their relationship. The greater the supplier’s opportunism in their relationship, the lower will be the importer’s relative advantage of importing. The greater the supplier’s opportunism in their relationship, the lower will be the importer’s trust. Environmental volatility, knowledge and experience, and commitment: Environmental volatility lead to increased transaction cost (Achrol and Stern, 1988; Williamson, 1985). Volatility exacerbates the problems that arise due to bounded rationality that signifies limited judgment capabilities of individuals (Williamson, 1975). This intuitively contemplates with knowledge competency of the involving parties. Under the volatile market situation, importers’ knowledge and experience gathering process may be affected. On the other hand, in a volatile situation, suppliers may try to interpret unspecified clauses in their favour and own interest (Klein et al., 1990) that may encourage importing firms not to continue with the long term relationship (Kumar et al., 1995a). Skarmeas et al. (2002) conceptualised the negative relationship between environmental volatility and importer commitment to exporters, but they did not find support to that hypothesis and so far, no study validated this finding in any follow up study. Based on the above discussion, two hypotheses can be proposed: H9: The greater the environmental volatility in international markets, the lower will be the importer’s knowledge and experience. H10: The greater the environmental volatility, the lower the importer’s commitment. Cultural similarity, environmental volatility, opportunism, communication, knowledge and experience, and trust: The psychic distance concept greatly endorsed and acknowledged in internationalisation process argues that primarily firms target culturally similar markets at their initial stage of internationalisation to gain knowledge and experience and then advance to the psychically distant markets (Johanson and Vahlne, 1977; Johanson and Wiedersheim-Paul, 1975; Wiederscheim-Paul et al., 1978). Transaction cost economics (Williamson, 1985) also assert that the transaction between culturally similar markets is less costly than that of between dissimilar market (Amelung, 1994). More specifically, O'Grady (1996) argues that entering countries that are culturally close reduces the level of uncertainty in the new market and makes it easier for firms to communicate freely and learn from each other quickly (Kogut and Singh, 1988). This means that cultural similarity between importer and supplier is a stimulus to not only reducing uncertainty and volatility in the environment but also discouraging opportunism in the importer supplier relationship. Further, the internationalisation process model (Johanson and Vahlne, 1977) has emphasised that firms perform well in those international markets that are culturally similar to their home market in terms of similar dimension of values, ethics, business practices and communication style (Conway and Swift, 2000; Swift, 1999). Cultural similarity also enhances learning about each other (Boyce, 2001; Kogut and Singh, 1988). Common background of the involving business partner in an international context has positive impact on trust (Coote et al., 2003). Given the above background, five hypotheses can be proposed for empirical testing: 313 H11: The greater the cultural similarity between importer and supplier, the lower will be the environmental volatility surrounding the importer supplier relationship. H12: The greater the cultural similarity between importer and supplier, the lower will be the opportunism in importer supplier relationship. H13: The greater the cultural similarity between importer and supplier, the higher will be the communication between importer supplier. H14: The greater the cultural similarity between importer and supplier, the greater will be the importer knowledge and experience in the relationship. H15: The greater the cultural similarity between importer and supplier, the greater will be the importer trust in the relationship. Relative advantage of importing, trust, and commitment: Supplier’s resources and capabilities such as quality image, low-cost supply capability, JIT delivery are incitements for buyers or importers. This relative capabilities are instrumental to tie buyer and seller in a strong relationship (Barney, 1991; Masella and Rangone, 2000). The source resources can also be a guarantee of sustainable competitive advantage in the global market (Kotabe and Murray, 2004). This means that supplier’s offered relative advantages draw the attention of importer and stimulate to maintain the long-term relationship. This relative advantage of importing could help to build trust and commitment in importer supplier relationship. Further, it was conceptualised that perceived relative advantage of importing has strong impact on importer commitment (Saleh and Ali, 2005). This inference so far has not been verified in any follow up study. Thus, two hypotheses can be offered to test empirically: H16: The greater the relative advantage of importing, the greater will be the importer trust in importer supplier relationship. H17: The greater the relative advantage of importing, the greater will be the importer commitment in importer supplier relationship. Trust and commitment: The term ‘principal’ and ‘agent’ explain inter-organisational relationship behaviour from the human and behavioural aspect of transaction cost approach (Williamson, 1975). Form this perspective, Butler (1991) argued that the literature on trust has converged on the belief of contracting parties and its impact on commitment to inter-organisational relationships. Trust was examined in 15 studies as one of the determinants of commitment and positive relationship was found in 12 studies. All of these studies were based on developed country data, this study strives to validate findings in a developing country context to extend generalisability. Therefore, it can be hypothesised that: H18: The higher the importer’s trust in the supplier, the greater will be the commitment to an import supplier. METHODOLOGY AND RESEARCH PLAN Research Context and Sample The approach for this investigation was explanatory in nature, which comprises quantitative research tools and techniques (Burns and Bush, 2000; Malhotra, 1993; Zikmund, 2000). A cross-section of importers in Bangladesh was used as population of this research and the list of importers supplied by the bureau of export and import was used as sample frame. A list of 7590 commercial and 569 industrial importers including importers’ contact details was collected. A systematic stratified random sampling strategy was used to extract 2000 importing firms as an initial sample from two major categories (1500 commercial and 500 industrial importing firm). Leading commercial banks were contacted to crosscheck the actual operative status of importers and their current contact details from their client database. Research Instrument and Unit of Analysis As research instrument, subjective rating scales for construct measures were used in the questionnaire. Most of the questionnaire items were extracted from the extant studies and some of them were reworded to suit the present research perspective. The preliminary version of the questionnaire was administered by seven academics from the relevant international business field to asses the content validity of the questionnaire. Further, English version of the questionnaire was pre-tested among Bangladeshi importers for its clarity, scale reliability, and assessing general respondents’ ability to use the English version before the final survey. This connoted that the English version of the questionnaire needed translation into Bangla. As a result, the questionnaire was translated into Bangla using the 314 direct translation method (Brislin, 1970; Malhotra et al., 1996) by a bilingual translator and a three member committee of bilingual academics in Australia reviewed both versions to finalize the Bangla version. Further, this Bangla version of the questionnaire was pretested in Bangladesh before final survey and very minor refinement was done for clarity and clear understanding of the questionnaire. The unit of analysis for this study was specifically importer commitment to an import supplier which captured importer’s perception of import venture emphasizing on specific major supplier relationship. Informant Selection and Survey Response Importing firms in the initial sample were contacted by telephone to identify the key relevant knowledgeable informant and to solicit participation in the survey, and 600 importers agreed to participate in the survey. Accordingly, survey packet containing Bangla version of the questionnaire, a reply-paid self-addressed envelope and a letter of recommendation from the Head of School was mailed to those who agreed to participate in the survey. To increase the response rate, it was promised to provide a summary of the research findings to the respondent if they request. Respondents were also assured the anonymity of their participation in this survey. Telephone follow up and a second mail out resulted a total of 262 returns (response rate of 43.67%), 29 of them were excluded found to be incomplete in some of the important sections. As a result, 233 usable samples were entered into the database (response rate of 38.83%) for further examination of normality and outliers. Following Armstrong and Overton (1977) recommendations the ten items were randomly drawn and independent sample t-test was conducted on each item for assessing non-response bias and found no significant difference between early and late responses. Measurement of Variables The dependent and independent variables in the conceptual model are latent and not measurable directly. Therefore, a construct measure was put forwarded having recourse to the relevant observed items. In the delineation of the construct, extant measures were the tools which provided a solid foundation (Churchill, 1979; Spector, 1992) for most of the constructs. However, some of the construct measures such as relative advantage of importing, cultural similarity and importers knowledge and experience were developed for this study with inputs from the literature. Therefore, having a subjective 7-point rating scale instead of asking for any objective/numeric information (Kaynak and Kuan, 1993) the designed questionnaire incorporated operational measures of the variables. However, three construct measures including ultimate DV were measured differently using semantic differential scales to separate the variables psychologically and proximally ensuring unbiased responses in the study (Podsakoff et al., 2003). The brief descriptions of the measurement for each theoretical construct are as follows: Trust –The importer’s/import manager’s perception in their relationship with the supplier which tends to measure their trust e.g. attitude in terms of honesty, truthfulness, reliability, openness, integrity, and monitoring of the import supplier. As the operational definition bespeaks, five indicators have been extracted from Coote et al.’s (2003) study where alpha reliability has been reported as .88. While those items were used in different studies, an additional item was adopted from Wilson and Vlosky (1997) to make the measure comprehensive. Communication – Communication items measure the extent to which importers in the supplier relationship actively exchange or communicate information that facilitates importing activities from the supply market. This construct measures included the importers’ perception on the communication of business changes to the suppliers, points to keep each other informed, information that may benefit one another, information about events and changes in the market, and information about new possibilities, developments and problems if they arise. As the domain specification of this measurement, three items from Coote et al.’s (2003) study and two additional items from Zineldin and Jonsson’s (2000) study were drawn for this study. Cultural similarity – This measure captures the import managers’ perception on the similarity between the importer and supplier with respect to their style of greeting/address, business practice, legal formalities that influence business negotiations, standard of ethics, and the uses of contracts and agreements in business. While this has been measured differently in the extant literature using a cultural index (Hofstede, 1980), composite index (Kogut and Singh, 1988; Li and Guisinger, 1991) and combining the use of these two indices (Mitra and Golder, 2002), this study has taken an initiative to develop a measure for this construct. Accordingly, four items have been adopted from Swift’s (1999) study where a cultural index was used and an additional item was adopted from Ali’s (1995) dissertation which measured the psychic distance between international joint venture partners. Relative advantage of importing – Relative advantage of importing was operationalized using seven items measuring suppliers’ capabilities such as competitive quality, price, warranty, payment terms, knowledgeable supply 315 chain, knowledgeable salespeople, and frequency of services. For the domain specification, all items were adopted from Karande et al.’s (1999) study. These items were also used in a follow up study (Shahadat, 2003). Environmental volatility – This construct measure captures the importers’ perceptions of the degree of market volatility/uncertainty, predictability of environment and result of marketing action, stability, monitoring, forecasting and market demand changes faced often by them in regards to maintaining relationships with a specific supplier. Four common items were adopted from Celly and Frazier (1996) which were also used by Skarmeas et al. (2002). To cover an additional facet, one item was adopted from Ganesan’s (1994) study. Supplier’s Opportunism – The supplier’s opportunism measures the extent to which an importer perceives the opportunistic behaviour of the supplier during the period of exchange relationship and negotiations. This measure comprised with the supplier’s malfeasance, exaggeration, alteration of facts, negotiation style and attitudes towards achieving benefit at the detriment of others. All five indicators of this measure adopted from Skarmeas et al.’s (2002) study. Knowledge and experience – This was operationalized to cover importers perception on knowledge and experience about product markets, familiarity with market needs, overall experience with the market, understanding the suppliers’ preferred procedures and technical efficiency in evaluating the product. As the domain specifies, for this construct measure, three items were extracted from Celly and Frazier’s (1996) study and two additional items from Ozanne et al.’s (1992) study. Commitment to an import supplier – A seven-item scale capturing importer’s perceptual aspects on the attitudes continuity, relationship development and short-term sacrificing tendencies in their commitment relationship with a specific supplier. Three items each from Skarmeas et al. (2002) and Zineldin and Jonsson (2000) were adopted. An additional item was adopted from Wilson and Vlosky’s (1997) study with small changes in wording toward specifying the domain. ANALYSIS AND RESULTS Validation of the constructs The adopted construct measures required measurement of scale reliability and validity. To identify unidimensionality of the measures, principal component analysis was used. Since some of the variables in the proposed model (Figure 1) are simultaneously dependent and independent, Structural Equation Modeling (SEM) was an appropriate statistical tool of analysis. The proposed conceptual framework was tested through SEM using AMOS software. Normality of distribution is one of the basic assumptions of any multivariate analysis. Descriptive statistics such as mean, standard deviation, kurtosis and skewness were used to check normality of the distribution in the DV and IVs. The kurtosis and skewness scores were evidenced with multivariate outliers. Therefore, multiple regression standardized residual statistics using ± 3 SD (Tabachnick and Fidell, 2001) were conducted to identify and to normalize the outlier cases. This process yielded nine cases as extreme outlier and all of those were excluded from the analysis. The retained 224 valid cases were used to report on reliability, unidimensionality and finally analysing the SEM. Principal axis factoring (PAF) was conducted on all measurement items at a time with KMO (Kaiser-Meyer-Olkin) to verify the unidimensionality of the construct and to test discriminating ability of the item scales. The results come out with a few inconsistencies with the intended measures. Two items each for trust and relative advantage of importing formed two separate factors. In addition, one item each for the measurement of communication, cultural similarity, knowledge and experience, and commitment loaded with very low factor scores in their respective construct. Consequently, these items were excluded and the PAF was rerun where all items were loaded in their intended construct measures. The principal axis factoring scores for retained items along with KMO scores and alpha reliability scores for the construct measures are shown in Appendix -1. All reliability alpha values are above the minimum acceptable .7 indicating very good internal consistency of the items. Arithmetic mean of the items was computed as construct measure for further analysis. The mean, standard deviation (SD), and bivariate correlation of the constructs are reported in Table 1. It shows that commitment is significantly correlated with all IVs in the proposed model. Most IVs are also significantly correlated with coefficient as high as .58. However, none of the coefficients is high enough to indicate any sign of 316 collinearity (Hair et al., 1998; Tabachnick and Fidell, 2001). This low to moderate level of correlations between variables are normally expected which satisfy discriminant validity of the measures indicating the measurement scales’ ability to discriminate between measures that are supposed to differ (Campbell and Fiske, 1959). A comparison of correlations among composite constructs with respective standardised alpha reliability score also confirms good discriminant validity (Gaski, (1984). As it is revealed from the principal axis factoring, all measurement items converged into their expected construct measures with factor loading above .6 indicating convergent validity as well as discriminant validity. The minimum item for a construct measure was retained as four and five that satisfying the content and face validity of the measures. Table 1: Correlations Matrix 1. Trust 2. Communication 3. Cultural Similarity 4. Relative Advantage of Importing 5. Opportunism Mean SD 5.94 5.83 .90 .92 5.20 1.07 5.79 .78 2.68 6. Environmental Volatility 2.63 7. Knowledge and Experience 5.93 8. Commitment 6.03 1.33 1.00 .90 .92 1 1 .396* * .396* * 2 3 4 .386* * 1 .458* * .319* * .334* * 1 .555* * .184* * .443* * .416* * .240* * .412* * .208* * .385* * .270* * .344* * .403* * .519* * .385* * .350* * .577* * 5 6 7 8 1 -.006 1 .124 1 .352* * .417* * .368* * .314* * 1 .574* * 1 ** Correlation is significant at the 0.01 level, * Correlation is significant at the 0.05 level, N=224 FINDINGS OF THE STRUCTURAL MODEL The constructs were used to test the proposed structural model using AMOS software. There are controversies among research on the use of different fit indices for model fit (Maruyama, 1998; Ping Jr., 2004). However, a subset of indices such as χ2/df (CMIN/DF), IFI, CFI, and RMSEA are widely accepted and recommended by SEM researchers (Hulland et al., 1996). As reported at the bottom of Table 2, all fit indices are within the recommended ranges providing good model fit (Bentler, 1990; Byrne, 2001). The estimated path coefficient β value, critical ration (C.R.) e.g. t-value, and p-values for each path are reported in Table 2. As revealed from the structural equation modeling analysis, all 18 path coefficients estimated desired p at least ≤ .05. Thus, all of those provided statistically significant support to the hypothesised relationships. 317 Table 2 SEM Output for Hypothesised Relationships in the Proposed Model SEM Output Hypotheses Paths H1 H2 H3 H4 H5 H6 H7 H8 H9 H10 H11 H12 H13 H14 H15 H16 H17 H18 Communication Communication Communication Knowledge and experience (Knowex) Knowex Opportunism Opportunism Opportunism Environmental volatility Environmental volatility Cultural similarity Cultural similarity Cultural similarity Cultural similarity Cultural similarity Trust Relad Trust Estimate (β) C.R. (t) Æ Opportunism Æ Trust Æ Commitment Relative advantage of Æ importing (Relad) Æ Commitment Æ Knowex Æ Relad Æ Trust Æ Knowex Æ Commitment Æ Environmental volatility Æ Opportunism Æ Communication Æ Knowex Æ Trust Æ Relad Æ Commitment Æ Commitment Fit Indices Results* P -.480 .114 .129 -5.33 1.95 2.60 *** .05 .01 Supported Supported Supported .256 4.75 *** Supported .311 -.165 -.182 -.239 -.267 -.093 -.225 -.358 .331 .144 .105 .266 .356 .197 5.67 *** -3.83 *** -4.98 *** -5.52 *** -4.99 *** -2.08 .04 -3.69 *** -4.63 *** 6.25 *** 2.63 .01 2.13 .03 4.07 *** 5.65 *** 3.55 *** Supported Supported Supported Supported Supported Supported Supported Supported Supported Supported Supported Supported Supported Supported Desired Range Fit Statistics χ2 /d.f. (MIN/DF) ≤ 2.00 1.93 IFI (Incremental Fit Index) ≥ .90 .98 CFI (Comparative Fit Index) ≥ .90 .98 RMSEA (Root Mean Squire Error of Approximation) ≤ .08 .065 * Results Supported at Significance Level: p ≤ .001, p ≤ .01 and p ≤ .05 DISCUSSION In hypothesis 1, the study expected that high degree of communication between parties tend to reduce opportunism. The path coefficients with significant negative coefficient beta (–.48) lend support to this expectation and validates the inference of the transaction cost economics (Williamson, 1975) as well as similar findings of past studies (Mohr and Sohi, 1995; Wathne and Heide, 2000). This means that more communication in importer supplier relationship is an incitement to reduce supplier opportunism. In respect of H2, communication and importer trust are significantly positively correlated. This yields support to the study of Anderson and Narus (1990) where they found that communication leads to greater trust in distributor supplier relationship. This also lend support to three more studies (Coote et al., 2003; Morgan and Hunt, 1994; Zineldin and Jonsson, 2000). Similarly, H3 in the context of the effect of communication on commitment revealed positive significant support. This finding is consistent with four commitment studies (Anderson and Weitz, 1992; Goodman and Dion, 2001; Kim and Frazier, 1997; Zineldin and Jonsson, 2000) which increased generalisability of those from a different context. 318 Results provide support to hypothesis 4 and 5 that knowledge and experience is positively related to relative advantage of importing and importer commitment to an import supplier. Both of these hypotheses add weight to the conceptual argument made by Homburg et al. (2002) and Karlsen et al. (2003). The empirical finding of hypothesis 4 validates that knowledge and experience is an impetus to evaluate and seek relative advantage from supply market. This clearly hints that an importer’s knowledge and experience leads to achieve higher relative advantage of importing. Referring to the H5 which augmenting support and adds credibility to the conceptual inference made by Katsikeas (1998) where knowledge competency of an importer leads to increased commitment to the supplier. In whatever way, these findings are fresh contribution to the literature. Opportunism as human aspect of transaction cost economics (Williamson, 1985) revealed significant support for hypotheses 6, 7, and 8. The findings suggest that supplier opportunism in importer supplier relationship is negatively related to the importer knowledge and experience, relative advantage of import, and trust. This means that supplier’s opportunistic behaviour affect importer knowledge gathering process and reduces importer relative advantage from the supply market. The hypotheses 6 and 7 are so far new findings in the literature. However, hypothesis 8 respects to supplier opportunism and decreasing importer trust lend support and extend generalisability of the past findings of Morgan and Hunt (1994) and Zineldin and Jonsson (2000). Augmenting to the environmental aspect of transaction cost theory (Williamson, 1985) again, hypotheses 9 and 10 composed statistically significant support where environmental volatility surrounding the importer supplier relationship has a negative effect on importer knowledge and experience, as well as importer commitment. The hypothesis 9 inturn elaborates that knowledge competency and judgment capabilities with respect to product, market and overall market experience, and product’s technical attributes are hampered and affected by volatile environment. This is an interesting finding in the literature. The finding for hypothesis 10 in terms of negative effect of environmental volatility on an importer commitment lends support to the contentions of Kumar et al. (1995b) and Geyskens et al. (1999) that environmental volatility may debilitate a partner’s aspiration of continuing relationship. This approves that more volatility surrounding importer supplier relationship has a negative impact on importer commitment that may reduce the importer commitment to an import supplier. Regarding cultural similarity, the path coefficients for hypotheses 11, 12, 13, 14 and 15 revealed significant findings. The exhibited significant negative relationship between cultural similarity and environmental volatility for hypothesis 11 acknowledges the theoretical argument of Johanson and Vahlne (1992) and O'Grady and Lane (1996). This means that cultural similarity between importer and supplier tends to reduce uncertainty of the volatile environment. Similarly, significant negative result supports hypothesis 12 and indicates that culturally similarity is an agitator not to behave opportunistically in importer supplier relationship. Further, the result for hypothesis 13 confirms that cultural similarity is an incitement which enhances free and proximate communication and lends support to the conceptual argument of Swift (1999). With respect to hypothesis 14, the impact of cultural similarity on importer knowledge and experience dream up with the significant positive support as it was predicted. This is an impulsive evidence in the context of theoretical inference (Johanson and Vahlne, 1977) suggesting ease of gathering knowledge and experience from the culturally similar market. The result for hypothesis 15 also reveals significant positive support where cultural similarity between importer and supplier has strong effect on importer trust which lends support to similar findings of Coote et al. (2003). With respect to hypotheses 16 and 17, the positive significance relationships are also new affirmation for the literature confirming the effect of relative advantage of importing on importer trust and commitment in an importsupplier relationship. This also lends support to the conceptual arguments that suppliers’ capabilities and resources as sources of completive advantage (Kotabe and Murray, 2004) that could be an incentive for importer trust and commitment to import supplier. Finally, regards to hypothesis 18, manifested significant positive support for the impact of trust on importer commitment. This further lends support to the findings reported in vast majority of the past studies (Coote et al., 2003; Kwon and Suh, 2004; Morgan and Hunt, 1994; Zineldin and Jonsson, 2000). CONTRIBUTIONS, LIMITATIONS AND FUTURE RESEARCH Despite some apparent constraints and limitations, the study contributed to the body of knowledge in the business literature in a number of ways. First, it extended the use of three theories to enhance better comprehension of the import behaviour of developing country firms. Second, it has revalidated the effects of such variables as communication, trust, and opportunism in a complex causal relationships from a new context and facilitated 319 generalisability of past findings. Third, the study contributed to the literature by adding new construct measures for cultural similarity, knowledge and experience, and relative advantage of importing, which can be used by future researchers in this field. Fourth, six mediating effect and five direct effects on commitment are the valid documentations in the literature. Fifth, the new research context by incorporating developing country data facilitates generalisability of the past findings. Finally, underpinned theories in the present perspective extended their tenets from a traditional context to a new context with new evidences in the light of their uses. However, readers should interpret the results cautiously for some of its limitations. First, using importers’ selfreported perceptual opinion on commitment a single point in time rather than collecting longitudinal data is an apparent limitation that may have missed the opportunity of reporting continuing series of phenomena in the importer supplier relationship. In addition, the investigation was looking at importers perspective rather than both importer and exporter. Therefore, this may limit the holistic view of the study. In terms of future direction of research, any follow up study from other developing country context can facilitate and validate the above finding. With respect to the new construct measure, future researchers should use in any other context to reconfirm reliability and validity of the measures. REFERENCES Achrol, R.S. and Stern, L.W. 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Appendix 1: Measurement of Variables Variables and their Measurement Scale Items Factor score Trust Our major supplier has generally been honest Our major supplier is truthful Promises made by the supplier are reliable This supplier is open in dealing business with us Communication We keep this supplier informed about changes in our business This supplier and our company exchange those information that may benefit one another This supplier and our company keep each other informed about events and changes in the market This supplier informs us immediately if any problem arises Cultural similarity The styles of our greeting/address/introductions are similar to those of the supplier Our legal formalities that influence business negotiations are similar to those of the supplier Our standards of ethics and morals in business are similar to that of the supplier The uses of contracts and agreements in our business are similar to those of the supplier’s business practice Relative advantage of importing 322 Standardiz ed Alpha (KMO) .91 ( .84) .785 .778 .784 .776 .74 ( .77) .704 .722 .762 .658 .86( .80) .704 .776 .817 .821 .77 ( .80) This supplier has a better quality product than other suppliers This supplier offers better warranties than other competitive suppliers This supplier offers more competitive prices than other suppliers This supplier has more knowledgeable salespeople than other suppliers This supplier offers frequent and timely delivery services Supplier opportunism This supplier exaggerates their needs in order to get what they desire This supplier sometimes breaches formal or informal agreements for their own benefit This supplier sometimes alters facts to get what they want Good faith bargaining is not a hallmark of this supplier’s negotiation style This supplier has benefited from our relationship to our own detriment Environmental volatility Market environment, Unpredictable/ Predictable Market share, Volatile/ Stable Monitoring market trend, Difficult/Easy Sales forecasts, Inaccurate/Accurate Result of marketing action, Difficult/Easily predictable Knowledge and experience Market knowledge, Limited/ Substantial Familiarity with market needs, Limited/ Substantial Overall experience, Limited/ Substantial Knowledge about the technical attributes, Limited/ Substantial Commitment We respond quickly to this supplier when it needs help We expect to increase our purchase from this supplier in the future whatever product he/she can supply We expect to maintain/continue working with this supplier for long time We have intentions to develop and strengthen this relationship over time We feel very satisfied with the level of cooperation we get from this supplier .733 .777 .652 .490 .604 .89 ( .86) .746 .830 .799 .689 .743 .85 ( .85) .672 .755 .768 .817 .814 .88 ( .83) .742 .768 .808 .781 .91 ( .87) .647 .778 .802 .816 .652 Figures within parentheses are KMO (Kaiser-Meyer-Olkin) and Bartlett's measure of sampling adequacy scores 323 ROLE OF FRIENDS, FAMILY, AND MEDIA IN CLASSIFICATION OF MALAYSIANS ONLINE SHOPPER INNOVATIVENESS Norazah Mohd Suki Universiti Tenaga Nasional, Malaysia Mohd Ismail Ahmad Universiti Tenaga Nasional, Malaysia Venu Thyagarajan Universiti Tenaga Nasional, Malaysia ABSTRACT Very few studies have been concerned with studying consumers’ innovation who already have purchased products and services via the Internet. This paper examines which attributes of Subjective Norm construct contribute to the discrimination among five groups of online shopper innovativeness. A structured questionnaire was used to gather information from 554 respondents. Results from Multiple Discriminant Analysis reveals that support and encouragement by friends to purchase products through the Internet is the most important attribute in discriminating between five categories of online shopper innovativeness (Innovators, Early adopters, Early Majority, Late Majority, and Laggards) that online marketer need to emphasize further. Findings from this study would greatly help online marketer with their online marketing strategy in gaining insights into what discriminates online shopping consumers from other consumers. INTRODUCTION Research study by Jupiter Research (2004) indicated that online retail sales in US will reach $65 billion in 2004 and are likely to reach $117 billion in 2008. In addition, 30% of Internet users in US buying online in 2004 and their average online spending is estimated at $585. However, through 2008, average spending per buyer growth shows steady increases and will be close to $780 per buyer by 2008 (www.jupitermedia.com/corporate/release/04.01.20newjupresearch.html). It has proved that there is an explosive and positive growth of online users and online shoppers which has led to dramatic shifts in the way of conducting purchase activities and transactions. Online shopping, a recent form of retailing online available in the digital age, represents an innovation to be adopted or rejected by online consumers globally. Innovativeness has change consumers paradigm from shopping at the brick and mortar store to shopping at the click and mortar store (electronic shopping), indicating that no routinized buying activities/responses from an individual consumer’s position. Thus it has created a new experience to the consumers, particularly to an innovator and in electronic shopping environment. Innovative online shopper posses special characteristics since they are those with a broader range of shopping environment and experiences that interest online retailers to learn how innovative their customers are. While extensive literature exists on consumer intention to adopt electronic commerce, particularly online shopping, very few studies have been concerned with studying consumers who already have purchased products and services via the Internet. This is unfortunate since it is well documented that intention-behavior inconsistencies often occur (Shim et al., 2001). Thus, this paper sets out empirically with the objective to examine whether significant differences exist among the groups of online shopper in terms of the predictor variables (Subjective Norm construct) and also to determine which predictor variables contribute to most of the intergroup differences by five groups of online shopper innovativeness: Innovators, Early Adopters, Early Majority, Late Majority, and Laggards. 324 LITERATURE REVIEW Robertson (1967) defined three types of innovations based on the degree to which they represent technological advances and changes in consumer behavior. A discontinuous innovation is a major technological advance leading to new behavioral patterns among consumers adopting the product. A dynamically continuous innovation is a new product representing major technological advantages that do not basically change existing consumer behavior. A continuous innovation is a minor technological advance requiring no changes in existing consumer behavior. Thus, online buying represents a discontinuous innovation as it includes technological advances as well as changes in consumer behavior. Chase and Fransson (2000) state that Internet shopping is no different from any other innovation. Shopping on the Internet is considered as an innovative behavior that is more likely to be adopted by innovators than noninnovators. Innovators are characterized as experimentalists who latch onto new ideas as soon as they appear. An innovator's interest lies primarily in the innovation itself, rather than with its application to significant problems. Early Adopters are visionaries who blend an interest in innovation with a concern for significant applications. They look for breakthrough in instructional methods of learning effectiveness that new innovations for technology enable. Early Majority are pragmatists who represent the first half of the mainstream. They adopt a “wait-and-see” attitude toward new applications of innovation, and require solid references and examples of successes before adopting. Late Majority are the conservative or sceptical latter half of the mainstream. They accept innovation late in the game, once the change has already become well-established among the majority. Laggards are the last group of potential adopters and most likely never adopt innovation at all. It is unlikely for them to employ innovations, and they may also be antagonistic to their uses by others (Geoghegan, 1994). When consumers accept and use Internet for shopping, they are accepting and using technologies and innovation. Mahajan and Wind 1989; Peterson et. al., 1997; and Kotler 1991 viewed that “Purchasing something on the Internet could be considered as adopting an innovation”. Who buys online and why are crucial questions for e-commerce managers and consumer researchers if online sales are to continue to grow through increased purchases by current buyers and by converting those who have not yet purchased online (Donthu and Garcia 1999, Modahl 2000). In order to understand the diffusion of such innovations it is necessary to think of an adoption as the first step in the diffusion process. The adoption of an innovation, particularly online shopping, depends on various factors, which are related to the innovation itself and to the consumer, including subjective norm. Subjective norm suggests that behavior is instigated by one’s desire to act as important referent others (e.g., friends, family, or the society in general) think one should act or these others actually act (Bearden et al. 1986). Applied to the two focal behaviors, subjective norm reflects consumer perceptions (normative belief) of whether these two behaviors are accepted, encouraged, and implemented by the consumer’s circle of influence. Subjective norm, one of the determinants of Theory of Planned Behavior (see Figure 1), has been widely shown to increase behavioral intentions toward system use (Karahanna, Straub, and Chervany 1999; Venkatesh and Davis 2000). Research dealing with social construction emphasizes the importance of social influence because system adoption is based on the social climate surrounding the system (Fulk 1993). Consumers’ innovative online shopping behavior is voluntary; the circle of influence to shop online may only have an impact through opinions and suggestions from family, friends, and peers. For example, friends, family and media may support consumers shopping online, and consumers would also value friends’ opinions about how easy and useful it is to shop online. In other words, consumers may believe that they would favor a certain online behavior. The literature suggests a positive relationship between subjective norm and intended behavior, and empirical work has shown that subjective norm influences behavioral intentions toward system use (Karahanna et al. 1999). A significant relationship between subjective norm construct and online shopper innovativeness is thus expected. 325 Behavioral Beliefs Attitude Toward Behavior Normative Beliefs Subjective Norm Control Beliefs Behavioral Intention Actual Behavior Perceived Behavioral Control Figure 1: The Theory of Planned Behavior (TPB) (Source: Pavlou, 2001) METHODOLOGY By using self-administered questionnaire as the data collection method, a total 554 responses were received from a total of 800 targeted respondents. They already have purchased any products and services through the Internet in the previous years. The distribution and collection of questionnaire from the respondents were conducted within two month time frame by using stratified random sampling technique. They were mostly male, educated and already has established online shopping activities. Data was analyzed using Multiple Discriminant Analysis: a technique for analysing data when the criterion or dependent variable is categorical and the predictor or independent variables are interval in nature. FINDINGS AND DISCUSSION Subjective Norm construct is the independent variable for the study that comprise of three factors, namely Friends, Family, and Media. Five attributes of Subjective Norm construct represent Friends factor: (1) “My friends’ opinions about online shopping influence my intention to shop online”, (2) “I value my friends’ opinions about how easy it is to shop online”, (3) “I value my friends’ opinions about how useful it is to shop online”, (4) “My friends think online shopping is easy to use”, and (5) “My friends would support my shopping online”. Meanwhile, Family factor contain two attributes: (1) “The members of my family (eg., parents, spouse, and children) would support my shopping online”, and (2) “My family also would approve of my shopping online”. The final factor for Subjective Norm construct was Media factor which consist of (1) “Media frequently encourage people to shop online”, and (2) “Media frequently encourage people to shop online”. The dependent variable for the study is online shopper innovativeness which consists of five adopter categories: Innovators, Early Adopter, Early Majority, Late Majority and Laggards. In order to determine whether the Subjective Norm construct are applicable for subsequent analysis, Cronbach coefficient alpha test was conducted and it was found that Subjective Norm construct yielded coefficient alpha values of 0.835, in fact it is exceeding the recommended level of 0.70 by Nunally (1978). Therefore, the items selected for Subjective Norm construct are considered reliable for subsequent analysis. Research findings based on Multiple Discriminant Analysis on Subjective Norm construct are discussed below. Table 1 displays the construct means for each of the five adopter categories of online shopper Innovativeness with regards to the nine attributes of Subjective Norm construct. An examination of Table 1 shows the existence of several significant mean differences across the five adopter categories of online shopper Innovativeness. Multiple discriminant analysis was examined to explore the degree to which respondents' perceptions of Internet characteristics can predict segment membership. Only the first discriminant function (Wilks' λ=0.868; χ2=77.574; df=36, p-value < 0.001) was significant and explains 68.5% of the variance in the five adopter categories of online shopper Innovativeness (Table 2). Result for second function and third function was (Wilks' λ=0.955; χ2=25.101; df=24, p-value=0.400) and (Wilks' λ=0.977; χ2=12.772; df=14, p-value=0.545) respectively. The fourth discrimination function’s result was (Wilks' λ=0.989; χ2=5.897; df=6, p-value=0.435). Since the second function, 326 third function, and fourth function are not significant, its associated statistics will not be used in the interpretation of the ability of the nine constructs to discriminate among five categories of online shopper innovativeness. Table 1: Mean Values for Five Adopter Categories on Subjective Norm Construct Attributes of Subjective Norm Construct My friends' opinions about online shopping influence my intention to shop online I value my friends' opinions about how easy it is to shop online I value my friends' opinions about how useful it is to shop online My friends think online shopping is easy to use My friends would support my shopping online The members of my family (eg., parents, spouse, and children) would support my shopping online My family also would approve of my shopping online Media frequently encourage people to shop online Media frequently support people to shop online Innovator s 3.5625 Early adopters 3.2353 Early majorit y 3.5372 Late majorit y 3.7582 3.4375 3.1529 3.2340 3.5549 3.6867 3.3750 3.0706 3.2872 3.5055 3.7349 2.7500 3.1412 3.4043 3.4505 3.7831 2.8750 3.0353 3.4894 3.6538 4.0843 3.7500 3.7176 3.7926 3.8022 4.3012 3.2500 3.5882 3.7394 3.8681 4.3133 3.2500 2.8118 3.0372 3.1099 3.1807 2.5625 2.9412 3.0372 3.1868 3.4217 Laggards 3.8675 Table 2: Eigenvalues & Wilks’ Lambda % of Wilks' EigenVarianc Cumulative Canonical Lambd e a value % Correlation .101(a) 68.5 68.5 .303 .868 .023(a) 15.5 84.0 .149 .955 .013(a) 8.6 92.6 .112 .977 .011(a) 7.4 100.0 .104 .989 a First 4 canonical discriminant functions were used in the analysis. Functio n 1 2 3 4 Chisquare 77.574 25.101 12.772 5.897 df 36 24 14 6 Sig. .000 .400 .545 .435 The standardized coefficients and discriminant loadings for each attribute of Subjective Norm construct are provided in Table 3 and Table 4 respectively. The standardized coefficients denote the partial contribution of each of the attributes of Subjective Norm construct to the discriminant function. The larger the standardized coefficient the greater is the contribution of the respective attributes of Subjective Norm construct to the discrimination between categories of online shopper Innovativeness. However, several authors (e.g, Hair et al. (1998) warn that the interpretation of the standardized coefficient may lead to misinterpretations. As in regression analysis, a small weight may either indicate that the discriminating power of a construct is low or that it has been partialed out of the relationship because of high degree of multicollinearity (Hair et al., 1998). Discriminant loadings was used as a means of interpreting the discriminating power of the independent constructs because of their correlational nature (Hair et al., 1998), which are considered relatively more valid than standardized coefficients. The discriminant loadings denote the correlations between the constructs and the discriminant function. 327 Table 3: Standardized Canonical Discriminant Function Coefficients Function Attributes of Subjective Norm Construct My friends' opinions about online shopping influence my intention to shop online I value my friends' opinions about how easy it is to shop online I value my friends' opinions about how useful it is to shop online My friends think online shopping is easy to use My friends would support my shopping online The members of my family (eg., parents, spouse, and children) would support my shopping online My family also would approve of my shopping online Media frequently encourage people to shop online Media frequently support people to shop online 1 2 3 4 .136 .086 .106 -.596 -.151 .686 -1.213 .553 .208 .269 .842 .076 -.124 .767 -.713 .123 -.021 .343 -.094 -.329 -.603 -.074 .957 1.060 .741 -.294 -.788 -.216 -.160 .448 .378 -.234 .336 -.222 -.372 .184 Table 4: Structure Matrix Function Attributes of Subjective Norm Construct 1 2 My friends would support my shopping online .821(*) .078 My family also would approve of my shopping .568(*) -.114 online My friends think online shopping is easy to use .518(*) -.222 I value my friends' opinions about how useful it is .517(*) .512 to shop online Media frequently support people to shop online .455(*) -.093 I value my friends' opinions about how easy it is .433 .617(*) to shop online My friends' opinions about online shopping .378 .423(*) influence my intention to shop online Media frequently encourage people to shop .205 .397(*) online The members of my family (eg., parents, spouse, .332 -.036 and children) would support my shopping online * Largest absolute correlation between each variable and any discriminant function 3 .311 4 .019 .062 .488 .153 .042 .171 .272 -.187 .207 -.191 .357 .111 -.103 .336 -.084 .378 .735(*) As it can be seen from Table 4, “My friends would support my shopping online” was the main contributing attribute of Subjective Norm construct (discriminant loading=0.821) in discriminating between all categories of online shopper Innovativeness (Innovators, Early adopters, Early Majority, Late Majority, and Laggards). Substantive loadings (>±0.30, Hair et al., 1998) were also obtained for “My family also would approve of my shopping online” (0.568), “My friends think online shopping is easy to use” (0.518), “I value my friends' opinions about how useful it 328 is to shop online” (0.517), “Media frequently support people to shop online” (0.455), “I value my friends' opinions about how easy it is to shop online” (0.433), “My friends' opinions about online shopping influence my intention to shop online” (0.378), and “The members of my family (eg., parents, spouse, and children) would support my shopping online” (0.332). A minor (non-substantive) loading of 0.205 was obtained for “Media frequently encourage people to shop online”. F-tests of the equality of group means, illustrated in Table 5, supported these results. Except for the test concerning “Media frequently encourage people to shop online” (p-value=0.277), all pvalues were <0.001 indicating that, for each of the other eight attributes of Subjective Norm construct, means are unequal across the five adopter categories of online shopper Innovativeness. Table 5: Tests of Equality of Group Means Attributes of Subjective Norm Construct My friends' opinions about online shopping influence my intention to shop online I value my friends' opinions about how easy it is to shop online I value my friends' opinions about how useful it is to shop online My friends think online shopping is easy to use My friends would support my shopping online The members of my family (eg., parents, spouse, and children) would support my shopping online My family also would approve of my shopping online Media frequently encourage people to shop online Media frequently support people to shop online Wilks' Lambda F Sig. .982 2.580 .037 .971 4.039 .003 .967 4.691 .001 .972 .935 3.919 9.523 .004 .000 .982 2.584 .036 .966 4.873 .001 .991 1.279 .277 .979 3.014 .018 Figure 2 describes the examination of canonical discriminant function for all five categories of online shopper innovativeness and also group centroids. An examination of group centroids (Table 6) clearly suggests that function 1 discriminates between Laggards and Innovators. When compared to Innovators respondents (Table 7), Laggards respondents attach the higher influence by family to approve their shopping through online, and also relate a higher influence too by media whom frequently support people to shop online. Laggards respondents are motivated to purchase products and services via the Internet because of their friends would support their shopping activities through online and also received a higher influence by friends whom think that it is easy to use this way of buying than traditional shopping at brick and mortar store. In addition, Laggards respondents value their friends’ opinions about online shopping to influence them to shop online in order to have the most positive experience/feeling toward online buying. Meanwhile, Innovators respondents is superior than Laggards respondents in terms of they value friends opinion about how easy and useful it is to shop online than using other forms of retailing. In fact, their purchase transaction through the Internet are supported by their members of family (eg., parents, spouse, and children) and also encouragement by media. Thus, innovativeness has distinguishes early and late innovation adopters of online shopping. Table 6: Functions at Group Centroids Function Innovativeness Innovators 1 -.842 2 .637 329 3 .280 4 .159 Early adopters Early majority Late majority Laggards -.454 -.083 .139 .511 Figure 2: 1 -.138 -.095 .121 -.030 -.124 .101 -.105 .076 .122 -.085 -.059 .166 Canonical Discriminant Functions Innovativeness 4 Innovators Early adopters Early majority Late majority Laggards 2 Function 2 Group Centroid Innovators Late majority Early majority 0 Laggards Early adopters -2 -4 -4 -2 0 2 4 Function 1 Table 7: Classification Function Coefficients Attributes of Subjective Norm Construct Innovators My friends' opinions about online shopping .192 influence my intention to shop online I value my friends' opinions about how easy .602 it is to shop online I value my friends' opinions about how 1.134 useful it is to shop online My friends think online shopping is easy to .021 use My friends would support my shopping .119 online The members of my family (eg., parents, spouse, and children) would support my .598 shopping online My family also would approve of my .474 shopping online Media frequently encourage people to shop 1.207 online Media frequently support people to shop .903 online 330 Innovativeness Early Late Early majorit majorit adopters y y Laggards .169 .305 .313 .261 .498 .140 .467 .247 .709 .946 .885 1.072 .430 .381 .239 .268 .181 .539 .636 .846 .160 -.009 -.242 -.097 1.135 1.238 1.440 1.541 .751 .828 .809 .717 1.275 1.270 1.360 1.470 Further, the discrimination was successful in classifying 25.3% of original grouped respondents (Table 8). Hair et al., (1987) provide a rough estimate by suggesting an improvement of at least 25 per cent on that which could be achieved by chance. Thus, research findings has obtained classification accuracy greater than 25% achieved by chance and has cross validated the above discriminating results. Table 8: Classification Results(a) Predicted Group Membership Innovator Early Early Late Laggards s adopters majority majority Innovators 6 (37.5%) 5 (31.3%) 1 (6.3%) 3 (18.8%) 1 (6.3%) Early adopters 21 24 15 10 (11.8%) 15 (17.6%) (24.7%) (28.2%) (17.6%) Early majority 34 43 33 28 (14.9%) 50 (26.6%) (18.1%) (22.9%) (17.6%) Late majority 28 38 24 43 (23.6%) 49 (26.9%) (15.4%) (20.9%) (13.2%) Laggards 13 7 (8.4%) 9 (10.8%) 20 (24.1%) 34 (41%) (15.7%) a 25.3% of original grouped cases correctly classified. Total 16 85 188 182 83 CONCLUSION As a summary, support and encouragement by friends to purchase products through the Internet is the most important attribute in discriminating between five categories of online shopper innovativeness (Innovators, Early adopters, Early Majority, Late Majority, and Laggards) that online marketer need to emphasize further. Besides that, online marketer need to capture and gain Laggards respondents interest to continue their online purchases by getting more support from media to disseminate information regarding the existence of any e-tailer. The future commercial success of online buying depends, to a large extent, on understanding how already established online shopping consumers perceive characteristics of the online shopping channel. Thus, findings from this study has greatly helped online marketer with their online marketing strategy in gaining insights into what discriminates online shopping consumers from other consumers. 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Management Science, 46,(2), 186-204. 332 ROSETTANET STANDARDS IMPLEMENTATION IN ENHANCNG SUPPLY CHAIN PERFORMANCE Suhaiza Zailani, R. Premkumar Universiti Sains Malaysia Roaimah Omar Universiti Sains Malaysia ABSTRACT The RosettaNet is an Internet-based common messaging standard for global supply chain management. Currently, developed for E&E sector, it enables companies in the supply chain to communicate and conduct business electronically through common codes for sourcing of parts and components. RosettaNet is a non-profit consortium of more than 400 of the world's leading Information Technology, Electronic Components, Semiconductor Manufacturing and Solution Provider companies working to create, implement and promote open e business process standards. The purpose of this research is to examine the successful ingredients from existing technology adoption models, and extend the framework into a technology standards adoption environment. The theoretical foundations of this new model are presented and the constructs include perceived usefulness, perceived ease of use, economic, norms, and compatibility. This paper will assess how significant determinants of technology adoption models change between members along the supply chain. Special consideration is given to the economic construct. In addition the paper highlights the implementation of RosettaNet standards by selected organizations in Malaysia. INTRODUCTION Economic forces and technological advances have combined over the past 20 years to increase the importance of supply chain on company profitability and long-term business success. In the early 1980s, in which, Oliver and Webber (1982) discussed the potential benefits of integrating the internal business functions of purchasing, manufacturing, sales and distribution. Then, more attention was placed to the concept of supply chain management, which reflects the management of money, material and information throughout the supply pipeline. Realizing the importance of supply chain as a global competitive weapon, therefore, Malaysian government has extended the role and function of the Federation of Malaysian Manufacturers (FMM), in which, FMM is now spearheading the effort to prepare local industries to compete globally by automating their supply chain management processes (Yong, 2002). With the rapid globalization of business operations, and radical changes in the profile of the global supply chain, as well as, the regionalization of specialized manufacturing activities, companies in key industries such as the electrical and electronics industry, and the automotive industry, will find themselves having to deal with the global industrial and business communities. This development is the inevitable consequence, of the necessary collaboration, and integration, amongst businesses and companies, to realize better product design, coordination of logistics and more effective marketing strategies. The government, therefore, has allocated a grant of RM5 million to realize the Tiger project goals by enabling manufacturers that are involved in the local electrical and electronic sector to implement RosettaNet, an Internetbased common messaging standard for global supply chain management. Tiger stands for Technology + Industry + Government for the e-Economic Revolution of Malaysian businesses, in particular, supplier to global buyers. Tiger Project is the Initiative for the electrical and electronics sector and is collaboration between the Malaysian public and private sectors to roll out secure e-commerce services to manufacturing companies - Tier 1, Tier 2 and including SMEs. The RosettaNet common messaging standards, thus facilitates businesses communication, as the industry 333 wide open e-business process standards, form a common e-business language, and align processes, between supply chain partners, on a global basis. With the setting up of RosettaNet Malaysia in January 2002, the government hopes it will accelerate the integration of Malaysian companies, especially from amongst the manufacturers, into the global supply chain, and enhance their ability to be suppliers in the regional market. Developments in ICT have become more intensified, and ICT will continue to be the prime mover of business and industry. The application of ICT will be more pervasive, and extend into every aspect of business and industry operations; and increasing inters firm and intra industry linkages, means that no company can operate in isolation. Such interlinkages dictate that common approaches need to be adopted, and ICT has evolved facilitating systems, such as the RosettaNet. The Singapore-based Mark Patel, Exel’s vice president of e-commerce & supply chain integration claimed that "By implementing Rosetta Net standards, Exel is able to reduce deployment times, increase productivity and improve data quality for customers.” According to Yong (2002), generally there is a supportive environment to global supply chain in Malaysia. This study, however, provides an attractive argument by pointing out that even when the supportive environment is provided, the effectiveness of supply chain could still impact firms’ supply chain management. Given this situation, supply chain is an interesting issue to study. This paper represents research in process. The study of technology adoption models is rapidly becoming a popular line of study in the information systems research. Academias, business managers, IT managers and other commercial organizations have benefited significantly from this line of research for some of the following reasons. 1. 2. 3. 4. 5. Predicting the use of a system prior to a costly development process Insight into system features and functionality to incorporate in a system. Results applicable across multiple types of technology. Possible solutions to increasing the use of an information system. Findings are particularly relevant to an industry standard setting organization. Despite this progress, however, a number of opportunities remain for additional research in the technology adoption arena. For example, is there a different set of determinants toward behavioral intentions to adopt technology versus determinants to adopt technology standards? Also, are economic constructs significant determinants toward behavioral intentions to adopt technological standards? How do these results compare to past results of technology adoption models? How does the use of more recently developed technology (e.g. B2B systems) impact the common set of significant determinants in technology adoption models? Does the set of determinants toward behavioral intentions to adopt technology change between various participants in a supply chain? The purpose of this research is to leverage the successful ingredients from existing technology adoption models, and extend the framework into a technology standards adoption environment. The theoretical foundations of this new model are presented and the constructs include perceived usefulness, perceived ease of use, economic, norms, and compatibility. Rosetta Net is a non-profit consortium of more than 400 of the world's leading Information Technology, Electronic Components, Semiconductor Manufacturing and Solution Provider companies working to create, implement and promote open e-business process standards. A field study utilizing the adoption of Rosetta Net’s Partner Interface Process standards is presented and a summary of findings is provided. The major contributions of this work will be to compare and contrast results of prior technology adoption models to the adoption of technology standards (as opposed to a specific type of technology). This paper will also assess how significant determinants of technology adoption models change between members along the supply chain. Special consideration is given to the economic construct. Based on preliminary results from the field study thus far, significant determinants of technology standards adoption include perceived usefulness, norms and economic constructs. Also, based on the preliminary results thus far, the set of significant determinants towards adoption did differ between the manufacture and distributor along the supply chain. BACKGROUND OF ROSETTA NET In view of the increasing importance of Malaysia as a supply hub for many of the electrical and electronic components, a decision has been taken by the Government in consultation with the industry, to adopt RosettaNet for Malaysia. The RosettaNet initiative, announced by the Prime Minister in the 2002 Budget, is an Internet-based common messaging standard for global supply chain management. Currently, developed for E&E sector, it enables companies in the supply chain to communicate and conduct business electronically through common codes for sourcing of parts and components. It is a public and private sector initiative aimed at enhancing the competitiveness 334 of locally produced products. By adopting the RosettaNet standards, local companies will be able to conduct business through electronic means with their partners, suppliers and buyers in the global supply chain and enjoy the benefits of reduced inventory costs, time to market and lower transaction costs. Internationally, the RosettaNet standard is being managed by RosettaNet Global, a non-profit organisation with its head office in California. Currently, the membership comprises more than 400 of the world's leading companies in the E&E sector, such as INTEL, Motorola, DELL and CISCO. Many countries in North America, Europe and Asia have adopted the RosettaNet standards and have established their own organisations to facilitate standards collaboration and implementation. In Asia, Malaysia would be the fifth economy to adopt RosettaNet standards after Japan, Korea, Taiwan and Singapore. Intel spreads RosettaNet gospel to SMEs by Crista Souza (2005) "It took four years to get this going with 300 key suppliers, but we have 40,000 small and medium suppliers globally," Agarwal said. "In order to plug the rest of our supply chain into the RosettaNet standard, we've got to develop new implementation methods." RosettaNet is a non-profit consortium of more than 400 of the world's leading Information Technology (IT), Electronic Components (EC), Semiconductor Manufacturing (SM) and Solution Provider (SP) companies working to create, implement and promote open e-business process standards. RosettaNet was founded in February 1998 by 40 IT companies and joined by a collection of EC companies in mid-1999 and SM companies in October 2000. By establishing a common language -- or standard processes for the electronic sharing of business information -- RosettaNet opens the lines of communication and opportunities for everyone involved in the supplying and buying of today's technologies. Businesses that offer the tools and services to help implement RosettaNet processes gain exposure and business relationships. Companies that adopt RosettaNet standards engage in dynamic, flexible trading-partner relationships reduce costs and raise productivity. End users enjoy speed and uniformity in purchasing practices. RosettaNet seeks to drive adoption and implementation of common processes and standards within and between member companies. RosettaNet’s approach is to bring business owners from member companies together to define and agree on common processes and to develop XML-based standards to support these processes. The following are a sample of standard’s setting partner interface process (PIPTM) clusters and segments utilized by RosettaNet. RosettaNet has many challenges in the near future. Overall, RosettaNet’s mission is to drive collaborative development and rapid deployment of Internet-based business standards, creating a common language and open e-business processes that provide measurable benefits and are vital to the evolution of the global, high technology trading network. RosettaNet’s strategic goals include, first and foremost, producing and enabling the adoption of standards (PIP™s). This first goal will be discussed at length, as it is the topic of this paper and the focus of the field study. Second, is to increase global membership in the consortium. With over 400 participating members already on board, and regional offices established in the Americas, Europe and Asia; RosettaNet has already done an effective job toward achieving this goal. The third strategic goal is to embrace urgent, adjacent vertical supply chains. This includes continuing discussions in industries that have complimentary supply chains with current RosettaNet member organizations (e.g., automotive, consumer electronics, telecommunications and aerospace). The fourth strategic goal includes extending standards to new business process and business models. This includes a host of new opportunities including the support of universal and supply-chain specific business processes (e.g., forecast to order, order to finance), support of existing and emerging business connectivity models (e.g. supply web, partner to partner), and support of common operational business models (e.g. discrete manufacturing, process manufacturing). RESEARCH ISSUES Despite the successful replications and extensions of technology adoption models, there are a number of opportunities for additional research. Economic Considerations For example, based on the studies included in this literature survey, only one found a direct correlation or causation associated with quantifiable financial indicators to determining BI or current usage. (Although every paper included discussions in their introductions and managerial implications of how there research findings potentially could enable economic benefits to organizations.) Lucas attempted this by associating sales commissions of brokers and sales assistants to actual system usage of high-end PC workstations (Lucas 1999). Although Lucas found limited support for this notion, this remains a ‘ripe’ area for a logical extension of technology adoption models. There is a long-standing ‘productivity paradox’ and ‘profitability myth’ by academic researchers concerning the financial 335 returns from investments in information technology (Hitt 1995, Strassmann 1996). One of the primary reasons for sustaining these ‘myths’ in academic literature is the limited number of publications with studies of profitability and productivity from IT investments at an individual systems level, as opposed to firm, industry or economy levels. Types of Technology Considerations Another opportunity in technology adoption models is to vary the types of technology that the models have been tested. Granted, if one looks at the studies included in this research survey, the span of different technologies is impressive: 107 subjects were high-end workstation users, 230 subjects were utilizing GUI software interfaces, 73 subjects were utilizing WWW browser software, 377 subjects were utilizing standard off-the-shelf software packages (WriteOne, Chartmaster, Pendraw or Windows), 113 subjects were utilizing EIS and 166 subjects were requested to assess the overall IT usage in a small business environment. Impressive as this list may be, however, there’s very limited research of technology adoption models on recently developed technology. For example, B2B systems (procurement, online requisitions), or business-to-consumer (B2C) systems (e-storefronts, virtual shopping malls) or consumer-to-consumer (C2C) systems (online auctions, online garage sales) - just to name a few of the types of systems that have evolved with the explosive growth of the Internet. Similarly, there’s limited research regarding the adoption of technology standards, as opposed to a specific type of technology. The IT industry changes rapidly. For any theoretical model to sustain generalizability across these new technologies (or across the inter-changing levels involved) it needs to be re-tested as these innovations emerge. Are the same constructs of PU, PEOU and NORMS still prevalent with these new technologies? Do these constructs change with the adoption of technological standards, at a systems level, as opposed to a specific type of technology? Co-Adoption of Technology Considerations Another opportunity in the study of technology adoption models is the co-adoption of technology, or technology standards, among members in a supply chain setting. Inter-organizational systems (IOS) are information systems that span across organizational boundaries (Gebauer 2000). Examples of IOS systems include the B2B or B2C systems previously discuss (e-market exchanges, procurement systems, e-auctions) and proprietary dedicated systems (EDI). The lack of testing technology adoption models with these new types of technology has already been noted above. The point here is the corresponding notion that technology adoption models lack the new interorganizational constructs associated with information systems operating in an inter-organizational setting. For example, Iacovou, in his 1995 study of small businesses’ willingness to adopt electronic data interchange (EDI) technology found that long-term commitments, subsidies by EDI partners, and competitive pressures were key considerations in their decision process. Iacovou was simply reporting on case study results and did not test these constructs in the technology adoption model format. Similarly, Gebauer conducted research into IOS systems in 1999 (utilizing recent technology) and discovered that the key considerations had changed to trust, network interoperability and relative bargaining power (Gebauer 2000). In fact, she found that long-term commitments and financial subsidy incentives were beginning to ‘back-fire’ due to the reduced costs and advancements in Internet based technologies Contributions of Current Study Based on the above literature survey and opportunities for additional research, the contributions of this study are three-fold. First, this study will seek to compare and contrast the significant determinants of BI to adopt technology versus those of adopting technological standards. Second, this study will seek to compare and contrast significant determinants in a supply chain setting (manufacturer and distributor). Third, this study will consider key economic constructs into its’ technology adoption model. The technology adoption model utilized to test this field study is in Figure 1. 336 Figure 1: Technology Adoption Model Perceived Easy of Use (PEOU) Perceived Usefulness (PU) Behavioral Intention of Technology Organizational Characteristics Economic Norms DISCUSSION AND CONCLUSION The section includes preliminary findings regarding the technology adoption study and organizes the discussion around the three key areas that this paper is offering contributions: (1) adoption of technological standards, (2) supply chain setting impact and (3) economic constructs. Adoption of Technological Standards As previously discussed, the predominant determinants of BI in past technology adoption studies have concluded that PU, PEOU and to a lesser extent Attitude and Norms to be significant constructs. Based on preliminary results in this field study, the significant determinants of BI to adopt technology standards include (in the order of strength) PU, Norms and to a lesser extent economic constructs. In fact, the PEOU construct was found to be not significant. The differentiation between the study of adopting a specific type of technology (e.g., a word processing package or web-browser) versus technological standards (such as those specified by RosettaNet’s 5D series) is a subtle difference, but potentially an important one. Standard-setting organizations will vary the level of standards (or requirement specifications) according to their intended audience and objectives of the organization. For example, a desktop standards setting group within a business unit may precisely specify the make and model of computer, printer and the exact version of software required to be running on all desktops. From a managerial implication standpoint, prior research findings in technology adoption models are much more applicable to the low-level, very precise standards setting organizations. For example, the knowledge that PU and PEOU are the significant constructs in determining an individual’s BI towards the usage of Chartmaster and Pendraw (see Venkatesh 1996) is more relevant to a desktop standards setting group within a small business unit as opposed to a global standards setting organization in a multi-national corporation. In addition, based on these preliminary findings, larger standards setting organizations should be focusing adoption efforts towards the perceived usefulness attributes of the technology standards (improved effectiveness in job performance and quality of work), enhancing normative pressures (gaining support of top management and the internal IT organization), as well as explaining the economic benefits to the organization. Supply Chain Setting Impact 337 The field study findings as it relates to differences in partners along the supply chain are particularly interesting. The top two significant constructs in determining BI for the manufacturer was PU and Compatibility (e.g. the extents to which the new technology standards will be complimentary with the users work environment and style of work). Initially, these findings were unexpected since the economic benefit of adopting the new technology (from a transaction process cost perspective) was much greater to the manufacturer than the distributor. However, upon further investigation, the distributor in this field study anticipates significant financial benefits from a product cost perspective due to the automated system control features that will be incorporated into the new system (e.g. system enforced 24 hour initial response time, fewer unintended lost discounts, etc.). Although the distributor would not allow the researchers to quantify the anticipated product cost savings, the distributor did expect the savings to be much greater than the savings generated from transaction processing cost reductions. Overall, these preliminary findings do support the notion that determinants of BI could differ between members along a supply chain. This preliminary finding could have significant managerial implications to standards setting organizations. For example, the manufacturer in this case (fully realizing the economic downside of product prices that it will be receiving from the distributor in the future) placed the Compatibility construct as a higher priority determinant of BI. Thus, to promote adoption of the standards by the manufacturer in the case, Rosetta Net should promote the usefulness of the new standards, as well as fully describe how the standards will be compatible with existing technology, the work environment and business processes. Economic Constructs Based on the preliminary findings from the case study, the economic construct has been found to partially significant in determining BI towards adopting the technology standards. The economic construct was significant in determining BI to adopt for the distributor, but was not in the case of the manufacturer. Additional discussion will be provided on this issue based on further analysis of the results. IMPLEMENTATION OF ROSSETTANET STANDARDS IN MALAYSIA Intel : Automating customs procedures with RosettaNet According to a report by Intel IT (2004), Intel has started a pilot project with selected companies and the governments of Malaysia and the Philippines to implement a RosettaNet standard for electronic customs declarations. The pilot project has already indicates that automated e-customs system can dramatically shorten shipment and save money. In fact Intel claimed that using RosettaNet standards for electronic processing of customs declarations has significantly improved shipment throughput times and productivity. By working with customers and suppliers on developing and using industry-standard extensible markup language (XML) mechanisms of the RosettaNet e-Business standard and have been able to improve the timeliness of order information, inventory management, and decision making. Prior to the automated e-customs system through RosettaNet, Intel had been experiencing bottlenecks in customs procedures. As Intel ships its products from many global sources to customers, each border-crossing shipment requires approval by the local government customs agency. These shipping documents need to be coordinated between Intel, its customers, shippers and providers of customs services and logistics services. As a result bottleneck is prevalent since customs demands extensive manual intervention. Furthermore, each county has its own documents and procedures for import and export processes which escalate the bottleneck in moving good across border. Thus before embarking on the project, Intel had been handling customs declarations process either manually and or through electronic data interchange (EDI). Although EDI exchanges electronic documents between companies, it has its shortcomings since in certain locations, certain process are done manually. To address the problem of manual bottleneck, all points in the supply chain need to be automated. Thus RosettaNet helped to facilitate the automation process. Intel has chosen RosettaNet standards and PIP 3B18 for the project because of several reasons as follows: - RosettaNet is the major B2B standard for communication along the supply chain. - RosettaNet is an XML- based e-business language standardized the transmission of information over the internet. Therefore organizations in any country can exchange information easily. - RosettaNet defines business processes across the network and integrates them to determine the best course of action. - The XML messages in RosettaNet, improve security and legal compliance. Besides automating customs with RosettaNet, Intel also use RosettaNet to simplify complex processes to help Intel shift all its business and its suppliers to the same systems. 338 Automating Royal Malaysian Customs with RosettaNet: A horizontal B2G integration Wong & Rashid (2005), reported that by using RosettaNet’s XML specification known as PIP 3B18 – Notify of shipping documentation – has enables the Royal Malaysia Customs to serve as a direct trading partner into the network of various companies’ supply chain. With customs as part of a company’s supply chain link, critical shipment documentation are transmitted directly to Customs to expedite clearance, eliminating the need for the cargo to make any prolonged transits before it reaches its port of departure. The implementation e-logistics Project has permitted the Royal Malaysia Customs to: - reduce the throughput time for shippers by speeding up delivery times. Reduce processes from 15 steps to just 7 steps. Improve export clearance cycle time by 50%. Achieve productivity gain at 30% in terms of savings Improve data quality through reduction in manual data entry. Exel – using RosettaNet Standards to Benefit Customers By implementing the RosettaNet Standards in Malaysia, Exel a global leader in supply chain management has helped its customers to reduce costs, improve data accuracy, speed and reliability. Specifically, its customers are able to focus on value-added service and reduce their transaction costs. In addition to its Exel customers can speed up product lifecycles and have error-free data exchange. Thus by implementing RosettaNet standards, Exel has managed to reduce deployment times, increase productivity and improve data quality for customers (Press release: Singapore, 2005) Sitt Tatt using RosettaNet Standards to communicate with its customers To meet market demands, Sitt Tatt that specializes in logistics consulting and solutions, distribution management and value added services need to manage multiple protocols and standards as well as being complaint with global market standards. Without RosettaNet standards, Sitt Tatt finds it is rather difficult to manage these processes as the standards and trading partners increase. By adopting RosettaNet standard, Sitt Tat has improved its communication capability with its trading partners and for Sitt Tatt’s internal growth. Some of the benefits as a result of RosettaNet implementation are: Fast, efficient, deliverables whereby deliverables was deployed within a month, scalable architecture- additional requirements and electronic documents can be configured immediately plus backend integration is also a option when needs arise. Compliant solution- Sitt Tat can exchange documents using global standards with local and global trading partners (BERNAMA, 2005). CONCLUSIONS Although the results of this field study are preliminary, trends have emerged. Based on the initial preliminary results, the study of technology standards adoption (at the systems level) does generate a slightly different set of significant constructs then past technology adoption studies. In addition, these set of significant constructs change, due to economic considerations, in a co-adoption setting between different members along a supply chain. With the ever-increasing collaboration between organizations enabled by continuing advancements in the information technology industry, these findings will require a new perspective in the study of technology (and technology standards) adoption. The study of Rosetta Net’s Partner Interface Process standards adoption has provided this needed insight. Case in points highlighted in this paper provides evidence of RosettaNet potentials and benefits to those organizations that have successfully implemented the RosettaNet standards. This paper does represent research work in progress. The authors are in the process of collecting additional data from the field study and working towards improving the statistical validity regarding the conclusions. REFERENCES Agarwal, R. and Prasad, J. (1999). “Are Individual Differences Germane to the Acceptance of New Information Technologies?” Decision Sciences, spring, 1999. AMCHAM Dateline, 2005. 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To that end, we use a Box-Cox transformation and a logarithmic plus a linear form of the profitability ratio in order to obtain a doubly infinite range for the dependent variable and thus might be normally distributed. This paper tries to explain bank profitability using such explanatory variables as equity-to-asset and loan-to-asset ratios following the methodology in Arayssi (2004). Also the model is used to predict banks’ profitability for current levels of equity, loans and deposits in the Gulf region and checks results against the actual ratios. The effects of omitted variables, e.g. inflation rate, the average Treasury Bond interest rate, required reserves ratio, etc… are taken into account; even if they are not included in the model, their effect on the accuracy of the predictions of the model for various banks is analyzed. INTRODUCTION Islamic banking has been active in the Gulf since the 1970s, but they have recently become more important in the Arab Gulf region among both private citizens and business clients with more involvement in international financial markets. The excessive (oil funds) liquidity of this region fueled by higher than average oil prices was of considerable interest to Western banks. Islamic banks have been growing by leaps and bounds. 24 Bahrain, for instance, has become the leading hub in the Gulf for offshore Islamic finance. 25 Many commercial banks in the region are converting to Islamic banking as the demand for these services is picking up; basically, a measure of the latter’s success. 26 However, Islamic banks are not there merely for the sake of the religion, they are proving to be as profitable as commercial banks if not more. 27 In this paper, we look at the banking activities in the Gulf and analyze the profitability of credit/financial transactions by banks (commercial and Islamic) in the Arab Gulf region. Banks that stress credit require better trained personnel that can closely match lending and deposit maturities and are experienced in long-term financing. Some financial ratios, especially credit ratios, are explored as candidates for explaining profitability of banks (commercial and Islamic) in the region. Banks that are finding credit more profitable are probably more involved in lending funds and tapping cheap sources of deposits and helping t channel it back to the regional economies. Banks that do not extend many loans may be engaged in some risk-averse investment strategies that do not necessarily promote development. Some ratios are used in this paper. In order to deal with the problem of the dependent variable not having a wide enough range of values, some transformations are suggested that will ensure the normality of these variables. One way to get around the problem is to take the natural logarithm of the variable, since the log ranges from minus infinity to plus infinity. 24 Fouad Shaker, the Secretary-General of the Union of Arab banks listed the average growth rate of the islamic banking industry been between 10%-20% annually over the last decade (see Anything but conventional, Banker Middle East 2004). 25 Presley and Wilson, p. 86. 26 ‘Islamic Banking Gathers Momentum in Gulf’, Mushtak Parker, Arab News 27 Our sample of Islamic and commercial banks in the Gulf yields average ROAA for the Islamic banks of 2.8% compared to 1.9% for Commercial banks. Average ROAE for the Islamic banks considered ion this paper was 44% compared to 13.5% for their Commercial counterparts. 341 REVIEW OF CURRENT LITERATURE This paper continues along the way established in Arayssi (2004) to show that Islamic banks are viable and involved in the project finance process of the economies of the Gulf. They coexist with interest-based banks. Thus unlike Mohsin (1982), they are not necessarily designed to fit in a capitalist system but are learning from that system and developing in a parallel fashion. We show that they are competing with other institutions and finding lending (as measured by murabaha and mudaraba) activity an essentially profitable function. A production function for profits is estimated using an econometric transformation (see Zellner and Ryu, 1997) that takes profits as a monotonically increasing function of financial ratios, such as equity-to-asset and reserve-to-deposit, among others. We apply this method to the profitability of Islamic banks using returns to scale and its general form box cox transformations. Model A transformation that we consider is lnz + az that has a doubly infinite range for any given positive value of a, where z is a profitability ratio. 28 Such a transformation has been used in connection with generalized production functions where z is output and lnz + az = b + clnL + dlnK + u, with L and K labor and capital inputs respectively. For this function, the returns to scale vary with output and its associated long run cost curve is U shaped in contrast to that associated with a Cobb-Douglas function (a=0). Therefore we transform the profitability ratio (z) as measured by ROE and ROA into [ ln (ROE) + ROE] and regress this new variable with an intercept term on the logarithms of independent variables such as Mudaraba, Murabaha or Equity/Asset ratio. Alternatively, one can use the Box-Cox transformation applied to Z= ROAA/ (100-ROAA ) a variable that ranges from 0 to infinity. Then when their parameter approaches zero, we get log z . For values different from zero, the transformed variable is not exactly normally distributed since its range is not - infinity to + infinity. Since ROA’s measured in percentage points we need to compute the following W transform, assuming that there is a λ value such that Wi = ( ROAAi ), 100 − ROAAi zi (λ ) = where W λi −1 λ = β 0 + β j log yij + vi , i = 1, 2,...., n and j = 1,.., k β ' s and λ ≠ 0 are unknown parameters and vi is the ith error term, assumed i.i.d. with E(vi)= 0 and variance(vi) = σ and k is the number of explanatory variables and n is the number of observations . In this paper, we set λ = 0, zi ( λ ) = log Wi . Simlarly, ROAE can be transformed in the same fashion and estimated against the relevant independent variables. 2 Forty-three observations were available for Gulf Islamic banks; and 174 observations were included for commercial banks. I felt the need to stretch the data for Islamic banks beyond the 2000-2002 period because I only had data for 6 Islamic banks 29 and I needed to increase the sample size. Second, the demand for their products increased postMarch 2000 when the world’s financial markets fell into a recession. This made post 2000 observations even more desirable for these banks. We consider two transformations of the profitability measures as discussed above, namely, logarithm of the ratio plus the ratio itself and the Box-Cox transformation. For each transformation, four main regression equations were 28 See Zellner and Ryu ,Zellner-Ravenkar RTS function p. 110. These are : Al-Baraka Islamic Investment, Bahrain Islamic Bank, Faysal Islamic Bank of Bahrain, Qatar Islamic Bank, Dubai Islamic Bank, Kuwait Finance House; the first three banks are in Bahrain . 29 342 estimated using SPSS for Windows (v.12) (provided AREG that controls for autocorrelation): the first two with the transformed rate of return on average assets (ROAA) which measures how efficiently the bank is run and commercial and islamic banks while the third and fourth with the transformed rate of return on average equity (ROAE) which measures how well the owners are doing on their investment as the dependent variable and commercial and Islamic banks. For the ROAA regression, one set of estimations was done for commercial banks including two independent variables, equity-to-asset and deposit-to-asset ratios, while a second set was done for Islamic including equity-toasset, murabaha, ijara and reserve-to-deposit ratios as independent variables. The ROAE regression ran one set for commercial banks including two more financial ratios to the ROAA equation as independent variables, namely, loans-to-asset and loans-to-deposit. For Islamic banks we ran a set of estimations, using equity-to-asset and mudaraba as independent variables. This process was followed for the complete sample as well as sub-samples splitting the data prior to 2002 and for the year 2002 for both commercial and Islamic banks. Multicollinearity is sometimes a problem in these regressions; however, it was found that it was mostly taking place among insignificant variables or that the directions were not reversed when one of the variables was dropped. Therefore, dropping one of the collinear variables would not change results dramatically. RESULTS We examine the profitability of loans in both types of banks. OLS and Autoregrssions were run on the cumulative data (2000-2002), prior to 2002 and post 2002 for ROAE and ROAA for Islamic and commercial banks. Tables 1 and 2 display Pearson’s correlation and significance matrices for the dependent (transformed ROAA and ROAE) variables and the independent variables for Islamic and Commercial banks, respectively. They show a noticeable importance between Islamic banks’ profitability and mur (murabaha); on the other hand commercial banks’ profitability measured by transformed ROAA strongly correlates with da (deposit-to-asset) and ea (equity-to-asset). Commercial banks’s profitability measured by transformed ROAE strongly correlates with da (deposit-to-asset) and la (loan-to-asset) and moderately with ld (loan-to-deposit) ratios. Reserve-to-deposit rd seem to be negatively correlated with profitability in the Islamic banks. 343 Table 1: Correlations Islamic Banks Correlations 1 . 43 -.359(*) .018 43 .223 .151 43 -.183 .239 43 .331(*) .030 43 .424(**) .005 43 ln_rd -.359(*) .018 43 1 . 43 -.175 .261 43 .539(**) .000 43 -.430(**) .004 43 -.291 .058 43 Ln_mur .223 .151 43 -.175 .261 43 1 . 43 -.178 .254 43 -.203 .193 43 -.327(*) .032 43 ln_ij -.183 .239 43 .539(**) .000 43 -.178 .254 43 1 . 43 -.421(**) .005 43 -.046 .772 43 ln_mud .331(*) .030 43 -.430(**) .004 43 -.203 .193 43 -.421(**) .005 43 1 . 43 .177 .255 43 ln_mush .424(**) .005 43 -.291 .058 43 -.327(*) .032 43 -.046 .772 43 .177 .255 43 1 . 43 ln_roa_ +_roa -.017 .916 43 .086 .581 43 .359(*) .018 43 -.199 .201 43 .137 .380 43 .024 .879 43 -.017 .086 .359(*) -.199 .137 .024 1 .916 43 .581 43 .018 43 .201 43 .380 43 .879 43 . 43 ln_ea ln_ea ln_rd ln_mur ln_ij ln_mud ln_mush ln_roa_+ _roa Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N * Correlation is significant at the 0.05 level (2-tailed). ** Correlation is significant at the 0.01 level (2-tailed). 344 BOX_CO X_ROA BOX_COX _ROA ln_ea ln_rd ln_mur ln_ij ln_mud ln_mush Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N ln_ea ln_rd ln_mur ln_ij ln_mud ln_mush 1 -.098 .097 .376(*) -.199 .064 -.030 . 43 .530 43 .537 43 .013 43 .202 43 .685 43 .850 43 -.098 1 -.359(*) .223 -.183 .331(*) .424(**) .530 43 . 43 .018 43 .151 43 .239 43 .030 43 .005 43 .097 -.359(*) 1 -.175 .539(**) -.430(**) -.291 .537 43 .018 43 . 43 .261 43 .000 43 .004 43 .058 43 .376(*) .223 -.175 1 -.178 -.203 -.327(*) .013 43 .151 43 .261 43 . 43 .254 43 .193 43 .032 43 -.199 -.183 .539(**) -.178 1 -.421(**) -.046 .202 43 .239 43 .000 43 .254 43 . 43 .005 43 .772 43 .064 .331(*) -.430(**) -.203 -.421(**) 1 .177 .685 43 .030 43 .004 43 .193 43 .005 43 . 43 .255 43 -.030 .424(**) -.291 -.327(*) -.046 .177 1 .850 43 .005 43 .058 43 .032 43 .772 43 .255 43 . 43 * Correlation is significant at the 0.05 level (2-tailed). ** Correlation is significant at the 0.01 level (2-tailed). 345 Table 2: ln(Roa)+Roa ln(ea) ln(la) ln(ld) ln(da) ln(Roe/(100-Roe)) Correlations Commercial Banks Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N ln(Roa)+Roa 1 . 174 .454(**) .000 174 .250(**) .001 174 .102 .182 174 .057 .456 174 .780(**) .000 174 Ln(ea) .454(**) .000 174 1 . 174 -.211(**) .005 174 -.140 .065 174 -.466(**) .000 174 -.031 .685 174 ln(la) .250(**) .001 174 -.211(**) .005 174 1 . 174 .447(**) .000 174 .308(**) .000 174 .334(**) .000 174 ln(ld) .102 .182 174 -.140 .065 174 .447(**) .000 174 1 . 174 .430(**) .000 174 .176(*) .020 174 ln(da) .057 .456 174 -.466(**) .000 174 .308(**) .000 174 .430(**) .000 174 1 . 174 .238(**) .002 174 ln(Roe/(100Roe)) .780(**) .000 174 -.031 .685 174 .334(**) .000 174 .176(*) .020 174 .238(**) .002 174 1 . 174 ** Correlation is significant at the 0.01 level (2-tailed). * Correlation is significant at the 0.05 level (2-tailed). References to Tables 4 through 7 Footnotes to the tables elaborate on the correction for multicollinearity in some instances. OLS was initially run and was followed by Autoregression or AREG (using SPSS under time series) using the Cochrane-Orcutt method when the autocorrelation was found to be a problem. SPSS v.12 does not provide any test of or correction for heteroskedastic errors. Therefore, results obtained using SPSS control for autocorrelated errors, which seem to be a more serious problem with this data than the problem of heteroskedasticity. One needs to point to the similarity of results between the two data transformations of estimation (ie, logarithm plus ratio and box-cox). The constant term, which captures the effect of excluded variables from these regressions, is significantly negative for all types of banks, with the exception of Islamic banks and ROAE which shows a significant positive constant. This regression (see tables 6 and 7) only includes two independent variables, ea and mud and therefore leaves out other important determinants of ROAE in Islamic banks. This difference between Islamic and commercial banks may be due to the scale of operations of Islamic banks which is smaller than commercial banks’. Islamic banks may be moving down their cost curves as they are still ‘learning by doing’ whereas the commercial banks (which may be medium-sized) 30 may have reached a cost structure that cannot be 30 This possibility needs further testing to confirm difference in cost structure of commercial and Islamic banks. Apparently, the production function to determine the returns to scale in this industry shows that Islamic banks have stronger increasing returns to scale than their commercial counterparts judging from the sum of the coefficients of 346 decreased without substantial additional investments. Equity-to-asset ratio is a significantly positive contributor to commercial banks’ profitability in most ROAA regressions in tables 4, 5 and 7 below, as it signals strong commitment from the shareholders to back-up the banks’ risk exposure. For Islamic banks, we find the equity-toasset ratio to be significantly negative in the ROAA equations, especially post 2000. This can be due to the higher growth of Islamic banks’ equity than assets, leading to an increase in the equity-to-asset ratio during this period, and total assets (reflecting asset building) were increasing the fact that dilutes the return on total assets. This estimation provides further evidence in support of increasing capital, or the equity-to-asset ratio, in these institutions in order to increase capital adequacy ratios. However, the higher that ratio is, it has a propensity to decrease ROAE because it dilutes the capital base of the bank. This is seen in tables 6 and 7 where the coefficient on ea is significantly negative for Islamic banks. Murabaha is a significant contributor to profit. Ijara is moderately (at the 5% significance level) negative contributor (see tables 4 and 5) only for the whole sample. Mudaraba seems to be negative contributor to profit overall, except in the post 2000 data (see tables 6 and 7). This could mark a new trend in using this financial instrument in a creative and successful manner. Reserve-to-deposit do not increase profits This can be a case for lowering reserves in Islamic banks since the investments are backed by physical assets. Deposit-to-asset ratio is significantly positive in the commercial banks’ different sample regressions, stressing the fact these banks have access to cheap and plentiful deposits that contribute to their profitability. Loan-to-asset (la) is a significant contributor to profitability in commercial banks in tables 6 and 7. This could be explained by the substantial lending activities undertaken by these banks. Since the credit of customers in the region is very good, this seems to be a profitable business activity. However, a proportion of these is in terms of personal loans and is traditionally given to customers as a marketing tool without proper security. 31 In contrast, ld is not a significant regressor for any of the commercial banks’ regressions. Table 4: Regression results for Islamic and commercial banks [ ln(ROAA) +ROAA] on the logs of each of ea, mur (murabaha) and ij (ijara) and rd (reserve/deposit)). Dependent variable: ROAA Constant AREG OLS Islamic banks Islamic Banks 1994-2002 Pre-2000 -6.28 (-1.12) -15.46** OLS Islamic Banks post-2000 a/ -20.466 (-1.39) (-2.06) -1.26** 0.193 (-2.17) (0.41) Ln Ea -1.35** (-2.76) OLS AREG OLS Commercial Banks Commercial Banks Commercial Banks 2000-2002 Pre-2002 2002 -7.0*** -7.42*** -5.46** (-4.85) (-4.88) (-2.45) 2.045*** 2.61 *** 2.8*** (7.04) (7.27) 0.58 *** 0.55*** 0.61** (3.62) (3.27) (2.446) (3.42) Ln Da the independent variables (greater than one) , i.e., table 4 comparing psot-2000 islamic banks and 2002 commercial banks. 31 Presley, J.R. and R. Wilson, Banking in the Arab Gulf, Macmillan academic and professional ltd., London, 1991, pp. 74-76. 347 2.88** 4.28** (2.24) -0.318* (2.40) -0.28 -0.10 (-1.85) -0.454 (-1.16) 0.768* (-0.52) -0.96 R-squared (-1.22) 0.236 (1.94) 0.272 (-1.48) 0.872 0.227 0.32 0.199 Std. Error 1.606 2.098 0.696 1.34 1.23 1.634 D-W 1.69 1.44 1.60 2.03 2.02 2.48 Sample size 43 31 12 174 120 54 Ln Mur 6.17* (1.916) Ln Ij Ln Rd Notes: OLS stands for the ordinary least squares linear regression using the backward method. AREG is the autoregressive using Cochrane-Orcutt method to correct for autocorrelated errors. *** is significant at the 1% level. ** is significant at the 5% level. * is significant at the 10% level. Numbers in parentheses are t-ratios. a/ Both ea and rd were highly collinear with each other in this regression. Upon re-estimating this equation without the rd variables, ea was found to be less significantly negative (still significant at the 10% level). Running OLS on this equation did improve D-W statistic which was at the border line between inconclusive test and negative correlation of errors. Table 5. Box-Cox Regression results for Islamic and commercial banks [ ln[ROAA/ (100-ROAA)] on logs of each of ea, da, mur and ij and rd ). Dependent variable: ROAA Constant AREG OLS Islamic banks Islamic Banks 1994-2002 Pre-2000 -7.0*** (-4.47) -9.48*** OLS Islamic Banks post-2000 a/ -12.78** (-2.98) (-4.3) -0.538*** -0.014 Ln Ea (-3.17) (-0.103) -0.45** (-3.12) AREG AREG OLS Commercial Banks Commercial Banks Commercial Banks 2000-2002 Pre-2002 2002 -8.28*** -8.44*** -7.28*** (-10.88) (-11.0) (-6.05) 0.83** 1.13 *** 1.19*** (2.57) (5.77) (6.16) 0.27 *** 0.26*** 0.24* (3.18) (3.11) (1.74) Ln Da 1.02*** 1.33** (2.84) (2.53) Ln Mur 2.30** (2.45) 348 -0.093* -0.09 -0.005 (-1.94) -0.23** (-1.26) 0.212* (-0.084) -0.32 R-squared (-2.17) 0.352 (1.83) 0.265 (-1.66) 0.898 0.165 0.249 0.121 Std. Error 0.455 0.616 0.203 0.702 0.617 0.882 D-W 1.79 1.46 1.66 2.07 2.13 2.40 Sample size 43 31 12 174 120 54 Ln Ij Ln Rd Notes: OLS stands for the ordinary least squares linear regression using the backward method. AREG is the autoregressive using Cochrane-Orcutt method to correct for autocorrelated errors. *** is significant at the 1% level. ** is significant at the 5% level. * is significant at the 10% level. Numbers in parentheses are t-ratios. a/ When rd is dropped out of the equation, the ea and mur variables become a little bit less significant while ij improves in significance terms and DW increases to 2.18. Table 6: Regression results for Islamic and commercial banks ( [ln(ROAE) +ROAE] on logs of ea, da, la, mudaraba (mud) and ld). Dependent variable: ROAE Constant Ln Ea AREG AREG Islamic banks Islamic Banks 19942002 90.58*** Pre-2000 88.68*** (4.54) OLS Islamic Banks AREG AREG OLS Commercial Banks Commercial Banks Commercial Banks 2000-2002 Pre-2002 Post-2002 136.22*** 0.60 -4.37 8.03 (3.71) (8.52) (0.08) (-0.58) (0.72) -16.39*** -17.22*** -35.38*** 0.33 1.91 -2.59 (-3.21) (-3.37) (-5.48) (0.18) (1.07) (-0.94) 2.31*** 1.79** 2.87** (2.77) (2.21) (2.37) 2.069*** 1.76 2.18* post-2000 Ln Da Ln mud -1.14 -1.15 (-1.05) (-0.86) 8.30* (2.028) Ln La 349 Ln Ld (3.11) -0.79* (2.77) 0.07 (1.98) -1.17 R-squared Std. Error D-W 0.224 13.98 1.80 0.308 16.20 1.76 0.783 16.07 1.49 (-1.83) 0.121 6.32 2.02 (0.17) 0.147 5.46 1.78 (-1.65) 0.27 7.24 2.12 Sample size 43 31 12 174 120 54 Notes: OLS stands for the ordinary least squares linear regression using the backward method. AREG is the autoregressive using Cochrane-Orcutt method to correct for autocorrelated errors. *** is significant at the 1% level. ** is significant at the 5% level. * is significant at the 10% level. Numbers in parentheses are t-ratios. Table 7: Regression results for Islamic and commercial banks (ln[ROAE/ (100-ROAE)] on logs of ea, da, la, mud and ld). Dependent variable: ROAE Constant Ln Ea AREG AREG Islamic banks Islamic Banks 19992003 1.53 Pre-2000 0.98 (1.03) OLS Islamic Banks AREG AREG OLS Commercial Banks Commercial Banks Commercial Banks 2000-2002 Pre-2002 2002 4. 08*** -7.16*** -6.79*** -5.18** (0.53) (4.43) (-5.5) (-5.63) (-2.39) -0.91** -0.74 -1.80*** 0.84*** 0.81*** 0.303 (-2.03) (-1.63) (-4.85) (2.66) (2.84) (0.56) 0.404*** 0.29** 0.40* (2.81) (2.29) (1.70) 0.37*** 0.27*** 0.35 (3.28) (2.68) (1.658) post-2000 Ln Da Ln Mud -0.067 -0.06 0.44* (-0.69) (-048) (1.88) Ln La 350 Ln Ld -0.082 0.04 -0.19 R-squared Std. Error D-W 0.105 1.22 1.75 0.096 1.43 1.65 0.737 0.925 1.36 (-1.10) 0.108 1.089 2.09 (0.615) 0.145 0.87 2.12 (-1.52) 0.109 1.43 2.15 Sample size 43 31 12 174 120 54 Notes: OLS stands for the ordinary least squares linear regression using the backward method. AREG is the autoregressive using Cochrane-Orcutt method to correct for autocorrelated errors. *** is significant at the 1% level. ** is significant at the 5% level. * is significant at the 10% level. Numbers in parentheses are t-ratios. CONCLUSION In order for Islamic banks to compete more effectively with their commercial counterparts, they will need to be involved in services that fill similar needs to the community, except that they cannot include interest. Lending in Islamic banks is believed to be mostly short-term (i.e., murabaha). Ijara contracts need to be worked on in order to become profitable. Islamic banks do not give personal loans meaning they are prudent in their financing. The current trend of commercial banks in the Gulf converting to Islamic banking is a witness to the profitability of the latter. This result points to the rapid growth and involvement of Islamic banking in the Gulf economies. Further studies should investigate the size of the Islamic banks compared to that of commercial banks. The high profitability of Islamic banks in the Gulf region could be due to risk-averse behavior. A true measure of their added value to the growth of Gulf economies is their commitment to long-term project which create jobs and/or produce capital goods that can increase labor productivity. Further collection of such data may help in the assessment of Islamic banking’s impact on development. For instance, one can look at their loans and analyze the term structure examining the role of short and long term in profitability would be a natural extension of this work, since the heavy concentration on a few short-term assets is not consistent with the outlook of these institutions and may increase risks and undermine their asset portfolios. This paper showed that both Islamic and commercial banks operate in the increasing returns to scale section of their cost curves. However, it seems that Islamic banks have stronger increasing returns to scale section of their cost curves as witnessed by the larger magnitude of the coefficients of the production function estimated in this study. Reserves can be reduced in Islamic banks without much effect on profits. The funds can probably be put to better use in some Islamic insurance fund. Another conclusion from this study is that mudaraba may be starting to increase profitability and take a wider usage in operations of Islamic banks in the Gulf. These trends are likely to persist in the future provided that these banks become more innovative at managing liquidity at different maturities. REFERENCES Abdallah, A., (1987), 'Islamic banking', Journal of Islamic Banking and Finance, January March, Vol.4 (1), pp. 3156. AbdelMagib, M.F., (1981), 'Theory of Islamic banks: accounting implications', International Journal of Accounting, Fall, pp. 78-102. AlJarhi, Ma'bid Ali, (1983), A monetary and financial structure for an interest free economy, institutions, mechanism and policy, in Money and Banking in Islam, Ziauddin, Ahmad et al. (eds.), International Centre for Research in Islamic Economics, Jeddah, and Institute of Policy Studies, Islamabad. Ali, M. (ed.) (1982), Islamic Banks and Strategies of Economic Cooperation, New Century Publishers, London. 351 Parker, Mushtak, (2004), ‘Islamic Banking Gathers Momentum in Gulf’. Arab News. Arayssi, M. (2004), ‘Gulf Islamic Finance’, paper presented to the International Islamic Banking Conference, Islamic Development Bank in Beirut, Lebanon. Ariff, M. (1982), 'Monetary policy in an interest free Islamic economy nature and scope' in M. Ariff, (ed, International Centre for Research in Islamic Economics, Jeddah. Banker Middle East, (2004), Anything But Conventional. IBIS Online, (2005), last accessed on www.ibisonline.net on 28 May, 2005. Chapra, M. Umer, (1982), 'Money and banking in an Islamic economy' in Monetary and Fiscal Economics of Islam, M Ariff (ed.). ____ (1985), Toward a Just Monetary System, The Islamic Foundation, Leicester. Iqbal, Zubair and Mirakhor, Abbas, (1987), Islamic Banking, International Monetary Fund, Occasional Paper 49, Washington D.C. Mirakhor, Abbas and Iqbal Z., (1988), Stabilization and Growth in an Open Islamic Economy, International Monetary Fund, Working Paper 88/22, Washington DC. Mohsin, M., (1982), 'Profile of ribafree banking', in M. Ariff (ed.), above. Naqvi, S.N.H., 198l. Ethics and Economics: An Islamic Synthesis, The Islamic Foundation, Leicester. Middle East Economic Studies, (2003), Interest income drives steady growth of Gulf banks in 2002 as profits rise 6.5%, Vol. 46 (37), pp. B2-B9. Naughton, S.A.J. and Tahir, M.A., (1988), 'Islamic banking and financial devel opment', Journal of Islamic Banking and Finance, Vol. 5 (2). Presley, J.R. and R. Wilson, (1991), Banking in the Arab Gulf, Macmillan Academic and Professional ltd., London, 1991. Zaidi, N.A., (1987), 'Profit rates policy for PLS depositors', Journal of Islamic Banking and Finance, Vol. 4 (4), pp. 35-46. Zellner, A. and H. Ryu, (1997), ‘Alternative functional forms for production, cost and returns to scale functions’, Journal of Applied Econometrics, Vol. 13(2), pp. 101-127. 352 THE VALUE OF SUCCESSIVE ANALYSTS’ RECOMMENDATIONS1 Said M. Elfakhani American University of Beirut, Lebanon Zeina A. Halabieh American University of Beirut, Lebanon ABSTRACT This study examines whether investors can still profit from successive financial analysts’ recommendations announced within the same business week. Using a recent data set sample of 230 stocks dated from January 1998 till August 2000, our findings indicate that successive upgrades (downgrades) revelation resulted in significant positive (negative) cumulative abnormal returns for a whole week, suggesting extended market reaction to these announcements. More, it seems that the negative news projected by successive downgrades had stronger absolute abnormal returns than the upgrades, suggesting that the market could not predict the change in grades. In the case of opposite successive recommendations (i.e., downgrades followed by upgrades, or upgrades followed by downgrades), the downgrading effect appeared to surmount the positive market reaction to the upgrades. Therefore, integrating subsequent recommendations could reveal clearer investment value for analysts’ recommendations, and deserves further consideration when setting portfolio strategies. INTRODUCTION With billions of dollars flowing in and out of the stock market daily, any hint about what is going to happen next could mean a fortune lost or gained. Hence, there is a growing need in capital markets for accessible financial news that can reveal relevant and valuable information about expected stock behavior. This study examines the contribution of one particular financial news, namely the value of changes in financial analysts’ recommendations (posted as upgrades, downgrades or initiations) of publicly traded companies. Information about an analyst’s stock recommendation is typically given to the brokerage firm important clients, supposedly “informed” traders, first and subsequently released to the general public. A study done by Kim, Lin and Slovin (1997) found that, on average, it takes five minutes of trading for NYSE/AMEX stocks and 15 minutes for NASDAQ stocks to reflect the private information contained in the analysts’ recommendations (if either an initial coverage or a buy). On the other hand, “sell” recommendations are normally announced after the market close and prior to next day’s open, which implies that most investors will be unable to act on any given recommendation until the market opens. Of course, the implicit assumption here is that this information is accurate or pseudo-accurate. The question raised in this paper is whether changes in analysts’ recommendations can provide abnormal returns over a specific time period beyond the announcement dates. In this context, the focus is on a particular pattern of posting recommendations: that of the announcement of consecutive recommendations changes within the same business week, in the following manner. First, the effect of joint and opposite opinions of upgrading and/or downgrading of stocks on prices is tested for any possible abnormal returns. Second, investors’ response is evaluated on whether a second recommendation change released within a short period after the first recommendation is considered redundant, or is a further stimulator to act upon those consecutive recommendations changes. Previous studies evaluated stocks based only on one recommendation without taking into account the effect of other recommendations changes that were posted for the same stocks within a short period of time. Hence, this paper updates the literature on the value of analysts’ recommendations to investors using a recent data set sample of 230 stocks dated from January 1998 till August 2000, of which 24% are newly issued stocks, and more specifically, 15% were publicly offered in 1999. 353 Our investigation reveals that Wall Street analysts tend not to recommend "sell". One possible explanation is that the investment banking side of the brokerage firm wants to continue to do business with most publicly traded companies. Hence, most of the analysts' comments have a tendency to be more on the "buy" side. In fact, analysts are more likely to drop coverage of a company than they are to issue a negative rating. Our latter observation is consistent with a recent study by Wormack (1996) who confirmed that analysts issue "buy" recommendations seven times as often as "sell" recommendations, and a study by Veverka (1997) who reported that 3% of his sampled 3,900 recommendations carried at least one “sell” recommendation, while 68% of the sampled stocks carried “strong buy” and “buy” ratings. On another front, analysts’ recommendations are usually not always straightforward. Typically, an analyst gives rating on a five-point scale, where 1= strong buy, 2= buy, 3= hold, 4= sell and 5= strong sell, or some similar metric. However, there is no uniformity across analysts or brokerage firms at all. Also, the rating are either changed or confirmed at irregular intervals. Such rating changes can have an effect on market evaluation of the reported stocks. Our findings indicate downgrade recommendations followed by similar downgrades within the same business week resulted in significant negative cumulative abnormal returns, while the upgrade-upgrade sequence posted positive, but insignificant, cumulative abnormal returns. Yet, the negative returns in the downgrades-downgrades case were found statistically more significant than positive abnormal returns found in the upgrades-upgrades case, possibly suggesting that upgrades are pre-anticipated events and downgrades are not. For the portfolio of downgrades followed by upgrades, the downgrades effect on stock price appeared to surmount the positive price reaction to the upgrades, suggesting that investors were not impressed by positive upgrading that were preceded by negative downgrading news. Hence, integrating subsequent recommendations changes could reveal more clear information about the recommended stock. The remaining of the study is organized as follow: next section provides a review of the major findings in the literature concerning analysts’ recommendations. The third section presents data sources and description, along with the methodology that will be used for testing the investment value of analysts’ recommendations. Section four details the findings along with the necessary explanation followed by conclusions. LITERATURE REVIEW The investment value of analysts’ recommendations has been researched since as early as 1933 by Cowles, Diefenbach (1972), Bidwell (1977), Groth et al. (1979), and Dimson and Marsh (1984), but with no clear conclusions. Theoretically speaking and according to the semi-strong form of market efficiency, markets process information rapidly almost immediately incorporated into stock prices, and therefore investors will not be able to make abnormal profits when trading on the basis of publicly available information, which in our case are the changes in analysts’ recommendations. Interestingly though, several recent studies reported the opposite. Barber and Loeffler (1993), and Stickel (1995) demonstrated that an analyst’s recommendation to “buy” a firm’s common stock generated positive share price response and a recommendation to “sell” resulted in a negative response in share price.These results present an anomaly to academics that believe in the "efficient market" theory. Hence, Daniel and Titman (1995) argued that there is mounting evidence of inefficiencies in these studies. The same was claimed by Gruber (1995). Bauman, Datta, and Iskandar-Datta (1995) examined the long-run price response to analysts’ recommendations, in an attempt to resolve this issue. The results showed that the market appears to be reasonably efficient in promptly processing analysts' recommendations. However, Barber, Lehavy, McNichols, and Trueman (2000), Womack (1996) and Stickel (1995), found a long-run drift in the direction of the recommendation that was statistically and economically significant. Other studies have focused on the determinants of individual analyst’s forecast accuracy. For instance, Mikhail et al. (1997) provided evidence that as analysts’ experience in tracking a specific firm increases, they tend to make more accurate forecasts. Consequently, the market tends to place more weight on their forecasts. Another research done by Clement (1999) documented a relation between analysts’ relative forecast accuracy and abilities, resources, and portfolio complexity. Brown (1999) modeled the determinants of analyst’s accuracy and finds that the age of the forecast is a dominant factor. Most recently, Jacob et al. (1999) showed that forecast accuracy is also related to analysts’ skills and brokerage house characteristics. Some studies examined the market reaction to changes in analysts’ recommendations. For instance, Womack (1996) reported that the stock price does rise by about 3% in the three -day event window around the announcement of a "buy recommendation" and falls by 4.7% in the same three-day window on the announcement of a "sell 354 recommendation". These results are consistent with the “expanded view of market efficiency” advocated by Grossman and Stiglitz in 1980. Hence, analysts’ recommendations are considered part of the support system needed to enhance market efficiency, and therefore they do have investment value. A more recent study by Barber, Lehavy, McNichols, and Trueman (1998) divided changes in analysts' consensus opinions into five stock portfolios. They found that the top portfolio that earned the strongest recommendations made an average annual return of 18.8% versus 5.8% for the bottom portfolio. Moreover, the analysts' top picks also beat the NYSE, AMEX, and NASDAQ, which together gained an average of just 14.5% annually over the same sample period. This implies that recommendation changes embody valuable information for which a brokerage firm should be compensated. In another paper, Barber, Lehavy and Trueman (2000) studied whether investors can systematically enhance their returns by following the recommendations of certain brokers while ignoring others. Brokerage houses were rated on the basis of prior-year performance. The results showed that investors would do well to follow large brokers’ buy recommendations and small brokers’ sell recommendations. Earlier studies by Clement (1999) and Jacob, Lys, and Neale (1999) tackling the same issue reported that the accuracy of analysts’ forecast increases with the size of the brokerage house to which an analyst belongs. In summary, investors continue to be interested in predicting the movements of their stocks, be it on the basis of following fundamental analysis, or following analysts’ upgrades or downgrades recommendations, as both seem to have investment value as reflected in associated positive (negative) price movement. This study further extends the current literature to investigate the effect of two consecutive recommendation changes on stock prices when announced during the same business week. DATA DESCRIPTION AND METHODOLOGY Analysts’ recommendations changes were collected from the web site: http://biz.yahoo.com/ c/u.html. This site is administered by briefing.com and contains an archive of all daily analysts’ recommendations. The sampling period extended from January 1998 till August 2000. On daily basis, this site presents a listing of all the stocks that received a recommendation change grouped in three categories: upgrades, downgrades and initiated. The site presents the recommendations based on the name of the companies listed in alphabetical order. Next to each name is the corresponding ticker, followed by the name of the brokerage firm whose analyst issued the recommendation and then the description of the recommendation itself. The collected data was then grouped based on whether the consecutive recommendations were in the same or opposite direction. As a result, five portfolios were formed. Portfolio one included those stocks that were upgraded more than once during the same business week (this is called the Upgrade-Upgrade or U-U portfolio). Portfolio two included stocks that were downgraded more than once within the same business week (hereby called the Downgrade-Downgrade or D-D portfolio). The stocks that were accorded consecutive opposite ratings were allocated to two portfolios: Upgrade-Downgrade (U-D) or Downgrade-Upgrade (D-U) depending on which announcement was made first. The last portfolio included those stocks that were newly covered, i.e. which were newly followed by two analysts during the same week and was denoted the Initiated-Initiated (I-I) portfolio. The classical event study introduced by Brown and Warner (1985) is used to test the significance of the generated returns around the announcement of analysts’ recommendations. For that, the event period extends from Monday till Friday of the business week during which the consecutive recommendations announcements were made. The choice of a non-event period was subject to the following filter rules. First, the non-event period should not be less than 15 days, with none of these days witnessing any recommendation irrespective of its nature. For keeping some consistency, this period was limited to 30-day period, when available. Second, the non-event period from which we chose the 15 days should be as close as possible to the normal performance of the stock without going into the previous quarter, so to control quarterly changes over time. For that, the non-event period should not go beyond 90 days far from the sampled event period. These filters are applied to the non-event period so to find a normal trend for the stock performance that is free from any other intervening or noisy event. After defining both the non-event and the event periods for each stock, the corresponding price levels were collected from the history for stock prices available at: http://chart.yahoo.com/d. Here again, some stocks were excluded, namely those that had missing price records during the dates included in the testing period. 355 The final sample included 360 analysts’ events: 97 Upgrade-Upgrade, 81 Downgrade-Downgrade, 38 UpgradeDowngrade, 38 Downgrade-upgrade and 106 Initiated- Initiated observations. 32 It must be noted here that certain companies were sampled more than once if the recommendations events were recurring. Overall, the UpgradeUpgrade sample includes 76 different companies, the Downgrade-Downgrade sample includes 73 different companies, the Upgrade-Downgrade constitutes of 34 companies, and the Downgrade-upgrade has 36 different companies. Finally, concerning cases of more than two consecutive recommendations changes, the UpgradeUpgrade category includes 11 stocks that were upgraded three times within the same week, the DowngradeDowngrade portfolio has 3 stocks downgraded 3 times, and one that was downgraded 4 times within the same business week. The Upgrade-Downgrade category includes 4 stocks that followed a U-D-D pattern and 2 stocks that were upgraded twice than downgraded. The Downgrade-Upgrade category has 2 stocks that were downgraded twice before being upgraded. Finally, the Initiated-Initiated sample contains 6 stocks that received three initiations and one stock that was added to 4 analysts’ watch list within the same business week. The classical event study approach aims at computing abnormal returns around the announcement dates. These abnormal returns, if any, reflect the market expectations of the potential gains or losses analysts’ recommendations communicate to shareholders. There is no one event day but rather an event period consisting of 5 trading days extending from day 1 being a Monday to day 5 being a Friday) that fall on the same week. The event period includes the days where the recommendations were posted along the remaining days of the week. Hence, the event days are not restricted to a specific day such as day one or day two (as is the case in the traditional event study approach), because the recommendations could be announced on two consecutive days or at the beginning and the end of the same week. Note, however, that at least two different days should include a recommendation, meaning that stocks that posted two or more recommendations on the same day but on no other day within the same week are not included in the sample. For each of the five-tested portfolios identified previously, the average abnormal returns are then computed by forming an equally weighted portfolio of all individual abnormal returns for each event day t, then the average abnormal returns for the nonevent period is calculated by forming an equally weighted portfolio of all individual abnormal returns calculated over each nonevent day. Next, the portfolio of the abnormal returns for each event day t is standardized. The cumulative abnormal returns (CAR) are then computed for event period by adding up the daily-standardized abnormal returns over that period. Event period CAR’ s are examined to test if there is a market reaction to the analysts’ announcements. Finally, the significance of the obtained CAR values is tested using t-statistics. Following the applied sampling criterion and the division of sampled events into five portfolios, the null hypothesis for each portfolio is to find no abnormal returns associated with the recommendation events. The alternative hypotheses would be: a. b. c. d. e. Alternative Hypothesis One: Consecutive upgrades of a stock generate positive abnormal returns. Alternative Hypothesis Two: Consecutive downgrades of a stock generate negative abnormal returns. Alternative Hypothesis Three: A downgrading followed by an upgrading of a stock should negate abnormal returns. Alternative Hypothesis Four: An upgrading followed by a downgrading of a stock should negate abnormal returns. Alternative Hypothesis Five: Consecutive initiations of recommendations generate positive abnormal returns. In addition to the event study approach, a parametric test between two independent samples was used to detect whether there is a significant difference between the abnormal returns reported in the Upgrade-Upgrade category as opposed to the Downgrade-Downgrade category, as well as the difference between the abnormal returns (Ars) reported for the Upgrade-Downgrade sample versus the Downgrade-Upgrade sample. The independent samples ttest is used because stocks differ across the various categories, and each sample’s portfolio has different numbers of stocks. EMPERICAL RESULTS 32 All sample observations are available from the authors upon request. 356 The data was tested first for integrity using the Kolmogorov- Sminrov test of normality, and the skewness and kurtosis measures of shape. Those tests were applied to the daily average abnormal returns, and our findings (available through the authors) show no departure from normality.Hypothesis one was tested for the UpgradeUpgrade sample for each individually recommended stock. Table 1 -Panel A, reports the percentage of individual CARs that were statistically significant at the 5% and 10% levels. Hypothesis one was rejected 23.71% at the 5 % significance level (while at the 10 % significance the rejection percentage increases to 31.96%). Here it is worth to mention that although the rejection percentages are not that high, the majority of individual CARs (73.2%) were positive, indicating the presence of positive abnormal returns though not statistically significant. Hypothesis Two’s results are shown in Table 1 – Panel B. At the 5 % significance level, hypothesis two was rejected 38.27% of the time. Here we notice higher rejection percentages compared to those of the first category tested, and that 82.7% of the abnormal returns were negative though not all statistically significant. Hypothesis three’s results indicate that at the 5 % significance level, the hypothesis of no abnormal returns could not be rejected 81.58% of the time (Table 1, Panel C). The high acceptance percentages implies that the cumulative abnormal returns for a stock during a week that witnessed two opposite recommendations changes from stock analysts are not significantly different from zero. Table 1 -Panel D shows that at the 5 % significance level, hypothesis four could not be rejected as frequently as 89.47% of the time. The obvious conclusion would be that the magnitude of investors’ response to opposite recommendations made during the same week was almost equal, resulting in no significant price draft by weekend. The last hypothesis deals with the effect the initiated recommendations have on stock prices. Table 1 -Panel E reports once again insignificant cumulative abnormal returns 94.84% of the time, suggesting that consecutive initiated recommendations events are irrelevant to market observers. While Table 1 reports the percentages of positive (or negative) CARs for individual [See Table 1] stocks within each of the five portfolios, Table 2 reports the CAR results for the lumped portfolio data rather than individual percentages. The results for the Upgrade-Upgrade portfolio daily CARs are presented in Table 2 -Panel A, along with the overall event period CAR. The first day CAR is positive and significant only at the ten percent level, while those of the third and fourth day are significant at the 5% significance level. This observation may be related to the variation in the number of upgrades that were recorded on each of the 5 days of the event period. The overall event CAR was found, however, statistically significant at the five percent level indicating the positive market reaction to the upgrade successive announcements. The general conclusion that could be drawn is that upgrading a stock more than once during the same business week results in positive abnormal returns that are statistically significant for the whole week. Table 2 -Panel B indicates the presence of negative abnormal returns significant at the 5% significance level on every event day as well as for the whole event period for the D-D sample. The significance of the negative abnormal returns following the downgrades indicates the negative market reaction to those recommendations. As Table 2 Panel C shows, the third event day (i.e., Wednesday) marked positive abnormal returns that are significant at the 5 % level. As expected, the overall CAR is not statistically significant, as the effect of first recommendation (i.e., the upgrade) was offset by the second opposite recommendation (i.e., the downgrade). Similarly, the expected reaction of the stock price to the downgrade-upgrade sequence would be a decrease followed by an increase, resulting somehow in overall significant negative abnormal returns. Table 2 -Panel D also reports on event days 1,3 and 5 abnormal returns that are statistically different from zero, with the first two being negative and the last one being positive and significant at the 10 % only. In addition, the CAR of the [See Table 2] overall event period was found negative and statistically different from zero at both significance levels. The results investigating the daily abnormal returns of the event period for the initiation recommendation group showed that the only significant abnormal returns reported for this category is the third event day, and they were positive and significant at the 5 % levels (Table 2 –Panel E). This finding is interesting. Given that the sample included only those stocks that were positively recommended by the analysts in their initial coverage, the tests were 357 expected to identify overall positive abnormal returns. Clearly this was not the case. On the other hand, some other factors may be stated as reasons for these results. First, the fact that the initiation recommendation is by nature the first position that an analyst takes in a stock, “wait and see” investors may prefer to wait for the next advice of the same analyst for that stock In this case, the initiation recommendation would not trigger reactions and this translates in no significant price drift. A second reason could be the absence of the initiations recommendations that accompany Initial Public Offerings from the sample. This may be due to the nature of the CAR test used, which necessitates the presence of an acceptable non-event period preceding the recommendations in order to capture the normal trend of stock movement. The possibility of getting stock prices at least 15 days prior to the announcement is very low. The stronger results of downgrades events compared to those of upgrades as observed in Table 2 raised the question on whether the negative abnormal returns are statistically more significant than the positive abnormal returns. Hence, the standardized abnormal returns for individual stocks for each event day and the corresponding CAR for the overall event period were tested for equality of mean assuming independent samples and unequal variances. 33 Hence, UU and UD portfolios were tested against DD and DU, respectively, and the results are shown in Tables 3 and 4. As shown in Table 3, the p-values for all event days, along with the overall event period, were all significant at the one percent level, thus rejecting the null hypothesis of equality of means, and demonstrating that the negative abnormal returns of the D-D portfolio are more significant than the positive abnormal returns of U-U portfolio. The test of equality of means is rerun on the other two categories (i.e., U-D and D-U), assuming unequal variances. The comparison was done on daily basis as well on the overall event period, and t-values are presented in Table 4. The table indicates that means are different on days 1, 3 and 5 as well as on the overall event period, while they were equal on event days 2 and 4. The downgrades in the D-U sample resulted in negative means in the first three event days that were higher (in absolute terms) than the positive means of those days in the U-D sample, while the downgrades in the U-D categories resulted in negative means that were higher (in absolute values) than the positive means of the D-U sample on the last 2 days of the event period. However, the findings could be related to the definition of the event period, which is considered here as the business week within which the consecutive recommendations of the same stock took place, going from Monday to Friday irrespective of the day on which the first recommendations took place. The restriction of the assessment of price reaction to a very short time period might be forgoing the time needed by the later recommendations to reflect on the stock. This is especially the case for those recommendations that fell on the last day of the week under consideration, i.e. on Friday and for which price reaction might appear on Monday of next week. This analysis could possibly explain the dominant effect of the downgrading in the Downgrade-Upgrade category, [See Tables 3 and 4] assuming that the positive price reaction is to appear on the beginning of the week following the event period. CONCLUSIONS AND LIMITATIONS This study offered an assessment of the effect of changes in analysts’ recommendations, when more than one analyst’s opinion is involved, would have on stock prices. The evidence presented with regard to the value of recurring financial analysts’ recommendations changes presents added value to individual investors as well as researchers in portfolio construction. The sampled data recorded from January 1998 till August 2000 was grouped into five categories: the UpgradeUpgrade category included stocks that were upgraded two consecutive times within the same business week, the Downgrade-Downgrade portfolio was formed from stocks that were downgraded two times within the same week, the Upgrade-Downgrade and the Downgrade-Upgrade samples included stocks accorded consecutive but opposite opinions, and the last category or the Initiated-Initiated sample was formed of stocks that were added to more than one analyst’s watch list within the same week. Consistent with the existing literature, the Upgrade-Upgrade category posted positive cumulative abnormal returns but statistically not significant, while the Downgrade-Downgrade portfolio resulted in significant negative cumulative abnormal returns. Moreover, the negative ARs of the D-D portfolio were found statistically more significant than the positive abnormal returns of the U-U portfolio. These findings suggest two things: (1) the market may be reacting to upgrades before they actually happen (explaining why CAR is not significant), while the market 33 Variance equality was tested in all event days and the overall event period and was found mostly insignificant. 358 seems to be surprised by the downgrade news and reacts to it strongly; and (2) the market reaction to downgrades news extend for a full week, implying a slow and gradual (rather than speedy) assimilation of the negative news from successive downgrades. In the case of opposite recommendations, the early downgrade effect on stock price appeared to surmount the positive price reaction to the following upgrade, suggesting that the market is not easily swayed with positive upgrading news in the presence of nearby downgrading news. This conclusion could be considered as a starting point for further investigation in this area. The reason being that previous studies have sampled the stocks based on one recommendation without taking into account the other recommendations that were posted for the same stocks afterward. Hence, it seems that learning about successive analysts’ recommendation has an added value over studying single recommendation announcements. Thus, integrating the subsequent recommendations into previous studies could reveal enhanced results concerning the investment value of analysts’ recommendations. Nevertheless, this study is not without limitations. The type of events chosen requires a large database to draw the sample from. The lack of data availability restricted us from generalizing conclusive findings. Obviously, a larger sample size would have enabled further classification and testing, and could have added more insights into this area. More, there are other factors that could be used to classify the data such the reputation of the brokerage firm issuing the recommendation, the level of change (i.e., one or more grades) of the upgrades and the downgrades, the reputation of the analyst issuing the recommendation, could give more insights on the true investment value of those recommendations. Also, Whether trading strategies of purchasing the stocks with the most favorable recommendation change, or selling short the least favored recommendation change, or whether predicting the sequence of consecutive recommendations changes, would realize abnormal returns net of transaction costs is another issue to be considered in future research. REFERENCES Barber, B., R. Lehavy, M. McNichols, and B. Trueman. “Can Investors Profit from the Prophets? Consensus Analyst Recommendations and Stock Returns.” Working Paper. University of California at Berkeley, (2000). Barber B., Lehavy R., Trueman B. “Are All Brokerage Houses Created Equal? Testing For Systematic Differences In The Performance Of Brokerage House Stock Recommendations.” Working Paper, March 2000. Barber, B. and D. Loeffler. “The ‘Dartboard’ Column: Second-hand Information and Price Pressure.” Journal of Financial and Quantitative Analysis. 28 (1993): 273-284. Bauman, W.S; Datta, S.; Iskandar-Datta, M.E. “Investment Analyst Recommendations: A Test of The Announcement Effect and The Valuable Information Effect.” Journal of Business Finance & Accounting. 22 (1995), 659-671. Bidwell, C. “How Good is Institutional Brokerage Research?” Journal of Portfolio Management. 3 (1977), 26-31. Brown, Lawrence. “Predicting individual analyst earnings forecast accuracy.” Working Paper, 1999. Brown, S. J., and J. B. Warner. "Using Daily Stock Returns: The Case of Event Studies." Journal of Financial Economics. 4 (1985): 3-31. Clement, M. "Analyst Forecast Accuracy: Do Ability, Resources and Portfolio Complexity Matter?" Journal of Accounting and Economics. 27 (1999): 285-303 Cowles, A. "Can Stock Market Forecasters Forecast?” Econometrica, I (1933). 359 Daniel, Kent D. and Sheridan Titman. Investment Under Asymmetric Information. Finance, Handbooks in Operations Research and Management Science, Editors: Robert A. Jarrow, Voijslav Maksimovic, and William T. Ziemba, North Holland, Vol. 9 (1995): 721-766. Diefenbach, R. “How Good is Institutional Brokerage Research?” Financial Analysts Journal. 28 (1972): 54-60. Dimson, E. and P. Marsh. "An Analysis of Brokers' and Analysts' Unpublished Forecasts of UK Stock Returns." Journal of Finance, 3 (1984): 1257-1292 Groth, J, W. Lewellen, G. Schlarbaum, and R. Lease. “An Analysis of Brokerage House Securities Recommendations,” Financial Analysts Journal. 35 (1979): 32-40. Gruber, Martin J. Modern Portfolio Theory and Investment Analysis. Prentice Hall, 1995. Jacob, J. Lys, T. & Neale, M. "Expertise in Forecasting Performance of Security Analysts." Journal of Accounting and Economics, 28 (1999): 51-82. Kim, Lin, and Slovin. “ Market structure, informed trading, and analysts' recommendations.” Journal of Financial and Quantitative Analysis. 32 (1997): 507-524. Mikhail, Michael B., Beverly R. Walther, and Richard H. Willis, 1997, Do Security Analysts Improve their Performance with Experience? Journal of Accounting Research, 35, 131-157. Stickel, S. “The Anatomy of the Performance of Buy and Sell Recommendations,” Financial Analysts Journal. 51 (1995): 25-39. Veverka, M. “When It Comes to Stock Ratings, Wall Street Journal; New York; Sep 24, 1997. Analysts Seem to Speak Little Evil” Womack, K. “Do Brokerage Analysts’ Recommendations Have Investment Value?,” Journal of Finance. 51 (1996): 137-167. 360 Table 1 CARs Significance for Individual Stocks CAR is the standardized cumulative abnormal return for the overall event period of individual stocks in the sample. The event period includes the days 1 to 5 of the week during which financial analysts reported at least two recommendations on the same stock. Each panel shows the percentage significant CARs for a particular portfolio using 5 and 10 percent significance levels. The corresponding numbers of individual CARs that were significant and non-significant are reported along with the percentages of total sample in brackets. The sampling period is from January 1998 till August 2000. Decision Significance Level α = 5% α = 10% Panel A: Hypothesis One (U-U) Positive Abnormal Returns Non-significant Positive CAR 71 (73.2%) 48 (49.48%) 23 (23.71%) 40 (41.23%) 31 (31.96%) Significant Positive CAR Negative Abnormal Returns Non-significant Negative CAR 26 (26.8%) 23 (23.71%) 3 (3.1%) 21 (21.65%) 5 (5.1%) Significant Negative CAR Panel B: Hypothesis Two (D-D) Negative Abnormal Returns 67 (82.72%) Non-significant Negative CAR 36 (44.44%) 27 (33.33%) Significant Negative CAR 31 (38.27%) 40 (49.38%) Positive Abnormal Returns Non-significant Positive CAR Significant Positive CAR Panel C: Hypothesis Three (U-D) 14 (17.28%) 13 (16.04%) 11 (13.58%) 1(1.23%) 3 (3.7%) Positive Abnormal Returns 14 (36.84%) 13 (34.21%) Non-significant Positive CAR Significant Positive CAR Negative Abnormal Returns 13 (34.21%) 1 (2.63%) 1 (2.63%) 24 (63.16%) 18 (47.37%) 17 (44.74%) 6 (15.79%) 7 (18.42%) Non-significant Negative CAR Significant Negative CAR Panel D: Hypothesis Four (D-U) 20 (52.63%) Positive Abnormal Returns 361 18 (47.37%) Non-significant Positive CAR Significant Positive CAR Negative Abnormal Returns 17 (44.38%) 2 (5.26%) 3 (7.9%) 18 (47.37%) 16 (42.1%) 14 (36.84%) 2(5.26%) 4 (10.53%) Non-significant Negative CAR Significant Negative CAR Panel E: Hypothesis Five: I-I Positive Abnormal Returns 55 (51.89%) 49 (46.23%) Non-significant Positive CAR Significant Positive CAR Negative Abnormal Returns 6 (5.66%) 51 (48.11%) 49 (46.23%) 37 (34.9%) 18 (16.98%) 43 (40.56%) Non-significant Negative CAR 2 (1.88%) Significant Negative CAR 362 8 (7.55%) Table 2 Test of CAR Significance for Each Portfolio Testing the significance of CARs for each portfolio using t-test. CAR is the standardized cumulative abnormal return for the overall event period of the portfolio. The event period includes the days 1 to 5 of the week during which financial analysts reported at least two recommendations on the same stock. Five portfolios are tested: Upgrades followed by upgrades (U-U), downgrades followed by downgrades (D-D), upgrades followed by downgrades (U-D), downgrades followed by upgrades (D-U), and first time initiated recommendation followed by another initiation (I-I) Daily average abnormal returns are also reported. The sampling period is from January 1998 till August 2000. Day Number (Number of Average Event recommendations posted on Abnormal that day) Returns Panel A; U-U 1 (36) 0.54% 2 (33) 0.49% 3 (47) 3.05% 4 (49) 1.15% 5 (40) 0.15% Panel B; D-D 1 (22) -3.06% 2 (41) -3.02% 3 (33) -3.81% 4 (36) -3.22% 5 (35) -2.16% Panel C; U-D 1 (14_U) 0.89% 2 (7_U, 6_D) 0.50% 3 (11_U, 6_D) 1.73% 4 (8_U, 12_D) -0.95% 5 (18_D) -1.22% Panel D; D-U 1 (15_D) -4.35% 2 (10_D, 6_U) -1.19% 3 (11_D, 8_U) -2.22% 4 (4_D, 13_U) 0.68% 5 (11_U) 1.41% Panel E; I-I 1 (39) -0.32% 2 (54) -0.45% 3 (49) 2.08% 4 (36) 0.68% 5 (41) -0.44% * Significant at the 10 percent level. ** Significant at the 5 percent level. Standardized Abnormal Returns T-Value 1.38490 1.25140 7.86696 2.95899 0.39366 1.38490* 1.25140 7.86696** 2.95899** 0.39366 6.19655** -5.21637 -5.13645 -6.48791 -5.47531 -3.66987 -5.21637** -5.13645** -6.48791** -5.47530** -3.66987** -11.62125** 1.09643 0.62069 2.12827 -1.17163 -1.49951 1.09643 0.62069 2.12826** -1.17163 -1.49951 0.52514 -5.86587 -1.60547 -2.99576 0.91678 1.90663 -5.86587** -1.60547 -2.99576** 0.91678 1.90662* -3.41836** 0.38806 -0.55017 2.51656 0.81691 -0.53391 0.79444 -0.62820 2.29127** 0.80630 -0.49478 1.17950 363 Overall CAR Table 3 Test of Means Equality For the DD – UU Portfolios Testing the equality of standardized abnormal returns means between the Upgrade-Upgrade and the Downgrade-Downgrade for each day of the event period and for the overall event period using t-test assuming independent samples and unequal variances. The sampling period is from January 1998 till August 2000. Event Period # of Obs. Day 1 81 97 -0.7647 0.3349 7.8790 2.2925 -3.1622** 0.0010 Day 2 81 97 -0.9887 0.1958 5.0461 1.6812 -4.1964** 0.0000 Day 3 81 97 -1.0488 1.1854 7.8819 6.9832 -5.4299** 0.0000 Day 4 81 97 -0.8641 0.3549 5.2148 2.9750 -3.9538** 0.0001 Day 5 81 97 -0.6340 0.1976 2.5117 1.7195 -3.7672** 0.0001 Overall Event Period 81 97 -4.3003 2.2686 24.8766 21.9114 -8.9975** 0.0000 * ** Mean Variance Significant at the 10 percent level. Significant at the 5 percent level. 364 T-Value P-Value Table 4 Test of Means Equality For the UD – DU Portfolios Testing the equality of standardized abnormal returns means between the Upgrade-Downgrade and the Downgrade-Upgrade for each day of the event period and for the overall event period using t-test assuming independent samples and unequal variances. The sampling period is from January 1998 till August 2000. Event Period Day 1 # of Obs. 38 38 Mean 0.1213 -1.7666 Variance 1.6510 16.4120 T-Value 2.7384** Day 2 38 38 -0.0457 -0.5789 2.9215 4.6442 1.1951 0.1180 Day 3 38 38 0.5925 -0.7568 5.6151 11.5968 2.0049** 0.0245 Day 4 38 38 -0.2501 0.0559 5.1821 5.86250 -0.5676 0.2860 Day 5 38 38 -0.5392 0.4713 1.7411 2.9680 -2.8706** 0.0027 Overall Event Period 38 38 -0.1211 -2.5751 13.2028 38.8170 2.0974** 0.0201 ** * Significant at the 5 percent level. Significant at the 10 percent level. 365 P-Value 0.0044 INTERNATIONAL IT OUTSOURCING: A COMPARISON OF MALAYSIA AND THE PHILIPPINES J. Mark Munoz Millikin University, USA Dianne H.B. Welsh University of Tampa, USA ABSTRACT Outsourcing of labor, especially in area of Information Technology (IT) sector, has expanded in recent years. This article defines the meaning of outsourcing, and explores the opportunities and challenges to outsourcing in two locations - Malaysia and the Philippines. Both countries are located in Southeast Asia, and are competitors to India's present dominance in the outsourcing arena. This article offers a historical, business, and cultural overview of these two locations and proposes strategic approaches for corporate executives and international entrepreneurs. EXECUTIVE SUMMARY This article examines the opportunities and challenges to outsourcing in Malaysia and the Philippines, with particular application to the Information Technology (IT) area. In relation to the “so what” question, this paper answers the following questions while including practical considerations and examples: 1. How is outsourcing defined and what are factors that influence the process of IT outsourcing in emerging locations ? 2. What are the opportunities and threats to IT outsourcing in emerging locations such as Malaysia and the Philippines? 3. Based on the information available on IT outsourcing, what strategies for success would best be utilized by international outsourcers seeking to develop their businesses in these locations ? Numerous academic and business sources suggest that IT outsourcing is reality now and will continue to expand. This article summarizes the literature in this emerging field and identifies strategic approaches that may be utilized by international entrepreneurs and corporate executives as they attempt to forge business partnerships in emerging locations. Implications for future research are discussed. INTRODUCTION The opportunity for companies to arbitrage resources and competencies has expanded with globalization. According to Thomas Friedman’s (2005) best selling book, The World is Flat, outsourcing is one of the ten forces that have flattened the world, a world that will never be the same. The other forces are the falling of the Berlin Wall, going from a PC-based to an internet-based platform, work flow software, open-sourcing, outsourcing, offshoring, supplychaining, insourcing, in-forming, and the wireless revolution. As Friedman reminds us, we can’t stop our world changing, but we can manage it for the better. In light of these on-going changes to the global business environment, executives have become increasingly aware of the necessity to explore opportunities beyond domestic boundaries. Drezner (2002) defines outsourcing as a process utilized by an enterprise when business- related work functions are subcontracted to a supplier outside the organization. International outsourcing may be described as the subcontracting of business functions to organizations in foreign locations in order to enhance business functionalities. Elmuti & Kathawala (2000) view global outsourcing as a “management strategy by which an organization delegates major, non-core functions to specialized and efficient service providers” and alludes to the 366 changing dynamics in which contemporary organizations manage supporting business activities. Friedman (2005) compares outsourcing to offshoring. Outsourcing is taking a specific, but limited, function that a company was doing in house and having another company do the same thing, while offshoring is moving an entire factory or company to another location. The process of outsourcing typically involves planning, strategic definition, opportunity investigation, supplier selection, contract formulation, implementation, relationship management, and assessment (Green, 1999; Chase, 1998). Logan (2000) pointed out studies suggesting that most companies outsource at least one business function and potentially affect the course of thousands of enterprises. Dana et al (2000) cited the growing trend of multinational companies aligning with smaller firms in order to heighten specialization. In the last five years, this trend has become highly pronounced. While industries outsource a myriad of functions, most entail the utilization of Information Technology (IT) or Information Services (IS). Chen et al (2002) define IT/IS outsourcing as “the practice of turning over part or all of an organization's IT/IS functions to external service providers.” Burr (2002) identifies four types of outsourcing: back office (facilitation of payroll, accounting, finance, tax preparation, auditing, document processing, transcriptions, and data storage), front office (expansion of marketing and customer service through call centers, email and website, operation departments (utilization of procurement, inventory, and supply chain management), and special projects (introduction of software transitions). Outsourcing can also be categorized according to location. CINCOM Online (2004) categorize outsourcing as domestic-located in the country of operation, international– situated in foreign venues, and virtual–comprised of networked agents situated anywhere in the world through various technologies. A number of authors have categorized IT outsourcing by the task performed. For example, Burr (2002) identifies IT outsourcing models as out-tasking–exportation of a task to a foreign country, 7/24-through the linkage of work schedules across time zones, foreign local subsidiary-through the use of supporting tasks in existing operations in a foreign country, and global-work processes that is aligned with a company’s overall global strategy. Others, such as Luftman (1996), classify by scope of function. He identified the functions as ad-hoc, as a supplementary skill to the organization’s staff; selective, utilizing projects in designated areas to supplement existing organizational resources; and full-scale, as a strategic approach through the engagement in a comprehensive alliance. Over time, more avenues for creative inter-organizational collaborations are likely to take place and newer international venues will be explored. These will be further influenced by regional economic integration such as NAFTA, EU, and the Association of Southeast Asian Nations (ASEAN) including countries such as Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. Guerra (2002) observed the growing participation of US firms in offshore outsourcing. Elmuti and Kathawala (2000) noted that while numerous organizations perceive themselves as successful at global outsourcing, there is a need to further comprehend and manage underlying risk factors. This article explores the interplay of factors pertaining to international labor outsourcing, and discusses the potential challenges and opportunities in regard to outsourcing and strategic partnership in locations such as Malaysia and the Philippines. Recommended success strategies are discussed. THE INTERNATIONAL LABOR OUTSOURCING LANDSCAPE The advent of globalization has facilitated the cross-border flow of many types of resources, including human resource services. Coates (2003) observed the expanding business interactions of importers and manufacturers from North America with brokers, agents, and companies in developing nations. Increasingly, financial institutions and service providers are looking at outsourcing as a medium to build competitive strengths, lower costs, enhance profitability, and contribute to global economics (Gnuschke et al, 2004). However, Drezner (2004) pointed out that that tasks such as IT support, accounting and data entry, are easier to outsource overseas than more complex functions, such as marketing and research. Service sector occupations are vulnerable to outsourcing due to minimal 367 face-to-face customer interactions, large web-enabled information bases, significant cross-border wage differences, and are relatively easier to set up (Harrison, 2004). The growing interest on the utilization of labor in foreign locations may be attributed to several factors. These factors may be described as either proactive or reactive. Proactive factors refer to an organization’s utilization of international outsourcing as a medium to build strengths or tap into opportunities. These factors include market internationalization (Elmuti et al, 1998; Rao, 2004), growing availability and demand for competent yet affordable talent (Greenemeier, 2002), gained cost and time advantages (Jeffay, Bohannon, & Laspisa, 1997), reliability of communication technology and enhanced project management abilities (King, 1999; Rao, 2004), availability of software tools, platforms, and systems (Webster et al, 2000), confluence of the telecommunication and computing sectors that strengthened web and software applications (Currie, 2003), standardization of business tasks (Drezner, 2004), acceleration of IT innovation (Mitchell, 2004), globalization and trade liberalization in emerging locations (Rao, 2004), improved operational efficiencies and capture globalization advantages (Karklins, 2003), productivity improvement (Kulmala et al, 2002), better staff management and strategic focus (Leung, 2003), mutuality of trade benefits to participating parties (Glassman, 2004), and enhanced competitive advantage and core competencies (Griswold, 2004). Reactive factors refer to an organization’s use of international outsourcing as a strategic approach to respond to business or economic threats and challenges. These factors include: focus on key core functions (Smith, 1991); skills shortages, visa caps and rising labor costs (King, 1999); downsizing, restructuring, and industry decline (Greer, Youngblood, & Gray,1999); adjustment to the deflation of technological spending (Dolan & Meredith, 2004); costcutting pressures (Rao, 2004); response to competition and market forces (Kulmala et al, 2002); and international competition and survival strategies (Harrison, 2004). Supporters of the outsourcing phenomena pointed out to several economic benefits of outsourcing. The positive factors include: economic improvement in developing locations (Ellis, 2004), building of foreign-based skills and infrastructure (Harrison, 2004), consumer and taxpayer benefits derived from service enhancement and affordability (Griswold, 2000), trade benefits (Kleinert, 2003; Glassman, 2004), improved wage rates and trade union benefits (Shaksen, 2004), improved employment levels in developed economies (The Economist, 2004), gateway to privatization (Prager, 1997), and demonstrated profitability in certain manufacturing sectors (Harrison, 2004). While there are numerous benefits ascribed to outsourcing, negative economic implications have also been cited. These include job drain (Dolan & Meredith, 2004), reduced employment levels and aggregate welfare (Shaksen, 2004), changes in the pattern of employment (The Economist, 2004), detrimental effects on owners of capital (Shaksen, 2004), increased insecurity (Ellis, 2004), and reduction of skills and infrastructure in the home country (Harrison, 2004). Kotabe and Murray (2004) pointed out that the formulation of an outsourcing strategy has been one of the most debated management trends in the last 20 years and that there is no established consensus on the actual end effect of outsourcing. Andersen and Chao (2003) attribute the increased frequency and number of outsourcers as a response to the increasingly competitive global environment. One out of every 10 jobs within US-based IT vendors and IT service providers will move to emerging markets (Gartner, 2003A), while a related study suggested that 80 percent of all U.S. companies will be considering outsourcing as a strategic option in 2004 (Gartner, 2003B). Fisher (2004) estimated that at least 23 percent of IT jobs in the US will gravitate overseas by 2007. Grimm (2004) alluded to a 2003 Forrester Research forecast that approximately 3.3 million technology services jobs, amounting to $136 billion, will move overseas from the United States. In another Forrester Research study, Bartels et al. (2004) indicated that "offshore outsourcing is real and growing and will hold down US IT job growth and salaries." Overseas outsourcing has been widely discussed in the media and has precipitated calls for protectionism. The trend towards outsourcing could be part of the evolutionary process of contemporary business. Recognized author and former MIT Sloan Professor Michael Treacy believes outsourcing is an adaptation phase towards the creation of more efficient business models, adjustments to inherent organizational weaknesses, and in uncovering better opportunities (Gibson, 2004). This scenario has reshaped organizational management and strategic interorganizational interactions as well as spearheading the trend towards “worldsourcing” (Ellis, 2004; Pollalis, 2003). 368 As more companies explore outsourcing around the world, a heightened awareness and sensitivity to international markets is necessary. For instance, Kotabe and Murray (2004) pointed out that exchange rate instability has posed challenges to internationally dispersed operations. There is an understandably greater need to understand the modalities of business in emerging locations (Ramamurti, 2004; Welsh & Alon, 2000; Alon & Welsh, 2001). Malaysia and the Philippines are both growingly important outsourcing destinations. A Columbia University study (Bajpai et al, 2004) depicted Malaysia as an important destination for the offshoring of IT services due to the following : 1) low cost and quality of labor force, 2) good infrastructure, 3) high government support of the industry, and 4) government investment of US$10B in high tech parks. The same study found the Philippines was ranked as the second largest outsourcing recipient, absorbing almost 30% of the market, with 130,000 locals engaged in call centers and back office operations. Business, Economic, and Cultural Comparison of Malaysia and the Philippines Malaysia and the Philippines are ranked among the most attractive IT outsourcing destinations in the world. (A.T. Kearney, 2004). The ranking was based on quality measures such as IT and management education, language skills, intellectual property, and country and political risk. In Malaysia, there are approximately 3,000 natural science and engineering graduates annually from Malaysian institutions, and the average employee salary in the country is moderately low at US$7, 2000 per year (Bajpai et al, 2004). A.T. Kearney (2004) cited Malaysia's well-developed, low cost infrastructure, and a supportive government as the country's competitive strengths as an outsourcing destination. Global companies such as Motorolla, Ericsson, IBM, Shell, and BMW have already established offshore service centers in the Malaysian city of Cyberjaya. In the case of the Philippines, DiCarlo (2003b) depicted the country as competent and compatible, with close cultural relationship with the US, and work force efficiencies in accounting and customer service; moderate salary ranges from $3,000-$10,000 annually among back office and technical employee; possessing a relatively limited technological pool with about 380,000 graduates annually but with only 15,000 pursuing technology degrees; a relatively supportive government offering tax exemptions in export taxes, and fees, dues, and licenses for ventures situated in technological parks; developing with technological park expansions in the past 13 years; existing inherent specializations attributable to technological strengths anchored in accounting, finance, call centers, animation, and human resources; competitive in the league of Russia, China, Canada, Mexico, and Ireland ; and possessing international patrons with the presence of major US firms, such as Procter & Gamble, AIG, and Citigroup. A.T. Kearney (2004) pointed out the existence of an experienced and affordable labor pool, cost structure, and personnel competencies as drivers to the location’s appeal as an outsourcing destination. Cursory knowledge of the business landscape of the country is often inadequate in determining its suitability as an outsourcing destination. Emerging locations provide huge opportunities and numerous risks (Coates, 2003). Wallace (1998) cautioned against outsourcing with inadequate information. Underlying factors shaping the Malaysian culture and operational environment warrants further examination. HISTORICAL Malaysia and the Philippines both have a unique history. Malaysia has been a former colony of Great Britain and has also been occupied by Japan from 1942-1945. It has gained its independence in 1957. (CIA World Factbook, 2005).In recent years, Malaysia has aggressively transformed its economy from one that has been reliant on rubber and tin to one that is highly diversified and expanding at the rate of about 8% per year. The country is currently a leading exporter of products such as semiconductor devices, electrical goods, high tech products, and software among others. Malaysia is the United States' 10th largest trading partner and 16th largest export destination, with bilateral trade amounting to $39.1B (US Department of State, 2005). 369 The Philippines on the other hand has a long tradition of trading with the US. The United States has traditionally been the Philippines' largest foreign investor, with about $3.3 billion in estimated investment as of end of 2002 comprising 22 percent of the Philippines' foreign direct investment stock (US Department of State, 2001). Approximately 90 percent of the outsourcing contracts in the Philippines come from the United States (Daily Times, 2004). The country has had a long history of political, cultural and business affiliation with the United States and is presently a key ally in the war against terrorism. Since the late 1980s, the Philippine government has begun the process of privatization (Santos, 1995). In the 1990s, there was expansion of infrastructure projects participated by foreign companies, and export-processing zones grown in numbers spreading out growth centers across the country. As the country headed for a potential economic growth, the Asian Crisis occurred in 1997and derailed economic growth and industrial expansion (Sison, 2003). BUSINESS AND ECONOMIC In the case of Malaysia, growth in the country is driven primarily by the export of electronic products. Due to the Information Technology (IT) global downturn in 2001 and 2002, the Malaysian economy contracted. However, with a fiscal stimulus package amounting to US$1.9 B the economy subsequently recovered and has started to post significant growth. (CIA World Factbook, 2005). The country's economic strength lies on the fact that it has adequate foreign exchange reserves, low inflation, and relatively small external debt. Its weaknesses lie on some level of political risk and its economic dependence on countries such as US, China, and Japan for exports and foreign direct investment. Malaysia strongly encourages Foreign Direct Investment (FDI). The government has allowed the influx of US$263 in investments from US manufacturing companies in 2004. (US Department of State, 2005). The Malaysian government is also taking an extra effort to improve its economic stability and enhance infrastructure. In 2005, the government modified its monetary system to one that is a managed float and benchmarked against a basket of different currencies. In recent years, the government had started to build a Multimedia Super Corridor project, and developed "intelligent cities" in locations such as Cyberjaya and Putrajaya (A.T. Kearney, 2004). Economic forecasts predict that in the near term there shall be a gradual increase in consumer price inflation, moderate increases in interest rates, and the possible appreciation of the local currency, the ringgit. (Economist, 2005). In the case of the Philippines, the contemporary business environment in the country has demonstrated resiliency and promise. The country’s infrastructure is comparable to major developing locations in Asia. A survey conducted by the Asia Pacific Management Forum (2003) ranked Manila, as the third best city for business in Asia. Manila ranked higher than Hong Kong, Singapore, Jakarta (Indonesia), Tokyo (Japan), Sydney (Australia), and Shanghai (China). The Philippines offers a large pool of workers. The Philippine Board of Investment (2004) show a literacy rate of 94.6% and a labor force of close to 70 million, with 53% engaged in the service sector. The country is known to be the third largest English-speaking nation in the world. However, the country’s financial position and spending power has declined in recent years. Since 1992, the value of the Philippine peso has diminished in value by over 100% measured against the US dollar (Banco Central ng Pilipinas, 2004). DiCarlo (2003a) identified other challenges in the Philippine landscape as economic constraints, significant socio-political risks due to law and order concerns as well as reported cases of bribery, and needing sustained efforts to build credibility. A further comparison of both countries may be viewed in Table 1. 370 Table 1 Country Comparison – Malaysia and Philippines (CIA World Factbook, 2004) Dimension Location Area Population Age Structure Median Age Ethnic groups Religion Languages Literacy Government type Capital Legal System GDP GDP real growth rate GDP per capita Inflation rate Labor force Labor force – by occupation Unemployment Currency Exchange rate Telephones Mobile phones Internet hosts Internet users Malaysia Southeast Asia 329,750 sq.km. 23, 953, 136 62.4% in the 15-64 age range 23.92 Majority Malay (50.4%), Chinese (23.7%) Predominantly Muslim, Buddhist, Daoist, Hindu Bahasa Melayu, also English and Chinese 88.7% Constitutional Monarchy Kuala Lumpur English common law Philippines Southeast Asia 300,000 sq. km. 86,241,697 60% in the 15-64 age range 22.1 Majority Christian Malay, 3 others Mostly Roman Catholics, 4 others Filipino, English, and 8 dialects 92.6% Republic Manila Based on Spanish and AngloAmerican law $229.3 billion 390.7 billion 7.1% 4.5% $9,700 $4,600 1.3% 3.1% 10.49 million 34.56 million Agriculture - 14.5%, industry Agriculture – 45%, industry – 15%, 36%, services - 49.5% and services – 40% 3% 11.6% Malaysian ringgit Philippine peso 3.8 to 1 US$ 54.2 to 1 US$ 4.5 million 3.3 million 11 million 15 million 107,971 38,440 8.7 million 3.5 million Source : CIA World Factbook (2004) CULTURAL Both countries have their own distinct cultural characteristics and attributes. In the Malaysian culture "losing face" by losing control of one's emotion in public is perceived negatively. As a high context culture, meaning is more explicit and less direct than other cultures. With religious values anchored on Hinduism, Buddhism, and Islam there is a high predisposition towards fatalism (Communicaid, 2005). When doing business in Malaysia it is important to consider the following : 1) relationship building, 2) politeness, 3) patience, 4) respect for elders, and 5) long-term orientation. (Executive Planet, 2005). The Philippine culture reflects a convergence of Asian and Western influences. Mendoza (2001) depicted the Philippine cultural frame as a confluence of Malay, Spanish, and American cultures. The Philippine society has been described as being spatial (rural and urban, with a multitude of regional and ethnic groups), temporal (historical diversity), multi-lingual (111 dialects), multi-ethnic (Malay, Chinese, Spanish, American), multi-religion (Roman Catholic, Moslems, Protestants, Buddhists, and traditional beliefs), geographically fragmented (7,107 islands), and culturally young as a sovereign nation (100 years old in 1998) (Sison, 2003). Management in the Philippines has its 371 own unique blend of characteristics. Henderson (1999) characterized the key attributes of Philippine management as formal, punctual, relaxed, sensitive, paternalistic, closely knit, loyal, harmonistic, trustworthy, indirect, and elusive. Filipinos are known to leave projects uncompleted (ningas cogon). International outsourcers are encouraged to avoid shaming employees in front of a group (Talisayon, 1990), nurturing an employee’s desire to learn and work hard (Lynch, 1992), providing for a sense of importance, respect, and dignity (Andres, 1999), highly regarding family relationships (Andres & Andres, 2001; Bulatao, 1992), insuring financial security (Andres, 1999), nurturing creativity and innovation through improvisation, and encouraging optimism, a natural tendency by Filipinos (Dumlao, 2003). IT OUTSOURCING STRENGTHS AND WEAKNESSES: MALAYSIA VS PHILIPPINES In selecting an optimal venue for potential outsourcers, the strengths and weaknesses of each location need to be considered. An outsourcing SWOT analysis is offered in Table 2. Table 2 IT Outsourcing SWOT Analysis on Malaysia and the Philippines Dimension Strengths Weaknesses Opportunities Threats Malaysia Philippines Low cost, favorable business Low cost, human resource skills environment, global exposure of and competencies, English workforce language competencies Small country with a total Infrastructure challenges in population of about 22 million, certain locations Presence of Motorola, Ericsson, Relatively large number of IT IBM, Shell, DHL, HSBC, and graduates, expertise in call center BMW ; government support for operations, presence of Information and Communications international service providers Technology (ICT), government such as Sykes, Convergys, and investment in infrastructure in ICT Group, government sees locations such as Cyberjaya, need for change and improvement Putrajaya, and Multi Media Super and offers tax benefits and other Corridor Project ; local company advantages Scicom is expanding internationally Challenges with regard to scale, Competition in terms of local piracy issues players such as SPI Tech, American Data Exchange, and Innodata, some political and economic risks Source : AT Kearney (2004) ANALYSIS OF CHALLENGES AND OPPORTUNITIES OF OUTSOURCING In order to understand these intricacies, potential obstacles and benefits are explored in the context of outsourcing in foreign locations. For instance, Rao (2004) cited the need to continuously educate international IT project managers to deal with operational issues that commonly arise in other countries. 372 OPPORTUNITIES There are obvious economic benefits both for businesses and the economy that are derived from outsourcing. Outsourcing particularly aids economies in cases where the savings to consumers exceed the lost wages (Evans, 2004). Read (2002) pointed out that call center operators can save up to 20-40 percent in emerging economies, such as Malaysia and the Philippines. Outsourcing has the potential of reducing the cost of IT and related services by as much as 60 percent (Griswold, 2004). In addition to financial benefits, outsourcing offers strategic value for companies by capitalizing on lower wages and turnover (Munro, 2004; Rabinovich et al, 1999; Read, 2002; Tusa et al, 2004;); obtaining skilled labor and expertise (Bansal, 2002; Cohn, 2003); addressing human resource shortages (Clark, 1998); improving customer service (Rabinovich et al, 1999); expanding markets (Lacity, et al., 1997); managing the complexity of select initiatives (Chase, 1998; Weiss, 2002); gaining competitive advantage (Elmuti et al, 1998; Griswold, 2004); gaining efficiencies in the utilization of IT tools to heighten responsiveness (Chan & Chung, 2002); obtaining reasonable real estate rates (Bansal, 2002); facilitating joint venture formations (Chen et al, 2002); avoiding complex issues such as site selection, legal and regulatory matters (Read, 2002), attaining operational flexibility (Blaxill & Hout, 1991; Steenhuis & de Boer, 2003Wild et. al, 1999;), expanding the market niche (Tusa et al, 2004), tapping into cost variability (Tusa et al, 2004); adapting to globalization (Karklins, 2003); operating on a limited budget (Cohn, 2003); establishing value added partnerships that provide experience and capital (Karklins, 2003); improving profitability and increasing the rate of innovation, while gaining favorable tax structure and incentives (Glass & Saggi, 2001); enhancing control and operational discipline (Economist, 2003), providing value to shareholders (Griswold, 2004); and building efficiencies in economies of scale, scope, and application (Currie, 2003). Several factors facilitate the process of international outsourcing. Munro (2004) attributed the availability of technologies and market integration as accelerators of outsourcing to foreign markets, while Glass & Saggi (2001) cited lower technological adaptation cost and resource requirements as key drivers to the process. US and European companies view outsourcing as an integral component to business expansion, and products or services that are unprofitable in industrial locations would gravitate to lower cost locations (Bardhan & Kroll, 2003; Kakabadse & Kakabadse, 2002; Ellis, 2004). Infrastructure is an important consideration in the outsourcing arrangement (Jennex & Adelakun, 2003). The Economist (2003) pointed out that the majority of outsourced jobs are those that are digitalized, and capitalize on telecommunication efficiencies from international venues. There is the need for potential outsourcers to assess vision and organizational compatibilities with companies in foreign locations. Operational adjustments are likely necessary and one location may provide more optimum benefits than another. For instance, Malaysia has over 4 million telephone lines, 11 million mobile phone subscribers, 107,971 internet hosts, and 8.6 million internet users (CIA World Fact Book, 2005). Malaysia's Super Corridor project is envisioned to be Asia's version of Silicon Valley. (US Department of State, 2005). It has already attracted companies such as IBM, Computer Sciences Corp., Electronic Data Systems and led to the establishment of IT and shared services operations (Collet, 2003). The Philippines, on the other hand, has over 3 million telephone lines, 15 million mobile phone subscribers, 38,440 internet hosts, and 3.5 million internet users (CIA World Fact Book, 2004). International companies such as Sykes, Convergys, Accenture, Chevron-Texaco, Time Warner, and Procter & Gamble as well as local companies, eTelecare, People Support, Source One, SPI Technologies, American Data Exchange, and Innodata, are examples of companies that heavily utilize these services. An international outsourcer that favors a larger network of existing internet hosts and users may find Malaysia more attractive. In addition, assessing vision and organizational compatibilities with the selected local company allows the outsourcer to identify and build on mutual business synergies. 373 Challenges Business expansion in emerging markets, like Malaysia and the Philippines, present several challenges to outsourcers. Potential difficulties when outsourcing internationally include cross-border communication and cultural barriers (Schwartz, 2004; The Economist, 2003; Krishna et al, 2004), language issues (Bryan, 2003; Rao, 2004), vision and strategy decisions (Chan & Pollard, 2003), financial challenges through erroneous resource allocation and expectations (Londe, 2004; McClelland, 2003), appropriate leadership and management (Chan & Pollard, 2003 ; Krishna et al, 2004), poor relationship and conflicts (Logan, 2000; David & Allgood, 2002; McClelland, 2003), need for constant monitoring (Guterl, 1996), loss of control (Byham & Riddle, 1999), infrastructure challenges (Chan & Pollard, 2003; Rao, 2004), disparity of productivity across organizations (Grossman & Helpman, 2004), lack of patience (Horwitt, 1999), disparity of systems and procedures (Krishna et al, 2004; Bryan, 2003), imitation from competitors and intellectual property theft (Chung et al, 2004 ; Verton, 2004), morale issues (Kessler et al, 1999), political and legal conflicts (Bryan, 2003; Horwitt, 1999), failure to see a broader perspective (Love et al, 2003), lack of standards and strategy (Hartman et al, 2003; Yongmin & Ishikawa, 2004), hidden costs and potential cost increases due to transportation, custom duties and tariffs, taxation and handling expenses (Hannon, 2003; Londe, 2004; Ramarapu et al, 1997; van Beesten, 2002;), strikes and work stoppages (Ramarapu et al., 1997), inflexibility of costs (Lowson, 2002), concern about terrorism and security issues (Gallagher, 2002; Rao, 2004), country disparities in approaches to value-added tax (VAT) (Knowles, 2002), ineffective contract that does not enforce discipline (McClaren, 1999), over-promising supplier (Kern et al, 2002), rigid contracts that prevent innovation (McClaren, 1999), lack of understanding of objectives, performance analysis, monitoring (Green, 1999), inability to respond to increasing complexities requiring expertise and diplomacy (Horwitt, 1999), misalignment of attitudes and strategy (Garner, 1998), and challenges in market and supplier proximity (Bryan, 2003). Understanding business inhibitors in the outsourcing location can help avert future challenges. In Malaysia, outsourcing challenges may include cross-cultural conflicts and miscommunication, political and economic instability, legal barriers, disparity in contract expectations, and poor partner selection. Specifically in the IT realm, Malaysia has a relatively small workforce compared to China and India. In addition, it lacks skilled IT workers and programmers, and needs a more intense global marketing for the region. (Collet, 2003). In the Philippines, outsourcing challenges may include cross-cultural conflicts and miscommunication, political and economic instability, legal barriers, disparity in contract expectations, and poor partner selection. Specifically in the IT realm, the Philippines has low visibility as an offshore contender, lacks experienced operation managers, experiences high labor migration, and has a workforce that possess low globalization skills (Leung, 2003). There is also a need to further upgrade technical skills of the workforce, increase government developmental efforts, and broaden the usage of industry certifications (Nyberg, 2003; Offshore IT Outsourcing, 2004). STRATEGIES FOR OUTSOURCING IN MALAYSIA AND THE PHILIPPINES Viable approaches for international entrepreneurs and corporate executives seeking to forge a partnership or develop an IT outsourcing business in Malaysia and the Philippines include the following: Establish a clear vision. Understanding the goals of the outsourcing organization and its corporate direction is an important consideration. Telecommunication companies, in particular, need to identify core competencies (Tusa et al, 2004). Goal assessment, organizational culture understanding, and assessments on the impact of international outsourcing on the future agenda and product lifecycles are important (Pedersen, 2004). Location and function selectivity. The location should provide key advantages that are in line with the outsourcers’ objectives. Dryden (1998) and Schwaninger & Warsop (1999) highlighted the value of selectivity in the context of infrastructure and ease of integration with the systems used in the corporate headquarters while pre-selecting tasks. 374 For instance, Malaysian workers are said to possess a high level of globalization skills. Philippine workers on the other hand are said to possess technological strengths in the areas of accounting, finance, human resources, call centers, animation, and application development are prevalent in the Philippines (DiCarlo, 2003b; Leung, 2003). Method of implementation. Experts recommend careful measurement of the selected approach on competitiveness, timing, and suitability; the use of external providers to reduce cost, to exercise caution with experimental approaches, the use of project control, and to implement a well-developed information and material flow system. (Baines & Kay, 2002; Michalak, 2001; Perkins, 2003; Rabinovich et al, 1999). Partnership Selection. Outsourcing can be viewed as a convergence of two companies in the process of building a common culture (Garner, 1998). Issues that should be considered application suitability (industry focus, established record, size, competency adaptability, communication systems), project management capability, timing, staff efficiencies, mutually agreed upon fair and equitable agreement with deliverables explicated, among others (Caputo & Zirpoli, 2002; Clark, 1998; Davey & Allgood, 2002; Elmuti et al, 1998; Jain & Song, 2002; Kakabadse & Kakabadse, 2002). Strategic Integration. The ability of two business organizations to blend operations across borders is critical to the success and sustainability of the outsourcing process. Benefits associated with strategic outsourcing include: value creation, lower net costs, competitive merits, enhanced business performance, a holistic perspective, and broadened perspectives, networks, and linkages (Chan & Chung, 2002; Chen & Ishikawa, 2004; Choi & Davidson, 2004; Karklins, 2003; Love et al, 2003; Pollalis, 2003). Prepare for Business Variances. Organizations across borders differ in objectives, perspectives, and infrastructure. Thorough planning for risk variables contributes to successful implementation so the role of management becomes critical (Boyson et al, 1999; Crowley, 1999). In Chinese organizations, quality, speed, and reliability among suppliers vary extensively (Murphy, 2004). This scenario is similar in both Malaysia and the Philippines. Anticipating and planning for these differences ahead of time through project management assessments can prevent future problems (Boyson et al, 1999; Currie, 2003). The value of establishing a shared philosophy and common commitment in developing a sustainable cross-border relationship through cultural training is integral (Sullivan & Tu, 1995; Vavrek, 2002). Develop creative alliances. Drawing support from the local government and academic institutions can be beneficial to international outsourcers (Grieves, 2002; Luo, 2002). Greenemeier (2002) observed the positive impact of government and academic support to outsourcing activities in India. Chung et al (2004) noted the merits of introducing new and transformational models in global sourcing. The Malaysian government is implementing creative strategies to promote e-commerce and has established "smart schools" equipped to train a large IT workforce (Collet, 2003). The Philippine government has also been supportive of outsourcing efforts and is aware of the need to strengthen its business environment so there is encouragement to pursue these alliances (DiCarlo, 2003b; Kearney, 2004). Sensitivity to the International Market. In doing business in an international environment, an outsourcer is exposed to influencing factors that are in constant flux and must be sensitive to these dynamics. Steenhuis & de Boer (2003) highlighted the relevance of a country’s existing infrastructure in the process of technology transfers. Coates (2003) cited the need for political risk and foreign exchange risk assessments, while Michalak (2001) stressed the importance of accurate information in the outsourcing decision. Elmuti & Kathawala (2000) emphasized the value of risk assessment and management for global outsourcers. International outsourcers need to be aware of the changing business dynamics in locations such as Malaysia and the Philippines. Attention to Cost Factors. Numerous factors have the potential of affecting cost advantages. Trunick (2004) suggests that logistic factors, product content, security issues, contingencies, and costs should be reviewed (Lowson, 2002; Trunick, 2004). Malaysia is an attractive offshore destination due to its low cost, good infrastructure, global exposure of the workforce, and favorable business environment (A.T. Kearney, 2004). The Philippines is attractive due to relatively low wages (DiCarlo, 2003b), tax holidays and investment benefits (Kearney, 2004), and cheaper 375 office rent, three-minute international phone calls, and lower social security fees compared to other major outsourcing cities, such as Beijing (DiCarlo, 2003b; Kearney, 2004; Sunstar Daily, 2004). Utilization of Contracts. Developing a suitable contract facilitates the outsourcing process. Kern et al (2002) and Horwitt (1999) caution against the possibility of over-promising by suppliers and recommends a thorough evaluation of the contract dynamics. There should be an emphasis on the relationship in contract development by looking at the contract from both sides and by fostering trust and commitment between the parties involved, a particularly important aspect in Malaysia and the Philippines (Logan, 2000; Moore, 1998). Assessments and Benchmarking. Outsourcing in the telecommunications industry requires performance analysis, benchmarking, forecasting, and joint development decisions with the outsourcing partner (Gooley, 1994; Green, 1999). Companies in Malaysia and the Philippines are competent and experienced with good language skills to be excellent partners in this regard. IMPLICATIONS TO BUSINESS This article answers the question of making a difference by bringing together real world research on a major topic affecting economic development in Asia and in the US. As Friedman (2005) concludes in The World is Flat, if companies or countries wall off each other in the quest for economic security, disaster is imminent. Business executives and policy makers have to nurture and facilitate innovation and knowledge centers in order to be competitive in this ever-changing global environment. This paper explores the issues surrounding outsourcing in emerging locations such as Malaysia and the Philippines. CONCLUSION Outsourcing around the globe is predicted to continue to further expand and competition among countries will intensify (A.T. Kearney, 2004; Rao, 2004). The Malaysian and Philippine governments need to continue to focus on business and economic issues to enhance the country’s global image. Both countries' strong political, cultural, and business affiliation with the U.S. facilitates the development of strategic partnerships. However, outsourcers and those seeking to develop strategic alliances need to be cognizant of the changing business dynamics that require strategic adaptation in these emerging locations. 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Journal of International Economics, 63(2), 419-436. 382 A REVIEW OF THE ASSUMPTIONS OF STRATEGIC DECISION-MAKING THEORIES FROM AN ISLAMIC PERSPECTIVE Marwan N. Al Qur’an Curtin University of Technology, Australia ABSTRACT Islam is acknowledged among Muslims not merely as a way of worship but also as a comprehensive integrated life system which contains and treats all aspects and specifics of human life from birth to death. The significance of Islam among academics in business and economics is evident; however, the issue of evaluating strategic decision-making theories from an Islamic perspective was not addressed in the existing body of knowledge. Therefore, this conceptual and analytical paper attempts to highlight the importance of Islam to management science by reviewing and analyzing the assumptions of the most dominant theoretical premises to making strategic decisions within the Islamic context. As a result, this paper represents a preparatory point for future research in the area of managerial decisionmaking from an Islamic standpoint. INTRODUCTION The decision-making behaviour has important consequences on the quality of our life in general and on the success or failure of business organizations in particular (Hale & Whitlam 1997). In the organization context, decision-making is unquestionably the most important activity in all organizations regardless of their types (Harrison, 1999) and decisions vary in their importance and become more vital, complex and, therefore, strategic when their outcomes are critical and have a direct effect on the organization’s success or failure (Bass, 1983; Harrison, 1992; Harrison and Pelletier, 1998; Johnson and Scholes, 2002). Furthermore, organizational strategy researchers have argued that our academic understanding of managerial decisionmaking is still incomplete (Jennings and Wattam, 1994; Kleindorfer, Kunereuther and Schoemaker, 1993) and strategic decisions generally have significant impact on the firm performance (Fredrickson, 1985). Hence, that gives a significant indication and growing interest towards providing more insight into understanding decision-making behaviour. Islam is acknowledged among Muslims not merely as a way of worshiping Allah (God) but also as a comprehensive integrated life system which contains and treats all aspects and specifics of human life from birth to death (Athar, 2005). In point of fact, various contemporary scientific discoveries relating to natural sciences confirm the revelation in the Noble Qur’an which is regarded as a complete book revealed from God to Prophet Muhammad, Peace upon him (Mir, 2004). Similarly, the Qur’an contains rich information and knowledge about other important aspects of knowledge such as business and economics. Therefore, it is unsurprisingly that many business scholars in the general field of business have turned to examine various streams of this field from an Islamic perspective (e.g., AlBuraey, 1985; El-Ashker, 1987; Hamwi and Aylward, 1999; Kahf, 2000; Mannan, 1970; Mills and Presley, 1999; Sulaiman, 2001; Wilson, 1999). The main purpose of this conceptual and analytical paper is to review and analyze assumptions and, consequently, the appropriateness of the most dominant strategic decision-making theories within the Islamic context and perspective. The paper begins with discussing the assumptions of the rational choice and bounded rational theories. Next, the issue of how Islam perceives these assumptions is underlined. Finally, concluding remarks about the importance of Islam as a main source of knowledge as well as the appropriateness of the former decision theories within the Islamic perspective is provided. 383 THEORETICAL APPROACHES TO MAKING STRATEGIC DECISIONS The extant body of literature on organizational or managerial decision-making has concentrated on two dominant decision theories; i.e., the rational choice and the bounded rational positions. The rational choice or economic decision theory is known also in the literature by other various terms such as normative, rational action, classical, economic, maximizing approach, classical economic theory, perspective, rational decision theory, theory of profit and utility maximization and purposive actor theory. Likewise, the bounded rational theory has other names such as behavioural decision theory, descriptive, satisficing approach and satisfying behaviour theory. More specifically, in the context of strategic decision-making, the rational choice decision theory is widely known as maximizing behaviour, while the bounded rational decision theory is recognized as satisficing behaviour (Harrison and Pelletier, 1997). The assumptions of each theory are discussed in detail in the next sub-headings. The Rational Choice Theory The rational choice or economic decision theory is the first decision theory to be introduced in the decision-making literature and it is described as the quantitative method of decision-making (Harrsion, 1993; LIori and Irefin, 1997). The foundations of the rational choice theory go back to the intensive work on the mathematical theory of ‘games of strategy’ originally developed by Von Neumann and Morgenstern (1953) and continued by Luce and Raiffa (1957). According to Straffin (1993) game theory is the rational analysis of situations of conflict and cooperation. A game is viewed to be any situation which meets four requirements. At first, there are at least two players and a player may be an individual or company, a nation, or even a biological species. Secondly, each player has a number of possible strategies and courses of action. Thirdly, the outcome of the game will be determined by the strategies selected by each player. Finally, numerical payoffs are assigned to each possible outcome of the game, one to each player. These payoffs represent the value of the outcome to the different players. In line with Von Neumann and Morgenstern (1953) and Luce and Raiffa (1957) the theory of games relies on several assumptions. First, it is assumed that the possible outcomes of any given situation are well-identified and each individual has a consistent pattern of action and preference among them; these can be represented numerically by utility functions. Based on the utility functions, it is assumed that the player selects the lottery with the largest utility. Put another way, an individual prefers the outcome with highest utility or payoff. Second, it is also assumed that the variables that control possible outcomes are well identified; that is, all the variables and the values of given alternatives can be identified precisely. As a result, game theory assumes that game players are rational in their decision-making and may be relevant to decision-making in organizations. Likewise, each player knows the preference pattern of the other players and strives to maximize his utility or payoff. According to Allison (1971), the rational decision model implies that the decision-maker thoughtfully defines the problem and determines one’s own preferences as represented in numerical terms of the value of payoff or utility of a given set of alternatives. Another assumption is that the decision-maker gathers information about the specified alternative courses of actions, considers the possible outcomes of each alternative, determines the relative likelihood of occurrences, evaluates and ranks all outcomes according to the predetermined preferences and, finally, selects the optimal alternative which has the maximized payoff. The assumptions and ideologies of the economic rationalist have received great acceptance among the managers in business organizations, wherein their main goals are profits, sales and growth in resources (Kaufman, 1990). Levin and Kirkpatrick (1975) claim that the rational decision approach is appropriate when the problem situation is new and complex and managers have no prior experience to rely on. Thus, it is unlikely they can reach a good solution without the assistance of a quantitative analysis such as provided by the rational model. However, experienced organizational strategy scholars argue that the rational decision model is more suitable when the problem is repetitive, well-defined and made under certainty (Cyert, Simon and Trwo, 1956). Bounded Rational Theory In spite of the fact that the rational choice decision approach is fundamental to several economic models and theories, organization behaviour scholars and, particularly, in the field of strategic decision-making have not acknowledged this approach as an appropriate mode to decision-making (Eisenhardt and Zbaracki, 1992). 384 The organizational theorists have criticized and challenged the assumptions of the economic rational school from different angles. Consequently, that has led to the emergence of the bounded rational or behavioural decision school. Cyert and his associates (Cyert, Simon and Trwo, 1956) criticized the economic rational decision model and identified other important components that are missing from the economic rational model. In fact, Cyert, Simon and Trwo (1956) required four elements to be incorporated into that model. Initially, alternatives are not generally ‘given’, but should be researched; hence, it is essential to include the search for alternatives as an important part of the process. Secondly, information as to what consequences are attached to each alternative; which they are rarely ‘given’, the search for consequences is an important segment of the decision-making task. Thirdly, evaluation for alternatives is not usually made in terms of one clear, single, criterion such as profit; thus, other intangible criteria also need to be considered. Making an evaluation based only on profit is difficult, if not impossible. Instead of searching for the ‘best’ alternative, the decision maker is usually concerned with finding a satisfactory alternativeone that will achieve a specified goal and at the same time satisfy a number of assisting conditions. As a final point, in the real world, it is hard to recognize that the problem itself is ‘given’ and well-defined; thus, exploring significant problems that organization should consider is an important organization’s task. Furthermore, Simon (1955; 1957a) avers that the rational decision approach requires a complete knowledge and expectation of the consequences while, in reality, knowledge of consequences is always fragmentary. Likewise, in real decisionmaking behaviour not all alternatives are known and specified as assumed by the rationalist. However, only a few possible alternatives come to mind. Moreover, the classical criterion of rationality suggested by the rational decision model is not applicable to situations which involve uncertainty (Simon, 1957b). These perceptions have led to the concept of bounded rationality or satisficing approach, proposed by Hebert Simon (March and Simon, 1958; Simon, 1957b) which represents the heart of the behavioural decision theory. Simon’s bounded rationality approach (Simon, 1957b) assumes that the capacity of human sense for creating and solving complex problems is very limited compared with the size of the problems that require objective rational behaviour to reach solutions. Therefore, decision-makers often lack complete information about the problem situation, the relevant criteria and the system of preferences. Time, cost and cognitive limitations hamper the decision-makers’ efforts accurately to estimate the optimal choice from the available information. Often, these limitations do not allow decision-makers to reach the best or optimal decisions assumed in the rational decision model. In their recent book ‘Economics, bounded rationality and the cognitive revolution’ (Simon et al., 1992), Simon and his colleagues explained the concept of the bounded rationality as it does not mean that human behaviour is intentionally irrational despite that it is sometimes; rather it is not based on a complete knowledge and humans statistically are not capable of choosing the optimal alternative with maximized payoff or utility. In effect, they select a satisfying choice rather than optimal one; that is, they are ‘bounded rational’ rather than ‘boundless rational’ as described in the economic rational decision theory. Simon (1979, p.503) called this mode or strategy of decisionmaking the “satisficing mode of selection.’’ Earlier critiques and empirical findings identified the rigid grounds of the field of behavioural decision theory, which adopts the descriptive decision-making approach and describes how decisions are actually made rather than how they should be made, as adopted by the economic rational decision theory. Behavioural decision theorists have challenged the rational decision school by arguing that humans are limited cognitive information processors and they do not utilise available information; they do not follow the assumptions of normative theory in responding to uncertainties and likelihoods, nor they do not make rational trade-off among conflicting values, nor they do not always follow the maximizing or rational decision approach process (Cyert and March, 1963; Simon, 1978). Because humans do not possess the required knowledge and statistical skills that are unnecessary to behave rationally, as proposed by the economic rational decision models, they develop a number of cognitive ‘heuristics’ that enable them to behave and make decisions that are definitely reasonable despite their own cognitive limitations (Kahneman and Tversky, 1982). According to Bazerman (1986) heuristics refers to simplifying strategies or rules of thumb that people confide in when they make decisions. Further, they are the fundamental rules that substantially guide the people in their judgments and they are significant tools for facing the complex nature of the environment surrounding decisionmaking. In the context of strategic decision-making, the satisficing behaviour approach or the bounded rationality theory assumes that, in the organization, the managerial objectives are well-defined and the rational decision-maker collects 385 information about the objectives from various environmental sources. The collected, specified information within the organization is used to identify a set of appropriate alternatives from which to make a satisficing choice. But the amount of information and consequent number of alternatives are bounded: first, by the lack of complete information; second, by inevitable time and cost constraints; and, finally, by the cognitive limitations of the decision-maker (Harrison, 1999; Harrison and Pelletier, 1997). Hence, the strategic decision-maker should consider these constraints thoughtfully because they affect significantly the success of a strategic decision in any organization (Harrison, 2000). Extraordinary recognition for the satisficing behaviour approach has been found among the scholars in the strategic decision-making literature. For instance, the study by Mintzberg, Raisinghani and Theoret (1976) contributed significantly to the academic body of knowledge on strategic decision-making in organizations. In the case study oriented research, they examined twenty five strategic decision processes for the purpose of understanding the structure of the decision processes. They challenged the rational model by concluding that not all alternatives were known, not all the consequences were mindfully considered and not all preferences are used by decision-makers as claimed by the economic rational approach; thus, decision-makers were bounded with constraints. Similarly, the behavioural scholars argue that making decisions under uncertainty is fundamental to organizational life; indeed, dealing with uncertain situations is a common problem that all organizations share (Mintzberg, 1983). Hence, it is practically impossible to choose the best alternative when uncertainty exists and consequences are ambiguous. As a result, high levels of uncertainty tend to suggest that maximizing behaviour suggested by the satisficing concept is an unrealisable choice (Tarter and Hoy, 1998). Accordingly, Petit (1966) alerted researchers to the fact that effective managerial decision-making requires a clear cognition of several boundaries and the rational decision-maker has distinctly limited boundary within which socially responsible decisions must be selected from among alternatives. Evidence from Katona (1951) confirms this idea inasmuch as, in the face of complexity, managers usually struggle to reach for satisfactory levels of profits or payoffs rather than maximum profits. Islamic Perspective towards the Assumptions of Strategic Decision- Making Theories In brief, founded on the former debate, the rational decision theory assumes that organizations behave rationally when making strategic decisions; that is, decision-makers have complete knowledge and information about the problem situation and the consequences of all alternatives and, thus, they select the best or the optimal alternative with highest value. On the other hand, the bounded rational approach argues that strategic decisions are characterized with high levels of uncertainty and ambiguity (Harrison and Pelletier, 1997; Mintzberg, Raisinghani and Theoret, 1976; Mintzberg, 1983; Tarter and Hoy, 1998). Consequently, decision-makers in organizations have incomplete and limited information and knowledge about the uncertain decision situation and the consequences of all alternatives and thus they select the satisfactory alternative with acceptable value. Islam as a complete religion was established fourteen hundred years ago when the Nobel Qur'an (the book and the final message of Allah (God) to all mankind) was revealed to the prophet Mohammed, peace be upon him, in 622 A.D. (Tahlawi, 2005). According to the Qur’an human being is a creation of Allah (God) and Allah is the first source of knowledge and the absolute guide of humanity (Akhtar, 2005). This premise is expressed explicitly in verse “And surely, We created man and We know what his soul whispers to him, and We are nearer to him than the jugular vein (Qur’an, 50:16). It is also believed that Allah has taught the first man and Prophet ‘Adam’, peace be upon him, ‘all the Names’ as stated in the Qur’an “And He taught Adam all the names, then presented them to the angels and said, `tell Me the names of these, if you are truthful. They said, `glory be to Thee, we have no knowledge except what Thou hast taught us; Thou art the Knowing, the Wise. He said, `O Adam, tell them their names.' Then, when he had told them their names, He said, `did I not say to you, I know the unseen of the heavens and the earth, and I know what you reveal and what you were hiding” (2:31-33). The word ‘names’ means the knowledge of all aspects in creation. Accordingly, these former versus provide clear evidence that human being has a limited and imperfect knowledge and, as a result, can not reach optimal or perfect outcome of a judgment, especially with the case of situations involved high levels of uncertainty which can not be accurately and absolutely controlled by an individual with limited knowledge and bounded capability of anticipation and prediction. This assertion is addressed clearly in the Noble Qur’an in many verses “And if thou askest them, ‘who created the heavens and the earth,’ they will surely say, ‘God’. Say, ‘praise be to God’. No, but most of them have no knowledge” (31:25), “And they ask thee 386 concerning the Spirit. Say, ‘the Spirit is of the command of my Lord, and you have not been given of the knowledge but a little” (17:85), “And over every man of knowledge is one knowing more” (12:76). CONCLUSION The chief goal of this analytical paper was to highlight the importance of Islam to management science through reviewing and assessing the assumptions of the most dominant theoretical perspectives to making strategic decisions within the Islamic context. Based on the former discussion and debate, Islam established the concept of incomplete knowledge of human being, which is the spirit of the bounded rational theory, fourteen hundred years ago and hence confirms the bounded rational standpoint, which dominates most of the strategic decision-making literature, as an appropriate approach to make strategic decisions. That in turn, provides additional support to the importance of Islam to the business field in general and to management science in particular. 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As an attempt to provide insight into this critical issue, three comparative case studies of Western Australian internationalizing service firms were undertaken. The empirical results show that three types of location decision factors or criteria were developed by location decisionmakers at three stages of the country selection process; that is, the country, city and site factors. The findings also reveal that the identification of these location factors contributed significantly to arriving at successful foreign direct investments and, accordingly, confirmed the theoretical assertion stated in the literature. As a result, these findings have significant theoretical and practical implications to the location strategy in international business. INTRODUCTION According to the ‘eclectic paradigm of international production’ proposed by Dunning (1980; 1988), firms which decide to internationalize their business activities and have international operations confront a very critical, challenging and strategic decision which relates to deciding about the foreign location or country for their international operations. A conceptual strategic decision-making model for the selection of a beneficial country for international operations suggested by Al Qur’an and Dickie (2005) considered the phase of developing suitable location factors as an important phase of the country selection process in order o arrive at a sound and beneficial country choice and as a result undertaking successful international expansion. Notwithstanding no empirical evidence was reported in the international business literature concerning this claimed importance, previous research on the business location selection processes of domestic firms has confirmed the significance of identifying suitable location factors to reach healthy location choices (e.g., Augustin, 1999; Blair and Premus, 1987; Phllips, 1991; Schmenner, 1994). Furthermore, the internationalization activity of Australian firms is a relatively recent phenomenon and generally has attracted little concern from scholars (Edwards and Buckley, 1998; Maitland and Nicholas, 2000). Previous research on the location decision of Australian international firms or outward foreign direct investments has mainly looked into the locational determinants or factors subsequent to the establishment of Australian FDI (Edwards and Buckley, 1998; Edwards and Muthaly, 1999; Fittock and Edwards, 1998). More specifically, no academic attention has been given to exploring the phase of developing location decision factors involved in the location decision-making processes of Western Australian internationalizing firms which are defined in this paper as ‘local firms willing and seeking to establish business operations abroad’. Therefore, as an attempt to fill this evident shortcoming and gap in the international business research, three comparative case studies of Western Australian service firms which have established successful outward foreign direct investment were undertaken to explore the strategic decision-making process relating to the foreign country selection process. The paper begins with a review of past research on the location factors or determinants of FDI in general, and on the location factors of Australian FDI in particular. Next, the methodological framework and data collection techniques utilised for conducting this study are explained. Consequently, a discussion of the empirical findings of the selected three case organizations is presented. Finally, the study’s conclusion, implications and limitations are outlined. 390 THEORETICAL BACKGROUND The literature on international location decisions has extensively investigated the location factors or determinants of international firms following the establishment of their foreign direct investments in the selected countries. However, not significant academic attention was given to the foreign investment decision-making process in general and to the phase of developing location decision factors or criteria in particular. For instance, Nonaka (1994) in examining the determinants of multinational corporations (MNCs), argued that the innovative capability of the host country is an important factor for attracting foreign subsidiaries. The Uppsala model by Johanson and Vahlne (1977) demonstrated that ‘psychic distance’ determines the locational choice. Psychic distance was defined as the costs of obtaining significant information about business conditions in other countries, the perception of risk and uncertainty involved in international operations and the resources required to access foreign networks. The model asserts that the costs expended in overcoming ‘psychic distance’ decrease over time due to the experience achieved by the firm. Therefore, firms often first enter neighbouring markets because of their historical familiarity, and then expand to other foreign markets. Other studies have stressed the global strategic focus of MNCs in the location choice. For example, Kim and Hwang (1992) affirmed that some MNCs might establish subsidiaries abroad to check the cash flow of potential global competitors. Terpstra and Yu (1988) found that the size and growth of markets are important determinants of foreign investment. Consequently, a government can influence locational decisions by limiting the demand conditions through the supply of infrastructure, and taxation policies. Boddewyn and Brewer (1994) addressed the significant influence of the government taxation and industry regulations on the locational decisions of international firms. Bhatnagar and his associates conducted a cross-national study comparing the plant location factors between Singapore and Malaysia (Bhatnagar, Jayaram and Phua, 2003). They found that infrastructure, suppliers and markets have significant impact upon the plant location decision in both countries. William (1980) identified some country specific factors which influence the location decision of foreign investors; viz., market size and growth, tariff and non-tariff barriers to trade, input costs, geographic proximity and legal, political and economic conditions. Porcano (1993) examined twenty one factors affecting the American, British, French, German, and Japanese firms’ location decisions. He concluded the factors that directly affect their ability to produce and sell a quality product were highly rated, such as product demand, labour quality and supply and the host country economy. Four case studies of international electronics firms were recently undertaken by McManus and his colleagues (McManus et. al, 2005) to explore the extent to which the telecommunications infrastructure influences the decision to select a specific foreign manufacturing site for international operation. The results indicated that telecommunications is a requirement to conduct business. Two firms showed that telecommunications was considered in their most recent site selection. Even though the other two firms did not explicitly consider telecommunications in the site selection criteria, they felt that it is critical to the success of a firm in an international market. From the domestic business location decision perspective, a study carried out by Schmenner (1994) to investigate the location decision-making process of domestic service firms found that the undertaken decision process involves a two-step procedure. The first step entails choosing a ‘general area’ for the service firm facility, while the second requires the selection of a ‘particular site’. The study also revealed that producing a list of the ‘must’ and the ‘wants’ location factors or criteria is an important managerial step of the both location selection processes. These location factors entailed labour issues, infrastructure and quality of life, proximity to customers, proximity to competitors, low rental, favourable governmental policies, proximity to suppliers and business services and favourable tax policies. Haigh (1990) interviewed twenty executives of twenty foreign subsidiaries owned by ten various multinationals to explore the managerial selection process concerning the site selection for these manufacturing subsidiaries. He found that the international site selection process is one part of a broader investment decision which resulted in selecting the US as a final foreign country choice for their international manufacturing operations. In addition, the study revealed that in most cases, the site selection process incorporated three separate stages: 1) the selection of a specific geographic region in the United States, 2) the selection of two or three states within that region, and 3) the 391 final decision on a specific site in a particular community. Nonetheless, this study has not provided insights into the location factors involved in the region and state selection process. In the Australian context, a small number of studies has examined the location decisions of the Australian multinationals and investors. For example, Edwards and Buckley (1998) found that the motivation for the Australian manufactures in selecting the UK was the desire to access markets and the similarity of the language and political and legal systems. A study by Fittock and Edwards (1998) revealed that the size and the growth of the Chinese market were the primary motivations and factors for Australian investors to locate their foreign investments in China. However, Edwards and Muthaly (1999) found that the most important factors explaining Australian FDI in Thailand was access to local and neighbouring markets, followed by low labour costs. RESEARCH DESIGN AND METHODOLOGY The international location decision is an outcome of a strategic decision-making process accomplished by senior managers in the organization. In addition, this study intended to explore the phase of developing location factors as a critical aspect of the comprehensive location decision-making process of internationalizing service firms, therefore, the interpretive paradigm is the most appropriate paradigm to be adopted in the current exploratory investigation by ‘getting inside’ the decision-makers’ minds and seeing this phase from their point of view (Hassard, 1993) and experiences (Smith and Heshusius, 1986; Yeung, 1995). The case study method was adopted in this study due to the close connection of this strategy with philosophical assumptions and foundations of the selected interpretive (phenomenology) paradigm and because it represents one of the primary research methods for studies adopting interpretivism (Gephart, 1999; Perry, 1994). Moreover, the exploratory nature of this research required the use of the case study method as it offers an opportunity for in-depth exploration and results in rich understanding and a clear picture about the research issue (Gilgun, 1994; Rowely, 2002). Additionally, practised researchers in the field of international business assert that most international business empirical research relies on secondary data and/or questionnaire responses which involve critical problems and has not provided rich theoretical analysis about important issues in international business (Boddewyn and Iyer, 1999). Three case studies were purposefully selected (Patton, 1990) from among 13 potential Western Australian service firms which have established successful outward foreign direct investments. As a result, three information-rich cases were selected from among 10 service firms which have international operations in the Untied Arab Emirates and these cases were comparative as they included small and large sized firms with different types of services. The characteristics of the selected cases are shown in Table 1. Table 1 Characteristics of the selected cases Firm name Type of firm Ownership structure for international operation Size of firm A International marketing consulting services Greenfield Small B Tourism and travel service Greenfield Large C Chemical services (water treatment services) Greenfield Small 392 In exploring the processes of international business as the subject matter of this study, the qualitative personal interview is the most useful method offering immense strength and richness to the collected data through entering the mindsets of the top executives and gaining access to their international business experiences (Yeung 1995). Therefore, the data was mainly collected via in-depth interviews besides a questionnaire instrument. The interviews were conducted between December 2004 and February 2005 with the available and most knowledgeable senior managers about the foreign investment decision-making processes (Birnbaum 1985; Huber & Power 1985; Papadakis Lioukas & Chambers 1998). Accordingly, three senior managers were interviewed, one director from each firm (managing directors of the firms). Each interview session lasted approximately two hours to two and half an hour using a semi-structured interview guide. The interview questions were open-ended and designed to explore the drivers of the internationalization decision and all managerial procedures and actions involved in the strategic decision-making processes undertaking by the selected firms to select beneficial foreign countries for their international operations. The questionnaire instrument was designed to obtain information about the company background and to confirm the interview responses. The data analysis method employed in analysing the interview data was based on the descriptions written by Miles and Huberman (1984;1994) which imply data reduction, data display and conclusion drawing and verification. Two main stages of analysis were utilised in the current research; that is, within-case and cross-case analyses (Ayres, Kavanaugh and Knafl, 2003; Creswell, 1998; Eisenhardt, 1989; Yin, 1994; 2003). DISCUSSION OF CROSS-CASE FINDINGS The cross-case results reveal that in all cases, the phase of developing location factors or criteria was the second important managerial aspect of the comprehensive foreign country selection process which occurred subsequent to the phase of situational analysis of the internationalization decision. The results show also that all companies established appropriate location factors compatible with the drivers of the internationalization, the type of business and the geographical nature of the potential foreign region or country. This conclusion was not addressed in the existing body of knowledge; hence bringing new light into the literature on the location strategy in international business. In essence, the identified location factors included a variety of quantitative and qualitative location factors produced to guide the location team in evaluating the prospective foreign countries. The quantitative location factors were concerned with the cost of operating in a foreign country; fixed and variable costs such as cost of living, costs of setting up the foreign operation, labour and other related costs. However, the qualitative location factors included non-cost issues such as cultural, political, economic development, legal, climatic, geographic issues, foreign investment attractiveness and barriers such as tax policies, trade and non-trade barriers, economic conditions of the country such as GDP, GNP, purchasing power and other economic indicators. In addition, all case firms confirmed that country, city and site factors were developed at three stages of the comprehensive international location decision-making process. However, some differences were found among these firms in relation to the attributes of the developed location factors. As explained by the managing directors of the three firms: We had a whiteboard, I remember the day quite well, we put up there what each of us thought would be the criteria to help us individually reach a decision to do this, and so there was a very big overlap because each of us forward the same things. We looked at the political stability of the region, we looked at the economic stability of the region, we looked at the strengths of the market … Because we recognise, it is a very strong cash economy, our research had shown us …the commercial stability, market size … Is it a nice place to live? Is it a comfortable place to live? Because that had an impact on mindset and the attitude of people who work there. In terms of trade; is it a difficult market? Is it an easy market? The legal system, is it something we comfortable with? Is it safe market, people safety? Now we need to check financial feasibility … cost of operation licenses, cost of living, all those things … Social stability … cultural stability … so culture awareness was an important part for us. (Firm A) You certainly look for a country that has waterways that can be used for tourism … you look at the countries along either side of the equator that would have a climate conducive to marine tourism … Well, you look at the country arrivals; you certainly look at what the tourist potential 393 is about … Somewhere that is reliable, the potential for growth, and the sort of tourists that go there so it, you know, they gotta be a wealthy tourist, who’s got enough money in his pocket to pay $100 or $150 to do a day trip … tourists will go where the infrastructure is designed to give them pleasurable experiences. (Firm B) … It is also the construction of the government, how they run their country, the economy … You can have the most beautiful location but the government who runs it makes it hard for you to do your business and you don’t do it … the open policy of the economy over there … How much resources … how much normal cost for him to rent …Obviously the site had to be not too far away from the city centre, be visible from the street, and on the highway, which we did. (Firm C) Table 2 is a matrix shows the attributes of the most important location factors which were considered in the country selection processes undertaken by the three service firms. As can be seen from Table 2 , notwithstanding the country, city and site factors were extremely alike in all the three cases, some dissimilarity was found among them relating to the attributes of the these factors. For instance, Company B as a marine tourism firm developed some marine tourism-related country and city factors such as (1) purchasing power of tourists, (2) country marine tourism conditions, (3) country weather, climate and sea conditions and (4) city waterways, weather, climate and sea conditions. These factors were found very important for Company B but were by no means important or even considered by Companies A or B. Table 2 Cross-case findings for the location factors of three cases Company A Location factors Country Factors -Developed infrastructure. Y -Rich and strong purchasing power economy. Y -Access to market and neighbouring markets. Y -Political and economic stability and security issues. Y -Openness of economy and country. Y -Costs issues. Y -Attractive foreign investment and tax policies. Y -Availability of qualified local personnel. Y -Country knowledge. Y -Similarity in legal and political system. Y -Growth of market. Y -Tariff and non-tariff barriers to trade Y -Market size. Y -Market potential for marine tourism. N -Government economic and legal policies toward economic growth. N -Country waterways, weather, climate and sea conditions. N -Country marine tourism conditions. N -Purchasing power of tourists. N -Availability of raw materials and natural resources. N City Factors -Economic and trade growth of the city. Y -City governmental policies toward foreign investors. Y -Openness of the city and city governmental policies toward foreign investors. Y -Developed infrastructure Y -Market potential for marine tourism. N -City governmental policies toward tourism. -City waterways, weather, climate and sea conditions. Site Factors -Parking facilities 394 B C Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y N Y Y Y Y Y Y Y Y Y Y Y Y Y N Y N N N Y Y Y Y Y Y Y Y Y Y N N N Y Y N N Y Y Y -Attractive building condition -Proximity to customer -High customer traffic in the area. -Being near other company facilities. -Good infrastructure. -Attractive cost of renting. -A part of industrial area. -Visibility of the office to the mean street. -Proximity to major highways. -Proximity to city CBD. -Proximity to airport. Y Y N Y Y Y N N N Y Y Y Y Y N Y Y N N N Y N Y Y Y N Y Y Y Y Y Y N Notes: Y (important), N (not important at all). The findings relating to the country factors agrees to some extent with the past line of research on location factors of international firms FDI subsequent to setting up the FDI in the selected foreign countries reviewed earlier in section 2 (e.g., Bhatnagar, Jayaram and Phua, 2003; Edwards and Buckley, 1998; Edwards and Muthaly, 1999; Fittock and Edwards, 1998). Nonetheless, the city factors of internationalizing service firms were not addressed in the prior research, whereas most of the site factors or criteria were highlighted by Schmenner (1994) and new factors were emerged such as proximity to city CBD. Additionally, the cross-case results illustrated that all firms identified primary and secondary factors during the process of developing suitable general location factors. As remarked by the group managing director of Company B: The essential criterion was the market potential; it is highly, highly important to us … As I have said all the way through it’s where you get your market from. It’s not the local market which sustains an operation that size, it’s the number of people that are going to come there and spend time in Dubai. This outcome was shown indirectly in an empirical study conducted by on international site selection processes by Haigh (1990). Further, it was found that producing a list of country, city and site factors in general and primary and secondary factors in particular provided significant inputs into evaluating the country, city and site options and hence arriving at suitable and beneficial location choices. As commented by the managing director of Company A: We would look at all of the criteria that we established and they were to do with business regulations for instance, infrastructure, communications and then we would rank those across the matrix and against the different destinations, so Saudi, Kuwait, Bahrain, U.A.E and Qatar and we would rank them on a scale, I think it is 1 to 10, 1 to 5 or something about it for the ease of which to do business. And then we would have comments on right hand side, so we weighted it, we came up with a score for each of the destinations. CONCLUSION, IMPLICATIONS AND LIMITATIONS The main intention of this study was to explore thoroughly the phase of developing location factors as a significant aspect involved in the comprehensive decision-making processes performed by Western Australian internationalizing service firms to select beneficial foreign countries for their international operations. The results show that in all cases, the phase of developing location factor is an important managerial action to be considered in a successful foreign investment decision-making process. Further, the study concluded that this phase or included the identification of primary and secondary location factors for the developed country, city and site options in agreement with the drivers of the internationalization decision, the type of business, the firm’s overall business strategy and the geographical nature of the potential countries. As a result, evidently, drivers of the internationalization decision, the type of business and the firm’s overall business strategy and the location strategy in particular affect the structure and the attributes of the intended location decision factors involved in the foreign country selection process. In addition, the study concluded that having appropriate primary and secondary country, city and site factors affects positively the 395 effectiveness of the assessment phase in relation to the prospective countries, cities and sites and, accordingly, leads to the selection of beneficial location choices. The study’s empirical outcomes contribute to a large extent to theory and practice by providing important value to research on international business strategy and foreign direct investment through highlighting the significance of developing primary and secondary appropriate location decision factors in the formulation of effective international business location strategies to undertake successful international expansion. In addition, the results have important implications to business managers by improving their foreign investment decision-making processes. It is unarguable that any empirical research has some limitations which need to be acknowledged. Initially, for the reason that the research employed the case study strategy and was built on three case studies selected purposively from among 10 potential firms, the most distinct problem associated with this approach is that of generalization (Esienhardt, 1989; Yin, 1994; 2003). The research has a limited geographical and industry focus and as it focused on Western Australian firms and only investigated three service firms and, accordingly, it is likely that the findings do not apply similarly to other international organizations in other Australian states and in other countries. Another limitation relates to ‘interviewee response bias’ and ‘retrospective bias’ as the decisions investigated occurred some time in the past, which may result in not all the information has being recalled correctly by the informants. However, in organizational strategy research, as was the case with the current research, “the best trace of the completed process remains in the minds of those peoples who carried it out” (Mintzberg, Raisinghani and Theoret, 1976, p.248). In addition, the questionnaire was designed following the interview session to validate the interviewee’s responses and the available secondary data were utilised to confirm the interview statements. As a result, these former limitations provide opportunities for future research to be carried out in other states within Australia to investigate the phase of developing location decision factors involved in location decision-making processes of internationalizing firms. Furthermore, since this study was limited to greenfield FDI and service operations, more research is suggested to examine other international businesses from other sectors and industries adopting various entry mode strategies such as acquisition, licensing and exporting to capture the significant differences in phase of developing location factors among these entry modes in international business. REFERENCES Al Qur'an, M.N and Dickie, L (2005) 'How can international firms select beneficial foreign locations for their operations?' in A. Ahmed, (ed.) World sustainable development outlook 2005, Global competitiveness: A common goal in a digital society, Bradford, UK: Emerald Group Publishing Limited, pp. 89-102. 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(2003) Case study research: Design and methods, 3 edn, Sage Publication: Thousand Oaks, California. 398 CRM IMPLEMENTATION BY MALAYSIAN AUTOMOBILE DISTRIBUTORS Nor Khomar Ishak University of Malaya, Malaysia Dilip Mutum Universiti Utara Malaysia Cheong Khai Fan University of Malaya, Malaysia ABSTRACT The deregulation of the Malaysian automobile industry has resulted in intensified competition with the presence of more players in the market place. Customer relationship becomes important when there are many companies trying to satisfy their customer needs and create customer loyalty. The practice of Customer relationship management (CRM) is relatively new in Malaysia and this exploratory study is one of the first to look into this area with regards to the automobile industry. The review of literature also presents a general overview of the development of CRM. This study compares the perspectives of two national and ten non-national car companies in Malaysia with special reference to the various CRM Programs implemented by them. Despite the fact that CRM usage is still relatively new in Malaysia, the study concluded that it has indeed proven to be useful to Malaysian automobile marketers, especially in identifying the target customers and reach specific customer segments besides identifying various customer needs. The authors suggest some areas for future research. INTRODUCTION A combination of government support and high purchasing power of consumers has resulted in Malaysia becoming one of the region's largest auto markets. Presently, it holds a dominant position in vehicle sales among ASEAN countries and in fact Malaysia is Southeast Asia's largest car market (Ng, 2004). However, Malaysian auto companies are facing a new challenge in the form of the ASEAN Free Trade Area (AFTA). Expected to be worst affected are the two national car companies, namely, Perusahaan Otomobil Nasional Bhd (PROTON) and Perusahaan Otomobil Kedua Sdn. Bhd. (Perodua) which have been accused of not being customer focused and being too dependent on Government support (Mutum, 2000). Since January 2004, the Malaysian government reduced tariff rates on the imported passenger cars from between 42% and 80% (depending on the engine capacity) to flat rate of 25% as a ‘pre-exercise’ for the introduction of AFTA regulations in 2005. This move would have led to a drastic reduction in passenger car prices had the government not simultaneously imposed higher excise duties to compensate for the loss in revenue due to tariff reduction. The National Automotive Policy Framework released by the Malaysian Government aims to make Malaysia a regional car manufacturing, assembly and distribution hub (NAP – a good start, 2005). This deregulation of the Malaysian automobile industry has resulted in intensified competition with the presence of more players in the market. This is evidence of a mature market with increasingly competitive market conditions. Furthermore, the increased availability of information through the Internet, better consumer education and increase in the choice of models will lead to an increase in customers’ expectations and demands. Customer relationship becomes important when there are many companies trying to satisfy their customer needs and create customer loyalty. This is especially true for companies in the services sector, which have adopted the use of technology such as the Internet in their operations. However, services go beyond the “services sector”. Understanding services and service management becomes imperative for success, not only for the so-called service companies but for other sectors such as the manufacturing (Gronroos, 1990) and in this case the automobile sector. 399 The practice of CRM is relatively new in Malaysia and in fact this exploratory study is one of the first to look into this area with regards to the Malaysian automobile industry. In view of this, it was considered important to compare the perspectives of distributors of national and non-national cars brands in Malaysia with special reference to the various CRM Programs implemented by them. The specific objectives of the exploratory study are: 1. 2. 3. To study the perceived usefulness of CRM programs as indicated by the automobile distributors, To examine how different CRM factors are ranked by the different auto companies, and To explore the comprehensiveness of CRM programs undertaken by distributors of national and nonnational cars. REVIEW OF LITERATURE The concept of marketing has undergone drastic changes over the past three decades, evolving from the production era through the sales and marketing era and finally moving to the relationship era as practiced today. The change in marketing focus from the product to the customer occurred during the marketing era, which appeared around the 1960s in the west. Effectiveness and efficiency in meeting customer demands, needs and wants were identified as the key elements in determining companies’ long-term success. The relationship era, which emerged during the 1990s, shifted the focus to the establishment and maintenance of mutually beneficial relationships with existing customers and suppliers. One important concept that emerged was the Customer Relationship Management (CRM) approach, whereby, it has become an important part of building customer loyalty (Chen and Popovich, 2003; Keegan, 1999). At the same time, customer relationship cannot be separated from customer satisfaction. Several studies proved that there is a link between customer satisfaction and customer loyalty/retention (Yu and Dean, 2001; Anderson and Sullivan, 1993). Despite the growing importance, relatively few organizations in Malaysia have adopted CRM strategies to deliver real customer value and to develop appropriate long-term relationships. This may be due to confusion and lack of understanding regarding CRM (Oracle, 2000; Chen and Popovich, 2003). For some companies, it is just another loyalty scheme while others assume that having a help desk is enough. CRM is much more than that. It is a business strategy that aims to understand, anticipate and manage the needs of an organization’s current and potential customers. CRM implementation requires a clear focus on the service attributes that represents value to the customer and in turn creating loyalty. Sue and Morin (2001) defined CRM as “a technology enabled business strategy whereby companies leverage increased customer knowledge to build profitable relationship, based on optimizing value delivered and realized from their customers.” On the other hand, according to Xu et al. (2002) CRM is “an information industry term for methodologies, software, and usually Internet capabilities that help an enterprise manage customer relationships in an organized way”. With an effective CRM program implemented, companies could raise their revenues and lower the cost (Sue and Morin, 2001). It will encompass or engage all marketing levels, right from the sales function to customer service and back office operations to new product development and requires member of the value chain and other partners to work together. Figure 1 shows the main elements of CRM in a company. Sales Force Automation (SFA) Customer Service/ Call Centre Management Marketing Automation • Call Centre Telephone sales • E-commerce • Field Sales • Retail • Third-party broker • Distributor, agents Data warehouse • • • Call Centres managing aspects of customer contact Web-based self service Field services and dispatch technicians and Figure 1: Elements of CRM (Robinson, 2000) 400 • • • Campaign management Content management Data analysis and business intelligence tools Data cleansing tools Though the implementation of CRM programs may present some problems, namely the cost involved, it may be even harder to measure the returns from implementing a CRM program. In fact, it may be difficult to even achieve an accurate measurement of customer loyalty. As noted by Rigby et al., (2002) “successful CRM depends more on strategy than on the amount you spend on technology”. This demands high investment on customer database development and analysis on the part of the organizations (Hewson Group, 2000; Brewer, 2000). Looking at the definitions of CRM provided above, the importance of technology in CRM is clearly stated. Technology is an enabler for CRM including the sharing of information (Blue, 1999; Sue and Morin, 2001; Xu et al., 2002). Boon et al. (2002) have identified three streams of information systems (IS) leading to CRM, namely, the Front-end systems, the Data-handling technologies and the Back-end systems. The front-end information systems include sales force automation, market automation and customer service automation. Data handling technologies are the core technologies required for sorting and interpreting the data. These include: data warehousing, data mining and knowledge management. Finally back-end systems feed into CRM like the other streams. These include the software applications for unique or specific needs such as inventory control for inventory; Enterprise wide applications (EWA), which link software applications to interchange data between software applications and systems. Enterprise resource planning (ERP) is the final point in integrating back end operations, which includes the sum of enterprise wide application integration as well as supply chain management. The new supply chain technologies include the e-commerce and the Internet. Executing a CRM strategy on a mass basis through the application of technology (also known as e-CRM) would enable a company to establish relationship with a larger number of customers. According to Brown (2000), this makes CRM a “strategic imperative in the world of ebusiness”. He further pointed out that integrated databases have become the most important technical consideration due to the fact that CRM processes depend on data. This also includes the software for the database, datamining, decision support and campaign management tools such as call centre software and hardware. METHODOLOGY Research Instrument The survey instrument was an eight-page questionnaire divided into three sections. The first section was designed to obtain the respondent’s profile and particulars of the company with regards to nature of business and mode of execution. The second section relates to the effectiveness of the CRM programs and is divided into six parts. However, for this paper only the first three parts of this section are relevant for this paper. These are as follows: Part 1 was designed to measure usage of CRM programs and the perceived usefulness of CRM programs used by Malaysian auto distributors. A total of 10 statements were used. Respondents were asked to state their level of agreement towards the statements using a 4 point scale ranging from ‘1=Strongly disagree’ to ‘4=Strongly agree’. Part 2 attempted to identify the relationship between CRM programs and its contribution to the company’s profitability. The respondents were asked to rank 9 items according to order of importance, in terms of its perceived contribution to overall increase in profitability of the companies. Please refer to Table 1 for the list of CRM factors. Table 1: Various CRM Factors. CRM Factor B01 Individual customer satisfaction B02 Individual customer loyalty B03 Individual product or service profitability B04 Gaining new customers B05 Saving customers i.e., convincing them to stay with the company 401 B06 Getting existing customers to buy new products B07 Winning back customers, i.e., convincing them to rejoin B08 Improving productivity through reduction in response time B09 Elimination of costs from unprofitable customers Part 3 examined the usage of CRM facilities and information technology in the various CRM programs. These facilities were based on those identified in previous studies of Brown, 2000; Xu et al., 2002. The respondents were first asked if they used the facility and if they did, to indicate the usage rate. The usage rate was measured utilizing a four point scale ranging from ‘1= Least used’ to ‘4= Most used’. Sampling Procedure and Data Collection Method Before the actual survey, a pilot test was conducted on three automobile distributors. Certain ambiguities in the questionnaire were identified and subsequently eliminated. Convenience sampling was employed for the study, whereby the researchers tried to obtain at least one respondent each from the selected 24 automobile companies operating in the Klang Valley of Malaysia (see Table 2). Table 2: List of Automotive Marketing Companies in the Klang Valley Region as on 1.1.2004. Company Brand Distributed Country of Origin 1. Automotive Corporation (M) Isuzu Japan 2. BMW Malaysia BMW Germany 3. Cycle & Carriage Automotive Peugeot France 4. Cycle & Carriage Bintang Bhd. Mercedes Benz Germany 5. Cycle & Carriage Malaysia Mazda Japan 6. Competitive Supreme SSangyong South Korea 7. Daihatsu (M) Daihatsu Japan 8. Daimlar Chryslar (M) Mercedes Benz Germany 9. Directional (M) Citroen France 10. Edaran Tan Chong Nissan Japan 11. EON Proton Malaysia 12. Eurokars Renault France 13. Europal Opel France 14. Ford Malaysia Ford USA 15. Honda Malaysia Honda Japan 16. Land Rover (M) Land Rover UK 17. Lion Suzuki Suzuki Japan 18. Milan Auto Alfa Romeo Italy 19. Naza Motor Trading Kia South Korea 20. Oriental Hyundai Hyundai South Korea 21. Perodua Sales Perodua Malaysia 22. Torino Fiat Italy 23. UMW Toyota Toyota Japan Volvo Sweden 24. Volvo Car Malaysia Source: Malaysian Automotive Association (2004) 402 The sampling frame consisted of 22 non-national cars distributors and two national car distributors. The list of all the approved members in the non-national car sector was obtained from the Malaysian Automotive Association (MAA). The two national auto companies, namely Perodua Sales Sdn. Bhd. and Edaran Otomobil Nasional Bhd (EON), are not members of the MAA. Motors traders of commercial vehicles were excluded from the study and focuses solely on distributors of cars. A key person (most conveniently available) in the head quarters of each company was identified and a questionnaire was either mailed or faxed to them. Ultimately, only 12 completed responses were obtained for the final analysis. Qualitative Research Following the receipt of the completed questionnaires, follow up personal interviews were conducted to obtain a clearer picture. For reasons of confidentiality, the names of the respondents or responding companies will not be identified in this paper. FINDINGS AND DISCUSSION A total of twelve responses were received. Table 2 shows the number of responding non-national car companies by country of origin of the brands distributed by these companies. As mentioned earlier, two of the companies were involved in the distribution of the national brands, namely Proton and Perodua. The rest (10) were foreign franchise holdings. The number of distributors of Japanese brands was the highest in terms of country of origin and made up 40% of the foreign car franchises that responded. Of all the companies dealing with non-national car brands, two distributed ‘Completely Knocked Down’ (CKD) models while six sold ‘Completely Built Up’ (CBU) models. Two others indicated that their companies sold both CKD and CBU models (see Table 3). Table 3: Business Modes of Non-National Automobile Distributors Business Modes Country of Origin Japan CKD CBU CKD + CBU 4 Total 4 Germany France 1 1 1 2 1 Sweden 1 2 6 2 1 1 10 Italy 1 1 Total South Korea 1 Two car brands, one from South Korea and another from Italy respectively, were brought into the country in the CKD form, which were then assembled locally (see Table 4). All the four Japanese makes were in the form of CBUs. One German and the Swedish brand were also brought into Malaysia as CBUs. The second German brand was sold in both the CKD and CBU forms. The distributor of the French brand also sold both CKD and CBU units. CKD units are usually priced lower than the CBU due to the existing Malaysian import duty structure. Table 4: Number of Companies by Country of Origin . Country of Origin Number of Respondents Percentage Malaysia 2 16.7 Japan 4 33.3 Germany 2 16.7 France 1 8.3 South Korea 1 8.3 Sweden 1 8.3 403 Italy 1 8.3 Total 12 100 Profile of Respondents This section will provide a descriptive overview of the characteristics of the respondents’ department, position held, years employed in the company, degree of involvement in the implementation and operation of CRM programs, type of business, mode of execution and whether the company is in the process of implementing any CRM programs currently. Out of the total 12 respondents, 7 or 58.3% were from the Sales/Marketing department, 3 (25%) from the Information Technology (IT) department and only 2 (16.7%) from the Strategic planning department. Both the respondents from the two local companies were from their respective Sales/Marketing departments (see Figure 2). The Sales and Marketing departments were usually the initiator and planners for the implementation of CRM as part of their marketing plans. In the cases where respondents were from the IT department, they were facilitators for the implementation and functionality of the CRM programs. The respondents in the strategic department were involved in the formulation and introduction of some CRM concepts and ideas to their respective companies. The designations of the respondents are given in Table 5. Apart from one respondent, all the rest held managerial positions and in fact, three of the respondents were General Managers in their respective companies. Regarding the national car distributor, the respondent from the first was a research manager and the respondent from the other company was a senior manager. Table 5: Respondents’ Designations. Designation Number of Respondents Percentage Officer, Corporate Affairs 1 8.3 General Manager 3 25 Sales and Dealers Manager 1 8.3 IT Manager 3 25 Product Manager 1 8.3 Research Manager 1 8.3 Senior Manager 2 16.7 As managers, these are key people who play an important role in the successful introduction and implementation of CRM in their organizations and as such would be best target sample. Table 6 shows that a large number of the respondents have been working in the companies for a number of years. 25% have been employed for 15 to 19 years. These were followed by an equal number of respondents (16.7% each) who had been employed for 20 to 24 years and 5 to 9 years respectively. Only 1 respondent (making up 8.3% of the total} had been employed for 10-14 years. Three respondents (33.3%) had been working for less than 3 years in their companies. Table 6: Years Employed in the Company. Years Employed Number of Respondents Percentage Less than 5 4 33.3 5-9 2 16.7 10-14 1 8.3 404 15-19 3 25 20-24 2 16.7 As for their degree of involvement in CRM, most of the respondents (50%) indicated that they were involved in providing support services, while 25% were planners. 16.7% said that they were only users of CRM programs in the company. Only 1 respondent (8.3%) indicated involvement both as a planner and support service provider. Perceived Usefulness of CRM Programs The usage of the CRM program and its perceived usefulness to the organization as a whole was analysed. Table 7 reflects the respondents’ mean scores for each statement, which relates to the usage of the CRM programs in the responding organizations. The statements A01 to A04 were tested for internal consistency reliability using Cronbach’s coefficient alpha. An alpha score of 0.9042 was obtained showing high internal consistency. In the table, “Local” stands for distributors of local brands whereas “Foreign” refers to the distributors of non-national brands. Total means were used to compare between the two groups. Overall, it was found that the statement ‘CRM helps us to identify the target customers’ indicated the highest mean score at 3.67, which indicates that the respondents agreed with the statement. Next was the statement A01 (Our customer database is constantly updated ) with a mean score of 3.42. Table 7: Usage and Usefulness of CRM Programs. Item Statement A01 Local Mean 3.0 Foreign Mean 3.5 Overall Mean 3.42 A02 CRM helps us to identify the target customers 4.0 3.6 3.67 A03 We have systems to reach specific customer segments 3.0 3.3 3.25 A04 CRM has helped our company to identify the various customer needs CRM is efficiently maintained in our company (based on cost and benefit analysis) CRM has helped our company to significantly increase profit CRM has helped our company to increase the average profit contributed by each customer CRM has helped our company to achieve higher number of repeat customers CRM has helped our company to inter-link our delivery channels CRM has helped our company integrate the front-end and back office functions 3.5 3.2 3.25 3.0 3.1 3.08 3.0 3.0 3.00 3.0 2.9 2.92 3.0 3.2 3.17 3.0 2.9 2.92 3.0 2.9 2.92 Total µ 31.5 31.6 31.58 Ave µ 3.15 3.16 3.16 A05 A06 A07 A08 A09 A10 Based on the table, it was observed that there is not much difference between local companies and foreign franchise holders on the perceived usefulness of the CRM programs in the organization. However, the mean scores of the foreign franchise holders for the statements A07 (CRM has helped our company to increase the average profit contributed by each customer), A09 (CRM has helped our company to inter-link our delivery channels) and A10 (CRM has helped our company integrate the front-end and back office functions) were slightly lower with means of 2.9 respectively, as compared to that of the local companies. This indicates that CRM programs had not helped the foreign franchise holdings to increase the average profit contributed by each customer. 405 The programs have also not helped to inter-link the delivery channels nor integrate the front-end and back office functions. The overall average mean (3.16) indicates that, in general the CRM programs were perceived as useful to the various organizations as a whole. Following the personal interviews it was revealed that the company distributing the French brand stood out from others. They were the only foreign car distributor to agree strongly with the view that CRM programmes should be used to help their company to interlink their delivery channels as well as to integrate the front end and back office functions. This indicates that these functions are not considered as important by the rest and may be due to the fact that CRM usage is still relatively new in the country. Ranking of CRM Factors Interesting results were observed with regards to ranking of the various CRM factors (given in Table 1) in decreasing order of importance in perceived effectiveness in increasing the profitability in an organization. Individual customer satisfaction (factor B1) was ranked highly by both local car and foreign brand distributor. In fact, based on mean scores, it was ranked as the top most important CRM factor by the foreign car distributors while the local car distributors ranked it the second most important (refer to Table 8). The only exception was the distributor of an Italian brand who ranked individual customer satisfaction much. He instead put factor B04 “Gaining new customers” as the most important followed by Getting existing customers to buy new products Table 8: Most Important and Least Important Factors Ranked by the Car Companies. 2nd Most Important Least Important Factor Companies Most Important Factor Factors Local (Mean) B09 B01, B07 B06 Japan (Mean) B02 B01 B09 Germany (Mean) B01 B03, B04, B06 B09 France B01 B03 B05 Sweden B01 B02 B09 South Korea B01 B04 B09 Italy B04 B06 B07 As is evident from the table, there are some differences in the rankings of the various factors between the national car companies and those selling foreign brands. While the local auto companies ranked factor B09 “elimination of costs from unprofitable customers” at the top, most of those in the non-national (foreign) car segment ranked it as the least important. It was also interesting to note that local companies thought that convincing existing customers (B06) to stay with the company was not that important and ranked low. This may be due to the fact that the Malaysian auto industry is highly protected As a result the two local brands, Proton and Perodua, are the cheapest in the market and together control the biggest market share. They may not see customer loyalty as big a problem. This sense of security may change once the AFTA rules come into effect and customers have a wider variety of choices at comparable or much cheaper prices. Comprehensiveness of CRM Programs Table 9 reflects the mean scores of the various facilities which relate to the comprehensiveness of the CRM programs implemented by the various organizations, in other words, the usage levels of various facilities especially ICT, used to support the execution of effective CRM programs in the organization. It is implicitly assumed that a good CRM implementation programme would have a high usage rate of as many facilties as possible. The higher the mean scores, the higher the usage rate relating to the specific facility. In order to obtain meaningful results, the overall usage rates were divided into High, Medium and Low levels. 1. High Level (mean scores ranging from 3 and above). In terms of decreasing usages, the facilities which fall under this category include telephone, after sales support and website. 406 2. Medium Level (mean scores ranging from 2 to 2.99). Most of the facilities come under this level of usage, namely, data warehousing which facilitates the storage of information; direct contact with customers; datamining facilties which facilitate the sharing of information; enterprise resource planning (ERP) software, which facilitates integration of front end and backend office operations; followed by enterprise wide application (EWP) software, which facilitates data interchange with the system. 3. Low Level (mean scores ≤ 1.99). The usage levels of two facilities come under this level, namely, call centers followed by E-commerce, which has the lowest usage levels. Table 9: Comprehensiveness of CRM Programs Item Facility Local Mean Foreign C01 Call centre 1.5 1.6 Overall 1.58 C02 Telephone 3 3.9 3.75 C03 Direct contact 2.5 3 2.92 C04 Website 3.5 2.9 3 C05 After sales support 2.5 3.5 3.33 C06 Data-mining facilities 2.5 2.8 2.75 C07 Data warehousing 3.5 2.8 2.92 C08 Enterprise wide application (EWP) software 2.5 1.9 2 C09 Enterprise resource planning (ERP) software 0 2.5 2.08 C10 E-commerce 1.5 0.8 0.92 Total µ 23 25.7 25.25 Ave µ 2.3 2.57 2.53 Both local and foreign car distributors showed very low levels of usage with respect to call centers and e-commerce. The later is understandable as the penetration of Internet and E-commerce is still very low in Malaysia. The fact that buying a car is a high involvement decision for most people may also contribute to the low usage of E-commerce facilities. So far, only one national car company had e-commerce facilities. However, online sales were still negligible. Some of the respondents noted during the personal interviews that most customers preferred to come in person and even take a car for a test drive before buying it. This may be the reason behind the low usage of call centers. It was surprising to note that the distributors of the Swedish brand did not use three IT facilities at all, namely, ERP software, EWP software and E-commerce. However, their usage of other facilities was quite high. This indicates that their usage of CRM facilities is not as comprehensive as the others. The company selling the Italian brand, scored the lowest average mean score (1.10) with the respondent indicating that they used only three of the total ten listed facilities, namely C02, C03 and C05. This indicates that their CRM program may not be that comprehensive even though they have had a presence in Malaysia since 1960. As we can see from the Table 9, local companies show lower mean scores of for most of the facilities as compared to the overall scores of foreign car companies. For example, they did not use ERP software at all. That may indicate that they are behind the foreign brand companies in terms of comprehensiveness of CRM programs. 407 MARKETING IMPLICATIONS In this era of relationship marketing, one of the main determinants of business success is the in-depth understanding of the needs and demands of the existing as well as potential customers and the provision of efficient services. Highly satisfied customers are more likely to be loyal. Despite the fact that CRM usage is still relatively new in Malaysia, the study reveals that it has been indeed proven useful to Malaysian automobile marketers, especially in identifying the target customers and in reaching specific customer segments besides identifying various customer needs. CRM has also helped the various companies to achieve a higher number of repeat customers. Individual customer satisfaction was ranked highly by distributors of both local and foreign car brands, in terms of effectiveness in increasing the profitability in an organization. This is a positive indication that the Malaysian auto companies are aware of the importance of investing in customer satisfaction. It is also clear that most of the companies realize that using technology is essential to CRM. Customers should have an easy access to the facilities provided and news updates. This is only possible through the use of technology, especially the company websites. However, the low usage levels of call centers and E-commerce can be attributed to the fact that CRM is a relatively new development in the Malaysian auto industry. The company selling the Italian brand was found to be the least comprehensive in terms of CRM facilities. Being an established company is no excuse for not being up to date. Failure to have a comprehensive system could mean loss of market share to the other players. This is true for the other car companies as well. CRM programs, which are well implemented, could improve the response time to customers need for information and product delivery. The organizations are on the right track, considering that fact that implementation of CRM programs, which include setting up of facilities, involve significant investment of money and take time. LIMITATIONS AND RECOMMENDATIONS FOR FUTURE RESEARCH It should be noted that this study had certain limitations. First of all, this is one of the first to look into the use of CRM and its usage as a marketing strategy in the Malaysian automobile industry. As the study is exploratory in nature, the research was limited to the 12 responding companies and may not represent the whole industry as a whole. Future studies could look in depth into the CRM implementation strategies in individual companies. There is also a need to examine the relationship between the comprehensiveness of CRM facilities and implementation levels with consumer satisfaction. Other studies could also look at the relationship with CRM implementation and profitability of the company. It should be noted that this study is limited to the views of respondents from the companies and completely ignores the views of the customers. Maybe future studies could incorporate the viewpoints of the customers and see whether they are in line with the CRM objectives of the companies. REFERENCES Anderson , E. W. and Sullivan, M. W. (1993). ‘The Antecedents and Consequences of Customer Satisfaction of Firms’, Marketing Science, 12 (2), 125-144. Blue, H (1999). ‘Customer Relationship Management. Hot Topic or Hot Air’. [WWW document] http://www.crmforum.com/crm_forum_white_papers/htoha/sld01.htm (accesed10 Nov 1999). 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(February 2001) 'A Strategic Framework for CRM', LGS Group Inc., An IBM Company, [WWW Document] http://www.insightexec.com/cgi-bin/library.cgi?action=detail&id=1385 (accessed 5 January 2004). NAP – a good start (2005), Kuala Lumpur: Star, the, October 22, p. 3. Xu, Y., Yen, D. C., Lin, B and Chou D. C. (2002) 'Adopting customer relationship management technology', Industrial Management & Data System, 102 ( 8 ), pp. 442-452. Yu, Yi-Ting and Dean, A.(2001)' 'The Contribution of Emotional Satisfaction to Consumer Loyalty', International Journal of Service Industry Management, 12 (3), 234-250. 409 ARAK KSARA: A GLOBAL PROMOTION CHALLENGE Fadi Asrawi Haigazian University, Lebanon Valentin H. Pashtenko Clayton State University, USA ABSTRACT The goal of this Integrated Marketing Communication (IMC) plan is to concisely, and methodically outline the strategies, tactics, and programs that will boost the sales of Arak Ksara. It is presented to affect the manner in which inter-disciplinary case studies are written for academicians and practitioners cross-cultural audiences. The design of this article includes a promotions opportunity analysis, corporate strategies, IMC objectives and a new container design. Ksara is a Lebanese company that produces wine and Arak – an alcoholic beverage manufactured from grape alcohol. It came into the hands of its present owners in 1973, when the Jesuit Fathers decided to sell the estate in conformity with the directives of the Vatican II synod. It is now managed by Charles Ghostine, a lawyer who loved making wine so much to join the management of the most ancient winery in Lebanon. Ksara’s estate is planted with a wide variety of grapes, of which the most important are Cabernet-sauvignon, Syrah, Semillon, Grenache, Sauvignon-Blanc, Cinsault, and Merlot. Ksara is in a unique position to increase its sales and market share in the Arak industry in Lebanon. The combination of a well established image symbolizing quality, tradition and heritage presents an opportunity to take advantage of a consistent positioning in the advertising and promotion efforts. The potential for growth of Arak Ksara in a new container/packaging is a promising opportunity that will allow the company to unify its image across all its products. The two main target markets of Arak Ksara are locals and foreigners who are looking for an elegant, superior quality alcoholic beverage, which symbolizes the unique Lebanese traditional culture, and as a gift or the favorite Arak of local, loyal consumers who enjoy the taste of Arak Ksara. By its new stylish container/package, Arak Ksara can successfully compete in two segments. It can continue to satisfy its loyal customers who enjoy consuming Arak purely manufactured from grape alcohol and use its brand image to become a leader in the gift segment, which has yet to grow. INTRODUCTION Promotion Opportunity Analysis Ksara has been the oldest winery, producing wine for around a century and a half. The brand name spread among wine consumers from generation to generation, starting from words of mouth to local advertising campaigns, helped in building its brand equity. The fact of being the oldest winery was well invested by the company to build their image and influence consumer perception about their products. Associated with the Romans, the Jesuit fathers, the fortress of Frankish Ksara, and the World War I is not just listing of facts about the company’s history, but intended to portray an image of accumulated years of experience, traditions, heritage and ancestry, all contributing to refined quality products. Ksara produces over 13 varieties of wines derived from different kinds of grape varietals. Besides wine, Ksara also produces a traditional, triple distilled, anis flavoured alcoholic spirit: Arak. Ksara is not trying to compete on price. Instead, it produces high quality Arak, in a setting and by utilities which is a replica of the traditional, homemade setting and utilities, thus preserving the roots and standards of this Lebanese heritage; the pride of our grandfathers. 410 The ARAK industry is crowded with large and small competitors who are posturing for position with consumers. Trends indicate that there is strong brand loyalty and most ARAK drinkers will either buy ARAK which suits to their favour of taste or Arak that is the cheapest. As for Arak, Ksara currently occupies second place in terms of market share after Faqra. Its main competitors are Arak Faqra, Brun, El Rif, Massaya, Kefraya and Tazka. All these companies produce Arak from alcohol derived from grapes through fermentation and consequently their price/positioning strategy is similar, constituting the middle and upper end of the market. All other cheaper brands are produced by alcohol derived from sources other than grapes. This in turn gives them a price advantage and has helped them to build a market share by addressing the uneducated (discerned through market demographic research), lower end of the market for Arak. As studying the positioning of Ksara versus its competitors and relevant to the Arak industry, the following strengths and weaknesses were identified: Strengths - Well Established Brand Name: One of the primary strengths of Arak Ksara is its well established brand name. As a matter of fact, the company enjoys a reputation of quality across all its products. - Culture: The company has very old roots in the Lebanese culture. The brand name is very well known across all the territories in Lebanon. - Capacity: The company so far has the largest cultivated vineyards in Lebanon. This gives them a unique position in terms of production capacity. On the other hand, the company is also the largest producer of wine in Lebanon and occupies the first place in terms of market share in that sector. All these attributes endow Ksara with better means to promote its products compared to its competitors. - Quality: Ksara's triple distilled, traditional and authentic Arak is produced from the alcohol of grapes and the best quality anis seed that is relevant for the production of Arak. Although grape alcohol increases production costs, but it is the first main constituent besides the anis seed that makes an Arak traditional and special. Weaknesses - Cannibalization: Going back to Ksara's history, since the Jesuit fathers, the main activity of the company has been wine making. The image of quality, tradition and heritage has been derived from the art of wine making. When the word Ksara is mentioned, the first thing that comes to a consumer's mind is wine. - High Prices: Among its main competitors, Arak Ksara has one of the highest price tags. - Packaging: When consumers buy Arak Ksara, they will buy it for personal consumption and their decision will be based on its attribute of quality. However, other brands have increased their sales by developing attractive containers and satisfying the needs of consumers who want to purchase ARAK as a gift that symbolizes the traditional Lebanese culture and cuisine. Consequently, through the introduction of a new attractive container/package besides its original container, Ksara can expand its market boundaries to include a new segment; consumers who buy ARAK as a gift while invited for social gatherings, while travelling abroad, or whenever introducing a foreigner to the local cuisine and culture. While entering into this segment, ARAK Ksara's primary competitors will be: Arak Massaya, Arak Tazka and Arak Faqra. COMMUNICATIONS ANALYSIS 411 The means of communication that is already used within the industry is comprised of cooperative advertising, consumer promotions, shelf space as well as the duty free shop at the Beirut International Airport. Arak manufacturers usually give the restaurants incentives to promote their own brand when consumers demand Arak while dining in. The higher the incentive the more the restaurant will push a customer to consume that particular brand. As for the supermarkets and the duty free shop, brands compete to place their Arak at a level which has the highest visibility. Mass marketing means more traditional channels, such as TV and highway billboard panels. The form of communication that we suggest Ksara to use to promote the ARAK in its new container/package is by using the highway billboard panels, magazines, special attractive posts in the supermarkets and the duty free shop. Arak Massaya and Tazka have used attractive packaging to promote and increase their sales of ARAK. COMPETITIVE ANALYSIS Since Ksara produces ARAK from alcohol which is purely derived from the fermentation of grapes, the company faces competition in the following areas. Commercial ARAK The traditional Arak making demands the basic ingredients of the Arak to consist of alcohol derived from grapes and anis seed. However, there are many other cheaper resources that could be fermented to produce alcohol, like sugar. Some competitors use such alcohol and claim that their Arak is traditional and authentic. In this manner they are able to reduce their manufacturing cost and thus decrease their prices competitively. These competitors serve people who are more interested in the intoxicating feeling of alcohol rather than quality and taste. Price is also a concern for many of these customers. Homemade ARAK Since Arak is the traditional drink of the Lebanese, many villagers who own vine plantations, still insist on harvesting, fermenting and distilling their own Arak which is termed as “Arak baladi". These people perceive that the only good Arak is what they themselves produce and all the rest that comes bottled and ready to consume in supermarkets and shops is "manufactured" or "commercial" Arak. This perception has also precipitated into the minds of many city inhabitants. Since Syrians also share the same ARAK tradition, many city inhabitants in Lebanon eventually end up paying a relatively higher price to a local or Syrian villager for one gallon of Arak that they perceive to be "baladi". The ones who mostly benefited from this notion are the restaurants. Many restaurants started to carry over their own "Arak baladi" and instead of working to promote a certain brand to the consumers in the restaurant; they are now focusing to promote their in-house Arak. This ends up being more profitable for them then the incentives received from the manufacturing companies. Moreover, although they claim it to be “baladi”, the source remains doubtful. Other distilleries This group is the most direct competitor for Arak Ksara in terms of business activities and some of them constitute the most vigorous of all. These competitors could be categorized under two groups: The first group are manufacturers who have been the early entrants in the industry and already have an established brand name and image, like Kefraya and El Rif. The second group are the new entrants in the industry who are using various marketing techniques and competing in the same price range to build a distinguished brand image and to capture market share like Faqra, Massaya, Brun and Tazka. While there are others in the second group, but these constitute the main. 412 Below is a competitive analysis table using the above-cited companies. Each category is ranked on a scale of 1 to 5 with 1 being poor and 5 being excellent. ARAK KSARA COMPETITIVE ANALYSIS RESULTS Competitor KSARA KEFRAYA BRUN EL RIF TAZKA MASSAYA FAQRA Quality 5 4 5 4 4 4 4 Price 3 4 3 4 4 4 5 Reputation 5 5 5 3 4 3 5 Image 4 4 5 3 4 4 5 Corporate Stability 5 4 3 3 3 4 4 Manufacturing Capabilities 5 3 3 2 3 4 4 Advertising 5 3 3 2 2 4 4 Consumer Promotions 5 2 2 1 5 5 5 Brand Loyalty of Customers 4 4 5 3 3 3 5 Package Aesthetics 2 2 2 2 4 5 4 Channels of Distribution 4 3 4 3 5 5 5 Total 47 38 40 30 41 46 50 Value added features: As shown from the table, Ksara's strengths include: quality, reputation, corporate stability, manufacturing capabilities, advertising and consumer promotions. Also the company is relatively strong in the areas of image, distribution and brand loyalty. OPPORTUNITY ANALYSIS The market trend for Arak is in increase demand. Consumers are looking for ARAK that tastes as good as the "baladi" or a good quality brand that enjoys good aesthetics. One of the major characteristics of a good ARAK is that once consumed moderately, it does not provoke hangover symptoms. These two trends can be explained by the following facts respectively: 1- During the mid-nineties, with the assignment of trade agreements with Syria, the market was dumped with edible grapes imported from Syria at very low prices. This in turn, rendered the local vine owners unable to sell their 413 grapes and many started to convert their unsold grapes into "arak baladi" and selling them to their friends and relatives. This abundant availability of grapes and the "baladi" Arak provoked consumers to shift away from their favourite brand of Arak into new emerging brands that taste similar. 2- With the end of the Lebanese civil war and the reconstruction of Lebanon, many who had migrated returned to Lebanon to visit their families and relatives, and many others travelled abroad for the same purpose. This reunion of families brought along the memories of the traditional cuisine and hospitality that the country is so familiar with and for which one of the basic constituent is the Arak. For many, ARAK constituted the best gift that they could ever take along with them to complete the joy of these reunions. Consequently, this increased the demand for a good quality “baladi” tasting Arak which was sold in presentable, attractive containers/package. Therefore, Ksara by introducing its Arak in an attractive container/package has the opportunity to: - Increase the scope of its already existing target market to also include consumers who are willing to purchase Arak as a presentable traditional gift, and tourists who visit the Ksara estate and winery who would appreciate an attractively designed container of the local traditional drink. - Increase its sales in the Beirut International Airport duty free shops, on board MEA flights and supermarkets. - Maintain its current prices without losing market share to competitors. 4 – Target Market Analysis Currently, the profile for Arak Ksara's typical customer consists of the following geographic, demographic, and behavioural factors: Demographics • • • • • Primarily male Married Ages 35-65 An income over $20,000 More or less educated Behavioural Factors • • • • Appreciates the traditional roots and customs. Is willing to pay extra to consume a good quality Arak in a restaurant, or to present it as a gift. Appreciates aesthetics Values original and creative ideas The market can be segmented into two different groups: People who are pursuing to consume a good Arak in a restaurant This segment is looking for a good and tasty Arak that will accompany their meal without causing disturbing sideeffects. This segment will not care for the aesthetics of the container, but will focus on the KSARA brand name sealed in its traditional container. 414 People who buy ARAK to present it as a gift symbolizing the local tradition and cuisine Consumers buying in this section will care both for quality and aesthetics. Good quality ARAK sold in an attractive container will give the consumer higher incentives to buy a particular brand among many others. Since the market preference is dominated by the notion of the "baladi", manufactured brands in mass have no room but to reposition themselves through marketing efforts. 5- Customer Analysis Ksara possesses good information about the market and knows a great deal about the common attributes of the company's loyal customers. Ksara should leverage this information to better understand who is served, their specific needs and how it can better communicate with them. ARAK Ksara is providing its customers grape Arak. Ksara seeks to provide the following benefits to its consumers: Selection: The choice for a good quality, healthy, aged traditional Arak in its regular container at a lower price in restaurants and the choice to buy the same good quality Arak in an attractive container/package as a presentable gift. Value added product: A product perceived to have a good value, will be even more appreciated if it was contained in an attractive package. In the coming years, the ARAK market is expected to witness changes in terms of major players and ranking. With the availability of new brands with considerable marketing efforts, many consumers have been tempted to betray their loyalty to their preferred brand. Among these people, some will build preference for a new brand thus influencing a change in the market trend. Also, given the undergoing behavioural changes in consumers, aesthetics is playing a major role in their choice of buying a certain product. Moreover, with the decrease in the number of the Christian community, who are the major consumers of alcoholic beverages, efforts to sell big volumes of Arak should be concentrated on the Lebanese Christian community who lives abroad. ARAK Ksara currently occupies the second place in terms of market share. While this is a good position in the current situation, the opportunity to grow is present and strongly suggested. Although the company's major revenues does not depend on the sale of Arak, but it can still grab this opportunity to create a uniform image across all of its products. Corporate Strategies Ksara's mission for Arak is to produce traditional, authentic, triple distilled ARAK from grapes. Their main objective is to provide good quality grape Arak to consumers as a companion to the local traditional cuisine. Ksara's corporate goals are to: • • Increase their market share Reinforce people's perception that Ksara produces healthy, traditional aged Arak Also, in order to succeed the company should opt for the following goals: • • Develop a new attractive container that will convey to the consumers the intended perception. Develop strong relationships with the retailers 415 • Improve the attributes of the Arak to meet the consumer's taste and expectations through surveys and tests Ksara will face competition from the major market players who will be imitating its strategy. It should observe the competing companies and learn from them the reason for their success and use its established brand name to become the number one in the industry. As we have observed the two main things that attract the consumer to buy a particular brand is the quality versus price and attractiveness. For personal consumption quality and taste comes first. As for presenting it as a gift, the attractiveness of the container relative to its perceived quality and price is the major motivation to buy a certain brand. The source of our idea comes from the strategy pursued by a company called Distilleria Bottega s.r.l. who specializes in the production of Grappa branded as “Alexander,” which could be used for benchmarking purposes. The following are the mission, strategy and the approach of Distilleria Bottega s.r.l. STRATEGY Excellent quality in ongoing evolution that can be easily recognised by the public at large. High impact packaging. Genuineness The products by Bottega, from grappa to organic food, have a common feature, i.e. safeguarding the raw materials properties - above all those promoting health. In the past centuries, grappa was considered a "Water of Life" and if taken in small quantity it favours the digestion, acts as an anti-depressant, reduces cholesterol, protects from heart diseases and reduces the risk of formation of gallstones. Finally, a small glass of grappa contains fewer calories than a soft drink. Aromas and tastes Distilleria Bottega pays maximum attention to preserving the natural aromas and tastes in its products. Our distillates are so mild, elegant and aromatic to deserve the slogan "Lady Grappa". Gifts All products by Bottega - from grappa to organic food - can be offered as gifts and are appreciated both for their quality and their fine packaging. 1- Corporate Image Strategy The primary objective of this IMC plan is to position Arak Ksara as a healthy, traditional and aged Arak, whose quality is as good as the quality of the "arak baladi" and to reinforce this image in the consumers’ perception. Ksara is a premium quality wine producer. Given the fact that the company's primary source of revenues is derived from the sale of wine, it has capitalized its advertising efforts in developing an image of quality, nobility and heritage as a winemaker. Although this has proven worthwhile for the company, this dominating image has cannibalized Ksara's image in the production of Arak, although it is still perceived to be an Arak of good quality. To escape from this loophole, Ksara can use its established image in the wine industry and the perceived image of good quality, to come up with a new competing strategy; develop a new container/package design that will convey an image of tradition, authenticity and quality and introduce a new segment in its target market strategy. Through this strategy, Arak Ksara could establish and maintain this image for both gift buyers and those who purchase for themselves. 2 – Brand Development Strategy The brand name Ksara has both its advantages and disadvantages at this point. The name “Ksara” is quickly associated with wine. However, the advantage of the brand name is that it is widely recognized all over by the Lebanese. 416 Therefore, the brand development strategy for this IMC program is to extend the perceived image of Ksara to contain the Arak as well. It is crucial to develop a link with the image of Ksara’s wine, so that both products will be vividly present in the consumers’ mind. Just as when people present Ksara’s wine as a symbol of cultivation, Ksara could use the high impact packaging technique on the Arak to create this link. 3- Brand Positioning Strategy Arak Ksara’s position should be “a finer way of appreciating the roots of the Lebanese tradition”. Arak Ksara’s conventional container/package and its new attractive container/package will leverage the competitive edge to increase the Arak’s customer base and reinforce the Ksara brand in this area. Ksara’s competitive edge is the brand’s approach to consumers with the notion of quality, ancestry, nobility and tradition. The highly competitive industry needs a new, creative, artisan approach in marketing the product. In this way Ksara will maintain a high quality brand image along all products and segments. 4- Distribution Strategy The primary distribution strategy goal for Ksara is to reinforce its relationship with the distribution outlets such as: • • • • • Restaurants Supermarkets Duty free shops Specialty liquor stores On board the national flag carrier While restaurants will not be the primary source for sales of the new container/package, they will allow Ksara to maintain its initial customer base. The goal of duty free shops and specialty stores will be to attract potential customers looking for a gift. As for the supermarkets, it will help word-of-mouth endorsements to attract a wider customer base. IMC MANAGEMENT Ksara will use a three-pronged approach to marketing. The first prong is making the newly designed container/package visible in the specialty and the duty free shops. Consumers usually go to such stores to buy gifts and therefore its vivid presence in these locations is very essential. The second prong is to approach the local and the Lebanese restaurants abroad and negotiate with the owners for better terms and incentives, so that they could promote Arak Ksara. As for the third prong, it will strengthen its presence in the supermarkets. The newly designed container/package could be placed also with the Ksara wine besides placing within the group of ARAKs. This will introduce the idea to the consumers who buy wine and make an impact in their minds. 1- IMC Objectives Ksara’s corporate sales goals are: • • • Grow total sales by 10% annually. Reinforce customer loyalty through quality and customer-centric approach. Increase its customer base. 417 Ksara’s marketing mix for the ARAK should be comprised of the following approaches to the product, pricing, distribution, advertising and promotion, and customer satisfaction: • Product: The product attributes that should be focused on include quality, brand name, container design and packaging in order to convey the intended perception. • Pricing: The pricing scheme should be designed to include manufacturing and holding costs. The traditional container could be sold at minimally reduced price, whereas the new container/package could be sold at a premium price. • Distribution: The products should be distributed through restaurants, duty free shops, supermarkets, specialty liquor stores, and the national flag carrier. • Advertising and Promotion: These activities will be accomplished through advertisement vehicles, visibility on retail shelves, and active presence in local traditional festivals, as well as food and beverage fairs. • Customer Satisfaction: Carefully paying attention to the Arak consumers’ needs is the mantra, even if this means re-evaluating manufacturing standard procedures and packaging. The following are the IMC objectives for Ksara’s Arak. The first IMC objective is to reinforce the quality perception in the minds of the already established target market and create awareness for the new pursued target market. Tracking the needs and demands of the consumer and consequently creating an awareness is the key. Therefore, the first objective is to increase the number of people who have a positive perceived image for ARAK Ksara. The second objective is to recapture the awareness of the restaurants, to promote ARAK Ksara as the best choice. To realize this means giving higher promotional incentives to these restaurants. 2- IMC Budget The current planned budget at Ksara to realize the IMC objectives for their Arak is $50,000. More money is spent during spring and summer because that’s when consumers like to go outdoors, to the villages or to restaurants and also because that’s when tourism starts. However, to launch the Arak in its new container/package, an increased budget will be required to realize the awareness needed. 3- Agency Selection The already selected agency of Ksara is Leo Burnett. The following is the business profile of Leo Burnett: An icon agency building icon brands, Leo Burnett Worldwide is a Top Ten global agency network. Our 94 offices in 82 countries are united behind one vision – we create ideas that inspire enduring belief. Whether in Kuala Lumpur, Bogota or Prague, you will find Leo Burnett’s values driving the way we work; above all, pursuing excellence across everything we do. This passion has helped us become one of the top five most creative global networks for four years running. In 2003, more Leo Burnett offices (27) contributed to this honour than any other network in the world. Even more important, our relentless pursuit of excellence has helped build our clients' businesses. Over the years we have helped create some of the world's most valuable brands like McDonald's, Disney, Kellogg's and Nintendo. In 2002, Leo Burnett became part of the Publicis Groupe, the fourth largest communications company in the world. With access to more resources and deeper capabilities than ever before, we are poised to help our clients succeed across every aspect of brand-building. 418 IMC Objective The first IMC is to reinforce the quality perception in the minds of the already established target market and create awareness for the new pursued target market. To accomplish this objective, a budget should be devoted to the following items: Advertising: Two primary seasons for advertising Arak Ksara are springtime and summertime. Advertising for personal consumption should be maintained throughout the two seasons and the gift item should be promoted during the periods when there is the most traffic at the Beirut International Airport. Consumer promotions: The current consumer promotion is a DVD which illustrates the different processes needed to produce the traditional Arak. Sponsorships: Ksara should also pursue to sponsor local traditional festivals; especially those festivals that include food from the traditional cuisine. The primary market for Arak consumption consists of Males. As for the market segment which purchases Arak as a gift could be a male or a female. Therefore, the bulk of the advertisement budget should be spent on advertisement in the duty free zone, the MEA magazine and the highway billboard panels which could address both genders. The focus of the advertisement should be building the intended perception in the consumer’s mind i.e. good quality ARAK having an attractive appearance. - Creative Brief The following creative brief should be used in developing the advertisements. Objective: To convey an intended perception. Target Audience Profile: Demographically, the target profile are mostly males, aged 35-60, with incomes above $20,000 who are more or less educated. Behaviourally, the target market appreciates quality and aesthetics. Message Theme: The primary theme will focus on quality and a finer way to appreciate the local traditional culture. - Advertising Design Attributes: Creative, unique container/package containing quality Arak. Benefit: Customers will be buying a good quality Arak in an attractive presentable container. Personal Value: Values such as social acceptance and wisdom are tapped. Leverage point: The social acceptance or awe shown by someone who is admiring the container and appreciating the taste of the product that another individual has presented to him. Executional Framework: A finer way of experiencing the traditional cuisine and lifestyle of the ancestors with an emotional appeal concentrating on happy occasions. The second objective is to recapture the awareness of the restaurants, and distribution channels to promote Arak Ksara as the best choice. To realize this means giving higher promotional incentives to these restaurants. Trade promotions also require a good deal of expenditure to build the strength of the Ksara brand for Arak in the marketplace. To reach this objective, the marketing team should focus on trade allowances, trade incentives and development of special stands for displaying. 419 One of the most important methods of executing this objective is through the participation in food and beverage fairs. Container/Package Design The following bottle designs belong to the Distilleria Bottega for the “Alexander” grappa and are offered to serve as a platform to develop a creative design for the new container/package of Arak Ksara. 420 421 422 REFERENCES De Wit, B. & Meyer, Ron (2005). Strategy Synthesis: Resolving Strategy Paradoxes to Create Competitive Advantage. Thomson Learning, London. Galunic, D. C. & Eisenhardt K. M. (1994). Renewing the Strategy-Structure-Performance Paradigm. Research in Organizational Behavior. Vol. 16. Cummings LL. Staw BM (eds). JAI Press: Greenwich, CT: 215-255. Hart, S. L. (1992). An Integrative Framework for Strategy-Making Processes. Academy of Management Review 17: 327-351. Hoffman, R. C., & J. F. Preble (1991). Franchising: Selecting a Strategy for Rapid Growth, Long Range Planning 24 (4), 74-85. International Business Strategy (2002). Franchising in Indonesia, September. Jensen, M. & Meckling, W. (1976). Theory of The Firm: Managerial Behavior, Agency Cost, and Capital Structure in Mahoney, J. T., 2005, Economic Foundations of Strategy, Sage Publication, London. Johnson, G. and Scholes, K. (2002) Exploring corporate strategy, 6 edn, Financial Times /Prentice Hall: Harlow, England. Kotabe, M. and Murray, J. Y. (2004) 'Global Sourcing Strategy and Sustainable Competitive Advantage', Industrial Marketing Management 33(1): 7-14. Leonard-Barton D. (1992). Core Capabilities and Core Rigidities: A Paradox in Managing New Product Development. Strategic Management Journal 13(Special Issue: Strategy Process): 111-125. Miles R., & Snow C. (1978). 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Sveiby, Karl-Erik (2001). A Knowledge-based Theory of The Firm To Guide Strategy Formulation. Journal of Intellectual Capital, Vol.2 No.4. Winter, Sydney G & G. Szulanski (2001), Replication as Strategy, Organization Science, Vol. 12, No. 6, p. 730-743 www.adforum.com/creative_archive/2002/AW155 www.alexander.it www.winedine.co.uk www.foodreference.com www.lebmania.com www.cedarland.org www.bbr.com/gb/db/news-item 424 THE MODERATING EFFECT OF BALANCED SCORECARD MEASURES ON STRATEGY-PERFORMANCE RELATIONSHIP: AN EMPIRICAL STUDY OF MALAYSIAN MANUFACTURING FIRMS Ruzita Jusoh Daing Nasir Ibrahim Yuserrie Zainuddin University of Malaya, Malaysia ABSTRACT Using survey data obtained from top manufacturing executives of 120 Malaysian firms, this paper empirically examined the role of the BSC measures usage as a potential moderator of the business strategy and performance relationship. Results of this study provide evidence that partially support the moderating effects of the balanced scorecard (BSC) measures usage on the strength of the relationship between business strategy and firm performance. INTRODUCTION A significant portion of prior research has focused on the strategy-performance relationship (e.g. Miles & Snow, 1978; Porter, 1980; Mosakowski, 1993; Parnell, 1997). However, the question whether the positive strategyperformance relationship varies with different usage of performance measures has not been fully investigated. In the strategy literature, the relationships between Miles and Snow’s (1978) strategic typology and performance are rather mixed and inconclusive. While Miles and Snow contended that all three strategic types, namely, prospector, analyzer, and defender have equal performance levels, other studies have found conflicting findings (e .g. Hambrick, 1983; Segev, 1987, Parnell, 2000). Due to this mixed results, it is timely to investigate more closely the potential moderator for the strategy-performance relationship. The choice of performance measures to be used depends largely on the strategy requirements of an organization. Strategically driven performance measurement system seems far from reality when the measures used are not relevant to the current strategies being pursued. According to Neely et al. (1994), performance measures can encourage the implementation of strategy by matching measures and strategies. Therefore, this study attempts to contribute to the body of knowledge in this area by investigating the moderating role of BSC on the strategyperformance relationship. This paper is organized as follows. Firstly, the literature review is presented and hypotheses are developed. Secondly, a discussion of the research methods is presented and followed by a discussion of the statistical model and testing procedures. Thirdly, the empirical results are reported. Finally, discussions on the findings and limitations as well as conclusion are presented. LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT Business Strategy and Performance The literature on strategy suggests that different business strategies would have a different impact on firms’ performance (Porter, 1980; Slater & Narver, 1993; Mosakowski, 1993; Hashim, 2000). For example, Porter (1980) found that by adopting business strategies such as low cost strategy, differentiation strategy, and focus strategy, firms can outperform their competitors. Using differentiation, focus, and low cost strategies, Hashim (2000) found that performance of Malaysian SMEs varies with the choice of the business strategies they adopted. Another study by Mosakowski (1993) found that entrepreneurial firms that adopted focus and differentiation strategies performed better than firms that did not use these strategies. From the literature, the relationships between Miles and Snow’s strategic typology and performance are rather mixed and inconclusive. Miles and Snow (1978) proposed that any of the three more stable strategic types (prospectors, analyzers, and defenders) are equally likely to perform well, given that they respond to the challenges of the adaptive cycle in a consistent fashion. Studies that confirm this proposition include Snow and Hrebiniak (1980), Smith et al. (1986), Conant et al. (1990). For example, Conant et al. (1990) found that the subjective 425 profitability evaluations of managers in defender, prospector, and analyzer organizations were not significantly different among themselves. However, other studies found conflicting or rather mixed findings (Hambrick, 1983; Segev, 1985; Zahra & Pearce, 1990; Parnell & Wright, 1993; Parnell, 2000). For example, results from Hambrick’s (1983) reject the proposition of Miles and Snow (1978) that prospectors and defenders have equal performance levels. Depending on both the environment and performance measures used, there are significant differences in the performance of prospectors and defenders. Overall, it appears that defender firms outperform prospector firms on return on investment (ROI) and cash flow on investment (CFOI) (financial performance), but prospector firms outperform defender firms on market share change (non-financial performance) in mature-innovative industries. However, in a mature non-innovative environment, both prospectors and defenders were negatively associated with ROI and CFOI. Also, Hambrick (1983) found that analyzer appeared to be the superior strategy as compared to the two extreme strategies as shown by its greater ROI and CFOI in mature noninnovative industries. Meanwhile, Segev (1987) found that significant positive correlations are observed between prospector and three performance indicators (retail market share, last six months’ sales, and stock price), and between analyzer and six performance indicators (retail market share, last six months’ sales, profit as percentage of sales owner’s equity, return on assets, and stock price). However, the defender measure was marginally positively correlated with only one of the performance indicators, that is owner’s equity Meanwhile, Parnell and Wright’s (1993) study shows that revenue growth is highest among prospector firms. Results from Parnell’s (2000) study reveal that firstmover/prospector strategy was significantly correlated with revenue growth, but not with return on asset (ROA), while second-mover/analyzer strategy was not associated with either of the two performance measures. Meanwhile, segment control/defender strategy was significantly correlated with ROA, but not with revenue growth. Hence, it is assumed that emphasizing prospector, analyzer, or defender strategy would have a positive impact on performance since each strategy has its own uniqueness and distinctive attributes that contribute to competitive advantage to the firm. This is in line with the concept of equifinality which suggests that the same outcomes can be achieved in multiple ways with different resources, diverse transformation processes, and various methods or means (Hrebiniak & Joyce, 1985). Balanced Scorecard (BSC) Kaplan and Norton (1992, 1996b) developed a comprehensive performance measurement system known as the Balanced Scorecard. It is multi-dimensional in nature that offers a superior combination of financial measures and non-financial measures. Non-financial measures include at least three other perspectives - customers, internal business process, and learning and growth. The focus of the BSC is on vision and strategy. The BSC translates an organization’s vision and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system. Using BSC as a strategic management system would overcome the deficiency in traditional management systems with regard to their inability to link a company’s longterm strategy with its short-term actions (Kaplan & Norton, 1996a). According to Edwards (2001), modern performance measurement in general and the BSC in particular, try to address the key management issue, that is the strategy execution failure. One of the reasons why companies often fail to turn strategy into action has to do with performance measurement system as they fail to collect the right information to monitor progress towards their strategic goals (Edwards, 2001). Besides, different strategies coming from different functions of an organization also become a barrier to strategy implementation as most organizations have great difficulty in communicating and coordinating across these specialty functions (Kaplan & Norton, 2001). As communicating business strategy and aligning individual goals with corporate goals are critical in many organizations (Simons, 1995), BSC can provide a mean for communication and alignment of corporate strategies by cascading and linking measures to each level of organization including business units, support units, and employees. Thus, BSC serves as a tool to deploy the organization’s strategy. As each strategy is unique in its own way, it requires different types of performance measures and with different emphasis. In this regard, Olson and Slater (2002) argued for the adoption of multi-measure approach in measuring performance, but challenged the idea that all measures are equally important irrespective of the product-market strategy adopted. In their study, they examined the relationship between the product market competitive strategy using the Miles and Snow (1978) strategy and the emphasis placed on different perspectives of the BSC. They found that prospectors emphasized the innovation and growth perspective more than analyzers, low-cost defenders, and 426 differentiated defenders. The high performing analyzers placed greater emphasis on innovation and growth perspectives while low performers placed greater emphasis on financial perspective. The high-performing and lowcost defenders placed greater emphasis on financial perspective and lower emphasis on both customer and innovation and growth perspectives, while the high-performing differentiated defenders placed greater emphasis on the customer perspective. More recently, Ittner et al. (2003) found that a variation of the measurement diversity approach has the strongest association with stock market performance whereby firms that make more extensive use of a broad set of financial and non-financial measures than those with similar strategies or value drivers earn higher stock returns. According to Miles and Snow (1978), prospector-type strategy tends to develop broad-based information systems with non-financial and external performance measures as well in order to suit with its effectiveness and results orientation. On the other hand, defender-type strategy tends to have cost-oriented information systems which are efficiency and input oriented. For analyzer, as balance is the common characteristic of this strategy, it requires a balanced set of information system emphasizing both on efficiency and effectiveness. From these attributes, it is implicitly assumed that prospector-type strategy uses more of non-financial performance measures, and is more innovative than defender-type strategy. Since prospector, defender, and analyzer type strategies require very different internal structures and administrative processes, so the design parameters of management information systems (MIS) are also likely to differ (Abernethy & Guthrie, 1994). Their findings indicate that information systems which have the characteristics of a broad scope system were more effective in prospector firms than in defender firms. In another related study, Govindarajan and Gupta (1985) concluded that subjective bonus systems (considered as one aspect of management control systems emphasizing on non-financial measures) were beneficial for emerging firms following “build” strategies, but detrimental to firms following “harvest” strategies. Moreover, evidence uncovered from Guilding’s (1999) study stated that prospector firms make greater use of and perceive greater helpfulness in customer-focused accounting (CFA) practices. Guilding (1999) argued that the use of competitively-oriented analysis will result in a betterinformed pricing and costing decision since it considers non-financial factors like competitor price reaction, price elasticity, and market growth. Meanwhile, Ittner and Larcker (1997) found that the interaction effects between quality-oriented strategies and strategic control systems on performance provide mix result and that quality-oriented strategy by itself has little main effect on companies’ performance. They argued that two reasons many of the strategic control practices having negative relations with performance are due to the use of incorrect measures and measures that could not be linked to the desired strategic outcome. According to Ittner and Larker (1998), significant determinant of the weight placed on non-financial measures includes, among others things, the extent to which the firm followed an innovation-oriented strategy. In examining the related issue, Govindarajan and Gupta (1985) found that the benefits from non-financial compensation criteria are contingent on a business unit’s strategy where greater reliance on long-run non-financial criteria (for example, sales growth, market share, new product and market development) indicating a strong positive impacts in units following a “build” strategy than in those following a “harvest” strategy. Following Guildings’ (1999) findings, it justifies why prospector strategy having “build” mission use more of non-financial information or measures. Also, Ittner et al. (1997) provided evidence that non-financial measures play an ever increasing role in the managers’ performance evaluation where they noted that prospectors (firms with long-run focus) tend to rely more on nonfinancial measures than do defenders (firms with a short-run focus). In summary, research suggests a relationship between strategy and performance. In addition, previous research also indicates that performance measures can be linked to strategy. Also, previous research has examined the effects of organizational strategy on performance measures and the relations between performance measures and organizational performance (e.g. Govindarajan & Gupta, 1985; Abernethy & Guthrie, 1994; Ittner, et al., 2003). However, the extent to which organizations use the measurement technique, such as the BSC, to actually link their performance measures more closely to strategic priorities is still under research. More specifically, no study thus far has considered the BSC as the moderating variable. Thus, consistent with argument forwarded by (Banker, Janakiraman & Konstans, 2001) in that the use of the BSC can provide the articulation of linkages between performance measures and strategic objectives, it is expected that extent of usage of different types of performance measures may moderate the relationship between strategy and performance. Figure 1 portrays this conceptual framework. In this study, it is expected that the impact of emphasizing prospector strategy on performance is stronger for higher as compared to lower usage of customer and learning and growth perspectives. Also, the impact 427 of emphasizing analyzer strategy on performance is stronger for higher rather than lower usage of financial, customer, internal business process, and learning and growth perspectives. In addition, it is expected that the impact of emphasizing defender strategy on performance is stronger for higher as compared to lower usage of financial and internal business process perspectives. Hence, the following hypotheses were developed: Main Hypothesis: Extent of the BSC measures usage moderates the relationship between business strategy and firm performance. Sub-hypotheses: Ha: The impact of emphasizing prospector strategy on performance is stronger for higher as compared to lower usage of customer and learning and growth perspectives. Hb: The impact of emphasizing prospector strategy on performance is stronger for lower as compared to higher usage of financial and internal business process perspectives. Hc: The impact of emphasizing analyzer strategy on performance is stronger for higher rather that lower usage of financial, customer, internal business process, and learning and growth perspectives. Hd: The impact of emphasizing defender strategy on performance is stronger for higher as compared to lower usage of financial and internal business process perspectives. He: The impact of emphasizing defender strategy on performance is stronger for lower as compared to higher usage of customer and learning and growth perspectives. METHODOLOGY Sample The study was conducted using a questionnaire-based survey to collect data. Questionnaires were sent by mail to the top managers of manufacturing firms. Because of the recent emerging impact of several factors on manufacturing industries such as of the use of new and advanced manufacturing environment and recent trends of measuring manufacturing performance, the manufacturing industry is viewed as a particularly relevant area of study. Firms were randomly selected from the directory of Federation of Malaysian Manufacturers (FMM) year 2003. These firms are from various industries and are located all over Peninsular Malaysia, particularly in Klang Valley, Penang and Kedah. Only firms with at least 25 employees were included in the target sample in order to have enough firms representing small and large firms. Of 975 questionnaires sent out, a total of 133 questionnaires were returned. However, only 120 responses were usable, making a usable response rate of 12.3%. This response rate is low but not unusual, given that Malaysian managers are typically reluctant to participate in mail surveys. Also, the sensitive and confidential nature of the information requested may contribute to the overall low response rate. Figure 1 The Conceptual Framework Balanced Scorecard: • Financial Perspective • Customer Perspective • Internal Business Process Perspective • Learning and Growth Perspective Business Strategy Firm Performance 428 Variable Measurement To test the moderating effects of BSC measures on the relationship between business strategy and firm performance, three constructs were used to measure business strategy (Parnell, 1997), four constructs were used to measure BSC (Hoque et al., 2001), and one construct was used to measure firm performance (Mia & Clarke, 1999; Govindarajan, 1984). Business Strategy. Business strategy was measured by using three strategic types as proposed by Miles and Snow (1978): prospector, analyzer, and defender. Another type, reactor strategy, was excluded from the scope of analysis. This is because, in the Malaysian context, studies by Sim and Teoh (1997) and Abdul Rashid (1997) indicated that reactor type was found to be insignificant and almost inexistence. Although only three viable strategy types, namely, prospector, analyzer, and defender were used to test the relationships between business strategy and performance, for the purpose of collecting data, the reactor type was also included in the questionnaire. A newly developed multi-item scale developed by Parnell (1997), based on the work of Conant et al. (1990) was used for operationalizing the Miles and Snow strategic typology. This new multi-item scale can be referred to as multivariate measurement of strategy which contains a broad set of strategic variables (Hambrick, 1980). This is parallel with Parnell’s (2000) suggestion that the combination strategy to be viable over the long run and can be associated with superior performance. There were a total of 12 questions with each consisting of four statements, one for each possible strategy. Each respondent was required to indicate whether he or she agrees or disagrees with each statement concerning their organization by using a seven-point Likert scale ranging from “1= Strongly disagree” to “7= Strongly agree”. The terms Prospector, Analyzer, Defender, and Reactor were omitted from the questions in order not to indicate that the types necessarily represent good or poor strategy. To measure the strategy, an overall evaluation of the degree to which the firm emphasizes a given strategy was derived by taking the mean score across the twelve items. The approach of taking mean or average scores to measure strategy is consistent with Segev’s (1987) study. A reliability check using Cronbach alpha (Cronbach, 1951) was done to test the internal consistency of the business strategy constructs. This test produced the alpha coefficients of .89 (prospector), .86 (analyzer) and .56 (defender). According to Nunnally (1978), alpha coefficients of .50 to .60 are acceptable for exploratory research. The BSC Measures. The BSC measures were assessed using a 29-item scale comprising four dimensions, namely, financial, customer, internal business process, and learning and growth. These measures represented generic measures that are commonly used by manufacturing firms. Twenty items were taken from Hoque et al. (2001) which were originally adopted from Kaplan and Norton (1992) and the remaining nine items were self-constructed. The respondents were asked to indicate the extent of their firm’s use of each measure across the four dimensions using a seven-point Likert-type scale ranging from 1 (not at all) to 7 (to a greater extent). In assessing the factorability of the data, the results indicate that the Barlett Test of Sphericity (Bartlett, 1954) reached statistical significance (Chi-Square = 1406.72, p < .01) and the Kaiser-Meyer-Olkin (KMO) Measure of Sampling Adequacy was .79, exceeding the recommended value of .60 (Kaiser, 1974). These results suggest that the factorability of the data is considered appropriate. A principal components analysis (PCA) with varimax rotation was performed for the 29 items of the performance measures to determine their groups according to the BSC’s four perspectives of measures. Five component factors with eigenvalues greater than 1 emerged from the analysis, which explained a total of 68.9% of the variance. To be consistent with a priori expectation, two component factors were combined together, and was named as Customer as they both representing measures for customer. The other three component factors were named as Financial, Internal Business Process, and Learning and Growth and these results were quite consistent with previous research on the BSC scale. A reliability check on the BSC measures produced Cronbach alpha values all above the lower limits of normal acceptability (financial = .75, customer = .85, internal business process = .88, and learning and growth = .85). A mean for each of the dimensions was calculated to represent the extent of BSC measures usage. Performance. Firm performance was measured by a self-rating scale using 12 indicators taken from Mia and Clarke (1999) and Govindarajan (1984). An advantage of this multiple indicators approach is that it incorporates all aspects of quantitative and qualitative, financial and non-financial performance in the assessment (Mia & Clarke, 1999). Respondents were asked to identify the changes in the performance measures in the last 3 years using the scale of 1 429 to 7 (decreased tremendously = 1, no change = 4, and increased tremendously = 7). performance index was obtained for each firm. A weighted average Control Variable. Firm size was treated as the control variable. Firm size was defined and measured using number of employees obtained from the FMM directory. Number of employees represents the most commonly used approach to measure size in research (Kopp & Litschert, 1980). Firm size was transformed logarithmically to adjust for expected non-linearity or non-normality (Gosselin, 1997). As firm size may influence performance, firm size was controlled in order to guard against spurious effects in testing the impact of strategy and BSC measures interaction on performance. Controlling for the effect of size should provide a better test of whether the extent to which a firm emphasises on prospector, analyzer, or defender strategy and the extent to which a firm uses the BSC measures has an impact on performance. TESTING PROCEDURES To test the existence of a moderating effect by extent of the BSC measures usage on the relationship between business strategy and performance, a hierarchical regression analysis was used. In the first step, performance was regressed on the firm size, three business strategy variables (prospector, analyzer, and defender), and four dimensions of BSC measures (financial, customer, internal business process, and learning and growth). In the second step, the cross-product terms between business strategy variables and the BSC variables were entered in the regression. Following these approaches, two regression models were used to test the hypotheses. As multicollinearity problems are inevitable in moderated regression analysis (MRA), the independent variables were standardized in order to improve computational accuracy and in turn overcome multicollinearity due to the interaction between the variables (Maiga & Jacobs, 2003; Bring, 1994). Following this approach, the independent and moderating variables were transformed into Z scores with a mean of 0 and standard deviation of 1. RESULTS Descriptive Statistics Table 1 provides the profile of the responding firms that constitute a broad spectrum of business activities. Majority of the firms are from electrical and electronics product manufacturing (25); followed by iron, steel, and metal product manufacturing (18); food and beverage manufacturing (13); and rubber and plastic product manufacturing (11). There were seven respondents each in the paper, printing, packaging, and labeling product manufacturing; chemicals and chemical products manufacturing; and pharmaceutical, medical equipment, cosmetics, toiletries, and household products manufacturing. Furniture and wood related product manufacturing had five respondents, while textile, clothing, footwear, and leather manufacturing and machinery and equipment manufacturing had four respondents each. Firms with annual sales turnover greater than RM21 million accounted for 82.3% of the total. Majority of the firms have total gross asset of less than RM50 million (52.6%), while those with total gross asset above RM150 million represented 18.4%. Majority of firms have a total number of employees of 400 or less (69.1%) and those with greater than 200 employees make up about 64.1% of the sample. When taking number of employees as a measure of firm size, this result reflects that majority of firms are considered as large or medium large. Table 1 Profile of the Responding Firms (n=120) Primary business activity: Electrical and electronics product manufacturing Iron, steel, and metal product manufacturing Food and beverage manufacturing Rubber and plastic product manufacturing Paper, printing, packaging, and labeling product mfg 430 Frequency Percent 25 18 13 11 21.0 15.1 10.9 9.2 7 7 5.9 5.9 7 5 5.9 4.2 4 4 18 119 3.4 3.4 15.1 4 17 33 30 35 119 3.4 14.3 27.7 25.2 29.4 54 20 14 5 21 114 47.4 17.5 12.3 4.4 18.4 13 30 40 16 21 120 10.8 25.0 33.3 13.3 17.5 Chemicals and chemical product manufacturing Pharmaceutical, medical equipment, cosmetics, toiletries, and household products Furniture and wood related product manufacturing Textile, clothing, footwear, and leather manufacturing Machinery and equipment manufacturing Other manufacturing Total Annual sales turnover: Less than RM10 mil RM10 - RM20 mil RM21 - RM50 mil RM51 - RM100 Above RM100 mil Total Total gross assets: Less than RM50 mil RM50 – RM70 mil RM71 – RM100 mil RM101 – RM150 mil Above RM150 mil Total Total number of employees: Less than 100 100 – 200 201 – 400 401 – 600 Above 600 Total Note: Total figures are not equal due to missing values. The descriptive statistics shown in Table 2 provides summary statistics on mean, minimum, maximum, standard deviation, and theoretical range. The results show that the mean responses on the variables are scattered between the range of 3.00 and 6.00, with standard deviation of between 0.55 and 1.57. Among the business strategies, prospector received the highest variation in scores although its mean is slightly lower than analyzer strategy, while defender strategy is the lowest among them. The results show that the financial measures have been used most extensively (mean = 5.98), followed by customer measures, (mean = 5.36), internal business process measures (mean = 5.26), and learning and growth measures (mean = 3.99). These results are consistent with those surveys reported by Ittner and Larcker (1998) among the U.S firms and Anand et al. (2005) among the Indian companies. Table 2 Descriptive Statistics Min. Max. Mean Std. Deviation Theoretical Range Business Strategy: Prospector Analyzer Defender 3.25 4.00 3.50 6.83 6.92 6.25 5.35 5.75 4.76 .85 .60 .55 1.00 – 7.00 1.00 – 7.00 1.00 – 7.00 BSC Measures: Financial Customer 3.67 3.22 7.00 7.00 5.98 5.36 .78 1.01 1.00 – 7.00 1.00 – 7.00 431 Internal business process Learning and growth 2.00 1.00 7.00 7.00 5.26 3.99 1.11 1.57 1.00 – 7.00 1.00 – 7.00 Performance 2.99 7.00 4.78 .78 1.00 – 7.00 Firm size* 25.00 3700.00 378.03 535.17 NA (3.22) (8.22) (5.46) (.91) * Values in brackets are when number of employees measuring firm size was transformed logarithmically. Hypotheses Tests The main hypothesis predicts that extent of the BSC measures usage moderates the relationship between business strategy and firm performance. Results of regression analyses are shown in Table 3. The whole model is significant (F = 8.833, p < .001, R2 change = .102) and explains 66.7% of the variance in performance. Results in Table 3, equation (2), shows that significant moderating effects are obtained from the interactions of prospector strategy and financial measures, prospector strategy and learning and growth measures, analyzer strategy and financial measures, and defender strategy and customer measures. The regression results indicate that performance is a significant negative function of the interaction between prospector strategy and financial measures (t = -1.97, p < .10) and a significant positive function of the interaction between prospector strategy and learning and growth measures (t = 1.79, p < .10), analyzer strategy and financial measures (t = 2.65, p < .05), and defender strategy and customer measures (t = 2.21, p < .05). Thus, hypotheses a and b are partially supported and hypothesis c is marginally supported. However, hypotheses d and e are not supported. DISCUSSION, LIMITATIONS, AND CONCLUSION The moderating role of the BSC measures on the relationship between strategy and performance has been empirically examined in this study and the overall results suggest that there is a plausible support for the proposition. This study reports that the relationship between prospector strategy and performance is moderated by usage of financial measures. This means that the impact of emphasizing prospector strategy on performance is greater for lower as compared to higher usage of financial measures. It implies that, firm emphasizing prospectors, also known as first-movers (Parnell, 2000), may develop wide arrays of products that are perceived to be unique. Table 3 Results of Regression Variables Prosp Analy Defend Finan Cust Int Learn Size Prosp*Finan Prosp*Cust Prosp*Int Prosp*Learn Analy*Finan Analy*Cust Analy*Int Analy*Learn Defend*Finan Defend*Cust Defend*Int Defend*Learn Equation (1) ß t 0.28 2.53 0.32 2.92 -0.11 -1.48 0.05 0.65 -0.01 -0.06 0.21 2.26 0.21 2.70 -0.16 -2.31 432 Equation (2) ß t 0.33 3.03 0.30 2.65 -0.16 -2.21 0.07 0.91 0.01 0.05 0.20 2.10 0.24 2.96 -0.20 -2.86 -0.27 -1.97*** 0.29 1.47 0.15 0.81 0.25 1.79*** 0.36 2.65** -0.31 -1.65 -0.14 -0.67 -0.10 -0.78 -0.07 -0.81 0.27 2.21** -0.16 -1.29 -0.06 -0.67 R2 R2 Change Sig. F Change F-value 0.57 16.28* 0.67 0.10 0.02 8.83* * p < .01 ** p < .05 *** p < .10 Nevertheless, efficiencies are less likely to be attained as first movers must incur high costs in product development and related areas, and thus, there would be less impact on performance when they use higher as compared to lower usage of financial measures. In order to be high performers, this outcome suggests that it is not appropriate for firms emphasizing prospector strategy to use financial measures extensively as this strategy requires higher usage of nonfinancial and broad-based measures. The findings indicate that the positive impact of emphasizing prospector strategy on performance is indeed stronger for higher rather than lower usage of learning and growth measures. Hence, the outcome of this study supports the notion that firms emphasizing prospector strategy would be appropriate to use external, non-financial and futureoriented information or broad scope of information at a great extent since they always seek new market opportunity, develop new product domain and new technologies. The findings also reveal that higher emphasis of analyzer strategy contribute to higher performance in the case of greater as compared to lower usage of financial measures. The significant moderating effect of financial measures on the relationship between emphasizing analyzer strategy and performance recognizes the importance of accounting-based performance measures for analyzer strategy in monitoring efficiency and cost control activities that would eventually enhance performance. With regards to the moderating role of the BSC measures on the relationship between defender strategy and performance, an interesting finding is revealed in this study. The results indicate that the positive impact of emphasizing defender strategy on performance is stronger for higher rather than lower usage of customer measures, and thus, is contrary to earlier prediction. Instead of being cost-oriented information systems that focuses on efficiency and input oriented, this study reveals that performance measures that are marketing-oriented are greatly used by firms emphasizing defender strategy which in turn provide a great impact on performance. Customer measures may be important when defender strategy depends more on lower prices and better service and quality as competitive strategies. Consequently, growth through market and customer orientation and competitor analysis are also essential to the success of firm emphasizing defender strategy. At the level of practice, these findings hold the greatest relevance for those executives responsible for the formulation and implementation of business strategy, a better understanding of the relationship between business strategy and the use of the BSC measures has been provided. In this respect, the study provides some useful insights into the role of performance measures as information to be used by managers to support the achievement of their organizations’ strategic objectives. At theoretical level, the primary relevance of this study lies in its extension of the contingency theory. Relating BSC measures to other contingent variables would contribute to knowledge about contingent relationships. Also, by addressing strategy implementation issues with the aid of the BSC could contribute to the body of knowledge in strategic management. It is important to stress that the findings of this study should be interpreted within the parameters of the research design and evaluated in the light of several limitations. First, the sample was taken only from the FMM directory where the population is limited to only the manufacturing firms that are members of the association. Thus, the sample was relatively small and not comprehensive enough. Also, confining the sample only to manufacturing firms would provide a potential source of bias to generalizability. Thus, future research should study larger sample size. Second, there are limitations concerning variable measurement. Both instruments for business strategy and BSC measures were rather novel. Further study could lead to refinement of the BSC measures variables where other performance measures within the dimensions of financials, customers, internal business processes, and learning and growth and other features of BSC could be identified in future research. As the strategy construct was limited to the 433 Miles and Snow’s typology, subsequent researchers might do well to extend this research by using other taxonomies of strategy. Finally, this study focuses only on two types of contextual variables. Future research could also incorporate other features of management control and performance measurement systems as well as other contextual variables to identify additional types of relationships or effects on firm performance. In summary, the results indicate partial support for the notion that the significance of the moderating impacts of the BSC measures usage may increase when business strategies are considered. 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A. & Pearce, II, J. A. 1990. Research evidence on the Miles and Snow typology. Journal of Management, 16(4), 751-768. 435 PRODUCTIVITY SPILLOVERS FROM FOREIGN DIRECT INVESTMENT IN MALAYSIAN MANUFACTURING INDUSTRIES DURING THE 1990s: A PRELIMINARY RESULT Noor Aini Khalifah Universiti Kebangsaan Malaysia Radziah Adam Universiti Sains Malaysia ABSTRACT This study tests for the existence of productivity spillovers from the presence of multinational corporations in the Malaysian manufacturing sector. Either foreign share of capital or foreign share of employment of each industry is used as a proxy for foreign presence. Using a comprehensive panel data set for 1990-1996 at the 5-digit level of aggregation, intra-industry spillovers are studied by looking at the relationship between labor productivity of local firms and foreign presence. After taking into consideration the fixed effect and the random effect, the results generally show that foreign presence per se is not significant in explaining labor productivity in locally controlled firms. The differences in capital intensities between foreign and local firms are the more important determinant of local firms’ labor productivity. The study also found that the relationship between technology gap and local firm’s labor productivity is sensitive according to which variables are used to proxy technology gap. INTRODUCTION As the world moves towards a more open and competitive economic environment, the role being played by foreign direct investment (FDI) or multinational corporations (MNCs) becomes one of the focal point in the popular debate on the merits and dangers of globalization, especially for the developing countries. The complex interaction between MNCs and domestic firms has proliferated studies on many aspects of FDI. These include, among others, studies on the factors that influence FDI; the relationship between FDI and growth; whether FDI substitute or complement trade and also economic effects from FDI especially those related to indirect technology transfer between home and host countries. FDI plays a positive role as one of the factors that can encourage economic growth through technological advancement or productivity spillover. The literature on the new growth theory models technological progress endogenously whereby advanced technologies are one of the determinants of long-run economic growth (Romer, 1990; Grossman and Helpman, 1991). Empirical studies had shown that the inflow of FDI increased the growth rate of most developing countries (Blomström, Kokko and Zejan, 1994; Balasubramanyam, Salisu and Sapsford, 1996). Wang (1990) also found a positive relationship between FDI and technology transfer. Apart from contributing towards increasing capital stock to the host country, FDI serves as an important transmission mechanism for technology transfer. According to the so-called OLI paradigm (Ownership-LocationInternalization; Dunning, 1993), MNCs have ownership advantages that allow them to compete successfully in the host markets. They possess some knowledge-based firm-specific assets such as superior technology or management know-how and international experience or reputation. The very public good nature of these specific assets makes possible the occurrence of technological spillovers to domestic firms. These spillovers represent one of the old arguments why countries like Malaysia try to attract FDI by offering income tax holidays, import duty exemptions, and subsidies that are often not available to domestic firms. Besides location advantages from producing at a site outside their home country, MNCs would prefer to invest directly (FDI) compared to other alternatives such as licensing local firms for production (or franchising) and export (Horstmann and Markusen, 1987). Out of the many ways of technology diffusion – joint ventures, licensing, trade and linkages – only FDI can prevent undesired diffusion of technology by retaining control of the firm-specific 436 assets within the firm, i.e. internalization advantages. Thus, FDI plays an important role as a channel for dissemination and absorption of technology that cross national borders. The issue of technology transfer from MNCs to domestic firms in Malaysian has attracted considerable attention but no in-depth empirical research has been carried so far especially at the detailed 5-digit industry level. In an attempt to enlighten us on this issue, this paper will examine the existence of intra-industry or horizontal productivity spillovers from the FDI in the Malaysian manufacturing sector. According to Bank Negara Malaysia annual reports (2000-2003), gross FDI as a share of gross domestic product (GDP) has been sustained at 6% in the post-crisis years, compared with an average of 8% in the mid-1990s. At its peak in 1992-93, FDI inflows accounted for 8.7% of GDP. It remained high at around 6.6% of GDP in the period 1994-1997 before declining to below 4% of GDP right after the 1997 period. Prior to the financial crisis, the bulk of the FDI inflows into Malaysia during the period 1990-97 was channeled into the manufacturing sector, which accounted for about 65% of the total FDI inflows, followed by oil and gas (18%), services (10%) and property (7%). While FDI inflows continued to be significant in the manufacturing sector, its share has declined to about 43% of total FDI inflows in the period 1998-2000 compared to the share of FDI in the services sector which has increased to 35%. In terms of total private investment in the manufacturing sector, foreign companies accounted for about 60% of the total manufacturing investment prior to the Asian crisis before declining to about 40% in the recent period. Thus, this study will examine two related questions. First, does the presence of foreign firms in an industry raise the productivity of domestic firms, i.e. does technology spill over from these foreign firms to domestic firms? Second, how the technology gap between foreign and local firms influence the labor productivity of domestic firms. These issues are important from a policy perspective in that they provide economic justification of the incentives given to foreign firms and most importantly to provide guidance for the Government’s policies aiming to maximize spillover benefits. LITERATURE REVIEW The earliest mention of indirect potential benefits from FDI can be traced back to MacDougall (1960). Even while using the standard theory of international trade which focused more on the direct effects of FDI, he had suggested that “among other gains from FDI are external economies where domestic firms acquire ‘know-how’ or are forced by foreign competition to adopt more efficient methods”. At around the same time, Hymer (1960) pioneered an industrial organization approach which put more emphasis on MNCs’ possession of some ‘asset’ and thus focused on indirect effects or externalities related to the transfer and diffusion of technology. However, productivity spillovers or indirect impact of FDI through technology transfer was first modeled in a pioneer study by Caves (1974) which noted that MNCs cannot capture all quasi-rents due to its productive activities. Henceforth, Globerman (1979), Blomström and Kokko (1998) and many others concurred that there are three commonly discussed channels of technology transfer: demonstration (or contagion) effect, competitive effect (in terms of technical and allocative efficiency) and labor movement or mobility from foreign to domestic firms in host countries. The competitive effect resulted in positive spillovers as foreign entry may increase competition and force domestic firms to adopt more efficient methods. However, Aitken and Harrison (1999) found negative spillovers from the competitive effect if the presence of MNCs diverts demand from local to foreign firms. In terms of demonstration effect, MNCs encourage the transfer of know-how and technology and increase the domestic firms’ awareness of the existence of advanced technologies and thus adopt them through processes like reverse engineering, product imitation or even research and development (R&D). Both competition and demonstration effect induced local firms to a higher level of technical or X-efficiency. As for labor movement, workers trained by the MNCs may become available to the economy in general and enhance the transfer of technology to local firms. Technology spillovers as mentioned above are very broad and thus are difficult to quantify since it does not have market value, i.e. an inherently abstract concept that is difficult to observe and evaluate. Previous studies on technological spillovers tend to focus more on indirect measures such as performance changes in terms of potential spillovers to local firms’ productivity (Blomström, Kokko and Zejan, 1994). It can be either a total measure of 437 productivity that is Total Factor Productivity Growth (TFPG) or partial measure of productivity, i.e. labor productivity 34. If there is a significant positive relationship between productivity and foreign presence, then spillovers are said to exist. There is a substantial body of literature that examined the indirect technology transfer by MNCs by looking at either inter- or intra-industry productivity spillovers from FDI. They cover both the experience of developed and developing countries (including the newly emerging markets or transition economies), either using cross-section or available panel data, with differences in the level of analysis whether at firm- or industry/sub-sector level, all with conflicting results at the end. According to a meta-analysis study by Görg and Strobl (2001), the result of productivity spillover studies do not appear to be affected by whether the studies used industry or firm level data but that it is important whether the data used are cross-sectional or panel data. Differences in other aspects of the research design like how the foreign presence is defined may have an effect on the results. However, the studies that used cross-section data tend to find significantly positive spillovers. These include pioneer studies done for Australian and Canadian manufacturing industries (Caves, 1974), Canada (Globerman, 1979), Mexico (Blomström and Persson, 1983; Kokko, 1994), Uruguay (Kokko, Tansini and Zejan, 1996) and Indonesia (Blomström and Sjöholm, 1998; Sjöholm, 1999). All the previously mentioned studies used the partial labor productivity measure as the dependent variable with the earlier studies on Canada and Mexico using mainly data aggregated at the industry level and later studies on Uruguay and Indonesia using disaggregated firm-level data. Recent studies utilizing better panel data techniques generally tend to find negative spillovers (or even not significant spillovers) whereby increasing foreign presence actually reduces local firms’ productivity. Haddad and Harrison (1993) on Morocco, Aitken and Harrison (1999) for Venezuela and Kathuria (2000) for India, found that foreign presence negatively affected the productivity of local firms in the developing countries studied. However, an exception to the case was found in the studies of manufacturing sector in United Kingdom (Liu, Siler, Wang and Wei, 2000) which found positive spillovers. Aitken and Harrison (1999) had noted that many of the earlier crosssection studies that found positive spillovers share the problem of failing to take into account the impact of the sectoral composition of FDI, i.e. the time-invariant firm or specific effects on the relationship between MNCs and productivity. Another category of studies emphasizes upon the size of technological or productivity gap between local and foreign firms within an industry. Kokko et al. (1996) found in Uruguayan manufacturing industries positive productivity spillovers only for industry with small or moderate technological gap but none for sectors with large technological gap. Small gap means foreign technologies are useful for the local firms, and the local firms possess the skills needed to apply or learn the foreign technologies. Kathuria (1998), in a study of Indian manufacturing industries, also concluded that for productivity spillovers to happen, the technological gap between local and foreign firms must not be too high. This is supported by the findings from Cantwell (1989) whereby a small technological gap implies local firms have the strength to compete with foreign firms. Meanwhile, a large gap means local firms are using low level technology which is far behind from the advanced technology used by foreign firms from developed countries which are relatively more capital-intensive. Thus, the advanced technology is not suitable for local firms in developing economies which tend to use labor-intensive production techniques, i.e. local technological capability is so weak that foreign technologies cannot be assimilated in local firms. Too large a gap could also be an obstacle for spillovers to arise as local firms would be incapable of reaping benefits or externalities from MNCs. They are unable to compete with MNCs and thus will be driven out of the competition, i.e. exit the market. However a larger gap could mean there is a lot of scope for learning by domestic firms. The larger gap enables local firms to acquire many benefits from spillovers in terms of technology transfer. This result can be related to a study by Chuang and Lin (1999) on Taiwan that tested the relationship between FDI and research and development (R&D) expenditure with the result that FDI substituted R&D activities of local firms. Tham and Liew (2002) examined determinants of labor productivity in the Malaysian manufacturing sector (irrespective of local or foreign ownership) using a pooled regression framework. Foreign presence, measured as 438 employment share of foreign establishments; market concentration and quality of labor were all significant in explaining labor productivity while the capital labor ratio and export intensities were not significant. Prior to the above study, Tham (1997) also found that TFPG for the period 1986 to 1991 were positively influenced by FDI among other factors. Menon (1998) studied the effect of FDI on TFPG of Malaysian manufacturing industries by comparing TFPG of local and foreign firms for two discrete periods (1988 and 1992) using the 5-digit Malaysian Industrial Classification (MIC) data. The study found that the overall increase in TFPG was due to increasing inputs not increasing productivity. However, on average, TFPG in domestic firms were higher than TFPG in foreign firms. This is supported by Oguchi, Nor Aini, Zainon, Rauzah and Mazlina, (2000) which found no significant difference between local and foreign firms’ TFPG during the 1994-1996 using the 3-digit and 5-digit MIC data. DATA AND METHODOLOGY The empirical data used in the present study are taken from unpublished data provided by the Department of Statistics (DOS), Malaysia. The data are gathered at the establishment level and aggregated to the five-digit industries according to the MIC 1972. Thus, an unbalanced panel data set that covers selected 78 industries (with foreign presence) for the period 1990-1996 35 will be used, with a total of 507 observations (with some missing observations) 36. The data are broken down by two ownership categories. According to DOS, firms are defined as foreign or nonMalaysian if the owner(s) of the majority (more than 50%) of the paid-up capital are Non-Malaysian residents. For the purposes of this study, if both Malaysian resident and Non-Malaysian resident held equal shares in the business (joint-ownership) the firms will be categorized as non-Malaysian. For the selected industries, the data set includes information on the value of gross output, input, value-added, employment and capital stock (value of fixed assets) as at the end of the year and the division of employees into white-collar and blue-collar workers 37. A preliminary investigation of the data indicates that MNCs are more productive than domestic firms. Labor productivity and labor quality are generally greater for foreign-owned than for domestically-owned firms as reported in Table 1. However, capital intensity had a similar fixed asset to employment ratio for domestic and foreign firms 38. The foreign labor productivity is, on average for the seven year period analyzed, 1.55 times more productive than the local ones. This is supported by the larger dispersion among the foreign firms as compared to the local firms pointing out to the possibility of external benefits in terms of positive spillovers for the host country stemming from FDI. TABLE 1 Comparison of Labor Productivity, Capital Intensity and Labor Quality of domestic and foreign firms in Malaysian manufacturing industries. Domestic Foreign All firms Foreign/Domestic 37.54 58.35 58.94 1.55 (29.52) (70.23) (73.49) Capital Intensity 62.43 62.43 109.51 1.00 (88.35) (118.49) (180.15) Labor Quality 0.34 0.38 0.38 1.14 (0.41) (0.35) ( 0.48) Source: Computed from unpublished DOS data. Note: Figures shown above refer to the common mean for the whole 78 industries during the period 1990-1996 (with standard deviation given in brackets). Labor Productivity 439 Following the formulation of Caves (1974), Globerman (1979), Blomström and Persson (1983), Kokko (1994, 1996) and Liu, Siler, Wang and Wei (2000), a simple linear regression model to explain the intra-industry productivity spillovers is expressed as below: VAD = f {CIDit ,WBCDit , FPLit , HHI it , EOS it ,TGAP it it } (1) where subscripts i and t denote the industries and time period respectively. The dependent variable, VAD, is given as the ratio of value added to the total number of employees in locally-owned manufacturing establishments for each major group. It is used as a proxy for labor productivity. The model will be estimated in nominal values after applying logarithmic transformation to equation (1) such that: (vad ) = α (cid ) + β (wbcd ) + δ ( fpl ) + γ (hhi ) + λ (eos) + μ (tgap) +ε it it it it it it it it (2) where εit represent the combination of the intercept and error terms which reflect the effects of the unknown factors: ε = η +ν it i (3) it with ηi is time-invariant and accounts for any unobservable industry specific effects, i.e. the permanent effect, and νit is the remaining disturbance that varies over industry and time. Explanatory variables will include the degree of foreign presence, which is measured by two proxies, either by the foreign share of capital stock (FPK) in an industry or by the foreign share of employment (FPL) in an industry. 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APPENDIX A Table A.1 Definition of Independent Variables Variables Capital Intensity (CID) Definition The ratio of fixed assets or capital stock at year end (net of depreciation) to the total number of employees in locally-owned manufacturing establishments in each industry. Note however that a proper measure of capital intensity should relate to the flow of capital services instead of capital stock. Labor Quality (WBCD) The ratio of white-collar workers to blue-collar workers of locally-owned firms in each industry. White-collar workers are defined as professionals, technicians and clerks etc., while blue-collar workers include skilled, semi- and unskilled labor. Foreign Presence (FPK or FPL) The ratio of foreign firms’ employment to total employment in each industry OR the ratio of physical capital stock in foreign firms to total physical capital stock in each industry. Market Concentration (HHI) Herfindahl index (HHI) for each industry is defined as the sum of squared market shares of all firms in an industry. Scale Economies (EOS) The average gross output in locally-owned firms to the minimum efficiency scale (MES) of each industry. MES is calculated as the average size of the larger firms that account for 50 per cent of the industry’s output as used by Blomström and Persson, 1983. Productivity PGAP) Gap (TGAP or The ratio of fixed assets per worker in foreign firms to fixed assets per worker in local firms in each industry, i.e. the ratio of capital intensity of foreign firms to local firms in each industry OR the ratio of value added per employee, i.e. labor productivity, in foreign firms to that of local firms in each industry. Table A.2 Simple Correlation Coefficients for Independent Variables EOS CID FPK FPL HHI 442 PGAP TGAP WBCD of physical capital per worker, quality of labor and scale economies. The expected sign for market concentration is ambiguous. On the one hand, a higher concentration leads to a higher value added due to monopoly pricing but, on the other hand, it can lead to a lower value added due to monopolistic inefficiencies (Sjöholm, 1999). We also include the technology gap variable which measures the difference in technology between foreign and locally-owned firms. Following Kokko (1994), TGAP is measured by the ratio of fixed assets per worker in foreign firms to fixed assets per worker in local firms in each industry, i.e. the ratio of capital intensity of foreign firms to local firms. A large difference in capital intensities is assumed to indicate a large difference in technology. Values that are significantly higher than one are interpreted as signs of large differences in technology between the local and its foreign firms. An alternative measure of technology gap used is the ratio of value added per employee in foreign firms to value added per employee in local firms in each 5-digit industry (PGAP). Three standard methods of panel estimation are used, namely, the pooled ordinary least square method (OLS), the fixed effect model (FE) and also the random effect model (RE) to take into account the different industry specific factors, i.e. the heterogeneity of industries. According to Judge et al. (1985) and Greene (1997), there are three tests that can be applied in order to choose the best statistical model: the Likelihood Ratio (LR) test for the OLS model against the FE model; the Lagrange Multiplier (LM) test for the OLS against the RE model; and the Hausman Specification (HS) test for the RE model against the FE model. EOS 1 CID 0.069259 1 FPK -0.44081 -0.07965 1 FPL -0.35438 0.010794 0.825671 1 HHI -0.44723 0.093344 0.425335 0.404108 1 PGAP -0.16771 -0.01235 0.125743 -0.05353 0.203504 1 TGAP -0.22833 -0.13084 0.259536 -0.09919 0.201198 0.795298 1 WBCD -0.08321 0.658735 0.075107 0.111278 0.193634 -0.01403 -0.0621 1 Source: Computed from unpublished DOS data. Note: Both proxies for each of foreign presence and productivity gap variables are highly correlated 443 EMPIRICAL RESULTS An overview of the independent variables of main interest, foreign presence (FPK and FPL) and productivity gap (PGAP and TGAP) for the 78 industries is provided in Table 2. It shows that foreign presence and productivity gap vary considerably among industries. It reveals that the foreign share of employment exceeds 50 percent only in 22 out of the 78 industries. As for foreign share of capital, there are 28 industries where the share is greater than 50 percent. It can be gleaned from Table 2 that large differences in technology exist between the local and foreign firms. Productivity in foreign-owned firms is more than double that of the locally-owned firms, in 15 and 21 industries for each of the two proxies, PGAP and TGAP respectively. At the same time there are also industries with local firms dominating the foreign firms, i.e. either the local labor productivity is higher than foreign labor productivity or the local firms are more capital intensive than foreign firms. TABLE 2 Industries distribution of Foreign Share of Fixed Assets and Employment and Productivity or Technology Gap (PGAP or TGAP) Code 31129 31139 31140 31152 31171 31190 31214 31219 31220 31340 31400 32111 32112 32115 32120 32130 32150 32201 32209 32330 33111 33112 33113 33190 33200 34120 34190 34200 35119 35120 35130 35210 35220 35231 35239 35290 35300 Industry Dairy Fruits & vegetables Fish etc. Palm oil Biscuits Confectionery Noodles Others Animal feeds Soft drinks Tobacco Nat. fiber Yarns & fabric Synthetic Textile goods Knitting Cordage etc. Clothing Misc. apparel Leather products Sawmills Plywood etc. Joinery works Wood & Cork Furniture & fixtures Containers Paper articles Print. & publishing Basic chem. Fertilizers Plastic & materials Paints Drugs & medicines Soap etc. Perfumes etc. Chem. Products Oil refineries FPL 0.55 0.07 0.28 0.07 0.26 0.19 0.05 0.26 0.10 0.31 0.23 0.55 0.22 0.84 0.16 0.31 0.14 0.29 0.71 0.42 0.03 0.23 0.24 0.09 0.26 0.06 0.21 0.11 0.35 0.09 0.57 0.36 0.31 0.63 0.39 0.27 0.71 FPK 0.41 0.41 0.38 0.12 0.29 0.27 0.36 0.31 0.08 0.44 0.81 0.60 0.36 0.88 0.10 0.51 0.15 0.34 0.69 0.52 0.03 0.27 0.25 0.23 0.36 0.06 0.39 0.12 0.36 0.05 0.72 0.40 0.35 0.66 0.42 0.39 0.80 444 PGAP 1.93 1.32 2.23 2.41 1.97 1.69 1.01 2.95 1.12 2.29 20.44 0.91 2.95 1.65 0.85 1.20 0.82 0.98 2.43 0.80 0.99 0.89 1.08 1.25 1.36 1.04 1.42 0.72 1.32 0.77 1.73 1.08 1.75 2.73 5.25 1.72 2.05 TGAP 0.57 2.60 2.82 1.96 1.23 1.58 2.14 3.75 0.80 1.88 17.59 1.39 1.93 2.34 0.56 2.79 1.12 1.26 0.92 1.62 1.09 1.24 1.09 3.31 1.61 1.02 2.44 1.30 1.07 0.51 2.04 1.24 1.23 1.15 1.57 1.79 1.60 35400 Petroleum products 0.24 0.32 35591 Rubber processing 0.23 0.26 35599 Rubber products 0.50 0.55 35600 Plastic products 0.23 0.27 36100 Pottery & china 0.34 0.38 36200 Glass products 0.42 0.49 36910 Clay products 0.07 0.13 36991 Cement & concrete 0.05 0.06 36999 Other non-metal 0.25 0.34 37101 Iron & steel 0.11 0.07 37102 Foundries 0.13 0.16 37109 Others 0.15 0.18 37201 Tin & others 0.62 0.78 38111 General hardware 0.34 0.47 38120 Metal fixtures 0.13 0.21 38130 Structural metal 0.10 0.20 38191 Cans & boxes 0.26 0.36 38192 Wire products 0.21 0.34 38193 Brass, copper, etc. 0.18 0.54 38199 Others 0.45 0.48 38240 Special mach. 0.21 0.78 38250 Office mach. 0.86 0.66 38291 Refrigerating etc. 0.70 0.82 38299 Other mach. 0.21 0.32 38310 Industrial mach. 0.77 0.75 38321 Radio & TV 0.86 0.90 38322 Records & tape 0.56 0.61 38329 Semi-conductors 0.81 0.84 38330 Elec. Appliances 0.73 0.80 38391 Cables & wires 0.67 0.54 38392 Dry cells & batteries 0.40 0.55 38393 Lamps & tubes 0.53 0.49 38399 Miscellaneous 0.56 0.64 38439 Vehicle parts 0.18 0.30 38449 Bicycles etc. 0.47 0.72 39010 Jewellery etc. 0.15 0.15 39020 Athletic goods 0.63 0.68 39092 Office supplies 0.63 0.58 39093 Toys 0.95 0.88 39094 Umbrella 0.62 0.59 39099 Others 0.32 0.34 Source: Computed from unpublished DOS data. Note: Figures shown above refer to the 1990-1996 cross–sections mean. 8.76 2.06 1.74 1.08 1.15 1.12 1.52 1.22 2.06 4.98 0.90 1.06 1.29 1.36 1.39 1.30 1.12 1.33 1.59 1.00 1.08 2.30 1.67 1.28 0.65 1.47 1.15 1.02 1.85 0.43 1.55 1.99 1.10 1.02 1.67 0.91 1.31 1.03 1.74 1.51 0.88 1.56 1.22 1.27 1.24 1.22 1.57 1.90 1.17 1.66 0.56 1.47 1.01 3.41 1.88 1.78 2.18 1.57 2.11 6.81 1.11 3.07 1.60 2.04 1.85 0.85 1.84 2.45 1.33 1.66 0.61 1.13 1.43 1.49 1.90 2.99 0.99 1.23 0.84 0.57 1.12 1.26 Regression results of equation (2) using the OLS, FE and RE models are presented in Table 3a. Regression 1 (OLS) examines the determinants of local labor productivity without taking into account industry specific effects while Regression 2 and 3 (FE and RE models respectively) specify the industry effects. After taking into consideration the fixed effect and the random effect, the results show that foreign presence, denoted by employment share of foreign firms, is not significant in explaining labor productivity in locally controlled firms. The results of regression 1-3 suggest that most of the intra-industry differences in local labor productivity are explained by differences in capital intensity, labor quality and the ratio of foreign to local capital intensities, i.e. TGAP. The positive and significant coefficient for technology gap means there is a lot of scope for learning by domestic firms when foreign firms’ capital intensities are high, signaling that it is capital deepening by foreign firms that is providing the demonstration effect and not the presence of foreign firms per se. 445 Estimations using the alternative proxy for foreign presence (FPK) also yield similar results as above except for foreign presence in the FE model (regression 5) which is still statistically insignificant but this time with a negative coefficient. Thus, foreign presence does not seem to influence local labor productivity through spillover effects. In the fixed effect models (regression 2 and 5), both market concentration and scale economies of local firms also positive and TABLE 3a Regression Results of FDI Spillover Effect for the 78 industries with foreign presence Dependent Variable: Labor Productivity in Malaysian-owned firms (vad) Variable Constant cid wbcd fpl fpk hhi eos tgap pgap 1.OLS 2.17 (12.67)*** 0.42 (16.26)*** 0.47 (11.62)*** -0.04 (-1.76)* - 2.FE 2.84 (12.12)*** 0.51 (12.81)*** 0.43 (5.78)*** 0.02 0.57 - 3.RE 2.41 (12.36)*** 0.44 (14.09)*** 0.43 (8.06)*** -0.01 -0.44 - -0.06 (-3.16)*** -0.04 -1.62 0.05 (2.28)** - 0.22 (4.23)*** 0.09 (3.09)*** 0.1 (3.55)*** - 0.02 0.76 0.03 1.15 0.07 (3.02)*** - 4.OLS 2.17 (12.69)*** 0.42 (16.21)*** 0.47 (11.65)*** - 5.FE 2.82 (12.05)*** 0.51 (12.79)*** 0.45 (6.00)*** - 6.RE 2.41 (12.36)*** 0.44 (14.09)*** 0.44 (8.16)*** - -0.04 (-2.15)** -0.06 (-3.10)*** -0.04 -1.61 0.08 (3.12)*** - -0.03 -0.95 0.23 (4.35)*** 0.09 (3.07)*** 0.12 (3.48)*** - -0.04 -1.49 0.03 0.93 0.03 1.22 0.1 (3.40)*** - Adj. R-sq 0.73 0.88 0.59 0.74 0.88 0.59 Test stat. 492.37 25.85 491.55 24.65 Note: Estimated coefficients are shown together with the value of the t-statistics in parentheses. ***, ** and * denote statistical significance at 1, 5 or 10 per cent levels of significance respectively. Test statistics refer to the value of the Likelihood Ratio and the Hausman test for the FE and RE models respectively. significantly affect local firms’ labor productivity, suggesting that the market structure of Malaysia’s manufacturing sector is not exactly one of perfect competition. Looking at the fixed effect models in regression 2 and 5, the likelihood ratio (LR) statistic are all significant at the 5% level, indicating that the FE model is preferred to the OLS model. The Hausman test statistic in regression 3 and 6, which tests the null hypothesis that the random effects are uncorrelated with the explanatory variables also seems to suggest that the FE model is better than the RE model. Though the null is rejected, the results of this test should be treated cautiously due to the lack of control for heteroscedasticity. Ignoring the LM statistic which compares the RE model against the OLS model, the two statistics mentioned earlier lead us to choose the FE specification as the best statistical model for the data set. The explanatory power of the FE estimation is also much higher compared to the OLS and RE estimations as shown by the high R-square. The results for the alternative measure of technology gap, that is, the ratio of foreign to local labor productivity is shown in regression 7-12 (Table 3b). This subsequently changed the results in regression 1-6 with the coefficients for PGAP now being negative and statistically significant across the models. This means that if the gap between foreign and local firms’ labor productivity is too high, there is a negative effect on the labor productivity of domestic firms within the same TABLE 3b 446 Regression Results of FDI Spillover Effect for the 78 industries with foreign presence Dependent Variable: Labor Productivity in Malaysian-owned firms (vad) Variable Constant cid wbcd fpl fpk hhi eos tgap pgap 7.OLS 2.2 (13.14)*** 0.41 (16.40)*** 0.46 (11.52)*** -0.05 (-2.61)*** - 8.FE 2.33 (10.41)*** 0.43 (12.96)*** 0.29 (4.08)*** -0.06 -1.59 - 9.RE 2.28 (12.50)*** 0.42 (14.97)*** 0.37 (7.19)*** -0.06 (-2.03)** - -0.05 (-2.29)** -0.08 (-3.29)*** - 0.09 (1.87)* -0.05 (-1.67)* - -0.13 (-4.89)*** -0.28 (-9.47)*** R-sq 0.75 Adj. R-sq 0.74 Test stat. Note: See notes in Table 3a. 0.92 0.9 556.45 10.OLS 2.22 (13.23)*** 0.41 (16.16)*** 0.46 (11.40)*** - 11.FE 2.35 (10.58)*** 0.46 (13.34)*** 0.26 (3.76)*** - 12.RE 2.28 (12.46)*** 0.43 (15.09)*** 0.36 (6.87)*** - 0.03 0.85 -0.06 (-2.54)** - -0.02 -0.86 -0.06 (-2.86)*** -0.07 (-3.02)*** - 0.05 (2.08)** 0.09 1.80* -0.04 -1.26 - 0.03 1.34 0.01 0.24 -0.05 (-2.20)** - -0.25 (-9.56)*** -0.12 (-4.55)*** -0.28 (-9.51)*** -0.24 (9.48)*** 0.63 0.63 21.63 0.74 0.74 - 0.92 0.9 564.73 0.63 0.63 24.99 industry, i.e. local firms are unable to catch up. However, according to Sjöholm (1999), there is the possibility that the observed productivity gap between foreign and domestic firms captures the differences in capital intensities or scale of production instead of differences in technologies. It is noted that when foreign share of labor is used in the FE model (regression 8), there is no spillover from foreign presence into local firms. This could be due to the fact that MNCs are locating their production here usually to take advantage of the availability of cheap labor and thus foreign presence does not improve the productivity of local firms. However, foreign share of capital in regression 11 (FE) shows a positive and significant effect on local labor productivity. The substitution of foreign presence in terms of capital share (instead of labor share) results in positive spillovers from foreign presence and scale economies losing its significance. These results point to the importance of foreign capital in generating spillovers and that higher foreign labor productivity (high PGAP) per se does not contribute towards increasing local firms’ labor productivity. Dropping the foreign presence variables (either FPK or FPL) from the regressions, does not affect the signs and significance of the rest of the variables, especially PGAP and TGAP. However, if we were to drop the technology gap variables (either PGAP or TGAP), foreign presence becomes insignificant across all models except for the OLS specification with foreign share of labor as a proxy for foreign presence. In this OLS model, the negative and significant coefficient for FPL could be due to the MNCs taking advantage of cheap labor hence not contributing to local firms’ labor productivity (results are not shown). This result is akin to that of regression 1 in Table 3a. High foreign labor productivity (high PGAP) per se does not contribute to local firms’ labor productivity. Foreign capital, whether in terms of foreign capital presence or high TGAP will positively affect local firms’ labor productivity. We also found that scale economies was a positive and significant determinant of local firms’ labor productivity when combined with TGAP but was negative and barely significant in explaining local firms’ labor 447 productivity when combined with PGAP. Similarly, market power (HHI) was an important determinant of local firms’ labor productivity when TGAP was used as a proxy for technology gap but HHI was only marginally significant when combined with PGAP in the FE models. Again, this could be due to the fact that PGAP does not capture the difference in capital intensities of foreign to local firms. CONCLUDING REMARKS This paper has examined intra-industry productivity spillovers from FDI in Malaysia during the 1990-1996 in 78 locally-owned manufacturing industries with foreign presence. The regression analysis generally showed no signs of spillovers from foreign presence. However, after taking into account the industry specific effect, we only found positive and significant spillovers when foreign presence is measured in terms of share of capital while gap represents differences in labor productivity in foreign to local firms. The capital intensities of local firms as well as higher ratio of white- to blue-collar workers positively and significantly affected local firms’ labor productivity in line with standard theory. Looking at the technology gap between locally–owned firms and its foreign-owned competitors, we found that the relationship between technology gap and local firms’ labor productivity is sensitive according to which variables are used to proxy technology gap. If the ratio of foreign to domestic labor productivity is used as a proxy for gap, it negatively affects local firms’ labor productivity. On the other hand, if the ratio of foreign to domestic capital intensity is used as a proxy for gap, it positively affects local firms’ labor productivity together with scale economies and market concentration. There is the possibility that labor productivity differences capture differences in capital intensities as well as scale economies instead of differences in technologies. It would be interesting if we could further examine the interactive effect of foreign presence and productivity gap and how it influences local firms’ labor productivity. 448 MALAYSIAN SMALL AND MEDIUM INDUSTRIES: FACTORS AND PRIORITIES IN DESIGNING PRODUCTS Mohammad Basir Saud Mohd. Azwardi Md. Isa Universiti Utara Malaysia ABSTRACT This paper explores, identify, and prioritise the factors and product attributes considered by Malaysian Small and Medium Industries (SMIs) when designing and redesigning their products, and in managing their companies design process. The study revealed that Malaysian SMIs are generally not effective in terms of fully comprehend the exact needs and requirements of final customers, end users, in designing products especially for the export market. There are different priorities been considered within SMIs when designing or redesigning products for local compared to foreign customers. Malaysian SMIs need to update their contemporary knowledge about customer needs and requirements and the available methods of the product design process in order to be more effective and efficient in the open market. INTRODUCTION This paper considers the product design process in Malaysian SMIs (small and medium industries), particularly in the manufacturing sector which is the main player in the country’s continued economic development, producing products and services for the local and for foreign markets. Thus, SMIs (known generically in other countries as SMEs - small and medium sized enterprises) are an important constituent in the supply chain of most industries, and are often end producers in their own right. In order to produce successful products, the Malaysian SMIs need to have competitive advantage and create differentiation of products to distinguish them from the offerings of other companies, in Malaysia and beyond. In addition, the Malaysian SMIs have been struggling to survive and to design and develop products that meet customer requirements and needs in the competitive global environment. The Malaysian SMIs need to compete in respect to different aspects of products in one or more areas. Hence, the quality of management of the design process is important and should be efficient enough to for cater the whole product design processes. Malaysian SMIs must be able to make substantial efforts in the product design process in order to compete effectively in enhancing product marketability in the open market. More effective product design is a major variable when increasing a product’s quality, enabling it to be successfully marketed to both local and foreign customers. Once the products are in the market, SMIs must continue thinking about how to make improvements and further develop and improve the products in order for them to remain competitive or, indeed, increase their value in the eyes of customers. Product “redesign” also relies upon quality management programmes and management, and utilizing the guidance and resources available in the labour and capital markets. LITERATURE REVIEW Design Concepts Sharifi and Pawar (1996) suggested that the product design process “contains a conception of the market or customer requirements, a translation of these requirements to specification for drawing, for production and for the preparation of the manufacturing process”. Barton (2000) defined the process of design as “generating a complete description of the product that satisfies a set of requirements and constraints” which involved the move from abstract to concrete ideas and specifications. Hence, the product design process involves conceptual design, product design, and the production of the products. 449 Design and redesign is best envisaged as a process of continual improvement. Feedback and ideas are necessary during the design process and then throughout the life cycle from the end-users (e.g. customers), external sources (e.g. design consultants, researchers) and within the company (e.g. employees). The awareness of market and customers’ needs is fundamental during the product design process. All these factors must be integrated and incorporated into the design process by the company’s design function and/or via cross-functional teams. Hence, this study seeks to identify the priorities and product attributes to be considered by Malaysian Small and Medium Industries (SMIs) when designing and redesigning products, and when managing their design process. A simple assertion perhaps, but it is not too sweeping an assumption to believe that well designed products that match customers’ needs and tastes will win orders in world markets. Product Design Processes Many Malaysian manufacturing companies are currently unable to compete effectively and sell their products in the world markets. This is despite their best efforts to respond to market needs and changes, and enhance their competitiveness by introducing new products and conducting innovative redesigns on their existing products. With all their best intent, and the fact that some companies are keen to update their products, many Malaysian companies have failed to effectively operationalise their conceptual ideas at the initial stage of the new product design process, have had product design projects cancelled during the design and development process, or have launched what they believed to have been attractive products only to have them fail in the marketplace. The failure of Malaysian manufacturing companies in this respect seems to be either due to product costs being too high, or the quality and design of Malaysian products not bring up to international standards, and therefore not being competitive enough to penetrate overseas markets. Malaysian companies need to face up to these challenges by changing their product designs, learning how to innovate more effectively, and better managing the product design and development process so that customer needs and requirements are more accurately reflected. Malaysian companies should ensure they offer products that are very competitive in terms of design, technical performance, marketing, after-sales service, aesthetics, ergonomics, ease of use and reliability - not to forget the quality of the materials, manufacturing and finishing processes. For a newly designed product to penetrate a market or market segment, the company must simultaneously match customer needs such as features offered, superior quality and attractive pricing (Schilling and Hill, 1998). Malaysian companies need to compete on differentiation factors because of the competition from the developed world and they must at the same time compete with the emergence of newly industrialising countries that have relatively low labour cost and produce similar products such as China (including Hong Kong), Mexico, Indonesia, Vietnam and India. Hence, Malaysian companies have to mix these factors correctly so that they can compete effectively in both domestic and export markets. Schilling and Hill (1998) suggested that, for companies to succeed in marketing their products, they have to maximise customer features and minimise the time taken to introduce products in the market. Thus, the companies should formulate their strategic intent in the product design process, conduct market research on customer needs, and determine the extent to which current resources (people, equipment and tools) are capable of carrying out the product design process. Design for manufacturing There needs to be a close relationship and integration between the engineering function dealing with technical design and the production function of the company. Hence, attention to the manufacturability of emergent design will reduce the eventual cost of production, and increase product quality by designing a product that is easy to manufacture, and within the required resources of the company. Designing for manufacturing enables companies to produce products that are competitive in terms of costs and of high quality. The use of design for manufacturing helps SMIs to fulfil their customer needs for high quality, enable a very attractive price to be set in relation to the product’s features, reduce the number of unwanted parts in the assembly operation, reduce the time needed to adjust product designs during the manufacturing process, and eliminate unwanted, non-value adding, processes. 450 What do customers “value” in products? In order to satisfy domestic and international customer needs and expectations, companies need to formulate product strategies that enable them to differentiate their products from their competitors in the global market (Burpitt and Rondinelli, 2000). Today, customers demand more customised and personalised products and are very discerning about certain products. They expect the producer to recognise their specific needs and meet these on times, when they need it, and at the right price (Clemmet, 1998). This means that many Malaysian SMIs need to make improvements in their customer service on a continual basis, and especially in their product offerings. Most companies nowadays claim to be customer oriented, but few really know how their product is valued or assessed by customers: “How does the consumer view our company’s product in terms of value as compared with a competitor’s product?” Companies nowadays need to be more concerned with their customers and determine what they really want from the company and, specifically, its products and services (Toombs and Bailey, 1995). The concept of value provides a means for determining customer needs. Product Attributes A major assertion underpinning this research is that "product attributes" play an important (and, perhaps, an even more important) role in the marketing of products than the conventional strategies of categorizing and segmenting products. Product attributes help to communicate messages about the product and provide information to customers, as well as marketers. Companies use product attributes to market their products while consumers use product attributes in evaluating and comparing a particular product in order to discover what benefits they receive when purchases have been made. Thus, in the end, the consumer benefits by being able to buying a product in terms of the values they desire (Puth et al, 1999). Customers purchase products for a range of uses and reasons such as taste, emotion and fashion, service and financing, security, performance, aesthetics, convenience, economy and reliability (Walters and Lancaster, 1999); functions, and features (Prasad, 1998); price, quality, and delivery (Howard, 1998); and the classic retail options of product range, display and store location, and a loyalty card (Clemmet, 1998). Product attributes can be categorised into product development, brand extension, and product positioning (Viswanathan and Childer, 1999); speed, efficiency, and quality (Goldense, 1994); colour (Puth, et al, 1999); time compression, concurrent engineering, quality function (during designing and development) and agility (Prasad, 1998), and price and delivery (Howard, 1998), features, convenience and value, service after sale, product design, etc. Ergonomics In order for customers to buy a certain product they should have some idea of that particular product in terms of quality (Karapetrovic, 1999), and an image such as “luxurious, gorgeous, and strong” (Nagamachi, 1995). A person experiences products in varying ways, through their eyes, ears, skin and tongue and the surrounding environment (Rooney, 1994) in relation to familiarisation, the suitability of its functionality, ability comfort, anthropometrics fit, ease of using and maintenance with adjustability (Butter and Dixon, 1998). Most SMIs have to consider all aspects of the product life cycle in their entire process: before manufacture, in-the process of manufacturing and after manufacturing (Resnick, 1996). This is normally in response to demands made by customers concerning their feelings about product design and functionality (Nagamachi, 1995), innovation and responsiveness of product development based on human-centred design of products (Hsu, 2001), appearance, comfort of users, safety factors, and economic factors (Fernandez, 1995). Economic effects The companies will also look into the costs and benefits, focusing on the cost invested and the “value” of a particular product. Is it economical to produce a specific product? Will a specific product satisfy the needs and desires of the customers? Does the designing work process enable the product to be produced at the lowest cost and can it be sold at a price that finally generates reasonable profits? What are the required maintenance costs? (Oakley, 1984). Therefore, the value as seen by the customer – is the product at the right price or “valuable” to purchase in the first place? Aesthetics Hollins and Pugh (1990) suggested that aesthetic features played an important role in a ‘highly visible’ product (e.g., appearance of computer) rather than an ‘invisible’ one (e.g. network card for a computer). Consumer appeal will be 451 achieved through appearance, feel/touching, sound/hearing, and smell. Packaging design or redesign, packaging graphics, functional design, application of corporate identity, product styling, logos, and corporate identity are aesthetic features that could create consumer appeal through the appearance of the product. Colour, weight, shape, form, surface, and texture of the finish products should always be considered from the outset (Hollins and Pugh, 1990). Hence, the artistic or aesthetic features of a specific product need to be taken into careful consideration throughout the design process. Technical aspects The designers should access current knowledge/information in order to practice the most recent appropriate technology available to comply with the compliance of the customer needs and desires. Most products will involve technical design work in some measure to achieve specified performance, rigidity, durability, and safety (Oakley, 1984; and Bennett et al, 1988). Technical value can often be a major factor in the purchase decisions made by customers. RESEARCH METHODOLOGY A set of questionnaires was mailed to companies’ top level management of 989 organizations in West Malaysia (i.e.: all states except Sarawak and Sabah: “East Malaysia”, non-manufacturing, and duplicated companies) listed in the SMIDEC’s directory for the year 2001. The shortened list was then divided into four discrete and identifiable sectors of company involvement, namely: primary resources processing companies, transportation or vehicles production companies, electrical or electronic companies, and machine tool and production equipment companies. The researcher received 150 completed questionnaires. However, only 137 questionnaire returns (13.85%) were used for the data analysis due to misinformation, incorrect data, and identifiable errors contained in the returned questionnaires. The total response rate was 15.17% (150 from 989) that can be considered relatively high in the posted survey questionnaires at the industrial population in the South East Asian countries (Harzing, 2000 and Jobber, 1990). The most widely used computer software, Statistical Package for the Social Sciences (SPSS) for Windows Version 10.0.05, was used to analyse and manage quantitative data for this study (Coakes and Steed, 2001). ASSUMPTIONS AND LIMITATIONS The information and data obtained from the sample of the survey are assumed to be adequate and to represent the population of Malaysian SMIs. The instrument used in this study is assumed to be the most effective measurement tool for gathering the information and data that are needed. The answers (completed questionnaires) given by the respective respondents were assumed to be the most reliable and a true reflection of their best knowledge about the priorities considered and product attributes in their respective companies, and Malaysia in particular. The different top company managers projected different perceptions about the priority concepts and product attributes that had been used in designing and redesigning products of their company. This study is limited to the Malaysian SMIs who responded to the questionnaires were particularly from the heavily populated area on the West Coast of Malaysia. Therefore, the results of this study may not be generalised to other states, particularly the East Coast of Malaysia and East Malaysia (Borneo Island) which is less densely populated. It is thought that some of the designated receivers of questionnaires might have forwarded the questionnaires to their subordinates to complete and return the questionnaires, even though they were instructed not to do so. THE FINDINGS The Malaysian SMIs were relatively young companies established after 1991 (52.55% of the sample). Most participating SMIs employed fewer than 150 employees with a total current turnover of less than RM 5 millions and a paid-up capital of less than RM2 millions. The neighbouring ASEAN countries are the most important trading countries for Malaysian SMIs. 452 The results show that 65.7% of the companies had introduced less than 10 new products in the last five year. It is clear that most companies whose export, exported (40.3%) less than ten products in the last five years. Overall, 48.9% companies would consider their companies’ products have a potential for growth and can contribute for company expansion. Then, we can conclude that 50.4% have active product design activities within the company even though just 78.9% of the companies utilise less than ten people to design or redesign their products. Malaysian SMIs must not forget the company’s product design activities. The design department contributed 28.9%, senior executives (26.5%), and manufacturing/operations department (14.9%) toward the company’s design process. Meanwhile, designers (36.1%), senior executives (26.1%), and manufacturing/operations (23.5%) are those that led and managed the company’s product design projects. The important factors considered by the Malaysian SMIs during their product design process for local customers were purchase price for customers, technical performance of products, and customisation to direct customer need. On the other hand, the technical performance of product, the purchase price for customer, and the build quality of product are the factors considered for foreign customers in their company product design process. Overall, the respondent company choice is cost of manufacture (22.7%), followed by technical performance of product (17.7%) and customisation to direct customer needs (16.8%) are their company’s priorities in designing or redesigning products and variations of choices of Malaysian SMIs.. DISCUSSION It is important for the SMIs to venture into an industry where products can provide a better income and that can also be expanded in the future through continuous improvement. For example, the resource-based SMIs can venture into the international market by collaborating with a foreign SMIs partner, probably in the same sector, in order to share any relevant experiences and information regarding the products. The emergence and rapid growth of companies in this industry from the early 1970s till the 1990s has contributed tremendously to Malaysia’s economy, particularly in “balancing” the balance of payments amongst the trading countries. However, this industry was affected when a few manufacturers shifted their operations to other countries which provide better initiatives and lower production costs. It is important to the Malaysian SMIs to remain competitive through putting more emphasis on the product design process and they should aggressively take part as a component supplier to leading Malaysian companies such as PROTON, INOKOM, and MODENAS. Most Malaysian SMIs are young or at the infant stage in their business life cycles or experience. It is hoped that the present top management will continue to enhance their knowledge and skills in relation to their job in the near future, and eventually gain more experience to further develop their company’s performance. The study also indicates that not all exporters had succeeded in their exporting activities. These indicators suggest that the Malaysian SMIs still lagged behind in terms of exporting their products and need some guidance on how to enhance their performance in this area. They need to be up-date with current events and world trends in exporting, such as the quality demanded by customers and suppliers; procedures, rules, policies of import/export; and current laws regarding exporting to foreign countries. The Malaysian SMIs should take proactive action in designing or redesigning their products based on the forecasting of product attributes that might be needed by customers or for a specified market niche. There is no doubt that product design activities are an important aspect of producing a company’s products but the management of it should be given priority as well. The company’s product design activities will be more effective and efficient if the company’s management, specifically the personnel directly involved, are well informed about current trends in the global market and products availability. Even though designers are presumed to be experts in designing products as indicated in the study, the final decision about the design of products and production is determine by the senior executives or the owner of the company. In addition, it is vital for a company to have its own research and development department to help its management in terms of designing or redesigning products, and also to facilitate other areas of interest, such as advice on marketing strategies, export opportunities, financial aspects, and methods and techniques in production. 453 The study suggests that Malaysian SMIs have used different priorities when designing or redesigning products for their customers. In the researcher’s opinion, it is time for Malaysian SMIs to give high priority consideration to the “value” of the product which includes the technical performance of the product, ergonomic value or ease of use of the product, environmental factors, and aesthetic and product styling. In addition, most customers are more sophisticated and demanding about what they want nowadays. And they assume that producers will understand this and fulfil their needs and requirements. It is also suggested that Malaysian SMIs could have the same priorities for foreign customers when they produce products for the local customers. It is believed that local consumers would like to consume an “imitated products” from overseas which can be copied by local producers very quickly through the mass media or electronic media. Finally, the researcher believes that “quality” should be given as much emphasis as aesthetic “value” when designing or redesigning products. The study indicates that Malaysian SMIs gave lowest priority to fashion trends, timeliness of product launch, legal consideration, and environmental “green” factors when designing or redesigning their products. These suggest that most SMIs considered costs (fixed costs and variable costs) as their main priority when designing or redesigning their products rather than thinking of the “product” itself or anything to do with the product. The researcher considers that, it is time for the Malaysian SMIs to place more emphasis on the “products” themselves. As we know, different countries have their own standards and requirements relating to imported products. Thus, the main task of Malaysian SMIs is to search for the information regarding these specific requirements and at the same time, determine the most suitable tools and techniques available that might help them in producing the desired products. In addition, Malaysian SMIs can respond quickly to local customers who required goods produced overseas which are too expensive, may ask a local company to produce quality similar product. THE CONTRIBUTIONS OF THE STUDY The product design process has been discussed, practised, and applied widely in the western or developed countries. The findings of this study have extended this concept, the product design process, to other developing countries such as Malaysia. This phenomenal is supported by indicating that Malaysian SMIs have adapted and adopted the concept of product design process in this study. This study has identified the product attributes as a platform to enhance a company’s performance. This contribution could help and assist future researchers to expand the boundary of knowledge by conducting studies that could help to further verify as well identify others product attributes. Initially, this instrument was developed and applied within the Malaysian SMIs, however, this instrument should be valuable to future researchers who might be interested in exploring the product design process in other countries, in other sectors of businesses, or in different environments. The findings of this study revealed that the top priorities or factors in designing products for local customers and foreign customers are different in terms of technical performance of the product, purchase price for customers, build quality of the product, customisation to direct customer need, aesthetics and product styling, and economy of use, to name a few. The managers could make use of these indicators in their future production as a guide to identifying priorities for product design purposes. The concept of product attributes and its important could be introduced at the early stage in the education system, in Malaysia in particular, at the secondary school level. The policy makers could utilise the findings when designing the curriculum for subjects like design and technology for various levels of education. This objective could be achieved through encouraging inventions and competitions for new designs amongst the school children in different categories of product attributes (e.g. safety precautions or ease of product use). RECOMMENDATIONS AND SUGGESTIONS 454 As a result of this study, the longitudinal studies should be conducted on how SMIs beliefs over time about priorities given to product attributes used in manufacturing their products locally or internationally have changed. These studies could also look at how the customers, other interested parties, and policy makers or implementers view the priorities used in designing the products. These studies could provide valuable insight into the appropriateness of priorities used in designing the products and would aid them in designing strategies to promote a company’s growth and thus, enable it to stay competitive in the open market. This study has examined perceptions, beliefs, and practices of SMIs and their priorities. The survey method was unable to provide details of the actual practices of SMIs used to determine the priorities in the product design process. Thus, other qualitative methods such as product observation and imitation, and interviews with regular customers could be used as they may provide a better explanation of the underlying priorities that influence their decision in consuming those products. The customer’s perceptions and beliefs about the products were not explored at all. Thus, the researcher recommends a study which explores the customers’ views of the appropriate priorities should be conducted. In addition, the researcher suggests the establishment of a library under the proposed new ministry that contains all research, proceedings, and other related information on SMIs. It would also allow Malaysian SMIs to benefit from the ideas and research of the educators and researchers in the related fields, and also allow the researchers to benefit from the materials available in the library. CONCLUSION This study suggests some new findings and results about the factors and priorities (product attributes) in relation to the Malaysian SMIs product design process. The progressive development of Malaysian SMIs will enable them to develop world leading companies. This aim will be achieved through their strong will and effort, and the government’s commitment toward the helping them. The progressive development of SMIs will eventually boost the Malaysian economy through increasing the capability of exporting products that will fulfil customer needs and requirements. Close cooperation between the policy makers and the practioners is necessary to formulate strategies or draft procedures, policies, laws, or instructions to enhance the Malaysian SMIs. On the other hand, the Malaysian SMIs should give inputs or any necessary information to the government to formulate strategies or assistance for the benefits of SMIs. These will be needed to help the Malaysian government to enhance its assistance package to the Malaysian SMIs. The researcher believes that the findings of this study will contribute to the policy makers, the governments (include government agencies), the Malaysian SMIs or any interested parties regarding the development of the SMIs, particularly in prioritising factors and product attributes in the product design process, then, finally venture into the export market (for those companies that have not yet ventured internationally). Finally, all the involved parties will benefit and keep on progressing. REFERENCES Barton, J.A. 2000. 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Viswanathan, M. and Childers, T.L., 1999. Understanding how product attributes influence categorization: Development and validation of Fuzzy set-based measures of gradedness in product categories, Journal of Marketing Research, 36(1). Walters, D. and Lancaster, G., 1999. Value and information – concepts and issues for management, Management Decision, 37(8). 456 CRITICAL SUCCESS FACTORS FOR SUCCESSFUL IMPLEMENTATION OF ENTERPRISE RESOURCE PLANNING SYSTEMS IN MANUFACTURING ORGANIZATION T. Ramayah Universiti Sains Malaysia Imad Zbib, Ph.D., American University of Beirut, Lebanon Sawaridass Arokiasamy Universiti Sains Malaysia ABSTRACT Our study examines the impact of the critical success factors on the successful implementation of Enterprise Resource Planning (ERP) systems in Malaysian manufacturing organizations. ERP system is an integrated packaged business software that enables companies to manage their resources efficiently (Nah et al. 2003). The effect of organizational resistance on the aforementioned relationship was studied, along with User Satisfaction and predetermined goals to evaluate the degree of success of ERP system implementation. Top Management involvement, Business Plan and Vision, Vendor Support, Change Readiness, teamwork composition and Communication were found to be critical factors to ensure smooth introduction for successful ERP implementation. In addition, organizational resistance was found to moderate the relationship between critical success factors and User Satisfaction. INTRODUCTION In today’s increasingly competitive global and complex business environment, organizations in newly industrialized countries such as Malaysia have to continually re-adjust their operations to meet the marketplace global challenges and respond to customers and competition. A useful tool that businesses are turning to in order to build strong capabilities, improve performance, undertake better decision-making and achieve a competitive advantage is Enterprise Resource Planning, (ERP), (Al-Mudimigh et al. 2001). ERP, as a business solution, aims to help management by setting better business practices and equipping them with the right information to make timely decision. Despite the benefits that could be achieved from a successful ERP system implementation, evidence of failure in various projects still exists (Davenport, 1998). Only 10 to15% of all ERP implementations across Malaysia have a smooth introduction, while some 30% of the implementations experience challenges or a significant shortfall in delivered benefits, (Malaysian Star, January 15, 2002). Three quarter of the ERP projects were judged to be unsuccessful by the ERP implementing firms (Griffith et al. 2001). While companies such as Eastman Kodak, Cisco System and Tektronix have reaped the expected benefits of ERP systems, many other businesses are discovering that their ERP implementation has been a nightmare (Chen, 2001). A good example is Hershey, the chocolate manufacturer, that reported a 19% drop in the third-quarter profits and a 12% sales decline, both caused by the $112 million ERP implementation in 1998 (Stedman, 1999). On top of that, Hershey reported an increase in typical delivery time from 5 days to 12 days; a 29% increase in year-to-year inventory costs. Strained customer relations and market share losses were also reported. An extreme example is the pharmaceutical distributor FoxMeyer Drug, a $5 billion Texas-based company that collapsed due to a failed ERP system (Bicknell, 1998). In addition, Miller Industries reported a $3.5 million operating loss in the fourth quarter of 1999 due to the inefficiencies of its ERP system, while WW Grainger Inc. reported $11 million reduction in operating earnings from its improper ERP implementation (Earl, 1994). These large ERP investments have created a whirlpool of controversies, rampant company politics and larger number of lawsuits. Given the large financial commitments that ERP projects require and the potential benefits they offer if successfully implemented, it is imperative to understand what is needed to ensure a successful implementation of ERP systems 457 (Motwani et al. 2002). In order to resolve these challenges, some scholars are using the critical success factors (CSFs) approach to study ERP implementation. Hence, the major goal of our study is to examine the impact of the critical success factors on the sustainable implementation of ERP system across Malaysian firms. LITERATURE REVIEW Critical Success Factors Characteristics Critical success factors, (CSFs), are elements that help extend the boundaries of process improvement, and whose effect is much richer if viewed within the context of their importance in each stage of the implementation process (Somers and Nelson, 2001). Following is a brief description of the top ten CSF that impact the successful implementation of ERP system. Top Management Support Among the CSFs across the stages of ERP implementation, Top Management's support is considered paramount (Somers and Nelson, 2001). ERP implementation could be seriously handicapped if some of the critical resources such as people, funds, and equipment are not available (Zhang et al. 2002) Project Champion The success of technological innovations has been often linked to the presence of a champion who performs the crucial functions of transformational leadership and facilitation (Beath et al. 1991) and who continually strives to resolve conflicts and manage resistance (Nah et al. 2001). Project Management Companies ought to have an effective Project Management strategy to control the implementation process, avoid budget overrun and ensure implementation within schedule (Zhang et al., 2002). If not properly managed, issues such as unrealistic schedules and budget (Boehm, 1991), lack of measurement system (Block, 1983), and lack of efforts (Nah et al. 2003) can cause the failure of ERP implementation. Business Plan and Vision A business model depicts how the organization implements its trategy and monitors its efforts in setting identifiable and measurable goals (Holland et al, 1998). ERP needs a clear Business Plan and Vision to steer the direction of the implementation. Teamwork and Composition ERP projects typically require team members from all functional departments and cooperation of technical and business experts as we as end-users (Nah et al. 2003). The team ought to consist of a mix of consultants and internal staff so the internal staff could develop the necessary technical skills for design and implementation (Summer, 1999). The team must be empowered to make quick decisions (Shanks et al., 2000). The sharing of information among various divergent parties involved requires partnership and trust (Stefanou, 1999). Incentives and risksharing agreements aid in working together to achieve shared goals (Wee, 2000). Change Management and Reactions Many ERP implementation failures have been caused by the lack of focus on "the soft issues" such as the business process and change management (Kelly et al., 1999 and Summer, 1999). The stronger the need for a change, the more likely Top Management and stakeholders will support the ERP implementation (Falkowski et al., 1998). Early user involvement in the design and implementation of new business processes as well as extensive top down and cross-functional Communication may generate enthusiasm for ERP (Stratmart et al. 2002). Establishing support organization such as a help desk and an online user manual is also critical to meeting users' needs and manage organizational change (Wee, 2000). Vendor Support 458 Since ERP becomes a major part in the company's systems, Vendor Support represents an important factor; vendors are expected to provide a standard technical assistance, emergency maintenance, and special user training (Somers and Nelson, 2001). Communication Effective Communication is critical to ERP implementation (Falkowski et al., 1998). Management of Communication, education and expectations are also critical throughout the organization (Wee, 2000). Communication includes the formal promotion of project teams and the proclamation of project progress to the rest of the organization (Holland et al., 1999). Appropriate employees should be identified for the project plan and its execution in advance (Summer, 1999). Learning Competency Learning Competency refers to activities intended to identify cutting edge ERP techniques from both internal and external sources (Stratman and Roth, 2002). From an external perspective, to gather ERP best practices, benchmarking activities are often used (Levitt and March, 1988). Internally, human resource systems may contribute to sustained competitive advantage through the development of firm-specific competencies and the generation of organizational knowledge (Snell and Dean, 1992). User Training and Education A specific challenge in ERP implementation is to tailor a good training program for both technical staff and endusers. Training starts with the education of the project team in system, line and Project Management and ends with the system's users (Welti, 1999). Clearly, a lack of user training and a failure to completely understand how enterprise applications change business processes often seems to be responsible for failures and problems in the ERP implementations (Wilder et al. 1998, Crowley, 1999). Organizational Resistance In today's business environment, change has become an everyday part of organizational dynamics and any resistance from employees negatively affects the organization. Employees resisting the change, feel threatened by the loss of status, loss of pay, or loss of comfort (Dent et al. 1999). OUR MODEL Our study examines the relationship between Critical Success Factors in ERP implementation and the impact of organizational resistance on this relationship across broad spectrum of Malaysian firms. Our model would show the impact of the moderating factor, which is organizational resistance, on the top 10 critical success factors as well as its effect on the successful achievement of predetermined goals and User Satisfaction. The model also shows the interdependence of the aforementioned variables. See Figure 1 for more details. Please contact author(s) for a copy of the conceptual model. H1: H2: H3: H4: H5: H6: H7: H8: H9: H10: The better the Top Management support, the higher will be the ERP implementation success. The stronger the Project Champion, the higher will be the ERP implementation success. The better the Project Management, the higher will be the ERP implementation success. The clearer the business plans and vision, the higher will be the ERP implementation success. The stronger the Teamwork and Composition, the higher will be the ERP implementation success. The greater the Change Readiness, the higher will be the ERP implementation success. The better the Vendor Support, the higher will be the ERP implementation success. The better the Communication, the higher will be the ERP implementation success. The stronger the Learning Competency, the higher will be the ERP implementation success. The better the User Training and Education, the higher will be the ERP implementation success. Organizational Resistance as Moderating Effect 459 H11: The relationship between ERP critical success factors and ERP implementation success will be higher when organizational resistance is low. RESEARCH METHODOLOGY Research Design Hypothesis testing is undertaken to explain the variance in the dependent variables to predict successful implementation. Our research, being a field study, was conducted in a non-contrived setting as the work of the employees proceeded normally. A 5-point likert scale was used to measure the independent, dependent and moderating variables. The respondents were required to choose to what extent they agreed or disagreed with each statement in the survey distributed, 1 being strongly disagree and 5 strongly agree. The independent variables consisted of 10 dimensions namely Top Management support, Business Plan and Vision, team work & composition, Communication, Project Management, Project Champion, Learning Competency, User Training and Education, Change Readiness and Vendor Support. Elements tested for each of these dimensions are summarized in Table 1. Table 1 Elements of Each Critical Success Factors 460 Item Critical Success Factors 1 Top management support (Q1-Q3) Project champion 2 (Q4-Q6) 3 Project management (Q7-Q9) Business Plan & Vision 4 (Q10-Q12) 5 Team Work & Composition (Q13-Q15) 6 Change Readiness (Q25-Q27) 7 Vendor support (Q19-Q21) 8 Communication (Q22-Q24) 9 Learning Competency (Q16-Q18) 10 User training and education (Q28-Q30) Element a) allocate appropriate resources b) invested time to understand ERP benefit c) as entity business goals a) visible senior manager b) power to set goals c) legitimise change a) measurements of success b) periodic review c) track project completion a) contains clear business plan b) clear goals specified c) investment well addressed a) best people b) empowered c) cross functional a) employee understanding b) employee concerns c) support group availability a) service response time b) good interpersonnel skills c) knowledgeable a) expectation communicated b) open communication c) updates on progress a) benchmarking - cutting edge technology b) ERP developments c) business experiments a) training needs identified b) basic training provided c) regular training review Source Stratman & Roth, 2002 Nah, Zuckweiler & Lau, 2003 Stratman & Roth, 2002 Nah, Zuckweiler & Lau, 2003 Nah, Zuckweiler & Lau, 2003 Stratman & Roth, 2002 Zhang et al., 2002 Nah, Zuckweiler & Lau, 2003 Stratman & Roth, 2002 Stratman & Roth, 2002 Organizational resistance was chosen as a moderating variable. There were a total of 5 elements considered and the research questions were adopted from the study undertaken by Hong and Kim (2001). Organizational resistance was found to be an intervening variable between organizational fit and implementation success with very marginal effect (∇R2 = 0.08) on improving the predictive validity of the model (Hong and Kim, 2001). The first dimension for successful implementation studies the relationship between organizational fit of ERP and ERP implementation success, taking into consideration certain variables as moderating factors (Hong and Kim, 2001). The elements measured were cost, time, performance and benefits. The second dimension studies the relationship between CSF’s and ERP implementation success (Zhang et al. 2002). The User Satisfaction dimension was selected due to its suitability for this research (Doll and Torkzadeh 1998) and a total of 5 elements were used to measure User Satisfaction. Unit of Analysis and Sampling Design The unit of analysis in our study was manufacturing organizations that implemented ERP in Penang, Malaysia. We conducted two different surveys. The first survey was carried out to identify the top 10 CSF’s from a list of 27 CSF’s compiled from previous research. Each IT director from 10 different manufacturing organizations rated the list. In the second survey, we applied the non-probability convenience sampling design due to time constraints and for practical reasons. Respondents were managers who were well aware of the ERP, and had both expertise and experience in the production control, materials, engineering, and information technology departments. 461 Questionnaire Design The questionnaire was designed in six sections and items used to construct it were adapted from prior research, with appropriate modifications made to ERP systems in Malaysia. DATA ANALYSIS AND RESULTS Validity and Reliability The content validity of the questionnaire was established through literature review, whereas face validity was accomplished through a pilot test of the questionnaire. Cronbach’s coefficient alpha was used as indicator for internal consistency and reliability. Regression Analysis In our study, hierarchical regression analysis was performed to test the hypotheses and explain the relationships between CSF’s (independent variables), organization resistance (moderating variable) and successful implementation (dependent variable). We assumed Normality, Homoscedasticity, Independence of Error Term and Multicollinearity Outliers Sample Profile Out of 113 manufacturing organizations, only 69 (69.06%) responded to the questionnaire. The respondent’s and organization profile are summarized in Table 2. Generally, the respondents are grouped into foreign company ownership (36.23%) and local company ownership (63.77%). Table 2 Profile of Respondents Company Ownership Profile Description Foreign Gender Male Female Count 19 6 Percent 27.54 8.69 Count 41 3 Percent 59.42 4.35 % 86.96 13.04 Total 25 36.23 44 63.77 100.0 20 - 25 26 - 30 31- 35 36 - 40 40 -45 > 46 2 5 7 6 3 2 2.90 7.25 10.14 8.70 4.35 2.90 5 13 10 10 5 1 7.25 18.84 14.49 14.49 7.25 1.45 10.14 26.09 24.64 23.19 11.59 4.35 Total 25 36.23 44 63.77 100.0 Executive Engineer Lower management Middle management Senior management 8 7 4 6 0 11.59 10.14 5.80 8.70 0.00 13 5 8 13 5 18.84 7.25 11.59 18.84 7.25 30.43 17.39 17.39 27.54 7.25 Total 25 36.23 44 63.77 100.0 Certificate/Diploma Bachelor Degree Master Degree PhD 2 17 6 0 2.90 24.64 8.70 0.00 3 26 14 1 4.35 37.68 20.29 1.45 7.25 62.32 28.99 1.45 Age Position Qualification Local 462 Total How long ago was ERP system implemented? Estimated amount Of loss caused by The delay. (RM) Project implementation Was delayed Total 25 36.23 44 63.77 100.0 Less than 1 yr >1yr but < 3yrs >3yr but < 5yrs > 5yrs 1 10 7 7 1.45 14.49 10.14 10.14 15 14 11 4 21.74 20.29 15.94 5.80 23.19 34.78 26.09 15.94 Total 25 36.23 44 63.77 100.0 < 0.5M > 0.5M but <1M > 1M but < 2M > 2M No delay 0 0 4 4 17 0.00 0.00 5.80 5.80 24.64 27 1 5 0 11 39.13 1.45 7.25 0.00 15.94 39.13 1.45 13.04 5.80 40.58 Total 25 36.23 44 63.77 100.0 < 1mth > 1mth but < 3 mths > 3 mths No delay 1 2 5 17 1.45 2.90 7.25 24.64 11 17 5 11 15.94 24.64 7.25 15.94 17.39 27.54 14.49 40.58 Total 25 36.23 44 63.77 100.0 Goodness of Measure and Reliability Analysis Cronbach’s coefficient alpha is used to measure internal consistency and reliability. Table 3 presents the summary of reliability analysis of variables in our study. Table 3 Reliability Test Variable Number of items included for analysis Reliability (Cronbach’s Alpha) Independent Variable: Top Management Project Champion Project Management Business Plan & Vision Teamwork & Composition Change Readiness Vendor Support Communication Learning Competency User Training & Education 3 3 3 3 3 3 3 3 3 3 0.97 0.95 0.95 0.96 0.95 0.94 0.62 0.95 0.94 0.94 Moderator Variable: Organizational Resistance 5 0.97 Dependent Variable: Predetermined Goal User Satisfaction 4 5 0.96 0.98 Table 4 displays descriptive statistics for independent variables, moderator variable and dependent variables. In summary almost all the CSF’s variables, organizational resistance and dependent variables showing bi-model distribution with mean response closer to neutral or 3 except for the variable Vendor Support (M = 4.12 & S =0.49). 463 Table 4 Descriptive Statistics of Variables Variable Mean Std. Deviation a) Top Management 2.81 1.6 b) Project Champion 3.20 1.25 c) Project Management 2.92 1.25 d) Business Plan & Vision 2.86 1.26 e) Teamwork & Composition 2.95 1.21 f) Change Readiness 3.57 1.17 g) Vendor Support 4.13 0.49 h) Communication 2.93 1.16 I) Learning Competency 2.71 1.23 j)User Training & Education 2.83 1.22 a) Organizational Resistance 2.90 1.35 3) Dependent Variable a) Predetermined Goals 2.90 1.47 b) User Satisfaction 3.08 1.35 1) Independent Variable 2) Moderator Variable Hierarchical Regression Analyses In our study we performed two hierarchical regression analyses to examine the relationship between the CSF’s and successful ERP implementation along with organizational resistance as a moderator. For each hierarchical regression, three steps were involved. In step 1, ten CSF’s variables were entered with one of the two dependent variables (predetermined goals and User Satisfaction) of ERP implementation success. In step 2, the organizational resistance variable was entered. Finally in step 3, multiplication scores (organization resistance * independent variable) of each critical success factors variable were entered. A significant change in R2 in step 3 would indicate the existence of moderator effect. Initial data on normal p-p plots and histograms on all the analyses indicated that the data were normally distributed and no specific pattern observed. Therefore, the basic assumptions of linearity and normality of data were fulfilled. Main Effects of CSF’s on User Satisfaction Table 5 shows the model summary for the three-step hierarchical regression result and User Satisfaction as dependent variable. From the summary table, the significance of F change is 0.00, implies that there is a significant relationship between critical success factors and implementation success dimension of User Satisfaction. DurbinWatson value of 1.82 indicates that there were no significant positive auto-correlations among these variables. Independent effects of critical success factors from step1 can explain 90% (R2 = 0.9) of variance in User Satisfaction. Further observation revealed that, of the ten CSF’s, Business Plan and Vision, Teamwork and Composition, Change Readiness and Communication have significant effect on User Satisfaction. Clearer Business Plan and Vision is found to be positively and significantly correlated at 10% level for User Satisfaction (β = 0.26). The beta value of 0.26 indicates that Business Plan and Vision is the third most influential variable in explaining the variance with User Satisfaction. As a result, hypothesis H4 is partially supported. Independent variable Teamwork and Composition is found to be positively and significantly correlated at α = 0.05 with beta value of 0.37 for User Satisfaction. A value of 0.37 shows that Teamwork and Composition is the second 464 most influential variable in explaining the variance for User Satisfaction. As a result, hypothesis H5 is fully supported. Table 5 Hierarchical Regression Results Using Organizational Resistance as a Moderator Effect (User Satisfaction) Dependent Variable : User Satisfaction Independent variable Model Variables Top Management Project Champion Project Management Business Plan & Vision Teamwork & Composition Change Readiness Vendor Support Communication Learning Competency User Training & Education Std Beta Step 1 Std Beta Step 2 Std Beta Step 3 0.21 0.15 -0.12 0.26* 0.37** 0.15** -0.01 0.39** -0.67 -0.08 0.05 0.04 -0.10 0.11 0.17** 0.03 0.01 0.22** 0.15 -0.24*** -0.54 0.22 0.54 -0.31 0.13 0.04 -0.10 1.10*** 0.51** -0.84*** -0.63*** -0.37 Moderating Variable Org. Resistance Interaction Terms Org. Resistance*Top Management Org. Resistance*Project Champion Org. Resistance*Project Management Org. Resistance*Business Plan & Vision Org. Resistance*Teamwork & Composition Org. Resistance*Change Readiness Org. Resistance*Vendor Support Org. Resistance*Communication Org. Resistance*Learning Competency Org. Resistance*User Training & Education 0.23 -0.09 -0.34* 0.16 0.02 0.10 0.28 -0.49*** -0.13 0.30 R2 0.91 0.96 0.97 Adj R2 0.90 0.95 0.96 R2 Change 0.91 0.05 0.01 Significant F Change 0.00 0.00 0.09 Durbin Watson * p < .1, ** p < .05, *** p < .05 1.82 1.82 1.82 Better preparation of Change Readiness has significant impact and correlates positively at 5% level for User Satisfaction (β = 0.15). As a result, hypothesis H6 is fully supported. Independent variable Communication has significant impact and correlates positively at 5% level for User Satisfaction. It also shows frequent and open Communication has positive relationship with User Satisfaction. The beta value of 0.39 indicates that 465 Communication is the most influential variable in explaining the variance with User Satisfaction. Thus hypothesis H8 is fully supported. Finally independent variables such as Top Management, Project Champion, Project Management, Vendor Support, Learning Competency and User Training and Education were found to be statistically insignificant at 10% level for User Satisfaction. As a result hypotheses H1, H2, H3, H7, H9 and H10 were not supported. Moderator Effect of Organizational Resistance (User Satisfaction) As can be observed from Table 5, organizational resistance had a significant negative relationship (β = -0.63, p<0.01) with User Satisfaction. Significant F change is 9% in step 3 of the hierarchical regression analysis, indicating that two of the interaction terms were significant, namely Communication (β = -0.49, p< 0.01) and Project Management (β = -0.34, p< 0.10). These findings suggested that organizational resistance only moderate two out of the ten independent variables investigated. Hence, H11 was partially supported. In order to interpret the moderator effect, Project Management, Communication and organizational resistance were split at the median to form low and high subgroups. Then, a subgroup from Project Management and organizational resistance were plotted against User Satisfaction. A similar method was used for independent variable Communication. Therefore, interactive line graphs were used to explain the relationships of the moderator effects. 5.0 4.5 User Satisfaction 4.0 3.5 3.0 2.5 Org Resistance 2.0 Low 1.5 High Low High Project Managment Figure 2. Moderator Effect of Organizational Resistance and Project Management for User Satisfaction The result shown in Figure 2 implies that when organizational resistance is low, User Satisfaction will increase from low to high as Project Management level increases. However if organizational resistance is high, increase in quality level of Project Management does not matter or influence User Satisfaction. 466 5.0 4.5 User Satisfaction 4.0 3.5 3.0 2.5 Org Resistance 2.0 Low 1.5 High Low High Communication Figure 3. Moderator Effect of Organizational Resistance and Communication for User Satisfaction The result shown in Figure 3 also implies that when organizational resistance is low, User Satisfaction will increase from low to high as quality level of Communication increases. However if organizational resistance is high, increase in Communication quality does not matter or influence User Satisfaction. Main Effects of CSF’s on Predetermined Goals Table 6 shows the model summary for the three-step hierarchical regression result and predetermined goals as dependent variable. From the summary table, the significance of F change is 0.00, implies that there exists significant relationship between critical success factors and implementation success dimension of predetermined goals. Durbin-Watson value of 1.60 indicates that there were no significant positive auto-correlations among these variables. Independent effects of critical success factors from step1 can explain 86% (R2 = 0.86) of the variance in predetermined goals. Further observation revealed that, of the ten CSF’s, Top Management, Business Plan and Vision, Change Readiness and Vendor Support have significant effect on predetermined goals. Top Management support is found to be positively and significantly correlated at 5% level for predetermined goals (β = 0.39). The beta value of 0.39 indicates that extension of Top Management support is the second most influential variable in explaining the variance with predetermined goals. As a result, hypothesis H1 is supported. Independent variable Business Plan and Vision is found to be positively and significantly correlated at α = 0.01 for predetermined goals (β = 0.62). Beta value of 0.62 shows good Business Plan and Vision is the most influential variable in explaining the variance for predetermined goals. As a result hypothesis H4 is fully supported. Change Readiness has significant impact and correlates positively at 5% level for predetermined goals (β = 0.21). Beta value of 0.21 shows better preparation for Change Readiness has a positive impact on ERP implementation success and also the third most important variable to explain variance for predetermined goals. As a result hypothesis H6 is fully supported. Independent variable Vendor Support has significant impact and correlates positively at 5% level for predetermined goals. It also shows that good Vendor Support gives a positive impact for dependent variable dimension of predetermined goals. Thus hypothesis H7 is fully supported. 467 Table 6 Hierarchical Regression Results Using Organizational Resistance as a Moderator Effect (Predetermined Goals) Dependent Variable: Predetermined Goals Independent variable Model Variables Top Management Project Champion Project Management Business Plan & Vision Teamwork & Composition Change Readiness Vendor Support Communication Learning Competency User Training & Education Std Beta Step 1 Std Beta Step 2 Std Beta Step 3 0.39** 0.15 -0.01 0.62*** 0.15 0.21** 0.13** 0.05 -0.12 -0.09 0.16 0.07 0.07 0.47*** -0.02 0.08 0.15*** -0.15 0.06 -0.21** 0.16 0.16 0.15 0.90** -0.07 -0.02 -0.13 -0.38 0.04 -0.11 -0.64*** -1.39* Moderating Variable Org. Resistance Interaction Terms Org. Resistance*Top Management Org. Resistance*Project Champion Org. Resistance*Project Management Org. Resistance*Business Plan & Vision Org. Resistance*Teamwork & Composition Org. Resistance*Change Readiness Org. Resistance*Vendor Support Org. Resistance*Communication Org. Resistance*Learning Competency Org. Resistance*User Training & Education R2 -0.05 -0.02 -0.03 -0.37 0.11 0.14 1.16 0.22 0.02 -0.07 0.88 0.94 0.95 Adj R 0.86 0.92 0.92 R2 Change 0.88 0.06 0.01 Significant F Change 0.00 0.00 0.40 Durbin Watson * p < .10, * *p < .05, ***p < .01 1.60 1.60 1.60 2 Finally independent variables such as Project Champion, Project Management, Teamwork and Composition, Communication, Learning Competency and User Training and Education were found not statistically significant at 10% level for predetermined goals. As a result hypotheses H2, H3, H5, H8, H9 and H10 were not supported for dependent variable dimension of predetermined goals. Moderator Effect of Organizational Resistance (Predetermined Goals) As can be observed from Table 6, organizational resistance had a significant negative relationship (β = -0.64, p<0.01) with predetermined goals. However, significant F change is 0.4 in step 3 of the hierarchical regression analyses indicate that interactions between ERP critical success factors are not significant. Thus, it can be concluded 468 that organizational resistance does not act as a moderator for implementation success dimension of predetermined goals. SUMMARY In summary, the analysis of the main effect of the independent variables and moderator effect, on two dimensions of implementation success is as given in Table 7. Table 7 Summary of Hypotheses Testing Results Significant Dimension Implementation Success Effect of Result ERP Critical Success Factors on Implementation Success Top Management Predetermined Goals Predetermined Goals, Satisfaction Predetermined Goals, Satisfaction Predetermined Goals, Satisfaction User Satisfaction Predetermined Goals, Satisfaction Predetermined Goals User Satisfaction Predetermined Goals, Satisfaction Predetermined Goals, Satisfaction Project Champion Project Management Business Plan & Vision Teamwork & Composition Change Readiness Vendor Support Communication Learning Competency User Training & Education User Supported: H1 Not Supported: H2 User Not Supported: H3 User Supported: H4 User Supported: H5 Supported: H6 User Supported: H7 Supported: H8 Not Supported: H9 User Not Supported: H10 Moderator Effect on Implementation Success User Satisfaction Organizational Resistance Partially Supported: H11 Lastly, conclusions based on the observations and results of the analysis in this section will be discussed in the next one. IMPLICATIONS OF THE STUDY The study revealed that 58% of the manufacturing organizations in Malaysia implemented ERP less than 3 years and 40.5% of them estimated below RM 1 Million loss due to implementation delays or unsuccessful ERP implementation. In addition 83% of the manufacturing organizations perceived ERP system is beneficial prior to implementation. This indicates that even though ERP system had been in the market for more than 10 years and perceived as beneficial, factors that contributed to successful implementation in Malaysian manufacturing organizations were not fully understood. Therefore, a thorough understanding of the critical success factors is important for making the right choice in order to bring closer to implementation success and avoid huge losses. Communication, Teamwork and Composition, Business Plan and Vision, and Change Readiness were found to be the important factors in influencing User Satisfaction towards the successful ERP implementation in Malaysian manufacturing organizations. Managing these factors well would increase the user acceptance of ERP system, thereby, enabling a smooth introduction of ERP implementation. 469 Business Plan and Vision, Top Management support, Change Readiness and Vendor Support are the important critical success factors related to predetermined goals which are actually the quantitative measurement of ERP successful implementation. Allocating appropriate resources, investing sufficient time to understand the implementation benefits, selecting knowledgeable vendor, addressing employee concerns and specifying clear goals are some of the basic elements required even before thinking of implementing ERP. Organizational resistance is important in moderating the effect of two critical success factors variables (Project Management and Communication) in Malaysian manufacturing organizations. Specifically lowering the organizational resistance will increase the user acceptance. Thus, increasing the implementation success statistics. Caution should be exercised while managing change and organizations must be competent in effective change management that involves all the affected personnel’s to accept the introduced changes as well as manage any resistance to them. LIMITATIONS There are couple of limitations in this study. Firstly, the sample size is small due to the low response rate and time constraint. Obtaining more robust results would require a sample size of several hundred companies. Thus limits the reliability and validity of generalizing the research results to the company population. Second, bias lies in the sample selection method. In this research, only one questionnaire represent a company, thus the person who fill up the questionnaire may not be representative of all users within the company especially on portion related to User Satisfaction. Next is the very limited numbers or almost none of similar research carried out in Malaysia, which can be used as a benchmark or literature review. Lastly, perceived project metrics are used in defining implementation success, leaving out factual aspect of implementation success outcome in this research, which was due difficulty in securing the factual data from the participating companies. Directions for Future Research This study has provided an initial finding of the ERP critical success factors for successful ERP implementation in Malaysia manufacturing organizations. Even though a lot of similar research carried out in the West and China but for Malaysia this research could be among the first few. The initial results indicate that there are opportunities for scholars to further investigate the relationship of the moderator effects such as ERP adaptation level and process adaptation level between CSF’s and ERP implementation success. Case studies could be carried out to better understand the complexities of the ERP implementation process and to study how companies cope with organizational changes that accompany ERP adoption. More research should be conducted to assess differences and similarities of ERP practices among Malaysian versus other developed countries. CONCLUSION The business environment has become increasingly complex and enormously competitive. One way to stay profitable and competitive is by lowering operating cost and improving logistic. Enterprise Resource Planning is a useful tool that businesses can turn to, in order to achieve competitive edge over other companies. 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Proceedings of the 36th Hawaii International Conference on System Science 473 TYPE OF PROCUREMENT AND OPERATIONAL PERFORMANCE: COMPARISON OF E-PROCUREMENT AND OFFLINE PURCHASING TOWARDS OPERATIONAL PERFORMANCE T. Ramayah Universiti Sains Malaysia Imad Zbib, Ph.D., American University of Beirut, Lebanon Mohamad Jantan Universiti Sains Malaysia Koh Bee Li Universiti Sains Malaysia ABSTRACT Advanced technology has paved the path for improving overall performance in supply chain management, and has turned the latter into a competitive advantage for companies. This study explores electronic procurement and its relationship with operational performance. Data was collected by means of questionnaires distributed to active vendors and end users in Company X. The results revealed that operational performance differs with the type of procurement: e-procurement vendors have better operational performance compared to those practicing traditional purchasing. However, the relationship between type of procurement and operational performance is moderated by business volume, vendor region, extent of trust and co-operation, whereas product type did not hold a significant moderator effect. Accordingly, managers should adopt e-procurement in their respective organizations to improve operational performance in supply chain management. INTRODUCTION The Operational Performance in Supply Chain Management In recent years, supply chain management has gained growing attention from different business leaders and researchers as technological advancement has added to its complexity; technology is changing the ways companies create, synchronize, and execute their supply chain plans adding up to the current criticality of online procurement for organizations to survive in a highly competitive market. By creating a virtual electronic market, e-procurement holds the potential to dramatically reengineer and improve purchase-to-order processes for goods and services. It will consequently yield savings in time, productivity, and cost. A study by the Boston Consulting Group (www.bcg.com), predicts that the transaction value of business-tobusiness E-Commerce, conducted over the Internet, will be more than $2 trillion in 2004, with nearly $800 million in purchases completed through Electronic Data Interchange (EDI) (CyberAtlas.com). Furthermore, a recent study by Deloitte Consulting indicates that, out of 200 global firms 30% have begun implementing a basic e-procurement solution, whereas 61% are either planning or considering its implementation (Whyte, 2000). The Role of E-Procurement in Purchasing Management In the long-range resource planning stage, the purchasing task is to establish relationships with reliable suppliers by communicating information in a timely manner and verifying their capacity to fulfill the organization's requirements. Therefore, communication is essential to adequately integrate suppliers in the production and supply chain. Today, the use of EDI to achieve the desired integration has become widespread. The main goals of e-procurement are to reduce confusion and costs, and increase efficiency in the procurement process; it can help organizations prepare for increased technological collaboration and planning with business partners (Croom, 2000; Roche, 2001; Gamble, 1999; Greenemeier, 2000 and Murray, 2001). However, in order to 474 guarantee increased efficiency, it should also be paralleled with the selection of right suppliers, contracts negotiation, monitoring of supplier performance and customer satisfaction, as well as the leverage of the highvolume of repetitive purchasing activities. From the buyers’ perspective, an electronic procurement solution can reduce the administrative expenses associated with ordering and procuring required goods and services. From the suppliers’ perspective, e-procurement enables prompt delivery-to-order of products and services, eventually improving the make-to-order processes. Problems in Implementing E-Procurement Although e-procurement is beneficial, its implementation may be wrought with problems; recent market observations indicate that the adoption and integration of e-procurement technologies into the business mainstream have occurred at a much slower pace than expected. This is due to investors implicitly associating e-procurement technologies with the business-to-customer (B2C) models responsible for the Internet bubble (Antonio, Mahendra & Richard, 2003). Another reason is that companies jump onto the e-procurement bandwagon without fully understanding the inter-organizational collaboration and network effects (Gilbert, 2000). In addition to that, implementing an e-procurement solution requires not only that the system itself perform the purchasing process successfully, but also that it coalesces with the existing information infrastructure. Failure to integrate creates duplicated work steps and jeopardizes the reliability of organizational information. Research Objectives This research focuses on comparing the operational performances of e-procurement and traditional procurement from the supplier’s perspective. Also, it focuses on the moderator factors which influence the relationship between type of procurement and operational performance. Furthermore, we would like to explore whether, under various conditions, e-procurement performs better than traditional purchasing. Research Questions In order to achieve the study’s objectives, the following questions must be answered: 1) Does operational performance of suppliers who participate in e-procurement programs differ than those who participate in traditional procurement models? 2) Do product type, supplier’s location, business volume, trust and cooperation moderate the differences in the performances of the two procurement types? Scope of Research This research involves a company, located in Kulim, referred to as Company X for confidentiality purposes. Company X is a premier semiconductor wafer foundry in Malaysia and has won the Semiconductor International’s 2002 Top Fab Award. The population of the research comprises all of Company X’s suppliers, of which there are two groups: e-procurement vendors and traditional procurement vendors. This research examines data gathered from active vendors in this company. Significance of Research The nature of the wafer foundry business makes it crucial to adopt e-procurement as a strategic tool to improve the purchasing process, reduce administrative costs and improve vendor operational performance. As for developing the effective strategies for using e-procurement, this requires an understanding of the factors that moderate the relationship between type of procurement and operational performance (Dawn, Aric, Rebecca & Catherine, 2001). LITERATURE REVIEW E-procurement is introduced into an organization in a staggered fashion starting from maintenance, repair, operations, (MRO) purchase transactions, indirect purchases, and ending with core business purchases (Antonio, Mahendra & Richard, 2003). E-procurement technologies are expected to offer the greatest long-run benefit to organizations through their integration in the supply chain. Companies that use e-procurement technologies report savings of 42 percent in 475 purchase transaction costs, associated with less paperwork. Also, the simplified purchasing process reduces the number of suppliers to deal with and has a favorable impact on reducing the purchasing cycle time (Antonio, Mahendra & Richard, 2003). The recent Aberdeen Group survey of MRO buyers indicated that the conversion of paper-based purchasing to electronic-based purchasing resulted in an average of 5-10 percent reduction in purchasing price, 25-50 percent reduction in the inventory level, 5-day reduction in cycle time and a US$77 saving per requisition in administrative cost (Brack, 2000). Another recent e-procurement study conducted by Deloitte Consulting reported that a firm could achieve an average return on investment (ROI) of 30% over the first 2-3 years through the implementation of EC-based purchasing (Corini, 2000); a typical firm could save 10-20% of its total purchasing cost through EC-based purchasing (Jones, 2000). Operational Performance Kalakota and Robinson (1999) emphasized that procurement outcomes can be organized into two broad categories. The first category reflects efficiency, and includes lower procurement costs, faster cycle times, reduced unauthorized buying, better organized information, and tighter integration of the procurement function. The second category reflects effectiveness and includes increased control over the supply chain. From the buyer’s perspective, efficiency and process cost, which include administrative/clerical & paperwork cost, are two main factors in measuring operational performance which reflects procurement performance. (Olson & Boyer, 2003). Moreno and Andrea (2002) measured operational performance from the supplier’s perspective in the context of the significant results obtained in the time needed to carry out the various activities in the production planning stage, after receiving customer orders. The production planning activities include simplifying the production process, exerting greater control over the products needed, and reducing work-in-process. The operational performance, which involves immediate uncertainty processing and guarantees feasibility of the production plan, plays an important role in the competitiveness of make-to-order industries. According to Moreno & Andrea (2002), operational performance measures focus on characteristics primarily related to delivery time, logistic support and response time. Olson and Boyer (2003) show that stakeholders focus on reducing cycle time in the whole supply chain process, through superior ordering, material acquisition and delivery. They classified organizational performance as transactional performance and concluded that there is significant improvement after the implementation of e-procurement. Although existing research confirms that e-procurement improves procurement performance, the impact of eprocurement varies with the context of the procurement environment. Product Type According to Kotler (2003), the purchasing process varies with different types of products, which may impact the relationship between type of procurement and operational performance differently. Lee et al (2003) advocated product type as a control factor in his study of the relationship between retailer channels and market efficiency. This research classified products as regular items and best sellers; it argued that online stores might provide more discounts for best sellers than regular items. It concluded that the impact of the online retailers, on market efficiency, is more significant for best sellers. Kraljic (1983) distinguished among four product-related purchasing processes, consisting of routine products, leverage products, strategic products and bottleneck products. The bottleneck is more likely in a better position to dictate operational performance; for the routine products, the use of e-procurement will not significantly improve the operational performance over traditional purchasing from vendor perspective. On the other hand, for the raw material product and “bottle neck” product, e-procurement will significantly improve the performance over traditional purchasing. By using e-procurement, vendors can receive the customer orders promptly and respond in shorter cycle time, positively impacting the production or manufacturing of the company. Supplier Location 476 Supplier location impacts the response time and lead-time of the supply chain. E-procurement allows suppliers to access information regarding customer orders rapidly. Thus, it improves order processing and significantly ameliorates performance when the supplier is located far from the customer. However, Kotler, (2003) stated that suppliers located near customers will definitely deliver goods in a shorter time. Business Volume From a buyer’s standpoint, the larger the business volume with a specific vendor is, the more significant the effect of e-procurement on vendor operational performance will be. According to Lee et al. (2003), large retailers, who profit from economies of scale in transactions, might have pricing advantages over small retailers; performance does not seem to differ much for either type of procurement, in case of small business volume. Therefore, it is not economical to implement e-procurement program with low business volume suppliers only. Trust The extent of the collaborative relationships between buyers and sellers depends much on the level of trust (Morgan, Robert & Hunt, 1994 ; Dwyer, Schurr & Oh, 1987). Since e-procurement involves more sharing of information and less human control, high level of trust is required in order to ensure higher operational performance. Co-operation Cooperation increases effectiveness in group work, resource dependency and interdependent tasks (Argyle, 1991). Both buyers and sellers can benefit more by cooperating than by separately pursuing their own self-interests (Philip, 1985); cooperation between buyer and seller promotes better business partnerships, allows both parties to learn more about each other’s business. THEORETICAL FRAMEWORK The fundamentals of this research are to compare firm performance among type of procurement from the vendor’s perspective. The theoretical framework of this study is based on the following researches: 1) “Is the Internet Making Retail Transactions more Efficient? Comparison of Online and Offline CD Retail Market,” written by Lee et al. (2003) 2) “Factor Influencing the Utilization of Internet Purchasing in Small Organizations,” written by Olson and Boyer (2003). Retail Channels Online Retailers Offline Retailers Market Efficiency Price Level Price Adjustment Price Dispersion Product Characteristics Retailer Characteristics Product Popularity On line Retailer Size Best Sellers Mega Stores Regulars Items Specialty Stores Medium Stores Release Time New Release Offline Retailer Size 477 Old Release Large-sized Medium Sized Figure 3.1 Lee et al.’s Research Model (2003) Contextual Factors User Characteristics Strategy Internet Purchasing Acceptance Factors Perceived Ease Perceived Usefulness Comfort Attitude Outcome Factors Organizational Performance Site Performance Figure 3.2 Olson and Boyer’s Research Model (2003) Merging the major contributions of the above mentioned researches has allowed to model this study’s proposed research as illustrated in Figure 3.3. Type of Procurement E-Procurement Traditional Procurement Operational Performance Product Type Supplier Location Volume of Business Trust Cooperation Figure 3.3 Theoretical Framework Based on this theoretical framework, the type of procurement influences the operational performance. Moreover, product type, supplier location, volume of business, extent of trust and co-operation moderate the operational performance of the two types of procurement. 478 Hypotheses Development The literature review reflects the organization’s benefits when implementing e-procurement, especially regarding overall procurement processes. However, there is no further research or study on the comparison of operational performance between e-procurement and traditional procurement. In this study, we will examine a comparison from the vendors’ perspective. Operational performance measures items that increase customer-perceived value and optimizes the efficiency of the flow of goods, services and information along the whole supply chain (Dobbs, 1998). E-procurement improves supplier operational performance, since it increases efficiency at the buyer’s and the vendor’s end. The buyer can immediately notify the supplier of any change in demand, and the vendor can also respond immediately and is able to adjust the production planning, achieve higher service level and performance, utilize resources more efficiently, and decrease waste. The section below lists the hypotheses related to operational performance and the five moderator factors, to be tested: H1: Operational performance is higher among vendors who participate in e-procurement program than among those adopting a traditional purchasing model. H1a: Ability to change production planning is higher among vendors who participate in the eprocurement program than among those adopting a traditional purchasing model. H1b: Response time is better among vendors who participate in e-procurement program than among those adopting a traditional purchasing model. H1c: Delivery performance is better among vendors who participate in e-procurement program than among those adopting a traditional purchasing model. H2: The relationship between type of procurement and operational performance will be stronger when the product type consists of production material. H2a: The relationship between type of procurement and ability to change performance will be stronger when the product type consists of production material. H2b: The relationship between type of procurement and response performance will be stronger when the product type consists of production material. H2c: The relationship between type of procurement and delivery performance will be stronger when the product type consists of production material. H3: The relationship between type of procurement and operational performance will be stronger when the vendor’s location is farther from the customer. H3a: The relationship between type of procurement and ability to change performance will be stronger when the vendor’s location is farther from the customer. H3b: The relationship between type of procurement and response time performance will be stronger when the vendor’s location is farther from the customer. H3c: The relationship between type of procurement and delivery performance will be stronger when the vendor’s location is farther from the customer. H4: The relationship between type of procurement and operational performance will be stronger when the business volume is high. H4a: The relationship between type of procurement and ability to change performance will be stronger when the business volume is high. 479 H4b: The relationship between type of procurement and response time performance will be stronger when the business volume is high. H4c: The relationship between type of procurement and delivery performance will be stronger when the business volume is high. H5: The relationship between type of procurement and operational performance will be stronger when the extent of trust is high. H5a: The relationship between type of procurement and ability to change performance will be stronger when the extent of trust is high. H5b: The relationship between type of procurement and response time performance will be stronger when the extent of trust is high. H5c: The relationship between type of procurement and delivery performance will be stronger when the extent of trust is high. H6: The relationship between type of procurement and operational performance will be stronger when the extent of cooperation is high. H6a: The relationship between type of procurement and ability to change performance will be stronger when the extent of cooperation is high. H6b: The relationship between type of procurement and response time performance will be stronger when the extent of cooperation is high. H6c: The relationship between type of procurement and delivery performance will be stronger when the extent of cooperation is high. RESEARCH METHODOLOGY This research is an exploratory research. The type of procurement acts as the independent variable while operational performance acts as the dependent variable. In addition to that, five moderator factors prevail: type of product, supplier location, business volume, trust, and co-operation. The data is obtained from Company X’s enterprise resource (ERP) system, used in the purchasing module to perform the procurement process. The database consists of two groups of vendors. One set of questionnaires, distributed via email and fax to Company X’s vendors, focuses on their perception of operational performance and specifies trust and cooperation as variables. Another set of questionnaire was distributed to end users in Company X to rate the vendors’ operational performance. In addition to that, secondary data was collected to study type of procurement, type of product, location of supplier and business volume variables. Sample Profile There were approximately 110 active vendors in the year 2003 in Company X among which 50 are participating in e-procurement programs and the other 60 are still adopting traditional procurement program. The response rate was approximately 66%. Respondent Profile As shown in Table 4.1, most of the respondents belong to the sales and marketing department; given the scope of the research, this sample is acceptable and it adds up to the reliability of the input provided. Table 4.1 Respondents’ Designation Profile Profile Designation Organization in Description Sales & Marketing Manager Sales & Marketing Officer Frequency 32 26 480 Percentage 43.8 35.6 Operations Manager 14 19.2 Organization Profile The organization profile, in Table 4.2, describes the demographic information of the organizations involved in this study. Most of the organizations are multinational companies and big size firms that are willing to invest money in advanced technology which will improve performance and enable the firm to compete in the market. Among 73 of the responding organizations, 38 are e-procurement vendors and 35 are non e-procurement vendors, the study is unbiased towards any type of vendors Table 4.2 Organization Profile Profile Description Type of Procurement E-Procurement Traditional Purchasing Total Employee Average Revenue Gross Annual European Customer American Customer Asian Customer 50-100 101-500 >500 Below RM5 million RM6-50 million Above 50 million Below 15% 20% - 30% Above 45% Below 15% 20% - 45% Above 45% Below 15% 20% - 45% Above 45% Frequency 38 Percentage 52.1 35 16 17 40 29 12 32 51 21 1 30 31 12 3 19 51 47.9 21.9 23.3 54.8 39.7 16.4 43.8 69.9 28.8 1.4 41.1 42.5 16.4 4.1 26.0 69.9 Reliability of Measures: The reliability of measures was assessed using the Cronbach’s Alpha and is presented in table 4.3. The coefficients range from 0.86 to 0.94 suggesting an acceptable reliability level of all measures. Table 4.3 Reliability of Measures Dependant Variable Operational Performance-Vendor Perspective Operational Performance-User Perspective Moderator Variables-Trust & Cooperation Component Ability to change Response Time Delivery Performance Cronbach’s Alpha 0.91 0.9 0.94 Trust Cooperation 0.88 0.86 Description of Major Variables The mean and standard deviation of major variables are presented in Table 4.4 and indicate that the e-procurement vendor has better operational performance. Table 4.4 Descriptive Statistics of Major Variables (Primary Data) Variables Ability to Change Mean Standard Deviation 481 E-procurement Traditional Procurement Response Time E-procurement Traditional Procurement Delivery E-procurement Traditional Procurement Trust E-procurement Traditional Procurement Co-operation E-procurement Traditional Procurement 3.61 2.78 0.64 0.65 3.85 2.65 0.53 0.51 3.31 2.56 0.78 0.84 3.26 2.49 0.49 0.51 3.91 3.02 0.46 0.46 In terms of operational performance in organizations utilizing e-procurement, the above average mean indicates that their vendors’ performance is comparable to their nearest competitors. In comparing the level of trust and cooperation between e-procurement vendors and company X, the higher cooperation level mean shows that vendors are willing to co-operate with customers to enhance the buyer and seller relationship. However, the extent of trust depends much on the relationship between the buyer and the seller. For the secondary variables- product type, region, and business volume- the descriptive statistic is shown as Table 4.5. Table 4.5 Descriptive Statistic of Moderator Variables (Secondary Data) Variables Product Type: Production Material Equipment MRO Region/Location: Malaysia Singapore Others Business Volume Below RM 9 mil RM9 -19 mil Above 19 mil Frequency Percent 37 13 23 51 18 31 37 27 9 51 37 12 66 5 2 90 7 3 There is a significant dominance of production goods in the product type variable because major purchases in Company X are related to production items. Fifty six percent of total vendors supply material used for production, twenty seven percent is equipment vendors, and thirty eight percent is MRO vendors. In term of vendor’s location, most of the vendors set up their local office to support Company X’s business. Therefore, a significant 51 percent of the companies is located in Malaysia. As for the business volume, a significant 90 percent of the sample conduct business in a volume of less or equal to RM 9 million with company X. Hypotheses Testing Hierarchical Regression Analysis was performed to examine the hypotheses. Overall, all assumptions are met; the Durbin Watson test values of 1.5 and 2.5 reflected that error terms are independent and there is no auto correlation in the regression. Furthermore, tolerance value greater than 0.1 and VIF value less than 10 indicated that there is no collinearity issue. 482 Fifteen sets of hierarchical regressions are tested to investigate the relationships between type of procurement, operational performance and moderator variables. In hierarchical regression, the first stage examines the relationship between dependent variable and independent variable. The second stage examines the relationship between dependent variable and moderator variable. The final stage examines the interaction factors between the independent variable and moderator variable towards dependent variable. Table 4.8 Sig. F Value Hypothesis 1 2 Dependant Variable Component Sig. F Value Operational Performance Ability to change (production planning) 0.00 (significant at the 0.01 level) Response Time Performance 0.00 (significant at the 0.01 level) Delivery Performance 0.00 (significant at the 0.01 level) Stage 1 0.00 (significant at the 0.01 level) Stage 2 0.27 Stage 3 0.84 Stage 1 0.00 (significant at the 0.01 level) Stage 2 0.02 (significant at the 0.05 level) Stage 3 0.18 Stage 1 0.00 (significant at the 0.01 level) Stage 2 0.2 (significant at the 0.05 level) Stage 3 0.50 Stage 1 0.00 (significant at the 0.01 level Stage 2 0.51 Stage 3 0.04 (significant at the 0.05 level) Stage 1 0.00 (significant Ability to Change Performance Response Time Performance Delivery Performance 3 Ability to Change Performance Response Time 483 at Performance Delivery Performance 4 Ability to Change Performance Response Time Performance Delivery Performance 5 Ability to Change Performance Response Time Performance the 0.01 level Stage 2 0.36 Stage 3 0.40 Stage 1 0.00 (significant at the 0.01 level Stage 2 0.72 Stage 3 0.53 Stage 1 0.00 (significant at the 0.01 level Stage 2 0.02 (significant at the 0.05 level) Stage 3 0.14 Stage 1 0.00 (significant at the 0.01 level Stage 2 0.11 Stage 3 0.87 Stage 1 0.00 (significant at the 0.01 level Stage 2 0.00 (significant at the 0.01 level Stage 3 0.56 Stage 1 0.00 (significant at the 0.01 level Stage 2 0.00 (significant at the 0.01 level Stage 3 0.03 (significant at the 0.05 level Stage 1 0.00 (significant at the 0.01 level Stage 2 0.00 (significant at the 0.01 level Stage 3 0.64 484 Delivery Performance 6 Ability to Change Performance Response Time Performance Delivery Performance Stage 1 0.00 (significant at the 0.01 level Stage 2 0.05 (significant at the 0.05 level) Stage 3 0.19 Stage 1 0.00 (significant at the 0.01 level Stage 2 0.00 (significant at the 0.01 level Stage 3 0.34 Stage 1 0.00 (significant at the 0.01 level Stage 2 0.03 (significant at the 0.05 level) Stage 3 0.03 (significant at the 0.05 level) Stage 1 0.00 (significant at the 0.01 level Stage 2 0.01 (significant at the 0.01 level Stage 3 0.35 Table 4.8 details the results of Hypotheses testing. Hypothesis 1: Hypotheses 1a, 1b and 1c are accepted at the 0.01 significance level. Hypothesis 2: The significant F values show that the interface between product type and type of procurement on one hand, and, ability to perform, response time and delivery performance on the other hand, is not significant. In other words, product type does not improve or contribute significant explanatory power to the model. Hence, hypothesis 2a is rejected. Product type does not impact the differences in response time performance of the procurement types. Hypothesis 2b is hence rejected. However, the significant F value of 0.02 for product types versus response time performance is significant at the 0.05 level. This indicates that product type has a direct independent influence on response time. Product type does not influence the delivery performance of the different procurement types. Hence, hypothesis 2c is rejected. However, the significant F value of 0.02 for 485 product types versus delivery performance is significant at the 0.05 level, reflecting that product type can directly impact the delivery performance. Hypothesis 3: As reflected in the afore-listed table, vendor region contributes significant explanatory power to the model at the 0.05 level. It indicates that vendor region moderates the differences in the ability to change performance between the two types of procurement. In Figure 4.1, it can be seen that e-procurement is superior to traditional purchasing in Singapore and Malaysia, unlike other regions. There are no significant interactions between vendor region, type of procurement, and response time performance. Thus, hypothesis 3b is not supported. Vendor region does not significantly impact the delivery performance of the two types of procurement. Hypothesis 3c is rejected. Figure 4.1 3.8 3.6 Mean Op_Perf_Ability to change 3.4 3.2 3.0 Region 2.8 Malaysia 2.6 Singapore Others 2.4 Offline purchasing Online purchasing Type of Procurement Hypothesis 4: The business volume does not contribute any significant explanatory power to the model. However, a two-way ANOVA is performed to verify the moderating effect. The ANOVA produces an F value which is significant at the 0.01 level. Thus, hypothesis 4a is supported. Moreover, the F value is significant at 0.05 level, demonstrating that the business volume has an independent direct effect on the ability to change performance. On the other hand, the significant F value in Table 4.4 shows that the interaction between business volume, type of procurement and response time performance is not significant. In other words, business volume does not improve or contribute significant explanatory power to the model. Hence, hypothesis 4b is rejected. The significant F value reflects no interface between business volume, type of procurement and delivery performance. In other words, business volume does not improve or contribute significant explanatory power to the model. It can be concluded that business volume does not moderate the differences in delivery performance for the procurement types. Hence, hypothesis 4c is rejected. Hypothesis 5: The significant F value of 0.03 is significant at the 0.05 level. It means the extent of trust improves the ability to change performance significantly through e-procurement. Hence, hypothesis 5a is accepted. Figure 4.2 reflects that the level of trust is increased for the vendor who participates in the e-procurement program. As well, e-procurement’s ability to change performance is much greater when the extent of trust is high. 486 5.5 Mean Op_Perf_Ability to change 5.0 4.5 4.0 TRUSTG2 3.5 High 3.0 Low Moderate 2.5 Offline purchasing Online purchasing Type of Procurement Hypothesis 5b is rejected. However, there is interaction between the extent of trust and response time performance: The F value is significant at the 0.01 level and shows that extent of trust may directly influence response time. It can be concluded that extent of trust does not impact the differences of delivery performance for procurement types. Hence, hypothesis 5c is rejected. However, F value is significant at the 0.05 level for the relationship between extent of trust and delivery performance. It shows that extent of trust influences delivery performance directly. The extent of cooperation does not significantly explain the ability to change performance. hypothesis 6a is rejected. Therefore, Hypothesis 6: The extent of co-operation contributes an explanatory power for type of procurement versus response time performance. From Figure 4.3, it can be deduced that the impact of type of procurement on response time performance is much greater when the extent of cooperation is high. Therefore, hypothesis 6b is accepted. Mean Op_Perf_Accurancy, Response Time 4.5 4.0 3.5 3.0 COOP_2 High 2.5 Low 2.0 Moderate Offline purchasing Online purchasing Type of Procurement 487 Hypothesis 6c is rejected. However, the F values are significant at the 0.05 level between extent of co-operation and delivery performance. It shows that extent of co-operation may impact delivery performance directly. SUMMARY OF FINDINGS The results of the SPSS analysis indicate that operational performance among e-procurement vendors is better than for those who use offline procurement. Vendor’s region, business volume, extent of trust and extent of co-operation moderate the relationship between type of procurement and operational performance. The overall hypotheses testing are summarized in Table 4.9. Table 4.9 Summary of Hypotheses Testing Hypothesis Hypothesis 1a: Ability to change production plan is higher among the vendors who participate in e-procurement program than in the traditional purchasing model. Result Accepted Hypothesis 1b: Response time is higher among the vendors who participate in eprocurement program than in the traditional purchasing model. Accepted Hypothesis 1c: Delivery performance is higher among the vendors who participate in eprocurement program than in the traditional purchasing model. Accepted Hypothesis 2a: The relationship between type of procurement and ability to change performance will be higher when the product type consists of production material. Rejected Hypothesis 2b: The relationship between type of procurement and response performance will be higher when the product type consists of production material. Rejected Hypothesis 2c: The relationship between type of procurement and delivery performance will be higher when the product type consists of production material. Rejected Hypothesis 3a:The relationship between type of procurement and ability to change performance will be higher when the vendor’s location is far from the customer. Rejected Hypothesis 3b: The relationship between type of procurement and response time performance will be higher when the vendor’s location is far from the customer. Rejected Hypothesis 3c: The relationship between type of procurement and delivery performance will be higher when the vendor’s location is far from the customer. Rejected Hypothesis 4a: The relationship between type of procurement and ability to change performance will be stronger when the business volume is high. Accepted Hypothesis 4b: The relationship between type of procurement and response time performance will be stronger when the business volume is high. Rejected Hypothesis 4c: The relationship between type of procurement and delivery performance will be stronger when the business volume is high. Rejected 488 Hypothesis 5a: The relationship between type of procurement and ability to change performance will be stronger when the extent of trust is high. Accepted Hypothesis 5b: The relationship between type of procurement and response time performance will be stronger when the extent of trust is high. Rejected Hypothesis 5c: The relationship between type of procurement and delivery performance will be stronger when the extent of trust is high. Rejected Hypothesis 6a: The relationship between type of procurement and ability to change performance will be stronger when the extent of co-operation is high. Rejected Hypothesis 6b: The relationship between type of procurement and response time performance will be stronger when the extent of co-operation is high. Hypothesis 6c: The relationship between type of procurement and delivery performance will be stronger when the extent of co-operation is high. Accepted Rejected DISCUSSION AND CONCLUSION Discussion There are three dimensions in which to measure operational performance: flexibility in production planning, response time and delivery performance. Hypothesis 1 shows there is significantly higher operational performance among vendors who participate in e-procurement program than those in traditional procurement model. Vendors who participate in the e-procurement program serve customers better since e-procurement simplifies and automates the supply chain process. Moreover, the vendor who participates in the e-procurement program can respond to the orders in a shorter cycle time. Another advantage of the e-procurement is delivery performance since the orders are processed electronically. In short, the results of this research confirm the statement cited by Croom (2000), Roche (2001), Gamble (1999) Greenemeier (2000) and Muray (2001). In addition to that, three factors influence the flexibility of e-procurement performance. These are vendor region, business volume, and trust. The results of this study indicate that the product type does not impact the relationship between type of procurement and operational performance, because most of the vendors in Company X maintain some safety stock of production material even though the products are custom made. Also, e-procurement seems to better promote operational performance over traditional procurement when the vendor is located close to the customer, due to the different time zones and transportation times. In addition, most vendors manage their inventory through a third party warehouse located near the customer. However, involvement of a third party warehousing reduces the significance of the role of e-procurement in improving operational performance. Furthermore, improving the flexibility of operational performance, specifically in the case of e-procurement, can only be significant if the business volume allocated to the particular vendor is massive. A vendor who obtains a larger volume of business is pressured by the customer to be more flexible in terms of capacity allocation, general service, quality, and pricing. Furthermore, the larger business volume may be more complex and may involve a multitude of activities and large amount of information sharing. However, business volume does not have a significant influence on the relationship between type of procurement and response time performance. The latter is normally related to the effectiveness of the communication regardless of the business volumes. In addition, the results reflect there is interaction between business volume and the delivery performance, since the vendor who has better delivery performance tends to have more business volume. As well, based on the research findings, the ability to change performance with e-procurement is much greater when the extent of trust is higher. In order to establish a profitable and long-lasting buyer-seller relationship, both parties must have a fundamental level of trust. 489 As for cooperation, it impacts the response time of e-procurement performance. The extent of the cooperation between buyer and seller promotes the improvement of efficiency and effectiveness along the supply chain, since it involves intimate effort to ensure the system is running smoothly, especially in sight of loss of partial control as systems begin to communicate with less human control. Research Implications This study implies that an organization should embrace and utilize the e-procurement program as an effective tool to enhance operational performance and procurement process. From the findings, e-procurement advocates higher performance over traditional purchasing when: 1) The vendor is located close to the customer, 2) The business or purchase volume is huge, 3) The extent of trust is high among the relationship between buyer and seller, 4) The extent of co-operation is high among the relationship between buyer and seller. Therefore, it is better for the organization to implement and introduce the e-procurement program in stages, and to focus on suppliers who fulfill the above criteria. Furthermore, performance measurement and evaluation mechanisms are required to track e-procurement and operational performance: These measurements and indicators can help managers achieve the organization’s desired goals by implementating of e-procurement Suggestions for Future Research Some areas related to procurement can be improved or considered for future research. One of these is the operational performance measurement. Another is exploring the utilization and implementation of the e-procurement program. REFERENCES Adam,D.A., Nelson, R.R., and Todd, P.A. (1992). Perceived Usefulness, Ease of Use, and Usage of Information Technology: A Replication. MIS Quarterly, Vol.16, pp.227-247 Agarwal,R. Prasad, J. (1999). Are individual differences germane to the acceptance of new information technologies? Decision Sciences 30, pp.361-391. Andeson D.L, Lee H.L. (2002). The Internet-enabled supply chain: from first click to the last mile. Achieving supply chain excellence through technology. 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New York: John Wiley and Sons. 496 Table 1: Network Size and Sales Network Size 1999 Sales 1 n = 38 $ 515,000,000 2 n = 24 $ 67,000,000 3 n = 30 $ 236,000,000 4 n = 35 $ 339,800,000 Table 2: Excluded due to incompatible page orientation. Please contact author(s) for Table 2 497 HOW EXPORT PROMOTION PROGRAMS INFLUENCE FIRM EXPORT PERFORMANCE A.K. Shamsuddoha University of Rajshahi, Bangladesh M Yunus Ali Queensland University of Technology, Brisbane, Australia ABSTRACT Although the importance of export promotion programs (EPPs) is well recognized in the literature (Seringhaus and Rosson, 1990), the empirical support to the influence of such programs on Firm Export Performance (FEP) is limited and any exploration of their indirect impact is scarce. This paper reports results of an empirical study examining effects of two categories of EPPs on FEP and other determinants of FEP. Primary data from a sample of 203 Bangladeshi manufacturing firms were analyzed using Structural Equation Model to examine both direct and indirect effects of the variables in a path model. Results suggest that the usage of market development-related EPPs significantly influence FEP directly as well as indirectly through some of the determinants whereas finance- and guarantee-related EPPs influence performance only indirectly through export commitment. The paper concludes with implications, limitations and future research directions. INTRODUCTION Government export promotion programs as an external environmental factor define the premise for successful exporting activities of the corporate sector and play a key role in stimulating international business activities of domestic firms (Cavusgil and Michael, 1990; Seringhaus and Rosson, 1990; Marandu, 1995). An extensive search of the literature reveals that most mainstream studies on export performance are narrowly focused on firm- and management-related internal determinants of performance. Not many past studies have even explored the impact of export promotion programs on firm export performance in a rigorous and systematic manner. Export promotion programs related studies have mostly concentrated on developing and targeting export promotion programs and implicitly offered guidance to export assistance providers regarding the allocation of their resources and the content of their programs (Kotabe and Czinkota, 1992; Moini, 1998; Sringhaus and Botschen, 1991). However, only a few studies have examined the direct relationship between the usage of export promotion programs and export performance (Francis and Collins-Dodd, 2004; Gencturk and Kotabe, 2001; Marandu, 1995; Singer and Czinkota, 1994). Despite the significant contributions of these studies in conceptualizing the effect of EPPs on firms export performance, none of them has explored further to investigate the complex interrelationship among different factors in the export performance – export promotion programs relationship. A recent study by Lages and Montgomery (2005) empirically tested the mediating effect of pricing strategy adaptation on the export assistance – export performance relationship. Interestingly the total effects of export assistance on annual export performance improvement was found non-significant because the direct positive effect on performance was severely affected by its negative indirect effect through export pricing strategy adaptation. This surprising result indeed requires further investigation using relevant theoretical basis. Moreover, a number of prior studies have examined the impact of the use of export promotion programs (either individually or collectively) on firm export performance. This implies that the impact of a category of programs (designed to achieve specific objectives) cannot be identified. Thus, the purpose of this paper is to categorize export promotion programs (combining similar-purpose programs in sub-sets) and examine their direct and indirect impact on firm export performance. The rest of the paper is organized as follows: First drawing on the related literature a research framework has been developed to conceptualize the complex interrelationship among different factors in the export performance-export promotion programs relationship. Second a detailed description of the research method and operational measures are provided. Third the results are discussed thoroughly. Finally the article is concluded with implications of the study, its limitations and future research needs. CONCEPTUAL FRAMEWORK AND HYPOTHESES The primary purpose of the study is to develop the complex interrelationship among different factors in the export performance – export promotion programs relationship that investigates how different category of EPPs directly and 498 indirectly influence firm export performance. The proposed framework in the Figure shows interrelationships integrating the use of market development-related EPPs, finance and guarantee-related EPPs, management perception of the export market environment, export knowledge, export commitment, and export strategy. These interrelationships are conceptualized in this section and a number of hypotheses have been developed for empirical testing. Export promotion programs refer to all public measures designed to assist firms’ exporting activity. Perceptions relate to managers’ levels of awareness of, and concerns about external environmental influences, particularly international market opportunities and threats. Export knowledge in this context relates to both knowledge of exporting procedures and knowledge of the foreign market. The export commitment is defined as a general willingness by management to devote adequate financial, managerial and human resources to export related activities. The presence of any formal export strategies in the firm is defined as export strategy. Export performance is defined as the extent to which a firm’s objectives with respect to exporting are achieved. As indicated earlier, the effect of the usage of EPPs on FEP has received little research attention. Only two studies (Donthu & Kim, 1993; Katsikeas, Piercy & Ioannidis, 1996) in the mainstream export performance literature have examined the effect of EPPs on FEP. Donthu and Kim (1993) argued with empirical evidence that those who use more outside export assistance from federal, local and private agencies tend to have higher export growth than those who do not use them. Katsikeas, Piercy and Ioannidis (1996) also found that national export promotion policies serve as an export stimulus for managers that positively influences export performance (export goal achievement). Most export promotion related studies have suggested how EPPs can be more effective but only a few studies evaluated its effect on firm export performance (Gencturk & Kotabe, 2001; Marandu, 1995; Singer & Czinkota, 1994; and Wilkinson & Brouthers, 2000). These studies examined the direct effect of the use of EPPs on a variety of export performance measures (viz., export efficiency, competitiveness, export intensity). Interestingly, none of these studies theorized the impact of export promotion on any firm or managerial factor, which is more logical than theorizing its direct impact on firm export performance. Managemen t Perception Market Knowledge Strategy Performanc Finance Commitme nt Figure: Conceptual Framework Managers’ favourable attitude toward foreign market environment tends to encourage the existing exporting firm to consider exporting as an attractive step for the growth of the firm. However, due to the complexity of the international business environment and the comparative scarcity of resources, small- and medium-sized firms are at a disadvantage if they decide to compete internationally (Seringhaus, 1986). The uncertainties of the exporting, ignorance about foreign markets, and the daunting nature of exporting processes all militate against such firms becoming committed exporters (Bilkey & Tesar, 1977; Seringhaus & Rosson, 1990). Government EPPs include a variety of initiatives to deal with different export barriers. This helps overcome mental barriers and develop positive 499 perception in exporters toward exporting operation. Singer and Czinkota (1994) conceptualized the role of export promotion in overcoming managers’ barriers at different stages of export operation and argued that export assistance programs stimulate managers’ positive attitudes and perception toward exporting by increasing, accelerating, and substituting export market knowledge, and gain experiential knowledge toward increasing their commitment and firm export activities. Marandu (1995) also argued that the more the firm uses export support services to fill knowledge and resources gaps, the better it performs in export. On the basis of empirical findings, Gencturk and Kotabe (2001) argued that the usage of export promotion programs influence both export efficiency and competitive position of the firm. This brief review indicates the impact of export promotion programs on firm export performance. This also provides some conceptual foundation to the proposition that the usage of export promotion programs increases firms’ informational and experiential knowledge (Kotabe & Czinkota, 1992; Singer & Czinkota, 1994) stimulates managers’ positive attitudes and perception toward exporting and export environment (Singer & Czinkota, 1994) and increases export commitment (Marandu 1995; Singer & Czinkota, 1994). Therefore, this study proposes the following hypotheses. H1: The use of market development-related export promotion programs is positively related to (a) management perception of export market environment, (b) export knowledge, (c) export commitment and (d) export performance. H2: The use of finance and guarantee-related export promotion programs is positively related to (a) export commitment and (b) export performance. For many firms contemplating export market entry, exporting knowledge and information gaps create a barrier (Reid, 1984) and subsequently discourage them from pursuing exporting as an ongoing activity. Gripsrud (1990) identified that the more experienced the firms were in exporting to a foreign market, the more positive the attitude they would have toward that market. Therefore, it has been suggested that acquisition of knowledge through experience from business operations in a specific overseas market is the primary means of reducing foreign market uncertainty and consequently becomes a driving force in the internationalization of the firm (Davidson, 1982; Johanson and Vahlne, 1977, 1990). Those firms with a high degree of international exposure are generally more able to manage and overcome potential barriers in export markets. As a firm gains more market experience and knowledge, firms gradually gain positive perceptions of export market environment. Internationalization process theory (Johanson and Vahlne, 1977, 1990) also focused on firms’ gradual acquisition, integration and use of knowledge about foreign markets and operation, and on their successively increasing commitment to foreign markets. The theory indicates that the lack of knowledge and resources are most important obstacles to internationalization and these obstacles are reduced through incremental decision making and learning about the foreign markets and operation (Johanson and Vahlne, 1977, 1990). This indicates a direct relation between knowledge and commitment. A firm’s physical resources and its capabilities (i.e., the mental models of its managers) interact to create competitive advantage (Mahoney, 1995). McKee and Varadarajan (1995) argue that competitive advantage is the cornerstone of strategy, and enacted knowledge is the essence of competitive advantage. Lack of this knowledge makes exporting more risky and exotic (Sullivan and Bauerschmdt, 1989). On the other hand, improved export knowledge will significantly reduce the perceived barrier and complexity of exporting and help to implement proactive export marketing strategies. Singer and Czinkota (1994) found that export knowledge increases pre-export activities such as decision, planning, contacts and channels. The use of government export assistance gives managers more information and experience to help them overcome export barriers and increase their level of preexport activity. Therefore, knowledge may help a firm select its export markets and formulate and implement its proactive marketing strategies more effectively (Cavusgil and Zou, 1994; Douglas and Craig, 1989). Firms’ export market knowledge is a critically important competence and it facilitates forming managers’ positive attitude toward export and its environment as well as building commitment and a proactive export strategy, which consequently influence export performance (Aaby and Slater, 1989; Anderson, 1993; Coff, 1997; Johanson and Vahlne, 1977, 1990; Madsen, 1989; Samiee and Walters, 1999; Wang and Olsen, 2002). So, from the above discussion, the following hypothesis will be tested: H3: The firm’s export knowledge is positively related to (a) management perception of export market environment, (b) export commitment, and (c) export strategy. Many researchers asserted that interest and commitment among the top management levels is a critical determinant in carrying out the export marketing functions (Benito and Welch, 1997; Hunt, Froggatt and Hovel, 1967). The willingness of top management to commit resources to the formulation and implementation of export marketing 500 strategies is the important ingredient needed to produce an aggressive international marketer (Lim, Sharkey and Kim, 1993). When managers are committed to export, they carefully plan the entry and allocate sufficient managerial and financial resources to export. With formal planning and resource commitment, uncertainty is reduced and marketing strategies can be implemented effectively (Aaby and Slater, 1989; Christensen, da Rocha and Gertner, 1987). High management commitment also allows a firm to aggressively go after the export market opportunities and pursue effective export strategies that improve export performance (Koh, 1991). Empirical studies suggest that there is positive relationship between the commitment to export and export performance (Ali, 2004; Gomez-Mejia, 1988; Seifert and Ford, 1989; Wiederscheim-Paul, Olson and Welch, 1978). Cavusgil and Nevin (1981) in particular reported that commitment to export is causally related to export performance, which was further confirmed by Gronhaug and Lorenzen (1982). Top management commitment has also been seen as critical to successful business performance in foreign markets, particularly during the early stages of internationalization (Madsen, 1994; Cavusgil and Zou, 1994). This leads to the following hypothesis to be tested: H4: Export commitment is positively related to a firm’s (a) export strategy and (b) export performance. Managers’ positive attitude and perception toward exporting and the export environment has a positive impact on firm export performance because it encourages the manager to adopt a more proactive export strategy for the firm (Aaby and Slater, 1989; Chetty and Hamilton, 1993; Donthu and Kim, 1993). Environmental influences significantly affect decision making of some managers who perceive the environment unfavourably (Axinn, 1988), which in turn seriously affects their involvement in exporting and in developing proactive export strategies. Recently Ali (2004) found that the lower the problems of exporting perceived by management, the higher the performance. When management perceives high risks of exporting, and sees knowledge of foreign markets and cultures, finding the right agents, currency fluctuations as problems, it affects the firms’ chances of extending markets beyond their national boundaries and exploiting their export potential. Managers who perceive the export environment favourably tend to search for and organize the acquisition of environmental information to make proactive export strategies and rational market entry decisions (Sood and Adams, 1984). Moreover, Axinn (1988) posited that managers’ positive perceptions of the relative advantages and complexity of exporting are important for export strategy making. Other studies also revealed that decision makers who have positive perceptions of the foreign market environment (i.e., cost competitiveness, export profitability, risks of international transactions, complexity of exporting rules and procedures) invariably take a more positive view on foreign operations and adhere to more export marketing planning for successful exporting (Cavusgil and Zou, 1994; Johanson and Nonaka, 1983). From the above discussion, the hypothesis for testing is: H5: Management perception of export market environment is positively related to a firm’s export strategy. Export strategy is the means by which a firm responds to market forces to meet its objectives. The export literature increasingly reflects the importance of strategy on export success (Kleinschmidt and Cooper, 1984; Moller, 1984; Yaprak, Sorek and Parameswaran, 1984). Empirical studies unequivocally suggest that export performance is determined by export marketing strategies and managements’ capability to implement the strategies as a whole (Aaby and Slater, 1989; Chetty and Hamilton, 1993; Cooper and Kleinschmidt, 1985; Cavusgil and Zou, 1994) as well as components of strategies such as export diversification (Aulakh, Kotabe and Teegen, 2000) pricing and promotion strategy (Kirpalani and Macintosh, 1980), product adaptation (Cooper and Kleinschmidt, 1985; Cavusgil and Zou, 1994; Koh, 1991), promotion adaptation (Namiki, 1994; Seifert and Ford, 1989; Zou, Andrus and Norvell, 1997), and competitive pricing (Christensen, da Rocha and Gertner, 1987; Kirpalani and Macintosh, 1980). However, no significant relationship between export marketing strategy and export performance was also found in some studies (Julian, 2003; O’Cass and Julian, 2003). On the whole, the studies provided evidence that export strategy is associated with export performance. Therefore, the hypothesized relationship of export strategy and performance is: H6: A Firm’s export strategy is positively related to export performance. RESEARCH METHODOLOGY Sampling and Data Collection Procedures A causal research design was used to test the hypotheses with data collected from exporting firms in Bangladesh. A random sample of 1200 firms was selected from the sampling frame of 3230 firms provided by several Government Departments and Trade Associations of these industries. A preliminary version of the questionnaire was developed and translated into Bangla to facilitate better understanding of the questionnaire items by respondents in their native language. The instrument was pre-tested and modified slightly for clarity. A survey pack containing a personalized 501 letter, a copy of the questionnaire and self addressed prepaid return envelope was sent to a senior executive of each of the sample firms. The recipient had also been instructed to pass it to the individual in the firm who is responsible for making international marketing decisions. After a telephone follow-up for a more personalized approach of soliciting participation a total of 223 completed questionnaires were received (18.6% response rate) but 20 cases were excluded for gross incomplete responses (15) and multivariate outlier (5) leaving 203 usable cases for analysis. Almost all the respondents were directly involved in exporting – 57% managers or commercial officers, 27% Managing Director, 8% CEO, and 7% Director and General Manager in charge of exporting. The mean difference between the early and late responses to a number of questionnaire items was examined but no significant difference was found to suggest any non-response bias. Measurement of Variables All variables in the model are latent variables with the exception of the use of export promotion programs. Multiitem scales were used to operationalize all variables. Two construct measures of the export promotion programs were developed with 19 EPPs that represent the core set of widely available government export support to the business community in Bangladesh. Respondents were asked to indicate their usage of each program in the past three years (Genturk and Kotabe, 2001) and the level of benefit the services provided to their exporting activities (Ifju and Bush, 1994). A seven-point scale was used to rate the level of benefit of the services (1 = not at all beneficial; 7 = extremely beneficial). The level of perceived benefit was used to weigh each service used by respondents, and the sum of weighted usage of export promotion programs was used as indices for analysis. As indicated earlier, 19 export promotion programs were categorized into two groups according to their nature and purposes. Accordingly, the index “MARKET” measured the sum of weighted usage of market development-related programs and the index “FINANCE” measured the sum of weighted usage of finance and guarantee-related programs by responding firms. Drawing on the literature, 17 items were used to measure managers’ attitude and perception toward export market environment, and eight items each for managers’ export knowledge, export commitment, and export strategy variables. Respondents rated each item on a 7-point scale (1=strongly disagree and 7= strongly agree). The subjective measure of export performance was used in this study where four items were drawn from past studies (Katsikeas, Piercy and Ioannidis, 1996; Wortzel and Wortzel, 1981) to suit the research context of this study. Respondents were asked to indicate whether their firm expectations were met over the past three years on export sales, export profit, export sales growth, and new market entry on a 7-point scale (1= much below expectations, 7= much above expectations). Scale reliability tests (Cronbach Alpha) for the variables were found close to or above the acceptable level of 0.7 (Nunnally, 1978). The arithmetic average of items was used to form the indices. Data Analysis Structural equation modeling (SEM) in AMOS version 5 was used to test the multiple causal relationships among variables in the model for its ability to estimate a series of interrelated dependence relationships simultaneously (Byrne, 2001; Hair et al., 1998). SEM normally uses factor analyses to estimate latent variables in the measurement and final model but variables are measured as observed in this study as discussed in the previous section. The hypothesized path model was tested to estimate effects of the antecedent variables on export performance by setting the bootstrap at 1000 and significance level at p ≤0.05. The summary statistics for goodness of fit (GFI = .968, NFI = .956, and CFI = .968) indicate a good model fit. RESULTS AND DISCUSSION AMOS representation of the empirically tested structural model of export performance is shown in Table 1. The empirical evidence on the direct and indirect effect of the usage of the market development related export promotion programs (EPPs) on management perception of export market environment, firm export knowledge and export performance supports the main thesis of this study (hypotheses 1a, 1b, and 1d). However, results suggest a negative impact of the use of market development-related EPPs on export commitment. This may indicate that while market development-related EPPs tend to improve managers’ positive attitude toward exporting and help gain experiential 502 knowledge, the programs are not quite useful to motivate managers toward devoting more resources for exporting activities of the firm. Interestingly, finance and guarantee-related EPPs positively influence export commitment (supporting hypothesis 2a). However, results suggest that the direct relationship between the use of finance and guarantee-related EPPs and export performance is not significant. This indicates that the exporters are more committed to devote resources to export by using finance and guarantee-related export EPPs, which creates a competitive position for the firms in international markets to achieve better performance. Table 1: Results of the Analysis of the Structural Equation Model Structural Model Market Æ Perception Market Æ Knowledge Market Æ Committ Market Æ Performance Finance Æ Committ Finance Æ Performance Knowledge Æ Perception Standardized Estimate Standard Error Critical Ratios 0.11 0.22 -0.18 0.21 0.28 0.03 .001 .002 .002 .004 .008 .012 1.892* 3.187 *** -2.498** 2.518 ** 4.052 *** 0.298 Conclusion H1a: supported H1b: supported H1c: supported H1d: supported H2a: supported 0.56 0.57 .042 .068 9.577 *** 9.928 *** H2b: Not supported H3a: supported H3b: supported 0.52 .081 8.257 *** H3c: supported 0.24 .058 4.458 *** H4a: supported 0.22 .103 2.802 *** H4b: supported 0.14 .098 2.518 ** H5: supported 0.19 .095 Strategy Æ Performance Significance Level: *** p ≤ 0.001; ** p ≤ 0.01; * p ≤ 0.05 2.395 ** H6: supported KnowledgeÆ Committ Knowledge Æ Strategy Committ Æ Strategy Committ Æ Performance Perception Æ Strategy Results provide support hypotheses 3a, 3b, and 3c that means firms’ export knowledge has positive impact on management perception of export market environment, export commitment and export strategy. The result indicates that a high degree of knowledge about the export market environment and the exporting process tends to help managers to manage and overcome potential barriers in export processes/markets and gradually gain a positive perception of the export market environment. This result is consistent with the findings of Davidson (1982) and Johanson and Vahlne (1977, 1990) who suggest that acquisition of knowledge through experience from business operations in a specific overseas market is the primary means of reducing foreign market uncertainty and consequently a driving force in the internationalization of the firm. Exporting managers gain knowledge through the use of export promotion programs that help overcome mental barriers towards the export market environment and develop positive perceptions in managers. The findings of this research also indicate that once managers gain better knowledge about the export market where export promotion programs may have some impact, then they are committed to devote more resources to export which is supported by the internationalization process theory (Johanson and Vahlne, 1977, 1990). The results also provide support to the contention of the literature that firms with improved export knowledge can formulate and implement proactive marketing strategies more effectively (Cavusgil and Zou, 1994; Singer and Czinkota, 1994). The results also provide support to both hypotheses 4a and 4b that export commitment is positively related to export strategy and export performance and lend support to the vast majority of the literature. This result indicates that the firms’ strong commitment to export leads to the achievement of proper export strategies (Aaby and Slater, 1989). 503 Seifert and Ford (1989) found that higher resource allocations for promotion registered higher levels of satisfaction with their export results. Companies that placed a higher priority on exporting were also found to perceive export profitability more positively (Koh, 1991). Ali (2004) also found that behavioural commitment has a positive impact on export sales and export intensity. From these results, it is evident that the reported findings regarding the impact of commitment on export performance have been quite consistent. The results also suggest that in firms where management is firmly committed to export, export performance tends to be higher. Results provide for hypothesis 5, where management perception of the export markets environment positively influences export strategy. The result supports the position that favorable management perception toward the foreign market environment has a significant positive effect on firms’ export strategy. Conditions in foreign markets pose both opportunities and threats for exporters. Export strategy must be formulated in such a way to match a firm’s strengths with market opportunities and neutralize the firm’s strategic weaknesses, or to overcome market threats. Firms are pulled into export marketing by growing opportunities for their product in foreign countries. In this study, favorable foreign market conditions are represented by the perception of there being less risk in the export market. As shown in this study, if firms perceive that foreign markets are favorable, they develop efficient strategies to increase current export sales or export to new foreign markets. In this sense, favorable foreign market conditions are seen to have a positive impact on the export strategy. That means managers who have a positive perception of the export market environment tend to search and organize acquisition of environmental information to make proactive export strategies (Axinn, 1988; Sood and Adams (1984). Thus the findings of the present study clearly indicate that the managers of exporting firms have favorable perceptions about the foreign market environment, which influence the implementation of effective export strategies. The results also support hypothesis 6, which is well established in the literature and is selfexplanatory. This suggests that exporting firms can achieve better export performance through formulating proactive strategies and deliberate export strategy implementation (Cavusgil and Zou, 1994). CONCLUSION, IMPLICATIONS, LIMITATIONS, AND FUTURE RESEARCH The empirical findings of this research provide evidence that export promotion programs plays an important role in the firm export development process by contributing to a number of firms and management related antecedents of firm export performance as well as directly influencing the firm's export performance. Based on the findings, it can be concluded that the use of market development-related export promotion programs influences a firm's export performance directly as well as indirectly through management's perceptions of the export market environment and export knowledge. The use of export market development-related EPPs such as export market information through trade missions, trade fairs, export workshops and seminars, overseas training programs on product development and marketing helps overcome exporters’ mental barriers and develop positive attitudes toward exporting that have an influence in implementing an effective export strategy to achieve better performance. Exporters also gain objective and experiential knowledge through the use of market development-related EPPs, enhance their export commitment and develop an effective and proactive export strategy, which eventually influence export performance. This is consistent with the internationalization process theory. The internationalization process theory suggests that firms’ gradual knowledge acquisition leads to a higher commitment to export which in turn leads to more international operations (Johanson and Vahlne, 1977, 1990). The findings indicate that firm managers who used more of the market development-related EPPs have positive attitude toward export environment, are more knowledgeable about export market and export procedures. Finance and guarantee-related EPPs tend to influence export performance indirectly through export commitment though not directly. The finance and guarantee-related EPPs are generally designed to provide resources, and create a competitive position for the exporting firms. Some finance and guarantee-related programs such as the duty drawback scheme and income tax rebates creates more profitable export trade and a competitive position for the exporting firms. The export credit guarantee schemes provide much required security against trade and political risks. Therefore, exporters are more committed to devote more resources to export-related activities by using finance and guarantee-related export promotion programs. 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International Marketing Review, 14(2): 107-126. 507 ELECTRONIC DATA INTERCHANGE (EDI) IMPLEMENTATION: VIEWS FROM MANUFACTURING FIRMS IN MALAYSIA 40 Gengeswari, K Abu Bakar, A.H. Universiti Teknologi Malaysia ABSTRACT The implementation of electronic data interchange (EDI) has been claimed to be vital for the success of international trade, as it requires bundle of data exchanges between many parties across geographical boundaries. The advent of EDI has facilitated international trade particularly for the manufacturing companies that heavily involve with it. Semi-structured interviews were conducted from chosen ten manufacturing companies at Johor Bahru area. The findings show lack of training, internal technical persons and financial resources as well as requirement of large number of EDI transactions prior to enjoy EDI benefits were perceived as major EDI barriers by both direct and indirect EDI users. Respondents also claimed enforcement by government and substantial financial resources have influenced their EDI adoption decision. As this paper is a work-in progress and covers merely a partial of entire research, the findings could not be generalized. However, it is expected that this findings could be a good starting point to further the actual research. INTRODUCTION Electronic Data Interchange (EDI) is a new emerging tool of information technology (IT). EDI can be defined as an electronic movement of standardized business documents between trading partners with little or without human intervention (Whitely, 1996; Ngai and Gunasekaran, 2004; Chau and Jim, 2002). The present EDI market growth rate is 45% per annum, where there are more than 300,000 EDI users worldwide and it is forecasted that EDI market will arise considerably at the growth rate of 200% per annum in near future (Bergeron and Raymond, 1998; Ngai and Gunasekaran, 2004). In Malaysia, EDI has been introduced and implemented by Royal Malaysian Customs (RMC) through the cooperation of DagangNet, the service provider of the system. Thus, this EDI system is known as SMK DagangNet system. SMK DagangNet system was first initiated in Port Klang, year 1995. Port Klang Community System (PKCS) begun with the submission of customs import and export declaration forms; in addition, an electronic payment system was introduced to support RMC’s duty payments via electronic mean. Since its inception, turnaround time between submission and clearance had been reduced about 70%, in addition to the improved information accuracy with the automated data entry validation and the elimination of re-keying data at every RMC’s station (Mahfuzah Kamsah and Wood-Harper, 1997). Despite many potential benefits from EDI implementation, many companies are reluctant to adopt EDI. In the case of present EDI users, the major motivation behind their EDI adoption is merely the imposition by their trading partners or government enforcement instead of their own initiatives. Thus, there seem to be a number of barriers and problems, which slow down the EDI adoption rate (Ngai and Gunasekaran, 2004; Chau, 2001; Parsa and Popa, 2003; Bergeron and Raymond, 1998; Elbaz, 1998). Accordingly, EDI major barriers and adoption factors must be addressed in order to have deeper understanding of the actual EDI scenario, to take the improvement steps and to achieve the full benefits of EDI, eventually. Therefore, the objectives of this research are to ascertain the major inhibitors of EDI implementation, to identify the factors that influence EDI adoption for manufacturing companies and to present managerial implications and recommendations for EDI authorized parties. The remainder of this paper as follows, the next section discusses relevant past researches, followed by research methodology and ends with preliminary findings. It is expected that this preliminary findings would be beneficial and starting point to further this research. 508 LITERATURE REVIEW EDI system was initiated in United Stated by Berlin Airlift United States in late 1940s to coordinate consignment airfreights by devising a standard manifest to be filled by aircraft before unloading (Emmelhainz, 1994). This concept had been extended by the rail and road transport industries in 1960s when they begun to standardize documents and replace paper-based communication methods with the electronic system (Brawn, 1989 and McNurlin, 1987). EDI Barriers Jun and Chai (2003) classified various EDI barriers that found from past literatures into six categories namely managerial leadership issues (e.g. lack of managerial leadership), perceived costs and benefits issues (e.g. substantial financial resources and requirement for the high volume of transactions before obtaining the benefits), technical issues (e.g. incompatibilities of EDI with existing system, proliferation of EDI standards and risk of system instability), human resources management issues (e.g. insufficient education and training for the company’s EDI personnel), trading partner relationship issues (e.g. difficulty in getting EDI capable trading partners who use EDI) and security issues (e.g. disclosure of messages, repudiation of message origin, modification of message contents). Emmelhainz (1994) discussed four common barriers that a company might face in EDI implementation process. Non-computerized trading partners who do not have necessary computer skills to implement EDI, concern over earlier payment as a result of faster movement and processing of invoices and payment as well as an EDI document has no signature which cause concern over the legality of EDI transactions are the common barriers in EDI implementation. Laage-Hellman and Gadde (1996) categorized barriers of successful EDI implementation into five basic groups. Four potential barriers lie in different technical or organizational aspects that are distinctive at the company level and industry level while the fifth group of potential barriers is related to the way of companies are doing business with each other. This study found the most inhibitors of EDI implementation relate with organizational aspects than technical aspects. Ngai and Gunasekaran (2004) recognized sixteen potential barriers that might face by companies in adopting EDI. These authors ungroup findings of Jun & Chai (2003) and Laage-Hellman & Gadde (1996). Less number of trading partners who use EDI, adaptation of existing business process to meet EDI requirements, no appropriate legal framework exists, lack of standards, hard to measure the return investment of EDI are the issues that were perceived as significant barriers in implementing EDI meanwhile staff members fear on resist change to the way they do things and significant impact on the organizational cultural were perceived as least significant barriers by the respondents; thus, these findings dissent the findings of Laage-Hellman & Gadde which stated organizational aspects are the major barriers for successful EDI implementation. Study by Chau (2001) found that knowledge and skills about EDI, internal IT support, attitude towards EDI adoption and influence by the industry could be the major potential barriers in adopting EDI technology. Chau concluded potential barriers more depend on organizational context (first three potential barriers) than external pressure context (the last element). The adoption ability have been perceived as more important than achievable EDI benefits by the respondents of this study. Parsa and Popa (2003) identified the EDI implementation is unsuccessful due to barriers such as low number of transactions to ensure EDI, less cooperation of trading partners, high cost of EDI implementation and EDI standard problems. In general, costs of EDI also could be a major consideration for majority of companies and these costs can be classified into three major categories, namely software and hardware cost, communication cost, (involved in the actual transmission of an electronic message such as one-time cost and monthly service charges for third party networks) and training cost for both internal personnel and trading partners. (Lummus and Duclos, 1995; Swatman and Swatman, 1992). This research emulates typology of Jun and Chai (2003) in recognizing the existing and perceived barriers of EDI implementation among the research sample. 509 EDI Adoption Factors To date, there are dozen of researches that have focused on the EDI adoption factors in which most of these researches have used conceptual model of EDI adoption that developed by Iacovou et al. (1995). Iacovou et al.’s model includes three categories of adoption factors namely organizational readiness (refers to level of financial and technological resources), external pressures (refers to influences from the organizational environment e.g. competitive pressure and imposition by trading partners and perceived benefits) and perceived benefits (refer to the level of awareness on EDI potential advantages). Kuan and Chau (2001) used a perception-based model for EDI adoption using a technology- organizationenvironment framework, which is the typical modification of Iacovou et al.’s model. Their model refers technological context as perceived technological benefits, organizational context as perceived organizational resources and environmental context as perceived environmental pressure. Chwelos et al. (2000) modified the Iacovou et al. (1995)’s model by adding interorganizational element (trading partner readiness) in both external pressure and organization readiness categories of the former model. This study found that all the three factors were significant predictors of the EDI adoption in which external pressure and organizational readiness were dominant than the perceived benefits. Elbaz (1998) revised and used the EDI adoption model of Iacovou et al. (1995). Elbaz’s model consists of five factors namely perceived benefit, external pressure, financial strength, technology used and awareness. The third and fifth variables are the subset of organizational readiness category in Iacovou et al.’s model. The fifth factor had been introduced in this study to measure the roles of users’ awareness on EDI adoption. According to Elbaz, the lack of EDI knowledge could be an obstacle for EDI adoption and thus, awareness and understanding of new technology is a prerequisite to the adoption process. This study found EDI adoption had significant positive relationships with awareness, financial strength, external pressure and technology used. Thus, Elbaz suggested the inclusion of awareness factor in Iacovou et al.’s EDI adoption model. The present research uses and adapts the typology of Iacovou et al. in which two new factors that induce EDI adoption i.e. interorganizational and awareness (as proposed by Chwelos el at, 2000; Elbaz, 1998) have added into Iacovou et al.’ model. METHODOLOGY Most of EDI past researches have employed descriptive research method e.g. Ngai & Gunasekaran (2004), Chau & Jim (2002), Parsa & Popa (2003), Kurokawa & Manabe (2002) and Kuan & Chau (2001); thus, this research uses a descriptive research method based on cross-sectional design. As stated earlier, in Malaysia, all the companies are required to use EDI (SMK DagangNet) for customs declaration. Thus, all the manufacturing companies that involve in international trade (import/ export activities) as well as operate at three major industrial states of Malaysia namely Selangor, Johor and Penang are considered as target population of this research. The population of this research is amounting to 1414 where there are 960 companies at Selangor, 262 companies at Johor and 192 companies at Penang. The list of this population was obtained from the Malaysian Manufacturers Directory and Trade Portal (http://www.e-directory.com.my/). The sample of this research is selected randomly on the basis of simple random sampling that assures each element in the population have an equal chance of being included in the sample (Zikmund, 1998). Typology of Isaac et al. (1981) has been employed to determine the sample size; according to Isaac et al., population size (n) that contains 1500 companies (approximate to 1414) requires 306 companies as a sample size (s) to acquire 95% level of confidence. Thus, the sample size of this research is estimated to be 306 companies. Both secondary and primary data have been used for this research. Secondary data was collected from journals, articles, magazines and books meanwhile primary data was collected through specially built-in questionnaire and semi-structured interviews. The process of primary data collection consists of two stages; at the first stage, 510 preliminary work i.e. semi-structured interviews have been conducted with ten manufacturing companies at Johor Bahru vicinity. As this paper is work-in-progress research, the next section discusses findings of preliminary work in detail. This preliminary work is important to gain basic ideas of EDI implementation before proceeding further fieldworks. Questionnaires will be distributed to all the respondents through mail. According to Malhotra (2002), the proper follow-up of mail surveys could increase the response rate up to 80%. Thus, in future, this research will do follows-up through mailings, e-mails or telephone to remind the nonrespondents to complete and return the questionnaire. PRELIMINARY FINDINGS AND DISCUSSIONS As stated earlier, semi-structured interviews were conducted on ten manufacturing companies at Johor Bahru. During the interviews, questions on respondents’ demography, perceived EDI barriers and adoption factors were asked. In terms of demography, 7 respondents are small and medium- sized companies, 6 respondents have more than 50% local operation as well as 5 respondents manufacture electronic and electronic-based products, followed by chemical (2), plastic (1) and textile (2). The respondents of this preliminary work consist of direct (6) and indirect (4) EDI user. Direct users refer as company that runs EDI system from its premise while indirect user refer as companies that do EDI transactions from Kedai DagangNet or via third part agencies i.e. forwarding companies. EDI Barriers By looking through relevant EDI past researches, 20 EDI barriers were identified and respondents were asked to choose the major barriers based on their knowledge and experiences. Below table shows seven major (potential) barriers based on the types of EDI user in alphabetical order. Table 1: Major EDI Barriers Direct EDI User Lack of education or training for the users Lack of financial resources Lack of industry guideline or procedures to follow Lack of internal technical person Require large number of transactions before enjoying EDI benefits Required to do manual declarations in addition to this system Risk of system instability or system down Indirect EDI User A long start time is required Lack of assistances from EDI vendor Lack of education or training for the users Lack of financial resources Lack of internal technical person Organizational resistance Require large number of transactions before enjoy EDI benefits As shown in the above table, EDI (potential) barriers slightly differ for direct and indirect EDI user. The plausible explanation is indirect users do not have much experiences in doing EDI directly as they assigned third party agencies to do EDI. However, barriers such as lack of education or training for users, lack of internal technical person, lack of financial resources and EDI transactions involve high cost than manual method were perceived as major barriers by both direct and indirect user. These findings have been supported by Jun & Chai (2003), lack of education; Chau (2001), lack of internal technical person; Jun & Chai (2003), lack of financial resources; Parsa & Popa (2003), require large number of EDI transactions. EDI Adoption Factors 15 elements of adoption factors have been identified from past EDI literatures in which these elements were presented in a form of likert-scale with a scale of 1-5. Respondents were asked to state their agreement or disagreement with each statement. Below table shows five major adoption factors with mean value in descending order. These questions were asked to direct EDI users only as they have adopted EDI. Table 2: Major EDI Adoption Factors EDI Adoption Factors Mean 511 Enforcement by government Sufficient financial resources Need to improve company’s performance Top management’ awareness and support Availability of internal technical person Promotion from EDI vendors (e.g. DagangNet, WyNet, Rank Alpha) Availability of compatible software and hardware 4.55 4.40 4.37 4.35 4.30 4.30 4.25 Enforcement by government was perceived as major adoption factor; this is because, as stated earlier, all companies are imposed by government to use EDI for customs declarations even though these companies have no self-intention to do so. In a survey conducted by Leng Ang et al. (2003), there were more mandated EDI users (63%) than selfdirected users (37.0%). This shows Malaysian mentality is still bond with old values in terms utilization of technology as claimed by Rafidah Aziz (1995). Substantial financial resources are required for a company to commit with a new technology e.g. EDI (Iacovou et al., 1995) and lack of financial resources could be a major barrier for EDI implementation (Jun and Chai, 2003; Lummus and Duclos, 1995; Swatman and Swatman, 1992). Factor of top management support, availability of internal technical persons as well as availability of compatible software and hardware has been supported by many literatures such as Iacovou et al. (1995), Elbaz (1998) and Kuan & Chau (2001). Factor of promotion and assistances from EDI vendor has been supported by Jun & Chai (2003) and Chau (2001). CONCLUSIONS As a conclusion, factors such as enforcement by government and substantial financial recourses would be dominant in influencing companies to adopt the EDI. Further, lack of internal technical person, lack of financial resources as well as lack of education or training might be major barriers in the EDI implementation by Malaysian manufacturing companies. 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Head of small business unit from 5 out of 10 domestic banks were interviewed. The findings reveal that bank mergers would have no significant effect on the availability of bank funding to small businesses. INTRODUCTION For the past few years, the banking industry in Malaysia has undergone a consolidation exercise. It was a move taken by the government to merge the country’s domestic banks into a core of ten large banks. The changing financial environment, the greater and more efficient use of information technology, and the entry of new aggressive competitors in the market place necessitated the need for change in the ways domestic banks were operating. It is argued that consolidation would benefit the banking industry in that it increases the geographic diversification, improved competition and eliminates the entrenched inefficient or self-serving bank managers. However, there is a concern that this consolidation exercise, resulting in a reduced number of smaller banks in the country could also contribute to an adverse effect on loans to the small business sector. This sector plays an important role as the engine of innovation and job growth in the economy, and is heavily dependent on bank financing for external capital (Scott & Dunkelberg, 2003). Past research has established a strong link between the bank size and the supply of small business loan, with the smaller banks devoting a larger proportion of their loan portfolio to the small business sector than do larger banks (Jayaratne & Wolken, 1999). Moreover, smaller banks often are able to make lending decisions on a less formal and more flexible basis, thereby contributing to the growth of small firms whose financing needs do not fit neatly into the procedures of larger banks. These small businesses, therefore, are particularly sensitive to changes in the structure of the banking industry. Some researchers have inferred that consolidation of the banks reduces the number of smaller ones and thus will also reduce the small business loans. Berger, Saunders, Scalise and Udell (1998) found that after a merger, the new merged bank originates fewer small business loans. Peek and Rosengren (1996) also found that small business lending fell following mergers of banks. Similarly, Keeton (1996) found that small business loans fell when out of state bank holding companies acquired smaller banks. Studies have generally shown that the proportion of small loans in a bank portfolio declines with bank size (Keeton, 1995; Peek & Rosengren, 1998; Strahan & Weston, 1998). The traditional attention given to the small business sector by the smaller banks could possibly be lost if acquiring banks begin to set loan policy with an emphasis on financing larger businesses. Furthermore, larger banks are not well suited to making small business loans because such loans often require a close, long-term relationship with the borrower (Berger & Udell, 1998). As a result of merger, these banks may be reluctant to engage in relationship-based lending because they have a comparative advantage in more impersonal, transaction based services found mainly with larger loans. The common approaches underlining many studies on small business lending rely on feedbacks either from bank’s branches or, to a lesser extent, from bank’s head office. Either of these approaches would lead to one-sided findings. Where actual lending involve bank’s head offices in formulating and monitoring small business loans and bank’s branches in implementing and nurturing these loans, simultaneous focus on feedbacks from both the bank’s head 514 offices and their respective branches would generate a more holistic evidence to explain strategic or behavioral issues involving commercial bank’s lending to small business sector. The purpose of this paper is to report the holistic findings of a study conducted on Malaysian bankers both at head offices and at branches on the effect of bank mergers on lending to the small business sector. The findings will provide the answers for the following research questions; (a) what are the implications of the bank mergers for the small business borrowers? (b) how will these mergers affect the chances of getting loans for a small borrower? and (c) will the merged banks have reasons not to court the small business borrowers? DEFINITION There is no commonly held definition of what constitutes a small business. Various criteria have been used in Malaysia to classify the small business for the purpose of allocating technical or financial assistance. The Small and Medium Industries Development Corporation (SMIDEC), an agency under the Ministry of International Trade and Industry (MITI) defines it as a business enterprise with an annual sales turnover of not exceeding MYR 25 million or as a business enterprise which employs up to 150 full-time workers (Smidec, 2002). The World Bank study on Malaysian industries considers the small business enterprises as those employing between 5 to 49 full-time employees, and the medium-sized enterprises as having between 50 to 199 employees (UNIDO, 1990). For the purpose of this study, the term ‘small business’ is used to indicate the small and medium sized enterprises (SME) and industries (SMI) as defined by the Central Bank of Malaysia. Under this definition, SMEs or SMIs are those registered businesses with net assets of up to MYR 2.5 million or in the case of limited companies, with shareholders’ funds of not more than MYR 2.5 million. Definition by the Central Bank is strictly observed in all commercial bank lending in Malaysia. METHODOLOGY This study used both quantitative and qualitative techniques on two sets of respondents. A mail survey technique was employed to obtain responses from the branch managers of domestic banks in Malaysia. Results from the mail survey were ranked in Likert-type scale and cross-checked with feedbacks from interviews with head of unit entrusted with small business lending portfolio at head offices. Head of unit at head offices was subject to the same issues posed in the mail survey technique. However, feedbacks from head offices were intended to verify and supplement the responses from branches as such they were not ranked in Likert-type scale. From the interviews, various factors that form the head office opinions were identified and were extremely useful in helping to explain the branch responses obtained through the mail survey technique. There were 10 domestic commercial banks and 13 foreign commercial banks in Malaysia. However, only domestic banks were involved in the restructuring of the industry, and thus included in the study. Together, the 10 domestic banks accounted for 83 percent of the industry’s outstanding loans to SMEs (BNM, 2005). In total, there were about 1641 domestic bank branches throughout the country (ABM, 2005). To ensure a fairly representative sample, respondents were selected from the directories and database prepared by the Association of Commercial Banks of Malaysia. A total of 1000 branch managers were randomly selected, and questionnaires were mailed to them together with the self-addressed envelope. A common problem for a mail survey is the response rate and nonresponse bias. In order to reduce the possibility of demand bias, a cover letter was attached with the questionnaire that informed respondents about the content and purpose of survey as well as a guarantee that the replies would be confidential. A total of 138 useable questionnaires were received, representing a 13.8 percent return rate. This relatively low response rate was within our expectation. In the questionnaire, respondents were asked the opinions on the effect of their bank mergers on the small business lending. They were asked to indicate their level of agreement or disagreement on some statements using a four point Likert-type scale. Data collected were analyzed based on frequency distributions and cross-tabulations. However, due to the exploratory nature of the study, formal statistical tests were not utilized. Personal interviews with heads of small business units at head offices were also conducted within the span of three consecutive days. These heads of small business unit are the bosses of the branch managers in their respective banks. Five head offices of domestic banks were randomly selected. The five banks consisted of large, medium and small domestic banks. These five banks represented 50 percent of the 10 domestic banks. Their combined assets accounted for 76.3 percent 515 of the total assets of all domestic banks and 75.7 percent of total assets of all 23 domestic and foreign banks. All the 10 domestic banks were merged banks from 54 domestic commercial banks prior to consolidation. FINDINGS AND DISCUSSION The responses from branch managers and their head office bosses to a series of questions on the impact of their bank mergers to the small businesses are given below: FIGURE 1A FIGURE 1B Bank's vision is more supportive of small business - Head Offices Branches: Bank's vision is more supportive of small business 20 4 18 27 A SA DA A 20 DA 60 NS SD 51 Figure 1A shows that 78 percent of the branch managers agreed with the statement on the bank’s supportive vision towards small business. Another 18 percent disagreed with the statement including 4 percent who gave a ‘strongly disagree’ response. This indicates that majority of the bank managers are of the opinion that their banks’ visions after consolidation are more supportive of the small business sector compared to that before the mergers. The same opinion prevails at head offices (Figure 1B) with 60 percent agreed and 20 percent disagreed. Another 20 percent is not sure of the bank’s vision, since his bank has just been acquired and the new management has yet to appoint a CEO and set the new vision and direction for the bank. This bank however has been a strong supporter of small business lending. If this bank were to be excused from the calculation, the positive response from head office would have been 75 percent or about the same respond rate given by the managers. Thus, it appears that Malaysian bankers are sensitive to the competitive strength they seek to achieve through consolidation by appropriately adjusting their visions to ones which are seen to be supportive to small business sectors. This finding seems to coincide with the prevailing lending direction from Central Bank (Bank Negara Malaysia) which, since 1997 financial crisis, has been strongly emphasizing on consumer loans and small business lending. As Graph 1 shows, annual growth in small business lending (as reflected in the form of guarantees provided for bank’s loans to SME) has averaged 10.9 percent and has consistently outpaced the average growth rate of 4.4 in Gross Domestic Products (GDP) over the 1998-2004 period. This suggests the possibility that monetary policy on lending direction may have strong influence on bankers’ attitude towards the small business lending. Chart 1 : Growth in CGC’s Guarantee and GDP S 20 17.1 15 14 10.6 10 5 8.3 4.9 4.3 1998 1999 2000 2001 2002 -7.5 -10 11.6 6.9 7.3 516 CGC GDP 0.4 0 -5 11.7 9.5 8.2 2003 2004 ources : http:// www.i guaran tee.co m.my http:// www.bnm.gov.my FIGURE 2A FIGURE 2B Branches: Addressing the needs of small business is the bank's priority 6 29 19 Head Office: Addressing the needs of small business is the bank's priority 20 SA A A DA DA SD 46 80 Figures 2A and 2B show that about 75 percent of the managers surveyed and 80 percent of their bosses agreed that addressing the needs of the small business customers is still their banks’ priority. This confirms the earlier response which shows that the small business sector still has the support of the banking industry. Again, this finding seems to reflect a general shift in lending focus from large corporate loans to retail loans & small business loans since the 1997/98 Asian Financial Crisis. In fact, it was this crisis that jump-started banking consolidation in Malaysia. During the crisis, big corporate-oriented banks generally suffered the most and a few had to be salvaged by the relatively small, non-corporate-oriented banks. Drawing from the crisis-driven bad corporate loan experience, Malaysian bankers appear to have shifted lending focus away from corporate loans towards the small business sector. FIGURE 3A FIGURE 3B Branches: Bank's manpower is less experience to handle small business 19 6 29 Head Office: Bank's manpower is less experience to handle small business SA DA 46 A 40 A DA 60 SD 517 There are evidences to suggest that post-merger bankers are relatively less experienced to handle the small business customers. Although 65 percent of the branch managers disagreed (Figure 3A), 60 percent of their bosses (Figure 3B) did admit the lack of experience among manpower with frequent interface with small business customers. The 60 percent response from the bosses corresponds exactly to the number of banks in our sample that have offered Voluntary Separation Schemes (VSS). Specifically, three or 60 percent out of the five banks interviewed offered VSS to downsize their employees. It is a well-known fact that the payoff under a VSS is more favorable for senior employees than their junior counterparts. This means that, with consolidation, Malaysian bankers have lost the more experienced employees, and where experienced is critical in developing long-term relationship with small borrowers (Jahreskog 2000), it implies that banking consolidation may, to some extern, have impaired the bank’s ability to serve small business customers. Based on the interview with their bosses, two reasons may explain why the managers think highly of themselves as sufficiently experienced employees (i.e. 65% response in Figure 3A above). First, a change in banking structure after consolidation has transformed branches into Sales and Service Outlets (SSOs). These SSOs were thinly staffed and the new operating environment gives the staff no approving power but requires them to quickly learn and aggressively compete for banking businesses. Under this circumstances, managers may redefine experience as ‘the volume of experience gained in a given time’ instead of the ‘length of time needed to gain the experience’, and rate themselves accordingly. Second, there is a possibility that the managers may be bias in rating themselves. Bosses at head offices on the other hand are closely monitoring the performance of SSOs, and, for this reason, are more likely to give objective and accurate evaluation of employees at SSOs. FIGURE 4A FIGURE 4B Branches: Bank's manpower is less skillful to handle small business 19 Head Office: Bank's manpower is less skillful to handle small business 6 28 30 SA A A DA DA 47 70 SD Bankers know well that a good customer-handling skill is equally critical and is able to compensate for deficiency in experience for effective customer services. Towards this end the respondents were further tested to evaluate if mergers have caused deterioration in their customer-handling skills. Figure 4A and 4B show that, with 66 percent negative response from the branch managers and 70% negative response from their bosses, bank mergers did not demonstrate adverse affect on banker’s ability to effectively serve small business customers. It was noted that, on average, the respondent banks have completed major consolidation exercise three years prior to this study. Current consolidation is between the banks and their finance and/or merchant bank subsidiaries. It is likely that bankers have developed sufficient skills among their employees following their respective consolidation exercises. Also, with 82.5 percent of managers in the sample are graduates, recruiting fast learners may have been a great aid in replacing the loss of customer handling skills (of the experience staff) the industry suffered during consolidation exercise. 518 FIGURE 5A FIGURE 5B Head Office: Bank's manpower is less familiar to small business Branches: Bank's manpower is less familiar to small business 20 5 17 A SA 29 DA A DA 80 SD 49 About 66 percent of the managers disagreed that, after the mergers, the bank’s manpower becomes less familiar to the small business customers. With 80 percent of the bosses sharing the same opinion, it implies that most of the bankers believe that mergers have had no effect on their staff’s familiarity in dealing with the small business customers. This finding suggests that, despite loosing the experienced employees during the last consolidation exercise, Malaysian bankers have been able to redevelop good relationship with their small business customers over the last three-year period. FIGURE 6A FIGURE 6B Head Office: Bank is less able to handle the needs of sm all business Branches: Bank is less able to handle the needs of small business 7 17 31 0 SA A DA A DA SD 45 100 Figures 6A and Figure 6B indicate that 62 percent of the managers and 100 percent of their bosses believe that the mergers of all banks in the country had not adversely affected their ability to serve the needs of the small business customers. This finding is consistent with the findings in Figures 1, 2 and 4 above which suggest that the banks’ visions, lending priority and skill development have been directed towards serving the small business sector. Head Office: Bank's struture is able to facilitate lending to small business Branches: Bank's struture is able to facilitate lending to small business 7 8 20 SA 34 A DA A DA 51 SD 519 80 FIGURE 7A FIGURE 7B When asked on the new structure on lending to small business, about 59 percent (Figure 7A) of the managers and 80 percent of their bosses agreed that their banks’ structures after the mergers are better facilitated to the needs of small business than before the mergers. Feedbacks from interview with the bosses give the consensus that Malaysian bankers have been adopting a centralized structure with little discretionary power and thin manpower at branches. Under this circumstance managers can be expected to feel restrictive and this may partly explain why managers’ score in Figure 7 above is lower than that of their bosses. On the other hand, increasing use of a market-driven structure and innovative technology after the mergers certainly have influenced the bosses’ higher scores in Figure 7B. For instance, loan applications are now submitted on-line, and with computerized scoring system, loan approval has been a lot faster than that prior to mergers. In addition, Credit Guarantee Corporation (CGC) has installed online system which has sped up guarantee coverage for small business loans, and, hence, release of loans by bankers. This implies that mergers have afforded bankers to become increasingly customer-centered to small businesses in terms of structure, process and delivery channels. Interestingly, the finding in Figure 7 is in contrast to that of Berger & Udell (2002) which found that changes in organizational structure increase the cost of collecting proprietary information as well as agency costs. Scott and Dunkelberg (2003) also suggest that small businesses would find themselves adversely affected in their financing attempts because they would fall outside the parameters of standardized credit policies imposed by larger banks. Again, current monetary directive that favors lending to small business sector may partly explain why Malaysian bankers behave differently from those of their western counterparts. FIGURE 8A FIGURE 8B Branches: Small business loans are risky 5 9 Head Office: Small business loans are risky 20 SA A DA A 49 37 DA SD 80 Figure 8A and Figure 8B show a diverging opinion between branch managers and their bosses. While 54 percent of the managers disagreed, 80 percent of their bosses agreed that small business loans are more risky than other loans. One possible explanation is that, as market is increasingly competitive and the lending focus is on SME, the managers may have to soften their risk perception of small business in order to lessen the pressure of achieving the growing lending targets set by head offices. The bosses, on the other hand, are able to evaluate more objectively by looking at how much of the aggregate small loans have turned non-performing at any one time. 520 Another possible explanation is that the managers have more information to evaluate risk characteristics of the small business borrowers than do their bosses at distanced head offices. Still, with the remaining 46% of the managers adopting a risky attitude towards small businesses, this finding seems to parallel with the bankers’ earlier perception that lending to small businesses is riskier, costlier and less profitable than lending to larger businesses (Churchill & Lewis, 1985). FIGURE 9A FIGURE 9B Branches: Overall lending to small business has been adversely affected 13 Head Office: Overall lending to small business has been adversely affected 7 20 SA A 39 41 A DA DA SD 80 About 54 percent of the branch managers (Figure 9A) and 80 percent of their bosses (Figure 9B) disagreed that the consolidation of the banking industry has had an adverse effect on the overall lending to the small business sector. This finding is consistent with the above findings that, after consolidation, bankers’ visions, attitudes, customer’s services and structures are geared towards supporting the SME. This finding too is a welcome relief to the small business sector, given that this sector relies heavily on bank loans for their financing needs. In summary, looking at the vision, attitudes, structure and human capability, bankers in the post-consolidation period display a strong inclination towards supporting small businesses communities. Strategic recruitment of college graduates and on-the-job training in customer handling skills has offset the apparent lack of experience staff due to downsizing. Finally, although bankers still view small business loans as risky, the upward trend in lending to small business in recent years reflects a shift in lending preference from the highly risky and unprofitable corporate loans to risky but profitable small business loans. This study describes the favorable behavior of bankers towards small businesses following the industry consolidation. It does not, however, explain what actually drives the bankers to adopt such a behavior. Several factors may explain why merged banks may be as willing as smaller banks to lend to small businesses. Foremost is the current monetary directive that compels bankers to increase lending to SME as part of government strategies for rapid economic recovery from Asian Financial Crisis. Next, competition arising from increasing number of branch networks and servicing channels too has been shown to have positive impact on small firm financing ((Jahreskog, 2000). Although consolidation has reduced Malaysian banks from 54 to 10 anchor banks, over 5,000 new self-service terminals providing access well beyond the traditional banking hours have emerged (BNM, 2005) as against 187 branches closed during consolidation process (BNM, 2001). Coupled with popular adoption of phone-banking, mobile-banking and internet-banking in a period of distress economic condition, competition may have been so intense that bankers have to turn to the traditionally higher-spread small business loans to improve profitability and returns. These and ‘other’ factors may form key determinants of the amount of credit available to small borrowers. A possible expansion of this study is therefore to determine what ‘other’ factors form key determinants of the amount of credit available to small borrowers. Thus, further research is needed to understand bankers’ behavior thereby allowing the policy makers to formulate appropriate policies and ensure uninterrupted supply of financing desirable for small business development. 521 CONCLUSION This study is exploratory in nature. It was conducted to assess the effect of bank mergers that took place in the domestic banking industry on lending to the small business sector. The findings from this study suggest that bank mergers in the country would have no significant impact in reducing the accessibility of bank loans to the small business sector. Mergers should also have little, if any, effect on the commitment of the merged banks towards small business lending. These findings rebuke the notion that merged banks will be less inclined to lend to small businesses, or that the small business sector might be less emphasized in the larger consolidated institution. A majority of the bankers also think that small business loans are not much risky than other loans. Peek & Rosengren (1998) argue that as long as small business remains profitable, the merged banks should provide an ample pool of potential lenders. Factors like lending directives from government and competition may partly explain the result of this finding, but they have not been sufficiently addressed in this study. Competition in banking industry, for instance, is highly desirable in areas where small businesses absorb a significant percentage of the labor force or in more rural areas where the settling of large companies is less likely. Further research, therefore, is needed to determine what factors actually form key determinants of the amount of credit available to small borrowers. Finally, the policy implication of findings and suggestions in this study are certainly worthy of further investigation. REFERENCES Association of Banks in Malaysia. http://www.abm.org.my. Bank Negara Malaysia. http://www.bnm.gov.my. Berger, A.N. & Udell, G.F. (2002). Small business credit availability and relationship lending: The importance of bank organizational structure. The Economic Journal, 112, 32-53. Berger, A.N. & Udell, G.F. (1998). The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle. Journal of Banking and Finance, 22, 613-673. Berger, A.N., Saunders, A., Scalise, J.M. & Udell, G.F. (1998). The effects of bank mergers and acquisitions on small business lending. Journal of Financial Economics, 50, 187-229. Churchill, N.C. & Lewis, V.L. (1985). Profitability of small-business lending. Journal of Bank Research, Summer, 63-71. Credit Guarantee corporation. http://www.iguarantee.com.my. Jahreskog, Emma (2000). Does Size Matter? The Effects of Bank Mergers on Small Firm Financing across the United States. http://www.elon.elu/ipe/jahreskog.pdf. Jayaratne, J. & Wolken, J. (1999). How important are small banks to small business lending? New Evidence from the survey of small firms. Journal of Banking and Finance, 23, 427-458. Keeton, W.R. (1995). Multi office bank lending to small businesses: Some new evidence. Federal Reserve Bank of Kansas City Economic Review, 80(2), 45-57. Keeton, W.R. (1996). Do bank mergers reduce lending to small businesses and farmers? New evidence from Tenth District States. Federal Reserve Bank of Kansas City Economic Review, 81(3), 63-76. Peek, J. & Rosengren, E.S. (1998). Bank consolidation and small business lending; It’s not just bank size that matters. Journal of Banking & Finance, 22, 799-819. Scott, J.A. & Dunkelberg, W.C. (2003). Bank mergers and small firm financing. Journal of Money, Credit and Banking, 35(6), 999-1014. 522 Smidec (2002). SMI Development Plan (2001-2005). Kuala Lumpur: Small and Medium Industries Development Corporation. Strahan, P.E. & Weston, J.P. (1998). Small business lending and the changing structure of the banking industry. Journal of Banking and Finance, 22, 821-845. UNIDO (1990). Small and medium scale industries in Malaysia; The past, the present and the future. Vienna; United Nation Industrial Development Organization. 523 CONCEPTUALIZING ENTREPRENEURIAL ORIENTATION OF MALAYSIAN CHINESE FIRMS Lai Yeng Chai Universiti Tun Abdul Razak, Malaysia Ahmad Zohdi Abd Hamid ALHOSN University, United Arab Emirates ABSTRACT This paper proposes a framework to conceptualise the dimensions that contribute towards understanding the entrepreneurial orientation of Malaysian Chinese-owned firms. These dimensions are argued to be intrinsically inherent among Chinese and underpin their entrepreneurial success and sustainability. Four main components of Malaysian Chinese entrepreneurial orientation were developed, namely, presumption of environmental hostility, entrepreneurial characteristics, entrepreneurial resources and cultural values that shape and mould their business strategies. Malaysia’s unique socio and political economic structure would likely be presumed to be hostile toward Malaysian Chinese entrepreneurs. Chinese businessmen were also known to have thick face, black heart and survival instinct. They utilize aged old wisdoms and principles, strategists/advisors and gui ren in their business venture, and are imbued with cultural values oriented towards monetary reward, economic development, competition and concerned for future generations. These dimensions contribute towards the entrepreneurial orientation of Malaysian Chinese firms, characterized by autonomy, innovativeness, proactiveness, risk-taking, and competitive aggressiveness that shaped the firms’ strategies. Several implications for research, policy-makers and entrepreneurs /management practitioners are also discussed. INTRODUCTION Many scholars posit that firms with strong inclination toward entrepreneurial orientation 41 (EO) tend to venture into new markets (Lumpkin and Dess, 1996), be more successful (Covin and Slevin, 1990) and exhibit better performance (Lumpkin and Sloat, 2001; Loos and Coulthard, 2005). According to Lumpkin and colleagues (Lumpkin and Dess, 1996; Dess, Lumpkin and Covin, 1997), EO is the firm’s behaviour and propensity to adopt autonomy, innovativeness, proactiveness, risk-taking and competitive aggressiveness to achieve the firm’s objective. As a dimension of competitive advantage, EO-inclined firms are able to exploit and capitalise on the newly discovered opportunities, take strategic response and repress environmental threats or uncertainty (Stevenson and Gumpert, 1985). Most studies on EO were conducted in the west, and to date no study in this area were carried out to examine this innate quality among Malaysian firms. Rather than undertaking a cross-sectional approach that cuts across racial/ethnic boundaries, this paper focuses on developing a conceptual framework of EO among Malaysian Chinese-owned firms for several reasons. First, the Malaysian Chinese entrepreneurs is regarded as the key driver for transforming Malaysia into a vibrant and dynamic economy (Menkhoff and Gerke, 2002; Gomez, 1999; Chia, 2002), and such recognition had also been accorded by Malaysia’s former Prime Minister (Mahathir, 2003). Second, to a limited extent the literature indicated the existence and adoption of EO among Malaysian Chinese entrepreneurs. For example, Malaysian Chinese entrepreneurs are noted to possess all the qualities that match the Schumpeterian ideals of entrepreneurship of being acquisitive, innovative and risk taking (Yen, 2003), having 41 The concept has been developed with different terms but with same dimensions and/or some variations: entrepreneurial or adaptive organisation (Mintzberg, 1973); entrepreneurial-conservation orientation (Miller, 1983); strategy making (Miller and Friesen, 1983; Miller, 1987); entrepreneurial process (Miller, 1983; Gartner 1988); strategic process (Covin and Slevin, 1989); entrepreneurial style (Slevin and Covin, 1990), strategic postures (Covin and Slevin, 1991); strategic orientation (Wiklund, 1999a); one of the entrepreneurial philosophy (Covin and Miles, 1999); corporate entrepreneurship (Yoo, 2001); or entrepreneurial disposition (Stewart et al , 2003). 524 autonomy (Lewis, 2005), possessing strong entrepreneurial spirit (Asma, 1992), risk-taking (Mahathir, 2003), being proactive and competitive (Gomez, 1999; Gomez and Jomo, 1997) capitalising on lucrative market opportunities. Third, writers on Chinese entrepreneurs such as Gomez (1999), Mahathir (1970), Wu (1982), Chu (1991, 1995), Wee (2001), Wee, Lee and Hidajat (1991), Luo (1925), Li (1994) and Deng (2003), cited Chinese classic literatures and historical evidence of the existence of intrinsic factors inherent among Chinese entrepreneurs, firms or businesses. Danco (1993) viewed that these attributes were inbred, and thus are distinguishable and may not be predominantly held by people of other ethnic groups. These attributes are seldom discussed and disclosed openly as it is considered a taboo due to its negative connotation and implications. Thus, developing and assessing the strength of the arguments for such propositions should be carried out, and if found to be significant then appropriate strategies should be devised to harness the findings. Finally, past studies on successful Malaysian Chinese entrepreneurs adopted the case study approach (Gomez, 1999), and were predominantly descriptive and illustrative in nature, hinging on the sociological and historical perspective (Voon, 2001). This paper extends the present knowledge on Malaysian Chinese entrepreneurs by exploring the relationships of the intrinsic attributes of Malaysian Chinese and entrepreneurial orientation of Malaysian Chinese firms by first developing a framework. Based on this framework, an empirical study would be carried out to assess the relationships and, if found to be consequential, the results could be utilized to develop and inculcate such attributes among other Malaysian entrepreneurs of different ethnic background. In addition, the Malaysian Government could also formulate appropriate entrepreneurial development policy to create successful entrepreneurs of all ethnic groups in its bid to achieve national economic development objective. LITERATURE REVIEW Entrepreneurial Orientation Research trend in entrepreneurship has shifted from the study of entrepreneur’s personal traits (Gartner, et al, 1988) to entrepreneurial process or firm behaviour (EO) (Bygrave and Hofer, 1991; Sandberg, 1992; Miller, 1983; Covin and Slevin, 1989, 1991; Lumpkin and Dess, 1996) in line with the shift from “contents” to “process” in the study on strategic management. Gartner et al (1988) and Slevin and Covin (1990) viewed entrepreneurship as behaviour at the firm level consisting of a set of activities that create business venture. Lumpkin and Dess (1996) distinguished the concept of entrepreneurship and entrepreneurial orientation (EO), that is, “contents” and “process”. The central idea underlying the concept of entrepreneurship is a new entry based on the characteristics or “contents” of the entrepreneurs; whereas EO is the entrepreneurial “process” that encompassed processes, practices, and decision making activities that lead to new entry (Lumpkin and Dess, 1996). Entrepreneurial behaviours influence organisation’s action (Covin and Slevin, 1991), and a transition from entrepreneurial to organisationally-driven venture requires that entrepreneurial behaviours be institutionalised, for example, from aggressive achievement to competitive aggression (Solymossy and Hisrich, 2000). Over time, this entrepreneurial behaviour or orientation, if persistent, would transform into organization-wide behaviour and became the firm’s culture (Knight, 2000). As such, EO can be studied from the perspectives of firm culture, or firm behaviour. EO at the firm-level has been extensively researched and its findings were useful in understanding entrepreneurial ventures (Wiklund, 1998). According to Lumpkin and Dess (1996), EO acts as competitive advantage and may lead to successful entry in, and creation of, new ventures (Covin and Slevin, 1990). Entrepreneurial firms that adopted EO were able to interpret, take advantage, exploit and capitalize the discovered opportunity (Stevenson and Gumpert, 1985; Kickul and Gundry, 2000) in a volatile and uncertain competitive environment and rapidly changing customer demands (Wiklund, 1998), immediate strategic response and repress environmental threats or uncertainty (Lumpkin and Dess, 1997; Dess, Lumpkin and Covin, 1997; Miller and Friesen, 1983), target the premium market segments, charge high prices and skim the market ahead of competitors by monitoring the market changes and respond quickly (Zahra and Covin, 1995) and achieve strategic objective (Dess, Lumpkin and Covin, 1997). Covin and Slevin (1989; 1991), based on the earlier works of Miller (1983) identified innovativeness, proactiveness, and risk taking propensity as the dimensions of EO. Lumpkin and Dess (1996) further added two dimensions: autonomy and competitive aggressiveness. Research by Lumpkin and Dess (1997), Lumpkin, Dess and McGee 525 (1999), Kreiser, Marino and Weaver (2002), Yoo (2001), Lumpkin and Dess (1997) and Stetz et al (2000) confirmed that EO is a multi-dimensional construct which are distinct, uniquely discrete, and independent of each other in a given context and shows a different relationship with performance determinants (Kreiser, Marino and Weaver, 2002). All these dimensions would be present when a firm engaged in new entry (Lumpkin and Dess, 1996). EO was recognised as an important attribute in achieving high organisational performance (Becherer and Maurer, 1998), and enhanced over time (Nelson and Coulthard, 2005). Initial studies on EO mainly focused on EOperformance relationship i.e. mainly financial performance. Wiklund (1999a) provided further evidence that the EO performance relationship is sustainable. Later research showed that EO had a positive influence, impact, affect or strongly correlated or associated with other determinants of firm performance. For example, EO were found to be related to high or improved performance (Peter and Waterman, 1982; Zahra, 1996, 1991; Covin and Slevin, 1989,1991; Naman and Slevin, 1993; Smart and Conant, 1994; Zahra and Covin, 1995; Dess, Lumpkin and Covin, 1997; Wiklund, 1998, 1999a, 1999b; Lumpkin and Dess, 1996, 2001; Lumpkin and Sloat, 2001; Yoo, 2001; Brown, 1995; Durand and Coeurderoy, 2001); long-term effect on perceived performance (Madsen, 2004); organisational success in new venture creation (Covin and Slevin, 1990); success (Frese, Brantjes and Hoorn, 2002); and firm survival (Smart and Conant, 1994). However, there were exceptions to the above studies’ findings. For example, studies by Zahra (1991) and Covin, Slevin and Schultz (1994) showed a lack of evidence that EO lead to performance. They speculated that this could be due to different settings, dimensions, and method of analysis. Different findings were also obtained at the subdimension level of EO. In a study of firms from nine countries on three EO dimensions by Kreiser, Marino, and Weaver (2002), the results indicated that innovative and proactive firm behaviours were positively associated with firm performance, while risk-taking displayed a U-shaped curvilinear relationship. Lumpkin and Dess (2001) found that in the non-affliated, non-diversified firms, proactiveness was positively related to performance but competitive aggressiveness tends to be poorly associated with performance. Unlike earlier research in Lumpkin and Dess (1997), sales growth and overall performance were positively related to competitiveness suggesting the family firm members may be more combative in their effort to secure competitive position. Very recently, Wiklund and Shepherd (2005) found more conclusive result that EO has a universal positive effect on small business performance. EO have universal application, that is, it is present in all types of entrepreneurial firms (Wiklund and Shepherd, 2005), very common amongst successful entrepreneurs (Wiklund 1999a, 1999b), more prevalent for new ventures in emerging industries (Covin and Slevin, 1990) and a global construct and applicable to all countries (Arbaugh, Cox and Camp, 2004). EO among Chinese Research on EO in the eastern setting is limited. Luo (1999) found that town and village Chinese entrepreneurs in China adopted EO in response to environmental uncertainty. Tan and Tan (2003) suggested that Chinese State Owned Enterprises (SOE) needed to adopt EO to meet the changing competitive landscape of the transition economy of China. In his study among American Chinese entrepreneur, Yang (1995) found that they wanted to start and remain in business as an occupation and as a means for acquiring independent living. Yen (2003) noted that overseas Chinese entrepreneurs possessed all the qualities that match the Schumpeterian ideas of entrepreneurship: acquisitive, innovative and risk taking. The biographical profile of the successful Chinese entrepreneurs such as friendly, face-to-face interpersonal business relation, extremely thrift and frugal, willingness to work long hours at low returns, flexibility to meet all demands and dependability, showed that they tend to strike out on their own to achieve independence (Lewis, 2005). In a comparative study, Parnell et al (2003) found that Chinese management students studying in mainland China had higher EO than Chinese management students studying in the United State. This result indicated that Chinese education with strong Confucius cultural values teachings would have a stronger EO. It is commonly acknowledged that Chinese family business groups forged a set of business routine and strategic behaviours i.e. EO that protects their economic interest to meet the challenges of the forces of diasporas (dispersion), national economic policy and the hostile state bureaucracy that created environmental conditions that were threatening yet at the same time full of opportunities (Carney and Gedajlovic, 2003). Malaysian Chinese Entrepreneurs and EO 526 Various writings implied the presence and adoption of EO by Malaysian Chinese entrepreneurial firms. For example, Malaysian Chinese have been found by Asmah (1992) to have a strong entrepreneurial spirit. Mahathir (2003) noted that these entrepreneurs were willing to take risk and literally saw what the locals failed to see, the opportunities that are abound. The Chinese business’s growth was largely due to the proactive act i.e. the ability to forge a tie with the indigenous elite in compliance with the New Economic Policy, formed trade associations and political parties to protect their economic interest (Gomez, 1999; Gomez and Jomo, 1997) and also used ethnic networking as an effective way to move into potentially lucrative markets (Gomez, 1999). Therefore, it is posited that successful Malaysia Chinese entrepreneurial firms are expected to adopt and exhibit EO characteristics. The following sections illustrate the framework of the various dimensions of intrinsic factors among Malaysian Chinese entrepreneurs and the entrepreneurial orientation of Chinese firms in Malaysia. The first section explores the relationships between EO and business strategy. As entrepreneurial action and behaviour relates to environmental aspects of business strategy, the second section describes the influence of environmental factors on EO and business strategy. The third section relates the Chinese entrepreneurial characteristics with EO and business strategy. The fourth section looks at the use of history, advisors or strategists and “Gui Ren” as knowledge-based and property-based resources of Chinese entrepreneurs and their relationship with EO and business strategy. Finally, the last section describes the impact of Chinese cultural values on EO and business strategy. EO AND BUSINESS STRATEGY Strategy is a comprehensive master plan to achieve the firm’s mission and objectives that maximises competitive advantage (Wheelen and Hunger, 2004). Numerous studies of either the contingency or competitive strategy approaches (Sandberg and Hofer, 1987; Covin and Slevin, 1989; Miller, Droge and Tolouse, 1988; Porter, 1980, 1997) had shown that strategy is a vital element in explaining firms’ performance. Mintzberg (1973) viewed that small entrepreneurial firms or organisations derived their strategies inexplicitly or intuitively, and in the mind of the CEO, owner or founder. Wheelen and Hunger (2004) considered the entrepreneur as the ultimate strategist without himself realising it. The Chinese entrepreneurs may lack the knowledge of formal business strategies but they have the implicit knowledge of military principles as per the argument put forth by Mintzberg (1973) and Wheelen and Hunger (2004). Chinese entrepreneurs were known to formulate business strategies based on military principles, and had been contributing to the strategy literature for at least 1,500 years (Thomas, 1995). Thomas (1995) argued that the present western generic business and corporate strategies were nothing new but similar to the ancient Chinese strategic thinking and strategies. Notably, the Bing Fa or military strategy (Art of War) was a form strategic thinking and a natural part of human interactions for hundreds of generations (Sawyer, 1993, 1995, 1996; Chu, 1991), and had been integrated, immersed and absorbed unconsciously into every fibre of Chinese culture, social, economic and political structure even to one who had not studied it formally (Chu, 1991) as philosophised by Lao Tzu that universal principles were only one and one became many. This unique dimension had been passed from generation to generation within the family and transcended into business practices. Consequently, Chinese entrepreneurs tend to adopt a military perspective in their business practices and viewed the business as zero-sum game (Wee, 2001). The Chinese, particularly Chinese entrepreneurial firms, believed in mastering and utilising the insights of ‘Bing Fa’ for business practice: “If you know your enemy and know yourself, then you will win the battle” and “avoid direct confrontation with your rivals” (Yu, 2001). They played the game tirelessly by applying the military strategies and principles for business reward, success and survival (Chu, 1991). Chinese (Yu, 2001) and western (Levinson, 1993, 1997) small family firms successfully applied military strategies (guerrilla strategy) to exploit market opportunities before the established firms could respond. Knight (1997a; 1997b; 2000) argued that EO as a firm behaviour would become a company culture after a long period of adoption. Webster (1992) noted that culture is fundamental to strategy. Based on this argument, Knight (2000) concluded that EO was antecedent to strategy. Therefore, firms with EO would pursue various forms of strategies to achieve firm performance. For example, studies had shown that firms with EO pursued strategic levers or modified strategies (Knight, 1997a; 1997b), marketing strategy (Knight, 2000), growth strategies (Zahra, 1991), 527 generic strategy (Durand and Coeurderoy, 2001), complete planning (Freese, Brantjes and Hoorn, 2002) and technology policy (Auger, Barnir and Gallaugher, 2003). Environmental Aspects and EO The environment plays an important role in providing scarce and valuable resources, create both threats and opportunities (Kumar and Strandholm, 2002), and pose important constraints and contingencies to the firms (Boyd and Fuller, 1996). The environment is constantly changing, difficult to predict, and demanding on management (Almeida, Sapienza and Hay, 2000). The ability to monitor, predict, cope, and adapt to environmental trends and changes create organisational competitiveness (Daft, Sormunen and Parks, 1988; Boyd and Fuller, 1996). Similarly, acquisition of superior information by entrepreneurial firms about environmental opportunities and problems through their perception of the environment provides an advantage over the competitors (Daft, Somunen and Parks, 1988). Khandwalla (1973) viewed that competitive environment affect organisational behaviour, and Dess and Beard (1984) and Tan and Litschert (1994) viewed the environment as a multidimensional construct that is conceptualised into four dimensions: hostility, uncertainty or dynamism, complexity, and munificence. Western literature focused on either the environment that the firm operates in or the perception of the environment by the firm. However, one of the intrinsic factor possessed by Chinese entrepreneurs is the ability to adopt a different approach by making an assumption about the existence of a hostile environment (Wee, 2001; Chu, 1995, 1991; Liu, 1993; Wee, Lee and Hidajat, 1991; Chen, 1995) inclusive of both the competitive and political environment even before the commencement of the business; and is more so when the business is in operation. This presumption leads them to be more prepared for any eventuality and taking various pre-emptive strategies and actions irrespective of whether the environment is hostile or otherwise and irrespective of time horizons. Chinese entrepreneurs also believed that politics and political factors influence the growth of their business that can lead to the rise or decline of their business (Chiu and Cabanda, 2005; Carney and Gedajlovic, 2003). Daft and Weick (1984) viewed that the critical issue for interpreting and making assumption about the environment was to differentiate into highly specialised information receptors that interact with the environment. Consequently, entrepreneurs were able to formulate strategies and action plans based on the presumption. Research results from various empirical studies had shown that the degree of adoption or practice of EO was significantly related to the intensity of environmental hostility (Zahra, 1991; Zahra and Covin, 1995; Rauch and Frese, 1999; Hall, 1980; Smith and Grimm, 1987; Covin and Slevin, 1990), perceived environmental hostility (Zahra, 1993a ), dynamic environment (Khandwalla, 1973, 1987; Miller, 1983; Miller and Friesen, 1983; Zahra, 1991, 1996; Naman and Slevin, 1993; Miles, Covin and Heeley, 2000; Kreiser, Marino and Weaver, 2002;), uncertain environment (Dess, Lumpkin and Covin,1997; Smart and Vertinsky, 1984; Yusuf, 2002; Khandawalla, 1987; Foxall, 1984; Miller, Droge and Toulouse, 1988; Covin and Slevin, 1989; Zahra and Covin, 1995; Zahra and Bogner, 1999; Prescott and Sterin, 1990; and Zahra and Neubaum, 1998), perceived environmental uncertainty (Daft, Sormunen and Parks, 1988; Bourgeois, 1985; Tan and Litschert, 1994; Miles and Snow; 1978; Miller and Friesen, 1983; Weaver and Dickson, 1997), and, perceived environmental munificence (Brown and Kirchloft, 1997; Koning and Brown, 2001). Research on the relationship between EO and the business environmental aspects among Chinese entrepreneurs is limited. Tan (1996) investigated among private entrepreneurs in China found that the perceived regulatory environment: hostility, dynamism, and complexity of the transition economy led to strategies characterised by EO. Subsequently, Tan (2001) further confirmed that small privately owned enterprises in China also adopted EO in the hostile environment. In another study, Luo (1999) found that Chinese town and village business enterprises in China used a wary prospector orientation or EO to align with environmental conditions i.e. perception of environmental uncertainty/dynamism and also environmental complexity and hostility that lead to financial performance where the results showed these dimensions were positively associated. Individual Entrepreneurial Characteristics and EO Most of the studies on entrepreneurial characteristics focused on positive or successful aspects (Timmons, 1999, Hisrich and Peters, 2002). However, entrepreneurs also display certain negative and secretive characteristics. Kuratko and Hodgetts (2000) identified these characteristics as need for control, sense of distrust, desire for success and external control. Buskirt (1988) mentioned them as greed, dishonesty, paranoia, poor judgement of people, impatience, lack of business knowledge and disdain for control. Hyrsky (1998) found that most people viewed 528 entrepreneurs as ruthless speculators. Similarly, American negotiators viewed Chinese negotiators as inefficient, indirect, and even dishonest (Graham and Lam, 2003). Many positive characteristic of Chinese entrepreneurs have been researched based on western models. This paper takes a different approach by studying the unique, secretive and negative characteristics of “Thick Face (shameless), Black Heart (ruthless but not evil), and survival instinct of Malaysian Chinese entrepreneurs. It is common knowledge among Chinese community of the existence of “Thick Face Black Heart” dimension being practised by many successful entrepreneurs and corporate figures to thrive, win and succeed in all their dealings (Chu, 1995; Pheng, 1997). This notion of Thick Face Black Heart was written in 1917 by Li Zhong Wu (1994) based on the success of historical heroes in various dynasties beginning from the Qing Dynasty to explain the Chinese society’s illness, namely the acquisition of wealth and holding on to power. The Thick Face and Black Heart theory has been known to be applicable in management. According to Litwin, Bray and Brooke (1996), most planned strategic change in organisation is unsuccessful. He believed that leaders need to demonstrate thick skin and killer instinct to mobilise the organisation in implementing strategic change. Pheng (1997) showed that there was a need to have a good knowledge of the said theory and apply it to the marketing of construction services in China. Entrepreneurs may make decisions that run against the tenet of ethical and moral reasoning when faced with liability of newness, resource scarcity and survival (Neubaum and Mitchell, 2002). Scheela (2001) also believed that in developing the entrepreneurial mindset, entrepreneurs must harness ruthless discipline to focus on the opportunity. Previous studies showed that the EO of the firms are related to the firm’s founders/leaders’ positive entrepreneurial characteristics firm (Miller, 1983; Lumpkin and Erdogan, 1997; Sagie and Elizeu, 1999; Becherer and Maurer, 1999; Entrialgo, Fernandez and Vazquez, 2001; Smart and Vertinsky (1984), and their personalities, attitude and values (Miller, 1983; Hamel and Prahalad, 1989; Lumpkin and Erdogan, 1997). There is no research being conducted on the effects of negative aspects of the entrepreneurial characteristics on performance or EO. However, Utsch et al (1999) viewed that EO competitive aggressiveness is related to Schumpeter’s concept of aggressive dominance, including a Machiavellian attitude, i.e. from a moral point of view, one is reckless and ruthless in the pursuit of one’s goals. In addition, the Chinese entrepreneurs have a strong understanding of the ruthlessness of the business world i.e. the presumption that business is war. They have known to adopt and display the “thick face black heart” or shameless and ruthless but not evil entrepreneurial characteristics of the founders toward the competitors (Chu, 1995; Li, 1994). Scheela (2001) viewed that entrepreneurs must use ruthless discipline to focus only on the best opportunities. Therefore, entrepreneurial characteristics that are shameless and ruthless but not evil will influence EO. The intensity of these characteristics will increase with the increasing intensity of competition. The second characteristic of Chinese that is of interest in this paper is their survival instinct. China had a long history of attacks from barbarians at all points of the country and also fallen victim to internal squabbling, civil wars, and the ebb and flow of empires (Graham and Lam, 2003). Ancient China was largely an agrarian economy that suffered from storms, droughts, locusts attacks (Kao, 1993) and various forms of exploitations (Wang, 1994). These adverse and harsh conditions forced the Chinese to migrate overseas in search of livelihood. Wang (1994) and Lim (2005) noted that Chinese have also developed a strong survival instinct due to these conditions particularly amongst the immigrant Chinese. Chinese migrants survived by engaging in all sorts of difficult, dirty and lowly paid works (Lim, 2005). The survival mentality of Chinese entrepreneurs have developed into values such as thriftiness, high levels of saving, hard work to the point of exhaustion to ward off the many hazards of the unpredictable world and ensure survival (Kao, 1993). Chinese entrepreneurs have a strong survival instinct, developing, learning and adapting strategies in different parts of the world with different ecological, economic and political conditions and systems to live with people of different ethnic origin and to gain support of the ruling elite (Tan, 2004) in order to control their destiny (Kao, 1993). The business format was designed with strategic flexibility and able to response quickly to changing conditions to survive intense volatility (Vatikiotis and Daorueng, 1998). Menkhoff and Gerke (2002) viewed Chinese entrepreneurs as resourceful as a toolbox, that is, they are able to replenish and utilize specific tools depending on the requirement without abandoning other tools. The survival instinct enables Chinese entrepreneurs to adapt to larger societies in attaining a certain level of economic performance, even in a hostile environment (Tan, 2004), weather fierce competition and economic crisis 529 (Larkin, 1999). In the hostile environment, they would struggle for survival and give rise to new ideas and new action (Chu, 1991). Yu (2001) argued, from the evolution perspective, that Chinese family enterprises possessed a unique feature that contribute to their competitive advantages i.e. ability to respond to their external environment and enable them to compete globally. Chinese in Malaysia, although resist assimilation, are adapting to local conditions (Mahathir, 2003). The most successful Chinese companies in Malaysia are those that have not fought against the tide of affirmative action, instead have swung with it and welcomed Malays in the business community (Astbury, 1994) dependent on influential Malay political patronage (Gomez, 1999) in their business dealing. Teh Hong Piow of Public Bank claimed that his response to the New Economic Policy (NEP) was to make it a point to study and follow all government policies (Gomez, 1999). Chinese entrepreneurs developed and adopted frontiers, institutions and arrangements to meet the need for new and economic organisation in face of general unsystematic colonial authorities (Gomez, 1999) and also to meet the requirements of NEP. Resource-based View and EO Resource-based theory views that resources that are valuable, rare, inimitable, or non-substitutable firm-specific capabilities (Barney, 1991, 1995; Dollinger, 1999) are fundamental determinants in achieving superior firm performance and sustainable competitive advantage (Barney, 1991, 1995) in generating profit and prevent loses (Miller and Shamsie, 1996). Firms create sustainable competitive advantages and wealth by continuously creating, acquiring, utilising and leveraging of unique resources (Barney, 1991; Lado, Boyd and Wright, 1992; Chrisman, Chua and Zahra, 2003). Miller and Shamsie (1995, 1996) classified the resources into property-based resources and knowledge-based resources. Chinese entrepreneurs were known to encounter the issue of legitimacy, liability of newness, resource constraints and other challenges various limitations: lack of planning skills, limited capacity, imperfect or insufficient information, inadequate skills in both the process of planning and the content of strategies and planning issues (Singh, Tucker and House, 1986; Robinson, 1982). They overcome this limitation by acquiring knowledge-based and property-based resources through the wisdom derived from history, engagement of advisors or strategist, and assistance from ‘Gui Ren” (Samaritan). China has a rich and diverse history (Keller and Kronstedt, 2005). The Chinese civilisation that had existed over the span of over 2500 years is the oldest civilisation that survived the test of sustainability, durability and longevity, whereas others vanished (Wee, 2001; Chu, 1995). “Use History As A Mirror” is a common and familiar maxim among Asians namely the Chinese. Universal principles were derived from the study of history by focusing the subject of inquiry on the human mind. The imperial examinations heavily emphasised on history, literature, and philosophy focus mainly on the underlying causes and events and the action rather than the people. The imperial examination would lead to social mobility i.e. upward migration in the society strata for more than 2000 years (Lai, 1970; Haley, Haley and Tan, 2004). Chinese, and in particular Chinese entrepreneurs, are encouraged to read the five main classic books: The Romance of Three Kingdoms, Sun Tzu’s Art of War, Journey to the West, Water Margin, and The Red Chamber. These classics are considered as the fundamentals of various undertakings in one’s daily life and in business. Asian leaders were known to use the ancient knowledge to act as guidance and derive rules for the daily business and political affairs (Chu, 1991). Several other authors also exhorted the virtues of Chinese history. For example, Len (2004) related the importance of Chinese history to the present day business management. Xin (2001) agued that the ancient Chinese proverbs provide knowledge about life, and are applicable in present society (Ching, 1973). It was a general practice in Chinese warring history that strategists or advisors, commonly known as “Shi Ke” or “Eating Guest”, were engaged or employed by the emperors, warlords, high ranking official to share their wisdom and provide military advice and diplomacy. Many of the surviving military strategies were formulated by these advisors (Chu, 1991). Chinese businessmen now also believe the importance of strategists and advisors in the conduct of their businesses. They provide both the tacit knowledge and explicit knowledge for formulation and implementation of strategies and action plans, and establish the network or “guanxi” for resource acquisition and exploitation of opportunities (Yang, 1995). Yang (1995) found that entrepreneurs of American Chinese family enterprise heavily rely on their uncle’s as their advisors, and In a case study by Xu (2002), resource constraint Chinese technology start-up companies are able to survive and thrive in the competitive environment, and were 530 always in constant search for needed capabilities from external source in addition to the internal capability. The network activities of Singapore Chinese entrepreneurs also contributed to venture growth (Lee and Tsang, 2001). It is generally believed and an accepted notion of the existence of ‘Gui Ren’ in the Chinese business community (Deng, 2003). Gui Ren or Samaritan is someone that gives assistance voluntarily to make the first break and to trigger revolutionary changes in personal development or in business. The concept of Gui Ren is similar to that of a strategist and advisor but the major difference is that strategist or advisor is remunerated for their services whereas Gui Ren extends their assistance without any obligation. Li (2004) conceptualised Gui Ren as a support or assistance provided to someone to capitalise on the opportunity to achieve with limited resources, and to shorten the time to struggle without having to compete. He suggested that choosing a Gui Ren is like “a good bird will chose a good tree to make its nest” where different Gui Ren will give different results. The funding of Malay politicians by Chinese businessmen had been reciprocated with the distribution of business opportunities to the latter (Gomez, 1999) is a classic Gui Ren in action. The assistance given will lead to quantum leap and business success namely at the introduction and growth stage of the organisation. Many illustrations were provided by Gomez (1999) on the presence of Gui Ren in providing the above assistance to Malaysian Chinese entrepreneurs leading to successful ventures and rapid growth. The principles and wisdoms derived from the study of history also provide a huge reservoir of explicit knowledge to the Malaysian Chinese entrepreneurs. Similarly, these entrepreneurs would have gained substantial tacit and well as explicit knowledge from the strategists and advisors engaged, and the assistance from Gui Ren further enhanced the probability of business success. Therefore, these knowledge-based and property-based resources from intrinsic factors of historical knowledge, strategists or advisors, and Gui Ren would have contributed positively to the EO and also business strategy of the Malaysian Chinese entrepreneurial firms. Cultural Values and EO Cultural heritage is known to have a strong influence on strategic orientation, managerial assumptions and managerial practices (Hitt, Tyler and Park, 1997). In a comparative study, Hitt, Tyler and Park (1997) found that different cultural values and norm between Korean and U.S. executives lead to different strategic orientation on strategic decision making. Hayton, George and Zahra (2002) showed that cultures that value and reward entrepreneurial behaviours promote the propensity to develop and introduce radical innovation. In their study in United States, Japan, China, Russia and Mexico, Lee and Peterson (2000) found that countries having the culture that promote entrepreneurial activities tend to have strong EO. Mueller and Thomas (2001)’s findings further lend support to the proposition that different cultures have different degree of conduciveness for entrepreneurship, and that EO, defined as internal locus of control combined with innovativeness, is more likely in individualistic, low uncertainty avoidance culture than in collectivistic, high uncertainty avoidance cultures. Chinese philosophy, propagated by great philosophers such as Confucius, Lao Tzu, Zhung Tzu, Han Fei and Meng Tzu had strong influence on Chinese culture and thought process. Chinese culture stressed on the importance of social order and helped keep the social chaos at bay (Kao, 1993). It is acknowledged that Chinese civilisation survived until today and remained intact where other civilisations vanished (Chu, 1991), and that the resilient nature of Chinese culture based on Confucian principles has the ability to endure two thousand years of tumultuous changes in China (Chao, 1990; Keller and Kronstedt, 2005). This phenomenon enables the guiding principles and values to be passed on to the present generation in China and also among Chinese immigrants. Hofstede and Bond (1988) viewed that Confucius culture is the underlying source of Chinese entrepreneurship. Confucian ethics tend to avoid aggressive personality but cultivate personality for the best adjustment, adaptation, acceptance and accommodating the environment (Chen, 1995). Chen (1995) and Kao (1993) showed that the hardship of migration to escape turmoil, political upheaval, disaster and poverty in China has cultivated and reinforced traditional Confucian values such as pragmatism, work ethic, and thriftiness, to struggle for economic survival in the new environment. Chen (1995) pointed out that economic progress of East Asian nations have benefited from the Confucius ethic. No matter how Westernised the Chinese entrepreneurs, the enterprise is still a means to exert control and achieve security in the disorder world based on Confucian values (Kao, 1993). The family business still adheres to the tradition (Chiu and Cabanda, 2005). In the study of overseas Chinese enterprises, Yen (2003) noted that the 531 majority of the early overseas Chinese entrepreneurs were illiterate, but imbued with strong Confucian values. The knowledge transfer is through experiential comprehension rather than knowledge accumulation from generation to generation (Chen, 1995). The subsequent generations, educated and exposed to western education and management, spearheaded their business empires by integrating both eastern and western values in their business practice. However, the Confucian values still play a predominant role in dealing with the Chinese business communities (Austria, 1997). In an illustrative business case history on Sincere Group and Wing-On Group in Shanghai and Hong Kong, Chan (1996) showed that the non-adherence of Chinese values lead to failure of Chinese business organisation. Chan (1996) further argued that Chinese values in conjunction with western management will lead to success. Despite different and diverse national context, Tan (2002) found that Chinese entrepreneurs elsewhere share similar cultural values with the mainland Chinese entrepreneurs based on the fact that Chinese as a group have the strongest resistance against assimilation into the main stream culture and preserve their native culture setting amongst other cultural settings. Zabid and Ho (2003) and Asma (1992) observed that the Malaysian Chinese, although originated from China, still uphold similar Chinese value. To ascertain the cultural values held by Chinese, a review of the literature revealed that their predominant cultural values are monetary and wealth accumulation (Asma, 1992; Ang and Hong, 2000; Chen, 1995; Chiu and Cabanda, 2004; Coleman, 1992; Kao, 1993; Hamzah, 1991; Kirkbride and Tang, 1992; Lee and Lim, 2001; Lewis, 2005; Steier, 2004; Tan, 2004; Yen, 2003; Wu, 1983); inclination towards commercial activities (Haley, Haley and Tan, 2004; Tan, 2004; Yang, 1995); competitiveness (pin) (Cooper, 1985; Reid, 2004; Tan, 2004; Yen, 2003), and concern for future generation (Tan, 2004). Cultural Values and Strategic Management It is widely accepted that culture plays a crucial role in formulating and implementing business strategy. According to Schneider (1986), strategy formulation involving scanning, selecting, interpreting and validating information depend on the cultural assumption of the environment and the relationships among relevant people in the organisation. Lorsch (1986) argued that culture has a major impact on corporate strategy as the various cultural beliefs about environmental factors (market and competition) and organisational factors (goal, distinctive competences, products and human resources) influence the implementation of strategic change. Tricker (1994) showed that, among other factors, business strategy formulation by company board members in Western, Japanese and overseas Chinese companies, is also a function of business culture. Organisational culture can either block or support the most appropriate change strategy (Davis, 1983). Cultural Values, Business Strategy and EO Hoy and Verser (1994) and Jou and Sung (1990) argued that both the positive and negative personal values of a business founder or senior members of the corporate management would permeate and transcend throughout the organisation and manifested as organisational culture such as EO. Similarly, research studies have shown that the Chinese cultural heritage/values based on Confucius value system were found to shape strongly the organisational behaviours (Redding, 1990), managerial behaviours in business (Ahlstrom and Bruton, 2001), managerial behaviour and styles (Jou and Sung, 1990), development of entrepreneurial leadership (Tan and Fock, 1998) management development process (Tang and Kirbride, 1992), management system (Chen, 1995) and facilitate the development of managerial and organisational system (Chao, 1990). Most research studies tend to focus on using the cultural dimensions developed by Hofstede in the study on culture and EO relationship. Ang and Hong (2000), in his study of East Asian Chinese found that monetary orientation, that is, motivation for monetary gains is a strong predictor of entrepreneurial spirit. Vatikiotis and Daorueng (1998) noted that family cultural values help ethnic Chinese businesses to adopt strategic posture in order to stay afloat in stormy economic water. The founders of the Chinese business enterprises tend to exert strong influence on the family business based on cultural values (Kao, 1993). THE CONCEPTUAL MODEL 532 Based on the above review of the literature, Figure 1 depicts the relationships of the various dimensions of Malaysian Chinese entrepreneurial firms’ perception of the environmental aspects, entrepreneurial characteristics, entrepreneurial resources and cultural values with entrepreneurial orientation and business strategy. Based on the above model, it is hereby argued that the presumption of environmental hostility, the level and scope of entrepreneurial resources, and the strength of adherence to cultural values are the main contributing elements toward entrepreneurial orientation that will shape and mould successful business strategy. More specifically, Malaysian Chinese entrepreneurial firms, due to the unique Malaysia’s socio and political economic structure, tend to presume a hostile business environment, have entrepreneurial characteristics of thick face, black heart and survival instinct, utilize aged old wisdoms and principles, strategists/advisors and gui ren in their business venture, and are imbued with cultural values oriented towards monetary reward, economic development, competition and future generations, contributed significantly towards the phenomenon of entrepreneurial orientation. This entrepreneurial orientation, characterized by autonomy, innovativeness, proactiveness, risk-taking, and competitive aggressiveness, shaped the firm’s business strategy. PRESUMPTION OF ENVIRONMENTAL HOSTILITY • Regulatory • Competitive ENTREPRENEURIAL CHARACTERISTICS • Thick face • Black heart • Survival instinct ENTREPRENEURIAL RESOURCES • Historical Principle • Strategists/advisors • Gui Ren ENTREPRENEURIAL ORIENTATION • Autonomy • Innovativeness • Proactiveness • Risk taking • Competitive Aggressiveness CULTURAL VALUES • Monetary Orientation • Economic development orientation • Competitive or pioneering spirit • Concern for future generation Figure 1: The Conceptual Model of the Malaysian Chinese Entrepreneurial Orientation 533 BUSINESS STRATEGY RESEARCH AND MANAGERIAL IMPLICATIONS OF THE MODEL The above conceptual model has several research and managerial implications. First, an in-depth study is required to establish the relationships of the various dimensions portrayed in the model. Given the overwhelming support in the literature on their relationships, it is expected that their relationships will be significant. Malaysian Chinese entrepreneurs possess the Schumpeterian ideals and qualities of being acquisitive, innovative and risk taking (Yen, 2003), having autonomy (Lewis, 2005), possessing strong entrepreneurial spirit (Asma, 1992), risk-taking (Mahathir, 2003), being proactive and competitive (Gomez, 1999; Gomez and Jomo, 1997) capitalising on lucrative market opportunities. In addition, the Malaysian Chinese entrepreneur community is considered the driver for transforming Malaysia into a vibrant and dynamic economy (Menkhoff and Gerke, 2002; Gomez, 1999; Chia, 2002). Second, as research on entrepreneurs is lacking in Malaysia and as the country’s economic development can no longer depend solely on foreign direct investment to stimulate further growth, this research should be an impetus to policy-makers to re-examine their policies and strategies in developing home-grown entrepreneurs so that they are well-equipped and better prepared. Third, from the practitioners’ perspective the model depicts the importance of cultural values that underpins successful and sustainable Malaysian Chinese entrepreneurial and business ventures. As such, budding entrepreneurs should be able to learn and acquire the necessary knowledge and insights highlighted in this paper in order to equip themselves to become successful entrepreneurs. Finally, this paper extends the present knowledge on Malaysian Chinese entrepreneurs by exploring the relationships of the intrinsic attributes of Malaysian Chinese and entrepreneurial orientation of Malaysian Chinese firms. The framework developed here should be able to be empirically tested to assess the relationships and, if found to be consequential, the results could be utilized to develop and inculcate such attributes among other Malaysian entrepreneurs of different ethnic background. 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O (1998) Environmental Adversity and the Entrepreneurial Activities of New Ventures. Journal of Developmental Entrepreneurship. Vol. 3, Iss. 2, pg. 123-141. 540 THE EFFECTS OF PARENT CHARACTERISTICS ON CONSUMPTION ATTITUDES OF URBAN MALAYSIAN CHILDREN Samsinar Md. Sidin Ainul Zakiah Abu Bakar Universiti Putra Malaysia ABSTRACT This study examined the influence of parent characteristics and their effects on consumption attitudes of young Malaysian consumers. The two parental characteristic tested in this study were parent consumer decision making styles; and parent consumer practices and activism. This study has developed a comprehensive model conceptualizing the factors affecting children consumption attitudes and in turns their purchase behavior outcome patterns. The model has proposed that parent characteristics variable affect both directly and indirectly the development of children purchases behavior outcome patterns. INTRODUCTION Historically, both marketers and consumer researchers have ignored children as a consumer segment because of their little disposable income. As every person is a consumer, it is certainly reasonable to inquire about shopping behaviors, such as the motivations underlying where people shop and what they buy. Changes in needs and wants due to changes in economic situation have resulted in a unique shopping pattern among consumers. The different shopping patterns are evident, based on the personalities and attitudes of consumers. Moreover, due to differences in individual’s personal taste and environment, each consumer has developed a different consumption attitude and shopping styles unique to their individual needs and wants.Many factors, such as brand, quality, and price, combine may determine an individual’s unique shopping habits (Sproles & Kendall, 1986). Consumers’ unique shopping patterns are developed and affected by socialization agents, which include family, peers, media, and schools (Moschis, 1981). The agents can impact consumers’ decision-making styles and pattern. These influences are critical consumer socialization agents among children and adolescents, and may often impact whether or not the young will buy certain products or brands. Furthermore, youthful consumption patterns influence consumer behavior as adults. Past research has found that children’s involvement in family consumer decision-making varies with product type, decision stages, and product sub-decision (e.g Ahuja, 1993; Belch, Belch, & Ceresino, 1985; Foxman & Tansuhaj, 1988). Overall, children appear to have significant influence in product decisions for which they are the primary consumer. Their involvement is greatest in the need recognition stage and declines significantly by the decision stage. This is especially true for major products related to children (Beatty & Talpade, 1994). Many factors interplay to affect children’s consumer decision-making that can directly influence their purchase behavior patterns; and family has been identified as one of the most influential factors affecting children related decisions and behavior, operating at the levels of parent modeling and parent-child interaction. Given the importance of children in the market place, understanding these factors and its effects shall allow for the predictions of the economic power and market impact of young consumers as well as providing better insight and understanding of various factors that affect children consumer behavior pattern (Kraak & Pelletier, 1998). Familial Characteristics Affecting Consumption Parents’ characteristics from the consumer socialization perspective, include factors such as occupation, income level, consumer affairs knowledge, consumer decision-making styles and consumer practices and activism may influence parents’ pattern of socializing with their children, and further affect children’s learning process (Beatty & Talpade, 1994). From the decision-making perspective, parents’ characteristic factors reflect parent’s personal resources that contribute to children’s development of both economic and social behavior. Consequently, parents’ characteristics should affect the development of children purchase behavior outcome patterns. 541 A wide range of family related variables have been used to test the socialization output as shown in Figure 1. These variables include parent consumer practices and activism, child financial resources and spending, child independent purchase experience and family consumption interaction, in addition to the commonly tested family variables of parent consumer decision style and family communication environment and quality. As mentioned earlier, parent characteristic is the focus of this study; therefore, only parent consumer practices and activism will be discussed further in this paper, along with the two commonly tested family variables. Parent plays a significant role in influencing how children acquire their consumer skills. Recent data on consumer socialization appears to support the contention. Research by Ward, Wackman & Wartella (1977) and Moore & Stephens (1975) showed that every kind of consumer behavior such as decision, communication and purchasing styles practiced by the parent have a chance to be observed and imitated by their children. Thus, it is proposed that: H1: There is a positive relationship between parent consumer decision-making styles and the strength of children attitude towards; (a) brand, (b) price, (c) store, and (d) salesperson factor when evaluating products and making final purchase decision. H2: There is a positive relationship between parent consumer practices and activism and the strength of children attitude towards; (a) brand, (b) price, (c) stores, and (d) salespeople factor when evaluating products and making final purchase decision. 542 Figure 1: Familial Characteristics and Their Effects on Children Purchase Behavior Outcome Patterns Familial Characteristics: - Consumer Decision Styles - Consumer Practices & Activism - Financial Resources & Spending - Independent Purchase Experience - Consumption Interactions - Communication Quality Consumption Attitude: - Price - Brand - Stores - Salespeople Behavior Intention: - Choice & Preferences - Loyalty - Disliking Purchase Behavior Outcome: - Own Purchase: - Motivation for Consumption - Perception & Acceptance - Post Purchase Acceptance - Repeat Purchase Intention - Future Purchase Intention Social Structural Variables: - Age - Sex - City of Dwelling METHOD This study aims to analyze and understand the relationship between parent characteristics in the development of children purchase behavior outcome pattern. Selected familial characteristics, particularly consumer decision styles; and consumer practices and activism were examined and evaluated to determine the extent of their influence on children consumer behavior and decision structure. A pilot test was carried out to determine products that children would like to purchase during their next store visit, as well as to determine the effectiveness of the formulated questionnaires. The result of the pilot test on 30 children identified three products, as being the most preferred products those children would like to purchase during their next store visit. These products are food items, reading materials and stationery items. During the data collection stage, field interactive methods using formulated questionnaires were used to collect actual data from paired parentchild samples in Kuala Lumpur, Penang, Kuantan, and Johor Bharu. The target population for this study is the urban population of Kuala Lumpur, Penang, Kuantan and Johor Bharu and the units of analysis, defined as urban parents and their respective children within the age range of nine to fourteen years old. Kuala Lumpur, Penang, Kuantan and Johor Bharu have been chosen because they are located in the different parts of the country; north, south, central and east of the peninsular of Malaysia. All these cities have undergone rapid industrialization resulting in more occupational opportunities and hence more household spending by the dwellers. The samples were collected using purposive sampling. The populations of interest in this study represent urban children between the ages of nine to fourteen years old and their respective parents. To represent the cross-section of the urban Malaysian consumer population, three hundred paired samples from the three major races of Malaysia, namely the Malays, Chinese and Indians have been selected for the study. Interviewers were stationed at various shopping outlets to select and recruit the families to participate in the study. Where necessary, appointments were made with the family for interviews. 543 Six hundred respondents comprising three hundred parents and three hundred children were interviewed. The breakdown of the samples is as in Table 1. Table 1: Breakdown of Samples by City City Parent Child Total Kuala Lumpur 75 75 150 Penang 75 75 150 Kuantan 75 75 150 Johor Bharu 75 75 150 Total Sample Size 300 300 600 Two sets of questionnaires were used in the data collection. One designed for children and another for their respective parents. Structured questions were used to gather descriptive information. Thirty-six statements requiring responses to a five points Likert type scale ranging from (1) “strongly disagree” to (5) “strongly agree” were used to measure parent’s consumer decision-making styles; and parent’s communication quality. The statements used in these measures were respectively adapted and revised from Sproles & Kendall (1986) Consumer Style Inventory and Barnes & Olson’s (1982) Communication Scales. Another twenty-one statements requiring responses to a five points Likert type scale ranging from (1) “never” to (5) “very often” were used to measure parent’s consumer practices and parent-child consumption interactions. The statements used in these measures were respectively adapted and revised from Moschis (1978) Consumer Activity Scales; and Lichtenstein, Netemeyer & Burton (1990), and Moore & Stephen’s (1975) Consumption Interaction Scales. To gather information on demographic information, parents were asked to respond to structured questions at the end of the research questionnaire that include parent’s occupation, income brackets and the amount of pocket money given to the participating child. As for child questionnaire, thirty three statements requiring responses to a five points Likert type scale ranging from (1) "never" to (5) "very often" were used to measure child independent purchase experience, child purchase behavior and child-parent consumption interaction. The statements used in these measures were respectively adapted and revised from Moschis and Churchill’s (1978) Consumer Activity Scales; Lichtenstein, Netemeyer & Burton (1990); and Moore & Stephen’s (1975) Consumption Interaction Scales. Another twelve statements requiring responses to a five points Likert type scale ranging from (1) “strongly disagree” to (5) “strongly agree” adapted and revised from Barnes & Olson (1982) Communication Quality Scales were used to measure children communication quality. A set of nine questions requiring combinations of open ended questions, “yes” and “no" responses, never, sometimes, and always responses and very unlikely, maybe and very likely responses were included in the children’s questionnaire to respectively measure child financial resources and consumption autonomy. The selections of questions were based on recommended text on How Children Learn to Buy by Ward, Wackman & Wartella (1977). Both parent and child questionnaires were pre-tested among thirty families randomly selected from the Klang Valley area. Minor revisions were made after the pretest, and the revised questionnaires were circulated among three instructors at the Department of Marketing of University Putra Malaysia for content validation. For identification purposes, a common reference number were assigned to each pair of parent/child questionnaires prior to the actual data collection week. 544 This study used purposive sampling method to collect the data. Field interactive and personal interview method was employed in order to provide prompt responses, encourage child and parent participation and eliminate no-response tendency. All primary data collected from completed questionnaires were tabulated and coded after the survey has been conducted. All coded data were then entered into Statistical Package for Social Science (SPSS) software. Data analysis was conducted in several stages. In the first stage of analysis, descriptive statistics were used to calculate the frequencies, means and standard deviation for the variables. Then, Pearson Product Moment Correlation was used to test the hypotheses. RESULTS Demographic Characteristics of Child Samples Equal numbers of child samples were respectively taken from the cities of Kuala Lumpur, Johor Bahru, Penang and Kuantan. The ages of participating child ranged from 9 to 14 years old, 40% of which were male and 60% female. The mean age of participating child was 12.6 years old. To represent the multi-ethnicity of the urban population, equal numbers of parent-child respondents were selected from three major races of Malaysia comprising of the Malays, Chinese and Indians. Based on the survey data, in terms of child ranking in the family, 46% of the children were the eldest child in the family, 26% were second and 22% were either third or fourth child in the family. The average number of siblings reported by the respondents was 3. Half of the respondents have 3 to 4 siblings. Table 2: Demographic Characteristics of Child Samples Demographic Characteristics of Child Samples Demographic Variables Cities: Kuala Lumpur Johor Bahru Penang Kuantan (Total) Child’s Gender: Male Female Frequency % 75 75 75 75 (300) 25 25 25 25 (100) (Total) 120 170 (300) 40 60 (100) (Total) 45 105 150 0 (300) 15 35 50 0 (100) (Total) 100 100 100 (300) 33.3 33.3 33.3 (100) 138 46 Child’s Age 9-10 years 11-12 years 13-14 years Others Race: Malay Chinese Indian Child Rank: 1 545 2 3 4 Others (Total) 78 30 36 18 (300) 26 10 12 6 (100) (Total) 66 162 60 9 3 (300) 22 54 20 3 1 (100) Number of Siblings: 1-2 3-4 5-6 7-8 9-10 Demographic Characteristics of Parent Samples Based on the survey data, 52% of the parent’s questionnaires were completed by the mother, 37% by the father and the balance 11% by both father and mother. As expected, the respondents’ religious belief directly corresponds with the respondents’ racial breakdown, with the Malays being Muslim and the Indians being Hindu followers. As for the Chinese, from the total respondents of 75 people, 24% of them were Christian and 76% were Buddhist followers. It was also found that 6% of the respondents were single parent and the remaining 94% were married couples. For the married couples, the average number of years they have been married was 18 years with 8% being married for less than 13 years, 38% between 13 to 16 years, 25% between 17 to 20 years and 29% for more than 20 years. The ages of the fathers’ ranged from 30 to 73 years old, with the mean being 44.6 years old. For the mother, the ages ranged from 26 to 68 years old with the mean age of 36 years old. Table 3: Demographic Characteristics of Parent Samples Demographic Characteristics of Parent Samples Demographic Variables Frequency % (Total) 111 156 3 (300) 37 52 1 (100) (Total) 102 24 75 96 3 (300) 34 8 25 32 1 (100) 18 282 (100) 6 94 (100) 24 114 8 38 Participating Parent: Father Mother Father & Mother Religion: Muslim Christian Buddhist Hindus Others Parent’s Status: Single Dual (Total) Years Married: 9-12 years 13-16 years 546 17-20 years 21-24 25 years and above (Total) 75 39 48 (300) 25 13 16 (100) (Total) 3 99 147 51 (300) 1 33 49 17 (100) (Total) 15 153 120 12 (300) 5 51 40 4 (100) Father’s Age: 30 years and below 31-40 years 41-50 years 50 and above Mother’s Age: 30 years and below 31-40 years 41-50 years 50 and above 547 Hypotheses Testing Pearson Product Moment Correlation was used to test the two hypotheses discussed in this study. Hypothesis 1 H1: There is a positive relationship between parent consumer decision-making styles and the strength of children attitude towards; (a) brand, (b) price, (c) store, and (d) salesperson factor when evaluating products and making final purchase decision. As seen from table 4, the correlation coefficients for parents’ decision-making styles and children attitude towards brand against for brand, price, quality, recreational shopping and impulsiveness are sufficiently large to support hypotheses 1(a), (b), (c), and (d). Parents’ consumer decision styles of confused by over-choice are found to be significantly related in the opposite direction against brand, price, and store factor. The inverse relationship indicates that parent’s non-predictable behaviors may lead to lower children’s evaluations and expectation for brand, price, and store and hence their influences over children’s product purchase attitudes. The results from this table revealed that children tended to follow their parent decision-making styles in deciding what product to choose when performing their consumer roles. The positive relationship between parents reported consumer styles and children purchase attitude are direct indication of parental influences on children consumption attitude and purchase behavior outcome pattern. Table 4: Relationship between Parent Consumer Decision Making Styles And Strength of Children Attitude Towards; (a) Brand; (b) Price; (c) Store; and (d) Salesperson Independent Variables: Parent Decision Making Styles Child Attitude Towards Brand Child Attitude Towards Price Factor Child Attitude Towards Store Child Attitude Towards Salesperson Brand Conscious 0.245*** 0.225** 0.275*** 0.292*** Price Conscious 0.250*** 0.297*** 0.221** 0.255*** Quality Conscious 0.224** 0.219** 0.228** 0.248*** Recreational Shopping 0.213** 0.196** 0.195** 0.205** Impulsiveness 0.197** 0.199** 0.198** 0.196** Confused by Over-choice -0.170* -0.171* -0.175* 0.169* *** Correlation coefficient significant at p<0.01 ** Correlation coefficient significant at p<0.05 * Correlation coefficient significant at p<0.1 Hypothesis 2 H2: There is a positive relationship between parent consumer practices and activism and the strength of children attitude towards; (a) brand, (b) price, (c) store, and (d) salesperson factor when evaluating products and making final purchase decision. 548 To test the hypothesized relationships between parent consumer practices and activism and the strength of children attitude towards; (i) brand; (ii) price; (iii) stores; and (iv) salesperson when evaluating products and making final purchase decision, Pearson Moment Correlation coefficients were computed and analyzed. As seen from table 5, the correlation coefficients for children attitude towards brand are positively significant at p<0.01 for parents’ preferences towards product, producer, brand, and price. The correlation coefficient is at p<0.05 for parents’ preferences towards stores and salespeople factor. Similarly, the correlation coefficients for children’s attitude towards price are positively significant at p<0.01 for parents’ preferences towards product, producer, brand and price factor and at p<0.05 for parents’ preferences towards stores and salespeople factor. The correlation coefficients for children’s attitude towards store are found to be positively significant at p<0.01 for parents’ preferences towards product, producer, brand and price factor and at p<0.05 for parents’ preferences towards stores and salespeople factor. Similarly, the correlation coefficients for children’s attitude towards salespeople are positively significant at p<0.01 for parents’ preferences towards product, producer, brand and price factor and at p<0.05 for parents’ preferences towards stores and salespeople factor. Thus, the results from table 5 directly supports the general belief that family consumer practices and activism provides opportunities for children to learn and enhance their consumer roles. The results also revealed that children tended to follow their parents’ consumer practices when deciding what product to choose when performing their consumer roles. Table 5: Relationship between Parent Consumer Practices and Activism And Strength of Children Purchase Attitude Towards; (a) Brand; (b) Price; (c) Store; and (d) Salesperson Factor Independent Variables: Parent Consumer Practices and Activism Child Attitude Towards Brand Child Attitude Towards Price Child Attitude Towards Store Child Attitude Towards Salespeople Product Preference 0.265*** 0.249*** 0.278*** 0.265*** Producer Preference 0.243*** 0.238*** 0.251*** 0.238*** Brand Preference 0.238*** 0.242*** 0.235*** 0.258*** Store Preference 0.198** 0.195** 0.198** 0.197** Salespeople Factor 0.215** 0.197** 0.195** 0.205** Price Factor 0.255*** 0.230*** 0.242*** 0.251*** *** Correlation coefficient significant at p<0.01 ** Correlation coefficient significant at p<0.05 * Correlation coefficient significant at p<0.10 DISCUSSION Table 6 summarizes the results of the hypotheses testing. The two hypotheses relating to parental behavioral characteristics such as parent consumer decision-making styles and parent consumer practices and activism have significant effects on children consumption attitudes. These findings seem to support hypotheses one 549 and two, and reveal that children tend to follow their parent behavioral characteristics when performing their consumer roles and hence confirming parental modeling roles on children consumption attitude, behavior intention and purchase behavior outcome patterns. Table 6: Summary of Hypotheses Testing Hypotheses Result H1 : There is a positive relationship between parent consumer decision-making styles and the strength of children attitude towards; (a) brand, (b) price, (c) store, and (d) salesperson factor when evaluating products and making final purchase decision. H2 : There is a positive relationship between parent consumer practices and activism and the strength of children attitude towards; (a) brand, (b) price, (c) store, and (d) salesperson factor when evaluating products and making final purchase decision. Significant Significant In this study, parent specific variables refer to parent consumer decision-making styles and parent consumer practices and activism. Parent consumer decision-making style is a reflection of parent’s attitude to making choices. It is a basic consumer personality facilitated through communication of decision behaviors and product information to their respective children, which this study has confirmed. Parent consumer practices and activism reflects the frequency of parent’s engagement in consumer activity ranging from budgeting, comparison-shopping, money management, buying, and usage of products and services in a rational and efficient way. The findings of this research have confirmed that every kind of parent’s consumer behavior and practices has a chance to be observed and imitated by their children. IMPLICATIONS The findings of this study shall increase the general understanding of family decision-making and its impact on various environmental and social characteristics within the decision structure. The findings shall provide useful information with significant implications and contributions to consumer educators, marketing practitioners, public policy makers and students of consumer behavioral studies. The result of this study has confirmed the proposition that parent consumer practices and activism tended to influence children’s consumer behavior pattern by providing an enriched environment for children to live, interact, observe and imitate every kind of consumer behaviors practiced by their respective parent. The result is consistent with previous research which found positive association between parental consumer practices and teenager / adolescent’s attitudes towards products The result of this study also revealed that parent consumer decision-making styles tend to influence children consumer behavior patterns through indirect teaching and display of various parent consumer styles and characteristics in their daily interaction. The study has observed that parents normally uses consumption interactions opportunities within the family unit to indirectly teach the various consumption skills that were later imitated and practiced by their children to make desirable purchase decisions. The results are consistent with previous studies done by Sproles & Kendall (1990) which found significant relationship between consumer decision making styles and consumer learning styles; Baumrind (1980) which found significant relationship between parental styles and children habits, insight, imitation, value inclination and consumer socialization; Grosbart, Carlson & Walsh (1991) which found significant relationship between parental 550 consumer practices and children consumption skills; Ward et. al., (1977) and Moore & Stephens (1975) which found that every kind of consumer behavior by the parents have a chance to be observed and imitated by their children. CONCLUSION In conclusion, this research provides meaningful information on children consumer activism and parental influence on children consumer learning. As recognized by earlier researchers, studies on consumer roles acquisition among young children would be useful in understanding the various socialization factors that may influence children consumer learning. 551 DETERMINANTS OF LEBANON’S ICT EXPORT COMPETITIVENESS: EVALUATING A COUNTRY’S READINESS TO EXPORT ICT Tony Feghali Shireen Halawani American University of Beirut ABSTRACT Many models exist that assess how healthy the ICT industry of a country is. This paper ventured a step further and constructed an ASEP Export model which acts as an assessment tool for the readiness of a country to export ICT. Based on ASEP’s eReadiness Model, indicators were revisited and the model was downsized to a firm’s level in order to measure the e-readiness of firms to export ICT. Exportrelated indicators were derived from a study conducted by SRI International. This model quantifies the value of the country’s readiness to export ICT by calculating the aggregate of all exporting firms’ ereadiness and export competitiveness. The results obtained from redefining the ASEP E-Readiness model and modifying it to incorporate export indicators resulted in the ASEP Export model. The numeric value achieved after computing the developed model represents the readiness index for countries to export ICT. INTRODUCTION Information and Communication Technology (ICT) is a critical factor for a country’s development; not only for its economical importance, but because everyday practices, experiences, and values are incorporated into ICT. For a country to gain a substantial competitive advantage from the ICT revolution it has to become involved in ICT production and export. Otherwise, it will lose the opportunity to participate in a very dynamic market. However, developing a local ICT industry and competing in international markets is a very complicated process. Unlike other industries, ICT export can occur through a variety of means including oral communications, written documentation, or transfer of computer software to foreign enterprises. Technology transfers to foreign nationals while they are visiting a country are also considered exports (Noriega, 1993). Many developing countries like Chile and India have already adopted an explicit commitment to ICT export; and consequently developed policies and strategies to promote it. Yet the problem facing these countries is not only the external barriers that they have to overcome when engaging in ICT export; rather, it is the internal situation of their country’s readiness to export. The purpose of this paper is to build a model that acts as an assessment tool for the readiness of a country to export ICT while using as a base a model developed by Feghali, et al (2005). The set of indicators constructed are derived from Feghali, et al (2005) and a Stanford Research Institute (SRI) study completed in 2004 to assess the capabilities, competitiveness, and export orientation of Lebanon ICT industry (SRI International, 2004). Data for these indicators have been collected and used to calculate the “Readiness of the country to export ICT”. In this study, the data collected was from Lebanon’s ICT industry. CURRENT PERSPECTIVE ON LEBANESE ICT INDUSTRY & EXPORT The size of Lebanon’s ICT sector is estimated to be around 1.5 billion US dollars (Dagher, 2001). This sector has been quickly expanding over the last few years, averaging around 15% in annual growth, with an estimated annual turnover of 250 million dollars. Today, the sector includes around 500 companies that employ more than 5000 professionals and engages over 1200 ICT students in Lebanese universities and technical institutes (Zeidan, 2004). Investment in the ICT sector is gradually increasing. Several investment houses demonstrated interest in backing ICT ventures in 1999. Moreover, the central bank of Lebanon encourages banks to provide loans to small and 552 medium enterprises (SMEs) involved in ICT development (Zeidan, 2004). ICT Policies and Strategies Governments are the primary actors in the development of information technology. They need to develop their own national vision, devise national strategic frameworks, establish national priorities, and create an encouraging environment for the rapid diffusion, financing, development, and use of information and communication technology (WSIS Preparatory Committee, 2003). Proper ICT strategic planning will help improve a country’s overall economic conditions and contribute to social advancement. In an ESCWA report about the “Regional Profile of the Information Society in western Asia, Lebanon’s ICT policies and strategies were compared to those of neighboring Arab countries. Lebanon ranked as “Maturity Level 1” which indicates that there is absence of a clearly articulated vision and national strategy, in addition to limited implementation plans and initiatives (ESCWA, 2003). Legal and Regulatory Framework The existence of a supportive and predictable legal framework is an important prerequisite for enhancing trust in ICT and e-business in order to promote its development and dissemination. Although there is a consensus that the current legal infrastructure is generally applicable to electronic transactions, most national laws were developed in the absence of electronic systems. In fact, e-business raises a number of legal issues, questions and uncertainties concerning the validity, legal effect and enforceability of transactions conducted through electronic means, in a legal environment based on paper. Other areas involving legal issues relevant to electronic transactions include: data protection, taxation, custom duties, security and authentication, intellectual property rights, privacy, liability of Internet service providers, illegal and harmful content, Internet governance, electronic payment systems, consumer protection, jurisdiction, applicable law and dispute resolution mechanisms (WSIS Preparatory Committee, 2003). The legal and regulatory framework is a crucial component of the enabling environment necessary for ICT uptake. Intellectual Property rights and Privacy Status In 1999, Lebanon was the second Arab nation after the UAE to implement the literary and artistic rights law which is equivalent to the Intellectual Property Rights Law. Yet, Lebanon still needs to actively enforce this law since piracy is observed to be very widespread even though, by mid 2000, industry statistics have indicated that software piracy has fallen from 93% to 88% (Feghali, 2003). Software Copyright Protection A key condition for the development of a healthy software development industry in Lebanon is the copyright law. It would promote the local software industry and help in stimulating the whole of ICT related activities. Lebanon is a member of the World Intellectual Property Organization (WIPO) and is making an effort to enforce Intellectual Property Protection in conformity with WTO and WIPO agreements. The Lebanese Copyright Law of 1999 updated the national protection of copyright and neighboring rights to new technologies. Although Lebanon is trying its best to crack down on software piracy, much remains to be done. Evidential & electronic signature laws Electronically facilitated business, or what is known as e-business and e-commerce, is booming world wide. Recognizing electronic documents and electronic signatures as equivalent to the traditional paper based ones is very crucial for the development of a more ICT conscious and e-business driven society. Draft legislation related to the Evidential Law in Lebanon was submitted to the Council of Ministers in 2000. It amends some of the articles related to evidence in legal proceedings and recognizes electronic signatures (Dagher, 2001).There are many other obstacles in the way of real e-commerce evolving in Lebanon. Poor legislation covering e-Activity, low number of credit card users, complex import/export procedures, high duties and unreliably slow means to deliver goods are some. According to an ESCWA report, Lebanon’s legal and regulatory frameworks are increasingly updated and adapted, yet the enforcement is still very poor (ESCWA, 2003). 553 ICT Infrastructure While technology is significantly improving and costs are decreasing, it is important to ensure that access to information is available to all segments of the population. This fact is still not the case in Lebanon where rural communities and poor strata of the population still cannot afford information services. Additionally, the region did not implement an ICT backbone to facilitate the exchange of business between countries. The development of the infrastructure necessary for connectivity requires complementarities between determined government policies to ensure connectivity and private sector participation (WSIS Preparatory Committee, 2003). Building the ICT Sector Building and developing the ICT sector is a function of strategic and operational planning and choices. The Lebanese ICT sector consists of about 500 computer related companies. Their activities range from personal computer distribution to computer programming to training centers and integrated system solution providers. Many ISO-certified software companies are currently developing packaged and customized systems for local and international markets (Feghali, 2003). Lebanon has 200 Lebanese software suppliers specialized in specific sectors such as health, banking, educational, insurance and other sectors. These firms have started exporting their products since the local market is limited and was quickly saturated. A software export industry is sometimes seen as a means by which some non-industrialized countries can create competitive advantage (Abbott, 2004). An ESCWA (2003) report indicated that the private sector and the government have established local ICT firms that if properly developed can constitute a competitive ICT sector that is capable of competing in regional and international markets. The report indicates that Lebanon’s: • Private sector is vibrant and is creating some local ICT firms • Government facilitation is efficient and measures like tax breaks are successful • Import and export of ICT products is fairly liberal State of Software development in the Lebanese ICT Sector Lebanese software development companies are aware of the growing need to create and develop software products that facilitate Lebanon’s participation in the ICT revolution (Dagher, 2001). To examine the state of the ICT sector in Lebanon, one must touch upon the software development aspect of ICT that is geared towards the Internet and which is an important driver of the ICT boom around the world. The migration of software houses from standard applications development to websites and web application development enables them to reach wider markets. Previously, those software houses specialized in database development, point of sale and accounting applications (Dagher, 2001). Lebanese web companies are the leaders of web development in the Middle East. Like their ISP counterparts, web design houses have polished their expertise, being newcomers in the region, to export their skills to surrounding countries. They were instrumental in helping companies in Syria, Egypt and KSA set up their services. Some of these small companies, with limited resources, have succeeded in attracting external funds to expand regionally and to the European continent (Dagher, 2001). ICT Firms Capabilities In March 2004, SRI International conducted a study on the ICT industry in Lebanon, to determine the core capabilities, comparative advantages, and growth prospects domestically and for export (SRI International 2004). SRI International surveyed 146 IT companies in Lebanon. The study reports findings on performance, exports, market access and quality orientation. In terms of performance, the Lebanese ICT industry grew at over 12.5 % per year from 2002 to 2004. Small ICT firms reported the highest annual growth rate (24.5%), medium firms (19.1%) and large firms (11.5%). In terms of the average annual growth rate, the software sector (22.9%) was positioned far ahead the hardware sector (7.7%) and even ahead firms engaged in both hardware and software. 554 Exporting technology was highlighted in the SRI report. Over half of the firms reported that at least 10% of sales resulted from activities outside Lebanon with 15% of the ICT firms being export-focused with more than three quarters of their sales coming from business outside Lebanon. Software companies were found to be more active in exports than the rest. In high-technology industries, exports can be the key driver of growth for even small firms unlike traditional industries where large matured firms have the highest engagement in export activities. Thus, small and medium enterprises reported similar exposure to export markets as compared to their larger counterparts. According to the survey, the most preferred destination of Lebanese ICT export is the Middle East region: Mainly, Syria, Jordan, and Dubai (PCA, 2005). Some firms indicated exposure to the European market such as to Italy and France. In terms of market access, it was reported that the most frequent means to generate new business leads is through business referrals. 47% of all respondents had participated in tradeshows, and 106 out of the 146 respondents have a website while the rest are planning to build their own soon. As for quality orientation of the firms surveyed, 70% of the respondents have dedicated employees for quality improvement and to ensure that production and delivery standards are met. Finally, eight out the 146 respondents have reported to have completed the ISO 9000 certification. METHODOLOGY Many models exist that assess how healthy the ICT industry of a country is. This research takes this a step further and constructs a model, based on the ASEP model (Feghali et al., 2005), to measure how well a country’s performance with regard to ICT export is. The ASEP Model quantifies 103 indicators that calculate an overall ereadiness index for a country with geometric visualization. Using the exploratory research technique (Zikmund 2003) to seek its findings, this study measures how “ready” a country is to export ICT by computing an aggregate of all exporting firms’ e-readiness and export competitiveness. This study used the ASEP E-Readiness model and downsized it to a firm’s level in order to measure the e-readiness of each firm to export ICT. The ASEP model indicators were redefined at the firm’s level and all export-related indicators were derived from a study conducted by SRI International (2004) to assess the capabilities, competitiveness, and export orientation of Lebanon’s ICT industry. The results obtained from redefining the ASEP model at a firm’s level and modifying it to incorporate export indicators led to the Modified ASEP model for ICT Export. The list consisted of 58 indicators divided into clusters and distributed over the 4 main categories based on Hunt’s criteria for evaluating a classification or categorization schema (Hunt 1976). (Exhibit I lists the indicators and their definitions) Cluster analysis was applied on the gathered indicators to classify them into a number of mutually exclusive groups according to their likeness to each other. The 58 indicators were categorized into 13 clusters placed into four main categories. Exhibit I lists the 4 categories with their respective clusters and indicators. In data collection, the convenience sampling approach was used in selecting the firms to survey, where the selection of sampling units is left primarily to the interviewer (Malhotra & Birks, 2003). The companies selected were chosen according to the personal judgment of the interviewer and in this case on the reputation of the professionalism of the firms and the managers being interviewed. A sample of 20 firms was selected for the study. Individual interviews were conducted with 20 managers from 20 ICT firms in Lebanon. Out of the 20 IT firms, all of them except 3 replied to all questions in the survey. The selected professionals were also asked to rank the indicators under each cluster in each category according to their relevance to the readiness of a firm to export ICT. The results showed a high degree of consistency among all respondents in ranking the indicators. 555 THE ASEP EXPORT MODEL The ASEP model’s main categories at a firm’s level are: • Access & Infrastructure: ICT infrastructure refers to any channel or mean by which data of any kind can be sent, channeled or received. Access deals with the possibility of individuals and companies to access the infrastructure regardless of its quantity or quality. • Social Framework: This category refers to the social characteristics of a firm (labor, research, culture, quality orientation, etc). The social framework describes the strategies and environment the firm enforces. • Economic Framework: Economic framework refers to the firm’s industry dynamics and performance. This category encompasses a firm’s market orientation, investment, and expenditures. • Policy (Regulatory Framework): The legal and regulatory framework is a crucial component of the enabling environment necessary for ICT uptake. Policy is the extent to which the legal infrastructure promotes or delays the growth of ICT adoption and its use. In constructing the ASEP ICT export model, this study uses the same methodology used in the ASEP E-Readiness model (Feghali et al, 2005). The quantitative measure of the “E-readiness” of a Country to Export ICT (y) depends on the set of indicators that are listed in Exhibit I. Thus, y is a function of several variables in the form of y = f ( x1 , x2 , …, xk ) . Each variable will, theoretically, have n recorded observations corresponding to the n consecutive years for which data are collected for the variables. This results in a n × k data set. Data was collected for the ICT industry in Lebanon over a period of one year 2004-05 from 20 companies; thus n = 1. The rest of this study will demonstrate how the model will perform for the data collected during this year. For comparison purposes, data for the next year should be collected and inserted in the model in order to understand how the country’s readiness to Export ICT is developing. Step 1: Ranking 20 professionals in the ICT industry ranked the indicators according to their relevance to the “Readiness to Export ICT”. The highest ranked variable is denoted by x1 and the second highest x2 . This process continues until all k variables were given respective names according to their rankings. Exhibit II gives the rankings as per the Lebanese ICT experts. In order to get an indicative value that represents each indicator in the current year, the average of the 20 responses collected for each indicator (variable) was calculated. This number represents the value of this indicator for the country as a whole, if we assume that the sample of 20 ICT firms represents Lebanon’s ICT industry. The values of the responses for each indicator were normalized and scaled down to take values between 0 and 1. In normalizing, the value of each response was divided by the maximum value that the indicator can take. For example, the maximum answer that the bandwidth indicator can take is (4) thus each of the 20 responses was divided by (4) in order to scale it down to a value between 0 and 1. Exhibit III gives a sample of the normalized data and its respective calculations. Step 2: Correlation Analysis We are interested in calculating the correlation between 2 consecutively ranked variables xi and xi +1 , for i = 1,2, … , k . Although the x1 , x2 ,…, xk are variables that promote ICT export, the coefficient of correlation between some of these variables might be negative since a correlation coefficient is a number between -1 and 1. Exhibit IV gives one example of a negative correlation between two variables from the Infrastructure cluster under the category Access. The correlation coefficient between Bandwidth and Regional Satellites is -.648. These 2 variables are strongly negatively correlated since companies who reported dependence on the Regional Satellite had 556 a lower bandwidth than others. For more correlations, see Exhibit V. Step 3: Constructing the Figure Since the correlation coefficient is denoted by the cosine of the angle formed between 2 consecutive variables, then for each i = 1,2, … , k , there exists an angle θ i ∈ (0, π ) such that cos θ i = ri ,i +1 , is the correlation coefficient of xi and xi+1 . Since it is possible that angles between indicators might add up to more than 360° exceeding a full 2π cycle, we therefore define the angle α i , i = 1,2, … , k by: α i = k ⋅θi . ∑θ i =1 i In order to construct the graph that relates to each cluster of indicators under the four main categories, this method starts by placing the first ranked variable x1 on horizontal axis (x-axis), pointing to the right, and drawing an angle α1 with variable x2 in the counter clockwise direction. One proceeds to draw the rest of the angles until one includes all the variables on the graph. The last step will be to plot the calculated averages for each indicator and join them together to construct a polygon. Exhibits VI list a sample angle and area calculations. Exhibit VII gives the respective visual representation of that cluster. As discussed earlier, the area of the polygon is the quantitative measure of y (y being the “readiness of a country to export ICT”), and y is a function of a set of indicators x1 , x2 , … , xk . The procedure is repeated for every cluster. y is the sum of all the areas of the four main categories as calculated by Area = 1 k ∑ xi n xi+1,n sin α i . 2 i =1 Since the area of a circle is equal to πr2, the radius of the circle formed by this area is calculated. As the circle of radius r expands and contracts over subsequent years, one gets a clear picture of the country’s progress in terms of ICT export. Exhibit VIII represents the radii of the circles representing the four categories: Access, Social framework, Economic framework, and policy. The value and graph of the ASEP Export model might change through time: • Changes in the ranking of indicators: Over time, some indicators might gain more value and relevance to ICT Export than others. • The value of the variables will change, which will cause the area of the polygon to change. • The above will lead to a change in the correlation coefficient changing the angles between 2 subsequent variables or indicators. Changes in rankings that might occur in the future will change the sequence in which these variables are plotted on the graph and consequently changes the correlations used in constructing the figures. Therefore, to properly compare the progress that a country has achieved with regard to ICT export, the model has to assume the same rankings for a small period of time before the ranking is reevaluated. HOW TO USE THE ASEP EXPORT MODEL When using this model, there are few points that should be taken into consideration: • This study uses its own scaling technique for trial purposes. Each variable was divided by the maximum value it 557 can take in order to reduce it to a number between 0 and 1. In order to make a sound comparison between consecutive years, the same scaling technique should be used; otherwise, the numbers calculated will be misleading. • In developing this model, this study used the data collected during a period of 1 year which led to calculate the area of the circle formed by plotting these data on the constructed graph. For this number to be meaningful it should be compared to the area computed using subsequent years’ figures. • If this model is to be used in comparing the ICT export capabilities between countries, the same process has to be adapted in both places. The indicators and their rankings have to be kept as is. • This study uses a sample size of 20 ICT companies. To get more accurate results, the sample size should be increased to include a larger sample size of ICT firms (exporting and non-exporting) in a country. The ASEP Export Model acts as a complement to the ASEP E-Readiness Model. If these models were put together, one would be able to come up with a complete ICT industry assessment process that can be presented to the appropriate decision-makers in a country. This necessitates that data be collected every year and plugged into the above model in order to compare the outcomes and decide how well the country is performing in the ICT sector with respect to previous years. A very important aspect should be taken into consideration; the index (area in this model) alone is not an indicator of how well the industry as a whole is doing. The number (y) by itself might increase from a year to another, but that might be the result of a major boom in one of the main categories. For example, the companies’ Social Framework might develop tremendously over the duration of one year due to the management’s high investment in training employees and spending on R&D. Yet, the Infrastructure of these companies might have deteriorated due to high cost of technology investment and maintenance. CONCLUSIONS AND RECOMMENDATIONS The ICT industry is a booming industry worldwide. Countries are competing to establish themselves as ICT hubs in the respective regions, which makes it critical for them to have a way of measuring how healthy their ICT export capabilities are. In this study, the authors modified the AESP E-Readiness Model to measure the readiness of a country to export ICT. The indicators collected and used in this model lay the framework for governments to act on promoting the ICT Export in their country. This model assesses the situation of a country in comparison to previous years and highlights the internal barriers that hinder the promotion of ICT export so that the government can have a clear and detailed picture of where it stands and how well is its ICT strategies. Yet, this model can only compare the country’s situation to itself over the years. In order to use it in comparing the situation across countries, the same process and model should be adapted in the other countries. In this case, alignment will have to be exercised to use the ASEP Export model. 558 Exhibit I: List of Indicators and their Definitions Indicator 1- Access 1.1 Infrastructure Fiber Optic Connectivity (Local) Definition Metric A transmission medium consisting of thin glass filaments. Light Yes/No beams travel through the fiber optic line, carrying large amounts of data over long distances at the regional level Bandwidth How much information can be carried in a given time period (usually Mbps a second) over a wired or wireless communications link. Network Node Switching center used in data networks, particularly in the context of Yes/No packet-switching. Regional Satellite Yes/No 1.2- PCs And Internet Diffusion Access to internet Company has access to the Internet but who may not necessarily use Yes/No it. Awareness of Internet Company aware of the Internet. Yes/No Computers per company This indicator includes self-contained computers for use by a single Number company. Internet hosts per company Those are computers with active Internet Protocol (IP) addresses Number connected to the Internet. Company has website Company has online presence. Yes/No Secure servers Secure servers are servers using encryption technology in Internet Yes/No transactions. 1.3- Network Speed and Quality Cable lines Coaxial cable is the kind of copper cable used by cable TV Yes/No companies between the community antenna and user homes and businesses. DSL lines Digital Subscriber Line is a technology for bringing high-bandwidth Yes/No information to homes and small businesses over ordinary copper telephone lines. ISDN lines Integrated Services Digital Network is a set of CCITT/ITU standards Yes/No for digital transmission over ordinary telephone copper wire as well as over other media. Leased lines A leased line is a telephone line that has been leased for private use. Yes/No 2- Social Framework 2.1- Labor and Employment(Human Resources) No. of employees Total no. of employees in the firm Entrepreneurship among If managers of the company generally have a sense of managers entrepreneurship. Training Employees Firm provides training for employees No. of technically Certified Number of Employees with certifications from Microsoft Employees Deployment of Tech Firm deploys technical workers on site at client’s premises to execute workers on Site software or hardware installation tasks 2.2- Research Research collaboration If “company collaborate closely with local universities in research between companies and and development activities” in their country. universities Scientists and Engineers in Scientists & Engineers engaged in the conception or creation of new R&D in ICT knowledge, products, processes, methods and systems, and in the planning and management of R&D projects. 559 Number Scale(1-6) Yes/No Number Yes/No Scale(1-6) Number Indicator 2.3- Culture English Language Definition Metric The factor is based on the assumption that common use of the English Scale(1-6) language facilitates the adoption of electronic commerce. Flexibility of people to adapt to changes Scale(1-6) if the company’s culture is open to foreign influence. Scale(1-6) Flexibility of people Company culture is open to foreign influence 2.4- Quality Orientation Firm has any Firm has received any kind of production/quality certification (ex: production/quality ISO, COPC 2000, etc.) certification Firm has dedicated staff Staff work as part time or full time in the company Firm hires Firm engages experts/consultants in order to improve productivity. experts/consultants for quality check 3- Economic Framework 3.1- Firm Core Capabilities Firm core domain of The domain of the firm’s operation or that the firm supports (ex: operation health, education, etc.) Core Capabilities The core services that the firm conducts (ex: coding, hardware sales, etc.) 3.2-Economic Performance(Firm Size And Growth) Annual sales Firm’s annual sales Average Growth rate in Firms average growth rate in sales in the last 2 years Sales Average annual return on Firm’s average annual return on sales over the last 2 years Sales Percentage of Annual Percentage of firm’s annual sales derived from activities outside Sales derived from Lebanon activities outside Lebanon Percentage of Annual sales Percentage of firm’s annual sales derived from sales to businesses derived from sales to businesses Percentage of Annual Percentage of firm’s annual sales derived from direct sales as against Sales derived from direct channel sales sales as against Channel sales 3.3-Investment and Expenditures(Market Orientation & Financing) Company Spending on If “company invest heavily in research and development relative to R&D their international peers”. Market Penetration method How does the Firm generate leads with potential clients (ex: Door to door, company seminars, etc.) Firm conducts local sales Leads generated led to potential clients inside Lebanon Firm conducts Leads generated led to potential clients outside Lebanon international sales Firm participates in Firm participates or is planning to participate in International Events International Exhibitions (ex: Gitex, Termium, etc.) Firm receives financing Firm receives financing from venture capital, bank loans, etc. 3.4- Trade(Industry Dynamics) 3.4.1- Sales Low price Firm competes for customer sales using Low Price High Quality Firm competes for customer sales using High Quality Quick Delivery Firm competes for customer sales using Quick Delivery After Sales Service Firm competes for customer sales using After Sales Service 560 Yes/No Yes/No Yes/No Number Number Number Number Number Number Number Number Scale(1-6) Number Yes/No Yes/No Yes/No Yes/No Scale(1-6) Scale(1-6) Scale(1-6) Scale(1-6) Indicator Customization 3.4.2 – Export Export policies and procedures Customer awareness on Lebanese ICT capabilities Competitiveness in quality Competitiveness in price Technical skills/ availability of Technical workers Management skills 4- Policy 4.1- IPR Enforcement Control of corruption Copyright law E-commerce law (or # of laws related to ecommerce: LAMIS) E-signature Piracy rate Trademark law Definition Firm competes for customer sales using Customization to suit customer needs Metric Scale(1-6) To what extent does the export policies and procedures act as an obstacle to the growth of Lebanese IT exports To what extent does the Customer awareness on Lebanese ICT capabilities act as an obstacle to the growth of Lebanese IT exports To what extent does the Competitiveness in quality act as an obstacle to the growth of Lebanese IT exports To what extent does the Competitiveness in price act as an obstacle to the growth of Lebanese IT exports To what extent does the Technical skills/ availability of Technical workers act as an obstacle to the growth of Lebanese IT exports Scale(1-6) Scale(1-6) Scale(1-6) Scale(1-6) Scale(1-6) To what extent does the lack of Management skills act as an obstacle Scale(1-6) to the growth of Lebanese IT exports This indicator measures corruption, for example by the frequency of “additional payments to get things done”, and the effects of corruption on the business environment. Copyright is the ownership of an intellectual property within the limits prescribed by a particular nation's or international law. E-commerce is the buying and selling of goods and services on the Internet, especially the World Wide Web. Scale(1-6) Scale(1-6) Scale(1-6) An electronic signature can be used to authenticate the identity of the Scale(1-6) sender of a message or the signer of a document, and possibly to ensure that the original content of the message or document that has been sent is unchanged. Software piracy is the illegal copying, distribution, or use of software. % A trademark is a distinctive sign which identifies certain goods or services as those produced or provided by a specific person or enterprise. 561 Scale(1-6) Exhibit II: Ranking of Indicators 1- Access 1.1 Infrastructure Bandwidth Network Node Regional Satellite Fiber Optic Connectivity (Local) 1.2- PCs And Internet Diffusion Secure servers Awareness of Internet Access to internet Computers per company Internet hosts per company Company has website 1.3- Network Speed and Quality Leased lines DSL lines ISDN lines Cable lines 2- Social Framework 2.1- Labor and Employment(Human Resources) Entrepreneurship among managers Training Employees No. of technically Certified Employees No. of employees Deployment of Tech workers on Site 2.2- Research Scientists and Engineers in R&D in ICTs Research collaboration between companies and universities 2.3- Culture Flexibility of people Company culture is open to foreign influence English Language 2.4- Quality Orientation Firm has dedicated staff Firm has any production/quality certification Firm hires experts/consultants for quality check 3- Economic Framework 3.1- Firm Core Capabilities Core Capabilities Firm core domain of operation 3.2-Economic Performance(Firm Size and Growth) Average Growth rate in Sales Average annual return on Sales Annual sales Percentage of Annual sales derived from sales to businesses Percentage of Annual Sales derived from activities outside Lebanon Percentage of Annual Sales derived from direct sales as against Channel sales 3.3-Investment and Expenditures(Market Orientation & Financing) Market Penetration method Firm conducts international sales Firm conducts local sales Firm participates in International Exhibitions Company Spending on R&D Firm receives financing 3.4- Trade(Industry Dynamics) 3.4.1- Sales High Quality After Sales Service Customization Quick Delivery Low price 3.4.2 – Export Competitiveness in quality Competitiveness in price Technical skills/ availability of Technical workers Management skills Customer awareness on Lebanese ICT capabilities Export policies and procedures 4- Policy 4.1- IPR Enforcement Control of corruption Copyright law Piracy rate Trademark law E-commerce law (or # of laws related to e-commerce: LAMIS) E-signature 562 Exhibit III: Normalized Data and Averages Economic Framework Company 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Average Avg. Growth Rate 0.86 0.14 0.43 1 0.86 0.29 0.57 0.29 0.29 0.43 0.57 0.43 1 0.43 0.29 0.57 0.71 0.43 0.43 0.43 0.5225 Avg. Annual Return 0.82 0.09 1 0.55 0.82 0.91 0.55 0.82 0.18 0.64 0.91 0.91 1 1 0.09 0.91 1 0.82 0.64 0.55 0.7105 Annual Sales 0.57 0.14 0.71 0.43 0.43 0.43 0.43 0.71 0.14 0.43 0.71 0.71 0.57 0.57 0.43 0.43 0.71 0.57 0.71 0.43 0.513 563 Sales to Business 0.8 0.2 1 1 1 1 1 1 0.4 1 1 1 0.8 1 1 0.8 1 1 1 0.6 0.88 Outside Lebanon 0.6 1 0.2 0.2 1 0.6 1 1 1 0.6 1 1 1 1 1 0.6 1 1 1 0.6 0.82 Direct vs. Channel 0.6 0.2 1 1 0.6 0.6 1 1 0.8 0.8 0.8 0.2 0.6 1 0.2 0.8 0.6 0.8 1 0.6 0.71 Exhibit IV: Access (Infrastructure) table of correlations Bandwidth Regional Satellite Bandwidth 1 . 17 -.648(**) .005 17 Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N ** Correlation is significant at the 0.01 level (2-tailed). 564 Regional Satellite -.648(**) .005 17 1 . 20 Exhibit V: Correlations Tables Economic Framework Avg. Growth Avg. annual return Annual Sales Sales To Business Annual Sales Outside Direct Sales Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Pearson Correlation Sig. (2-tailed) N Avg. Growth Avg. annual return Annual Sales Sales To Business Annual Sales Outside Direct Sales 1 .416 .228 .288 -.229 .177 . 20 .068 20 .334 20 .218 20 .332 20 .456 20 .416 1 .737(**) .586(**) -.136 .335 .068 20 . 20 .000 20 .007 20 .568 20 .149 20 .228 .737(**) 1 .718(**) .025 .265 .334 20 .000 20 . 20 .000 20 .917 20 .259 20 .288 .586(**) .718(**) 1 -.094 .360 .218 20 .007 20 .000 20 . 20 .694 20 .1 19 20 -.229 -.136 .025 -.094 1 -.286 .332 20 .568 20 .917 20 .694 20 . 20 .222 20 .177 .335 .265 .360 -.286 1 .456 20 .149 20 .259 20 .1 19 20 .222 20 . 20 ** Correlation is significant at the 0.01 level (2-tailed). 565 Exhibit VI: Calculations Tables and Graphs Economic Framework Correlation 0.417454 0.740058 0.724524 -0.09397 -0.28553 0.177 198 sum = Theta 1.140154 0.73764 0.760452 1.664905 1.860359 1.392658 7.556169 Alpha 0.948073 0.61337 0.632339 1.38442 1.546945 1.158037 SinAlpha 0.812293 0.575627 0.591033 0.982682 0.999716 0.916018 566 x(I,n)* X(i+1,n) 0.371236 0.364487 0.45144 0.7216 0.5822 0.370975 sum = Areas 0.150776 0.104904 0.133408 0.354552 0.291017 0.16991 1.204567 Angle in Degrees 54.32058 35.14354 36.23038 79.32141 88.63343 66.35066 Exhibit VII: Polygon illustrating the Economic Performance graph 567 Exhibit VIII: Area & Radius Calculation per Category Categories Access Social Framework Economic Framework Policy Areas 0.65 2.29 3.70 0.61 Total Area Radius 7.25 1.52 568 Radius 0.45 0.85 1.08 0.44 References Abbott, P. “Software-Export Strategies for Developing Countries: A Caribbean Perspective.” Electronic Journal on Information Systems in Developing Countries 20, 1(2004): 1- 19. Dagher, R. “ICT sector in Lebanon: present status and the need for reform.” Electronic Journal on Information Systems in Developing Countries (2001). Feghali, T., Sahyoun, R. & Gemayel, N. “National E-Readiness: An Evaluation Model”. Proceedings of the International Conference on Industrial Engineering and Systems Management. Marrakech, Morocco, 2005. Hunt, Shelby D. Marketing Theory: Conceptual Foundations of Research in Marketing. University of Wisconsin, Madison. Columbus, Ohio: Grid, Inc., 1976. Malhotra, N. and Birks, David. Marketing Research: An Applied Approach. Second European Edition, New York: Pearson Education Limited, 2003. Noriega B. V. P. “On Software Export Opportunities for Developing Countries”. Presented at the meeting of UNIDO- Consulting Group in Information Technnologies, Vienna, 1993. PCA. "ICT Industry Survey 2005" Professional Computing Association of Lebanon, 2005; available from http://www.pca.org.lb/docs/ ICT2005%20-%20Final.pdf; Internet; 30 May 2005. SRI International. “ICT Industry in Lebanon: Results of the SRI ICT Capabilities Survey.” 2004. WSIS Preparatory Committee. “Towards An Information Society in Western Asia (A Declaration of Principles).” (2003). Zeidan, N. “The role of information and communications technology in the Lebanese economy.” Electronic Journal on Information Systems in Developing Countries (2004). Zikmund, William. “Business Research Methods”. Electronic Journal on Information Systems in Developing Countries (2003). 569 USING THE MEL GIBSON FILM, THE PASSION OF THE CHRIST, TO INTRODUCE MARKETING CONCEPTS: A UNIT TO SUPPLEMENT INSTRUCTION AND DISCUSSION Peter A. Maresco Sacred Heart University, USA ABSTRACT This paper provides the reader with an overview of a marketing unit designed to use the 2004 Mel Gibson film, The Passion of the Christ, to reinforce and introduce new marketing concepts to students at both the undergraduate and graduate levels. Specific marketing concepts addressed in this unit included new forms of market segmentation, advertising, an overview of ancillary markets, and the use of the Internet in the marketing the film. The paper highlights how this marketing unit provided students with background information on the film, the role of the film in teaching the marketing concepts previously mentioned, sections on the segmenting of various audiences including the use of grass-roots marketing, and how the film’s marketing differed from previously marketed religiously based films. INTRODUCTION This marketing unit is neither a review nor a commentary on the film. Neither is it intended to be a short course in marketing. Rather, this unit was designed to be a vehicle through which students were given an opportunity to apply information previously learned in their introductory marketing classes to further investigate and identify the marketing mix and marketing techniques that made the promotion of The Passion of the Christ an unqualified success. Marketing is generally thought of as being comprised of various components that come together to form what is commonly referred to as an integrated marketing mix. These are usually understood to include marketing diversity, product planning, distribution planning, promotion planning, price planning, and marketing management. For the purposes of this unit the marketing mix was comprised of various integrated and interrelated components that typically include, among others: • • • Segmenting and identifying the films target markets. The Internet as a new component of the marketing mix, and The role of advertising and promotion, including the “branding”of Jesus in the marketing the film. Each of these components was presented in the context of the marketing of the film in order to illustrate the importance and effectiveness of marketing in the overall success of The Passion of the Christ. Biblically Based Films – An Overview “The term ‘Hollywood Biblical Epic’ is taken to cover three sub-types of film: The Old Testament Epic; The Christ Film; and The Roman/ Christian Epic (of the beginnings of post-Christ Christianity)” (Babbington and Evans, 1993, 4). For purposes of this paper, I will be looking specifically at films commonly considered comprising the genre known as The Christ Film. Babbington and Evans state that prior to the release of The Passion of the Christ four Christ themed films had been released – the original filming of The King of Kings directed by Cecil B. De Mille in 1927, The King of Kings directed by Nicholas Ray in 1961, The Greatest Story Ever Told directed by George Stevens in 1965, and The Last Temptation of Christ directed by Martin Scorsese and released in 1988 (Babbington and Evans, 1993). The genre of biblically based films can be traced back to the beginning of the 20th century. Hovet notes that when the Kalem Company produced the first motion picture version of Ben-Hur it was a 13-minute film that had been advertised as possibly one of the most superb moving picture spectacles that had ever been made in America (Hovet, 570 2001). It would be the success of the film version of Ben-Hur that would eventually encourage future movie makers to produce films with various biblical themes. It was not long before adaptations of Lew Wallace’s novel Ben Hur (d. Olcutt, 1907), the Jesus story, From the Manger to the Cross (d. Olcott, 1912), and the Italian religious epic Quo Vadis (d. Gauzzoni, 1912) were all converted to the movie screen (Johnston, 2000). The 1927 Cecil B. De Mille production of The King of Kings is connonly considered to be one of the most popular of all the movies detailing the life of Jesus. Amazingly it has played faithfully to as many as five hundred million people until it was remade into King of Kings starring Jeffery Hunter in 1961. The original version of King of Kings was so popular that elementary, middle and high school students were dismissed early to be able to attend special afternoon showings of the film. This illustrates one of the first instances of the use of market segmentation in film promotion. The 1950’s ushered in an entirely new era in film making made possible by several new advances in film making including CinemaScope and Cinerama coupled with their inherent need to fill new larger screens with new even bigger budget films. The introduction and use of CinemaScope in particular and of stereophonic sound technology in the making and promotion of Henry Kpster’s 1953 classic The Robe became central components in one of Hollywood’s biggest religious themed marketing campaigns. Audiences who were attracted to these large budget, big cast performances of biblically themed films, were now being induced to screenings of these films with the promises of even greater sensory involvement through the use of these newly promoted technologies. Background - Marketing of Biblically Based Films Targeting a biblical film’s promotional efforts toward specific audiences is not new. As referenced in paragraph 3, as early as 1927 school children were given time off from school to view the original 1927 version of The King of Kings. Prior to its release, efforts had already been made for it to be shown to selected, targeted, audiences including various women’s clubs throughout the New York City area and to religious groups of various denominations throughout the country (Maltby, 1990). From September 1926 when filming began to January 17, 1927 when the film was completed is a high point with regard to collaboration between the Motion Picture Producers and Distributors of America (MPPDA’s) and local churches to coordinate pre-release publicity. This trend of targeting specific audiences continued in 1933 with the release of, The Sign of the Cross, when Paramount studio targeted three specific market segments for targeting of the film’s promotional efforts. The first segment was comprised of general movie goers including movie enthusiasts who were not specifically interested in films with religious themes but were interested in spectacle, drama, excitement, and thrills associated with them. The second segment was comprised of movie enthusiasts identified as regular church-goers. This segment would become the group that would eventually be reached directly through their respective clergy, their sermons, and in 1933 for the first time, by direct-mail campaigns. The third group were, once again, the nation’s primary and secondary schools. Realizing that most of these films were historically correct, the Los Angeles Board of Education showed significant interest in showing the film throughout its various public school districts. In this way the film could then be marketed the same way that the film was marketed to churches; directly through boards of education. (Hall, 2002). A further advancement in the target marketing of religiously based films can be seen in the promotion of the 1965 movie, The Greatest Story Ever Told, that included a specific list of points that were actually provided by the films promotional department specifically characterizing the manner in which biblically themed films were to be promoted. These efforts first began with the realization that in the minds of the public these films were not just another biblical film but a film that would actually be an honor to see. Next were editorials in the nation’s leading publications including Life Magazine that was seen as an important component of the new marketing mix. Publicity for The Ten Commandments (1956) contained no specific national advertising with the exception of, once again, religious periodicals which were not used until approximately three months after its opening. Promotion of The Greatest Story Ever Told (1965) included quotes from the Pope and several Vatican newspaper articles as well as quotes from the Rev. Dan M. Potter, Director of the Protestant Council of New York. Groups such as the Legion of Decency, The Rabbinical Association and various Buddhist groups were also contacted regarding the film in order to create interest prior to its release. Many of the prominent department 571 stores in New York City including Macy’s were encouraged to place ads in newspapers promoting the film (Hall, 2002). Promotional activities specifically surrounding the release of George Stevens’ The Greatest Story Ever Told included many of the same marketing techniques that were used in the promotion of The Sign of the Cross (1933) many of which would later be used in the promotion of The Passion of the Christ. Distribution of various promotional items including a souvenir programme brochure, a book on the making of the film, a reprint of the original Oursler novel, school study guides and children’s books were all made available to various market segments. Compilations of scholarly research materials including a biography of the director (George Stevens) and the screenplay of the film were also made available to the press. A traveling exhibition of actual props, costumes and photographs from the film was coordinated and arranged by the Smithsonian Institution to tour museums in the nation’s key cities. Additional exhibits were produced for use in such varied locals as department stores, churches, Sunday schools and primary and secondary schools. Audio-visual aids such as filmstrips and slide presentations were created and used as promotional tools by religious organizations. A thirty-minute colour documentary on the making of the film was produced exclusively for showing on network television on Easter Sunday of 1965. It was subsequently distributed as an extended theatrical trailer. Previews of the film, especially for religious leaders, educators, leading industrialists, government officials, psychologists, youth leaders, Boy and Girl Scout officials were also shown. Gifts including “tasteful mementoes” of the film were also distributed to members of the press (Hall, 2002). In retrospect, the marketing activities mentioned above are not so very different from those used in the eventual promotion of The Passion of the Christ. TEACHING METHODOLOGY Classroom discussion and lecture This teaching unit was first used as a supplement to an upper level graduate marketing class titled, “Contemporary Issues in Marketing”. It was then incorporated into an upper level undergraduate marketing class dealing with consumer motivation and behavior. In both instances, students were expected to have completed the appropriate marketing prerequisites and to have viewed the film prior to the first class meeting in order to provide a common starting point for discussion. Reading assignments included two books specifically dealing with the film: Perspectives on the Passion of the Christ: Religious Thinkers and Writers Explore the Issues Raised by the Controversial Movie (Miramax Films, 2004), and Inside The Passion: An Insiders Look at the Passion of the Christ by John Bartunek, L.C. (Ascension Press, 2005). Other readings included specific sections from, Savior on the Screen by Richard C. Stern, Clayton N. Jefford, and Guerric Debona, O.S.B. (Paulist Press, 1999), Religion in Film edited by John R. May and Michael Bird (University of Tennessee Press, 1982), Reel Dialogue by Robert K. Johnston (Baker Academic, 2000) and Jesus At The Movies: A Guide to the First Hundred Years by W. Barnes Tatum (Polebridge Press, 2000). Student research focused on the manner in which the film’s marketers identified specific, previously untapped market segments in the promotion of the film. Students at both levels were required to write a 10-15 page research paper on the marketing of the film from a non-traditional marketing perspective as a part of their final grade. Actual papers ranged from 12 to 18 pages at both the graduate and undergraduate levels with an average grade of A-. Class time spent on this unit was approximately 3 class sessions out of an entire semester. Student Benefits Students benefited from this teaching unit in several ways. First they were required to look at the marketing of a film from entirely new and different perspectives. This challenged them, as marketers, to think creatively. In effect students were, 1. 2. 3. challenged to use material previously learned and apply it in an entirely different manner. challenged to think about how a new medium such as the Internet played such an important role in the promotion of the film. challenged to investigate new uses of market segmentation in identifying existing markets for the promotion of the film. 572 4. 5. challenged with opportunities to study the manner in which new demographic groups such as evangelicals are being targeted by marketers. viewing church outreach as a form of grass-roots marketing. Each of these student benefits is further detailed in the following sections of this paper which was used as a student handout to supplement their required readings and classroom discussions. Student Feedback At the conclusion of both the graduate and undergraduate classes each student was required to complete a course evaluation which included 5 closed ended and 5 open-ended questions specifically related to the unit. The entire evaluation included 20 questions. Students were asked questions relating to the relevance of the class, how it broadened their understanding of marketing, the worthiness of the material, effectiveness of instruction, etc. Results indicated that students at both levels agreed that the inclusion of this unit as part of the course content was not only a worthwhile departure from the required material but that they unanimously agreed that it made them think of marketing from an entirely different perspective. Questions: closed ended questions on a scale of 1-5 with 5 being the highest score. 1. 2. 3. 4. 5. The text and readings supported the course objectives (Average score 5). The unit on The Passion of the Christ enhanced my understanding of marketing (Average score 5). The unit required me to think of marketing in new and different ways (Average score 5). The workload was appropriate for this level course (Average score 4). Additional units relative to current marketing trends should be added to the curriculum (Average score 5). Questions: Open ended questions on a scale of 1-5 with 5 being the highest score 1. 2. 3. 4. 5. What did you like most about the class? (Its relevance to the topic) What did you like least about the class? (The amount of additional readings) How do you feel about including topics such as The Passion of the Christ within the course materials? (It made the course more interesting) What other marketing topics would you like to see included in the curriculum? (More courses dealing with current themes in marketing) Additional comments. (The best marketing unit I have had). STUDENT HANDOUTS Segmenting Audiences Months before The Passion of the Christ was released its promotion began in ways not usually associated with movie openings. Prior to its official opening on February 25, nearly “3,000 people attending the National Religious Broadcasters annual convention were provided with a sneak preview, one in a number of special showings, arranged for faith based organizations to drum up grassroots support for the controversial film” (Szabo, 2004). Churches across America began plans to use The Passion and its associated study guides, sermons and Sunday school lessons – many posted online – written specifically to address issues from the film for evangelism and education. Houston, TX resident Arch Bonnema was so moved by Mel Gibson’s controversial film The Passion of the Christ, that he bought $42,000 worth of tickets himself so people could see it. He even gave away 6,000 Passion tickets for opening day. Driving the marketing and promotion of the film was the fact that it had a huge natural audience. Gibson, who spent $25 million of his own money to make the film, relied on evangelical churches to market it, and the strategy appeared to have worked wonders (ABCNEWS Online, 2004). According to an ABC News/Beliefnet poll, a quarter of Americans identify themselves as evangelistic Christians. This was exactly the type of demographic that marketers dream about ( Parker, 2004). 573 “We’ve never seen anything like this,” Richard King said, a spokesman for theatre chain AMC Entertainment, noting that even mega-hits such as Lord of the Rings and the Harry Potter films did not see this much early demand” (ABC News Online, 2004). “If you get the Christian community behind your film and supporting it, they’re very strong at word-of-mouth and grass-roots (marketing), and bringing friends to the theatre,” Melissa Richter said, who runs Richter Strategic Communications” (Parker, 2004). A spokesperson for director Mel Gibson, Alan Nierob, was very upfront with The New York Times about church outreach being part of the marketing plan. According to the article, Nierob likened it to the word-of-mouth and Internet buzz that turned “The Blair Witch Project” into a sleeper hit.” “The distributor’s grass-roots approach to its marketing centered on Christians and church leaders. In fact, before the film even officially opened, $3 million in revenues were received from various churches and denominations who took advantage of advance sales. THE MARKETING OF THE PASSION OF THE CHRIST Overview In what may very well be “a marketing campaign unlike anything Hollywood has ever seen” (Cobb, 2004), The Passion of the Christ, was released on Ash Wednesday, the day that for Christians around the world typically begins the season of Lent. While 17 million people go to the movies on a regular basis more than 135 million go to church regularly. “In the USA there are roughly 220 million adherents to a range of Christian faiths. There are 2 billion Christians worldwide, roughly one-third of the planet. That’s a lot of movie tickets” (della Cava, 2004). What makes the marketing of the film so different in respect to traditional movie marketing is the manner in which Gibson created a controversy that moved the film from “the margins of culture to center stage, presenting it as a must see” (della Cava, 2004). Few religiously based films have ever generated the attention that has come to be associated with The Passion of the Christ. Following the explosion of media attention that occurred almost immediately after its opening to the public on Ash Wednesday, and stronger than expected word-of-mouth publicity, the film continues to demonstrate its marketability in ways no other religious based film has: • During its first five days in release. Passion, grossed $125.2 million, Edging Oscar winner The Lord of the Rings: The Return of the King for the five day opening record. • A day later, it raced past $228.1 million record for sub-titled films set by martial-arts feature Crouching Tiger, Hidden Dragon. • Two weeks later, it eclipsed My Big Fat Greek Wedding’s $241.4 Million record for an independent film. • By the end of March, it had knocked off The Matrix: Reloaded ($281.5 million) as the most popular R-rated film in the U.S. • By the first week min April, 2004, Passion elbowed gently Forrest Gump ($329.4 million) out of the no. 10 spot on the all-time list of blockbusters, and seems destined to end up somewhere in the top five. (Matthews, 2004) The Passion of the Christ finished its domestic run with ticket sales of nearly “$400 million in box-office receipts; a number that continued to swell when the film was released internationally, beginning in Europe and Latin America. In addition, 20th Century Fox also negotiated the distribution rights to the DVD and videocassette. Industry analyst Anne Thompson reported in the Washington Post recently that “when all receipts are tallied from Passion’s worldwide theatrical run, its DVD and video sales, pay and network TV syndication, and books and merchandising, Gibson’s personal account may be enriched by more than half a billion dollars” (Mathews, 2004). 574 In the first days after its release The Passion drew large numbers from religious groups whose members had bought significant blocks of tickets. Since then exit polls, conducted by the movie’s distributor, Newmarket Films, has found that young movie goers made up much of the audience. The movie also did well among the traditionally religious Latino and African-American audiences. By mid-March 2004 a Gallup poll found that 11 percent of Americans had seen the movie and that 34 percent more said that they planned to see it in theatres (Waxman, 2004). Mel Gibson, who holds the lucrative license to the films related merchandise, knows how to promote his products. Like Disney’s toy franchise, Gibson has linked his spiritual message to all kinds of physical products. “Replicas of the nails used to hang Jesus on the cross have become red-hot official merchandise (Kjos, 2004). Promotional items, both traditional and those that would be considered to be non-traditional have all been used to lure moviegoers to relive the movie experience through the marketing of movie related items. In addition to the usual book and movie tie-ins for the first time ever a religiously based film was promoted on the hood of a car during the racing of the Daytona 500 auto race in Daytona, Florida. Several non-traditional marketing methods were used generate consumer awareness. These included, for perhaps the first time, enlisting “churches and Christian retailers to build buzz around the movie” (Howard, 2004). “Ad company, faithHighway, purchased the rights to a 20-second movie clip and signed up 300 churches, at $795 each, to air the trailer on TV with an additional 10-second plug for their church. For $1,790, the company put the church’s pastor in the ad. “We’re seeing record sales, and for sales people that means record commissions,” says Dan Hedman, director of conferences and training (Howard, 2004). In order to generate additional awareness the films backers turned to the country’s 120 million churchgoers. The moviemakers provided churches with free marketing materials to help fill theatre seats – and pews. Among the items made available to churches were posters and postcards for direct mailing with the line: “Best outreach opportunity in 2,000 years.” One promotional tool points preachers to www.sermoncentral.com for free sermon ideas that promote the movie while preaching the Gospel (Howard, 2004). At the time of the films release over 2,000 Christian specialty stores are selling Passion related articles marketed in various ways with total distribution expected to eventually reach over 3,000 Christian stores. Use of the Internet in the Promotion of the Film The Internet’s role in the marketing of the film can best be seen as a disseminator of information and materials for churches and evangelists to spread the word. In December 2000, the Pew Internet and American Life Project surveyed 1,309 religious congregations via e-mail regarding their use of the Internet. The results revealed that: • • • Eighty-three percent of respondents said their use of the Internet helped congregational life. Twenty-five percent said it helped a great deal. Eighty-one percent say use of e-mail by ministers, staff, and congregation helped the spiritual life of the congregation to some extent. Ninety-one percent say e-mail helped congregation members and members of the staff stay in touch with each other. (www.clickz.com) With results such as these it is no surprise that churches’ “use of the Internet to disseminate information about “The Passion” was aided by the distributors own efforts. Icon Distribution enlisted the help of OnCore Group; a “faithbased” marketing firm that claimed it was “Creating Brand Evangelists.” OnCore created a site at www.passionmaterials.com where Internet users could order posters, door hangers, postcards, and the like for the cost of shipping and handling. The company even posted a “Pastors Action Kit” explaining how one might use the materials to communicate to a congregation (Parker, 2004). There was even a special site for those kids, www.StudentsHavePassion.com that had been dubbed “student mobilizers.” Mobilization tools include an e-mail invitation tool, chat rooms, a press kit for student newspapers, and a “promotion report” link where students were able to contact the film’s distributors to keep them informed as to how promotions were progressing on their campus. 575 A visit to the film’s promotional website. www.thepassionofthechrist.com offered more than the expected movie soundtrack. A link to www.thepassionshirts.com offered several T-shirt designs, including crown of thorns shirts, shirts with the words The Passion in Aramaic and shirts with a crown of thorns dripping blood down the center of the shirt. A link to www.sharethepassionofthechrist.com offered only “officially licensed products” for the movie. These official products included coffee mugs with an image of the crucifix from the film, or coffee mugs with the film’s Aramaic logo. Another link took you to www.thepassiondownloads.com, where screen savers, posters, fliers, e-mail graphics, “fax blasts” and bulletin inserts were found in abundance. (www.bizjournals.com, 3-19-04) NON-TRADITIONAL ADDITIONS TO THE MARKETING MIX Witness cards More than 1 million “witness cards,” promoted the movie on one side and contained an evangelical message on the other, were distributed according to Dwight Robinson, Director of Marketing for Bob Siemon Designs, the lead licensee for Passion and a distributor of jewelry and other marketing items. A pack of 25 cards – intended to promote Christianity – sells for $5.95 (Howard, 2004). Jewelry “Dwight Robinson, marketing director for Bob Siemon Designs, the films only licensee for jewelry, said the company had to add 35 employees to its staff of 125. The company sold 150,000 crosses” (Thompson, 2004). Siemon also shipped 100,000 small and large pewter nail pendants on a leather string that retailed for between $12.99 and $16.99. “The nail is a symbol of the crucifixion, just like the cross,” says Tara Powers, spokeswoman for Family Christian, the nation’s largest chain of specialty stores with 320 locations in 39 states. The chain is carrying Siemon’s full line of Passion goods. Music The film’s predominately instrumental soundtrack, released by Sony Music and Integrity Music, a Christian label, on the day the film opened, has sold over 50,000 units. “Only two other score-driven soundtracks – Star Wars, Episode I: The Phantom Menace and Episode II: Attack of the Clones – have sold more” (Gardner, 2004). “The soundtrack peaked at number 17 on the Billboard album charts” (Thompson, 2004). An album featuring artists such as Bob Dylan, Elvis Presley, Leonard Cohen and Ricky Skaggs along with a new song by Jessi Colter, Waylon Jennings’ widow and their son Scooter, has also been released. DVD and Video Passion of the Christ was released on DVD and video in the summer of 2004, by Fox Entertainment. On the basis of box office sales at least 8 million copies of the film were sold. Translation: roughly another $75 million for Mel” (Patsuris, 2004). Books The Passion: Photography From the Movie The Passion of the Christ, is the movie’s only licensed tie-in book (Thompson, 2004). The international publishing division of Tyndale House Publishers initially printed 150,000 copies which was considered a big run. “We felt like we were taking a risk printing 150,000,” Mr. Balow said. Instead, Tyndale struggled to keep up with demand selling 650,000 copies intending to eventually publish the book in eight foreign languages (Thompson, 2004). Publishers increased press runs for other books related to the movie. The Passion of the Christ: Fifty Reasons Why He Came to Die by John Piper sold 1.6 million copies. His Passion: Christ’s Journey to the Resurrection by Dave Veerman sold more than 200,000 copies. The biggest seller at Family Christian is the behind-the-scenes coffeetable book about the Passion, with a foreword by Gibson, which sold for $24.99. It currently has over 500,000 copies in print (Howard, 2004). 576 NASCAR “Interstate Batteries Chairman Norm Miller asked that the hood of the race car his company sponsors, Bobby Labonte’s No. 18, be emblazoned with the Passion logo in the Daytona 500 which drew a television audience of 11 million viewers. Art Carpentree in Tulsa is selling framed paintings and prints based on the movie for $30 to $100 as part of its threeyear licensing deal with Icon. “Sales skyrocketed,” says Golda Browne, marketing director for the Passion line. The company sold 20,000 prints and pictures in just three weeks. Coming soon are signed and numbered oil-oncanvas paintings (Howard, 2004). CONCLUSION The creation of a unit on the marketing of The Passion of the Christ to reinforce and explore new and existing marketing concepts proved to be extremely successful both from a student and teacher perspective. Students at both the graduate and undergraduate levels came away from the class with a greater understanding and awareness of how new marketing techniques such as identifying new demographic segments and new uses of internet marketing radically changed the manner in which this film was marketed. Students were especially interested in the section of the unit specifically dealing with the various ancillary markets that were used in the promotion of the film. In particular they were surprised by the use of NASCAR in the promotion of a religiously themed film. As a means of introducing marketing students to new ways to market a film this unit, based on student surveys, was judged to be a complete success. REFERENCES Anonymous. (2004, February). Christians Aid Marketing of Gibson “Passion.” ABC News Online. (abc.net.au/news). Anonymous. (2004, March). Branding Jesus. BLOGS.Salon.com. March 22, 2004. Anonymous. (2004, February). “Passion” Pulls Box Office Miracle. CBS News Online. (cbsnews,cbs.com). Cobb, J. (2004, March). Marketing The Passion of the Christ. MSNBC.com. della Cava, XX, (2004, February). Gibson personalizes Passion of the Christ. USA Today. February 20-22, 2004. Gardner, E. (2004, March). “Passion fever spreads to books and movies” USA Today, March 4, 2004. Howard, T. (2004, February). Promoting the Passion: Film’s creators look to believers to help sell the show. USA Today, February 24, 2004. Kjos, B. (2004, February). Mel Gibson’s “Passion.” www.crossroad.to. February, 2004. Lindvall, T. (2004, February). Jesus on the Big Screen. USA Today, February 18, 2004. Matthews, J. (2004, April). “Passion” Payoff. New York Daily News, April 6, 2004. Miller, M. (2004, March). Marketing revelations dampen filmmakers Passion. San Francisco Business Times. March 19, 2004. Parker, P. (2004, February). How the Passion Played on-line. Click2Network. March 12, 2004. Patsuris, P. (2004, March). What Mel’s Passion will earn him. Forbes. March 3, 2004. Presson, S. (2004, March). The Passion for Evangelism. CNB News. March 30, 2004. Sanders, K. (2004, March). Faith Based. NBC Nightly News. March 31, 2004. Szabo, XX. (2004, February). Passion of the Christ Moves film’s Early viewers. USAToday. February 18, 2004. Thompson, A. (2004,l April). Holy Week Pilgrims Flock To “Passion” New York Times. April 12, 2004. 577 Szabo, L. (2004, February). Churches gear up to answer questions about the Passion. USA Today, February 24, 2004. Szabo, L. (2004, February). Passion: Some Cry, Some Weep, Some Walkout. USA Today, February 26, 2004. 578 EXPLORING THE INTERNATIONALISATION OF SMALL TO MEDIUM-SIZED ENTERPRISES (SMES) IN MALAYSIA: A PRELIMINARY FINDING Zizah Che Senik Universiti Kebangsaan Malaysia Lanny Entrekin Brenda Scott-Ladd Murdoch University, Australia ABSTRACT This working paper reports a study that focuses on the internationalization processes of manufacturing SMEs in Malaysia. It attempts to discover why these firms internationalize and how the process of internationalizing takes place. A qualitative methodology using a modified Delphi approach of tele-conversation survey was taken for collecting data from a panel of expert. These experts drew attention to domestic and global conditions, government’s incentives and support, firm specific factors, key managers’ background and attitudes, and networking as the main issues contributing to the internationalization process of SMEs in Malaysia. INTRODUCTION The internationalization of small and medium sized enterprises (SMEs) is a growing and vital trend as increasing numbers of SMEs become involved in international trade (Camino and Cazorla, 1998; Lamb and Liesch, 2002). Extensive research into the internationalisation process of SMEs has been undertaken in western developed countries (Covielo and Munro, 1997; Gemser, Brand and Sorge, 2004; Leonidou & Katsikeas, 1996; Moen and Servais, 2002; Wickramasekera, 2004); however, relatively few studies have examined this process in developing countries (Das, 1994). Between 1992 and 1998, Coviello and McAuley (1999) reviewed the literature on the internationalization of SMEs and identified sixteen recent empirical studies. However, only one in Pakistan, was from a developing country (Zafarullah, Mujahid and Stephen, 1998), which supports claims that research of SMEs based in developing countries is still in an embryonic stage (Kuada and Sörensen, 2000). This finding raises the following questions: Firstly, is the internationalisation process of SMEs in developing countries different from developed countries? Secondly, are the driving factors that affect the internationalisation process of SMEs in developing countries similar to those of developed countries? Thirdly, who play important roles in the process of internationalizing the SMEs in developing countries? These questions need to be addressed as the lack of empirical studies warrants investigation because of the economic and social impacts of SME’s within developing countries. SMEs in Malaysia Malaysia, located in South East Asia, is one developing country that is assisting SMEs to become international players. Within the last ten years, Malaysia has been transformed from a commodity-based producing nation to manufacturing and is geared toward becoming a fully industrialized nation by the year 2020 (SMI Business Directory, 2005). Today, the country is quite competitive in attracting direct foreign investments and is among the world’s top 20 trading nations (FMM Directory, 2005) thus give SMEs opportunities to broaden their operations. The country has a limited local market and an option for growth is to capitalise on globalisation, economic cooperations and government incentives that assist internationalisation. The growing role for SMEs in international activities is emphasised in Malaysias Second Industrial Master Plan (IMP2 1996–2005) and Eighth Malaysia Plan (8MP 2000–2005). The government has a number of supporting agencies, such as the Small and Medium Industries Development Corporation (SMIDEC) and Malaysia External Trade Development Corporation (MATRADE) to offer support in various forms. For example, an industrial linkages programme (ILP) and Global Supplier Programme (GSP) introduced by SMIDEC assist SMEs to become industry suppliers. These programmes link the Malaysian SMEs with large local or foreign corporations, and push them to internationalize by subcontracting, exporting, and collaborating through joint ventures, licensing or 579 franchising (SMIDP, 2002). MATRADE alternatively assists Malaysian firms to better position their products and services in the highly competitive global markets (MATRADE, 2004). In Malaysia, SMEs are defined as “firms with annual sales turnover not exceeding RM25 million or full time employees not exceeding 150” (SMI Development Plan-2001-2005, p.31). There are 48,200 firms registered as SMEs from various sectors and these contribute to economic growth, social cohesion, employment and local development within Malaysia; in 2002 they injected RM50.8 billion into Malaysia’s GDP (The New Straits Time, May 7, 2002). The 8MP estimates that 93.8 percent of all manufacturing establishments in Malaysia are SMEs and combined these provide employment for 868,000 workers, and those SMEs participating in the ILP and GSP programs generate sales of RM115.6 million in 2002 (SMIDEC, 2002). These programs have been so successful that the Ministry of International Trade and Industry (MITI) is preparing the Third Industrial Master Plan (IMP3) to follow on from the IMP2, which will end in 2005. This will cover a 15-year period (2006-2020) giving substantial concentration to the development of SMEs and their international expansion (MITI, 2005). There have been some studies on SMEs in Malaysia (Bell, Crick and Young, 2004; Bjerke, 2000; Moha Asri, 1999; Yusuf and Aspinwall, 2000) but none has focused on the internationalization process. This study takes the first step to understand this pertinent issue and aims to gain a better understanding of the internationalization process of SMEs in Malaysia. The next section presents the relevant literature, whereas the third and fourth sections present the methodology and findings respectively. LITERATURE REVIEW Definitions Andersen (1997) defines internationalization as the process of adapting an exchange transaction to international markets. On the other hand Beamish (1990) defines it as a three stage process where firms start by increasing their awareness of the direct and indirect influences of international transactions on their future, before moving on to establish and conduct transactions with other countries. Calof and Beamish (1995) define internationalization as the process of adapting the firms’ operations, for example, the strategy, structure, and resources, to the international environment (p.116). This study adopts the definition suggested by Calof and Beamish (1995) because it conveys the idea of internationalization as being dynamic and adjustable. Internationalization Generally, researchers agree that theories of internationalization can be viewed from five approaches (Etemad, 2004; Reiljan, 2001; Roolaht, 2002; Tornroos, 2003) which are economic, behavioral, network view, international new venture and international entrepreneurship. These approaches, their brief explanations and some examples of the model or theory are summarized in Table 1. Since the purpose of this study is to investigate the process of internationalization; therefore, the most relevant models were selected. Two models from the behavioral approach; the Uppsala Internationalization Process Model or U-Model and the Finnish POM Models as well as a third model from the networking perspective, were investigated. No. 1 Approach Economic Approach 2 Behavioral Approach Table 1: Approaches to Internationalization Brief Explanation Model/Theory Main focus in the international The growth of firm theory (Penrose, activities of foreign direct 1959) investments. Rooted in The internationalization theory macroeconomic factors and (Hymer, 1976) reasoning in order to understand why The product life cycle approach firms started to internationalize. (Vernon, 1966) The Eclectic Paradigm (Dunning, 1988) Internationalization is hypothesized The Uppsala Model (Johanson and 580 to take place through incremental steps when entering new markets, which have a greater psychic distance 3 Network Approach 4 International New Ventures 5 International Entrepreneurship Focuses on the relationships or connectedness of firms to others and has been utilized in explaining how and why firms internationalize their operations Claims that many firms go into international markets right from their birth and disregard any kind of stages Described as “the process of creatively discovering and exploiting opportunities that lie outside a firm’s domestic markets in the pursuit of competitive advantage”. Source: Compilation from various authors Vahlne, 1997, 1990; Johanson and Wiedersheim, 1975) The Finnish-POM Model (Luostrainen, 1979; Welch and Luostarinen, 1988) Innovation process Model (Rogers, 1962; Andersen, 1993) Internationalization and the network model (Johanson and Mattson, 1988, 1990) Born Global (Knight and Cavusgil, 1996), Global Start-ups (Oviatt and McDougal, 1994), International New Ventures (Oviatt and McDougal, 1994) Criado, Criado and Knight (2004) International Entrepreneurship (Zahra and George, 2002, p.10) The U-Model initiated by Johanson and Wiedersheim-Paul (1975) and further developed by Johanson and Vahlne (1977 and 1990) is widely used to describe two patterns of internationalisation for small firms. Firstly, the internationalization process is developed incrementally, from no regular export activities, to exporting via independent representatives (agents), then moving into sales subsidiaries, before moving into production or manufacturing (Johanson and Wiedershiem-Paul, 1975; Johanson and Vahlne, 1990). This implies that firms make their initial entry into a market using a low risk and low commitment strategy, such as with direct exporting, before increasing to high risk and high commitment strategy via manufacturing subsidiaries and foreign sales. The second pattern is to enter new markets successively and start by going into countries with less psychic distances, in terms of language, education, business practices, culture and industrial development differences (Johanson and Vahlne, 1990; Hollensen, 2001). This suggests firms enter a particular market close to and similar to the home country before expanding into more distant and dissimilar markets. The U-Model, presented in Figure 1, has four core concepts, which are market knowledge, market commitment, current activities and commitment decisions. These concepts link market commitment decisions to market knowledge and current commitments in the market (Johanson and Vahlne, 1990). It assumes sequential internationalisation is due to uncertainty about operating abroad because of the lack of knowledge, information and experience about foreign markets (Johanson, et al. 1977, p. 26). Figure 1: The basic Mechanism of Internationalization – State and Change Aspects State aspects Change aspects 581 Market Knowledge Commitment Decisions Market Commitment Current Activities Source: Johanson, et al. 1977, p. 26 The U-Model has been criticized as being too deterministic; it does not include managerial competency (Burgel and Murray, 2000), cooperative modes, or leapfrogging (Anderssen, 1997; Hansson, Sundell and Ohman, 2004). Others suggest firms internationalize using a backward and forward momentum, rather than an incremental manner (Autio and Sapienza, 2000; Knight and Cavusgil, 1996). Some firms do enter distant markets with higher market commitment, which contradicts the U-Model (Hansson, et al. 2004). To overcome these weaknesses the FinnishPOM Model is also used in this study. The Finnish-POM Model distinguishes three dimensions of internationalization (Luostarinen, 1979). First is Product (P), which describes ‘what’ in terms of firms’ goods, services, know-how and systems. Second is Operation mode (O) which relates to ‘how’ firms operate such as through agents, subsidiaries, licensing and management contracts. Third is Market (M), which describes ‘where’ in relation to the selection of markets and takes into account political, cultural and physical differences. The ‘organizational capacity’ dimension was later added describe organizational structure, resources, finance and personnel (Welch and Luostarinen, 1988). This model has been given little attention so far (Reiljan, 2004), despite providing in-depth dimensions lacking in the U-Model. Another important entry mode the models overlook is networking. The networking perspective explains how relationships in business give firms a growth opportunity. The network involves “sets of two or more connected exchange relationships” (Axelsson and Easton, 1992). Different approaches have been taken to investigating networking; for example, Ford (2002) compared companies that use networking to internationalize, whereas Welch and Welch (1996) concentrated on networking linkages, such as governments, agencies and other firms, which assist the process. The network approach is convenient for explaining ‘why’ and ‘how’ firms internationalize (Johanson and Mattson, 1988) as networks influence strategic decisions and involve the exchange of resources among different members (Sharma 1993). Networking is a crucial for gaining knowledge and awareness of international opportunities. METHODOLOGY A qualitative approach using a modified Delphi study was chosen to gather opinions from a group of experts. Because interpersonal contact is valued in Malaysia, telephone interviews were chosen in preference to written answers. The purpose was to gather their views on the issues facing SMEs when they internationalize. Experts were selected because of their expertise in the areas of international business, strategic management, SME development and entrepreneurship and came from five categories, namely; expert academics (EA), policy makers (PM), supporting government agencies (SGA), a research institute (RI), and the Chamber of Commerce (CC) by their names and affiliations, which were identified from the internet. Telephone surveys were conducted during September and October 2005. Thirty experts were approached by email or telephone, with a follow up letter outlining the purpose of the study, the questions, and requesting written consent for participating in the study. Of the 16 participants, 2 responded by email. Interviews lasted from 15 to 30 minutes. Interview information was hand recorded, and analyzed manually. In all, 14 males (88%) and 2 females (12%) participants, drawn from 5 categories [EA, 3 (19%), PM, 4 (25%), SGA, 4, (25%), CC, 2 (12%) and RI, 3 (19%)] participated in the survey. These experts ranged in age from their early to late 30s (3:19%), early to late 40s (9:56%) and early to late 50s (4:25%). FINDINGS 582 The results of the expert survey are summarized in Table 2. The experts identified four predominant triggering factors for Malaysian SMEs to internationalize and these related to domestic conditions (75%), globalization (75%), market issues (69%), and resource seeking (50%). Two aspects they identified as important drivers were the firm itself, and key characteristics of top managers. They related four themes to the firm, these being resources (63%), product (63%), capability (44%), and reputation (31%). The three predominant characteristics of top managers identified were interpersonal skill (88%), attitude (75%), and background (69%). Table 2: The Findings of the Telephone Survey Aspect Key Themes Experts (%) 1. Reasons Domestic conditions 12 (75%) Resource Seeking 8 (50%) Market Issue 11 (69%) Globalization 12 (75%) 2. Firm Firm Itself Resources 10 (63%) Product 10 (63%) Reputation 5 (31%) Capability 7 (44%) Key Managers Attitudes 12 (75%) Background 11 (69%) Interpersonal Skills 14 (88%) 3. Industrial Intense competition 14 (88%) Market Attractiveness 9 (56%) Economies of scale 8 (50%) Nature of sectors 6 (38%) 4. External Political Forces 10 (68%) Economy 11 (69%) Society 4 (25%) Technology 8 (50%) 5. Relationships Institutions 16 (100%) Other players 12 (75%) Personal relation 13 (81%) 6. Challenges Political Wills 5 (31%) Management 7 (44%) Competition 6 (38%) 7. Barriers Resources 11 (69%) Financial 12 (75%) Attitude 9 (56%) Capability (R & D) 9 (56%) Political 5 (31%) Management 10 (63%) 8. Expect To Gain Profit making 13 (81%) Market 11 (69%) Learning 9 (56%) Competition 5 (31%) 9. Operation Modes of entry Exporting 12 (75%) Subcontracting 11 (69%) Others 10 (63%) Within South East Asia Region 7 (44%) Markets Selection Free Trade Zone Agreement 3 (19%) Neighboring countries 10 (63%) Others 7 (44%) Source: Summarized from the telephone survey results Four themes emerged in relation to the industry; including the intensity of competition (88%), market attractiveness (56%), economies of scale (50%) and the nature of sector or industry (38%). External environment factors included 583 the economy (69%), political forces (68%), technology (50%), and society (25%). The experts identified three main sources of networking which were supporting agencies, such as the government, the Standard and Industrial Research Institutions of Malaysia (SIRIM) Berhad, the Chamber of Commerce, universities and ministries, etc (100%); Personal relations through individual contact with friends, colleagues, students, families, etc. (81%); and other players such as either small or large and local or foreign firms (75%). The SMEs face six barriers in internationalizing their firms; the largest of these is financial limitations (75%), followed by resource constraints (69%), management incompetence (63%), negative attitudes (56%), R & D incapability (56%), and political intervention (31%). To ensure successful internationalization, SMEs have to overcome three challenges. The first of these is lack of management experience in international markets (44%) competition (38%) and political forces (31%). The purpose of internationalization is predominantly to gain greater profit (81%), penetrate into new markets (69%), learn new skills and techniques (56%) and compete with others (31%). In terms of entry modes and market selection, Malaysian SMEs prefer to internationalize predominantly by exporting (75%), subcontracting (69%), and other strategies (63%) that include strategic alliances, mergers and acquisitions, licensing/franchising, and setting up a subsidiary. They operate mostly within the South East Asia region (44%) within the free trade agreement zone (19%), in neighboring countries (63%) such as Thailand, Indonesia, Brunei and Singapore, and other markets (44%) such as Middle East, China, Sudan, India, Bangladesh, etc. Drawing on these findings the next section discusses the most influential aspects affecting internationalization of SMEs in Malaysia. DISCUSSION The majority of experts drew attention to domestic and global conditions, the Malaysian government’s incentives and support, firm specific factors, key managers’ backgrounds and attitudes, and networking, as the main issues contributing to Malaysian SME. These results imply that the internationalization process is complex and influenced by various factors and relationships within and outside the firm, supporting previous findings. Discussed below are the most influential aspects in the Malaysian SMEs internationalization which are the triggering factors, awareness of international opportunities, firm specific issues and entry mode and market selection. Triggering Factors The experts agree internationalization is triggered by domestic and global conditions. The Malaysian market is getting smaller as foreign firms can have competitive advantages to enter the country, Malaysian SMEs have to seek international opportunities to remain in business and survive. Globalization and the Asian Free Trade Agreement (AFTA) provide expansion opportunities, whereas the ‘open door policy’ of China presents greater challenges. Triggering factors such as the problem of saturated domestic markets and competitive pressures (Czinkota, Johanson and Ronkainen, 2002), industry conditions and globalization (Bloodgood, Sapienza and Almeida, 1996), and liberalization of international markets (Etemad, 2004) have been discussed in the Western literature and appear to present similar problems within the Malaysian context. Awareness of International Opportunities Internationalization starts with the awareness of the international market opportunities and Malaysian SMEs learn of these through government linkages, networking with other players and from personal contacts. Indeed, the key actors in the firms create networking with other domestic players, and then gradually move to international level through long-term relationships. However, some firms even make faster move by making networking with international companies’ right from the start. This does not match Johanson and Vahlne’s (1977) U-Model contention, which assumes information, is generated and processed within the firm. It seems that networking is the more critical mode for Malaysian SMEs to discover international market opportunities than does the U-Model. This supports Moha Asri (1999) suggestion that the inter-firms linkages should be described further with regards to the SMEs’ international expansion. Firm-specific Factor Being aware of opportunities only sparks the interest, it does not assure internationalization as SMEs need strengths within the firm and competent managers to become international players. The respondents stressed the importance of firms having strengths in terms of unique resources, sound finances, skilled and experienced employees, R & D 584 capability, and information and communication technologies (ICT). This matches previous research that has identified firm-specific factor as being resources that include unique assets, R&D spending, network and reputation (Zahra and George, 2002), advances in ICT (Madsen, Rasmussen and Servais, 2000) and top managers who have international exposure, an international global vision, foreign education and experience (Etemad, 2004). This supports Andersson’s (2000) findings that decision to go international “must be wanted and triggered by an entrepreneur who makes key decisions and carries out the internationalization” (p.29). Firm characteristics are important drivers for SMEs to go international so the Finnish-POM Model provides better insights than the UModel. Entry Mode and Market Selection Entry modes include exporting (Leonidou and Katsikeas, 1996), joint ventures (Buckley and Casson, 1996), and wholly owned foreign direct investment, including Greenfield investments and mergers and acquisitions, and leapfrogging (Bjorkman and Forsgren, 2000). Locations and modes can and do differ as many countries, including Malaysia, are restricted by government policy and intervention. In general, Malaysian SMEs do not follow an incrementalist approach to internationalization; they elect to move into neighbors and other countries within the South East Asian region and distant markets as best suits their own needs, or the Governments preferred policies. This suggests the internationalization process more closely follows that of the International New Ventures Theory. Malaysian SMEs use a mixture of modes, which range from exporting to subcontracting, strategic alliances to building up their own facilities and or subsidiaries. This again contradicts the U-Model, lending support to Hommaoudis’ (2005) findings that increasing numbers of smaller firms behave differently and do not take the staged approach. CONCLUSION In conclusion, gaps remain in the literature on the internationalization of small and medium firms. This study has provided some insights into the internationalization process of SMEs in Malaysia. The behavioral approach that was expected to explain entry mode and market selection was only partly supported. There was little evidence in this study to support the U-Model, as the perception of the experts was that Malaysian firms do not take an incremental staged approach to internationalization. The finding that a firm’s choice for going international is related to their internal capability does give credence to the Finnish POM Model as a more appropriate model to explain the internationalization of Malaysian SMEs. The networking model also matches, as the choice to internationalize is influenced by the government and other players, including personal contacts. The surprise finding of the study was that the International New Ventures Model provided a better description of the pattern of internationalization and this warrants further investigation in the follow-up study. 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Two theories help explain the perpetuation of organizational obstacles to the progress of women in the managerial hierarchy: sex role stereotypes and social identity theory. In light of the literature review, the theories employed, and the results of a focus group, nine hypotheses are proposed. A survey of 397 respondents investigates the perceptions of workers with respect to gender inequality in the Lebanese work force. Socio-economic environment was found to influence workers perceptions of gender roles. Even though women recognize their subordinate status, they do not necessarily perceive their gender group unfavorably. Workers realize the existence of gender inequality and are open to the idea of women entering traditional men’s roles and vice versa. Workers also recognize that policies need to be designed and implemented to enhance the status and advancement of women. INTRODUCTION ‘Arab women have made considerable gains in the past decade, particularly in the areas of health and education. However, they remain less economically and politically empowered than women in other regions of the world. The low visibility and representation of Arab women in the labor force and political structure is unfortunate given that the skills and knowledge they have acquired through improved educational achievements are not being utilized’ (United Nations 2004 cited Mervat Tallawy Executive Secretary of ESCWA). In developed and developing nations women have made significant advances in the workforce. They have slowly been able to infiltrate once male-dominated occupations and managerial positions. Still, women worldwide hold only one to three percent of top managerial positions (ILO, 2002). In 1996 women constituted 40 percent of the world’s labor force, while women from the Middle East and North African (MENA1) regions composed 26 percent of the labor force in that region. Female labor force participation in the Arab region also echoes a dismal situation: Arab women’s participation in the workforce is the lowest in the world. On a more optimistic note it should be highlighted that in 1995 the Arab region witnessed the highest annual growth rate (2.9 percent) of women labor force participation compared to a world average of 1.7 percent (ILO, 2000). In the MENA region every working person supports two nonworking dependents. MENA’s economic dependency ratio is the highest in the world, a consequence of high unemployment rates, high fertility rates, high aging rates, low women labor force participation rates, and declining real wages. To help bring down the economic dependency ratio, women’s labor force participation is crucial. Women’s labor force capabilities have significantly increased due to the investment and improvement in their education and training opportunities. But because women labor force participation remains low, the MENA is not recovering the full potential of its return on female investment. Studies predict that if females participated at the level required consistent with population structure, education levels, and fertility rates, then household income would increase by 25 percent (World Bank, 2004). Since 1960 women’s participation in the MENA work field has increased by 50 percent. Despite such marked growth, female labor force participation in the Arab region remains the lowest in the world. Among the working women in the Arab region most are concentrated in the services sector (between 60 to 70 percent). Traditional 589 cultural gender attitudes and stereotypes encourage women to work in teaching and clerical/administrative jobs. From 1975 to 1995 women in professional occupations have increased from 11 percent to 24 percent. This increase is not a product of decreased gender discrimination or decreased sex stereotyping; it is a by-product of women’s high educational attainment over the years. Thus, although women have proliferated into the professional sphere, they remain in low-level front line positions (ILO, 2000). Two important demand factors influence female participation in the work force. The first demand factor is unemployment. Low economic growth in the MENA region during the 1990s was reflected in the poor development of its labor market. The market was unable to absorb the increasing labor force supply. Organizations in the region continue to view a woman’s primary role as that of a mother and housewife, therefore her contribution to household income is secondary. Occupational gender segregation governs the labor market. Discouraged, women leave the work force due to organizations’ preference for hiring men and the prevailing cultural norms (ILO, 2000; World Bank, 2004). Thus, “cultural norms may have a greater influence on female labor force participation in MENA than in other developing regions” (Tzannatos and Kaur, 2003, p.70). The second demand factor is the type of economic growth in the MENA region. Growth in the MENA region has relied mainly on “public sector jobs, extensive government controls, inward-looking trade policies, and a weak investment climate” (World Bank, 2004, p.8). Employed women are mainly concentrated in the public sector. Women are encouraged to work in the public sector, because of its egalitarian policies (wages, hiring, promotion, etc.), because of flexible maternity and child care benefits, and because of the type of professions that are considered more suitable for women (teaching, nursing, etc.). With the increased trend toward privatization, the public sector’s job opportunities for women will decrease. Meanwhile the shift for women to the private sector is filled with many obstacles. Perceptions of gender differences combined with cultural norms not only maintain occupational segregation, they also define the gender wage gap. Thus, the private sector offers lower wages and fewer growth opportunities for women. These economic demand factors alone do not adequately explain the low labor force participation of women. Amalgamate effect of cultural, social, attitudinal, regulatory, and labor market factors create obstacles to women’s participation at work (World Bank, 2004; Tzannatos and Kaur, 2003). Although occupational status differences are more pronounced in the Arab world than other countries, Lebanese women have made significant advances in their professional work. Most of the advances that have been made were due the changing social and economic circumstances. Interestingly enough, the Lebanese civil strife was the major catalyst to initiate female integration into the workforce. The war had far reaching consequence on the Lebanese economy: the exhaustion of financial resources led to the devaluation of the Lebanese Lira and the inevitable decrease in its purchasing power. Thus female participation in the labor force became a requirement. The war also widened women’s choice of profession. Before the war university educated women were concentrated mostly in the fields of education. After the war women gravitated more toward the field of health care and nursing (currently the service sector employs over half of the female labor workers). The war aside, another reason for the increase of female labor force participation was the emigration of male laborers to neighboring countries (Boustani and Mufarrej, 1995). The integration of university educated women into the labor market in Lebanon depends on several factors: their educational training, their vocational training, their marital status, and their area of residence. University educated Lebanese women have a dual role to play in society: their house/family upkeep and their labor market participation. Because of the high demands of professional work, women are forced to quit the work force and stay at home to look after the family. Simply put, Lebanese women face gender obstacles (Boustani and Mufarrej, 1995). This paper attempts to examine the perceptions of gender inequality in the Lebanese workplace. LITERATURE REVIEW What are some factors that aggravate women’s labor force predicament? Several reasons have been cited in the literature, with the most prominent among them being occupational sex segregation and the glass ceiling phenomenon. 590 Occupational sex segregation and the glass ceiling Social and cultural relationships shape the gender differences that exist between men and women. Here gender is defined as the social constructs that are learned. These learned gender roles are eventually internalized and thus people’s behaviors become conditioned to interact in socially accepted ways (ILO, 2000). In the past few decades there has been a lot of debate on issues surrounding gender equality in the workplace. Gender equality is the opportunities, rights, and responsibilities afforded to men and women at the workplace. When discussing ‘equality’ in the workplace, it is not implied that men and women should be considered the same, but rather it is the understanding that men and women need to be viewed on a merit basis, i.e. on the value of what they are capable of accomplishing and what they have already accomplished (ILO, 2000). A universal belief is that certain jobs can be classified as predominantly ‘male jobs’ while others are viewed as ‘female’. On average in the early 1990s any country had had 55 percent of its workers in either male or female typified jobs. This universal fact has been termed sex segregation, i.e. “when female and male workers are employed in ‘compartmentalized’ activities that usually lead to different rewards and different career opportunities even though workers may have comparable labor-market attributes” (Sayed and Tzannatos, 1998, p.302). Occupational segregation helps maintain discriminatory attitudes, causes human capital inefficiency, and labor market rigidity, where qualified and competent people might be disregarded for certain work positions due to their sex. Cultural attitudes and inequality in education and training have brought about occupational segregation. Throughout world history sex segregation has worked to benefit men more than women. First, women are employed in limited types of professions when compared to men. Second, the sectors that women work in are considered less valuable and are characterized by lower pay, lower status, greater job insecurity, and limited career opportunities. This worldwide exclusionary labor market mechanism negatively affects future generations by perpetuating a continuing cycle of discrimination and labor inequality. The type and amount of education and training afforded to females is the eventual decisive factor in bringing about inequality/equality in the labor market (Sayed and Tzannatos, 1998; ILO, 2000; ILO, 2002; Osberg, 2004; Reskin, 2004). Two categories of occupational segregation afflict the labor markets. Horizontal segregation is when women and men are categorized into different professions, industries, and jobs. Women and men not only work in different professions, they are also differentially represented in the occupational hierarchy within a profession. Thus, even in professions classified as ‘women jobs’, men will retain positions with the most responsibility and with the better compensation. This type of compartmentalization is known as vertical gender segregation (ILO, 2002). Conceived in the 1970s, the term glass ceiling was coined to better conceptualize the notion of vertical segregation. The glass ceiling refers to the invisible barriers to women’s ascent to top executive positions. The US Department of Labor defines glass ceiling as “those artificial barriers based on attitudinal or organizational bias that prevent qualified individuals from advancing upward in their organizations” (Powell and Butterfield, 1994). Gender inequality is reinforced and manifested through the glass ceiling effect (Osberg, 2004). Thus, although women form 40 percent of the worldwide labor force, women occupying managerial positions are less than 20 percent of the labor force. Historically, research has tried to identify personality differences (job attitudes, work values, mental abilities, skills, and job reactions) between men and women. These studies have shown that women on the whole are usually less satisfied with their jobs, are less committed to their work, are more prone to accommodative - versus competitive work approach, are naïve, and are less tough and assertive than men. These findings seem to highlight that women are innately different than men due to psychobiological traits. However, recent research findings question these supposed differences between men and women. Lefkowitz (1994) in his research demonstrates that when men and women have comparable social roles and status, they will not differ in their work attitudes and roles. Personality traits also appear to show no gender-based differences (Landy, 2004). Also, in other study conducted by O’Neil (2004) the upward influence tactics used by men and women were not predictable by gender. However, when differences were discovered between the sexes, it was due to situational bound variables (e.g. status within the organization, number of employees supervised, being members of influential networks, and having influential mentors) and not due to gender differences. 591 Having established that men and women are capable of providing the same quality and professionalism at work there remains the question of why women are facing glass ceilings and walls. Other than the demands of the job itself, women have to deal with the pressure of being perceived as ‘token minorities.’ A minority group is viewed as a token when its representation at work is between zero and ten percent and when it has supposedly received preferential treatment not necessarily because of its work capabilities but because of societal, organizational, or legislative pressure to advance its cause in organizations (basically quota fulfillment policies). Also, women need to cope with the pressures of proving their worth when faced with stereotypical bias and prejudice at work. Finally, women have to balance between professional work and their ‘second-shift work’ of family responsibilities (Burke and McKeen, 1994; Osborne, 2001; BiasHELP, 2005). Four primary potential obstacles are cited in the literature as obstacles in the workplace influencing women’s access to managerial positions. Those include: training and career development/promotion policies (Burke and McKeen, 1994), mentoring (or lack of) (Burke and McKeen, 1994; Adebowale, 1994), compensation schemes (Oakley, 2000; Whitehouse, 2004; Lewis, 2005; Tzannatos, 1998), biases in recruitment and selection (Graves, 1999), and the challenge of work/family balances (Brett and Stroh, 1994). The Role of Sex Stereotypes Stereotypes are our mental representations of human groups. Stereotypes are not only one individual’s impression of the world: they are shared representations of the groups within our environment and culture. Stereotyping involves judging people by their group affiliations rather than their individuality. Group characteristics assume to typify individual members (McGarty et al., 2002). Social role theory explains that gender differences are a result of our socialization into differing roles and behaviors. Women and men adapt to their specified gender roles by acquiring the skills and manners ascribed to them. Social norms require that men adopt agentic roles (i.e. being self assertive, being competitive, being a risk taker, demonstrating a high desire for achievement, showing independence, etc.); on the other hand, women adopt communal roles (i.e. being kind, being gentle, showing support, demonstrating tact, showing affection, etc.). It is important to note that the behavioral attributes given to men and women are not only different in their assigned roles but these attributes are also valued differently. Most often than not the traits associated with men are valued more than the traits associated with women. This unequal valuation process is more pronounced in the competitive world of work (Carli and Eagly, 1999; Stangor and Schaller, 1996; Heilman, 1997). Social Identity Theory Social identity theory was first developed in the 1970s in an attempt to link the individual with his/her social surroundings. The theory suggests that the concept of whom and what we are is based upon our affiliation with certain social groups and categories. A person’s social identity is formed through two components: first, the personal component which are distinctive personality traits and characteristics unique to the person (intellect, character, and physical traits), and second, the social component that is an end product of socio-economic class, status, culture, religion, race, and sex (Abrams, 2004). Part of women’s social identity is their gender identity. Culture prescribes to us how people should behave and in specific how males and females are expected to conduct themselves in society. These culturally imposed codes of conduct socialize males and females into their respective gender roles. Gender identity is the ‘self concept of possessing masculine and/or feminine characteristics’ (Powell and Butterfield, 2003). How women perceive themselves and their group identity is part and parcel of their gender identity at work (Powell and Butterfield, 2003; Ely, 1995; Abrams, 2004). Ely (1995) highlighted three outcomes of social identity theory and how they affected women’s gender identity in organizational settings. First outcome is perceptions of group differences. Social identity theory posits that as a certain group identity becomes ingrained and accepted as status quo, groups members will tend to exaggerate and act upon these supposed differences (self-stereotyping). A second outcome of social identity theory (with regards to gender identity) relates to group evaluations and requirements for success. It is assumed that groups evaluate their in-group more favorably than out-groups (positive distinctiveness). However, in situations where the status quo of in-groups is clearly labeled as a minority group with inferior status, then in-group members will come to believe that the out-group is the more favorable group (a social creativity strategy). In male dominated organizations women will 592 favor the attributes assigned to men (as prerequisites for organizational success) more than female attributes. The third effect of social identity on gender identity in organizations is perceptions of self. Ely (1995) posed two alternate hypotheses on how women in organizations perceive themselves. Women may, in hope of being affiliated with the high status ‘male’ out-group take on ‘male’ attributes. This phenomenon is known as ‘sex role spill over’. The second hypothesis describes how women will come to internalize and believe the gender identity they have been labeled with (the self-fulfilling prophecy). Women will act upon the prescribed female stereotype and will perceive themselves as not having the right attributes to succeed at work. Ely’s qualitative and quantitative findings leaned more toward the second hypothesis. RESEARCH METHODOLOGY Problem Definition and Research Questions The purpose of this project is to examine Lebanese workers perceptions of the gender roles of men and women and to examine workers’ degree of acceptance of women employees in the Lebanese labor force. The research will try to: 1. Study whether socio-economic factors influence worker’s perceptions of gender roles 2. Measure sexist attitudes (defined as attitudes that “function to place females in a position of relative inferiority to males by limiting women’s social, political, economic and psychological development” (McHugh and Frieze, 1997, p.9). 3. Measure the degree of conservative versus egalitarian attitudes toward the rights, role, responsibilities, and work abilities of women. Conservative attitude defined as accepting the traditional gender roles that society and culture has historically bestowed upon the sexes. Egalitarian attitude defined as accepting “women entering traditional men’s roles, and men who enter typically traditional women’s roles” (McHugh and Frieze, 1997, p.8). To better shed a light on the problem at hand, qualitative research was done. Seventeen working women participated in a focus group that was conducted to assess their attitudes concerning the following topics: perceptions of female work attitudes, perceptions of the work competency between men and women, perceptions of differences in the work capabilities of men and women, general beliefs on gender differences, and work and life balance for working mothers. The following research questions are posed: 1. How does social background (educational level, working mom, working dad, degree of religiosity) affect attitudes to gender roles? 2. How supportive are Lebanese workers in enhancing the work and life status of women? Do Lebanese workers deny the existence of discriminatory gender attitudes in our society today i.e. is there denial of the existence of gender inequality? 3. How affiliated are men/women to their in-groups? How often do Lebanese workers attribute negative outcomes to gender inequality? 4. What are Lebanese workers attitudes toward (the abilities of) working women? How do Lebanese workers rank on traditional/conservative attitudes versus egalitarian attitudes toward women’s roles? What are Lebanese workers attitudes toward gender roles i.e. what are the rights, roles, and responsibilities of women versus men? HYPOTHESES Based on secondary research (literature review), primary qualitative research (focus group), and the research questions the following hypotheses were developed. Social identity theory establishes that the environment and culture around us contribute to the development of our gender identity. Thus, hypotheses one through four seek to assess the effects of socio-economic factors on workers attitudes toward gender roles. Hypothesis 1: Workers with two working parents will have a more egalitarian attitude toward gender roles. 593 Hypothesis 2: Workers with highly educated parents will have a more egalitarian attitude toward gender roles. Hypothesis 3: Workers with high educational attainment levels will have a more a more egalitarian attitude toward gender roles. Hypothesis 4: Highly religious workers will have a more conservative attitude toward gender roles. The social component of identity is when people categorize themselves by developing an attachment with their particular socially constructed groups. Women’s social identity and their perceptions of it become critical when women begin to compare their in-group with the out-group (men) and when status differences between such groups become part of the status quo. Women will bond because of the perceived discrimination against them (i.e. the shared social identity). Hypothesis 5: Women perceive discrimination against their gender group. Hypotheses six, seven, eight, and nine all relate to perceptions of in-group versus out-group differences. In evaluating group requirements for success the in-group (women in this case) will join the out-group in reinforcing them with a positive identity, self-image, and status. Thus, a way of dealing with self-perceptions is by accepting “status differences…and the value systems that support these differences” (Ely, 1995). Hypothesis 6: Workers will display low levels of support for policies designed to enhance the status of women. Hypothesis 7: Workers will deny the existence of discriminatory gender attitudes. Hypothesis 8: Women who rank high in sexist attitudes will not feel affiliated to their gender group. Hypothesis 9: Workers will have a traditional/conservative outlook toward gender roles. Research Design A survey was formulated to help answer the project’s research questions. The survey was divided into four sections. The first section, section A, is composed of two scales that serve to determine respondents’ degree of sexist attitudes. Sexist attitude scales are aimed at measuring the amount of stereotypic type of beliefs and attitudes toward gender roles. Section A is sub-divided into two parts. The first part is composed of a modified version of the neosexism items scale (Frieze 2005) that was originally developed by Tougas et al. (1995). The neosexism items scale tries to detect subtle prejudice and covert negative feelings against women. The scale examines “respondents’ lack of support for policies designed to enhance the status of women” (McHugh and Frieze, 1997, p.10). The version of the neosexism items scale used in this project is composed of nine items. The modern sexism scale, also extracted from Frieze (2005), comprises the second part of section A. Swim et al. first developed the modern sexism scale in 1995. The eight items on the modern sexism scale measure “denial that gender discrimination continues to exist, resulting in unsympathetic resistance to women’s demands” (McHugh and Frieze, 1997, p.10). The section B of the survey is divided into two parts. The first part assesses gender group identification by measuring respondents’ emotional attachment to their in-groups. The four items in the scale were taken from Schmitt et al. (2002). In the second part of the section B respondents are asked to indicate the degree of prejudice they attribute to being members of their gender group for six hypothetical situations. This procedure was also taken from the Schmitt et al.’s study. Gender role items scale constitutes section C of the survey. The gender role items scale measures attitudes about the employment abilities of women and their roles, responsibilities, and duties. The scale classifies respondents as either egalitarian or conservative in their attitudes toward gender roles (Frieze, 2005). Originally the scale is made of ten items. However, the last item was deleted, because of its cultural irrelevancy. Also some items were reworded taking into consideration cultural issues. The last section of the survey, Section D, is for demographic data. 594 Data Collection The survey’s target population was defined rather broadly as individuals aged 20 plus, living in Lebanon, and are employed or seeking employment. After the survey had been designed and tested, it was transformed from a Word Document into Microsoft FrontPage format and published on a personalized website. The webpage was designed in such a way that as respondent’s filled out the survey their answers were directly recorded onto an Excel spreadsheet. The survey was tested again on the webpage to ensure that the link opened without any hitches. The survey was then emailed to friends, acquaintances, MBA students, and academicians. The original mailing list included around 130 email addresses. The recipients of the survey received an email that explained what the survey and project were about. Some mobile text messages were sent to recipients urging them to check their emails and fill out the survey. The e-mail also instructed recipients to forward the survey link and who they should forward it to. This snowball sampling technique obtained 397 survey respondents. Due to time constraints, the survey’s webpage remained active for only twelve days. RESEARCH ANALYSIS Responses from 397 respondents were collected (see Table 1 for demographic data). Findings 1. Hypotheses One through Four Social identity theory establishes that the environment and culture around us contribute to the development of our gender identity. A person’s social identity is a by-product of his/her socio-economic class, status, culture, religion, race, and sex. Thus, hypotheses one through four try to tap into the relationship between people’s socio-economic background and their perceptions of gender identity. Hypotheses one through four used the gender role items measure. Nine items in the gender role measure determine respondents’ attitudes about the employability of women and the role, responsibilities, and duties of women in life. It ranks answers according to conservative versus egalitarian. The nine items are rated on a five-point Likert-type scale ranging from strongly disagree to strongly agree. Some items in the measure are reverse scored; these items measure egalitarian attitudes, whereas the remainder of the items measure traditional attitudes. A low score on the measure indicates an egalitarian attitude, whereas a high score indicates a conservative attitude. If a respondent scored a total mean of less than (more than) three, then the respondent was categorized as having an egalitarian (conservative) outlook toward gender roles. The gender role measure was found to have an acceptable Cronbach reliability alpha of 0.766. It is interesting to note that for hypotheses one through four, item number three ‘Preschool children are likely to suffer if their mother works’ was found to be consistently insignificant. Education Sex Age Table 1 Demographic profile of respondents Frequency Percent 20 - 35 years 339 85.4 36 - 50 years 45 11.3 51 years plus 13 3.3 Male 166 41.8 Female 231 58.2 Finished School 1 0.3 Some university/technical college 23 5.8 Finished university/technical college 135 34.0 595 Salary Job Position Finished/attending graduate studies 232 58.4 Other 6 1.5 $400 - $800 37 9.3 $801 - $1200 89 22.4 $1201 - $1600 42 10.6 $1601 - $2000 33 8.3 $2001 plus 155 39.0 Unemployed 41 10.3 Middle management 154 38.8 Frontline/Executive 97 24.4 Upper management 42 10.6 Student 39 9.8 Academic professional 30 7.6 Doctor 19 4.8 Unemployed 16 4.0 Table 2 Hypothesis one: summary of results Hypothesis 1 (N = 192 and Test Value = 3) Std. Sig. Mean Mean Deviation Value Difference 1.Respondent believes that a working mother can establish as warm and secure a relationship with her children as a mother who does not work 2.Respondent believes women are much happier if they stay at home and take care of their children 3.Respondent believes preschool children are likely to suffer if their mother works 4.Respondent believes that men and women should be paid the same money if they do the same work 5.Respondent believes that a woman should have the same job opportunities as a man 596 2.59 1.233 .000 -.411 2.06 .980 .000 -.938 2.97 1.095 .742 -.026 1.44 .829 .000 -1.557 1.71 .941 .000 -1.286 6.Respondent believes men should share the work around the house 7.Respondent believes a woman's job should be kept for her when she is having a baby 1.77 .905 .000 -1.234 1.74 .827 .000 -1.255 8.Respondent believes that women who do not want at least one child are selfish 2.82 1.308 .055 -.182 9.Respondent believes a woman can have a full and happy life without marrying 2.83 1.229 .062 -.167 2.2157 .62072 .000 -.78427 Overall Average Hypothesis one posits that respondents with two working parents will have a more egalitarian attitude toward gender roles. A one-sample t test revealed a significance value of 0.000 with a mean response rate significantly less than the test value of three. Therefore hypothesis one is supported. It is noteworthy that item number four ‘Men and women should be paid the same money if they do the same work’ received the highest rate of agreement from respondents. Meanwhile, when the mean response rate for item number three ‘Preschool children are likely to suffer if their mother works’ was split to reflect the responses of men versus women, it was observed that women’s mean response rate of 2.73 significantly indicated an egalitarian response, whereas men’s mean response of 3.26 significantly indicated a conservative response. Hypothesis two states that workers with two highly educated parents will have an egalitarian attitude toward gender roles. A one-sample t test revealed a significance value of 0.000 with a mean response rate significantly less than the test value. Thus, hypothesis two is supported. Table 3 Hypothesis two: summary of results Hypothesis 2 (N = 128 and Test Value = 3) Std. Sig. Mean Mean Deviation Value Difference 1.Respondent believes that a working mother can establish as warm and secure a relationship with her children as a mother who does not work 2.55 1.285 .000 -.445 2.00 .896 .000 -1.000 2.85 1.109 .132 -.148 1.48 .922 .000 -1.516 5.Respondent believes that a woman should have the same job opportunities as a man 1.71 .923 .000 -1.289 6.Respondent believes men should share the work around the house 1.73 .900 .000 -1.266 2.Respondent believes women are much happier if they stay at home and take care of their children 3.Respondent believes preschool children are likely to suffer if their mother works 4.Respondent believes that men and women should be paid the same money if they do the same work 597 7.Respondent believes a woman's job should be kept for her when she is having a baby 1.85 .940 .000 -1.148 8.Respondent believes that women who do not want at least one child are selfish 2.48 1.170 .000 -.523 2.70 1.288 .010 -.297 2.1520 .68094 .000 -.84805 9.Respondent believes a woman can have a full and happy life without marrying Overall Average Analysis of item number four ‘Men and women should be paid the same money if they do the same work’ displays the highest rate of agreement from respondents. Even when responses were split to reflect those of men versus women, item number four still received the highest rate of agreement from both sexes. Analysis of item number three (‘Preschool children are likely to suffer if their mother works’) was insignificant. If responses are split between men and women, then it is observed that women’s mean response rate of 2.52 significantly indicated an egalitarian view, whereas men’s mean response rate of 3.21 insignificantly pointed toward a conservative one. Analysis of item number nine ‘A woman can have a full and happy life without marrying’ shows that women’s average response of 2.33 which is significantly an egalitarian response. Conversely, men’s mean response of 3.11 insignificantly borders on conservatism. The third hypothesis purports that workers with high educational attainment have a more egalitarian outlook toward gender roles. A one-sample t test revealed a significance value of 0.000 with a mean response rate significantly less than the test value. Therefore, hypothesis three is supported. Analysis of item number three (‘Preschool children are likely to suffer if their mother works’) shows insignificant results. If responses are split between men and women, then it is observed that women’s mean response rate of 2.74 was significantly egalitarian, whereas men’s mean response rate of 3.38 is significantly conservative response. Table 4 Hypothesis three: summary of results Hypothesis 3 (N = 373 and Test Value = 3) Std. Sig. Mean Mean Deviation Value Difference 1.Respondent believes that a working mother can establish as warm and secure a relationship with her children as a mother who does not work 2.Respondent believes women are much happier if they stay at home and take care of their children 3.Respondent believes preschool children are likely to suffer if their mother works 4.Respondent believes that men and women should be paid the same money if they do the same work 5.Respondent believes that a woman should have the same job opportunities as a man 598 2.72 1.253 .000 -.284 2.13 .975 .000 -.871 3.02 1.087 .703 .021 1.43 .796 .000 -1.566 1.75 .961 .000 -1.247 6.Respondent believes men should share the work around the house 7.Respondent believes a woman's job should be kept for her when she is having a baby 1.82 .886 .000 -1.185 1.79 .892 .000 -1.212 8.Respondent believes that women who do not want at least one child are selfish 2.83 1.289 .013 -.166 9.Respondent believes a woman can have a full and happy life without marrying 2.91 1.233 .143 -.094 2.2662 .62631 .000 -.73375 Overall Average Hypothesis four states that highly religious workers will have a more conservative attitude toward gender roles. With a significance value of 0.000, the average response rate for hypothesis four is significantly less than the test value. Thus hypothesis four is not supported. Other than item number three displaying insignificant difference with the test value, items eight and nine (‘Women who do not want at least one child are being selfish’ and ‘A woman can have a full and happy life without marrying’) display significance values of 1.000 and 0.807 respectively with positive mean differences i.e. leaning to the conservative side. Responses for items eight and nine were then split to reflect the views of men versus women. The mean responses for female respondents for both items were significantly egalitarian, while the male mean response were very significantly conservative. Table 5 Hypothesis four: summary of results Hypothesis 4 (N = 94 and Test Value = 3) Std. Sig. Mean Mean Deviation Value Difference 1.Respondent believes that a working mother can establish as warm and secure a relationship with her children as a mother who does not work 2.Respondent believes women are much happier if they stay at home and take care of their children 3.Respondent believes preschool children are likely to suffer if their mother works 4.Respondent believes that men and women should be paid the same money if they do the same work 5.Respondent believes that a woman should have the same job opportunities as a man 6.Respondent believes men should share the work around the house 7.Respondent believes a woman's job should be kept for her when she is having a baby 8.Respondent believes that women who do not want at least one child are selfish 599 2.77 1.379 .103 -.234 2.27 1.119 .000 -.734 3.16 1.194 .198 .160 1.47 .839 .000 -1.532 1.81 1.050 .000 -1.191 1.82 .915 .000 -1.181 1.77 .835 .000 -1.234 3.00 1.352 1.000 .000 9.Respondent believes a woman can have a full and happy life without marrying Overall Average 3.03 1.265 .807 .032 2.3427 .71116 .000 -.65734 2. Hypothesis Five Hypothesis five predicts that women will bond because of their perceived shared social identity of being a subordinate group. Hypothesis five states that women do perceive that there exists discrimination against their gender group. To test hypothesis five a prejudice across contexts measure was used. The measure asks respondents to rate six hypothetical situations according to the degree of perceived gender discrimination against them. Respondents have a scale from zero percent to a hundred percent with five percent increments to choose from. The higher the percentage, the more respondents perceive the situation as biased against their gender. When a onesample t test was conducted it revealed that scenarios one, two, and three had negative mean differences, while scenarios four, five, and six which had positive mean differences. Upon further scrutiny, we suspect that items one through three included scenarios in which the possibility for attributing the situational outcome to causes other than gender prejudice was more plausible. In the light of this, hypothesis five was reanalyzed with the exclusion of items one through three. The new analysis revealed - that with a significance value of 0.003 - the average response rate for hypothesis five is significantly greater than the test value of fifty. Thus hypothesis five is supported. Women do perceive discrimination against their gender group. Table 6 Hypothesis five: summary of results Hypothesis 5 (N = 231 and Test Value = 50) Std. Sig. Mean Mean Deviation Value Difference 4.You are assigned to a group of six students in order to complete a project. You are the only member of your gender in the group. The other members of the group are not very friendly and don’t pay much attention to what you have to contribute to the project. 5.You are having a conversation with a group of individuals, all members of the other gender. They laugh at everything you say, even though you are not trying to be funny. 6.You repeatedly ask your teaching assistant to help you prepare for the upcoming test. This teaching assistant seems to be more helpful to students of the other gender. Average of Scenarios 4, 5, and 6 54.52 34.465 .047 4.524 55.35 35.240 .022 5.346 57.99 31.318 .000 7.987 55.9524 30.38731 .003 5.95238 3. Hypotheses Six, Seven, Eight, and Nine Hypotheses six, seven, eight, and nine all relate to evaluating group requirements for success: the in-group (women in this case) will join the out-group in reinforcing them with a positive identity, self-image, and status. Hypotheses six through nine are not supported. The neosexism measure is to assess hypothesis six ‘workers will display low levels of support for policies designed to enhance the status of women’. The nine items on the neosexism measure were rated on a five-point Likert-type scale ranging from strongly disagree to strongly agree. Some items on the measure were reversed; these items are indicative of support for enhancing the status of women. The non-reversed items are indicative of un-supportiveness for policies designed to enhance the status of women. If a respondent scored a total mean of greater than three then 600 that indicates a higher sexist attitude (i.e. do not support the status advancement of women), whereas a total mean of less than three on the measure indicates support for the advancement of women. Table 7 Hypothesis six: summary of results Hypothesis 6 (N = 397 and Test Value = 3) Std. Sig. Mean Mean Deviation Value Difference 1.Respondent believes there is no discrimination problem against women in the labor force in the country 2.69 1.053 .000 -.312 2.Respondent considers the present employment system to be unfair to women 2.99 1.055 .887 -.008 3.Respondent believes women shouldn't push themsleves where they are not wanted 2.23 1.106 .000 -.768 4.Respondent believes women will make more progress by being patient and not pushing too hard for change 2.20 1.049 .000 -.798 5.Respondent believes it is difficult to work for a female boss 2.59 1.247 .000 -.408 2.70 1.228 .000 -.300 2.27 1.162 .000 -.725 2.84 1.066 .002 -.164 1.93 .988 .000 -1.065 2.4944 .61942 .000 -.50562 6.Respondent believes women's requests in terms of equality between the sexes are simply exaggerated 7.Respondent believes a woman should not seek a high level job if she plans to have children 8.Respondent believes many men, in order not to appear prejudiced, are inclined to give women more rights than they give men 9.Respondent believes in a fair employment system, men and women would be considered equal Overall Average After conducting a one-sample t test, item number two ‘I consider the present employment system to be unfair to women’ was found to have a significance value of 0.887. This item showed marked differences in the response rates between men and women. Female respondents’ average response rate of 2.85 was significantly egalitarian; while male respondents’ average response rate of 3.19 was significantly a conservative. On the other hand, both male and female mean responses reflected an egalitarian response for item number nine ‘In a fair employment system, men and women would be considered equal’. The neosexism measure was found to have an acceptable Cronbach reliability alpha of 0.724. A one-sample t test for hypothesis six indicated a mean response significantly less than the test value. Thus hypothesis six is not supported. Rather, there is evidence to the contrary. Hypothesis seven claims that workers will deny the existence of discriminatory gender attitudes. To test this, the modern sexism measure was used. The eight items on the measure were rated on a five-point Likert-type scale ranging from strongly disagree to strongly agree. Some items on the measure were reversed; these items relate to the perception that gender discrimination continues to exist. The non-reversed items deny the existence of gender discrimination. If a respondent scored a total mean of greater than (less than) three, then that respondent is high (low) in sexist attitudes. The modern sexism measure was found to have a low Cronbach reliability alpha of 0.478. 601 Table 8 Hypothesis seven: summary of results Hypothesis 7 (N = 397 and Test Value = 3) Mean Std. Deviation Sig. Value Mean Difference 1.Respondent believes women often miss out on good jobs due to sexual discrimination 2.78 1.031 .000 -.224 2.Respondent believes it is rare to see women treated in a sexist manner on television 2.27 1.045 .000 -.730 2.87 .940 .005 -.134 2.98 .952 .712 -.018 2.36 1.027 .000 -.637 2.19 .965 .000 -.811 2.41 .887 .000 -.594 2.5502 .59182 .000 -.44980 4. Respondent believes it is easy to understand the anger of women's groups 5.Respondent believes that over the past few years, the government and news media have been showing more concern about the treatment of women than is justified by women's actual experiences 6.Respondent believes discrimination against women is no longer a problem in this country 7.Respondent believes people in our society treat husbands and wives equally 8.Respondent believes it is easy to understand why women's groups are still concerned about societal limitations of women's opportunities Overall Average The analysis showed that if item number three, ‘Society has reached the point where women and men have equal opportunities for achievement,’ were to be removed then the Cronbach’s reliability alpha would increase to an acceptable 0.710 (Note: Item number three is a reverse scaled item. We presume that due to the wording used, many respondents did not interpret item number three as it was meant). After item number three was removed, a onesample t test revealed a mean response significantly less than the test value. Thus hypothesis seven is not supported, with evidence to the contrary. Analysis of item number four ‘It is easy to understand the anger of women's groups’ shows a women’s average response of 2.70 which is significantly egalitarian, while men’s mean response of 3.10 borders on conservatism, although insignificantly. Analysis of item number five ‘Over the past few years, the government and news media have been showing more concern about the treatment of women than is justified by women's actual experiences’ shows females bordering egalitarianism with males bordering conservatism, although insignificantly. Hypothesis eight states that women who rank high in sexist attitudes will not feel affiliated to their gender group. To test for gender group affiliation the gender group identification measure was used. The four items on the measure assess emotional attachment to one’s gender group on a five-point Likert-type scale ranging from strongly disagree to strongly agree. Respondents who score a mean of more than (less than) three do feel (do not feel) affiliated to their gender group. The gender group identification measure was found to have an acceptable Cronbach reliability alpha of 0.925. A one-sample t test revealed a significance value of 0.000 with a mean response rate significantly greater than the test value. Thus, hypothesis eight is not supported, with evidence to the contrary. Table 9 Hypothesis eight: summary of results Hypothesis 8 (N = 13 and Test Value = 3) 602 Mean Std. Deviation Sig. Value Mean Difference 1.Respondent values being a member of his/her gender group 4.15 .987 .001 1.154 2.Respondent is proud to be a member of his/her gender group 4.15 .801 .000 1.154 3.Respondent likes being a member of his/her gender group 4.08 .862 .001 1.077 4.08 .862 .001 1.077 4.1154 .80762 .000 1.11538 4.Respondent believes that being a member of his/her gender group is a positive experience Overall Average Hypothesis nine posits that all workers will have traditional outlook toward gender roles. As in hypotheses one through four, the gender role measure was used. A one-sample t test indicated a significance value of 0.000 with a mean response rate significantly less than the test value. A response rate of less than three implies an egalitarian attitude toward gender roles. Thus hypothesis nine is not supported. Analysis of item number three ‘Preschool children are likely to suffer if their mother works’ shows that female respondents disagree with the statement (significance value 0.001), while male respondents agree with the statement (mean 3.39) reflecting a conservative response. For item number four both male and female respondents agree that ‘Men and women should be paid the same money if they do the same work’. Item number nine ‘A woman can have a full and happy life without marrying’ shows a difference in attitudes between male and female respondents. Women’s mean response of 2.66 reflects a significant egalitarian response, whereas men significantly disagreed with the statement (mean 3.23), reflecting a conservative attitude. Table 10 Hypothesis nine: summary of results Hypothesis 9 (N = 397 and Test Value = 3) Std. Sig. Mean Mean Deviation Value Difference 1.Respondent believes that a working mother can establish as warm and secure a relationship with her children as a mother who does not work 2.Respondent believes women are much happier if they stay at home and take care of their children 3.Respondent believes preschool children are likely to suffer if their mother works 4.Respondent believes that men and women should be paid the same money if they do the same work 5.Respondent believes that a woman should have the same job opportunities as a man 6.Respondent believes men should share the work around the house 603 2.71 1.254 .000 -.295 2.15 .991 .000 -.849 3.03 1.108 .651 .025 1.44 .798 .000 -1.559 1.75 .951 .000 -1.249 1.82 .887 .000 -1.176 7.Respondent believes a woman's job should be kept for her when she is having a baby 1.81 .904 .000 -1.191 8.Respondent believes that women who do not want at least one child are selfish 2.84 1.293 .013 -.161 9.Respondent believes a woman can have a full and happy life without marrying 2.90 1.223 .101 -.101 2.2713 .62490 .000 -.72866 Overall Average Discussion Hypotheses one through four predicted that socio-economic factors influence workers’ attitudes toward gender roles. People’s social background does influence their perceptions and stereotypes of gender roles and responsibilities. Looking at the demographic profile of highly religious workers (Table 11), a likely explanation for the lack of support for hypothesis four could be respondents’ highly educational attainment, middle management organizational positions, and highly educated parents. Therefore, highly religious workers’ socio-economic background could be a probable influencing factor on their perceptions of gender roles and responsibilities. Their backgrounds may have socialized them into having an egalitarian outlook on the employment abilities, role, responsibilities, and duties of women in life. Table 11 Demographic profile of highly religious workers (as compared to overall sample) Hypothesis four N= 94 N= 397 Age between 20 - 35 years 88% 85.4% Finished/attending graduate studies 57% 58.4% Monthly salary of 2001 plus 40% 39% Middle management position 38% 38.8% Mother has/is finished/attending graduate studies 28% 27.5% Father has/is finished/attending graduate studies 38% 36.5% Relating hypothesis five and eight, the survey findings reveal that although women recognize their subordinate status, they will not necessarily perceive their gender group unfavorably. Hypothesis five predicted that women will perceive discrimination against their gender group. The findings indicated that women do perceive gender discrimination but only when the situation is noticeably directed against their gender. Thus women do recognize the unequal nature of the status relations between men and women. Now going to hypothesis eight where it was predicted women who are high in sexist attitudes are not affiliated to their gender group. Social identity theory finds that when group boundaries are resistant to cross boundary exchange (e.g. between men and women), then members in the so-called subordinate group will improve their status by creating positive distinctiveness for their identity. Women understand that it is hard to challenge the status quo, thus they will try to find ways in which to put their social identity in a more favorable and positive light. Therefore, although women admit to being discriminated against (hypothesis five), they still feel proud to be affiliated with their gender group (contrary to the prediction of hypothesis eight, which was based on Ely, 1995). The lack of support for hypothesis six, seven, and nine shows that respondents have an egalitarian perception of gender relations and roles. Respondents realize the existence of gender inequality between the sexes and are more open to the idea of women entering traditional men’s roles and vice versa (hypothesis seven and nine). Respondents 604 also recognize - that for more equitable gender relations - policies need to be designed and implemented to enhance the status and advancement of women (hypothesis six). CONCLUSION The purpose of this paper is to examine Lebanese workers perceptions of the gender roles of men and women. A literature review on gender inequality and factors aggravating women’s labor force predicament was done. The literature cites occupational sex segregation and the glass ceiling phenomenon as main reasons for the propagation of gender inequality in the work force. There are several obstacles that impede women’s access to managerial positions. These obstacles include: training and career development/promotion policies, mentoring, compensation, bias in recruitment and selection, and work/family balance. Two theories help explain the perpetuation of these organizational obstacles. First, sex role stereotype describes how stereotyping involves judging people by their group affiliations rather than their unique individuality. Second, social identity theory proposes that our environment and culture helps develop our group social identity. With respect to perceptions of gender roles in the organizational context, social identity theory establishes that women’s gender identity at work is shaped by the power differentials that are a consequence of sex stereotyping and hierarchal segregation. To better understand the perceptions of Lebanese workers on gender inequality, quantitative and qualitative research was undertaken. The findings of a survey of 397 respondents showed that socio-economic factors – such as both parents being active in the labor force, educational attainment of parents, educational attainment of respondents – affects how egalitarian respondents are in their perceptions of gender roles. The findings also indicate that although women recognize their status as a subordinate group, they do not necessarily perceive their gender group unfavorably. On the contrary, women feel proud to be affiliated with their gender group. Moreover, Lebanese workers perceive the existence of gender inequality between the sexes and are more open to the idea of women entering traditional men’s roles and vice versa. They also perceive the need for policies necessitating the status enhancement and advancement of women. How can these findings be explained within an orgainizational context? The study has shown that Lebanese workers have an egalitarian outlook on women’s work abilities. The next step would be to implement a more egalitarian atmosphere at work. Organizational climate is very much a result of the cultural environment. Work practices still maintain biases influenced by inequitable cultural norms (Meyerson and Fletcher, 2000). Managers need to find ways where corporate culture and philosophy, language at work, and organizational policies actually do reflect more egalitarian attitudes and environment (Katz 1987). Gender inequality is no longer as blatant and obvious a problem as it used to be. But that does not mean the problem does not exist. It is actually encouraging that Lebanese workers have an egalitarian perception toward gender roles. However, perceiving gender in/equality is not a solution in itself. It is only a first step toward an equitable solution. Diversity within the labor force enhances an organization and country’s economic performance, growth, and productivity. The MENA region needs to realize the benefits of properly utilizing its human capital to increase competitiveness and growth. The MENA region, thus, can no longer remain mainly dependent on migrant’s remittances, on its oil, and on its public sector. Women in the MENA region make up 49 percent of the population and approximately 63 percent of university students, while they are only 28 percent of the labor force (World Bank, 2004; ILO, 2000). Limitations and directions for future research Since the survey was web based, the target group was aimed at respondents who are computer literate and who have internet connection. Another limitation was the language factor. In the future having a hard copy version of the survey with a version in Arabic can widen the target pool and improve the representativeness of the sample. Also, the research suffers from limitations of convenience and snowball sampling. 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International Encyclopedia of the Social and Behavioral Sciences. Database online. Available from ScienceDirect. World Bank. 2004. Gender and Development in the Middle East and North Africa. http://lnweb18.worldbank.org/mna/mena.nsf/Attachments/GenderReport-overview/$File/GENDERREPORToverview.pdf. Accessed 17 September 2005. 607 Available WORK VALUES IN THE ARAB CULTURE Yusuf Munir Sidani American Univeristy of Beirut ABSTRACT Several studies have addressed the importance of work goals, work values, orientations, and ethics of managers. The volume of studies done only tells about the importance that work has in our lives. Fewer studies have addressed Arab contexts. The aim of the present investigation is follow the historical development of work values in the Arab culture. This study outlines the development of the work values in the Arab culture before the advent of Islam till our present day. In doing this the study elaborates, and presents research propositions, on the anetcdents of such work values and the relevant organizational impacts. INTRODUCTION Research investigations involving work values have concluded that different groups have different value systems (e.g. Fredrick & Weber, 1990). In addition, people in different cultures sometimes differ remarkably in the values that they have. One of the most popular studies and widely referred to approaches that delineates the difference in values across culture belongs to Geert Hofstede (1984, 1991, 2001). Hofstede indicated that people in different cultures vary across five dimensions: power distance, uncertainty avoidance, individualism and collectivism, masculinity and femininity, and long versus short-term orientation. In their discussion of work values, Nord, Brief, Atieh, and Doherty (1988) stress the need for cross-cultural examination of the concept of work values. This study responds to this by addressing the concept of work values in the Arab culture. A historical analysis of work values in the Arab context will be presented which will trace down their evolution and their current standing. A framework of work values, developed by Nord et al (1988), will be applied to the Arab value system. Work values in various Arab countries have been presented in different studies (Rice, 2005; Christopher et al., 2002; Noble et al., 2001; Sidani & Gardner, 2000). We suggest a model for the evolution of work values which consists of four stages: the pre-Islamic(tribal), the Islamic (or Prophetic), the post-Prophetic, and the current. The suggested historical dates are not meant to be rigid demarcation lines as some of these stages may be inter-connected. EVOLUTION OF WORK VALUES (1) The Tribal Stage: (before 622 C.E.) The early Arabs had a low appreciation for the work of craftsmen and artisans (Issawi, 1950), and a higher appreciation for trade and commerce. Their tribal life and work within the primitive bedouin environment emphasized the significance of endurance and communal cohesion. Under such conditions, group coordination and perseverance were necessary conditions for survival. The society valued the concepts of brotherhood, cooperation, and loyalty but within the same tribal unit only (Baali & Wardi, 1981). In relation to others, the values that dominated were those of rivalry and revenge, show and rapaciousness, in addition to hospitality and generousness (Almaney,1981; Ali, 1986-87). (2) The Islamic (Prophetic) Stage: (622-661 C.E.) The year 622 C.E. marked the creation of the first Muslim community in Medina -in today's Saudi Arabiaunder the leadership of Prophet Muhammad (Denny, 1987). This represented the establishment of a new 608 community where many of the concepts, values, and conditions of the Arabs were radically transformed. While still emphasizing the importance of endurance and communal cohesion, it was made clear that these values should be applied among all believers in the society, and not only within the individual tribal structures. In addition, the attitude toward certain professions -like manual labor- was drastically changed. Prophet Muhammad preached to his new followers that "the one who betrays (in his work) is not one of us," thus trying to encourage the transformed Arabs into applying their religious teachings into their daily life. The hand of the worker became "a hand loved by God and His messenger" and "whoever goes to bed exhausted because of hard work, he has thereby caused his sins to be absolved" (Prophet Muhammad in Abdul-Rauf, 1984: p. 10). The emphasis put on the spiritual aspects (e.g. forgiveness of sins, love of God...etc.) did not mean a denial of this world in one's work. The traditions of the early Muslims advocated such a balanced approach between this life and the life to come: "Work for this world as if your life in it is eternal; work for the other life as if you were to die tomorrow" (Haykal, 1976). The 'Islamic-Prophetic' stage ends roughly in the year 661 C.E. which witnessed the end of the reign of the four leaders who succeeded Prophet Muhammad after he died in 632. (3) The Post-Prophetic Stage: (661-1850s C.E.) This era is characterized by a series of dynasties and empires. The positive and action-oriented approach to work dominated through most of that period. Hajazi (1979) describes the prevalent value systems at the 'medieval' times as being "dynamic, flexible, assertive, and tolerant" (Ali, 1986-87: p. 95). During that era, workers' associations were organized and existed till the beginning of the nineteenth century (El-Banna, 1983). These associations, known as 'brotherhoods' or 'fraternities', regulated the various crafts and established rules of practice. This outlook, which was an application and an extension of the work philosophy in the Prophetic stage, culminated in the great accomplishments of the Arab-Islamic civilization during the Abbasid dynasty (750-1258 C.E.). During that era, "art and architecture flourished, as did crafts, trade, military tactics, and strategy." (Denny, 1987: p. 35-36). This stage ends roughly in the middle of the nineteenth century when the European interest in the Arab countries intensified and the Muslim empire started to disintegrate. (4) The Current Stage: (1850s-current) This stage is characterized by dynamic political and economic changes in the Arab world which are manifested in the creation of about twenty one states, and the discovery of oil which had major impacts on the Arab society. Hofstede (1984), based on an empirical cross-cultural research study on work values in forty countries, categorizes the Arab countries among those which have low individualism (i.e. a tightly integrated society), large power distance (i.e. inequalities in power are tolerated), strong uncertainty avoidance (i.e. a desire for clear and structured work environment), and high masculinity (i.e. distinct social roles are expected for men and women). The following sections describe the existing work values in the Arab culture. CURRENT WORK VALUES Abbas has made a strong effort to develop a line of research pertaining to work values in the Arab culture (e.g. Abbas, 1989). His studies included samples from Iraq, Saudi Arabia, Morocco, Bahrain, and UAE among others. The studies seem to strengthen the suggestion that Arab managers prefer the consultative style of decision-making and are not comfortable with delegation (Weir, 2000). Saudi and Iraqi managers seem to avoid responsibility and risk taking, are highly concerned about job stability, and are reluctant to delegate authority (Abbas, 1989). Salem (2000) highlighted the paradoxical characteristics of Egyptian managers, which makes it hard to categorize the managerial style of a typical Egyptian manager. In an empirical study on the work values of Arab executives, Ali (1986-87) indicates that the sociocentric value (high need for affiliation with little concern for wealth) is the most dominant system in the Arab society. The society is also characterized by being predominantly outer-directed with some inclination toward inner-directness. The outer-directed person "likes structure, and accepts rules, policies and group norms...[and] prefers a stable environment and job and tends not to set goals, but rather lives according to someone else's plan" (Ali, 1986-87: p. 96). The inner-directed person, on the other hand, sets goals and tries to influence his surroundings. 609 The first three characteristics in Hofstede's (1984) research run in agreement with Ali's (1986-87) findings described above. Low individualism is exemplified by a high need for affiliation. A strong uncertainty avoidance and large power distance are exemplified by the definition of an outer-directed person who prefers structures and clarity, accepts rules and finds no problem in following others' plans. These findings suggest a prototype of the contemporary Arab worker as one who cannot tolerate ambiguity or unstructured work environment. Accordingly it is proposed: P1: The best work environment for the typical Arab worker is characterized by clear and unambiguous formal hierarchy where superiority and accountability are plainly defined. 1- Characteristics of the Existing Value System: The firmly established traditional value system in the Arab society has been running into opposition with the modern imported systems. The conflict between the two systems gave way to yet another value system which characterizes the current Arab culture. Hajazi (1979) argues that unlike the medieval Arab value system which was characterized by dynamism and flexibility, the current value system "has, in some areas, become a taboo, tribal, submissive and fatalistic one" (Ali, 1986-87: p. 95). These new values are discussed below. a- 'Taboo': This refers to the rejection of most imported values and standards irrespective of their use. Symanski (1988) notes that although the Arab-Muslim culture cannot embrace unconditionally, in the name of development, the entire industrial civilization, it does not abandon the positive accomplishments of modern civilization. However, getting the positive accomplishments without the side effects is not easy. Among the things that reinforced the 'taboo' mentality was that "some Westerners continued to insist that unless the Arabs can shed their ideologies and appropriate Western technological commitments they would not be able to prosper" (Haddad, 1982: p.22). b- 'Tribal': This refers to the return to the values that were dominant during the tribal stage of the Arab history. In some Arab countries people pick ceratin jobs and leave the other occupations to other classes or even other nationalities. Ibrahim (1982) brings up the example of Saudi Arabia where people choose to join the prestigious Saudi Army or National Guard as these and similar jobs run in conformity with the tribal value system of courage, honor, and pride. This leaves other jobs in the country for foreigners who occupy about half of the white collar jobs and most of the blue collar jobs despite the positive trend in the past few years. The revived tribal values have also produced a system based on personal relations and favoritism. Tuma (1987) asserts that this led to a failure in building a bureaucracy based on merit, efficiency, or impartiality. c- 'Submission and Fatalism': This refers to the notion of seeing that the future is out of one's control, so it would be useless to be concerned about it. Such a mentality entails the lack of future programming or planning in some Arab organizations. Failures can easily be attributed to fate and predestination. Within this external locus of control, appropriate consideration is not given for internal factors such as hard work and competency. Consequently, this led to procrastination, carelessness, and disrespect for time (Ausaf, 1987). The current value system generated detrimental effects on various sectors in the Arab society which are mainly manifested in lower productivity and corruption (See for example Shafiq, 1983 for a discussion on productivity problems and Kisrwani 1971 for an example of corruption). 2- Possible Reasons behind the Current Status: The current status in work values can be attributed to religious, political, and economic factors. concentrate more on the latter factor later through discussing the impacts of oil production. We will a- The Religious Factor: Sometimes religious rigidity can lead to face value rejection of any proposed change (Terpstra & David, 1985). Testing the degree of conformity of new knowledge to the traditional values is done by religious leaders who are not scientists or experts in the different fields of knowledge (Tuma, 1987). It should be noted, however, that an understanding of the Arab culture requires a comprehension of the dual character of the Islamic faith because the "Islamic influence permeates Arab society," (Khalid, 1977: p. 129). Empirical research in the area of social psychology seems to support this view. Farah (1978) and Farah & Al-Salem (1980) studied group affiliations of Arab university and junior high school students. In both studies, Islam ranked higher than family, citizenship, national origin, and political ideology, regardless of the gender of the respondent. These findings suggest that Islam plays a major role in the thinking of the Arab individual. The introduction of 610 opposite or conflicting values will most probably result in a clash that has detrimental effects on performance. While sometimes a worker may function in an environment that opposes his value system (due to economic reasons as discussed later), his overall job satisfaction will be negative and his productivity will probably decrease. Thus we propose: P2: Organizational policies that run in conflict with the religious values of the Arab worker will result in lower job satisfaction and lesser productivity. b- The Political Factor: The political situation in the Arab area dictates the direction toward which all the societal programs should proceed. In other words, the educational, intellectual, economic, and administrative policies are pawns in the political games which the Arab rulers engage in. Tuma (1987) states that the governments in the Middle East have tried to play big brother or sister in the society where they direct and tightly control the economic and business decisions. c- The Economic Factor: The seventies marked a revolution in oil prices which had significant effects on the whole world. Oil constitutes more than 50% of the export revenues of more than ten Arab countries (99% for Iraq, 98% for United Arab Emirates, 93% for Saudi Arabia), (Kimball, 1984). The oil price boom resulted in mass migration from the poorer Arab countries (e.g. Egypt and Sudan) to the richer Arab countries (e.g. Saudi Arabia and Iraq). This had enormous social impact on both the sending and receiving countries (Kerr and Yassin, 1982). Ibrahim (1982) analyzes these impacts. The oil producing countries offer jobs with high starting salaries. Thus many employees from poorer Arab areas accept jobs that fall below their skill levels as long as the pay is attractive. This is detrimental in the long run as these employees will lose their adeptness over time. In addition, this leads to the disintegration of the notions that hard work and expertise are the road to a successful career and a secure financial future. For little work that requires minimum skills, a worker can earn much more money than if he stays in his own country. Therefore, it is proposed that: P3: The more a job contributes money to a worker with minimum efforts exerted, and/or few skills required, the more likely his adeptness will wane. Ibrahim (1982) argues that these negative effects on the work ethic go beyond those who actually have a job in the oil producing countries, to their home countries as well. Workers in these poorer Arab countries earnestly wait for a friend or relative who 'has made it' to help them get a job contract. Values that emphasize 'hard work', 'determination', and 'achievement', are replaced by 'luck', 'opportunity', and 'getting a contract'. Thus it is proposed that: P4: The more emphasis an individual puts on getting a job in a wealthier Arab country, the less likely is he to contribute to his existing job. The effect has also extended to the natives of the oil-producing countries who try to get richer while exerting minimum work. This could explain why many government employees have separate individual businesses. It is not uncommon to observe how some of these employees report in the morning then depart to look after their own businesses (Ibrahim, 1982). 3- Women and Work in the Arab Culture: Hofstede (1984) categorizes the Arab countries among those countries which are high on the masculinity index. This brings up the issue of the work of women which has been the center of heated debate for the last one hundred years in the Arab world. The efforts of progressive thinkers and feminist movements, as well as political and social changes in the past century improved –relatively- the situation of women. Women's education and right to work in traditional jobs such as medicine, teaching, and nursing has become undisputed in most of the Arab world and is allowed in religious circles. Arab human development reports point out that there have been important advancements realting to women’s development in the Arab world (Arab Human Development Report, 2002). Progress in Arab female education was the highest relative to any other region with female literacy increasing threefold in the past thirty years. Despite such enormous efforts, female adult literacy in the Arab countries in 2000 was 611 50% and female literacy rate as a percentage of male rate was 68% (Human Development Report, 2002). It should be noted that educational progress has varied from one Arab country to the other. In the United Arab Emirates, for example, in the year 2000, female literacy rate as a percentage of male rate reached 106% in the year 2000 while in Yemen it was only 37%. Such progress was paralleled by similar advancements at the social level. Metle (2002) indicated, for example, that Kuwaiti women are negatively influenced by the previaling traditions. Abdalla (1996) noted how Arabian Gulf women are stranded in restrictive long-established functions. Mostafa (2003) came across noteworthy disparities between males' and females' perceptions pertaining to roles in the Egyptian society. Women in the Arab world, with varying degrees among different countries, still experience severe limitations on their ability to get involved in economic and social matters and access to work opportunities. Noting that the conditions of women differ form one Arab country to the other, we expect the following: P5: In Arab countries that emphasize sex-segregation in the work-place, this segregation is likely to remain in the foreseeable future. P6: In the poorer countries the work of women is likely to persist mostly because of the economic need (e.g. Egypt and Lebanon). 4- The New Outlook to Work Values: Haddad (1984) notes how the contemporary Islamic literature looks on the individual as a responsible dynamic agent of God who dwells in this earth "for the purpose of managing, building, caring for it" (p. 156). An individual helps in shaping destiny within the laws God has set for the universe. From this outlook we see a departure from the concepts of total dependence on and submissiveness to predestination where man has no say in the affairs of his life. Qutb (1983), under a chapter entitled 'positiveness', explains that it is a duty of the 'believer' to view the universe from a positive active perspective. He asserts that there is a balance between the will of God and actions of man. Belief in God's omnipotence does not mean that man has no choice as this contradicts what God says in the Qur'an (Holy book of Islam) about the duty of man being an agent of God on earth. In addition, Ali (1987) indicates that "work in Islam is considered a virtue in light of man's needs...Islam stands, therefore, not for life-denial but for lifefulfillment" (p. 576). Based on the above research we propose: P7: Workers who adopt the re-interpreted religious attitude (which emphasizes the external and internal locuses of control) toward work will be more productive than those who adhere to the concept of predestination (an external locus of control). 5- The Work Values Framework: Nord et al (1988) developed a framework for work values where they classified several major approaches into a matrix (Intrinsic-secular, extrinsic-secular, intrinsic-non-secular, and extrinsic-nonsecular). The intrinsic refers to the contents of the work itself, while the extrinsic refers to outcomes that are dependent on the occurrence but not on the substance of work itself. The intrinsic secular cell thus refers to those who value work for itself (e.g. Marx) for secular reasons. The intrinsic nonsecular cell refers to those who see work as a means for a relation with God or some religious experience (e.g. monasteries). The extrinsic nonsecular cell includes those who value things that are associated with work though no reference is made to the specific contents of that work (e.g. Protestant work ethic as described by Weber). And finally, the extrinsic secular cell refers to those who, for nonreligious reasons, are concerned in outcomes that are associated with work regardless of the content of the work (e.g. Maoist China) (Nord et al, 1988). To the early bedouin, the nature of work was of extreme significance. Through specializing in certain professions (trade) that would promote his pride, while looking down at others (crafts), it can be argued that he cared about the content of the job itself more than the extrinsic outcomes associated with his profession. This would classify the early tribal stage in the intrinsic secular cell of the framework. 612 In our analysis of the Islamic (Prophetic) and the post-Prophetic stages, we dealt with the comprehensive outlook at which work was viewed as engulfing both the secular and the nonsecular, the extrinsic and the intrinsic. As discussed earlier, the nature of the Islamic faith would make such a combination possible. The four cells are not meant to be mutually exclusive cells, as Nord et al (1988) assert that the boundaries between these cells are permeable. The current work values in the Arab culture cannot be categorized in one cell. It can be argued that the current Arab society has lost the homogeneity it enjoyed for hundreds of years. There are sharp current differences across the Arab countries in terms of wealth, economies, political systems, natural and human resources. Some contemporary Arabs, with a revival of the tribal norms, carefully select the type of job they are involved in (e.g. an occupation with the military to satisfy their pride). Such a choice, as discussed earlier, reflects a revival of some of the tribal values that do not have any religious significance. Such orientations in work values can thus be classified in the intrinsic secular cell of the framework. This classification, it could be argued, applies more to natives of the rich Arab countries like Saudi Arabia and the Gulf countries. In those countries, natives enjoy financial security over and above their counterparts in other areas of the Arab world and thus they can afford to exercise their revived values of courage, pride, rivalry, and heroism. In coping with this class of the Arab society, managers should be aware of the implications of the tribal values. Pride comes before money, and hospitality is a virtue. Consequently we propose: P8: In rich Arab societies place more emphasis is directed toward the intrinsic value of the job rather than the monetary rewards of the job itself. Other workers do not enjoy the same fortunes of wealth and financial security. What we call 'the mainstream' Arab worker is the one who eagerly seeks a job with high pay regardless of the contents of the job. This is a prototype of workers in the poorer Arab countries (e.g. Egypt & Lebanon) who migrate to the richer countries of the Arab world. It is obvious that such work values are not based on any nonsecular foundations. Such directions in work values would classify them in the extrinsic secular cell of the framework. P9: Workers in the poorer Arab countries place more value on the monetary aspects of the job rather than its intrinsic value. The most notable feature of the current value system in the Arab culture is that it moved from encompassing the secular and nonsecular locuses of benefits to the secular one only. Religion, as explained above, continues to play a major role in the Arab 'mind'. Yet, it seems that the common belief is that adherence to its values in the work-place cannot lead to economic survival and financial security in today's unjust organizations. They are unjust because hard work is not proportionately rewarded nor is poor work penalized (Ibrahim, 1982). Tuma (1987) describes how recruitment decisions in some Arab countries are based on relatives and friends (and not on seniority, competence, or skills). Empirical research is needed to test the propositions above. Specifically, such research should include those workers who have migrated to the oil producing countries and compare their performances with a control group of workers who stayed in their home country. Ali (1988) developed an instrument which he termed 'Islamic Work Ethic' which would correspond to the new outlook toward work values discussed above. The use of such instrument in validating some of the above propositions may be worthwhile. The Arab world is an area of international importance for various economic and strategic reasons and it is hoped that such research could ease up the way for better transactions and understanding. 613 References Abbas, A. & Al-Shakis, M.. 1989. Managerial beliefs about work in two Arab States. Organization Studies, 10(2): 169-186. Abdalla, I.A. 1996. Attitudes towards women in the Arabian Gulf region. Women in Management Review, 11 (1): 29 – 39 Abdul-Rauf, M. 1984. A Muslim's reflections on democratic capitalism. Washington, D.C.: American Enterprise Institute for Public Policy Research. Ali, A. 1986-87. The Arab executive: a study in values and work orientations. American-Arab Affairs, 19: 94-100. Ali, A. 1988. Scaling an Islamic work ethic. 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Baalbaki Said Elfakhani Hind Rizk American University of Beirut ABSTRACT This paper highlights factors that can influence gold price, and develops a model that may explain gold price changes and predict future annual trends. Of central interest to this study is the gold price equation developed by Kaufmann and Winters in 1989. Our study essentially comprised of two phases. In its first phase, we verified the Kaufmann-Winters model on 19741988 data. We then applied the Kaufmann-Winters model for an extended period (1971-1998). The original Kaufmann-Winters model had the advantage of parsimony, it nevertheless overlooked some important factors known to influence the gold market. In our second phase we expanded Kaufmann-Winters model in order to integrate missing factors, namely supplydemand forces and the stock market development influence. One model was extracted that fitted the data very well. As such, the model is a candidate for prediction and forecasting. However, the model suffers from multicollinearity, which restricts its explanatory power. We propose a research methodology for future application. INTRODUCTION Because of its physical uniqueness, gold symbolized beauty, wealth and power played a central role in civilizations’ histories and worldwide monetary systems. Last decade witnessed, however, a fading of what seemed an everlasting myth: that gold has a growing value; in fact, its price took a declining slope, while in the past two years gold prices went up again more than forty percent. Most puzzling are the initiatives of some leading European central banks especially the Bank of England to auction more than half of their hoards in 1999, at a time when the Federal Reserve of the United States of America – recognized as the most powerful contemporaneous economy – continues to keep the largest international official gold holding as its major reserve asset. What is the real value of gold in today’s financial market? The question urges at a time where western stock markets are dwindling, and the world seems to suffer from a global economic crisis awakening reminiscences of the Great Depression. In an attempt to shed some light on the valuation of gold, this research theoretically identifies and empirically examines various factors that may influence the price of gold. A model was sought that would assist in explaining and help in predicting the price of gold. This work reviews the simple predictive model for gold price by Kaufmann and Winters published in 1989. The Kaufmann-Winters model has the advantage of parsimony and fits in an excellent way the studied data over 19741989. However, as commented by Kaufmann and Winters themselves, the model neglected factors of key importance that, in theory, would have been accounted for in explaining and in predicting the price of gold, like fabrication and central bank activities. Our research expands the Kaufmann-Winters model by incorporating these neglected variables relevant to the gold market price and attempts to find a statistically sound model that would highlight the major factors slashing down the gold price in the last decade. We begin by reviewing most recent theoretical foundations and empirical studies and publications on possible factors influencing gold price. We then present our own research methodology and analysis, discuss the findings, present our conclusions, and propose directions for future research. 616 GOLD AND ITS PRICE DETERMINANTS Gold plays an integrant part of the monetary system as it constitutes the main reserve asset of leading nations’ central banks. As of 1971, gold price fluctuated freely and was subject to market supply and demand forces similar to any commonly traded commodity. As documented in different researches, official announcements have short-lived impact on the spot price. Kitchen (1996) found that the price of gold responded positively to announced changes in USA Federal deficit projections. Christie-David and Chaudhry (2000) findings suggested that Gold responded to the release of Capacity Utilization, Consumer Price Index, Gross Domestic Product, and Producer Price Index, Unemployment Rate, and Federal Deficit releases. Tandon and Urich (1987) presented empirical evidence that unanticipated changes in US money supply had a positive effect on gold prices. Feldstein (1980) argued that gold prices have increased by substantially more than the general price level during the 1970s. Kauffmann and Winters (1989) showed that, using data from 1974 to 1989, gold price and US GNP deflator had highly significant positive correlation. Sjaastad and Scacciavillani (1996) estimated that, based on an analysis of gold for the 1982-1990 period, the real price of gold increased by between two-thirds and three-quarters of 1% in response to a one point increase in the world inflation rate. Barsky and Summers (1988) examining data of 1973-84 contended that long-term real interest rates negatively correlated with the relative price of gold and that this effect was a dominant feature of gold price fluctuations. Kauffmann and Winters (1989) documented that index of the US dollar value on the exchange rate market was a highly significant determinant of gold price. Sjaastad and Scacciavillani (1996) found that, exchange rates instability accounted for nearly half of the observed variance in the spot price of gold during the 1982-1990 period. While Kauffmann (1993) supported that one reason for the then unexpected weakness in the price of gold might be a worldwide substitution of US dollar for gold by holders, Sjaastad and Scacciavillani (1996) asserted that although gold is denominated in US dollars, the dollar bloc has a small influence on the dollar price of gold and it is rather European currencies that may have profound effects on the price of gold. Consistent with Kaufmann’s conclusion, Von Furstenberg (1982) found that non-gold reserves were raised through faster M2 growth in the US than in other industrial countries and that US monetary policy significantly influences evolution of international reserves. Furthermore, Tandon and Urich (1987) presented empirical evidence indicating that unanticipated components of announced changes in US money supply had a significant positive effect on Eurocurrency interest rates. Radetzki (1989) found that gold inventory owners exert a great influence on the gold market. Govett and Govett (1982) highlighted that during the 1977-1982 period when the price of gold started to rise dramatically, western mine production of gold has been declining. Kauffmann and Winters (1989) derived a formula where the yearly average price of gold correlated, among others with its annual world production. Selvanathan and Selvanathan (1999) showed that if the price of gold (relative to costs) increases by 10% and the price (in levels) remain the same for the next 5 years, gold production would increase until a new equilibrium price would result. Eggert (1991) found that prices of the major metals were cyclical because of the strong link between fluctuations in the overall level of economic activity and metal demand. Batchelor and Gulley (1995) examined jewelry demand and found direct price elasticity in the range –0.5 to –1.0 giving some evidence of speculative purchases ahead of expected price changes. Ball and Torous (1985), followed by Basou and Clouse (1993) suggested that gold market efficiencies exist. Tschoegl (1982) confirmed that options on gold reduced the daily price volatility. Varela (1999) found that near term gold futures are good predictors of the future cash price. Dionne and Garand (2003) showed that maximizing the firm’s value in the mining industry significantly affected the decision to hedge the price of gold. While Danielsen and Sorescu (2001) demonstrated that option introductions depressed prices of underlying asset due to diminishing short sale constraints. In the case of gold, derivatives give rise to accelerated supply of physical gold to the market. Although Neuberger (2001) found no empirical evidence 617 from existing data on the role of gold derivatives in depressing prices, he contended, however, that the accelerated supply probably did impact price downward, but that magnitude of the effect was much too small to explain the entire real decline of gold price. Last but not least and of central interest to our research, the Kaufmann and Winters (1989) model is a simple equation based on multivariate regression technique that fitted quite well gold price variability for the fifteen-year period studied by the authors (1974-1988). Kaufmann and Winters proposed the model: P = 313,329 I 2.2888 X-1.0818 T –1.6878 Or, alternatively: Log P = 5.496 + 2.2888 log I – 1.0818 log X – 1.6878 log T R2 = 94% and adjusted R2 = 92.4% where: P is the average market price of gold for the year. I is the US implicit GNP deflator index for the year (1982 = 100) X is the weighted index of the exchange value of the US dollar against currencies of ten industrialized countries for the year (March 1973 = 100) T is the metric tonnage of world production of gold The model reveals that Production, Dollar Index and Inflation explain 94% of the variability of Average Annual Gold Price. The predictors are highly significant at the 0.01 level. GNP deflator varies positively with gold price, whereas Dollar Index and Production vary negatively. Since Production adds to the supply side, it is natural to get a negative correlation with gold price. Dollar index and gold price move in opposite directions. Kaufmann (1993) explains the latter observation as a simple substitution mechanism between gold and the American currency. It must be noted here that the intercept value in the upper model is highly significant, signaling a mis-specified model where other relevant variables may be missing. Despite the appropriate parsimony of the formula, as commented by the authors, “a host of factors which logic would include as important to the price of gold are omitted from this model” (Kaufmann and Winters, 1989, p.312). Our present study expands the Kaufmann and Winters model into one that would include the neglected factors such as jewelry demand, central banks activities and capital investment in equities. The next section will evaluate Kaufmann-Winters simple predictive model of gold price for more recent data and will attempt to expand it with variables that were excluded, which might be of importance in explaining 1990s gold price moves. RESEARCH METHODOLOGY AND ANALYSIS Our study essentially comprised of two phases. In its first phase, the study verifies the model developed by Kaufmann and Winters for the same time span as published by the authors in 1989 (i.e. for the 1974-1988 data). We then apply the Kaufmann-Winters model for a much extended period (1971-1998). In a second phase all pertinent variables were combined with the original Kaufmann-Winters model to come up with an expanded model. Phase One: Replicating and Extending the Kaufmann-Winters model The Kaufmann Winters model was originally developed on data from 1974 to 1988. In our study, we first replicated the Kaufmann-Winters model (1974-1988) and then examined the Kaufmann-Winters model fit over an extended period from 1971 to 1998. Of note is that in 1998 the Federal Reserve Bulletin stopped publishing the G-10 Dollar Index used by Kaufmann-Winters and a new index was introduced instead. Very similar results were obtained for the model across by comparing original Kaufmann-Winters model on the original period as published by the authors, the replicated run we did, and in our application of the model over the extended period. The model still consistently explained up to 93% of the gold price variability, when tested the 1971 -1998 data. Table 1 reveals details of the model for data for the original period and for the extended period. TABLE 1 618 The Kaufmann-Winters Model a. Original 1974-1988 period b. Extended 1971 – 1998 period Log Price = b0 + b1 Log (GNP Deflator Index) + b2 Log (US Dollar Index) + b3 Log (Gold Production) R2 R Adj. R2 a. Kaufmann Winters Model over 1974-1988 period 0.97 0.94 0.924 ANOVA Sig. F Change DW F Change 1.813 57.91 0.000 106.019 0.000 b. Kaufmann Winters Model Extended over 1971-1998 period 0.966 0.933 0.924 1.501 Predictors: (Constant), LOG_PROD, LOG_$IDX, LOG_GNP Dependent Variable: LOG_PRIC B Std. Error t a. Kaufmann Winters Model over 1974-1988 period 5.497** 0.891 6.172 (Constant) 2.288** 0.175 13.078 LOG_GNP -1.081** 0.261 -4.144 LOG_$IDX 0.28 -6.036 LOG_PROD -1.689** Collinearity Statistics VIF Sig. Tolerance 0.000 0.000 0.002 0.000 0.6 0.849 0.687 1.668 1.177 1.456 0.358 0.776 0.307 2.794 1.288 3.262 b. Kaufmann Winters Model Extended over 1971-1998 period 6.254** 0.782 8.001 0.000 (Constant) 2.275** 0.135 16.897 0.000 LOG_GNP -0.972** 0.245 -3.969 0.001 LOG_$IDX 0.182 -10.234 0.000 LOG_PROD -1.866** Predictors: (Constant), LOG_PROD, LOG_$IDX, LOG_GNP Dependent Variable: LOG_PRIC Phase two: Expanding the Kaufmann-Winters model Analyzing different elements pertaining to supply and demand of gold as published by GFMS yearly tables, we examine factors on the supply side. Mine Production, Official Sector Sale, Old Gold Scrap and Net Producer Hedging are included. Demand side consists of Jewelry Fabrication, Other Fabrication, Total Fabrication, and Bar Hoarding. To avoid redundancy, Other Fabrication is disregarded (as Total Fabrication = Jewelry Fabrication + Other Fabrication). All of above data are yearly and expressed in metric tons. The following is the set of variables we use at this stage of the study. We first start by citing Kaufmann-Winters: GNP Deflator Index: Inflation (captured by the GNP Deflator Index) has long been considered a driving force for the value of gold. Because the main purpose of holding gold is to store value, the price of gold should be expected to go up with inflation. 619 Dollar Exchange Index: Kauffmann and Winters (1989) highlighted that gold was strongly influenced by the US Dollar value mainly because its price is denominated in US dollar. Hence its value in the rest of the world should fluctuate inversely with the value of the dollar vis-à-vis other currencies. The dollar fluctuates on foreign markets for many reasons such as interest rate differentials, in addition to its purchasing power parities. Mine Production: Mine Production reflects annual newly mined gold and activity of mining industry. Recent developments and new technologies boosted productivity of mining process particularly in South Africa, and that trend reached its maximum in the 1990s. In addition, lately developed modern hedging instruments offer mining companies numerous possibilities to manage their risk and output increased consequently. This surge in mining companies output boosts supply and may account for Gold Price decrease. The following variables are added to Kaufmann-Winters set of variables: Official Sector Sales: A tide of official gold sale was particularly prominent in the 1990s. Official sector sales overthrew the gold market to such an extent that Central Banks of important nations signed the Washington Agreement on Gold, to put a ceiling on gold auctions. The purpose behind the aforementioned agreement was to lease gold (rather than selling it) and earn interest from an otherwise inert metal asset, which indirectly fosters physical supply. Old Gold Scrap: Old gold scrap is any recycled gold. Scrap can be a significant element in gold supply, especially in times of sudden price rises or regional political crises such as in the Middle East. Producer Hedging: Hedging is all about financial engineering. It is an insulation from market risk. Producers use futures and options instruments to cover their positions in case of price falls and this procedure brings future mine production to the market at accelerated pace (also termed accelerated supply). Gold Fabrication: Fabrication of 24-carat jewelry is an important outlet for gold industry. Though no more important in western habits to invest in high carat jewelry, oriental and eastern civilizations view jewelry as part of individual wealth and investment. Bar Hoarding: On the other hand, gold is an important raw material for several other industries such as dentistry and electronics. Hoarding includes all purchase of gold by private individuals, which is held, often hidden at home, as a safeguard against military invasion, political or economic turmoil. It must be noted here that the above noted variables are introduced to the Kaufmann-Winters’ original model predictor variables, to reflect supply and demand factors. Standard and Poor 500 Index: In addition to supply and demand variables, we also opted to include another predictor variable: Standard and Poor 500 Index. Investment instruments on the stock market may be competitive substitutes for putting capital in gold, and investor disinterest in gold may have something to do with a lack of promotion. “Whereas brokers aggressively push shares at retail investors, few people receive a phone call, marketing literature or an email from those seeking to encourage gold investment” (GFMS, 2001). Standard and Poor’s 500 Index would capture such trends. The dependent variable in the model is the average yearly gold price as published by GFMS. Since all published data on gold is no more frequent than yearly, it seemed logical to incorporate the average annual London PM fix price. In this manner, predictive equation would trace variability on the long run and would be of interest for longterm gold watchers. Underneath are sources of our data. Supply and demand variables are compiled by Gold Fields and Mineral Services in their annual Gold Survey (2002 and 1989) and measured in metric tons. GNP deflator index is published by the US Department of Commerce, Bureau of Economic Analysis, website accessed at: http://www.bea.gov/bea/dn/nipaweb (Table 7.3 on the site). The G-10 Dollar Index which was used by Kaufmann and Winters is replaced by the Nominal Major Currencies Dollar Index, a weighted average of the foreign exchange values of the US dollar against a set of currencies. We used the Major Currencies Dollar Index as reported by the Federal Reserve Bulletin on the webpage address: 620 http://www.federalreserve.gov/releases/h10/summary/indexn_m.txt. Standard and Poor 500 Index was obtained from Yahoo Finance Historical Prices available from: http://table.finance.yahoo.com/k?s=^gspc&g=d. It should be noted that, unfortunately, the expanded model could only be applied to the period after 1990. Before 1990, GFMS published data related to the western ‘free economies’ only. So, data on some of our proposed variables was missing. It was not until 1990 that worldwide gold data could be adequately published. We rehearse the Kaufmann Winters procedure on years 1990-2001 while plugging in the model the new set of variables pertaining to the supply and demand, in addition to the S&P index, taken as a US capital market proxy. Hedging variable was discarded, since last two years show negative values, making it impossible to translate in decimal logarithm (also, Neuberger (2001) showed that a bigger time span is necessary to verify impact of hedging). The total list of considered variables included: Gold Production, Official Sector Sales, Old Gold Scrap, Jewelry Fabrication, Total Fabrication, Bar Hoarding, GNP Deflator Index, Dollar Exchange Index and Standard and Poor 500 Index. In our expanded version of the Kaufmann-Winters rehearsed model, the variables included explain 99.62% of variance and, needless to say, is highly significant at the 1% level. Log P = 0.552 + 1.771 Log (GNP deflator) + 0.833 Log (Jewelry Fabrication) – 0.943 Log (US Dollar Index) – 0.395 Log (S&P Index) – 0.249 Log (Hoarding) – 0.225 Log (Old Scrap) – 0.0927 Log (Official Sales) R square of 99.6% and Durbin Watson index of 1.879 TABLE 2 The Expanded Model 1990 – 2001 period Log Price= b0 + b1 Log (GNP Deflator Index) + b2 Log (US Dollar Index) + b3 Log (S&P Index) + b4 Log (Mine Production) + b5 Log (Official Sales) + b6 Log (Old Scrap) + b7 Log (Hedging) + b8 Log (Jewelry Fabrication) + b9 Log (Hoarding) R R2 Adj. R2 DW ANOVA Sig. F F Change Change Expanded Version of the Kaufmann-Winters Model 0.998 0.996 0.987 1.879 108.124 0.001 Predictors: (Constant), LOG_$IDX, LOG_SCR, LOG_JEWL, LOG_HOAR, LOG_$IDX, LOG_GNP, LOG_SP500; and Dependent Variable: LOG_PRIC Coefficients t B Std. Error Expanded Version of the Kaufmann Winters Model 0.522 0.718 0.727 (Constant) -5.934 LOG_OFF -9.27E-02** 0.016 -0.225* 0.054 -4.196 LOG_SCR 0.833* 0.178 4.687 LOG_JEWL 0.044 -5.724 LOG_HOAR -0.249* -0.943** 0.148 -6.377 LOG_$IDX 1.771** 0.286 6.199 LOG_GNP 0.05 -7.876 LOG_SP500 -0.395** Dependent Variable: LOG_PRIC Sig. 0.52 0.01 0.025 0.018 0.011 0.008 0.008 0.004 621 Collinearity Statistics Tolerance VIF 0.303 0.198 0.072 0.231 0.201 0.079 0.041 3.297 5.05 13.829 4.323 4.965 12.607 24.374 Of note is that Gold Production and Total Fabrication did not make it in the model. Upon examining the multivariate regression assumptions, autocorrelation was ruled out (Durbin Watson index of 1.879). Multicollinearity, however, is rampant. Multicollinearity occurs when some or all of the independent variables are highly correlated with each other. The presence of multicollinearity is clearly reflected by the high VIF values (refer to Table 2). Hair el al. (1998) report that a VIF (Variance Inflation Factor) value of more than 10 is a signal to the presence of multicollinearity. Although offering an exceptionally high R square, the model does not meet one of the normality assumptions of independence of the independent variables. Stevens (1992) contend that in presence of multicollinearity, which is a frequent problem when handling time-series analysis, one may opt to do nothing and not worry about the problem if the R square from the regression exceeds the R square of any independent variable regressed on the other independent variables. This is the case in our model. Thus, our model may still be used for predictive purposes. The model may yield acceptable forecasts. However, the model becomes questionable if intended for explanation and interpretation. Drawing up conclusions with respect to the effect of independent variables on the price of gold is dubious. Multicollinearity “makes determining the contribution of each independent variable difficult because the effects of the independent variables are mixed or confounded” (Hair et al., 1998, p.188). Hair et al. also warn that multicollinearity can have severe effects on the estimation of the regression coefficients and their respective statistical significance. “High degrees of multicollinearity can result in regression coefficients being incorrectly estimated or even having the wrong signs” (Hair et al., 1998, p.189). Still, as with Stevens (1992), Hair et al. (1998) contend that a model with high degree of multicollinearity might still be used for predictive purposes only. In an attempt to try and address the multicollinearity problem, we resorted to running a stepwise regression technique (see Table 3). Only a single independent variable, namely the dollar exchange rate index, was retained in the stepwise regression model. Log P = 6.339 – 1.956 Log Dollar Index R2 = 80.7% and Durbin Watson = 2.064 TABLE 3 The Stepwise Regression Model 1990 – 2001 period Log Price = b0 + b1 Log (US Dollar Index) R R2 Adj. R2 DW Stepwise run: Expanded Model 0.898 0.807 0.78 Predictors: (Constant), LOG_$IDX and Dependent Variable: LOG_PRIC Coefficients B Std. Error Stepwise Run: Expanded Model 6.339** 0.702 (Constant) 0.361 LOG_$IDX -1.956** Dependent Variable: LOG_PRIC t Sig. 9.028 -5.413 0.000 0.001 622 2.064 ANOVA Sig. F F Change Change 29.302 Collinearity Statistics Tolerance VIF 1 1 0.001 The model significantly explains 80.7% of the gold price variability. However, the model offers limited explanatory insights as only one variable is retained. We believe that a more serious attempt to tackle the problem of multicollinearity would be through Factor Analysis. Factor Analysis helps reducing a data set from a group of interrelated variables into a smaller set of uncorrelated factors. Thus, the end result would be a multivariate regression model with price of gold as the dependent variable, and a number of uncorrelated factors constituting the predictor factors (each composed of varying proportions of our original independent variable). As such, the model would be quite suitable to shed important insights into what variables ultimately determine the price of gold. CONCLUSION AND DISCUSSION In this paper, we explored the different factors that may impact gold price trend. A simple look at annual gold price plots and trends shows that gold price have been appreciating with time until the 1990s. Taking a closer look at the 1990s year’s trend, investment in gold brought 30 percent loss over that period. Several theoretical considerations may help explain the price decline, deriving from factors that brought drastic changes to the gold market in the nineties, namely • Development of the derivatives instruments on gold • Central banks mobilizing their hoards • Increasing output of the Mining industry All three factors hence encouraged supply of gold – newly mined or from above ground stocks - to the market. Mining output average of the nineties increased by 60% when compared with the eighties. Central banks activities, pushed by the incentive of getting a return on gold in line with lease rates, destabilized the market to the extent that triggered an agreement to put ceilings on gold amounts to be leased (the Washington Agreement on Gold, in September 1999). On another front, gold derivatives development intricately linked central banks interests with those of mine industry hedgers and speculators. The whole process pushed the balance towards the short side of the market which gave rise to the concept of accelerated supply. Hence, this paper attempts to highlight factors and develops a model that may explain gold price changes and predict future trends. The study was motivated by Kaufmann and Winters (1989) simple model developed to predict gold price. The mentioned model, however, disregarded important factors that are suspected to influence the gold market. Our study essentially comprised of two phases. In its first phase, the study verified the model developed by Kaufmann and Winters an as published by the authors in 1989 (i.e. for the 1974-1988 data). We then applied the Kaufmann-Winters model for an extended period (1971-1998). In a second phase we expanded Kaufmann-Winters model in order to integrate the missing factors pertinent to the gold market moves, namely supply-demand forces and the stock market development influence. Our final list of considered variables included: Gold Production, Official Sector Sales, Old Gold Scrap, Jewelry Fabrication, Total Fabrication, Bar Hoarding, GNP Deflator Index, Dollar Exchange Index and Standard and Poor 500 Index. The rationale for including each of these variables was presented in the paper. One model was extracted that fitted the data very well (R square 99.6%). As such, the model is a candidate for prediction and forecasting of gold prices. We suggest putting this expanded model to test regarding its predictive capabilities and, perhaps, comparing it to the original Kaufmann-Winters model as a direction for future research. Yet, we do recognize that a severe problem of multicollinearity restricts the explanatory power of our expanded model. Thus, any attempt to analyze and seek insights into the effect of each of the independent variables on the price of gold is plagued with error. We propose the use of Factor Analysis as a way out. Also, the regression intercept was statistically significant implying a mis-specified model where other relevant variables may be missing from the model. Another limitation of our study is that our sample ended in 2001 when gold prices were still down. Yet, significant rise in gold price occurred since then, which warrants testing whether our results hold in both down and up market. Gold still maintains a central role in the financial system. Its price determinants shifted from the public to a more exclusive institutional control. At the daybreak of the second millennium, reinstitution of a monetary Gold Standard 623 was brought back into discussion. However, in order for the system to be viable, as contended by the most enthusiastic proponents, an appropriate price determination scheme is critical for the proper understanding of the valuation of this precious metal. REFERENCES Ball, Clifford A., Walter N. 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Selvanathan, “The Effect of the Price of Gold on its Production: a Time-Series Analysis,” Resources Policy 25 (1999): 265-275. Sjaastad, Larry A. and Fabio Scacciavillani, “The Price of Gold and the Exchange Rate,” Journal of International Money and Finance 15 (1996): 879-897. Sorescu, Sorin M., “The Effect of Options on Stock Prices: 1973-1995,” Journal of Finance 55 (2001): 487-514. Stevens, J.P. Applied Multivariate Statistics for the Social Sciences (2nd edition). Hillsdale, NJ: Erlbaum, 1992. Tandon, Kishore and Thomas Urich, “International Market Response to Announcement of Macroeconomic Data,” Journal of International Money and Finance 6 (1987): 71-83. Tschoegl Adrian E., “The Effect of Exchange Trading of Gold Options on the Volatility of the Underlying Asset,” Economics Letters 9 (1982): 77-80. Varela, Oscar, “Futures and Realized Cash or Settle Prices for Gold, Silver, and Copper,” Review of Financial Economics 8 (1999): 121-138. 624 Von Furstenberg, George M., “New Estimates of the Demand for Non-Gold Reserves under Floating Exchange Rates.” Journal of International Money and Finance 1 (1982): 81-95 625 EAST TIMOR – A NEW NATION IN THE MAKING Xia Yang Bloomsburg University of Pennsylvania, USA ABSTRACT Having won its independence after almost half a millennium of foreign rule, East Timor finally became a democratic republic in 2002, making it the newest country in the world,. With the democracy had come various opportunities of foreign direct investment, new markets and immense potential for multi national corporations to exploit. INTRODUCTION Location East Timor is geographically located in the Pacific Ocean and lies between Australia and Indonesia. With an area of about 11,880 square miles, it is just 375 miles from the Australian mainland. With a total area of just under 10,000 square miles, East Timor makes up the eastern half of an island in the Timor Sea. The island of Timor lies towards the eastern end of the chain of Indonesian islands running from Malaya, through Sumatra and Java, to New Guinea. The island is divided into two parts. Most of the western half remains part of Indonesia. The eastern half forms the bulk of the national territory of Timor, with its capital at Dili on the northern coast, a small enclave in the western half around the town of Oecussi, and the small island of Atauro 19 miles north of Dili. 42 Political & Historical Brief 43 The pre-occupation history of Timor is rather blurry. The South East Asian monsoon track was probably the migration route of the ancestors of the current people who populated the island. There seemed to be a rather sophisticated system of agriculture and the local artifacts indicate the use of iron though no written records have ever been recovered. The island was part of a trading system that had reaches as far as China and India. The 16th century saw the arrival of the Portuguese who occupied the eastern part of the island by the 1550s. The Dutch occupied the western part, which later became a part of the Dutch East Indies and was finally annexed into Indonesia. Even though the Portuguese were neutral during the Second World War, the Allied forces nevertheless occupied most of East Timor in 1941 in the attempt to stem the Japanese invasion of the now ASEAN region. The Japanese defeated the Allies and held the island until it was recaptured in 1945. The Portuguese regained control and occupied the island for the next 30 years until the Anti Portuguese Revolution in 1974. Indonesian Occupation 44 In 1974, the armed forces coup in Lisbon led to the fall of the Portuguese dictator Marcello Caetano in Portugal’s Carnation revolution. The Portuguese left-wing swept into power bringing with them a policy of decolonization. The left-wing decreed independence and relinquished control over all of Portugal’s colonies including East Timor. 42 Government of East Timor http://www.gov.east-timor.org 43 Government of East Timor http://www.gov.east-timor.org 44 BBC News – Asia Pacific Region November 5 1999 626 Decolonization began and the Timorese prepared for independence. The capital, Dili, was occupied by the Marxist Frente Revolucionaria do Timor-Leste (FRETILIN – Revolutionary Front for East Timor Independence). Meanwhile, across the Savu Sea in Indonesia, the Indonesian elite voiced strong concerns about East Timor’s independence, asserting three primary reasons for coveting the Timorese island: 45 The Indonesian military believed that if East Timor became independent and managed to survive, it would set a bad example to Indonesia’s other dispirited states. The Indonesian army had just brought the country together and won its independence from Dutch rule and the last thing they wanted was to see to preside over the disintegration of the country. Rich oil and gas deposits were available in the seas between East Timor and Australia which could be exploited for the Indonesian advantage. It was feared that a power vacuum in East Timor could possibly allow a potentially hostile government to take root in the Indonesian archipelago. The military intervention of the Indonesian troops and the subsequent famine that followed cost 100,000 Timorese lives. The FRETILIN, which was originally organized to fight the Portuguese occupiers, now faced a newer and more brutal adversary. There was little local resistance and the international community largely acquiesced. The military victory was won in a hard way. The Indonesian military forces wrongly calculated that the invasion would be over in two weeks, but it took years before the territory was pinned down, if not pacified. The United States knew about the invasion but did nothing to prevent it. The Timorese never gave up, and leaders such as the guerrilla commander Xanana Gusmao proved themselves a formidable match for Indonesia. The Indonesian army resorted to various methods of countering the insurgency – special intelligence operations were carried out by military units to turn the people against each other, Timorese were recruited to spy on fellow Timorese, and regular campaigns of violent intimidations were used to silence the population. In 1976, East Timor was constitutionally integrated into Indonesia and proclaimed its 27th province, an act that was never officially recognized by the United Nations. East Timor under Indonesian rule had both suffered and prospered. 46 It has been commonly acknowledged by East Timorese that the Indonesian government had poured more cash per capita into East Timor than any other province during the occupation period; roads, clinics and schools were being built. However, all these were not offered without strings and control. For example, clinics were not close to what they were being made out to be, education was in the Indonesian medium and the most lucrative industry in East Timor – coffee – was controlled by the Indonesian military. The Indonesian press was not permitted to print any information about the true socio-economic conditions of the province. Throughout the quarter century of the Indonesian occupation of East Timor, the Indonesian military (TNI) and the police force used torture and murder as consistent weapons of control. Torture methods employed by the military included hanging prisoners by chains, shoving steel poles down their throats, forcing them to eat dirt, applying electric shocks to their genitalia, pulling out finger and toenails, crushing fingers and toes under chair legs, dunking them under water, or temporarily suffocating them by putting bags over their heads. Torture of women frequently took the form of rape and sexual assault. In addition to using rape and sexual assault to terrorize and subdue the population in general, soldiers targeted the wives and sisters of men suspected of participating in the resistance. Through such kind of sexual tortures, they sought information about the whereabouts of members of the resistance; they also hoped it had the added effect of deterring the population from joining the independence movement. In addition, Indonesian soldiers also forced East Timorese women to serve as their sex slaves or "local wives." In 1977, the Indonesian military used a saturation bombing campaign to destroy forests and used chemical sprays to kill crops and livestock. In addition, the Indonesian Air Force dropped napalm bombs, killing people and turning 45 BBC News – Asia Pacific Region September 7 1999 46 Asiaweek – A Legacy of Bitterness – Jose Manuel Tesoro August 7 1998 627 everything in the area to ashes. In 1981, 80,000 East Timorese men were forced to participate in a gruesome military operation to weed out hiding resistance fighters. Many died from starvation during this month long operation. Because it disrupted farming, widespread food shortages followed. A massacre at Santa Cruz cemetery in 1991 in Dili killed more than 270 East Timorese. 47 International Disregard and Aid to Indonesia Little did the international community know about the situation within the territory. When news did eventually leak out, it was ignored. Western governments did not want to upset Indonesia. It was large, it was anti-communist, and it controlled highly strategic waterways. Under strongman President Suharto, the economy was also growing, which promised a big market for exports and lucrative contracts for foreign bidders. Since Indonesia’s 1975 invasion, the western world provided Jakarta with billions of US dollars in forms of military and economic assistance. Compared to Japan and the United Kingdom, which were Indonesia’s primary supporters in the 1990s, the United States was by far the Suharto’s most important supporter over the 1970s and the 1980s. At the time of the invasion, for instance, 90% of Indonesia’s military equipment was provided by the United States. In fact, it was the United States that had given Indonesia the go ahead before the Timorese invasion. Strategically, Indonesia is regarded by the United States as an important country in Southeast Asia. President Nixon once referred Indonesia as “the greatest prize in the Southeast Asian area.” The Clinton administration also regarded Indonesia as a rising economic power that the US had to cultivate for the benefit of US economic and military strategic interests. 48 The Independence in 1999 The Asian financial crisis toppled President Suharto. Indonesians found out about wide-scale military abuses across the country, especially in the north Sumatran province of Aceh where troops had attempted to crush a separatist rebellion. In February 1999, his successor, President Habibie, unexpectedly announced that he was willing to hold a referendum on East Timorese independence. Though many Timorese had long hoped for this news, the sudden Indonesian about-face exacerbated fighting between separatist guerrillas and the paramilitary forces, which were against Indonesia's withdrawal. A referendum was conducted UNAMET, United Nation in East Timor to decide whether East Timor would secede from Indonesia took place on Aug. 30, 1999. Although it was rescheduled twice because of violence, the East Timorese eventually voted overwhelmingly for independence from Indonesia. When the results were announced, the entire region descended into a state of anarchy: In the days following the election pro-Indonesian militias continued to kidnap, murder, and force the evacuation of local residents. Based on a U.N. report, up to a third of the population was forced out of the region. Aid workers, U.N. workers, and foreign diplomats became targets of the militias. The militias attacked the Australian Consulate, U.N. offices, and even the residence of the Australian Ambassador to Indonesia. The U.N. finished evacuating its personnel from East Timor on September 14, 1999, leaving behind a dozen military liaison officers. Despite repeated assurances that he would restore order to the region, and despite the imposition of martial law, Habibie was unable to restore stability to the region with his country's military forces. On September 12, 1999, Habibie announced that, as an alternative, Indonesia would accept a U.N. peacekeeping force for East Timor. Although some in the Indonesian parliament called for a ban on the involvement of Australia, the United States, New Zealand, and Portugal, Habibie did not impose any conditions on the makeup of the U.N. force. The UN force, which was led by Australia and consisted of troops from Australia, Britain, Thailand, and several other countries, was eventually launched the "Operation Warden" in East Timor. Meanwhile, the United States also sent about 200 troops to provide communications and logistical support. The “Operation Warden” began with the arrival of the first troops on September 20, 1999, and it met with no resistance from militias or the Indonesian 47 The Indonesian Torture Industry - Lindsay Sobel August 26 1999 48 Peace Review – Matthew Jardine June 1998 628 military. The leader of Indonesian forces, General Wiranto, said the Indonesian army would withdraw in phases and that he planned to turn over the region to the peacekeepers. This withdrawal ended 25 years of Indonesian occupation of East Timor, leaving behind a battered East Timor, a country in which only a small portion of the infrastructure remained undestroyed; a country that has only one senior policeman, no judges, a little over 200 secondary school teachers and virtually no one trained to manage or run public facilities such as power stations. However, with the aid from many countries as well as the UN, East Timorese had truly and independently began to govern their own country. POLITICAL STRUCTURE Under the colonization of Portugal, the Portuguese colonial government did allow the civilians to meet for political discussion. This led to the formation of three political parties. People joined these parities were social elites who were mostly educated in the Catholic schools of East Timor. The first, UPT (Timor Democratic Union), was founded with an aim to have Portugal remain in East Timor. The second political party, ASDT (Revolutionary Front of Independent East Timor, later FRETILIN), wanted total independence for East Timor. The third political party was Apodeti (Timorese Popular Democratic Association), its principal agenda is to integrate with Indonesia. Both the UPT and Apodeti eventually became aids and supporters of the illegal annexation by Indonesia. 49 Before independence, the ordinary East Timorese were only allowed to participate in the lowest levels of the government similar to what they had endured under Portuguese rule. This was also a time of great unrest which laid the foundation for the emergence of an independence movement. Eventually in May 1999, the UN, Portugal and Indonesia agreed to hold a referendum on August 30 1999 to decide the future of East Timor. 50 Over 98% of the voting population voted for independence. In the violence that followed, the Indonesian strata of the public administration fled with fear of their lives further pushing the nation into chaos. The UN intervened and set up a transitional administration UNTAET (United Nations Transitional Administration in East Timor). Some of the achievements of the UNTAET 51 include: The holding of completely peaceful elections on 30 August 2001 that resulted in an 88 member Constituent Assembly that drafted and approved East Timor’s first Constitution. The creation of the Second Transitional Government and appointment of the fully Timorese Council of Ministers The holding of free presidential elections on 14 April 2002 that resulted in the election of independence leader Xanana Gusmao as the first President The establishment of the National Program of Civic Education The holding of 200 Constitutional Public Hearings through which 38,000 East Timorese aired their views about what the first Constitution should hold The registration of 742,461 Timorese – virtually the entire population The normalization of relations with Indonesia The creation of the East Timor Defense Force now consisting of 2 battalions of respectively 600 and 250 soldiers The establishment of the East Timor Police Service with 1,697 police officials now posted throughout the nation The establishment of the Civil Service with approx 11,000 appointees The creation of a Commission of Reception, Truth and Reconciliation to seek the truth regarding human rights violations in East Timor Schools rehabilitation – nearly 700 primary, 100 junior secondary, 40 pre and 10 technical colleges with a total of around 240,000 students The creation of Radio UNTAET and the television station TVTL 49 Formation of East Timorese Political Associations www.uc.pt.timor/parties.htm 50 East Timor: Macroeconomic Management on the Road to Independence Valdivieso, Luis and Alejandro Lopez-Mejia March 2001 51 UNTAET’s 25 major achievements http://www.un.org/peace/etimor/fact/fs01.PDF 629 In 2000, the UN Transitional Administration for East Timor (UNTAET) established the East Timor Transitional Administration (ETTA), which comprised of international and East Timorese cabinet ministers. The ETTA was later transformed into the East Timor Public Administration (ETPA) after the 30 August 2001 Constituent Assembly elections. The ETPA was supervised by a solely East Timorese Council of Ministers. On 31 January 2002, East Timor's Constituent Assembly voted to transform itself into the country's first legislature. Legal System The legal system of East Timor had to be built up from scratch. Under Indonesian rule, there were no East Timorese judges and very few lawyers. 52 Following the 1999 ballot, the courthouse and other public buildings were destroyed in the fighting. Almost all of the trained Indonesian legal personnel fled the country. To improve the situation, the United Nations development programs, UNTAET and ETTA created a working legal system in East Timor. In 2000, 25 East Timorese judges were appointed along with 13 prosecutors and 9 public defenders. Most of these officials received theoretical training through a UNDP training project and the rest of their training was carried out at work. The transitional administration also re-established the court system with 4 districts in Dili, Baucau, Oecussi and Suai with the Dili court serving as the main court. These courts, however, were not able to put to trial the Timorese militia leaders responsible for the killings in 1999 or the Indonesian army officials who provided training and encouragement to the militia. Although the system was only able to handle crimes of small scale, it was a step in the right direction. In order to help the country heal and address the thousands of small crimes, a truth commission was set up. This allowed people who committed small crimes to admit to the crimes before the community. East Timor had about 10,000 cases of such a “lesser-crime) people who committed such a so-called “lesser-crimes” by aiding the proIndonesian militia in the 1999 election violence. Most of these individuals were hiding out in East Timor fearing repercussions from their own community. The commission allowed such people to return to East Timor after having admitted their crimes and completing a certain amount of community service. The truth commission helped the court system in that even though the courts were not able to handle all the lesser crimes, the people involved were still held responsible for their actions and a broken country could move on. 53 The country also needed a system of laws for governance. The laws framed during the Indonesian period were primarily meant for repressing the people. The new judicial system to be developed was aimed to restore the trust among the East Timorese who tended to regard the judicial system as corrupt and unjust. The UNTAET did create 30 new laws for the country but East Timor still lacked vital laws for handling the important national issues (e.g., land rights) that were related to private sector establishment. Moreover, during the transitional period, UNTAET continued with the existing business law as promulgated by Indonesian authorities. As UNTAET worked on reforming current legislations and new enactments, the previous system of Indonesian law was applied to businesses and commerce. A Central Payments office was created in 2000 to centralize all banking operations. During the same year, new laws on banking and regulation were under development. All businesses in East Timor were required to register with UNTAET prior to setting up ventures. 54 In 2001, UNTAET promulgated more concrete laws related to ownership of property. Businesses were regulated with a final and non-final income tax enforced by the East Timor Revenue Service with a withholding tax on the rental of land and buildings. This 10% tax on the gross rental payment was payable to the Banco Nacional Ultramarino (BNU) in Dili by the 15th of every month. In addition to this tax was an additional 10% service tax applied to restaurants, hotels and other service 52 Support to the Legal System http://www.undp.org/rbap/factsheets/judiciary.pdf 53 Truth Commissions of a Local Flavor – Tina Rosenberg – New York Times February 26 2001 54 United Nations Transitional Administration in East Timor http://www.un.org/peace/timor/UNTAETBO.htm 630 oriented businesses. The East Timor Revenue Service also conducted audits of businesses to ensure compliance with the laws. Up to 2001, the Revenue Service had collected $ 8 million in taxes. 55 ECONOMY & ECONOMIC FACTORS East Timor is primarily an agricultural economy with coffee as its main export. Before independence, the country was heavily dependent on external transfers, with approximately 85% of recurrent and capital expenditure coming from Indonesia. The average per capita income was somewhere around US$ 350, and 40% of the population had incomes and expenditures of less than US$ 0.70 a day. Also, with a per capita GDP of US$431 in 1996, 30% of the population was living below the poverty line. In 1999, the public and private sectors collapsed and as a result of the destruction. GDP was estimated to have fallen 34% and inflation was running in three digits. However, donor funding of around US$300 million per annum had helped stabilize the economy. In 2000 and 2001, the GDP grew remarkably by15 % and 18 % respectively. Such remarkable economic improvement did not prevent the country from the heavy reliance on imported foods to feed its population. East Timor has enjoyed the programs under the World Bank’s Trust Fund for East Timor (TFET), which helped the country to rebuid its economy. Specifically, these programs under TFET have enabled East Timor to: (1) rehabilitate its basic infrastructure, (2)use labor intensive public works to generate jobs for the poor in Dili; (3) provide loans to enterprises to revive the local economy and create jobs, (4) restore the water supply and sanitation infrastructure, (5) re-equip health facilities, (6) rehabilitate and develop agriculture and (7) renovate damaged schools. Currently, a microfinance program is also under development by the Asian Development Bank (ADB). Economic Potential 56 In the last three decades, the economy of East Timor has been structured in such a way that it has not been selfsufficient even in food. In fact, East Timor is one of the poorest areas in South East Asia with serious problems of illiteracy, malnutrition and disease. According to the weightings of the 1998 labor force survey, the country has an estimated labor force of 400,000 people, out of which 284,000 people are employed in agriculture and 115,600 outside agriculture. The six top potential sources of internal revenues are the exploitation of natural resources, particularly oil and gas, income and property taxes, exports of agricultural products (such as coffee, sugar, livestock and fish), tourism, remittances from abroad, and profits from state-owned enterprises. 57 East Timor has aimed to encourage the development of the private sector. After the independence, the country has formulated laws and policies to protect property rights and contracts, established fair commercial code, codified labor relations and tried to minimize the costs of doing business. East Timor’s beautiful climate is as equally attractive as its investment climate, which is certainly a natural endowment for agricultural and economic crops and products, particularly coffee, the main potential export crop of East Timor. However, coffee trees have not been adequately taken care for over the past 20 years. Wet processing facilities were damaged during the independence crisis and dry processing gives rise to a lower grade of coffee. Premium arabica coffee is grown in high altitudes and in the past was sold to the US based National Co-operative Business Association (NCBA) who sells organic coffee to the US based Starbucks chain. Low or poorer grade coffee was formerly sold to the Indonesia market. 55 UN Refugee Agency Repatriates East Timorese from West Timor http://www.un.org/peace/etimor/UNTAETF.htm 56 The Future of East Timor – Dr Stephanie Fahey July 2001 57 Economic viability of East Timor revisited’ - Saldanha, J. and da Costa 1999 631 East Timor’s livestock production includes cattle, buffalo, horses, pigs, chickens and ducks. Cattle may have some export potential but chicken production is limited to the domestic market. Fisheries also provide another potential income-earning opportunity. This includes ocean fishing, coastal fishing and shrimp farming. A fledgling industry existed prior to the independence crisis but much of the infrastructure has been destroyed and markets lost. Other major areas of productive capacity include oil and gas from the Timor Gap for which the Treaty between Australia and East Timor is currently being negotiated. Demand at this stage for gas is relatively low in Australia due to the use of fossil fuels; however this is likely to change as Australia moves toward a greenhouse policy. It is likely that benefits from oil and gas will not translate into the economy for some years, and when it does there could be a risk of inflation considering the buoyancy of the oil and gas sectors on the global stage. Some potential also exists in mining for marble, slate, manganese, limestone and clay for cement but again, a market needs to be found for these potential imports. CASE STUDY: AUSTRALIAN OIL FIASCO The greatest obstacle in normalizing relations with Indonesia may be the vast oil reserves under the sea between East Timor and Australia, known as the Timor Gap. In 1989, Indonesia and Australia signed a treaty that split the sea into three parts. One is controlled by Australia, and one by Indonesia. Another is jointly operated, and the revenues are divided between the two countries. In July 2001, East Timor and Australia signed an agreement which gave East Timor 90% of the royalties from future oil and gas production in the Timor Sea or Timor Gap that separates the two countries. The exploitation of hydrocarbons is likely to prompt rapid growth of East Timorese economy, with per capita income sets to rise from around US$ 378 in 2001 to US$1,000 or more by 2009. The revenue from oil and gas exploration could be East Timor’s principal contributing factor in the reconstruction and rebuilding of its economy. Australia, however, now considers the oil treaty void claiming around 90% revenue from all oil drilled in the Timor Gap. As for the tourism industry, East Timor exhibits extraordinary natural beauty with expansive white beaches, exquisite sunsets over the western coastline, mountainous terrain and microclimates, which contribute to rapidly changing coastal vistas. The natural endowment coupled with an international profile suggests tourism potential. In the short term, "tourism" may be limited to those exploring business opportunities or aid workers returning for shortterm visits. In the longer term, eco-tourism and backpacker tourism is also a possibility. Trade Because of East Timor’s size, production and exports were relatively undiversified which increased the vulnerability to price fluctuations. Furthermore, transport costs were high due to its remote location and the small volume. The small scale of the transport sector, and low volumes, increased the ratio of insurance and freight debits to merchandise imports. High transport costs also protect inefficient domestic industries. In 2000-2001, East Timor was in the process of negotiating new trading agreements with the EU and the US and other markets in the region. This challenge came at a time of increased trade liberalization under the auspices of the World Trade Organization (WTO) regime. For instance, preferences to the EU markets, which apply to African, Caribbean and Pacific (ACP) countries under the Lome Convention were slowly being eroded to conform to WTO and would cease to exist by 2008-2009. Nevertheless, it was likely that East Timor would maintain access to the EU market through its status as a least developed country (LDC). Unlike ACPs, its status as an LDC would result in benefits from duty-free access to EU markets for "essentially all goods" for an unlimited period. The UN defines LDCs. The current list of LDCs was determined on a basis of GDP per capita and Augmented Physical Quality of Life Index and an Economic Diversification Index. The list is reviewed every three years. Currently, there are 48 LDCs, out of which 14 are small nations with a GDP per capita of less that US$1,500. At this score level, East Timor easily qualified for LDC status. A relationship with Portugal as "a trampoline into the EU market" seems to be an appropriate longer-term strategy. Employment 632 At the end of 2002, the unemployment in East Timor was estimated at 43% in Dili and Baucau, the second largest town of East Timor. The unemployment in urban areas remains high, particularly among young people. In 1999, 41 percent of East Timor's 800,000 people were living below the poverty line and three-quarters of the population depended on agriculture for a living. Before the UN began its exit process, about 6,000 full time jobs were being provided by the ETTA and there were several programs provided temporary employment, including those financed through the Trust Fund for East Timor (TFET). Nearly half the adult population had difficulty reading and writing. 58 International Financial Aid In December 1999, 2 months after peacekeeping forces of the United Nations (UN) entered East Timor to restore peace, the international donor community set up a trust fund to provide grant assistance to help rebuild the country. ADB and the World Bank proposed and managed projects financed from the Trust Fund for East Timor (TFET). The World Bank administered a $170 million trust fund aimed at helping East Timor build its infrastructure without building up debts immediately. In April 2002, the ADB approved a US $29.8 million project in East Timor to undertake emergency road repairs, expand Dili port facilities and restore electricity. 59 On July 24, 2002, East Timor joined the IMF and the World Bank. According to the IMF, East Timor's reconstruction and political transition since 1999 was a great success, with a quicker-than-expected recovery, a positive economic outlook, and prospects of future oil revenues. 60 In January 2003, East Timor received a grant from the International Development Association (IDA), acting as the trustee of the Trust Fund for East Timor, in the amount of US$7.5 million equivalent toward the cost of the proposed SEP-2 (the Second Small Enterprises Project), and it is intended that grants proceed to payment for goods and consulting services to be procured under this project. 61 On January 13 2003, The ADB once again approved a US$600,000 technical assistance grant to create a national water resource management policy in East Timor. 62 World Bank in East Timor The first project sponsored by the World Bank in East Timor was the Community Empowerment and Local Governance Project (CEP). Its purpose was to provide local communities with a say in the setting of priorities and the choice of projects they thought beneficial and in the interest of the local communities. CEP was also one of the largest development projects in the country. Its aim was to convey to the Timorese that they, the people, needed to carve their own destiny and be the driving force behind projects for betterment of their nation. Newly elected village and sub district level councils decided which projects were to receive grant money. The World Bank’s strategy in East Timor was based on 5 basic objectives:Focus on the basics in the short term Provide research and capacity building in key policy areas as independence approached Build local ownership of development process at all possible levels Foster effective donor contribution for Government support Sequence implementations in order to match program implementation 58 The Advertiser December 11 2002 59 Rebuilding a Country – Pamposh Dhar http://www.adb.org/Documents/Periodicals/ADB_Review/2002/vol34_5/rebuilding_country.asp 60 East Timor Joins World Bank, IMF – BBC Online July 24 2002 61 Asia Pulse Pte Ltd January 6 2003 62 ADB: Creating a National Water Policy for East Timor January 13 2003 633 USAID Involvement Since 1988, USAID has been the largest single donor to East Timor. Almost US $ 100 million has been donated directly to the nation. USAID assisted East Timor in improving the health and nutrition of its people, enhancing its natural resources, strengthening its economy and reducing human rights abuse. The USAID aided projects had the following goals: Revitalizing the local economy Strengthening local media, civil society, democratic institutions and selected areas of governance Assisting the coffee industry. USAID was instrumental in breaking up the Indonesian coffee monopoly and getting coffee farmers to boost their production capacities in addition to getting them fair market prices for their produce. Community development Supporting Indigenous Civil Society Organizations Asian Development Bank As the primary regional development bank in the ASEAN region, ADB was positioned to play an inductive role in the reconstruction of East Timor. ADB had offered to work closely with the UN and the World Bank for the reconstruction and rehabilitation of East Timor. Its main aims were:Supporting governance and public sector management Delivery of essentials like health services, education, power and water Infrastructure rehabilitation Development of new democratic processes Development of corruption free governance and a culture of accountability Fostering economic growth to benefit those below the poverty line thus reducing poverty in the short term and improving living standards and social conditions in the medium term Current Status 63 Somewhere around the first financial quarter 2002, donor nations realized they did not have as much money as they thought they had. The battle against world terrorism after the terrorist attacks on September 11, 2001 became a more pressing and costly matter. The world had woken up to the reality that East Timor was, after all, a small and insignificant place. Just six months after East Timor became the world's newest country, the foreign investors began packing operations. The numbers of unemployed were swelling and people were going hungry. Athough the standard of living in Dili had improved slightly since independence, discontent was rife. Only 30 percent of people in the capital had jobs and more were coming to the city each day from the countryside looking for jobs. People became critical of Mr. Alkatiri and other ministers who had promised increased development, foreign direct investment and employment. The doors of discontent were blown wide open by a riot on December 4, 2002 in the capital that killed two people, left two dozen injured and reduced several buildings - including foreign-owned businesses and Prime Minister Mari Alkatiri's home - to smoldering ruins. President Xanana Gusmao appealed for simple logic. "If you burn people's houses and steal their possessions, they will leave," he said. "If they leave, what is going to happen to us? We will be alone with our poverty, without help, forgotten." Eventually, the good times rolled and investors leaped in. From Indonesia came the assurance that 200,000 refugees in West Timor could return safely. Australia promised to help exploit oil reserves in the Timor Sea, which by 2005 would start pouring lifeblood black gold into East Timor's coffers. 63 Dream Turns Sour for East Timorese – Peter Kammerer - South China Morning Post December 17 2002 634 CASE STUDY: ASEAN MEMBERSHIP East Timor fears that a membership with ASEAN would cause a tremendous strain on the national budget – something that East Timor cannot afford considering the present economic and financial circumstances. The Government says it is no hurry to join its South East Asian neighbors in any trade negotiations fearing the schedule of meetings and other conferences could prove too expensive to its already miniscule budget. The ASEAN, or the Association of South East Asian Nations encompasses Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. For a full membership of the ASEAN, East Timor must agree to open fully functioning embassies in each of the member nations; an investment which East Timor cannot afford at this point of time. Of the six embassies it has opened so far, only two – in Malaysia and Indonesia – are in the ASEAN states. INFRASTRUCTURAL DEVELOPMENT The United Nations’ estimate of destruction to infrastructure after the election violence in 1999 was put out at around 70 percent. In 1999, US $70 million was channeled into rebuilding East Timor's infrastructure when pledges from donor countries of the World Bank came through. Water and sanitation systems for the country were among the hardest hit. During the violence, most of the water stations were looted and water pumps, treatment plants and pipes were destroyed. Before the crisis, there were 62 functioning water stations serving the 13 districts of East Timor. The UN redevelopment programs were implemented to rebuild these stations, most of which are in need of major reconstruction, at a cost of US $25 million. By May 2000, the piped water system was repaired enough to establish a basic functioning level for all the 13 districts. During the violence, 37 of the 58 power stations ceased functioning due to damage. In addition, fuel shortages cut down on operation times of the stations to only evenings and for the most part only in Dili, which constitutes 70 percent of the demand for power. The power demand in East Timor was projected at increasing 16 percent each year and by 2003, the country was expected to have a 50% power shortage. Another vital constituent hit by the violence was the road system. As of 2001, the road system was in desperate need of repair due to the years of neglect by the Indonesian government. Neither of the two main roads that run along the northern and southern coasts was designed for heavy travel and was impairing the transportation of aid. East Timor has three ports at Dili, Carabela and Com. The ports, unlike other infrastructural constituents, did not suffer much structural damage although extensive damage was inflicted on equipment. The port at Dili remained the most accessible because of dense coral reefs impairing the other ports. However, the Dili port lacked navigational and unloading equipment hurting the delivery of much needed aid into East Timor. Restoration & Rebuilding Strategies 64 The ADB has outlined certain strategies for the repair of infrastructure in East Timor in each of the following areas: Transport - The restoration of transport infrastructure in East Timor was identified as the most urgent priority within the initial six-month work program for the Trust Fund of East Timor (TFET). In their current deteriorated state, roads and ports in particular, were not able to fully facilitate humanitarian efforts or security operations. Small carriageways, weak embankments, and damage caused by heavy military traffic meant that the roads could only carry minimum loads. Extremely limited capacity in the port sector has caused serious operational bottlenecks in the Dili port for channeling humanitarian aid and moving other cargoes into East Timor. ADB implemented a major 64 East Timor: 2001 – 2003 – Country Assistance Plans December 2000 635 emergency infrastructure rehabilitation project (EIRP) on behalf of TFET, for the transport and power sectors. EIRP undertook emergency road repair works to facilitate efficient transport of humanitarian aid and security cargo, and to induce revival of economic activity. It also expanded port facilities to reduce congestion and eliminate bottlenecks at the Dili port. Water & Sanitation - ADB also took the lead in implementing and managing TFET activities in the water and sanitation sector and in coordinating these with the activities of other donors. In April 2000, ADB undertook a sector planning mission to draw together information on the work that had been done, identify gaps and donor interests, and prepare a prioritized framework for future action. The mission developed a Water Supply and Sanitation strategy to provide the people of East Timor with adequate water and sanitation services using appropriate technology and good management systems. The strategy aimed to (i) build local capacity and capability to effectively manage the WSS sector; (ii) rehabilitate and develop water supply and sanitation facilities in urban and rural communities; and (iii) promote improved health, hygiene and community participatory practices. Priority areas for donor support in the immediate related to urban water and sanitation issues, including the establishment of a centralized water company, with a full workshop and mobile teams to undertake repair works in a methodical way. This required physical work to make the Dili water treatment plant operational, training of crews (and later, managers), and provision of equipment and tools. With regard to sanitation, Dili rubbish collection was a key priority, requiring plant and equipment, and waste management services. Telecommunications - Rehabilitation of telecom landlines was a major undertaking, since all 13 of the exchanges outside Dili had been destroyed. ADB was requested to take the lead in coordinating and managing TFET activities in the telecommunications sector. In order to ensure the efficient provision of public telecommunications services, ADB provided support in 2000 for the telecommunications sector in two phases. Phase One was carried out from May to July 2000 and examined viable technical options to rehabilitate and reconstruct the telecommunications sector in East Timor, taking into account the existing technical set-up as well as future extensions, and the short term as well as long term implications of various technical solutions. It also covered strategy and planning recommendations for the future East Timorese telecommunications sector. Phase Two was based on the findings of Phase One and generally focused on the preparation, including structuring, and implementation, of a telecommunications sector project which involved an international bidding process for the equipment and/or operation of the telecommunications sector in East Timor. Energy - Lack of power supply following the destruction of major power stations in September 1999 contributed to a severe shortage of water, cold storage for food and medicines, and other health facilities. Most of the power stations had been left inoperative due to physical damage, the departure of operating staff, and lack of fuel. Immediate priorities included the need to rehabilitate the Dili power generation and distribution system, develop local maintenance and repair capacity, rehabilitate major power stations and their distribution systems in primary population centers, and rehabilitate power systems to ensure the safety of their operations. Up until March 2000, the United Kingdom provided emergency assistance aimed at meeting the power needs in major centers in the country. As the lead agency responsible for coordinating and managing TFET activities in the power sector, ADB provided assistance for the EIRP to reinstate power supply in areas where power had not been available in East Timor since the post-consultation destruction. Restoration of power supply enabled operation of borehole water pumps and provision of emergency health care, as well as resumption of economic activity. In addition to physical works, the EIRP also supported the financial management of the power sector. FOREIGN DIRECT INVESTMENT Until 2000, there was limited foreign direct investment in East Timor. A number of companies were providing services in the reconstruction phase (e.g. building infrastructure projects such as roads, temporary accommodation, car hire etc.) whereas only a few local contractors were been engaged by UNTAET for reconstruction. Where this occurred, the wages were often more than three times the local level depending on the activity. Importing food and beverages for UNTAET staff had been the province of foreigners or the returned diaspora, although little of the wages from UN staff appeared to be expended within the East Timorese economy. Instead, recreational expenditure occurred in Darwin or other overseas destinations. In this sense it was possible to identify a dual economy operating in East Timor. 636 Under Indonesian rule, FDI was not a priority. Under UNTAET, FDI was being encouraged. However, the local conditions were not yet sufficient to support FDI, and sensitivity exists with respect to allowing space for domestic investment as well as investment opportunities for the diaspora which may have enticed them to return to East Timor while at the same time retain international level incomes. Major obstacles to both FDI and domestic investment are how to secure land tenure, sufficient infrastructure (e.g. transport, banking, and telecommunications) and a reliable regulatory framework. Small nations tend to be vulnerable to external influences and usually have a weak private sector, which contribute to the perceived risk and difficulties of attracting private investment flows. Small developing nations are perceived as 28 percent more risky than larger developing nations. Logically, when there is uncertainty about the conditions for FDI, investments are often postponed. With respect to land tenure, the transitional administration (UNTAET) has devised a short-to-medium leasing arrangement of up to 5 years. However, security even to leased land was not guaranteed. The difficulty is to determine who the rightful owner of the land is. Many of those who fled East Timor in 1974-75 have returned to claim their lands. In the past, the Indonesian government confiscated some of the abandoned land of the diaspora, some was resold to East Timorese or foreigners and squatters occupied some for 24 years. In the wake of the violence of September 1999, land owned by the militia and refugees was vacated but may be reclaimed. The situation is even more complex when land claims under the Portuguese rule were considered. Under the Portuguese colonial regime, large tracts of land were confiscated from East Timorese and given to Portuguese exiles. Questions arise as to the strength of their descendants’ claim to this land. Land claims became more complex again when a marriage broke down and the first family fled East Timor while the second family stayed but later sold the land with no recompense to the first family. By 2002, a rapid increase in private investment had become critical for East Timor's growth prospects, especially to realize an acceleration of growth to 5 percent over the medium term, as envisaged in the National Development Plan. A key step to this end is to be the swift development of a legal and regulatory framework for business activity. Some progress has been made in preparation for key economic legislation, including the commercial code, the investment law, and a basic law for land ownership. Building on this, the authorities must move forward to secure their early parliamentary approval. Maintenance of a liberal business environment, underpinned by the free market mechanism, also seems critical for private sector development. In this regard, the authorities have been encouraged to refrain from introducing administrative measures, such as price controls and a minimum wage scheme, so as to allow prices and wages to adjust flexibly in response to changing free market conditions. With the support of the international community and the commitment of the Timor Leste government, progress has been made in fostering the conditions for economic growth and stability, but much remained to be done. A critical challenge for the authorities was to maintain fiscal stability and promote an environment conducive to private sector development. Further strengthening the economic institutions and local capacity is another important task. The IMF promises to continue support for East Timor's efforts, especially through the continued provision of technical assistance, training, and policy advice. 65 Incentives for FDI The UNTAET has developed an FDI Promotion Unit to encourage and stimulate foreign direct investment in the country. The administration is looking to develop attractive laws on property, contracts, labor relations and other such fields as a mean to attract FDI. In addition, the nation sees its lack of artificial barriers to trade as a welcome encouraging factor for foreign firms. 66 At a time when the country is primarily involved in reconstruction, it will be beneficial for foreign firms to take advantage of reduced costs and enter into land and wage agreements. Moreover, 65 Interim Donors Meeting on Timor Leste - IMF Staff Statement December 9-10 2000 66 How Will the Macroeconomy be Managed in East Timor – Jose Ramos Horta and Emilia Pires Finance and Development 2001 637 the country’s strategic position between Australia and the Indonesian archipelago creates an advantage for firms to access these markets while keeping production and manufacturing units in East Timor, where FDI is actively being sought to stimulate the economy. Ongoing construction projects to rebuild the devastated infrastructure across the country funded by international institutions such as IMF, WB, ADB and the United Nations are the greatest magnet for attracting FDI. Current Labor Laws With the help of the International Labor Organization, A long-awaited labor law was drafted and finally passed by the National Council in July of 2002. This labor law established a system of labor relations in accordance with ILO standards. CONCLUSION The South East Asia region continues to offer significant commercial opportunities for international businesses. The full impact for business interests in South East Asia, particularly East Timor, following the horrific and tragic events in Bali will take time to unfold, and it is too early to know just what the exact full ramifications will be across all industry sectors. The longer-term impact on the region will depend on the risk assessment of the underlying level of instability in other South East Asian countries that this event may influence. There has been an increase in security across the region as a result of this tragedy. As in times of past uncertainty, it is recommended that MNCs should take a prudent approach to business in the region and make a full assessment of the risks and opportunities involved before making key decisions including consulting their financial, political and other advisers where appropriate.67 At the moment, East Timor is a difficult place for business. A country that is struggling to get on its feet after its first democratic election 3 years ago, it is rightly concentrating on fundraising and aid opportunities. It is imperative that businesses flourish in order for the economy to get up and running. This gives rise to a Catch-22 68 situation wherein foreign businesses will be more likely to invest in the country if its economy seems stable and promising. Also, labor, land and investment laws are still in stages of infancy giving rise to a situation that investors would rather stay away from. On the other hand, foreign aid organizations and various nations have poured tremendous amounts of capital into East Timor; sectors which could very well be the keystone for overseas companies to invest. Yet again, with the western world now concentrating on its fight against the menace of global terrorism post 9-11, East Timor is possibly fast fading out of favor of international funding and interest. 67 East Timor Country Profile – Australian Trade Commission http://www.austrade.gov.au 68 Catch-22 – Joseph Heller A novel about World War II. Catch-22 refers to a United States Air Force ruling which stated that pilots could return home after having completed 8 missions. The catch was that if a pilot could complete 8 missions successfully, he was considered to be fit enough to resume combat flying missions and so in effect, could never return home. 638 APPENDIX A: East Timor - Poverty And Social Indicators for 2001 East Timor Indonesia East Asia & Pacific .83 55 24 49 49 2 210 116 41 31 64 5 1855 116 35 27 67 6 93 54 50 Life Expectancy at Birth (years) Female Male 59 56 68 64 71 67 Poverty (% of total population) Population below $1 a day Population below $2 a day Population below national population line 20 63 40 8 58 20 12 44 - 86 159 46 58 35 43 9 64 70 6 71 83 75 99 99 30 43 67 113 38 113 48 107 69 77 98 97 48 87 86 Population Population (million) Population density (people per sq km) Urban population (% of total population) Age 0-14 (% of total population) Age 15-64 (% of total population) Age 65 and above (% of total population) Dependency Ratio (% of dependants to working age) Child Health Infant mortality rate (% per 1,000 live births) Under 5 mortality rate (% per 1,000 live births) Immunization, DPT (% of children under 12 months) Immunization, measles (% of children under 12 months) Education (% of official school-age population) Net primary enrollment (official primary school age) Net secondary enrollment (official secondary school age) Gross primary enrollment (regardless of age) Gross secondary enrollment (regardless of age) Literacy Youth literacy rate (% of population ages 15 - 24) Adult literacy rate (% of population ages 15 and older) Labor Force 639 Labor force activity rate (% of population ages 15 - 64) Unemployment rate (% of total labor force) Infrastructure Access to an improved water source (% of population) Rural (% of rural population) Urban (% of urban population) Access to sanitation (% of population) Rural (% of rural population) Urban (% of urban population) Electrification of household (% of population) Rural (% of rural population) Urban (% of urban population) East Timor Indonesia East Asia & Pacific 57 75 85 6 6 - 63 76 75 63 65 42 33 70 26 11 72 65 91 66 80 - 66 93 47 - 640 APPENDIX B –Economic Figures 69 Table 1: Structure of the Economy 1998-99 2000 2001 (% of non-oil GDP) Agriculture Industry Manufacturing Services Private Consumption General Government Consumption Import of Goods 31.3 21.4 3.0 47.3 90.0 15.0 41.6 25.9 18.8 2.7 55.3 99.0 53.0 63.9 25.4 17.2 2.4 57.4 98.0 52.0 60.9 (Average Annual Growth) Agriculture Industry Manufacturing Services -1.7 -27.8 -27.0 -18.5 -12.5 26.4 10.0 31.2 15.8 8.5 6.8 22.8 Private Consumption General Government Consumption Gross Domestic Investment Import of Goods -9.9 61.4 72.3 15.6 15.6 Table 2: Prices and Government Finance 1998-99 2000 2001 Domestic Prices (% change) Consumer Prices 76.7 20.0 3.0 Government Finance (fiscal year basis) (% of non-oil GDP, inclusive of current grants) Revenue Expenditure Overall surplus/deficit 7.4 51.4 -44.0 8.0 42.8 -34.8 8.2 43.8 -35.5 Table 3: Trade 69 East Timor at a Glance – World Bank http://lnweb18.worldbank.org/eap/eap.nsf/Attachments/indicators/$File/ETataglance.pdf 641 1998-99 2000 2001 55 140 54 85 5 205 155 50 4 237 173 64 1998-99 2000 2001 ( US $ millions, annual basis, excluding oil) Trade Balance Services, net Resource Balance Net Income Net Current Transfers Current Account Balance (including official transfers) Financing Items (net) Changes in Foreign Assets (- = increase) -85 -30 -115 0 102 -12 0 -200 -58 -258 3 307 53 -16 -233 -61 -294 8 279 -7 -8 Gross Foreign Assets (US $ million) Conversion Rate (DEC, local/US $) 0 1.0 16 1.0 24 1.0 ( US $ millions, annual basis, excluding oil) Total Exports Total Imports Public Private Table 4: Balance of Payments 642 THE EFECTIVENESS OF SMIDEC IN MALAYSIA AT ASSISTING SME’s AT EXPORTING Abdul Jumaat Mahajar Universiti Utara Malaysia Shawn M. Carraher Cameron University, USA ABSTRACT This research investigates the effectiveness of government export programs on Malaysia Small and Medium Enterprise (SMEs). The purpose of the research project is to examine the effectiveness of government agencies such as the SMIDEC in providing promotional, advisory, financial and other assistance to assist the SMEs in Malaysia in exporting their products. The research project covers both SMEs, which have already received export assistance from the government agencies. This research seeks to gather the information on the effectiveness of the assistance programs and to find out other factors that SMEs needs to assist them in exporting. The study explored the element contributed to the successful exporting. The methodological approach combines a questionnaire survey and indicates that small and medium enterprises face many challengers in making their contribution to economic growth, international trade and regional development. The questionnaire is principally concerned with the factors that affect the small and medium sized firms to engage in exporting. The questionnaire data are derived from a sample of firms from the SMEs database. INTRODUCTION Strong export performance in 2003 had boosted Malaysia 's total trade by 8.5% to RM716.6 billion as compared with RM660.7 billion in 2002. Valued at RM 398.9 billion, exports in 2003 was 11.5% higher than that attained in 2002, surpassing the US$100 billion mark for the first time. Imports rose 4.8% to RM317.7 billion. Exports had picked up significantly since March 2003 and have been on an upward momentum, undeterred by the after effects of the Iraq war and the SARS outbreak. (MITI, 2004) Exports for December 2003 was the highest ever recorded, while exports for January and February 2004 were the highest levels ever attained for the first two months of any year. In 2003, the trade surplus had surged 48.5% to RM 81.1 billion, the highest surplus ever recorded. For the last fourteen consecutive months (including January and February, 2004), the monthly trade surplus had exceeded the RM5 billion mark. World Trade Organization (WTO) in its recent press release on Global Trade Performance in 2003 had ranked Malaysia the 19th leading global exporter and the 21st leading global importer. However, based on latest revised Malaysian trade statistics, Malaysia had in fact maintained its position as the world's 18th leading exporter in 2003. In the same year, Malaysia was ranked as the 20th leading global importer. With the exclusion of intra-EU trade, Malaysia ranked 12th in global exports and 13th in global imports. (MITI, 2004) The success of Malaysia in developing its export sector is the result of a combination of factors. These include the pro-business policies of the Government, regular consultations with the business community and private sector, inflow of foreign direct investments and active participation by the government in international negotiations to seek better market access for Malaysian products and services. Together with a wide range of programmes to promote Malaysian products and services to the world market, these factors have contributed to make Malaysia being ranked as the 18th largest exporting nation in the world by WTO in its 2002 Annual Report and today Malaysia accounts for 1.4% of global exports. 643 In 2002, Malaysia's exports to most markets registered increases. Exports increased by 6 per cent to RM354.5 billion after a decline of 10 per cent in 2001, while imports were valued at RM303.5 billion. SMEs in Malaysia exports 20.8 percent of their output or 10.8 percent of total exports of manufactured products that indicates that majority are highly dependent on the small domestic market and not taking advantage of export market opportunities. The SMIDEC survey however indicated that 54.7 per cent of SMEs are already involved in some degree of export activities. On the effects of the full implementation of AFTA by January 2003, 79.7 percent of SMEs reported that they are already aware of the competition resulting from AFTA. (MITI, 2004) In Malaysia, the role of SMEs will be increasingly important as the nation attempts to move towards becoming a fully industrialized country by the year 2020. Malaysia “Vision 2020” goal of becoming a developed country in 2020 (Immigration Laws, 1996). SMEs are also promoted as they contribute in the building up of a middle class group society, otherwise known as the missing middle and in helping to distribute income equitably. They are a source of innovation and a breeding ground for entrepreneurs and technopreneurs. The Malaysian SMEs' manufacturing output was valued at US$16.3 billion in 2002 and they account for 90% of the total manufacturing establishments in the country. In terms of value added, SMEs' contribution amounted to US$3.34 billion. The Malaysian government through the Small and Medium Industries Development Corporation (SMIDEC) is undertaking various programmes to develop the industrial competitiveness of SMEs and to nurture them to become reliable suppliers of essential parts, components and services to MNCs. For this reason, the Malaysian government has introduced a whole range of incentives, and financial assistance schemes. These incentives have been structured into broad-based programmes which are designed to strengthen SMEs' capabilities in the areas of finance, technology acquisition, skills upgrading, market and infrastructure development. The Minister of International trade and Industry Datuk Seri Rafidah Aziz said, “The present SMEs must change upgrade their mode of operations to keep up with the times. In the coming decade, technology and research and development (R&D) will be the cutting edge. SMEs must increasingly emphasize compressed product life cycles, quality improvement and product innovation” (The Star, 1999). The Government will continue to assist SMEs through the various programmes that have already been implemented. New programmes will also be introduced from time to time to address these issues. The Government fully recognizes the potential of SMEs in contributing to the growth of the economy. They will be supported through assistance programmes in the areas of: • Financing • Marketing • Skills Development • Technology Overall Performance of SME Assistance Programmes During the Eighth Malaysia Plan, SMIDEC was allocated RM221.4 million for its development programmes. Out of this, RM70 million was allocated for grants and RM151.4 million for loan schemes. As at June 2003, SMIDEC had received 6,691 applications and approved 4,614 applications valued at RM196.3 million. In 2002, a total of 3,221 applications were received for grants and loans compared with 2,632 in 2001, an increase of 20 per cent. Total approvals were given to 2,154 applications, valued at RM110.8 million compared with 1,714 in 2001 valued at RM40.9 million. For the first six (6) months of 2003, a total of 768 applications were approved for both grants and loans valued at RM31.1 million. The increase in the number of applications as well as approvals is mainly due to the aggressive outreach efforts organized by MITI and its agencies and the introduction of new ICT grants. Speedier approval was also made possible by SMIDEC after its re-structuring exercise with the addition of more staff, and the implementation of on-line processing system. On the average, SMIDEC approves 35 applications a week, making a total of 140 a month. As of June 2003, almost all of the grant under the Eighth Malaysia Plan has been allocated to SMEs under the various Schemes. 644 Limited access to finance hinders SMEs capabilities to expand and realise their full potential. Traditionally, SMEs finance their operations through their own savings, loans from family members and friends, as well as supplier credits. Contrary to the perception that SMEs find difficulties in accessing loans from Banks, 50.7 per cent of SMEs indicated that they borrow from Banks, while 50.3 per cent still resort to non-official financing options. (SMIDEC Survey, 2002) The Government, in its effort to further increase access to funding, has provided soft loans for SMEs, administered by MIDF which provides facilities for working capital, fixed assets and project financing. To encourage the development of SMEs in the manufacturing and manufacturing related services, the Ministry of International Trade and Industry (MITI) administers various programmes and financial assistance schemes to facilitate their capacity building and growth, as well as their competitiveness in the global markets. MITI provides programmes and financial assistance schemes for SME development through the following agencies: Small and Medium Industries Development Corporation (SMIDEC) Malaysian Technology Development Corporation (MTDC) Malaysia External Trade Development Corporation (MATRADE) National Productivity Corporation (NPC) Malaysian Industrial Development Authority (MIDA) Malaysian Industrial Development Finance Berhad (MIDF) The issue in this study is to examine the effectiveness of government agencies such as the SMIDEC in providing promotional, advisory, financial and other assistance to assist the SMEs in Malaysia in exporting their products. In Malaysia, government assistance program have a significant role to the development and to minimize the obstacle faced by SMEs. Mahajar and Hashim (2001) pointed out, the main constraint faced by SMEs are (1) lack of capital to finance expansion into foreign markets; differences in product usage in foreign marketplace; (3) lack of foreign channels of distribution; (4) differences in product specification in international marketplace; (5) difficult to collect payment from foreign customers; (6) foreign business practices are difficult to understand; (7) high risk involved in selling abroad; (8) difficult to provide after sales service; (9) costly to sell abroad; (10) managerial hesitation towards exporting; (11) difficult to quote price in foreign currency; and (12) lack of capacity for exporting. Government agencies play a important roles to assist SMEs in such critical factors includes strategies planning, medium-term vision, marketing, finding customers, management of innovation, commitment to quality and knowledge of quality systems, knowledge of foreign language, cash flow management and information technology. Although foreign markets can offer firms better opportunities for long-term growth and profitability, previous studies have indicated that the complexities and challenges of the international marketplace inhibit the entrance of many SMEs. With regard to this, a good number of studies have dealt with various export assistance programs to small businesses in developed countries (Julien et. Al, 1994 and 1997; and Kathawala et. Al, 1989) SMALL AND MEDIUM INDUSTRIES DEVELOPMENT CORPORATION (SMIDEC) The Small and Medium Industries Development Corporation (SMIDEC) was established on 2nd May 1996. It is an agency under the Ministry of International Trade and Industry (MITI). The establishment of SMIDEC was in recognition of the need for a specialized agency to further promote the development of Small and Medium Industries (SMIs) in the manufacturing sector through the provision of advisory services, fiscal and financial assistance, infrastructure facilities, market access and other support programmes. SMIDEC strives to create resilient and efficient Small and Medium Enterprises (SMEs), able to compete in a liberalized market environment. The Corporation will promote SMEs to be an integral part of the country's industrial development capable of producing high value-added parts, components and finished products. SMIDEC will serve as the national focal point for the overall development of SMEs in the country. 645 Functions: 1. To promote and coordinate the development of SMEs in Malaysia through specific programmes • Undertake promotional activities in the country to promote the growth of small and medium industries. • Undertake studies related to the development of small and medium industries. • Establish a comprehensive database and information system on small and medium industries development programmes. • Act as a centre for collection, reference and dissemination of information related to small and medium industries. 2. To provide technical support and management counseling services with the co-operation of other agencies involved in the enhancement of small and medium industries through specific programmes. 3. To forge industrial linkages between SMEs and large companies/MNCs. 4. To supervise, manage and coordinate financial assistance to SMEs. 5. To collaborate with other agencies, locally and internationally, in the interest of developing SMEs through programmes such as: i. Participation in international and regional cooperation meetings and foray. ii. Training programmes for employees of SMEs iii. Attachment programmes for employees of SMEs iv. Placement of foreign experts in SMEs The target population of the study, from which the researcher seeks to generalize, is 300 Malaysian manufacturers west coast of peninsular Malaysia listed in Federation of Malaysia Manufacturer directory (182) and MATRADE (118). Senior Executive/ Director Manager was chosen because at this level, they are responsible for business decisions, policy and vision for the company. Three hundred sets of questionnaires were mailed to the Senior Executive and General Managers of the firm. A covering letter, a letter from the researcher and self-stamped enveloped were included in each set of questionnaire. To ensure anonymity, each respondent was asked to send the complete questionnaire directly to the researcher in the envelope provided. However, only 76 sets of questionnaires were returned within 5 months of sending the questionnaires. This constitutes an overall response rate of 25.33%. The questionnaire consisted of five sections. The first and second sections of the questionnaire addressed the general characteristics of the SMEs. These characteristics include: owners/ managers personal characteristics, industry, products and services, owners characteristics, percentage of ownership, industry experience, size of capital, age, and number of employees. The section three of the questionnaire captures information on the level of awareness of the export assistance programs among SMEs. It required respondents to state their awareness level for the export assistance programs provided. The levels ranged from 1 (Aware and Used) to 5 (Not Aware At All). In this section, the level ranged from 1 (Very Helpful) to 5 (Not Helpful At All) is being using in order to do a measurement. The fifth part of the questionnaire is to discover the important factors that are contribute to the success of exporting activities. The respondents were asked to circle the response that best describes their preference using the levels ranged from 1 (Strongly Disagree) to 5 (Strongly Agree) and to add other factors that they think should be considered by their firms before engaging in international business. In term of position in the business of the respondents are manager but not owner (42.1%), followed by others such as export executive (22.4%), owner and CEO (15.8%), owner and manager (14.5%) and owner but not manager (5.3%). Malays constituted the majority of the respondents (65.8%), followed by Chinese (21.1%), Indians (7.9%) and others races (5.3%) like Iban and Bidayuh. Most of the respondents are female (53.9%). In term of marital status, there are 53.9% of respondents never married. In term of level of education, 64 (84.2%) of the respondents obtained a bachelor degree, followed by 4 (5.3%) of respondents had school certification and master degree respectively, 3 (3.9%) respondents had PhD Degree and 1 (1.3%) had a diploma. This shows that the person who was in charged export activities having higher qualification. Out of 76 companies, 33 companies were private limited, 16 companies were sole proprietor and 13 companies were partnership. In term of company size, of the 76 companies, 22 (28.9%) have a company size between 1 – 30 646 workers, followed by 18 (23.7%) have company size more than 300 workers, 15 (19.7%) have a company size between 31 – 100 workers, 12 (15.8%) have a company size between 201 – 300 workers and 9 (11.8%) have a company size between 101 – 200 workers. In term of company established, most (53.9%) of the companies were established as originally private, from time of start up. A majority of the companies engaged in automotive, electrical and electronic, food and beverage; and others industries such as telecommunication. When asked about the government/ state body have a financial stake in their company, a majority (48 or 63.2%) of the respondents answered ‘No’ and (28 or 36.6%) of respondents said ‘Yes’. Out of 28 companies, 10 companies have 11 – 20% of total ownership and the rest 18 companies have for less than 10%, 12 – 30% and more than 40%. Respondents were asked to find out whether foreign company/ individual have a financial stake in their companies. As a result only (30 or 39.5%) of them responded ‘Yes’. The figures regarding the percentage of total ownership shows that 15 (19.7%) companies have for less than 10%, 7 (9.2%) companies have 11 – 20%, 6 (7.9%) companies have more than 40% and 5 (6.6%) companies have 21 – 30%. The total sales of business (year 2002) for majority of the companies ranged from RM500,001 – RM5,000,000. Of the 76 companies, 19 (25%) had total sales more than RM20,000,000; 15 (19.7%) had total sales for less than RM500,000; 13 (17.1%) had total sales between RM5,000,001 – RM10,000,000; 4 (5.3%) had total sales between RM10,000,001 – RM15,000,000. In term of net profit (before tax) (2002), majority of companies had net profit more than RM500,000. When asked about the operation in other countries, there were 44 (57.9%) respondents answered ‘No’ while 32 (42.1%) respondents said ‘Yes’. 33 (43.4%) companies were exporting their product while 43 (56.6%) were not exporting. For exporting companies, most of the companies had the percentage of total sales in export (2002) between 21 – 30%. This study also attempted to investigate the level of awareness among respondents on government export programs. To determine their awareness, a five-point scale was developed to address the programs. Table 1: Level of Awareness on SMIDEC Programs Program Grant RosettaNet Standard Implementation Soft Loan Scheme for Factory Relocation Grant for Upgrading Engineering Design Capabilities Grant for Business Planning and Development (ITAF1) Grant for Product and Process Improvement Aware and Used Aware and Not Used Not Sure N (%) 9 (11.8%) N (%) 12 (15.8%) 12 (15.8%) 18 (23.7%) Slightly Aware Not Aware At All N (%) 31 (40.8%) N (%) 1 (1.3%) N (%) 23 (30.3%) 24 (31.6%) 13 (17.1%) 24 (31.6) 24 (31.6%) 3 (3.9%) 4 (5.3%) 17 (22.4%) 20 (26.3%) 22 (28.9%) 18 (23.7%) 21 (27.6%) 20 (26.3%) 647 Mean SD 2.89 1.39 13 (17.1%) 17 (22.4%) 2.99 1.34 2.79 1.26 5 (6.6%) 12 (15.8%) 2.86 1.36 3 (3.9%) 14 (18.4%) 2.83 1.30 (ITAF2) Industrial Linkage Programme (ILP) E-Manufacturing Grant (ERP) SME Expert Advisory Panel (SEAP) Grant for Productivity and Quality Improvement and Certification (ITAF3) HeadStart 500 Enterprise 50 Factory Auditing Scheme 12 (15.8%) 14 (18.4%) 5 (6.6%) 13 (17.1%) 19 (25.0%) 22 (28.9%) 15 (19.7%) 18 (23.7%) 25 (32.9%) 18 (23.7%) 32 (42.1%) 22 (28.9%) 6 (7.9%) 6 (7.9%) 4 (5.3%) 8 (10.5%) 14 (18.4%) 16 (21.1%) 20 (26.3%) 15 (19.7%) 9 (11.8%) 11 (14.5%) 11 (14.5%) 21 (27.6%) 20 (26.3%) 18 (23.7%) 25 (32.9%) 24 (31.6%) 22 (28.9%) 3 (3.9%) 7 (9.2%) 11 (14.5%) 18 (23.7) 14 (18.4) 14 (18.4%) 3.05 1.33 2.92 1.37 2.89 1.38 2.93 1.34 2.47 1.35 2.95 1.25 2.80 1.27 In term of awareness, the result shows that for every SMIDEC programs listed, ‘not sure’ answer was frequently chosen. It shows that the respondents were not specifically identifying the SMIDEC programs. The respondents have ranked programs such as Soft Loan Scheme for Factory Relocation, Grant for Product and Process Improvement (ITAF2) and E-Manufacturing Grant (ERP) as an aware and not used. As shown in Table 4.4, the highest mean value is for Industrial Linkage Programme (ILP) and the lowest is for HeadStart 500 with the value of 3.05 and 2.47 respectively. Table 2 : Importance of SMIDEC Programs Program Grant RosettaNet Standard Implementation Soft Loan Scheme for Factory Relocation Grant for Upgrading Engineering Design Capabilities Grant for Business Planning and Development (ITAF1) Grant for Product and Process Improvement (ITAF2) Industrial Linkage Programme (ILP) E-Manufacturing Grant (ERP) SME Expert Advisory Panel (SEAP) Very Helpful Helpful N (%) 8 (10.5%) N (%) 12 (15.8%) 10 (13.2%) 11 (14.5%) Not Sure Not so Helpful Not Helpful At All N (%) 44 (57.9%) N (%) 1 (1.3%) N (%) 11 (14.5%) 22 (28.9%) 18 (23.7%) 32 (42.1%) 37 (48.7%) 4 (5.3%) 2 (2.6%) 12 (15.8%) 23 (30.3%) 31 (40.8%) 12 (15.8%) 26 (34.2%) 11 (14.5%) 9 (11.8%) 6 (7.9%) 18 (23.7%) 15 (19.7%) 12 (15.8%) Mean SD 2.93 1.09 8 (10.5%) 8 (10.5%) 2.71 1.11 3.97 1.11 3 (3.9%) 7 (9.2%) 2.61 1.10 30 (39.5%) 1 (1.3%) 7 (9.2%) 2.54 1.08 37 (48.7%) 41 (53.9%) 44 (57.9%) 3 (3.9%) 3 (3.9%) 3 (3.9%) 7 (9.2%) 8 (10.5%) 11 (14.5%) 2.70 1.07 2.82 1.05 3.01 1.05 648 Grant for Productivity and Quality Improvement and Certification (ITAF3) HeadStart 500 Enterprise 50 Factory Auditing Scheme 10 (13.2%) 19 (25.0%) 36 (47.4%) 3 (3.9%) 8 (10.5%) 4.00 1.10 10 (13.2%) 8 (10.5%) 9 (11.8%) 13 (17.1%) 17 (22.4%) 16 (21.1%) 39 (51.3%) 34 (44.7%) 33 (43.4%) 4 (5.3%) 7 (9.2%) 8 (10.5%) 10 (13.2%) 10 (13.2%) 10 (13.2%) 2.88 1.13 2.92 1.13 2.92 1.15 Overall, the respondents regarding those entire programs because majority of them are not exporting may due to lack of information obtain this pattern of score. Not surprisingly if they tend to answer ‘ not sure’ to the question. Table 3 : Level of Usage SMIDEC Programs Program Grant RosettaNet Standard Implementation Soft Loan Scheme for Factory Relocation Grant for Upgrading Engineering Design Capabilities Grant for Business Planning and Development (ITAF1) Grant for Product and Process Improvement (ITAF2) Industrial Linkage Programme (ILP) E-Manufacturing Grant (ERP) SME Expert Advisory Panel (SEAP) Grant for Productivity and Quality Improvement and Certification (ITAF3) HeadStart 500 Enterprise 50 Very Helpful Helpful N (%) 12 (15.8%) N (%) 9 (11.8%) 6 (7.9%) 6 (7.9%) Not Sure Not so Helpful Not Helpful At All N (%) 43 (56.6%) N (%) 3 (3.9%) N (%) 9 (11.8%) 17 (22.3) 15 (19.7%) 38 (50.0%) 43 (56.6%) 5 (6.6%) 2 (2.6%) 7 (9.2%) 17 (22.4%) 37 (48.7%) 10 (13.2%) 8 (10.5%) 9 (11.8%) 9 (11.8%) 6 (7.9%) 10 (13.2%) 8 (10.5%) 8 (10.5%) Mean SD 4.11 1.09 10 (13.2%) 10 (13.2%) 4.21 1.07 4.20 10.7 7 (9.2%) 8 (10.5%) 4.16 1.07 44 (57.9%) 6 (7.9%) 8 (10.5%) 4.18 1.07 15 (19.8%) 1215 (15.8%) 15 (19.7%) 11 (14.5%) 39 (51.3%) 41 (53.9%) 43 (56.6%) 42 (55.2%) 3 (3.9%) 5 (6.6%) 2 (2.6%) 5 (6.6%) 10 (13.2%) 9 (11.8%) 10 (13.2%) 8 (10.5%) 4.13 1.08 4.17 1.08 4.20 1.07 5.40 1.53 11 (14.5%) 12 (15.8%) 40 (52.6%) 41 (53.9%) 6 (7.9%) 6 (7.9%) 11 (14.5%) 9 (11.8%) 4.28 1.07 4.21 1.07 649 Factory Auditing Scheme 9 (11.8%) 8 (10.5%) 40 (52.6%) 7 (9.2%) 12 (15.8%) 4.33 1.06 BENEFIT U1 – Increased export sales U2 – Penetration new foreign market U3 – Increased production U4 – Gained new foreign customers U5 – Increased net profit U6 – Improved market growth U7 – Improved product U8 – Improved exporting process U9 I di i l ki Program Table 4 : Benefits of SMIDEC Programs S1 S2 S3 S4 S5 S6 S7 S8 S9 S10 S11 S12 U1 U2 U3 U4 N (%) 11 (14.5% ) 3 (3.9%) 4 (5.3%) 5 (6.6%) 3 (3.9%) 5 (6.6%) 3 (3.9%) 6 (7.9%) 6 (7.9%) 4 (5.3%) 5 (6.6%) 8 (10.5% N (%) 6 (7.9%) N (%) 8 (10.5%) N (%) 10 (13.2%) 8 (10.5%) 5 (6.6%) 8 (10.5%) 7 (9.2%) 8 (10.5%) 9 (11.8%) 6 (7.9%) 4 (5.3%) 9 (11.8%) 9 (11.8%) 5 (6.6%) 16 (21.1%) 8 (10.5%) 6 (7.9%) 11 (14.5%) 4 (5.3%) 7 (9.2%) 10 (13.2%) 10 (13.2%) 8 (10.5%) 6 (7.9%) 6 (7.9%) 5 (6.6%) 8 (10.5%) 12 (15.8%) 5 (6.6%) 9 (11.8%) 7 (9.2%) 6 (7.9%) 8 (10.5%) 9 (11.8%) 5 (6.6%) 5 (6.6%) U6 U7 U8 U9 Not Relevan t N (%) 5 (6.6%) N (%) 2 (2.6%) N (%) 2 (2.6%) N (%) (0.0%) N (%) 1 (1.3%) N (%) 31 (40.8%) 7 (9.2%) 5 (6.6%) 3 (3.9%) 7 (9.2%) 6 (7.9%) 8 (10.5%) 6 (7.9%) 8 (10.5%) 8 (10.5%) 9 (11.8%) 7 (9.2%) 3 (3.9%) 7 (9.2%) 8 (10.5%) 3 (3.9%) 5 (6.6%) 2 (2.6%) 4 (5.3%) 7 (9.2%) 3 (3.9%) 7 (9.2%) 6 (7.9%) 3 (3.9%) 9 (11.8%) 6 (7.9%) 9 (11.8%) 4 (5.3%) 8 (10.5%) 5 (6.6%) 8 (10.5%) 5 (6.6%) 5 (6.6%) 9 (11.8%) 1 (1.3%) 2 (2.6%) (0.0%) 2 (2.6%) 3 (3.9%) 4 (5.3%) 4 (5.3%) 1 (1.3%) 1 (1.3%) 2 (2.6%) 1 (1.3%) 1 (1.3%) 2 (2.6%) (0.0%) 1 (1.3%) 6 (7.9%) 2 (2.6%) 1 (1.3%) 2 (2.6%) (0.0%) 1 (1.3%) 1 (1.3%) 29 (38.2%) 26 (34.2%) 28 (36.8%) 28 (36.8%) 26 (34.2%) 26 (34.2%) 28 (36.8%) 22 (28.9%) 29 (38.2%) 27 (35.5%) 28 (36.8%) U5 650 ) Note: * refer to appendix for program code. Table 5 : Elements Contribute to A Successful of Exporting Activities Elements Correct promotional efforts Strong financial strength Excellence product quality control Right distribution network High quality of export staff Wide foreign market connections After sales service support Good management control Good export market planning New product development Reasonable competitive pricing Right physical distribution accessibility Use technology intensiveness Export market accessibility Multilateral and bilateral trade agreements Market potential Attractive payment terms Tax incentives Export subsidies State of economy in overseas market Correct export market selection Stability of foreign economy Low risk in export market operations Disposable income in host country Good diplomatic relations between countries Counter trade arrangement National credibility in overseas market Absence of import tariffs Attractive packing characteristics Lack of trading restrictions Industry-specific regulations CONCLUSIONS 651 Mean SD 5.21 5.17 4.00 3.92 3.91 3.87 3.86 3.84 3.82 3.78 3.76 3.76 3.75 3.74 3.71 3.71 3.67 3.67 3.66 3.66 3.64 3.64 3.64 3.63 3.62 3.62 3.62 3.59 3.58 3.50 3.39 1.94 1.96 0.95 0.96 0.88 0.88 0.96 0.90 0.99 1.01 1.04 0.96 0.97 0.91 0.83 0.94 0.96 0.99 1.01 0.87 1.02 0.90 0.92 0.86 1.01 0.91 1.01 0.98 0.94 0.87 0.85 Based on findings of this study, several findings can be summarized. First, the researcher found low levels of awareness among the sample companies. Moreover, most of them are totally unaware on government export programs offered by government agencies. Second, the study also revealed that majority of the respondents does not realize the importance of using the export programs in their companies. Third, the findings of the study indicate that the level of usage of export assistance programs was very low for companies. Based on findings, there are some recommendations, which have proposed by several respondents in order to improve the government agencies services in offering the export programs. i. ii. Facilitating access to information and communication technology for SMEs. Government should play a vital role in providing information to SMEs. The information must be relevant, accurate, timely data, effectively and efficiently transmitted. Strengthening and Supporting of Chambers/Business Associations for the Development of SMEs Chambers of commerce, industry, and other business associations are important channels for delivering services that governments can provide to SMEs. It is recommended to enhance Malaysian exporters’ marketing and promotional efforts, up-to-date market information on overseas markets, market opportunities and new emerging markets by government agencies should be made available to all as well as disseminated through the various chambers of commerce in Malaysia. iii. Try to simplify and minimize data requirements for applications. It is recommended that to ensure information is provided to SMEs in a form, which meets their needs; and reduce documentation burden imposed on SMEs from a wide variety of sources. iv. Coordinating the SME Program Exporters want a coordinated approach among agencies when they have a transaction involving multiple programs. The government must ensure the effective coordination of SME programs. It should be easier to contact the government department responsible for particular information services. Local officers should have at their fingertips details of exactly which department is responsible for individual services to speed up processing time. REFERENCES Julien, Pierre-Andre, Joyal, Andre, Deshaies, Laurent and Ramangalahy, Charles (1997). A Typology of Strategic Behaviour Amomg Small and Medium-sized Exporting Business: A Case Study, International Small Business Journal, 15 (2): 33-49. Julien, Pierre-Andre, Joyal, Andre, Deshaies, Laurent and Ramangalahy, Charles (1997). SMEs and International Competition: Free Trade Agreement or Globalisation? Journal of Small Business Management, July: 53-63. Kathawala, Yunus, Judd, Richard, Monipallil, Mathew, and Weinrich, Melinda (1989). Exporting practices and Problems of Illinois Firms, Journal of Small Business Management, January: 53-59. Mahajar, Abdul Jumaat and Hashim, Mohd Khairuddin (2001). Exporting Problems of Malaysian SME’s: A Recent Review, Journal of the Indian Institute of Economics, Vol. 43. 652 ABSTRACTS AND RESEARCH IN PROGRESS 653 AFTA AND TRADE LIBERALIZATION - CHALLENGES AND PROSPECTS FOR MALAYSIAN AUTOMOBILE INDUSTRY: THE CASE OF PROTON Wan Zawiyah Wan Halim Universiti Utara Malaysia ABSTRACT The Malaysian automobile industry has focused its efforts almost entirely within the boundaries of its domestic markets especially when it is practiced the protectionism policy. The rise of Thailand, Korean and China automobile industry and those of trade liberalization of AFTA has intensified the global automobile market competition. Malaysian automobile producers have response to global challenges though cost reduction, rationalize plants, raise productivity and improve their relationships with suppliers and sought new markets, entered into joint ventures and opened new plants worldwide. Nonetheless, it remains the weakest of the automobile producers irrespective the full support from the Malaysian government. Proton is a classic case of a long-protected national car of Malaysian that is struggling as its market opens up for AFTA. Lack of competitiveness in technology, economies of scale, and foreign penetration strategy make it intricate for Proton to become the main players in the global market. Proton faces oblivion if it does not adapt to the challenges of new market environment, which urge it to prioritize an appropriate choice of entry mode strategies to enter a foreign market. Alliances, mergers and acquisitions with foreign companies would provide better prospects for Proton to escape its dependence on Japanese counterpart in revitalizing its presence in the global market. The focus for Proton survival should not only be on certain capital and technology intensive strategies, but also more importantly on the international expansion strategies as well as levels of risk, controls and commitment that vary significantly across globalization and trade liberalization. Therefore, those issues, challenges, and prospects, which can impinge on the Proton survival in many ways together with the recommendation on how best to cope with them, will be highlighted in this paper. 654 PROPENSITY TO CREATE BUDGETARY SLACK IN PUBLIC HIGHER LEARNING INSTITUTIONS Yuserrie Zainuddin Salmiah Che Putih Hasnah Haron Sofri Yahya Universiti Sains Malaysia ABSTRACT The general tendency of heads’ of responsibility centers to create budgetary slack has the potential to deteriorate the effectiveness of organizational budgeting systems. This paper develops and tests a model that investigates the association between identified variables i.e. budget participation, attitudes towards divisional control system and information asymmetry and the propensity to create budgetary slack in the public higher learning institutions. This paper also examines the role of perceived environmental uncertainty and superiors’ ability to detect slack as moderators. The framework is considered to create awareness and understanding on budgetary slack. Responses from 102 heads’ of responsibility centers from four universities were collected through distribution of questionnaires. The results from the regression analysis found that attitudes towards the divisional control system and monitoring is associated with the propensity to create slack. At the same time, superiors’ ability to detect slack is found to moderate the relationship between attitudes towards divisional control system and budgetary slack. Similarly, superiors’ ability to detect slack moderates the relationship between information asymmetry and budgetary slack. 655 INTRAPRENUERSHIP AND INNOVATION IN SMALL AND MEDIUM COMPANIES: A STUDY OF A TECHNOLOGY BASED SME IN MALAYSIA Razmi Chik Universiti Teknologi MARA, Malaysia Hj Hazman Shah Abdullah Universiti Teknologi MARA, Malaysia ABSTRACT Nomothetic descriptions of innovation and intrapreneurship lose too much dynamics in favour of aggregate behaviour. To examine the rich internal dynamics, a careful study of a technology based SME was carried out. The various facets of innovation and intrapreneurship is examined by collecting the perceptions of the staff about the management, the style, behaviour an attitudes to paint a rich picture of the processes and practices of this successful and nascent global technology firm. The company displays very progressive face of a SME. There is a healthy balance of flexibility and control, caution and risk taking, service capabilities and customer orientation (Pucit et al., 1999). The usual and sometimes stale prescriptions for success are surprisingly present. The perceptions of all the executives were supported by the first author’s observations which, in some cases, were participant observation. Small companies can display the excellent attributes often attributed to large and well establish conglomerates. Large elegant structures and sophistication management structures are not necessary for becoming innovative. SMEs can and must adopt and scale this attributes to compete in the ever complex and changing business environment. 656 ROLE OF TRANSACTION COST, ECONOMIES OF SCALE: ORGANIZATIONAL CAPABILITIES AND PRODUCTION COST FACTORS IN DETERMINING DISTRIBUTION INTEGRATION CHANNEL CHOICES Doni Sagitarian Warganegara Universiti Sains Malaysia Osman Mohamad Universiti Sains Malaysia ABSTRACT Our study examines the impact of organizational capability factors, transaction specific factors, scale of economies, and production cost factors on the performance of distribution integration channel. Our research study investigates: (1) what kind of the organizational capability factors should be used to implement the integration channel decision; (2) what type of the scale of economies should be picked to fulfill the integration channel decision; (3) what sort of transaction specific factors should be adopted to the integration channel decision; (4) what type of production cost factors should be adopted to implement the degree of integration channel; and finally to identify whether (5) companies support organizational capability factors or not. 657 THE EXPECTATIONS MODEL OF ECONOMIC NATIONALISM: AN EMPIRICAL INVESTIGATION Syed H. Akhter Marquette University, USA EXTENDED ABSTRACT There is a growing realization among academics and executives that the increasing pace of globalization is generating a backlash worldwide with calls for greater restrictions on international trade and investment. Opinion leaders, politicians, and business commentators continue to oppose the increasing flow of products, services, and capital across countries. Invoking the idea of fair but not free trade, they contend that international trade, left to the vagaries of invisible market forces, raises unemployment, lowers wages, and reduces the competitiveness of local firms. The multinationals also continue to come under attack in different parts of the world, forcing them to defend their global market position and business strategies. Given the conceptual and strategic significance of economic nationalism, and given that the concept of economic nationalism has not been explored adequately (Burnell 1986), it is being proposed that a rigorous treatment of the concept would add to the body of literature and enhance our understanding of the phenomenon. The academic and public debate that economic nationalism is fueling stems partly from the misunderstanding of the concept itself. As such, the goals of this paper are to explain the basis for economic nationalism, differentiate economic nationalism from related but conceptually different concepts, present the expectations model of economic nationalism, suggest empirical indicators to measure the concept, and conduct a confirmatory factor analysis to judge the fit of the proposed model, and provide directions for future research. Economic nationalism seeks to safeguard local resources, industries, and people from the control of foreign firms, who are considered members of the out-group. Baughn and Yaprak (1996) note that economic nationalism is the adoption of an “us first” in the in-group versus out-group distinction relating to companies, products, jobs, and workers. The desire to keep economic activities under local control promotes expectations of others especially those who can play a role in curtailing the influence of foreign business in the local economy. These expectations are the result of the belief that local resources, industries, and jobs cannot be protected without the involvement of the local government and businesses and the general public. Economic nationalism is thus said to manifest itself in the “role that the national government, local firms, and general public is expected to play in curtailing the involvement of foreign firms in the local economy” (Akhter, et. al 2003, p. 77). The premise of this study is that economic nationalism at the individual level can be measured by examining expectations that people have of others, especially the government, businesses, and general public. These three groups can play a major role in the involvement of foreign firms in the domestic economy. As these three groups can significantly impact the involvement of foreign firms in a domestic economy, what one expects of these three will be reflective of the degree of economic nationalism at the individual level. 658 EMERGING TECHNOLOGY FOR SERVICE QUALITY: PDA’s AS YOUR DEVICES IN MOBILE INTERNET BANKING ENVIRONMENT Ahmad Hisham Zainal Abidin Universiti Utara Malaysia, Malaysia Abd. Rahim Romle Universiti Utara Malaysia,Malaysia ABSTRACT The important of quality has become top priority for many government and private organization. Currently the use of mobile devices such as mobile phones, pagers and Personal Digital Assistants (PDAs) are getting popular among us. Although many of us use the desktop PC as a mean to access the Internet, but the researcher believe that a paradigm shift will soon to happen i.e the use of mobile devices to communicate and transact through the Internet. Supposedly you need to do some online transaction at your Internet Banking website but you are not at your house or the office where your personal computer is. Hence, the use of a PDA with the ability to browse the Internet can perhaps overcome this problem. The question is how far local banks in Malaysia look at this portable device to access their Internet Banking websites. The purpose of this paper is to reveal whether the local banks in Malaysia are ready to support this small, compact and readily available device in customer’s pocket to access their Internet Banking website. 659 IMMIGRATION AND INTERNATIONAL BUSINESS: IS THERE A LINK? EVIDENCE FROM AUSTRALIA M.A.B. Siddique University of Western Australia ABSTRACT Immigration can benefit a country in many ways. It can affect the demand side of an economy through multiplier effects resulting from the immigrant’s own spending on food, housing, leisure activities, business investment, and through the expansion of government services such as health care, education and welfare. It also affects the supply side of the economy through labour, skills and money introduced into the home country; new businesses developed by the immigrants; immigrant contributions to technology; and adding productive diversity through knowledge of international business markets. Australia, with a substantial immigrant population, is a country in which immigration has the potential to influence trade and business activities. Of all the economic benefits that may result from immigration, its impact on the host country’s current account has drawn most attention from scholars and policymakers. Interestingly, immigration appears both as a “hero” and a “villain” in the literature: hero if its influence on exports is stronger than its influence on imports; villain if it creates more demand for imports than its contribution to the expansion of exports. This paper examines the relationship between immigration and trade flows in Australia over the period of 1961 to 2001 by employing a revised gravity model. The empirical results demonstrate that the impact of immigration on Australian trade is quite significant. However, the impact is stronger on imports than it is on exports. 660 SKILLS AND COMPETENCIES FOR THE NEXT DECADE: VIEWS OF BUSINESS LEADERS Mohammad K. Najdawi University of Qatar Adel Harhoush Salih Al-Mfarji University of Qatar EXTENDED ABSTRACT The business environment in which the students of management/business programs are entering is dramatically different than it was fifty years ago. Changes in this business environment have often made the Business Schools’ curricula, and the development of new intellectual capital for use in curricula (i.e., academic research), inefficient and ineffective. In support of this contention, consider a number of attributes of today's business environment: • increased rate and nature of change in business that is not homogeneous across countries or geographies • the emergence of the internet as a global marketplace • different (and often shorter) product life cycles in different markets, and consequently, different (and less stable) competitive advantages • requirement for more timely and effective decision-making by business managers who typically have experience in one or two cultures, yet whose decisions affect many cultures • emergence of many new companies and industries that compete in the global marketplace for employees and customers in ways not thought of five years ago • increased uncertainty from global competition and the consequent need for risk management of real as well as financial assets • increasingly complex business transactions and events involving many disciplines, cultures, and markets • increased rewards for services that help leverage technology and internationalization and that assist in making better business decisions • increased regulatory involvement and greater oversight by external stakeholders • transition to "information age" and the "digital economy" Collectively, these challenges call into question the efficacy of our past ways of thinking, which often lead to locally optimal but internationally sub-optimal decisions, traditional business models that are becoming obsolete, and past modes of business education that are now inefficient and ineffective--but still in widespread use. This paper focused on issues that will try to capture some of these challenges and the emerging trends in business education. Large sample of 108 business leaders who are in the midst of these changes and challenges have responded to the survey and recommended what skills and competencies they would like to see in our students upon graduation now and five years from now. Also business leaders have pointed out the importance level of the business and management areas to their companies now and five years from now. 661 EMPLOYEE MOTIVATION: A MALAYSIAN PERSPECTIVE Rafikul Islam Ahmad Zaki Hj. Ismail International Islamic University, Malaysia ABSTRACT Motivation of employees plays an important role in retaining them in organizations. It is a challenging task to the managers to keep the employees motivated in their works in order to achieve the organizational goals. There are many motivational factors. However, due to the varied nature of human beings, a factor that can motivate someone, may not do so others. Therefore, it is important for managers to know the ‘exact’ motivators for his/her employees. The present research intends to find out the effective motivators to the employees working in various Malaysian organizations. A list comprising ten motivators has been prepared and the items in the list are prioritized by taking inputs from 505 employees working in more than 96 various public and private organizations in Malaysia. The findings of the research are expected to provide guidelines in developing an appropriate motivational program for any organization in general, and Malaysian organizations, in particular. 662 EXPORT MARKETING READINESS OF LEBANON’S ICT FIRMS: AN EMPIRICAL INVESTIGATION Tony Feghali Shireen Halawani American University of Beirut ABSTRACT This paper conducts an empirical investigation to explore the situation facing IT firms engaging in international business in Lebanon. Qualitative and quantitative data on the current standing of IT firms with respect to export were collected. Statistical analysis, to test the proposed hypotheses, will be carried out on the data gathered from 146 Lebanese IT firms using frequency distribution, cross-tabulation, mean, cronbach alpha, chi-square, cramer v, phi-coefficient, ANOVA, pearson correlation, multiple regression and likert scaling. The study aims to prove that there is a positive correlation between the market orientation and the demographic variables of the firm to export. The lesser the barriers to export, the higher the probability a firm will engage in international business. The more the factors through which firms compete for customer sale, the higher the probability a firm will engage in international business. There are significant differences in terms of the effects of market orientation and demographic variables of exporting and non-exporting firms on export. RESEARCH DESIGN Purpose of the Study The purpose of this study is to explore the barriers and incentives faced by Lebanese IT firms engaging in international business and, thus, encourage non-exporter firms to become involved with and practice international business. The study will try to explain the internationalization of Lebanese IT firms by understanding factors which could prompt them to become involved in international business. In addition to identifying the problems faced by these firms, the study will help recognize ways to properly guide Lebanese IT firms to successfully engage in international business. The empirical investigation will be conducted according to the objectives listed below: To identify whether the market orientation of a firm has any correlation with export. To determine whether the demographic variables of a firm has any correlation with export. To identify whether the lesser the barriers to export, the higher the probability a firm will engage in international business. To identify whether the more the factors through which firms compete for customer sale, the higher the probability a firm will engage in international business. To identify the significant differences in terms of the effect of market orientation of exporting and nonexporting firms on export. To identify the significant differences in terms of the effect of demographic variables of exporting and nonexporting firms on export. Research Questions Is there any correlation between the market orientation of IT firms and export? Is there any correlation between the demographic variables of IT firms and export? Do exporters and non-exporters differ in their attitudes towards the different barriers to exporting? Do exporters and non-exporters differ in their attitudes towards the different factors through which they compete for customer sales? Is there any relationship between owning a corporate website and export? 663 Research Hypotheses H1: There is positive correlation between the market orientation of IT firms and IT export. H1a: There is a positive relationship between “Primary Marketing Strategy” and “Engage in Export”. H1b: There is a positive relationship between “Primary Marketing Strategy” and “Percentage of Total Sales derived from Export”. H1c: There is a positive relationship between “Participating in IT exhibitions” and “Engage in Export”. H1d: There is a positive relationship between “Participating in IT exhibitions” and “Percentage of Total Sales derived from Export”. H2: There is positive correlation between the demographic variables of the Lebanese IT firms and IT export. H2a: There is a positive relationship between “Number of Employees” and “Engage in Export”. H2b: There is a positive relationship between “Number of Employees” and “Percentage of Total Sales derived from Export”. H2c: There is a positive relationship between “Training Employees” and “Engage in Export”. H2d: There is a positive relationship between “Training Employees” and “Percentage of Total Sales derived from Export”. H2e: There is a positive relationship between “Firm being certified with production/quality standards” and “Engage in Export”. H2f: There is a positive relationship between “Firm being certified with production/quality standards” and “Percentage of Total Sales derived from Export”. H2g: There is a positive relationship between “Annual Sales Volume” and “Percentage of Total Sales derived from Export”. H2h: There is a positive relationship between “Annual Sales Volume” and “Engage in Export”. H2i: There is a positive relationship between “Average Growth Rate in Sales” and “Engage in Export”. H2j: There is a positive relationship between “Average Growth Rate in Sales” and “Percentage of Total Sales derived from Export”. H3: “Percentage of Total Sales derived from Export” affects the attitudes towards the different barriers to IT exporting. H4: “Percentage of Total Sales derived from Export” affects the attitudes towards the different factors through which firms compete for customer sales? H5: There is a positive relationship between owning a corporate Website in Lebanon and export. H5a: There is a positive relationship between “Website Ownership” and “Engage in Export”. H5b: There is a positive relationship between “Website Ownership” and “Percentage of Total Sales derived from Export”. These hypotheses will be tested via empirical research in Lebanon. 664 ENTREPRENEURIAL OPPORTUNITIES AND CHALLENGES IN EMERGING MARKETS: SOME PRELIMINARY LESSONS FROM INDIA Ven Sriram Tigi Mersha Lanny Herron University of Baltimore, USA RESEARCH IN PROGRESS While the wave of privatization sweeping many parts of the developing world creates significant opportunities for the private sector companies, there are still major obstacles that must be removed if these companies are to reach their full potential. Many emerging market start-ups incur significant costs as a result of official policies such as high taxes and bureaucratic requirements (Siddiqi, 2004). Poor infrastructure and corruption often add to the costs of doing business. Risks such as economic instability and poor legal protection further compound the difficulties of operating in these markets. The World Bank’s 2005 World Development Report points out that regulatory and legal rules in many developing countries stifle entrepreneurial activity (Schroeder, 2004). Some emerging markets such as the Philippines have introduced programs to assist entrepreneurs, although there are differences in perception between the institutions providing the assistance and the entrepreneurs themselves about the effectiveness of these programs (Co, 2004). While many of these programs have tended to focus on providing financial and non-financial assistance (such as technical and marketing training), less is known about individual motivations for starting businesses or engaging in entrepreneurial activity. Government assistance programs are only useful for those people that have made the decision to become entrepreneurs and seek the necessary assistance. However, given the role that start-ups can play in stimulating employment and economic growth, it would be helpful to identify the factors that drive people toward self-employment and thereby encourage it. Preliminary evidence suggests that some of the drivers of entrepreneurship success such as access to capital are macro-level and need external intervention from the government and other agencies. These factors are generally well known and have been studied. Other drivers operate at the micro-level and are less well documented. We propose to use in-depth interviews with a small sample of Indian entrepreneurs to identify and examine these individual-level characteristics – such as values, traits and motivations – in order to assess their impact on successful entrepreneurship. While these characteristics may well be “hard wired” into a person’s make-up, it may be possible to transplant them, via training programs, into others who may then be motivated to seek self-employment and start and grow businesses. For many emerging markets, this will provide a welcome boost to employment and economic growth. REFERENCES Co, M.J. (2004). The Formal Institutional Framework of Entrepreneurship in the Philippines: Lessons for Developing Countries, The Journal of Entrepreneurship, 13(2): 185. Schroeder, M. (2004). Regulatory Rules Stifle Business In Poor Countries; Nations That Lower Burden On Entrepreneurs May See Economic Gains, Study Says, Wall Street Journal, p. A.17. Siddiqi, Moin. (2004), The Private Sector Holds the Key to Prosperity, African Business, 304: 20-21. 665 COMPLIANCE WITH GROUP ACCOUNTING STANDARDS, THE VERTICAL ADJUSTMENT ISSUES: FIELD STUDIES OF SWEDISH MULTINATIONALS Gary Cunningham Bilkent University, Turkey Lars G. Hassel Abo Akademi University, Finland ABSTRACT The extent of compliance with IFRS is a major issue in many European and some other countries, because the use of IFRS is now mandatory for publicly held companies in the EU and some other countries. Research at corporate level, which we call the horizontal dimension1,2 shows companies do not fully comply with IFRS even though their financial reports state that they do comply. For some financial reporting issues, notably consolidated financial reporting or group accounting, the vertical dimension of data from foreign subsidiaries is more relevant is more relevant to discover the extent of compliance and reasons for non compliance. Previous research3 shows that Swedish multinationals and their auditors state that the companies comply with IFRS with respect to consolidated financial reporting. Yet, when the companies’ financial executives at corporate headquarters were asked directly about specific items, the responses indicated they did not comply. This study is a follow-on study using field-study methods of a representative number of subsidiaries of Swedish multinational in three countries, Denmark, the U.S., and Brazil and to discover local factors affecting noncompliance in sending information to the Swedish parent. Swedish multinationals are used because they are large, prominent, and have had diverse multinational operations for many years and all of them can be studied as a population. Denmark was selected because of its close proximity in geography, language, business culture, and the extensive commerce that occurs. The US was selected because it is a large, developed, and economically prominent country with a well developed financial reporting culture and a business culture that differs from that in Sweden. Brazil was selected because it is a large developing country that has received a large amount of Swedish investment and has a different business culture and model. Research data were gathered by semi-structured but open-ended personal interviews of key financial personnel in several subsidiaries of Swedish multinationals in the three countries. The method of agreement and method of differences were used to analyze data. Results identify factors that affect subsidiaries’ decisions to comply or fail to comply with accounting standards when presenting information for consolidation. The results cannot be generalized outside of Sweden. Considering the increasing interest in the topic of compliance with IFRS, this study is a major first step in more comprehensive studies in other countries. 1 Street, D.L. and Gray, S.J. (2001) Factors influencing the extent of corporate compliance with International Accounting Standards: summary of a research monograph. Journal of International Accounting Auditing & Taxation 2 Street, D.L.; et al. (1999), Acceptance and Observance of International Accounting Standards: An Empirical Study of Companies Claiming to Comply with IASs. The International Journal of Accounting 3 Fagerström, A., et al, (2005) Compliance with consolidation (group) accounting standards-the vertical adujstment issue: a survey of Swedish multinationals, Journal of Global Business Advancement 666 THE STATUS OF THE ENVIRONMENTAL MANAGEMENT SYSTEM (ISO 14001) PROGRAMMES IMPLEMENTED BY THE MANUFACTURING FIRMS IN MALAYSIA Suhaiza Zailani, Razuan Zainol Ellisha Nashruddin Universiti Sains Malaysia ABSTRACT In recent years, stiff competition and technology advancement have driven many companies for continuous improvement in their processes, products and services. Hence, many strategic techniques and philosophies have been developed for business improvement. This study believed that despite various sophisticated instruments engaged by the multinational companies, implementation of EMS as one of the important tool has been proven for its effectiveness to improve business performance in many areas. The ISO 14001 Environmental Management System standard has become a widespread administrative tool towards corporate environmental management. Based on the literature review there are many benefits that firms can gain by implementing ISO 14001. This study, however, is to investigate the status of the EMS programs implemented by the manufacturing firms in Malaysia. This study is exploratory in nature, and is intended to illuminate the status EMS programmes implemented by manufacturing firms in Malaysia. The findings of this survey helps to highlight the importance of disseminating information to the firms on the various EMS programmes, available. This survey is only based on a small sample (153 firms that adopt EMS) the results of which cannot be generalized as it was a non-probability sampling and the sampling frame did not represent the whole population of EMS firms in Malaysia. Nevertheless, the survey strongly indicates that a majority of firms have still not carried out full EMS programmes. INTRODUCTION An environmental management system (EMS) is a management structure that creates a system to assess, catalogue, and quantify the environmental impact by organization’s activities (Darnall, Gallagher, Andrew & Amaral, 2000). The world’s first standard for environmental management system is BS 7750, which was developed and published by British Standards Institute (BSI) back in 1992. The standards outline the steps for developing, implementing and maintaining an EMS. This standard was the basis for the European Union’s EMS which adopted in 1993 known as Eco-Management and Audit Scheme (EMAS). The BS 7750 also the base model for a new set standard of EMS called ISO 14000, which was developed by International Organization for Standardization (ISO) in October 1996. This new standard established after the United Nation’s Conference on Environment and Development (“Earth Summit”) in Rio de Janeiro, Brazil. Since the Rio Earth Summit in 1992, the principle of sustainable development has received support throughout the world. The ISO 14000 EMS standards series was established by the International Organization for Standardization (ISO) and incorporate the different interest of many countries. Environmental Management System (EMS) is defined as the part of the overall management system that includes organizational structure, planning, activities, responsibilities, practices, procedures, processes and resources for developing, implementing, achieving, reviewing and maintaining the environmental policy (ISO 14001:2004). This standard provides for elements of an effective EMS that can be integrated with other management systems of an organization. The ISO 14000 series cover the area of environmental management systems, environmental auditing, environmental labeling, environmental performance evaluation, and life cycle assessment (Figure 1.1). The first standard, ISO 14001 specification for Environmental Management Systems, captured the interest of companies till today and is currently the only standard in the series concerning certification of business practices. This standard directs firms to engage in systematic management through what is commonly called a “plan-do-check-act” the Deming approach model. These international standards would serve as a platform for the establishment towards common worldwide 667 approach of management systems that leads to the protection of the environment and spurring international trade and commerce. Environmental Management Environmental Management System Environmental Performance Evaluation Environmental Auditing Life Cycle Assessment Environmental Labeling Environmental Aspects in Product Standards Figure 1.1 Environmental Management Source: Sturm (1998) The idea and practices of proper environmental management has spread in North America and in Europe (Guimares & Sato, 1996). Currently in Asia, several countries have made a significant leap forward in ISO 14001 certification (Table 1). Led by Japan, the Asian region with countries such as China, Taiwan and Korea can ranks higher with both the USA and European countries. Even Malaysia ranks higher than some of the smaller European countries. Some of the existing literature on EMS emphasizes the availability of resources as important elements to adopt ISO 14001 (Zeng & Tam, 2004), whereas Schlegelmich et al, (1996), suggest that organizational culture is important, in order to adopt ISO 14001. Zutshi and Sohal (2004) supported this statement. Some studies suggest that, an organization adopt ISO 14001 because of their responsibility to the environment (Yosie & Herbst, 1996). Certain pro-environmentalism behavior supports environmental actions, as the literature has shown (Van Beers & Van der Burgh, 2003), and for regulatory concerns (Rutherfoord & Blackburn, 2002). According to Rao (2002), market orientation that demand green products encourage adoption of ISO 14001. This is supported by more empirical evidence (D’Souza, 2004). Table 1 The number of ISO certifications by Country (as of December 2003) No. Country 1 2 3 4 5 6 7 8 9 10 11 12 13 Japan United kingdom China Spain Germany USA Sweden Italy France Korea, Republic of Taiwan Canada Australia ISO 14001 13,416 5,460 5,064 4,860 4,114 3,553 3,404 3,066 2,344 1,495 1,337 1,274 1,250 No. Country 58 59 60 61 62 63 64 65 66 67 68 69 70 Luxembourg Uruguay Peru Pakistan Liechtenstein Venezuela Tunisia Bulgaria Serbia & Montenegro Sri Lanka Macau, China Saudi Arabia Trinidad & Tobago 668 ISO 14001 32 32 31 26 22 20 18 17 12 11 10 10 9 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 Netherlands Switzerland Finland Brazil India Hungary Thailand Poland Singapore Czech Republic Austria Denmark Mexico Belgium South Africa Malaysia Norway Indonesia Argentina Hong Kong, China Portugal Turkey Ireland Slovenia Egypt Philippines Slovak Republic Israel New Zealand Colombia Greece United Arab Emirates Chile Romania Iran Estonia Lithuania Vietnam Croatia Russian Federation Cyprus Jordan Costa Rica Syrian Arab Republic 1,162 1,155 1,128 1,008 879 770 736 555 523 519 500 486 426 391 378 370 350 297 287 262 248 240 218 205 195 174 165 163 155 135 126 104 99 96 88 74 72 56 53 48 40 39 38 34 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 Nigeria Zimbabwe Bolivia Ukraine Labanon Morocco Honduras Azerbaijan Guyana Belarus Kazakhstan Namibia Puerto Rico Bangladesh Malta Bosnia & Herzegovnia Uganda Iceland Latvia Bahrain Paraguay Brunei Oman Niger Botswana Belize Panama Greenland Cameroon Ghana Nepal Cambodia Fiji Mauritius Monaco Guatemala Kenya Saint Lucia Dominican Republic Ecuador FYR of Macedonia Jamaica Papua New Guinea 8 7 7 7 6 6 6 5 4 4 4 4 4 4 4 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 Source: The ISO Survey of ISO 9001:2000 and ISO 14001 Certificates – 2003 In Asia the drivers of adoption are mainly the prospects of global trade, emerging environmental awareness and pressure. However, it is not clear how successful the implementation would be, as the diffusion of ISO 14001 varies significantly across the globe. As from the report of ISO survey, up to the end of December 2003, at least 66,070 certificates have been issued in 113 countries and economies (Table 2). Approximately twenty percent (20.3 %) is in Japan and approximately fifty percent (48.4%) in the European countries. Furthermore, firms from the Central and Eastern Europe accounts for the insignificant proportion of the total. In contrast, the adoption of ISO 14001 has been 669 relatively slow outside of Africa/West Asia, value to approximately three percent (3.02 %). However, in the Far East more than thirty-five percent (35 %) of the total certified firms (ISO, 2003). Malaysian firms seem to have conservative attitude toward the ISO 14001 adoption (Tan, 2003), in which only 370 firms were certified as in December 2003, which is about one percent (0.6 %) of the total certified firms in the world. Therefore the purpose of this study is to identify the determinants of ISO 14001 adoption. It is assumed that because ISO 14001 certification is voluntary, firms will only seek certification where it is in their best economical interest, i.e. the benefit of adopting ISO 14001 certification outweighs the costs (Darnall et. al., 2000). Based on such assumptions, this study describes the driving forces associated with the adoption of ISO 14001 generally. Specifically, the study proposes a conceptual framework to explain the factors that facilitates the adoption of the EMS standards. This study is supported by primary data collected from a questionnaire mailed to a representative sample including certified and non-certified manufacturing firms in Malaysia. Table 2 The number of ISO certifications by Region (as of December 2003) Region No. of Countries Total ISO 14001 Share in percent Africa/West Asia 28 1997 3.02 Central and South 21 1691 2.56 America North America Europe Far East Australia and Zealand World Total New 3 42 17 2 5233 31997 23747 1405 7.92 48.43 35.94 2.13 113 66070 100 Source: The ISO Survey of ISO 9001:2000 and ISO 14001 Certificates - 2003 The Malaysian government, in realising the importance and contributions of quality improvement towards achieving “Vision 2020” (the vision was mooted by the Prime Minister of Malaysia, Dr. Mahathir Mohamed), by which time Malaysia aspires to be a fully-developed country, has adopted EMS as one of the vital strategies in boosting the manufacturing firms growth in the country. Since the setting up of the Quality Management Development Division in 1982 in the Implementation and Co-ordination Unit of the Prime Minister’s Department, there has been a noticeable increase in interest towards the EMS among firms. This shows the seriousness of the government in wanting to promote and encourage the growth of EMS for manufacturing firms. The worldwide trend to EMS is being replicated in Malaysia. As a consequence, the Standard of Industrial Research Institute Malaysia (SIRIM), and the National Productivity Corporation (NPC) have been founded as the principle institutions charged with the responsibility of assisting the enhancement of EMS. However, given this supportive environment for EMS, there does not seem to be enough response. One possible reason is the lack of exposure of the concept to firms or in other words, the formal training programmes offered by oriented agencies such as SIRIM and NPC seem adequate but the firms themselves are not aware of the importance of EMS programmes. In this context, the study felt it timely and appropriate to conduct a survey at the national level to find out the present status of EMS programmes implemented by the manufacturing firms, the popular programmes among them and the reasons for not implementing such programmes. These information’s are important for the government, in particular SIRIM and NPC to revise the existing policy and improve, modify and upgrade the existing courses offered so that firms are aware of the importance of EMS programmes. RESEARCH OBJECTIVE This study is implemented with the objective of investigating the status of EMS programmes implemented by manufacturing firms in Malaysia. The study aims to answer the question of what is the status of EMS programmes implemented by firms? The objectives are as follows: 670 1. 2. 3. 4. 5. To identify the different EMS programmes implemented by firms. To identify the most common EMS programmes implemented by firms.. To identify the most preferred EMS implemented by firms. To identify the most common factors of firms for implementing a particular EMS programmes. To identify the most common reasons of firms for not implementing a particular EMS programmes. LITERATURE REVIEW Historical Background of ISO 14001 The roots of EMS can be traced back to the mid 80s in the US, when there was a need to ensure compliance with rapidly increasing environmental legislation. The ‘Earth-Summit’ in Rio 1992 brought a new global emphasis to the corporate role in environmental protection. The International Standardization Organization (ISO) sets up a committee to develop an EMS, which was finalized in 1995. In 1996, ISO developed so-called ISO 14000 series which described the requirements to be fulfilled by organizations to implement an effective environmental management system (EMS). The ISO 14000 series consisted of 21 standards and guidance documents. It is divided into six categories: i) ii) iii) iv) v) vi) environmental management system; environmental auditing; environmental performance evaluation; environmental labeling; life cycle assessment; and environmental aspects in product standards. The first module, which was ISO 14001 covers EMS in general. The core elements of the ISO 14001 standards are environmental policy, planning, implementation, evaluation, review and improvement. Other series covered the requirements for audits (ISO 14010-14012) or environmental life cycle assessment (ISO 14030). A large number of books and papers exist on the topic of ISO 14001 and its related programs. Although ISO 14000 was officially released in October 1996, considerable confusion of what it is still exists till today. In fact, ISO 14001 is quite similar with ISO 9000 quality management standards only different in some fundamentals. Some research associated with ISO 14001 focuses mainly on the qualitative benefits associated with the certification. There is only a few formal researches examining the motivations for seeking ISO 14001. It also has been argued that ISO 14001 alone will not lead to improvement in environmental performance, but only when combined with government regulation and public pressure (Arriaza, 1997). Some environmental management system studies claim that the effective implementation of ISO 14001 elements would reduce or eliminate negative environmental impact and towards better environmental performance for firms (Rondinelli & Vastag, 2000; Quazi, 2001). However, only few studies discuss the quantitative effects of implementing ISO 14001 on improving the environmental performance (Russo & Fouts, 1997). Benefits of ISO 14001 adoption Holt (1998) has identified the perceived benefits of accreditation to environmental management standards in 13 UK companies. The benefits include reduced risk, lower insurance premiums, cost savings, regaining new and old customers, and a broad competitive advantage. In addition, ISO 14001 would help the firm to address all of the legal, commercial and other challenges related to the environment (Chin, Chiu, & Pun, 1996). A systematic approach to manage environmental issues help to identify opportunities of conserving material and energy inputs, and to reduce waste, thus improving process efficiency (Johnson, 1997). Hughes (1996), also indicated that in his study, a good EMS would help identify the opportunities for cost savings in the areas of raw material management, waste reduction, elimination of pollution, energy efficiency and prevention and mitigation of accidents. For example, a number of ISO 14001 adoption companies in Singapore have reported a significant amount of cost savings. Among these companies are Sony, Baxter Healthcare, and SGS Thompson (Rimington, 1997). It is also proven that one of the sound business practices, such as efficient notification system can reduce the time it takes to respond, and thus reduce the impact, risk and liability to the organization (Haklik, 1997). 671 Companies with sound and effective environmental management would be able to demonstrate their current environmental goals and policies posing less risk to the insurance companies and thus creating a negotiating tool for lower premiums (Clements, 1996). As the global society becomes more environmentally conscious, firms can help to place itself in a better position compared with its competitors by providing environmental consciousness (Johnson, 1997). Factors influencing adoption Study by Morrow and Rondinelli (2002), in five German energy and gas companies indicated that among the reasons that motivates them to adopt or to certify an EMS are improved documentation and increased efficiency of process. Darnall et. al. (2000), however found that other non-environmental considerations such as maintaining a competitive advantage, enhancing public relations, meeting customer demands, and reduction in overall costs seemed to outshine more in a company’s decision to seek certification. Economics and institutional pressures also play a significant role in determining adoption ISO 14001 (Bansal & Bogner, 2002). Results from the study by Welch, Mori, and Aoyagi-Usui (2002), indicated that early adopters of such standards in Japan tend to be larger, greener and less driven by regulatory, competitive or media pressures. They believed that the organizations have the interest and resources to pursue new environmental initiatives. On the other hand, subsequent adopters tended to be smaller, less green and more pressured by regulatory, competitive and media forces. Delmas (2000), also found that firms decisions were driven by institutional factors. Normative and cognitive factors affected adoption decisions over and above the technical efficiency of the organizational practice. In addition, the analysis emphasized the role of regulatory environment as well as specific elements of coercive action of the government. It appears that firms are adopting ISO 14001 to ease regulations imposed on them and also strong internal capability particularly for publicly traded firms. Technical assistance and government facilities showed less effective in encouraging ISO 14001 adoptions (Darnall et. al., 2000). A national survey of the local authorities in Sweden by Emilson and Hjelm (2002), indicated that the main reason for implementing ISO 14001 is “organizational reason” (65 %), “direct environmental reason” (32 %), “set a good example and marketing reasons”(30 %), and “political reason” (14 %). RESEARCH DESIGN This study was motivated by the quest to answer the following question:- “What is the status of EMS programmes that implemented by firms ?” This survey covers manufacturing firms in Malaysia. The list of companies was obtained from the Ministry of International Trade and Industry (MITI). It was noted that the sampling frame was not complete as it was compiled through secondary sources such as from company registration records, the Federation of Malaysian Manufacturers (FMM) Directory etc. Considering the time constraint, therefore, this list was considered to be the most appropriate for conducting the survey. Hence it would not represent the entire population of manufacturing firms in Malaysia. This study is based on primary data, which is collected through a mailed questionnaire. The primary data consists of information on the company background, nature of product, years in operation, types of EMS programmes implemented, number of employees who have participated in the EMS programmes, agencies conducting the "in-house" and external programmes, post-course activities, most preferred programmes and reasons for not implementing the EMS programmes. FINDINGS The descriptive statistics is used to analyze the background of respondents, as well as the overview of adopters of ISO 14001 among manufacturing firms. A total of 110 questionnaires were received out of the 250 questionnaires distributed, 6 questionnaires were discarded due to incomplete answer. Hence, only 104 were used for the analysis. Table 3 Manufacturing Sectors in the ISO 14001 adoption study No. Type of Industry No. of Selected Respondent 1 Electrical, electronic and machinery 50 672 Actual No. of Respondent Reply 31 2 3 4 5 6 7 Chemicals, chemicals product and plastics Food products and beverages Textiles and textile products Pulp, paper and paper products Rubber products Other Total 45 21 30 35 25 35 30 250 8 11 2 7 24 104 Among the respondents’ firm, it is seen that it consists of 29.8% Electrical, electronic and machinery firms, 20.2% Chemicals, chemicals product and plastics, 6.7% Rubber products, 7.7% Food products and beverages, 10.6% Textile and textile products, 1.9% Pulp and paper, and 23.1% other firms including Metal, Ceramics, Cement, Quarry, Glass, and Recycling. Among the adopters, 26.9% are Electrical, electronic and machinery, followed by 10.6% other industries, 9.6% Chemicals, 3.8% Rubber and 1.9% Food and beverage. However, none of the respondent from Textiles and textile products and Pulp, paper and paper products adopts ISO 14001. The adopter formed from 18.3% by Japanese firms, 8.7% Malaysian firms, 7.7% Joint ventures, 5.8% United States, 5.8% Germany, 1.9% by Taiwanese, and 1.0% by Belgium, Canada, Denmark, France, and Ireland respectively. It is also noted, majority of the firms that adopted ISO 14001 involved in Electrical, followed by Chemicals. Based on the results observed, the establishment of the ISO 14001 adopters firms are between 6 – 15 years, but there are also some adopters firm have less than 5 years of establishment. It is believed that many foreign firms that invest in Malaysia are electrical and electronics, and so almost all the adopter firms have more than 1000 employees. Table 5 shows that among the firms surveyed, electronic firms implemented almost all environmental programs consisted of Environmental Best Management Practices, Total Quality Environmental Management, Pollution Prevention, Wastes Minimization, Environmental Report for internal and external, Environmental Accounting, Life Cycle Analysis and Compliance Audit. The percentage of common practice for electronic firm are waste minimization 23.1%, compliance audit 22.1%, pollution prevention 21.2% and Environmental best management practices 14.4%. This trend matches chemical and other firms. For voluntary Environmental Management Programs (EMP), Responsible Care Programs (RCP) is one of the popular programs implemented by chemical firms 14.4%, followed by electronics 5.8%, rubber 1.0% and other industry 2.9%. Since it was introduced in 1974 in Canada, RCP became part of requirements for chemical industry to adopt as part of their social responsibility. Other voluntary programs include Business for Social Responsibility (BSR) that is practiced by textile firms by 4.8% and electronic firm by 2.9%. Green Purchasing is also a part of the programs practiced by electronic, chemical, rubber and other firms. Table 4 Respondent Firms’ Profile Characteristics ISO 14001 Adoption Adopter Non-adopter Malaysian Foreign Joint Venture 7 (6.7%) 21(20.2%) 39 (37.5%) 17 (16.3%) 9 (8.7%) 11(10.6%) 673 Type of Industry Electrical, electronics and machinery Chemicals, chemicals products and plastics Food products and beverages Textiles and textile products Pulp, paper and paper products Rubber products Other No. of Year Establishment Less than or equal to 5 years 6 – 10 years 11 – 15 years More than 15 years No. of Employee 20 – 49 50 – 99 100 – 299 300 – 999 > 1000 3 (2.9 %) 4 (3.8 %) 26 (25.0 %) 9 (8.7 %) 2 (1.9 %) 8 (7.7 %) 3 (2.9 %) 6 (5.8 %) 1 (1.0 %) 0 (0 %) 11 (10.6 %) 3 (2.9 %) 5 (4.8 %) 1 (1.0 %) 2 (1.9%) 10 (9.6 %) 2 (1.9 %) 0 (0 %) 0 (0 %) 5 (4.8 %) 3 (2.9 %) 1 (1.0%) 9 (8.7%) 7 (6.7%) 11 (10.6%) 4 (3.8%) 23 (22.1%) 11 (10.6%) 18 (17.3%) 2 (1.9 %) 9 (8.7%) 4 (3.8 %) 5 (4.8%) 0 (0 %) 6 (5.8 %) 7 (6.7 %) 9 (8.7 %) 6 (5.8 %) 1 (1.0 %) 3 (2.9 %) 16 (15.4 %) 16 (15.4 %) 20 (19.2 %) 1(1.0 %) 0 (0 %) 8 (7.7 %) 8 (7.7 %) 3 (2.9 %) 15 (14.4 %) 41 (39.4 %) 2 (1.9 %) 18 (17.3 %) 1 (2.0 %) 4 (8.2 %) 8 (16.3 %) 1 (2.0 %) 3 (6.1 %) 0 (0.0 %) 0 (0.0 %) 2 (4.1 %) 3 (6.1 %) 6 (12.2 %) 39 (37.5 %) 0 (0.0 %) 4 (3.8 %) 0 (0.0 %) 12 (11.5 %) Type of Firms 16 (15.4 %) Publicly listed Privately owned Status of Adoption ISO 14001 (for non-adopter) Not applicable 2 (4.1 %) Not being considered 0 (0.0 %) Future consideration 14 (28.6 %) Assessing suitability 5 (10.2 %) Planning to implement 0 (0.0 %) ISO 9000 certification (prior to adopt ISO 14001) Yes certified 11 (10.6 %) Not certified 1 (1.0 %) Adopter’s Profile and Relationship In this study, the chi-square test is used to test the relationship between adopters and non-adopters profile, namely type of industry, ownership, year of establishment, number of employees, type of company, and the EMS programs. Table 3 is cross tabulation of adopters and non-adopters profiles after regroup type of industry, number of employees, and number of years of establishments. From the row percentages, almost 27% of the electronic firms are adopters, and only 2.9% are non-adopters. The chemicals firm adopters and non-adopters are almost equal, with the percentages of 9.6% and 10.6% respectively. Group of foods, textiles, paper, and rubber manufacturers contributes only 5.8% adopters the remain is 21.2% are non-adopters. The overall group type of industry shows that the observed significant level P-value of Pearson Chi-square P<0.05. This test indicated that there is a relationship between type of industry and ISO 14001 adoption. Pearson Chi-square value for the variables of ownership indicates the observed significant level is less than 0.005, which lead to conclusion that there is a relationship between ownership and ISO 14001 adoptions. The highest adoption percentage of 37.5% is from foreign firms, compared to Malaysian only 6.7% and joint venture firms by 8.7%. Tables also show that many of the Malaysian firms being non-adopters are 20.2% compared foreign firms by 16.3% and joint venture firms by 10.6%. This study also tries to relate between the experience firms in term of year 674 of establishment with ISO 14001 adoptions. However from Chi-square test, the result shows that there is no significant at P>0.005, hence we can say that there is no relationship between adoption of ISO 14001 with experience of the industry. It is also applies to size of company in terms of number of employees and type of company listing either public or privately owned. There is no relationship between size of company and year of establishment with ISO14001 adoptions. From the above table, it shows that almost all adopters implement EMS programs concerning wastes minimization, environmental reports, compliance audit and best practices. Even though this program is part of the condition that requires for adopter programs for certification purposes, there are also non-adopters that practice this programs such as wastes minimization, pollution prevention, internal environmental report and compliance audit. The Chi-square test for all programs practiced shows that the observed significant level is less than 0.0005, and 0.041 for Life Cycle Analysis, in which it can be concluded that there is a relationship between ISO 14001 adoption and type of EMS programs. Table 5 External Programme Conducted by Agencies and Attended by Firms Total N(%) Agency NPC 22(56.4) SIRIM 21(53.8) FMM 21(53.8) CIAST 7(17.9) Others 11(28.2) Results analysed from Table 5 shows that there are three popular agencies conducting EMS programmes for firms namely NPC (56.4%), SIRIM (5-3.8%) and FMM (53.8%). In terms of language preferred for courses conducted for EMS programmes, four categories by level of employees were identified. They are Top Management, Middle Management, Supervisory and Operational. It was observed that supervisory and operational level employees prefer Bahasa Malaysia for courses conducted whereas top management and middle management preferred English for courses conducted. As seen from Table 6, 92.3% of Top Management and 76.9% of Middle Management selected English as their preference. While 79.5% of Supervisory and 100.0% of Operational preferred Bahasa Malaysia for courses conducted. This is due to educational background and the nature of job itself. Management level normally consists of highly educated person who is fluent in English Language since the job also requires them to possess good English proficiency. Table 6 Language Preferred for Courses Conducted Level Top management Middle management Supervisory Operational B. Malaysia N (%) 4(10.5) 11(28.2) 31(79.5) 39(100.0) English N (%) 36(92.3) 30(76.9) 13(33.3) 2(5.1) Referring to effectiveness of training analysis, we tried to seek the difference between in-house and external programme. Table 7 shows that 23 companies (79.3%) indicated that in-house training is more effective. Table 7 Effectiveness of Training Training N (%) In-house External Total (80.0) 1(20.0) 5(100.0) 675 Table 8 Impact of EMS Programmes Impact of EMS Programmes Increased Productivity Improved Quality Reduced cost Increased profits Others N (%) 4(12.5) 6(18.2) 4(16.7) 4(20.0) 7(100.0) Our survey also tries to see the impact of EMS Programmes to the companies. The response disclosed that 82.1% (52 companies) agree that EMS programmes have increased their level of productivity and 84.6% (33 companies) also agree that quality has improved as a result of EMS programmes undertaken. Whereas 61.5% (24 companies) indicated that they experienced reduction in costs due to EMS programmes (Refer Table 8). Table 9 Common EMS Programmes undertaken by firms Programmes Env. Best Mgmt. Practices In-house External Total TQEM Pollution prevention Waste minimization Env. Report (int.) Env. Report (ext.) Env. Accounting Life cycle analysis Compliance audit Other 3(50.0) 3(50,0) 1(16.7) 3(50.0) 1(16.7) 2(33.3) 6(19.4) 16(51.6) 4(66.7) 3(50.0) 6(19.4) 6(19.4) 2(33.3) 3(50.0) 3(50.0) 2(33.3) 2(33.3) 2(33.3) 1(16.7) 1(16.7) Table 9 shows the common EMS programmes undertaken by companies. From the above table, we find that companies are more interested to conduct in-house EMS Programmes. For example, companies prefer pollution prevention and waste minimization programmes internally. Table 10 below shows the most preferred EMS programmes undertaken. Among the total 35 companies, which have, undertaken EMS programmes, 42.9% (15 companies) preferred to undertake ISO 9000 programme. The second preferred programmes are life cycle analysis and waste minimization (both registering 17.1%). Table 10 Most Preferred EMS Programmes Programmes Env. Best Mgmt. N(%) 2(40.0) Practices TQEM Pollution prevention Waste minimization Env. Report (int.) Env. Report (ext.) Env. Accounting Life cycle analysis Compliance audit Other 2(40.0) 1(20.0) 2(6.7) 2(6.7) 1(3.3) 5(100) 676 Companies which do not implement EMS programmes were also asked for their reasons. As seen from Table 11, 65.2% (73 companies) says that their company are too small to implement the EMS programmes while 33.9% (38 companies) says that they do not have any budget allocated for EMS activities. 36 companies (32.1%) says that they propose to carry out the programmes later. It was also noted that 24.1% (27 companies) were not aware of EMS programmes. Table 11 Reasons for Not Implementing EMS Programmes Reasons 1. Not aware 2. Not important 3. No budget 4. Newly started 5. Co. too small 6. Carry out later 7. Others N(%) 23(25.3) 16(16.5) 32(35.2) 9(9.9) 69(75.8) 23(25.6) 4(4.4) Table 11 shows the reasons why companies did not undertake EMS programmes. The common reason highlighted for not implementing EMS programmes is that the company is too small. On the other hand, 35.2% of companies mentioned that no budget was allocated for that purpose. The findings show some interesting points i.e. the main reasons- for not implementing EMS programmes by companies are due to their size, no awareness and intentions to carry out later. It shows that the companies should be exposed to the importance of EMS programmes in order to sustain and grow in the highly competitive market. As for some companies, the findings revealed a positive sign whereby 59.1% proposed to carry out the EMS programmes later. Table 12 Allocation From Payroll On EMS Programmes Percentage of Payroll Less than 0.5% 0.5 to 1.0 % 1.1 to 2.0% 2.1 to 3.0% 3.1 to 4.0% 4.0 % and above Total N(%) 1(16.7) 3(49.9) 1(16.7) 1(16.7) 6(100.0) Referring to allocation of payroll on EMS Programmes this survey found that the percentage between 1.1% to 2.0% is the most common percentage of company's total payroll allocated for EMS enhancement programmes (33.3% of total companies). It can be seen from Table 12 that 36.7% of companies allocate between 1. 1 % to 2.0% from their payroll for EMS enhancement programmes. This shows the willingness of companies to participate to EMS Programme. Table 13 shows that 97.0% of companies consider allocating a bigger budget for EMS programmes. From a total of 39 companies, which undertaken EMS Programmes, 37 companies consider allocating a bigger budget for EMS Programmes. Table 13 Considerations For Bigger Budget For EMS Programmes Bigger Budget Consider Do not consider Total N(%) 5(83.3) (16.7)1 6(100.0) 677 Table 14 shows that among 30 companies, 11 companies consider to send more participants to EMS Programme, 5 companies consider to engage consultant and 4 companies each consider to send more participants to EMS Programme, engage consultant and set up training department in their company. This table also shows that 10 out of 26 companies consider more employees to attend EMS Programmes while 4 companies indicate a combination of sending more participants to EMS Programmes, set up training department and engage consultant. Table 14 Commitment Commitment Sent more participants to EMS programme Engage consultant Sent more participants to EMS programme, engage consultant and setup training department Set up training department and send more participants to EMS Programme Set up training department Set up training department and engage consultant Sent more participants to EMS Programme and engage consultant Others Total N (%) 1(25.0) 1(25.0) 1(25.0) 1(25.0) 4(100.0) CONCLUSIONS Types of industry have a relationship with the adoption of ISO14001. This study indicates that no matter what industry influences adoption. From the study, electrical and electronic firms were the highest adopter followed by chemicals firms. It is believed that almost all foreign electronic firms and their level of environmental awareness is higher compared to Malaysia. Malaysian firms tend to adopt EMS ISO 14001 when there are joint ventures with other non-Malaysian firms. The types of company either public or privately owned results are not significant contributor of the adoption of ISO 14001. This study try to examine if the publicly traded firms are more concerned about environmental aspect as their activities are monitored by their stakeholders. The study by Delmas (2001), shows that the stakeholders play a significant role in determining ISO 14001 adoption. There is no evidence from previous study that size of the firm could determine the adoption. However this study does not segregate clearly the size of the firms. The experience of the firms or number of years establishment is quite substantial to determine the adoption, as almost all adopters were quite long established. Tan (2003), who surveyed the firms in Malaysia as newly industrialized found out that most Malaysian firms pursue ISO 14001 because of insistence from top management and not because of the experience that they have. 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Adoption and maintenance of environmental management systems- critical success factors. Management of Environmental Quality: An International Journal, Vol. 15, No. 4, pp. 399-419. Zutshi, A. and Sohal, A.(2003). Stakeholder involvement in the EMS adoption process, Business Process Management Journal, Vol. 9 No.2, pp.133-148. 682 TOWARDS A PLURALISTIC “INTERNATIONAL LAW” FOR GLOBALISED BUSINESS DEVELOPMENT: INSIGHTS FROM PSYCHO-JURISPRUDENCE A. A. R. Khan Universiti Utara Malaysia EXTENDED ABSTRACT As the world –including its business – goes “global”, all attempts to understand all and any of its aspects, also increasingly need to be multidisciplinary. Globalisation means bringing in many more “alien” factors into our day to day calculations in strategizing for any decision and activity in any local setting, than earlier times. This, in turn, means, much more complex scenarios to take care of in such strategizing. This increased complexity requires looking at things from more much more, multiple angles, than we perhaps needed before. In earlier times, businesses were affected by less number of factors; less alien influences; and stakes -and hence risks – too, were less, both by magnitude and volume. This is no longer the case. This changeover to a more complex and vaster world of business for all businesses -means that, we have to usher into the age of multidisciplinarianism. Borders and barriers of older, “traditional” academic and applied research disciplines will increasingly fall away just as barriers to the movement of goods, services, and ideas fall away in the wake of “Globalisation”. Business can not be studied today by referring only to such “Business Studies” disciplines as “Marketing”, “Management”, “Finance”, “Accounting”, and “Economics”. The net cast, has to be wider: insights brought into business need to be from much wider spectrum of academic disciplines and expert areas. While increasing number of disciplines are brought into the arena of Business analysis, still more on the outskirts, so to say, have to be brought in. This paper takes one of those required pioneering steps in this direction – trying to bring in insights from such areas traditionally seen external to Business, as International Law and Psycho-Jurisprudence. While both Law and Psychology – under the rubric of “Business Law” and “Business Behaviour” have been already brought in, areas like International Law and Psycho-Jurisprudence have not yet been – not at least, as far as this author knows. Psycho-Jurisprudence itself is such a newly emerging area, that it simply was not possible until recently to think of it, let alone think of its relevance to business. A tripartite marriage (what an unacceptable concept!-traditionally speaking) of Global Business, International Law, and Psycho-Jurisprudence is now possible and, in fact, required in our fast changing business environment. An aspect of Globalised business is the increasing need for international cooperation in running a business – even a medium sized rather traditional one. Let alone the case of multinationals and international banking business. Unlike in earlier days, this required international cooperation involves not an occasional visit by one party to another across international boundaries of a nation or two; or simple receiving of foreign goods, exporting to foreign lands. It is now much more than that. It needs to be on a day to day basis – and involving virtually the entire global arena. This means, more “aliens” coming and going into business establishments, staying back for extended periods, and unprecedented level and volume of international agreements taking place almost continuously. Development in IT has made this process even more intensive, continuous, and global. business – any business – needs to be conducted within a legal framework. Until recently, it was its own “national” Law, which served the framework for any business – it’s occasional “alien” guests often required to fit in with this national Law. There were rare, and occasional, reference to principles of International Law. But now, increasingly, this model is becoming obsolete. With barriers and boundaries disappearing in the Cyberspace, and much of business dealing occurring in that frontierless new business environment – it is becoming impossible to apply any one single national Law framework to any business. As “aliens” become normal and permanent part of anbusiness, constant referring to International Law norms increasingly becomes necessary. Perhaps not as well-noticed as it could be – yet, steadily, International Law is replacing the framework for businesses world around. 683 People can follow and respect Law, only if they can psychologically relate to its norms as their own. All Laws -set of enforceable rules – derive from norms rooted in the ethics, morals, customs, religion etc. of one or other society. Whichever society’s norms of ethics, morals, customs, religions etc. a Law is derived from – it is in that society that, that particular Law is likely to be most dearly honoured, and sincerely followed. That is the point of Psych-Jurisprudence here. All Laws are rooted in corresponding Jurisprudences embodying the norms and ideals which the respective Laws represent, and Jurisprudence translates into popular acceptance only through the Social Psychology of Acculturation into the relevant norms in given, corresponding social background. International Law, for historical reasons, has come to emerge and develop as an extension of WestEuropean and British Jurisprudential culture. No wonder, we do not see as much universal, global enthusiasm for its norms as we would like to – if it has to function as a healthy framework for Globalised Business of the 21st century, and onward. Much of the world’s population – excepting those of the West European and British cultural origin – can not adequately relate to this International Law, at the depth-psychological level. If that is the case, then the current regime of International Law is not a satisfactory enough framework for the fast growing, Globalised Business of the world. Solution? Not an anarchy, of course. Not a reformulation of International Law as a whole – that is simply impractical at this time. The solution seems a suitable kind of reform, to bring the framework to a level where it can function well-enough for Globalised Business. The key to proposed reform lies in the democratic culture of Western Europe out of which this International Law itself had emerged. It is the key idea of the democratic method: Pluralism. Just as Pluralism as a methodical ideal had brought about Federalism as the basis of US as a New World order in the New World – and made it workable as a vigorous system of cooperation between diverse elements of the West European settler communities in America – so can it help bring about a sort of Global Federalism of diverse Jurisprudential cultures of the “Global Village”. We need to rehash International Law to bring in elements – both substantial-theoretical, as well as semioticterminological -from other major Jurisprudential traditions of the world, e.g. Buddhist-Vinaya, Shari’ah, Hindu-Shastra, Chinese Customary Law, etc. I am not suggesting a hotchpotch of elements from all these; nor any romantic “stew” of all “Traditions” into one monolithic new Law. No. That would not work simply for depth-psychological reasons. Instead, I am recommending a co-existence of the various Laws in their respective arenas, and a mechanism for this co-existence to work for enhancing Human Life in this new Age – including its Globalised Business. 684 AUDIT MARKET IN MALAYSIA: THE CASE OF TIGHT OLIGOPOLY? Azham Md. Ali Mohd. Hadafi Sahdan Mohd. Hadzrami Harun Rasit Aryati Juliana Sulaiman Norhaiza Khairudin Fariza Hanim Rusly Universiti Utara Malaysia ABSTRACT The study attempts to answer questions on audit market share distribution across industries, over time and over a couple of clients’ characteristics (audit fees paid out and revenues earned) over the period of 1999-2002 for the segment of audit market in Malaysia comprising of the KLSE (now Bursa Malaysia) listed companies. It is found that four of the Big 5 audit firms (minus Deloitte Touche) take a lion share. Based on all this, in the Malaysian context in regard to the listed companies segment, the audit market could be categorised as tight oligopoly. INTRODUCTION Effective competition requires two internal market conditions: a reasonable degree of parity among competitors and enough competitors to prevent effective collusion among them to rig the market (Yardley et al. 1992). In other words, effective competition involves a striving among comparable rivals who exert a mutual pressure so strong that all competitors must apply maximum efforts. Clearly effective competition depends on a market structure which is measured by the size distribution of competing firms. This report attempts to go in-depth on the aspect of audit market distribution in Malaysia in recent years. In doing so, the auditors are divided into two big groups: the Big 5 and non-Big 5. The Big 5 in turn are specified in certain sections of the report into the various audit firms that they were during the time period covered in the study: Ernst and Young, PricewaterhouseCoopers, Arthur Andersen, KPMG and Deloitte Touche Tohmatsu. Note that at different times within the accounting community, certain terminology has evolved to describe the top firms in the industry. At one time, they might have been described as the Big 8, later the Big 6 and later still the Big 5. (Since middle of 2002 with the collapse of Enron and the fall of its external auditor Arthur Andersen, the top firms are known as the Big 4.) As a result, different scholars use different designations in their works in describing the top audit firms depending on the time periods that they are concerned about. LITERATURE REVIEW The modern industrial organisation literature classifies markets into six broad types (Shepherd, 1997). Three market types are characterised by high market power and generally ineffective competition: monopoly (one firm has 100 percent); dominant firm (one firm has 40 percent to 99 percent); and tight oligopoly (four firms have over 60 percent). The other three market types show effective competition: loose oligopoly (four firms have less than 40 percent); monopolistic competition (many competitors each with a slight degree of market power); and pure competition (many competitors, none of whom has market power). All in all, a firm’s market share signifies its market power. Concentration is the combined market share of leading firms and represents the degree of oligopoly in the market. So, in essence, the concept of market concentration 685 reflects the extent to which economic activity is controlled by large firms. High market concentration usually favours collusion and increases leading firms’ ability to earn excess profits by raising price above cost. In the audit sector, many academic studies of auditor market explicitly discuss the link between market concentration and excessive market power (e.g. Wolk et al., 2001). Market power here means increased fee levels and audit firm profitability. It was in the 1970s in the United States that the staff of a United States Senate Subcommittee concluded in the Accounting Establishment (United States Congress, Senate, Subcommittee on Reports, Accounting and Management, 1976, pp. 43-46) that there was a high concentration of power in the Big 8 firms in the auditing of major companies and that those firms focused their efforts on certain major industries. This and other related remarks had led to a vigorous defence of the Big 8. The argument presented was that the audit market was a very competitive industry. Various studies supported this argument (see Tonge and Wooton, 1991, who listed down – in footnote 1 – 7 studies conducted between late 1970s and late 1980s.) For many years since then in developed countries such as the United States and United Kingdom, the concern is on the increase in audit market concentration and its repercussions. In recent time, the authorities have become more nervous. This is reflected, in the United States, by the fact that the Sarbanes-Oxley Act of July 2002 requires the United States Comptroller General to study the factors that have led to audit market concentration. As for the United Kingdom, the Office of Fair Trading (OFT) and bodies such as the Coordinating Group on Audit and Accounting (CGAA) and the Treasury Committee on the Financial Regulation of Public Limited Companies have shown interest on the high level audit market concentration by conducting studies/inquiries and issuing reports (see Beattie et al., 2003). Indeed, ample empirical evidence has been published on audit market concentration (Willekens and Achmadi, 2003). In fact, it may safely be concluded from the various studies that relative few audit firms dominate segments of the market or industry types over time and across countries. Table 2 in Willekens and Achmadi (2003) provide an overview of the level of the concentration ratios (CR4, CR6, CR8 and HHI) in the United States and various countries in Europe as found in studies published between 1988 and 1997. (The CRn ratio expresses concentration as the percentage of total activity in a market that is accounted for by the n most active firms. The H-index is a marketwide concentration measure that is sensitive to the number of firms active in the industry as well as to the variances in activity level across firms. Excellent explanation over these two indices may be found in Minyard and Tabor, 1991.) See also Yardley et al. (1992) who delineate concentration measures in the United States audit market since 1955. They mention that the CR4 and H indicators consistently give ambiguous signals about the type of oligopoly in the United States audit market over the entire time period and across various measurement methods. They conclude that concentration in the audit market is high enough that collusion is feasible but small enough to make collusion difficult. Writing at the time when there were six biggest audit firms operating in the United States audit market (and most probably in many other audit markets across the world) and having divided markets into four (which are monopoly, dominant-firm, tight oligopoly and loose oligopoly as opposed to that of six as in Shepherd, 1997, above), Yardley et al. (1992, p. 152) specifically mention: “Since at least six to eight firms compete as relatively equal rivals in the audit market, the critical issue is whether collusion is likely or not, the distinction between tight and loose oliopoly.” They go on saying that a loose oligopoly is the best all-around structure. It provides firms with significant degrees of market presence, continuity and stability while permitting the realisation of scale economies in production, innovation and other activities. Because concentration is low, the likelihood of collusion is also low. PROBLEM STATEMENT The market for audit services differs by country. By referring to two works – Hancock (1996) and Beelde (1997) this is noted by Gramling and Stone (2001) in their study of archival literature on audit firm industry expertise. If that were true, there is a question about the generality of those results using one nation’s data to the other audit markets. Probing over the Malaysian accounting profession and audit practice in its first four decade after the nation’s independence in 1957, Azham (1999) shows that when one goes beyond the structural form, in many ways they hardly resemble those in countries such as the United States or Australia. 686 This is perhaps understandable considering the distinctive socio-economic and political contexts that audit in Malaysia is operating in. Therefore, there could be reasons why the results reported overseas could not be discerned in the Malaysian context: the Malaysian audit market is just not comparable to those found in countries such as United States and Australia – though it may be comparable to the rest of developing countries or countries in the region considering their similar stages of economic and political development and socio-cultural values. Nonetheless, available evidence to date provides the picture that the big audit firms have over the years accounted much of the audit fees paid out by the listed companies in Malaysia (Azham, 1999) if not also perhaps for the whole audit market in the country. Specifically, the study attempts to find answers to the following questions for the period 1999-2002 for the segment of audit market in Malaysia comprising of the KLSE (now Bursa Malaysia) listed companies: What kind(s) of market distribution of audit services for listed companies taking place between the Big 5 and the non-Big 5 audit firms (across industries) and among the Big 5 themselves (across time)? What kind(s) of market distribution of audit services for listed companies taking place between the Big 5 and the non-Big 5 audit firms over client characteristics of audit fees paid out and revenues earned? These questions were earlier raised by Takiah et al. (2000). This is not surprising for in the beginning the present work is supposed to be a replication of Takiah et al. (2000). By replicating Takiah et al. (2000), comparison of the findings could perhaps be made with the eye towards the presence of possible differences brought forward by the occurrence of Asian Financial Crisis 1997-1998. Alas, it is not possible to do so considering the various problems found in Takiah et al. (2000). See Azham et al. (2005). RESEARCH DESIGN Yardley et al. (1992) mention that a market is a group of buyers and sellers exchanging services that are highly substitutable for one another. Within a larger market, they say, submarkets can exist that define the relevant range of choices for many buyers. They suggest that dividing the audit market into submarkets by seller and/or buyer type could further one’s understanding of the entire audit market. The market for audit services is recognised to be segmented into distinct submarkets in a hierarchical way (Beattie et al., 2003). At the national level, the private (for profit) and public (not-for-profit) sectors can be distinguished with the former split into listed and unlisted companies. The listed company market can be further split based on (1) stock market indices (e.g. Composite Index, First Board, Second Board); (2) industry sector; and (3) city markets. As in so many previous studies, the present study is limited to a submarket: the publicly listed companies. Only listed companies are studied because their annual reports are easily available. In addition, this group represents the most economically significant group of companies in the country. All the data collected come from the annual reports of KLSE listed companies. No additional information or opinions from companies or audit firms were obtained. For each company, the data is consisted of the type of industry, the identity of the company auditor, audit fee and turnover as found in the published financial statements of the companies for the accounting periods ending in 1997, 1998, 1999, 2000, 2001 and 2002. Annual reports of companies are mainly drawn from the KLSE website. In cases where the website has failed to provide them, annual reports of companies found in the form of printed pages are searched for in either the KLSE in Kuala Lumpur itself or a securities firm in Penang. Companies chosen to be analysed are those listed in 1999, 2000, 2001 and 2002. The exclusion is made for the data in 1997 and 1998 in order to avoid problems associated with the merger between Price Waterhouse and Coopers & Lybrand. The merger was announced 18 September 1997, effective August 1998 (Wall Street Journal, 19 September 1997, pp. A3, A4.) The number listed differed over the 1999-2002 period ranging from 755 to 838. Unlike Hogan and Jeter (1999) and Velury et al. (2003), no exclusion is made regarding companies in regulated industries. According to Moizer and Turley (1987), the use of audit fee is a better proxy for determining concentration measures to capture the auditor share of business. Weets and Jegers (1997) put it this way: the ideal variable to 687 measure market shares in the audit market is audit fees probably because it represents a good measure of the output of the auditor. Moizer and Turley (1987) mention that the number of clients is not a good measure in audit concentration studies since it assumes that each audit client pays the same audit fee, irrespective of its characteristics (size, complexity, etc.) and the type of audit firm engaged. They have also concluded that ratios based upon the number of clients are always lower than the ratios based upon alternative based. This very conclusion is however negated in a study of the Belgium audit market by Weets and Jager (1997) who have also mentioned that the ratio based upon the number of clients is probably “very close” to the concentration ratio based upon audit fees. Over the years, there have been numerous studies that use this very measure of number of clients. Weets and Jeger (1997) have produced a summary of the literature in table form for studies conducted as early as in the early 1960s and as recent as a decade ago in the United States and other countries in the West. Note that this extensive summary of theirs include studies that use concentration measures other than number of companies such as those mentioned earlier. One of the conclusions they made is that the most frequently used variables are those of demand side such as assets or sales of client firms. Supply side proxies such as number of clients, number of assignments or number of qualified professionals in the audit firm are less frequently used. Based upon Weets and Jeger (1997), for the United States, studies that use the number of clients as the measure for audit concentration include Rhode et al. (1974), Campbell (1981), Tonge and Wootton (1991) and Wootton et al. (1994). As for studies conducted with data coming from outside the United States, these include Gilling and Stanton (1978) for Australia, Moizer and Turley (1987) for the United Kingdom, Langendijk and Deetman (1990) for the Netherlands, Beattie and Fearnley (1994) for United Kingdom and Ireland and Corona Romero et al. (1995) for Spain. FINDINGS There are two sections of the findings. The first is concerned with market distribution of audit services for listed companies between the Big 5 and the non-Big 5 audit firms (across industries) and among the Big 5 themselves (across time). The second is on market distribution of audit services for listed companies between the Big 5 and the non-Big 5 audit firms over clients’ characteristics of audit fees paid out and revenues earned. For convenience, the names of the Big 5 audit firms are abbreviated as follows: Arthur Andersen (AA), Deloitte Touche Tohmatsu (DT), Ernst & Young (EY), KPMG (KPMG) and PricewaterhouseCoopers (PwC). Audit Market Share Distribution Across Industries Between Big 5 and non-Big 5 Tables Not Included on Submission – Please Contact Authors As can be seen in Table 1, the hotel industry that is comprised of six companies for each of the years covered by the study goes to the Big 5. In other words, they audit all six. For infrastructure project companies, the Big 5 also audits all the companies for the last three years of the four-year period. The total number of companies for each year is however very small – fewer than 10. In the case of two other industries – mining and plantation – in each of the year covered over 80 percent of the companies are also audited by the Big 5. The only exception takes place for plantation in 2001. For mining, in each of the year covered, 5 of the 6 companies go to the Big 5. As for plantation, the Big 5 accounts for over thirty companies for every year covered whereas the non-Big 5 fewer than 10. In properties and consumer products, there appears to be stability over time in regard to the percentage of companies accounted by each group of Big 5 (more or less 65 percent) and non-Big 5 (more or less 35 percent). But the same may not be said for the finance industry. From 1999 to 2000, there is a jump of around 20 percent companies coming to have the Big 5 as their auditors. At the same time, there is a reduction of 20 percent for the clients of the non-Big 5. But from 2000 to 2002, there is stability in audit market share distribution for this industry: around 83 percent of the companies went to the Big 5. Similar stability in audit market share distribution may also be found for the technology industry for the last two years of the four-year period covered. In fact, the percentage and number of companies audited by Big 5 and non-Big 5 do not change at all for either year. While stability in market share distribution may at last be said for finance and technology industries, the same could not be said for both construction and trading/services throughout the four-year period. 688 All in all, it may be safely be said that throughout the four-year period, except for the construction industry in 1999 and 2002, the Big 5 accounts for a sizeable share of the companies audited in the rest of the 12 industrial sectors. This share ranges from 60 percent to 100 percent. Even for the construction industry in 1999 and 2002, the percentages take up by the Big 5 are not small. It is around 58 percent in 1999 and 55 percent in 2002. Except for construction, consumer products and properties, the rest of the industries in just about every year of the four-year period has more than three-fourth of their companies audited by the Big 5. So, it is not surprising to find that as a whole too, that is when the companies from various industries are viewed together, except for the year 1999, in the rest of each of the four-year period, three-fourth of them are audited by the Big 5 (see the total row). Audit Market Share Distribution Across Time Among the Big 5 Tables Not Included on Submission – Please Contact Authors As may be seen in Table 2 above, DT has significantly increased its market share over the four-year period. There is a drastic jump from just five companies audited in 1999 to 49 in 2000 and finally 58 in 2002. Nonetheless, the number and percentage of companies audited are still very small compared to the rest of the Big 5 where each audits for over 120 companies for each of the four-year period covered in the study. AA and PwC have however been quite stabled in terms of the number of companies audited during the four-year period. That is not the case KPMG and EY in terms of the number of companies audited, though some sort of stability could be discerned when the total number of companies that each audited is transformed into percentage value. For the first three years of the period covered, AA audits more companies than others in the Big 5. But in terms of percentage of companies audited, it is not very high. So, it is not surprising to find that in 2002, it came down to third position after EY and KPMG. In the first three years too, EY, KPMG and PwC audit more or less the same number of companies. That is around 125. Exception takes place in 2000 for EY when it audits over 130 companies. Later in 2002, EY is able to leave the other two behind and takes the position as the audit firm with the highest number and percentage of companies audited. Nonetheless, the KPMG is not left that far behind. As mentioned earlier while discussing Table 1, in Table 2 it may be found that all in all, around three fourth of the companies for the last three years of the four-year period covered has their auditors who are one of the Big 5. In terms of percentage of companies audited, the Big 5 has in fact increased their share of the audit market over the first three years. There is however a slight dip from 2001 to 2002. But in terms of number of companies audited, the dip is actually an addition of 44 companies as compared to that of 39 for the non-Big 5. At the end, it may be seen from Table 3 that from 1999 to 2002, the Big 5 has increased its number of companies audited from 516 to 614 as compared to non-Big 5 which has reduced their share from 240 to 224 in the same year range. All in all, it can safely be said that except in the case of DT, the other four Big 5 have got more or less equal share of companies audited over each of the of the year covered in the study. As for the non-Big 5 as a whole, its position is also not that bad for the fact that it audits around a quarter of the listed companies in each of the last three years of the four-year period. Audit Market Share Distribution Over Clients’ Characteristics Between Big 5 and non-Big 5 The audit firms’ clients of the KLSE listed companies may be classified into several ways. One that was done earlier was on the basis of industrial sectors that they are in. Further analysis of the audit market may take place with the focus on two characteristics of these listed companies: first, size of audit fees that they pay to the auditors; and second, size of turnover that they earn by being in business. Size of Audit Fees The audit fees are arbitrarily classified into five categories with the following ranges of amount in ringgit Malaysia (RM): 689 very small small medium large very large < 50,000 = 50,000 – 100,000 = 100,001 – 500,000 = 500,001 – 1,000,000 > 1,000,000 The distribution of audit clients into each of these five categories between 1999 and 2002 may be seen in Table 3. Around 70 percent of the audit clients pay either small or medium size amount of audit fees throughout the four-year period. For the very small category, the percentage of clients continues to decline over the same period. Nonetheless, it continues to provide the third highest number after the medium and small size categories. All in all, with the exception in the very small size category whose values continue to dwindle over the four-year period, it may be said that for the same period there has been small to mild fluctuation in the rest of the categories of audit fees paid out. Tables Not Included on Submission – Please Contact Authors To check the distribution of clients between Big 5 and non-Big 5 in terms of the audit fees paid out in each of the five categories, further analysis is done as may be seen in Table 4 below. From Table 4, a few details may be discerned out over the four-year period. First, more companies from all size ranges have one of the Big 5 as their auditors. Exception may only be found in the very small size category. Second, there appears to be neck-to-neck competition for clients in the medium size category by the Big 5 and non-Big 5 auditors. Third, it is in the medium size category where both Big 5 and non-Big 5 get their highest share of clients. As perhaps to be expected, it is in the very large category where both Big 5 and non-Big 5 get their smallest share of clients. Finally, much stability may be found for the Big 5 in regard to clients who are associated with audit fees paid out from very small, small and medium size categories, while none could be found for the non-Big 5 in any category. Thus, the non-Big 5 appears to be operating tumultuously as compared to the Big 5 auditors who appear to be experiencing such thing only in regard with companies from large and very large categories of audit fees paid out. Tables Not Included on Submission – Please Contact Authors Size of Revenues Earned Just like the audit fees that companies pay out to their auditors, the size of clients’ revenues is arbitrarily classified into five categories with the following ranges of amount in ringgit Malaysia (RM): very small small medium large very large < 250 million = 250,000,001 – 500 million = 500,000,001 – 750 million = 750,000,001 – 1 billion > 1 billion The distribution of audit clients into each of these five categories between 1999 and 2002 may be found in Table 5. It may be seen that majority of the audit clients come from the very small category of revenues earned throughout the four-year period. But the very large and large categories combined accounts for around 10 percent over the same period. There is however a continued progression of decline for the large category. As for the other four categories, it seems that there has been mild fluctuation over the four-year period. What is really interesting is that clients coming in from the very large category continues to be the third highest in number after those coming from very small and small categories throughout the four-year period. It is the large category that seems to be in a continued progression of decline that stays as the last among all the five categories. Tables Not Included on Submission – Please Contact Authors To check the distribution of clients between Big 5 and non-Big 5 on the basis of their revenues in each of the five categories, further analysis is done as may be seen in Table 6 in the next page. From Table 6, a few details may be discerned out. First, more companies in the large and very large category have their auditors from among the Big 5. The same may also be said for the medium size category for the first three years of the four-year period covered in 690 the study. Second, for the very small category, more companies go to the non-Big 5 as their auditors. Third, in the small size category, there appears to be stiff competition between the Big 5 and non-Big 5. Thus, in two years, more companies are audited by the Big 5, but in the other two years it is the case of more companies go to non-Big 5. Fourth, for both Big 5 and non-Big 5, majority of their companies come from the very small size category. Fifth, for the Big 5, they experience fluctuations in the number of clients that they get in all categories of revenues throughout the period. Exception may perhaps be said for the large category where there is a continued progression of decline in the first three years. As for the non-Big 5, fluctuation appears to have taken place for the medium, large and very large categories. For the very small and small categories for the last three years of the four-year period covered, there is a continued progression of decline (very small category) and increase (small category) in clients who have the non-Big 5 as their auditor. There is also a marked increase in the very small category and a marked down for the small category for the non-Big 5 from 1999 to 2000. Tables Not Included on Submission – Please Contact Authors DISCUSSION In the Malaysian context, the audit services market distribution over the years is similar to what has been found overseas. Specifically, it has been found that the Big 5 accounted for a sizeable share of the companies audited in all of the KLSE industrial sectors. Mostly, this share had ranged from 60 percent to 100 percent. Except for construction, consumer products and properties, the rest of the industries in just about every year of the four-year period had at least three fourth of their companies audited by the Big 5. Furthermore, when the audit firm Deloitte Touche Tohmatsu is taken out from calculating the market share taken up by the Big 5, thus leaving the four biggest among the Big 5 behind, it may be calculated from data provided in Table 2 earlier that throughout the four-year period these four biggest firms accounted for a share of over 60 percent. Based on all this, in the Malaysian context in regard to the segment of listed companies, the audit market could be categorised as tight oligopoly. All in all, when it concerns segments of the audit market classified on the basis of client characteristics of audit fees paid out and revenues earned, the audit market share distribution is as perhaps to be expected. Except for the very small size category, more companies from all size ranges of fees paid out had one of the Big 5 as their auditors. Also, more companies in the large and very large category of revenues earned had their auditors coming from among the Big 5. For the very small category, more companies went to the non-Big 5 as their auditors. This very set of findings is perhaps not surprising, for a quarter of century ago, Dopuch and Simunic (1980) conclude that as the size of the companies decreased, their likelihood to choose a major independent audit firm as their auditor also decreased. See also Kwon (1996). Why large companies go to large audit firms? Simply because only large audit firms can provide high quality services to large clients. Specifically, large clients with numerous (inter)national subsidiaries can only be served efficiently by large audit firms that have branches or affiliated firms all over the place (Benston, 1985). The manner that Dopuch and Simunic (1980) put it is this: the auditee-auditor pairing may be influenced by economies to auditor size. That is, scale economies to large firms in auditing are most likely to arise from opportunities for staff specialisation through division of labor. Also, because of a high degree of separation of ownership and control in large clients, these entities demand high quality service which only large audit firms could provide since compared to small audit firms, they have the better chance in resisting client pressure and maintain independence due to the fact that each of their clients takes a small share of the total client portfolio. Note that Yardley et al. (1992) have also mentioned that the need for a large audit firm in the large audit market is obvious. Interestingly, they further comment that a similar fit exists in the small-client market. As they put it, diseconomies of scale, reduced or non-existent quasi-rents and disadvantages of a structured audit approach may give smaller audit firms a competitive advantage in the small-client market. Perhaps another way of putting it is this: there is low value attached to the certification of financial statements by high quality auditors in the market segment of the small size companies. Thus, they would invariably choose cheaper audit firms represented by the non-Big 5. In a corporate environment which can be found in Malaysia where there is little diffusion of ownership due to the tight family and government ownership structures, the families and governmental bodies which tend to have accessed to inside information do not demand high quality auditor who may charge more than others to vouch for their credibility. 691 CONCLUSIONS The findings on audit market share distribution across industries, over time and over large size listed companies should raise more than the eyebrows. It appears that the Big 5 – minus Deloitte Touche Tohmatsu – take quite a large section of the market shares. This should warrant regulatory analysis in the manner of those mentioned earlier in the United States and United Kingdom, including evaluating ways to increase audit firm competition in certain industries by perhaps limiting market shares. Perhaps the very question to be answer by the concerned authorities is on the effect of existing level of concentration on price and quality. It is however notable that the modern theory of industrial organisation makes no clear statement regarding the impact of concentration on competition. Thus, as said Beattie et al. (2003), while concentration measures are a good indicator of market structure, the link with competitiveness is more complex than often assumed. In the final analysis, modern corporations are characterised by separation of ownership and control. Such a separation creates a need for effective corporate governance mechanisms to ensure that scarce resources (i.e., capital) are effectively utilised to maximise shareholder wealth. Auditing as part of the mechanisms is specifically demanded because it lowers information risk. However, the extent to which auditing is effective at achieving this in individual circumstances depends in part on the quality of the particular audit. Would audit quality still be around when certain size auditors possess a huge chunk of the audit market? LIMITATIONS OF THE STUDY There are more than a few limitations associated with this descriptive study. First, the sample studied is limited to listed companies. Thus, the findings may not be generalisable to the entire market for audit services in Malaysia, which includes private companies, unlisted public companies, the public sector, etc. Second, since sample chosen is not directly comparable to those used in prior studies of the western developed economies, comparisons between the study’s findings and theirs should be made with caution. Third, the results pertain to data from a few year period. Special conditions may have existed in the Malaysian audit market during that period that may have influenced the results reported. In particular, the Asian Financial Crisis 1997-98 that brought down the stock market then may have influenced audit firms, especially the Big 5, in some ways. This and other factors could limit the generalisability of the findings. Fourth, the data contained in the report do not differentiate between those associated with consolidated amounts and others such as parent and/or subsidiary companies. There is acute difficulty in allocating audit fees amount to the right auditors when the consolidated figures do not distinguish between fees paid to the holding company auditor and those paid to other auditors (who are rarely identified). There is thus the risk of double counting of holding companies and their listed subsidiaries audit fees and other data. Finally, fifth, the study has failed to compute summary concentration measures such as the CRn and H index. FURTHER STUDY A generally accepted approach to analysing the configuration of supply is market concentration. As mentioned Weets and Jegers (1997), its role is predominant in the empirical industrial economics literature, where it has been used as a measure of market structure in the traditional structure-conduct-performance paradigm since the publication of Bain’s (1951) seminal paper. To be more exact, concentration is normally regarded as a significant dimension of market structure because it plays an important role in determining market power and hence business behaviour and performance. Two measures that are generally used in audit market concentration studies and also in the general field of industrial organisations are the concentration ratio CRn and the Hirschman-Herfindahl index (Hindex) (Maijoor et al., 1995). As explained Scherer and Ross (1990), the former owes its popularity for the fact that CR(4), CR(8), CR(20) and CR (50) for United States manufacturing have been published since 1972. As for the Hindex, it is popular because it combines elements of both the number of suppliers and the inequality in their 692 respective market shares. All in all, there is little need to worry as to whichever index to be use in a research study, for many studies have found that the alternative concentration measures are highly correlated (Pong, 1999). Both measures should be used for a further study using the same data so that comparison of findings with those from overseas may be made a little easier than that which could possibly take place when measures used are like those in the present study. That said, there is a need to note what is stated in Beattie et al. (2003). They say that concentration in audit market studies is measured using a variety of metrics, including number of clients, audit fees and (since audit fees are not publicly disclosed in many countries) surrogates for audit fees such as client revenues or total assets. Concentration ratios, which report the share of a given number of the largest suppliers, and Herfindahl Index, are most commonly reported. However, comparisons over time and across countries of the studies’ findings are not feasible in most cases due to the different metrics used and the different submarkets analysed. Related to this, further study may also look into reasons associated with the increased concentration over time. Thus, individual instances of switches of audit firms need to be examined (Moizer and Turley, 1989; Pong, 1999). Could it be mergers among audit firms themselves? Replacement of small audit firms by the big size firms? What could these reasons be? Note that as stated in Beattie et al. 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Journal of Accounting Literature, 11, pp. 151-184. 694 TABLE OF CONTENTS Title Author(s) Page A Teleological Approach To The Expansion Process Of Finnish -Based Corporations To The Republic Of South Africa Evariste Habiyakare 1 A Strategic Approach Toward Focused Internet Marketing: The Use Of Rich Media Enhancements To Increase Marketing Effectiveness Valentin H. Pashtenko and John Newhouse 17 Dietary Supplement Users Vs Non-Users In Malaysia: Profile Comparisons For Marketing Purposes Ezlika Ghazali, Dilip Mutum and Lee Lai Ching 43 Implementation Of B2c E-Commerce In Bangladesh: The Effects Of Buying Culture And E-Infrastructure Shah Azam 55 Shopping Motivations: An Investigation Of Indian Retail Shoppers Ahmad Jamal 67 An Assessment Of The Training Practices Among Malaysian Smes Mohd Khairuddin Hashim and Sa’ari Ahmad 76 Developing Human Capital Towards Learning Organisation Roselina Ahmad Saufi and Liew May Wei 85 The Effectiveness Of Small And Medium Development Corporation (Smidec) Export Assistance Programs On Malaysian Sme’s Madya Abdul Jumaat bin Mahajar, and Shawn M. Carraher 90 Strategy Through The Eyes Of The Consumer: An Exploratory Study Across Emerging Economies John A. Parnell and John E. Spillan 99 Risk And Performance Of Islamic Banks Versus Traditional Banks: The Case Of Qatar And The United Arab Emirates Turki Alhmoud 119 Performance And Trend Of Technological Innovation In Malaysian Banks Norashfah Yaakop Yahaya Al’Haj 127 The Impact Of Crude Oil Price Changes Towards The Stock Returns Of Oil And Gas Companies In Malaysia Norashfah Hanim Yaakop Yahaya Al’Haj and Muhammad Iskandar Hamzah 135 Coming Of A Giant Retailer: Are Small Retailers Running Scared? Daing Nasir Ibrahim, T. Ramayah, Ishak Ismail and Quah Chun Hoo 141 Does Iso 9001 Certification Matter In Company Performance? Osman Mohamad, T. Ramayah, Yeap Hock Cheng and Razli Che Razak 148 Pressured For Time: Usefulness Of Online Bill Payment System For Part-Time Mba’s T. Ramayah, Chin Yee Ling, Norazah Mohd Suki and Amlus Ibrahim 152 Perceived Characteristics Of Innovating (Pci): The Case Of The Human Resource Information System (Hris) T. Ramayah, Noornina Dahlan, Noorliza Karia and Normalini Md. Kassim 159 Online Shoppers Vs Non-Shoppers: A Lifestyle Study Of Malaysian Internet Users Dilip Mutum and Ezlika Ghazali 166 Global Information Systems Failure Sphere: A Forecasting Model Imad J. Zbib and Tony Feghali 177 Measuring The Level Of Customer Satisfaction Among Employees Of A Human Resource Division Mahiah Said, Suhaimi Sudin and Ibrahim Ali 187 Religiosity And The Malaysian Malay Muslim Investors: Some Aspects Of Investment Decision Rusnah Muhamad, S.Susela Devi and Abdul Mu’min Abdul Ghani 197 An Exclusive Study On International Trade Fair - Japan K. K. Karthick and K. K. Ramachanan 207 Growth Triangle Strategies - A Critical Realist View To The Prospect For Growth In Sub- Saharan Africa: Research Agenda Evariste Habiyakare 217 The Relationship Between Adequacy Of Pay, Perceived Distributive Justice And Individual Attitudes And Behaviours: A Study Of The Headquarters Of Malaysian Post Office In Kuching, Sarawak Azman Ismail, M. Faizil M. Faisal, Asfah Roziati Ismail and Ali Boerhannoeddin 228 Country Of Origin And National Loyalty Effects On Consumers’ Evaluation Of Airlines Serving Lebanon Imad J. Zbib, Yusuf Sidani and Karla FarhatAtallah 238 The Usage Of Accounting Software By The Small And Medium Enterprises (Smes) In Perak Khalid Ismail, Rosli Samat, Norizan Saad and Nooraisah Katmun 256 Internationalizing Marketing Communications: A Study-Abroad, DirectExperience Approach Sak Onkvisit and Howard W. Combs 269 An Evolutionary Algorithm Based Tool For Data Visualization With Application In Business Syed Arshad Raza, Muhammad Sarfraz, and M. Sadiq Sohail 275 Developing Model Towards Franchise Performancein Indonesia: The Role Of Governance Structure, Entrepreneurial Orientation And Knowledge-Based Resources Bambang N. Rachmadi 284 Foreign Direct Investment Regime In Malaysia: Can Bangladesh Learn From It? Mohammad Emdad Ullah Mian, Quamrul Alam and M. Yunus Ali 300 Shoving Factors Of Importer Commitment: An Empirical Investigation Of Interrelationships And Mediating Roles Md Abu Saleh and M Yunus Ali 310 Role Of Friends, Family, And Media In Classification Of Malaysians Online Shopper Innovativeness Norazah Mohd Suki, Mohd Ismail Ahmad and Venu Thyagarajan 324 Rosettanet Standards Implementation In Enhancng Supply Chain Performance Suhaiza Zailani, R. Premkumar & Roaimah Omar 333 Gulf Financial Institutions: A Comparative Look Mahmoud Arayssi 341 The Value Of Successive Analysts’ Recommendations Said M. Elfakhani and Zeina A. Halabieh 353 International It Outsourcing: A Comparison Of Malaysia And The Philippines J. Mark Munoz & Dianne H.B. Welsh 366 The Development Of Location Decision Factors As A Critical Managerial Procedure Involved In The Foreign Investment Decision-Making Process:Three Exploratory Case Studies Marwan N. Al Qur’an 390 Crm Implementation By Malaysian Automobile Distributors Nor Khomar Ishak, Dilip Mutum & Cheong Khai Fan 399 Arak Ksara: A Global Promotion Challenge Fadi Asrawi and Valentin H. Pashtenko 410 The Moderating Effect Of Balanced Scorecard Measures On StrategyPerformance Relationship: An Empirical Study Of Malaysian Manufacturing Firms Ruzita Jusoh, Daing Nasir Ibrahim and Yuserrie Zainuddin 425 Productivity Spillover from Foreign Direct Investment in Malaysian Manufacturing Industries During the 1990s: A Preliminary Result Noor Aini Khalifah and Radziah Adam 436 Malaysian Small And Medium Industries: Factors And Priorities In Designing Products Mohammad Basir Saud and Mohd. Azwardi Md. Isa 449 Critical Success Factors For Successful Implementation Of Enterprise Resource Planning Systems In Manufacturing Organization T. Ramayah, Imad Zbib and Sawaridass Arokiasamy 457 Type Of Procurement And Operational Performance: Comparison Of EProcurement And Offline Purchasing Towards Operational Performance T. Ramayah, Imad Zbib, Mohamad Jantan and Koh Bee Li 474 How Export Promotion Programs Influence Firm Export Performance A.K. Shamsuddoha and M Yunus Ali 498 Electronic Data Interchange (Edi) Implementation: Views From Manufacturing Firms In Malaysia Gengeswari, K and Abu Bakar, A.H. 508 The Effect Of Bank Mergers On Small Business Lending In Malaysia Rosli Mahmood and Ghazali Abdul Rahman 514 Conceptualizing Entrepreneurial Orientation Of Malaysian Chinese Firms Lai Yeng Chai, Ahmad Zohdi and Abd. Hamid 524 The Effects Of Parent Characteristics On Consumption Attitudes Of Urban Malaysian Children Samsinar Md. Sidin and Ainul Zakiah Abu Bakar 541 Determinants Of Lebanon’s Ict Export Competitiveness: Evaluating A Country’s Readiness To Export Ict Tony Feghali and Shireen Halawani 552 Using The Mel Gibson Film, The Passion Of The Christ, To Introduce Marketing Concepts: A Unit To Supplement Instruction And Discussion Peter A. Maresco 570 Exploring The Internationalisation Of Small To Medium-Sized Enterprises (Smes) In Malaysia: A Preliminary Finding Zizah Che Senik, Lanny Entrekin and Brenda Scott-Ladd 579 Perceptions Of Gender Inequality In The Mena Region Workplace: A Case Of Lebanon Imad B. Baalbaki; Azza Yehia and Tarek Kettaneh 589 Work Values In The Arab Culture Yusuf Munir Sidani 608 Gold Price Determinants: An Expanded Model Imad B. Baalbaki, Said Elfakhani and Hind Rizk 616 East Timor – A New Nation In The Making Xia Yang 626 Afta And Trade Liberalization - Challenges And Prospects For Malaysian Automobile Industry: The Case Of Proton Wan Zawiyah Wan Halim 654 Propensity To Create Budgetary Slack In Public Higher Learning Institutions Yuserrie Zainuddin, Salmiah Che Putih, Hasnah Haron and Sofri Yahya 655 Intraprenuership And Innovation In Small And Medium Companies: A Study Of A Technology Based Sme In Malaysia Razmi Chik and Hj Hazman Shah Abdullah 657 Role Of Transaction Cost, Economies Of Scale: Organizational Capabilities And Production Cost Factors In Determining Distribution Integration Channel Choices Doni Sagitarian Warganegara and Osman Mohamad 657 The Expectations Model Of Economic Nationalism: An Empirical Investigation Syed H. Akhter 658 Emerging Technology For Service Quality: Pda’s As Your Devices In Mobile Internet Banking Environment Ahmad Hisham Zainal Abidin and Abd. Rahim Romle 660 Immigration And International Business: Is There A Link? Evidence From Australia M.A.B. Siddique 661 Skills And Competencies For The Next Decade: Views Of Business Leaders Mohammad K. Najdawi and Adel H. Salih AlMfarji 661 Employee Motivation: A Malaysian Perspective Rafikul Islam & Ahmad Zaki Hj. Ismail 663 Export Marketing Readiness Of Lebanon’s Ict Firms: An Empirical Investigation Tony Feghali and Shireen Halawani 664 Entrepreneurial Opportunities And Challenges In Emerging Markets:Some Preliminary Lessons From India Ven Sriram, Tigi Mersha and Lanny Herron 666 Compliance With Group Accounting Standards, The Vertical Adjustment Issues: Field Studies Of Swedish Multinationals Gary Cunningham and Lars G. Hassel 667 The Status Of The Environmental Management System (Iso 14001) Programmes Implemented By The Manufacturing Firms In Malaysia Suhaiza Zailani, R. Premkumar & Roaimah Omar 667 Towards A Pluralistic “International Law” For Globalised Business Development: Insights From Psycho-Jurisprudence A. A. R. Khan 683 Azham Md. Ali, Mohd. Hadafi Sahdan, Mohd. Hadzrami Harun Rasit, Aryati Juliana Sulaiman, Norhaiza Khairudin and Fariza Hanim Rusly 685 Audit market in malaysia: The Case of Tight Oligopoly?

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