deter mit ants of public utility

I. INTRODUCTION

Public enterprises have a long historydating back to Roman Empire and the OldTestament in European history and to theMaurya Period in Indian History. TheFrench revolution and Weber’sbureaucracy as mode of governanceprovided a raison de’tre for publicenterprises to function. The publicenterprises were mainly in two areas: in

* Received November 30, 20051. Principal Consultant, Energies & Utilities Group, DCG, Infosys Technologies Limited, Electronics

City, Hosur Road Bangalore, India –561029.Email: [email protected]

2. Professor, Indian Institute of Management, Bangalore, Bannerghatta Road, Bangalore, India –560076, Email: [email protected]

3. Professor of Organization Behaviour, Indian Institute of Management, [email protected]

Determinants of Public Utility�sPerformance*

Sanjay Gupta1, V. Ranganathan2 & L. Prasad3

Abstract

Organizations under public ownership have earned the dubious distinction that under-performance isthe hallmark of public ownership and even any improvement may be only ephemeral. Several agency-based and democracy-based theories have explained why they cannot perform. But no study has addressedthe significant variations in their performance and tried to explain these variations in terms of motivationsof the owner-government and the agent-manager. This paper addresses this question. Public ownershipis not a homogeneous concept and the agent manager’s discretion, which largely determines the strategicbehavior of the organization is conditioned by the type of demands the government puts on the organizationand the diligence with which the government’s goals are pursued. The paper explores the connectionbetween the expectations of the external actors—the owners and resource providers— and the firm’smanagers on the strategy formulation of the organization which in turn shape the structure, controls,incentives and processes of the organization, which ultimately determine the performance. The paperdraws from the study of two electric utilities in India and one in Thailand, all of them being state owned.

natural monopolies like electricity,railroad etc., and in industries which hada high tax collection potential (sin sectors)like tobacco, liquor etc. Russian revolutionand the ideology of centralized planningand socialism provided legitimacy topublic enterprises. World War II gave afurther impetus to the growth of StateOwned Enterprises (SOEs), because theState started managing the industries

2 Vilakshan, XIMB Journal of Management

acquired from the enemy like Renault inFrance (Aharoni & Vernon, 1981).

The problems started when thegovernments had to run these enterprises.What should be the optimal relationshipbetween the government and SOE? Theautonomy-accountability literature triedto address this issue, but it turned out tobe verbiage and provided no preciserelationship based on clear expectations.The principal-agent theory suggested thatbecause of the existence of multipleprincipals with differing objectives, theSOE manager can be characterized as anAgent without a Principal. The managerhas greater freedom to manipulate oneobjective against the other and can takethe SOE in the direction of his perceptionof public interest or in the extreme, toserve his own self interest. The literatureon SOEs in Western democraciespostulates that the politician-Principalwould use the SOE as an instrument towin elections and subordinate SOE’sobjective to his personal ambition. Recentstudy on China reveals that in SOEs thepolitician and the bureaucrat extract rentout of SOE to benefit either themselves ortheir constituencies (Edward Steinfeld1998).

In the 1980’s a paradigm shift occurredand the emphasis was on the privatizationof SOEs in many countries. This happenedmainly due to the continued non-performance of SOEs, coupled with achange in philosophy that theGovernment should not be in business.The major thrust came from Margaret

Thatcher, who led the privatizationblitzkrieg in UK and from USA. Theglasnost and the subsequent fall of USSR,which made the public disillusioned withcommunism, acted as a catalyst to this.Simultaneously, the World Bank,suffering from a funds squeeze on the onehand and a self assumed mandate topromote the gospel of privatization on theother, effected a major shift in its lendingpolicy to pressure governments towardsprivatization. By 1990’s, a popularperception emerged that runningbusinesses is not the business ofGovernment and State ownership ofenterprises was ipso-facto undesirable.

The focus of the present study is toreexamine this proposition. We challengethe uniform nonperformance assumptionof SOEs, and discover that indeed thereis a wide variation in performance evenin the same industry. We studied twoState owned electric utilities (StateElectricity Boards) in India and one inThailand. The study examines the causesfor their differential performance andlinks these with the nature of governanceby the State in discharging its ownershipfunction.

II. METHODOLOGY

Performance of SoEs comes in twodimensions: Commercial and Social.Performance is conditioned by thestructure of the organization, managementcontrols and incentives. These in turn areinfluenced by the strategic behavior of theorganization orchestrated by the‘manager’. The manager modulates the

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strategic behavior of the organizationaccording to the expectations andmonitoring of the Government-owner andhis own self-interest or his own perceptionof public interest. These interactions aremodeled below:

In order to understand the above process,we use a multiple holistic qualitative casestudy approach. Case study method isadopted here because micro levelunderstanding of each organization isrequired to discern the chemistry betweenthe organizations strategic behavior andstructure, controls and processes andconsequently its impact on performance.We use multiple case studies, so that wecan then identify different ways in whichGovernments articulate their ownershipdemands on the organization, and thedifferences in strategic behavior oforganizations, which manifest in differentstructures, controls and processes.

Yin (1984) provides support for the casestudy method on the strength of itssusceptibility for in-depth analysis andholistic approach. The case method is alsothe most effective in explaning causallinkages and firm level processes.Eisenhardt (1991) extols the use ofmultiple cases for developing bettertheoretical constructs. She also providesa roadmap for building theory from casestudy research, which is adopted here.Stenfield has also adopted thismethodology in explaining failures ofSOEs under ostensibly liberal economicreforms in China

Selection of Cases: Based on variation inperformance on financial, operational andsocial parameters, we selected twoutilities in India near either end of thespectrum, and chose a third utility fromThailand comparable in size. Though 4-6cases provide better understanding, onlythree cases were taken due to constraintsof cost and time. The case from Thailandwas chosen to avoid national and culturalbias and to provide a benchmark.

Several guidelines are available fordetermining the choice of research sites.Given the limited number of cases thatmay be studied, it makes sense to selectcases that represent polar or extremetypes and in which the process of interestis transparently observable (Eisenhardt,1989; Pettigrew, 1990). Eisenhardt (1991)suggested for more than a single case andnormally “between 4 and 10 cases”because these many cases usually workwell for theory building. However, thepresent study has been restricted to threecases only, partly because of constraintson resources and time and partly becausethese three cases have been able toprovide representative samples as per therequirements. The cases being publicelectric utilities, the variation inperformance among them, has been themain criteria for the selection of the casesin the present study. For this, we selectedtwo cases from the State Electricity Boardsin India and one case from the electricutilities of another Asian country, keepingin view the large variation in theirperformance to get useful findings withrespect to the research problem.

Gupta et al, Determinants of Public ...


III. PERFORMANCE MEASUREMENTINDICATORS

For selecting all the three cases, we havecompared the performance oforganizations on selected performancemeasurement. The indicators chosen havebeen losses (technical and non-technical),labour productivity, return on investmentand collection efficiency. These factors arenot independent, and hence this measureis only a crude measure for selecting thecases. For selecting the cases from SEBs inIndia, we have taken losses as T&D lossesin percentage1 ; labour productivity2 asnumber of employees per MWkhelectricity sold; return on investment asreturn on capital base in percentage,including subsidies provided by stategovernments if at all and collectionefficiency as revenue arrears outstandingas a percentage of total sales. For selectingcases among SEBs, we have taken data forthe integrated SEBs as data for electricitydistribution only in SEBs is not available.For selecting the third case, we haveconsidered only electricity distributionfirms from other Asian countries. Forcomparing the performance of twoselected cases of SEBs with the third caseof a distribution company, performanceindicators of SEBs have been modified3 to

make them comparable to the performanceof the distribution company.

From these values, we have calculated therelative performance of all the SEBs on allthe four selected performance parametersby taking the best value as 1 and the worsevalue as 0, keeping objectivity in mindand then interpolated all other valuesbetween 0 and 1. The relativeperformances of an SEB on the fourparameters have been given equalweights to determine the OverallPerformance Index (OPI) for all the SEBs.After developing the OPI for all the SEBs,we have ranked them based on their OPIs.From this ranking, we have selected twoSEBs, one as the best performing andother as the worse performing. Whileselecting the cases based on the abovecriteria, we have also considered the sizeof the organization in terms of the numberof consumers served and the number ofemployees along with the convenienceand the permission for doing the study.Based on above selection criteria, the twocases selected from the SEBs in India areMaharastra State Electricity Board(MSEB) and Uttar Pradesh StateElectricity Board (UPSEB). These twocases are not the best performing and theworst performing SEBs. We could not get

1 Includes both technical and non-technical losses because SEBs do not maintain separate data.

2 In the States, where there is a separate entity for generation (state sector only and not centralsector entities), the employees of generation sector are also considered to calculate labourproductivity. However, employees of central entities and private distribution entities are notconsidered for this, which may introduce small changes in the figures taken by us.

3 Losses of SEBs are taken as distribution losses and labour productivity is calculated only fordistribution sector and not for the integrated SEB.

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the permission for the best performingSEB (Tamil Nadu State Electricity Board)according to our criteria. The size of worstperforming SEBs as compared to UPSEBare few, but those are relatively smallerin size compared to MSEB and hence, wedid not select them.

IV. ORGANIZATION OF THE PAPER

The section is presented in three parts. Thefirst part looks at the performancedifferences in the organizations, comparesthe structure, control systems andprocesses of these organizations and thenlooks at the strategies of theseorganizations. Finally, it links thedifferences in the organization’s structure,control systems and processes to thedifference in strategies of theseorganizations and its impact on theperformance. Then we went further backand traced the differences in the structuresand processes to the strategic behavior ofthe organizations. This, in turn isinfluenced by the Government’sexpectations on one-hand and SOEmanagers’ interests on the other. Thesecond part focuses on the developmentof conceptual framework to understandthe top management’s strategicorientation, which shapes the strategies ofthe organizations in response to thedemands of the State. The third partintegrates the conceptual framework with

the findings from the three electricityutilities.

Part I

What accounts for the differentialperformance of organizations under thesame public ownership? To unravel this,we chose three electricity utilities,Maharastra State Electricity Board(MSEB)4 and Uttar Pradesh StateElectricity Board (UPSEB)5 from Indiaand Provincial Electricity Authority(PEA)6 from Thailand.

We found that there is lot of variation intheir performance, both on commercialand social dimensions (See Table 1).

4 MSEB is supplying electricity to the state of Maharastra, India, except for the major areas of Mumbaicity.

5 UPSEB is supplying electricity in the state of Uttar Pradesh, India

6 PEA is an electricity distribution company in Thailand and supplying electricity to provincialareas of Thailand except for the metropolitan areas of Bangkok city.

From Table 1, it is seen that PEA, MSEBand UPSEB have turned in best, averageand poor performances on commercialdimension. On Social dimension, PEAand MSEB have done well, while UPSEBhas fared poorly on this as well. Tounderstand the reasons for the differencesin the performance, we look at thestructure, control systems and processesrelated to electricity distribution in theseorganizations.

Organizational Structure

PEA and MSEB have tailored theorganizational structure to the needs. Thus,they have different structures in urbanand rural areas with different levels ofcentralization, specialization and



integration in these areas. Thisdifferentiation is not there in UPSEB.Besides, the organization structure ismuch more delayered in PEA than in theIndian SEBs. For example, in PEA, thelowest office 4 reports directly to the office1 depending on its location and not tooffice 3, which is next higher up office inhierarchy, while in both the SEBs, eachoffice has to report to only next higheroffice in the hierarchy. PEA and MSEBhave functional specialization in eachoffice in operations, which helps them tohave better functioning and

accountability. For example, generaladministration, technical and financefunctions are well separated. This explicitseparation is lacking in UPSEB, which hasresulted in lack of accountability. In boththe Indian SEBs, cadre lines are sharplydrawn between engineers and accountspersonnel and only an engineer could bethe head of the office. This results inconflicts and lack of coordination amongthe functionaries. This is not the case inPEA where head of the office isdesignated as ‘manager’ and s/he couldbe from any function.

Table 1: Variation in Performance of Public Electric Utilities

Parameters PEA MSEB UPSEB(1998) (1998-99) (1998-99)

Commercial parameters:

Average Tariff* (US cents) 5.25 4.64 4Rate of Return** 7.8% 4.5% (0.33) 4.11% (-17.5)Receivables 39 days 157 days 458 daysLosses*** 5.94% 14.14% 22.83%Sales/Employee**** 1.60 MU 0.59 MU 0.47 MUCustomer/Employee**** 352 159 127

Social parameter:

% Village Electrified 98.87 100 55.14

* 1$= 45 Rupees and 1$= 40 Baht

** Return is calculated on net fixed assets for PEA and on capital base for SEBs [return on net fixedassets for MSEB is 0.15% (2.61), while for UPSEB is 3.05% (-12.09) and the figures in bracketindicate return without subsidies].

*** Transmission loss of 4% are deducted from Transmission & Distribution loss to get the distributionlosses for MSEB and UPSEB. However, these reported figures were until recently fudged. MSEBclaimed a loss of 28% recently before the Regulatory Commission and UPSEB’s losses would beeven higher.

**** To calculate employees in distribution for SEBs, 70:30 ratio is taken for employees in generation& transmission to distribution Social Parameters:

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The responsibility centres in PEA andMSEB are intermediate offices in thehierarchy and have sufficient powers.While in UPSEB, responsibility centre isalmost at the lowest level in the hierarchyand does not have proper authority andresources. It has taken a toll onperformance.

PEA and MSEB have technical supportfunction at the field office levels tosupport the operational staff. In UPSEB,operational staff has to do planning,material arrangement and reportingwithout any support for specialized tasks.Further, the level of work specializationat operation staff level is less in SEBscompared to PEA. This affects the qualityof performance because of dilution ofresponsibility on the one hand andabsence of focus on the other.

Control Systems

PEA sets clear operational targets for itsemployees to achieve and has a well-oiledplanning and budgeting process, whichis both bottom up and top down. The SEBson the other hand plan only forinvestment but lack clear operationaltargets. Besides the Plans are always topdown, and there is no finality to the Plansbecause the funds for expansion have tomainly come from the Government, andthe Government itself does not have aclear allocation for power sector. Thus theSEBs attach no sanctity for planning. Incontrast, in PEA, the action plans bear theimprint of commitment to reach targetsfrom all operating units from below andfirmness of commitment of funds from

above. The budgeting in both the SEBs iswithout involvement of operational staffand the operating staff in turn cite lackof allocation of funds as excuse for theirfailed commitment to complete tasks.

PEA is mainly a distribution entitysupplying to the whole of Thailand,except for the Bangkok metropolitanregion and buys electricity from othergenerators. This naturally provides forunbundling of generation anddistribution, which greatly helps indistribution cost control. The SEBs, bothproduce and buy electricity, but have noaccounting unbundling betweengeneration, transmission and distribution.This blunts the ability of SEBmanagements to adopt any profit centerbased control mechanism for improvingfinancial performance on an area basis.

In PEA, responsibility is decentralizedwith required autonomy and operationalunits are responsible for performance inorder to achieve overall organizationalgoals. The decentralization ofresponsibility induces a sense ofcommitment for the employees. The profitand cost center approach with KeyPerformance Indicators (KPIs) andperformance monitoring against thetargets for each KPI makes unitsresponsible to achieve the organizationalgoals in PEA. On the other hand,responsibility in both the SEBs has beendecentralized but without counterpartauthority and without proper targets tobe achieved by them. This has resulted inineffective performance monitoring sans



targets, except on revenue collection.Even, in the case of revenue collectiontargets, they are set without reference tothe revenue demand. This weakness isextreme for UPSEB, where the head officehas very little control over its area officesin terms of either accounting control orenergy audit.

The information system for monitoringand control in SEBs is not appropriate dueto lack of use of IT and interconnectivity.It requires manual efforts, which restrictsinformation processing capabilities. Dueto this, information system is not able toprovide timely feedback and help indecision-making process. In MSEB, thereis off-line type of use of IT in commercialinformation and some level ofinterconnectivity, thus proving to bebetter than UPSEB, but not up to thestandards of PEA.

The incentive system to motivateemployees to perform, is totally missingin UPSEB, while in PEA and MSEB, it isthere in some form. There is an honorsystem in PEA and some promotion basedon merit and ‘selection’ in MSEB. InUPSEB, it is totally seniority based, totallydisempowering bosses. Beinggovernment organizations, thepunishment system is almost absent in allthe three organizations.

Processes

The metering process in both the SEBs isless efficient compared to PEA due to lackof automation. However, in PEA andMSEB, this process is carefully planned

and scheduled recognizing theimportance of revenue collection. Theautomated metering process in vogue inPEA has the following advantages:

l The automation of metering processeliminates manual intervention andprovides online validation facility toavoid defective meter reading. Thishelps in raising almost 100% of thebills based on meter reading. Manualintervention in meter reading leavesscope for errors and fudging andnon-recording by meter readers inSEBs. Because of automated meteringprocess, almost all consumers arebilled on actual meter reading in PEA,while the percentage of non-readingof meters, due to defective meters orother reasons is very high in MSEBand UPSEB. These figures areapproximately 20% and 40%.

l Automation of metering process alsoallows taking more reading in a daybecause of reduced time for meterreading. This is evident from thefrequency of meter reading, which isshort, viz. monthly for all consumersin PEA, while in both the SEBs, thefrequency of meter reading is mostlybimonthly/quarterly for all theconsumers except for very smallnumber of consumers, where itmonthly.

l The inefficient meter reading is oneof the major sources of energy losses.The energy losses in PEA are only5.94% in 1998. The energy losses for

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different urban areas in MSEB(technical losses + theft) range froma low of 6.9% to a high of 30.44% inwith most of other areas in the rangeof 20% in 1998-99. The MaharastraElectricity Regulatory Commissionhas given a figure of 28% for thewhole MSEB, based on samplereadings for agricultureconsumption, which is un-metered.The figures of losses in distributionfor UPSEB in urban areas are from10% to 45%, with average around35% in 1998-99. The regulatorycommission has put energy losses of40% in UPSEB.

The billing process due to electronic datatransfer from meters to billing units andfrom billing units to computer centers inPEA results in faster and efficient billingprocess. In MSEB, this process, though notelectronic, is still more effective than inUPSEB due to decentralized datapunching and submission. PEA hasinterconnected all of its offices throughsatellite, MSEB has limitedinterconnectivity, while UPSEB has madeno use of IT at all.

Automation of metering process andonline data transfer reduce staff andworking capital requirements (WCR),which in turn enhance the Rate of Return.WCR for residential consumers was 18days (worth of revenue) for PEA, 52 daysfor Urban and 82 days for Ruralconsumers for MSEB and 85 days forUPSEB. For the large industry andcommercial consumers, it was 30, 33-37

and 37-50 for the three utilitiesrespectively, thus maintaining the sameranks. The number of wrong bills needingcorrection is also high in SEBs, where inPEA it is only 5-10 bills in 10,000consumers. The bills to be corrected inMSEB ranges around 25%, while inUPSEB, they are in the range of 40%.

In PEA and MSEB, groups separate fromnormal operation and maintenance staffare formed to disconnect the consumerswho do not pay bills in time. This hasresulted in disconnection being a routineactivity in PEA and MSEB. However, inUPSEB, disconnection is still a type ofspecial activity undertaken during the last6 months of the year because the samestaff is used, which is more busy in earliermonths in maintenance. Due to delay inpreparation of disconnection lists becauseof time taken in data recording, thedisconnection action is taken late in boththe SEBs, except for urban areas in MSEB,where data is recorded fast. The effect ofthe disconnection policy shows up inreceivables. PEA has only 39 daysreceivables including 180 days forgovernment connections. The overallcollection is more than 95% against thedemand raised. While in MSEB,receivables are of 157 days and in UPSEB,receivables are of 458 days.

The maintenance system in PEA andMSEB is better than in UPSEB due to workspecialization on the one hand andseparate provision of funds in the budgeton the other. The monitoring of qualityindicators in PEA necessitates the units to



do preventive maintenance to avoiddefects occurring in the first place. InMSEB, preventive maintenance is donefor the High Tension (HT) system becauseinterruptions are reported at this level.

We see from the above comparativeanalysis that there are difference in thestructure, control systems and process ofthese organizations, which has an impacton their performance. Now we look back,see why there is difference and trace thesedifferences to differences in strategies ofthese organizations.

Strategy of Organizations

PEA has formulated its strategic intent,whereas both the SEBs are not having longterm strategy. The lack of vision andmission statements in SEBs also shows thelack of organizations’ aspirations. Both theSEBs do not have any written objectivesother than objectives as per the ElectricitySupply Act 1948 to set directions forthemselves.

The objective of PEA is to be a commerciallyoriented and customer focused efficient utility.For the SEBs, while there are no explicitobjectives, the implied agenda is to meetthe demand based on top management’sviews. In doing so, MSEB wouldconcentrate on giving good supply tosubsidizing consumers, while UPSEBwould try to collect revenue to meet itssalary bill. For ensuring commerciality,PEA has identified Key Results Areas(KRAs) to focus on and within each KRA,it has identified Key PerformanceIndicators (KPIs), with both long-term

and short-term targets. This makes clearto employees the short-term and long-term expectations of the organizationfrom them. This target setting is missingin SEBs.

PEA and MSEB are using the strategy ofdifferentiation among customers, toenhance revenue. PEA is focusing on highmargin market by giving them personalattention. MSEB is focusing on urbanareas to improve efficiency in these areasand giving special attention to HTconsumers, who have higher tariffs.However, both the SEBs lack customercare, due to lack of standards for services,which are in PEA. PEA is also using IT asa strategic tool to enhance revenue. Wesee that there are differences in the strategiesof these organizations and now we link thesedifferences to the differences in their structure,control systems and processes.

Relationship between Strategy andInternal Systems

The primacy for commercial objectives inPEA has lead to the identification ofKRAs, and KPIs with short-term andlong-term targets, and to achieve them,the decentralization of responsibilities tothe responsibility centers. Fullcommerciality has lead to profit centerconcept enforced in PEA, thoughincentives are weak, due to publicownership. Medium commerciality haslead to a responsibility center establishedin MSEB, where there are revenuecollection targets but no benchmarks forcosts. In UPSEB, due to lowcommerciality, there are no responsibility

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centers; there are only revenue collectiontargets. This difference in responsibilitycenter has also resulted in difference inbudgeting and planning; and accountsand finance control in these organizations.

PEA has an elaborate top down cumbottom up planning and budgetingprocess, where the former ensures fundsavailability and the latter assuresemployee commitment. In MSEB, thereis partial focus on commercial objectives;thus, there is little involvement frombottom in the planning and budgetingprocess. In UPSEB, the planning andbudgeting exist only on paper, but seldomenforced, due to lack of commerciality.The top down - bottom up approach ofplanning and budgeting with periodicreview and budgeting as control in PEA,is the result of commercially orientedstrategy, which is lacking in both the SEBs.

Due to profit center approach, theoperating units in PEA have financialautonomy as per the budget. In MSEB,there is partial focus on commercialobjectives; there is a centralizedexpenditure control but in UPSEB,financial control is weak due to lack ofcommerciality. This shows that thecommercially oriented strategy affects thecontrol systems.

Functional specialization in PEA could belinked to the identification of KRAs inresponse to its commercially orientedstrategy. The focus on efficiencyimprovement, due to commercialorientation, requires techno structure andwork specialization. These aspects of

organizational structure are partiallypresent in MSEB and totally absent inUPSEB due to partial commercialorientation of MSEB and lack ofcommercial orientation of UPSEB.Therefore, this suggests that commerciallyoriented strategy affects theorganizational structure.

The strategy of customer differentiationhas resulted in different structure andcontrol systems for urban and rural areasin both PEA and MSEB. The differinglevel of emphasis on commercializationin the three utilities has also lead todiffering levels of functionalspecialization and demanding differentlevels of operational responsibility.

The strategy of PEA to use technology hasmade processes efficient due toautomation of processes. The use of IT andinterconnectivity had also allowed PEAto reduce layers in hierarchies, which hasnot been possible in both the SEBs. Theuse of IT in operations also has an impacton management information system(MIS). The MIS is more effective in PEAcompared to both the SEBs because of lackof use of IT in SEBs. These findings showthe impact of use of technology as astrategic tool on the organization’sstructure, control systems (MIS) andprocesses.

The strategy of customer orientation hasresulted in effectiveness of revenuecollection and maintenance processes inPEA. This impact is less positive on theprocesses in MSEB because, MSEB has notset standards for services, and only has



Part II

Conceptual Framework

Contrary to popular perception, publicownership is not a homogenous concept.The performance of all the utilities underpublic ownership is not same and largevariations exist in their performance, evenwithin the same industry, as we have seenin the case of PEA, MSEB and UPSEB.SOEs face different institutionalenvironments, though coming under thesame umbrella of ‘public ownership’. The

C om m ercia l or ien ta tion S ocia l or ien ta tion L ack of or ien ta tion

M a rket d ifferen tia tion R even ue assessm en t R even ue collec tion M a in ten a n ce P rofit cen ter / fin a n cia l con tro l P lan n in g /budgetin g R u le based /ou tpu t based M IS

F un ction a l spec ia liza tion W ork specia l iza tion H iera rch y U rban /ru ra l

C ontrol System s

S truc ture

P rocesses

T ech n ology

C ustom er or ien ta tion

Stra teg ic V ar iab les

Figure 1:Relationship between Strategic Variables and Internal Systems

systems for interaction and feedback fromconsumers. The absence of customerorientation in UPSEB has also affectedeffectiveness of processes because theprocesses in UPSEB, compared to PEAand MSEB are less effective as discussedearlier.

Figure 1 shows the relationship betweenthe different variables of the strategy andorganization’s structure, control systemsand processes

strategic behavior of the organizationsmay be different within the same industryand ownership (Sharma & Vredenburg,1998) due to difference in societalexpectations, coercive pressures andregulatory policies (DiMaggio & Powell,1983). Organizational and managerialfactors also influence the strategicbehavior of the organizations (Sharma,2000; Zif, 1983). Based on the institutionalenvironment under which public electricutilities operate in the developingcountries and considering the managerialfactors, we propose to develop aconceptual framework to understand thedifference in strategic behavior of thepublic utilities and consequently thedifference in the performance.

SOEs have multiple objectives:commercial, political, social and cultural(Monsen & Walter, 1983). The utilitieshave to achieve the ROI (return oninvestment) and at the same time, theyhave to make accessible the services to

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consumers, even in economically unviableremote areas at non-discriminatory prices.For instance in India, utilities havetraditionally provided subsidizedelectricity to agriculture. WhileGovernment forces these conflictingdemands on the SOEs, their achievementis a result of the balance of power betweenthe Government as an owner and the topmanagement who is the agent. The topmanagement’s strategic orientation couldbe commercial, social or a combination ofboth. The difference in top management’sstrategic orientation will result in differentinternal systems (structure, controlsystems and processes) and consequentlythe difference in performance.

To understand the difference in thestrategic orientation of the topmanagement, we need to understand thepower and pressures exerted by differentgroups and how these affect the strategicorientation. The list of potentialstakeholders influencing the public sectorcan be very extensive (Pollitt, 1986),however, DiMaggio and Powell (1983)have recognized two primary influentialinstitutional actors in the context of publicsector, namely the State and the variousprofessional groups within anorganization. In the case of public sectors,the State is not only the legal owner of theorganization, but also the agent of thepublic. This gives the State a dominantposition by virtue of a constellation ofinterests (Weber, 1978) and legal power.Consumers could be another pressuregroup, but Paul (1992) has argued that inmonopoly situations, the cost of exit for

consumers is high enough to restrict themto exert any pressure.

The domination, by virtue of aconstellation of interests, suggests thepolitical aspect of power enjoyed by theState. Organizations are coalitions withdifferent interests and preferences (Cyert& March, 1963). These coalitions evaluatethe organization and thereby providelegitimacy to the organization, which isnecessary for the survival of anorganization. Through the method ofevaluation, these coalitions define theactivities of an organization and influenceorganizational orientation. Mintzberg(1983) has defined these coalitions asinfluencers, who seek to control thedecisions and actions of the organization.In the case of public utilities, the State isthe dominant interest group. Hence,strategic behavior of public utilities wouldbe influenced by the State because anorganization is effective only to the extentthat its most powerful stakeholder issatisfied (Connonlly et al., 1980).

The power domination of the State alsoresults from the resource dependency ofthe utility on the State. The organizationsare not only influenced by the coalitions,but also by the resource providers,because the key to an organization’ssurvival is its ability to acquire andmaintain resources (Pfeffer & Salancik,1978). The resource dependence focuseson the exchange of resources between theutility and the resource provider, and thepower relations this exchange entailsbecause external organizations may



demand certain actions in return due toresource dependency. In the case of publicutilities, capital is the most criticalresource, and for public utilities, theGovernment is the major resourceprovider. Other than the State, utilitiesget capital from other sources as well, likeDomestic Financial Institutions (DFIs) andInternational Financial Institutions (IFIs).They could also influence the managerialstrategic behavior, depending on theirinterests.

The State, being the dominant coalitionand the resource provider, gets thepolitical power to influence themanagerial strategic behavior throughformal or informal controls. As the Stateis nothing but the Government in power,aided by the bureaucracy/civil servicesin most of the countries, the politicalpower of the State becomes the politicalpower of the Government or the rulingpolitical party. Because of this politicalpower, the Government uses publicutilities to further its political objectives.In a democracy, the objective of theGovernment as a political class is tomaximize the probability of winningelections (Monsen & Walters, 1979). Theparty in power, acting as the Government,would influence the utilities to achieve itsobjectives of winning the next election,through patronage to its constituents.Thus, the objectives of the Governmentare mainly social objectives, in the formof a lower output price to certaincategories and an obligatory universalservice.

Because of the public ownership, theproblem of principal-agent relationship iscomplicated. The politicians who areinvolved in the monitoring of SOEs asowner also act as agents for the public.Thus in SOEs, we have two types ofprincipal-agent relationships: onebetween the public and the governmentas an agent of the public, and anotherbetween the Government as the ownerand the managers of the organization asthe agent. If the first nexus is weak, apolitician as the agent disconfigures thesocial interest to the political interest. Thisproblem arises due to lack of informationand in this case, decisions are more likelyto be politically oriented (Grinde &Thomas, 1991). The political interestswould mostly be self-interest and toprovide benefits to loyal supporters orfavored individuals. On the other hand,if the control mechanism employed by theGovernment to monitor the SOE is weak,the agent-manager acts at a variance towhat the Government demands.

Among the various professional groupsin an organization, the managers are themost influential stakeholders within it.Their beliefs and values will influence thestrategic orientation of the topmanagement. Zif(1981) has suggested thatthe top management orientation isdependent on the individuals’personalities and interests. This is alsoconsistent with the arguments of Aharoni(1980 & 81), who has argued that themanagers’ orientation would beinfluenced by their desire to achievediscretionary autonomy and

15

Resource Dependency

Political Interests

Top Management’s Strategic Orientation

Performance

Managers’ Belief and value system

Control Mechanism

Figure 2: Framework for Strategic Orientation of Public Utilities

Propositions

Resource Dependency

The managers of the public utilitiesdepend on the State and other externalactors for certain essential resources,namely, financial resources and markets(e.g., sale to public sector). In the case of

independence from the political control.We take the beliefs and the value systemof managers as a moderating variable. Thevalue system of mangers is importantbecause this will affect the institutionalpressure positively or negatively andthereby influence the strategic orientationof the top management. The value systemalso decides the nature of control withinthe organization because clan control isone of the control mechanisms used in theorganizations (Ouchi, 1979). We willdiscuss different values and their effect onthe management orientation in nextsection.

Based on the above arguments, a numberof broad factors can be considered forexplaining the variations in the strategicorientation of the top management of thepublic utilities and consequently, thevariations in their performance. Theseinclude:

l Resource dependency of the utility

l Political interests (of publicrepresentatives)

l Control mechanisms used by theGovernment

l Managers’ beliefs and value system(moderating variable)

Based on these factors, Figure 2 providesa framework for understanding thevariation in the strategic orientation of topmanagement of public utilities andconsequently, the variation in theirperformance.



utilities, capital is the most criticalresource and hence, the financialdependence is the most critical resourcedependency. The financial dependence ofthe public utilities on the State arises dueto the budgetary allocation from the State,guarantee of the State on the loans fromthe credit institutions and the subsidiesfor supplying cheaper power to certaincategories of consumers. The markets, inthe case of utilities are not that important,because they operate in a limitedgeographical area and all the consumershave to buy from that utility only. Thisresults in financial dependency as themajor resource dependency of the utilityon external actors. The resourcedependency of the utility on the Stateenables the Government to control thebehavior of the organization. In this case,informal controls are preferred (Monsen& Walters, 1983) and the utility would beused more as a social instrument toachieve objectives of the ruling party,which would be to win the election nexttime also.

The public utilities are also dependent onDFIs for finances. In the developingcountries, DFIs provide finances to thepublic utilities, either as a part of budgetallocation, or directly. The DFIs are alsoinfluenced by the State and they havesocial obligations to fulfill. For instance,Rural Electrification Corporation (REC) inIndia provides loans mostly for thedevelopment of infrastructure forelectricity in rural area. The DFIs will alsoneed their loans to be returned back,though they can fall back on the

Government, in case, the public utility isnot able to return the loan. This shows thatnormally, DFIs will have both commercialand social objectives.

Other than these sources of finance, publicutilities also get loans from the IFIs likethe World Bank, Asian DevelopmentBank and Multilateral Credit Agencies.These institutions provide loans on certainconditions. These conditions may berelated to improvement in the commercialfunctioning of utilities, tariff hike torecover costs or even privatization. TheIFIs are only interested in getting theirmoney back and hence, they want publicutilities to follow the commercialobjectives. The World Bank and other IFIsare putting pressures on the publicutilities to become commercial by goingfor tariff increase, reducing losses andimproving collection. These conditionshave been associated with the loansprovided by these agencies in thedeveloping countries.

The relative extent of financialdependency would be determined by theextent of funds provided by each agencyto the total funds taken by the utility. Thesubsidies provided by the StateGovernment should also be added to theloans provided by the State to determinethe extent of financial dependency of thepublic utility on the State. The loansprovided by the State come with certainearmark allocations for social sectordevelopment and utilities have lessdiscretion in using those loans. TheGovernments provide subsidies for

17

providing social services. Hence, toincrease the revenue, utilities find it easierto be more socially oriented because nowState becomes the consumer instead oflarge number of dispersed subsidizedconsumers. In case, if the utility has takenloan from IFIs and loan is critical andconstitute a large portion of utility’sneeds, then utility would be governed bythe diktats of the IFI. Based on the above,the following propositions are posited:

H1a: Higher the organization’s financialdependency on the State, higher wouldbe the social orientation of the topmanagement

H1b: More the organization’s financialdependency on the DFIs, the topmanagement orientation would be a mixof commercial and social objectives

H1c: Higher the organization’s financialdependency on the IFIs, higher would bethe commercial orientation of the topmanagement

Political Interests

The politicians often exercise informalcontrols to satisfy their own interests orto favor certain special constituencies.They can interfere directly without beingheld accountable for their interventions(Monsen & Walters, 1983). Theseinterventions can distort the behavior ofthe management and nobody can be heldaccountable in the end. The utilitiesusually cite these interventions as anexcuse for their inactions. For instance,public electric utilities mostly attributepoor performance on collection by them

to interference in disconnection of certainconsumers by the Government or politicalrepresentatives. Similarly, non-performance by managers or difficulty intaking actions against non-performingmangers is attributed to the politicalinterference in the operational matters ofthe utilities.

The political environment decides thenature and capability of politicalintervention in the working of the publicutilities. The seminal work of Kramer(1971), which linked macroeconomicperformance to incumbent electoralfortunes, suggests this relationship. It isassumed that politics (electoral politics)exert a significant influence on the choices,available with the ruling party for thepublic utilities. This is because politiciansoften find their self-interests at odds withthe welfare of the public and this isreinforced by the inconsistency of socialchoices (Arrow, 1963). The politicalenvironment is determined by theideology of the incumbent party, theirstrength in the political system and thetiming of next election.

The party difference model based onideologies of the party proposed by Hibbs(1977) suggests that coalitions favoringone party over another have distinctobjectives, which they expect theirpreferred party to share. The partiesshould reflect their preferences throughpolicies. Hibbs (1977, 87a & 87b)documents the expected differences ofleftist and rightist parties. However, thereare mixed evidence of the effect of



ideology on the political actions. On onehand, a number of studies find thatideology does not explain the differencein policies of the governments(Wilenksky; Lackman), while there is acontrary evidence on the other hand,which suggests that ideology may berelevant for deciding policies (Castle;Davis et. al.). Sarangi (1990), in a cross-national empirical analysis, has found thatideology does not affect the change ofpolicy.

The strength of political party is animportant determinant of the policy of theGovernments. If the incumbent ministersfear that party legislators and coalitionpartners will withdraw support over apolicy issue, then that particular policywould not be followed because there is arisk that the incumbent party will loosethe seat of power (Bernhard, 1998). Thecoalition and minority governments aremore likely to fall over a policy disputethan a single party majority government.

The timing of election represents thepolitical business or electoral cycle modelon which the choice of policies depends.The electoral cycle model was firstproposed by Nordhaus (1975) and waslater extensively investigated by Tufte(1978). They suggested that by stimulatingthe economies before the elections,incumbents could tip the balance in theirfavor because voters favor growingeconomies.

In the case of pubic utilities, we considerideology of the ruling party, nature ofpolitical system and the timing of

elections as relevant variables of thepolitical environment, which hasinfluence on the strategic behavior of theutilities. We discuss the combinedinfluence of these variables on thestrategic behavior of the utilities.

The more fragmented is the politicalsystem, more would be the dependenceof the ruling party on a number ofcoalitions and individuals, for support. Inthis case, the ideology of the party wouldbe irrelevant because it can not impose itsown choices on the coalition, which hasdiverse interests. This will provideindividuals a chance to maximize theirinterests and interventions would be morebecause of the low power differential inthe ruling coalition. This will also happenbecause the ruling party would not be ina position to restrict any politician, due toits precarious legislative strength. Powell(1978) has also predicted that in a minoritygovernment, the manipulations ofeconomy would be less and hence,individual interests would be more visible.

In a unitary political system, where thestrength of the ruling party is high,individuals have less power to intervenebecause the Government would act as asingle entity and would not allowindividual preferences, since theGovernment would be having a higherpower. Thus, the ruling party ideologywould determine the policy outcomes andallow the public utility to functioncommercially or socially as per itsideology. A rightist party is more likelyto be concerned with efficiency and its

19

policies will be directed towards this. Therightist governments are found to be moreconcerned with reduced budget deficit(Alt and Lowry, 1994). Whereas, leftoriented ruling party will have policies ofwelfare. However, the electoral cycle willalso influence this ideology and prior tothe elections, the ruling party will followthose policies, which are likely to provideelectoral benefits. Thus, the policyadopted by all kind of ruling partieswould be welfare oriented only and theywould try to be more populist.

However, if the strength of ruling partyis anywhere between these two extremesof large majority and barely ruling, therewill be differential pressures on the rulingparty to maintain its ruling position. Inthis case, the ideology will not be agoverning criteria for deciding the policesbecause there will always be a fear ofrejection of policy by the backbenchersand the coalition partners. Hence, if thepolitical system is of a balanced nature,due to low power differential amongdifferent interests groups, the commonsocial interests are more likely to befollowed. In this case, the ruling partywould like to increase its strength in thenext term and hence, the policies are morelikely to be welfare oriented, through outthe incumbency term. The strength of theruling party can be determined by themembers of the major ruling politicalparty in the house. If this strength is low,then the political system is fragmentedand if this is high, then the political systemis unitary and exactly between these twostages, it would be balanced. Based on the

above arguments, following hypothesescan be advanced:

H2a: The more fragmented the politicalsystem, more would be the exploitationand lower would be the emphasis of thetop management on social andcommercial orientation

H2b: The more unitary the politicalsystem with rightist ideology, higherwould be the commercial orientation ofthe top management after the electionsand higher would be the social orientationof the top management just before theelections (in search of ‘ populist’measures)

H2c: The more unitary the political systemwith leftist ideology, higher would be thesocial orientation of the top managementthroughout the incumbency

H2d: The more unitary the politicalsystem with centrist ideology, theorientation of the top management wouldbe a mix of commercial and social afterthe elections and more social before theelections (in search of ‘ populist’measures)

H2e: The more balanced the politicalsystem, higher would be the socialorientation of the top management

Control Mechanisms

The state is the legal owner of the publicutilities and is responsible for the controlof the organizations. The state exercisesthis control through a variety of systemsand authorities. For this, there are anumber of monitoring agencies. Figure 1.3



provides the possible public sectormonitoring hierarchy (Vickers & Yarrow,1988). The control on the public sectors isexercised by the Parliament through anumber of committees, like PublicAccounts Committee. Audit andVigilance authorities of the State alsomonitor the working of the public sectors.However, these agencies are not able toinfluence the strategic orientation of thetop management, because they justmonitor what is happening and it does notconcern them whether that direction iscorrect or not. The State controls thepublic utilities through the concernedMinistry also, which decides on theobjectives and monitors the performanceof the public utilities. The nature of controlmechanisms used by the Ministry wouldinfluence the strategic behavior of the topmanagement.

Voters

Regulator

Management

Auditors

Ministers

Control Mechanism

Regulatory Brief

Parliament

Figure 3: A Possible Public Sector Monitoring Hierarchy

The electric utilities are monopolies andhence, they require regulatory control.The regulatory control can be exerciseddirectly by the State or indirectly throughanother authority (in India, regulatorycommissions have been appointed inmany States to regulate state electricutilities). The regulatory control wouldinfluence the strategic behavior of the topmanagement because it sets the price.

The control process includes the settingof objectives and the evaluations ofperformance, which depends on theinformation required to evaluate theperformance, the types of control used toevaluate the performance and the rewardsystem to motivate the managers.

The clarity of the objectives set by theMinistry would provide less scope to themanagers to manipulate the objectives of

21

the organization. The ambiguity of goalspasses on the advantage of a greaterdiscretion to an SOE manager. Thisproblem may be accentuated, if there is alarge information gap between the agentand the principal. In the electric utilitycase, the managers can have high firmspecific knowledge because of thetechnical nature of the industry. Themanagers can also adopt practices, whichresult in an inaccuracy of the information.In India, the State asks the public utilitiesto provide cheaper power to certain typesof consumers, which makes the meteringeconomically unviable. But, this systemresults in inaccurate information aboutlosses in the system. Thus, it provides anincentive to the managers to book theselosses (theft in collusion with agents) toun-metered categories of consumers toproject a better performance.

The types of control used by the State toevaluate the performance would alsoinfluence the strategic behavior of the topmanagement. The types of control couldbe either behavioral or outcome.Govindrajan and Fisher (1990), based onOuchi’s (1979) model of the ties betweentask characteristics and control strategy,and a key variable of agency theory,behaviour’s observability, developed amodel to predict the effectiveness ofdifferent controls. They predicted thatoutput control would be more effectivewith high outcome observability, lowbehavior observability and imperfect taskprogrammability. Therefore, effectivenessof types of control employed by the Statewould determine the behavior of the top

management. In the case of public electricutilities, both the task programmabilityand behavior observability are low, butthe outcomes are measurable. Hence,output control would be more effective.

The incentives to the managers in publicsectors are often limited and hence, wouldnot be a determining factor for thestrategic behavior of the top management.However, the type of budget constraints,hard or soft, can influence the behaviorof the organizations (Majumdar, 1994). Inthe pubic utility’s case, this is morerelevant because even if the utilities arenot performing, the State can keep onproviding funds to them in the form ofsubsidies or grants, thereby reducing theirefforts to improve commercialperformance. In India, the StateGovernments provide balancingsubsidies, i.e., the subsidy is a residualamount to reach a fixed financial target.This post-facto balancing subsidy resultsin utilities not focusing on commercialobjectives and moral hazard that theGovernment will bail them out. In viewof these arguments, the followinghypotheses can be proposed:

H3a: The higher the specificity ofcommercial objectives, higher would becommercial orientation of the topmanagement and the higher thespecificity of social objectives, higherwould be social orientation of the topmanagement

H3b: More the output control forcommercial objectives, higher would becommercial orientation of the top



management and more the output controlfor social objectives, higher would besocial orientation of the top management

H3c: More the information asymmetrybetween the State and the public utility,lower would be the social and commercialorientation of the top management

H3d: The harder the budget constraints,higher would be the commercialorientation of the top management

Managers’ Values and Belief

For determining the influence of the valuesystem of the managers on the strategicorientation, we define the values ofmanagers, based on the seminal work ofRokeach (1973), and Allport, Vernon andLindzey (1960). Rokeach (1973) hasdefined human values as the instrumentaland the terminal values. The terminalvalues are more tangible, while theinstrumental values are intangible. Thedifference in these values will influencethe managerial orientation differently. Ina study on the managers of a large publicutility, Regan, Roleach and Grube (1982)have identified the terminal andinstrumental values of the managers. Themanagers ranked self respect, familysecurity and sense of achievement as theirtop three terminal values and honest,responsible and capable were the topthree instrumental values. Based on thenature of these values, we propose thatthe managers, who have more terminalvalues, are likely to be higher on thecommercially orientation and the

managers who have more instrumentalvalues, are likely to be higher on the socialorientation.

Allport, Vernon and Lindzey (1960) havedefined six kind of values: theoretical,economic, aesthetic, social, political andreligious. For our study, economic, socialand political values are more important.Those managers, having high economicvalues, will have higher commercialorientation. The managers who have highsocial values would be more sociallyoriented. The managers who have highpolitical values are more likely to be lowon both social and commercial orientationand they would be manipulating thesituation to their own advantage only.

Performance

The utility performance would bedependent on the strategic orientation ofthe top management. The public utilitycan perform well either on the commercialobjectives or on the social objectives. It canalso perform well on both type ofobjectives or on none of them. Figure 9.3provides a simplistic classification ofpublic utilities, based on their social andcommercial performance. If public utilityperforms well on both social andcommercial objectives, then it would bean “excellent” organization. If it performswell only on social objectives, then itwould be a “responsive” organization andif it performs well on commercialobjectives, then it would be “efficient”. Ifit does not perform well on either socialor commercial objectives, then theorganization would be a “deadwood”.

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Social Performance

Commercial Performance

Efficient Excellent

Responsive Deadwood

Low High

Low

High

If the top management has commercialstrategic orientation, then theorganization would be more professionaland would be internally driven. Thisorganization is likely to ignore theGovernment’s preferences and thepolitical agenda. It would be moreconcerned with the internal systems andis likely to follow the goal of efficiency. Itwould achieve higher commercialperformance and would be efficient. If thetop management has social orientation,then the organization is more likely toexploit its resource dependency on theState, by carving out a domain, in whichit has an exclusive right to operate. It willtry to satisfy the Government and togarner public support. In this case, thepublic utility would achieve a highersocial performance. If top management’sstrategic orientation is high on both socialand commercial dimensions, then the

organization would be proactive. It wouldtry to understand the needs of both theinternal and external stakeholders. It willdevelop shared understandings of theneeds of its constituents and will devisepolicies for action. This type oforganization is more likely to follow thegoals of both the efficiency and thegrowth. The goal of growth could not befollowed without public support. If thestrategic orientation of top managementis low on both social and commercialorientations, then the priorities of theorganization will keep on changing,depending on the needs of the interestgroups. This will result in a lack of cleargoals and the organization will focusmore on political agendas of theindividuals and the groups. The utilitywill be driven more by individualinterests rather than organizational orsocietal interests. Based on thesearguments, we can propose the following

Figure 4: Performance of Public Utilities



hypotheses:

H4a: The higher the commercialorientation of the top management, moreefficient would be the public utility

H4b: The higher the social orientation ofthe top management, more responsivewould be the public utility

H4c: The higher the commercial and socialorientation of the top management, thepublic utility would be higher onexcellence

H4d: The lower the commercial and socialorientation of the top management, publicutility would be higher on deadwoodness

In this framework, we have focused onlyon simple bivariate relationships so far.However, some of the independentvariables could also be affected by otherindependent variables. For example, theresource dependency on the State can alsohave impact on the control mechanismsused by the State. Effective controls canalso reduce the political interventions. Theresource dependency on the IFIs canreduce the political interests and can alsoresult in certain control mechanisms,which will influence the strategicorientation of top management towardsmore commercial orientation. Theserelationships would also be affected bythe moderating variable taken in theframework. For instance, if the beliefs andvalues of the managers are only tomaximize their interests, then even withresource dependency on the IFIs, thepublic utilities would not be efficient andthey will only change the structures and

the systems from outside and willdecouple them from the actual activities.There are other factors, which we have notconsidered. For example, if the State isdependent on the IFIs for its own finances,then despite the political interest andresource dependency of the public utilityon the State, the State would force the topmanagement of the utility to have acommercial orientation.

Section III

In the first section, we have seen that thereare differences in the strategies of the threeorganizations. PEA was followingcommercialization strategy; while forMSEB, it was a mix of commercial andsocial strategies; and in the case of UPSEB,the focus was missing. We have also seenthat PEA was the best performer oncommercial parameters, MSEB wasaverage and UPSEB was poor. On socialparameters, PEA and MSEB were bothdoing well, but even the UPSEB wasdoing relatively well. From the previouspart, we have seen that if the topmanagement’s strategic orientation ishigh on both social and commercialdimensions, then the organization wouldbe excellent; if it is high only oncommercial, then the organization wouldbe efficient; but if it is low on both, thenthe organization would be a dead wood.Now, we try to find out the difference inthe top management’ strategic orientationin response to the State pressures and theexpectations in these organizations, basedon the conceptual framework as proposedin the second section. For this, we analyze

25

Based on our hypotheses, we can say thatstrategic orientation of the topmanagement would be high oncommercial dimension in PEA, because itsfinancial dependency is high on IFIs. Thetop management in MSEB would be highon social and medium on commercialdimension because the extent of financialdependency of MSEB on the State and

Table 2 : Resource Dependency of PEA, MSEB and UPSEB

Source PEA MSEB UPSEB

% State 17.76 57.04 80.26

Subsidy (% Revenue) 0.00 3.42 26.82

% DFI 0.00 42.96 19.74

% IFI 82.23 0.00 0.00

the differences in the role of the State forall the three organizations and how itinfluences the strategic orientation of thetop management, based on ourhypotheses, proposed in the previoussection.

Resource Dependency

PEA is dependent on market andinstitutions for capital and there is not asingle source for these resources. Thegovernment has provided equity capitalfor operations of PEA, along with loansfor rural electrification and systemimprovement works. PEA is not gettingany subsidy from the Government. MSEBis getting capital from both the stategovernment and market sources.However, the World Bank provided aloan to MSEB in 1992 and some of currentpractices in MSEB were started at thattime because the World Bank raisedcertain demands, to be fulfilled by thestate government and the MSEB. Thesedemands have resulted in stategovernment allowing MSEB to earn areturn of 4.5% by tariff or subsidy. Due tothese demands, MSEB started focusing onimproving revenue collection as theWorld Bank wanted MSEB to have only

75 days’ receivables. MSEB is alsodependent on the state government forsubsidies during those years, when it isnot able to earn the required return of4.5%. UPSEB is getting capital resourcesmostly from the state government as partof annual plan funds. Some commerciallenders are also part of these plan funds.UPSEB finds it difficult to raise capitalfrom the market due to its weak financialposition. Recently, the World Bank hasagreed to provide capital to UPSEB andhas asked for the unbundling of UPSEB.UPSEB is trying to comply with thesedemands and unbundling have beendone, while certain other things are in theprocess. The categories of resourceproviders and their average share in theresources provided to these utilitiesduring the last five years are given in theTable 2.



DFIs is almost the same. The dependencyon the State will result in higher socialpressures, while due to involvement ofDFIs, it will have medium commercialpressures. In UPSEB, the strategicorientation of the top management wouldbe social because the financialdependency of UPSEB is very high on theState.

Political Interests

The political system during last manyyears in the state of Uttar Pradesh hasbeen fragmented. The ruling party is notable to get majority since 1992 and it hasbeen a coalition government of more thantwo parties. In the last few years, therehave been even 4 to 5 parties. This resultsin social interests being subverted topolitical interests and hence, lot ofpolitical interference is felt in the workingof UPSEB. Thus, the performance ofUPSEB on social parameters is also notgood, despite the State being a majorresource provider. In the state ofMaharastra, in the last few years, theGovernment has been a coalition of twoparties. This would more likely result insocial objectives being forced by theGovernment or the exploitation. Hence,the strategic orientation of the topmanagement in MSEB would be less oncommercial but high on social. TheGovernment in Thailand has been stableand hence it will have a mix of social andcommercial objectives. This would resultin the strategic orientation of the top

management in PEA being medium onboth social and commercial dimensions.

Control Mechanisms

The commercial objectives are not clearfor both the SEBs, but social objectives areclear and are monitored based on theoutcomes. The Electricity Supply Act 1948allows SEBs to decide the tariff to earn areturn of minimum 3%, but this objectiveis not set by the Ministries monitoringSEBs. The specificity of social objectivesand output-based control would make thestrategic orientation of the topmanagement social in both the SEBs. ForPEA, the Government has made bothobjectives clear and these objectives arepart of the corporate plan of PEA. TheGovernment uses output-based control tomonitor performance against theseobjectives. The specificity of commercialand social objectives and output basedcontrol for PEA means that the topmanagement’s strategic orientationwould be high on both social andcommercial dimensions.

The soft budget constraint in the form ofproviding post facto subsidy, either onagriculture consumption (UPSEB) or ROR(MSEB), does not force SEBs to becommercial because they know they willget the subsidy, even if they do notperform. The Government of Thailand isnot providing any subsidy to PEA andhence, it is forced to perform well tosurvive. These factors would result insocial orientation of the top management

27

in SEBs and commercial orientation of thetop management in PEA.

Due to un-metered supply for manyconsumers, there is a large information gapbetween the monitoring agencies and SEBsin India. This gap is more in UPSEB ascompared to MSEB because morecategories of consumers are un-metered inUPSEB. This provides more discretion tomanagers to maximize their self-interestsin UPSEB, resulting in orientation of thetop management low on commercialdimension as compared to MSEB. In PEA,all the consumption is metered and hence,the information gap is less. Due to this, thetop management orientation would behigh on commercial in PEA.

IV. CONCLUSIONS

In this study, we have seen that all theSOEs are not equally bad. The strategicbehavior of the SOEs is dependent on theGovernment, in terms of resourcedependency, control and incentivestructure. The relationship between thegovernment and the top managementdecides the strategic orientation of the topmanagement. Depending upon thisstrategic orientation, internal system ofthe organizations will emerge. In the caseof a public utility, the top management’sstrategic orientation could be commercialor social, which will have an impact onthe performance of the utility. Anorganization could be efficient,responsive, excellent or deadwood,depending upon the combination of the

commercial and social orientation of thetop management. The implications of thestudy would seem to question the currentfashion of dumping the publicly ownedorganizations ipso-facto as bad and non-performing. The study suggests thatpublic ownership is not a homogeneousconcept and good public ownership cansignificantly influence good performance.Just as the mere existence of stock marketis not a guarantee for private sectorperformance, mere Governmentownership without qualifying it, is not asource for its non-performance. Thus, thestudy makes a case for a relook at theconcept of public ownership. The findingsof this study also have implications for theGovernment, mangers of public utilities,and the body of theoretical literature.

The theoretical framework suggested inthis study has not been validated andhence, could be validated in futureresearch. The future research could alsoinclude other environmental variablesand organizational factors, likeorganization culture. The theoreticalframework can also include individuallevel variables, like perception aboutdelegation of authority, satisfaction andso on. The same framework could also bevalidated for other public utilities likeWater, Gas and Telecom. Most of thepublic utilities face a similar type ofenvironment and hence, the applicabilityof this framework for public utilities willprovide a generalizability to theframework.



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Organizational Citizenship Behavior :A Review of the Individual and Group

Level Antecedents and Consequences*

Ranjeet Nambudiri1

Abstract

Organizational Citizenship Behavior (OCB) has been defined as extra-role behavior, which is notperformed with the intent of reward and is not formally recognized by the organization and whichbenefits the organization by improving organizational effectiveness. This paper reviews the literatureon OCB and identifies individual and group level antecedents and consequences of OCB. Managerialimplications of the review are discussed.

* Received January 27, 20061. Fellowship (Doctoral) student, Indian Institute of Management, Ahmedabad.

e-mail: [email protected]

I. INTRODUCTION

Organizations operating in today’s highlycompetitive and uncertain environmentare increasingly expecting members toperform beyond the call of their routineresponsibility. Work behavior such as thisis not measurable through traditionalscales of performance, and yet enhancesthe organizational productivityenormously. Researchers have coinedseveral terms for such behavior, primarilyamong them being OrganizationCitizenship Behavior (OCB; Graham,1991; Organ, 1988), pro-socialorganizational behavior (Brief &Motowidlo, 1986), extra-role behavior(Van Dyne & Cummings, 1990; in VanDyne et al., 1994) and organizational

spontaneity (George & Brief, 1992). Thecommon point in all these terms is theirconceptualization as work behavior thatgoes beyond regular responsibility andultimately enhances organizationaleffectiveness. Smith, Organ & Near (1983)cited Katz (1964), “An organization,which solely depends upon its blue-printsof prescribed behavior, is a very fragilesocial system.” Katz & Kahn (1966; inD’Intino et al., 2002) extended.

Barnard’s (1938; in D’Intino et al., 2002)notion of cooperation, into the concept ofextra-role co-operative behavior statedthat it is “the countless acts ofcooperation” that enable the system tofunction without breaking down.According to Lepine & Van Dyne (2001)


organizations rely heavily on employeeinitiative to be able to compete in the fast-paced and uncertain environment. Theseideas were extended into the research ofwhat is today termed as OrganizationalCitizenship Behavior (OCB).

This interest in extra-role behavior,initiated the research on OrganizationalCitizenship Behavior (OCB), and in thepast 2 decades since Organ’s (1977; inOrgan, 1988) seminal work, severaleminent academicians have investigatedthis construct.

Organizational citizenship behavior(OCB) has been defined as “discretionary,extra-role behavior, which is not formallyrewarded or punished by theorganization and which benefits theorganization by improving organizationaleffectiveness” (Organ, 1988). Schnake &Dumler (2003) define OCB as “ functional,extra-role and pro-social behaviordirected at individuals, groups and theorganization.”

Smith, Organ & Near (1983), stated thatOCBs were important because “theylubricated the social machinery of theorganization.” Citizenship behaviorworks like a buffer in situations ofemergency or contingency, and fosters asense of participation among theemployees. Interdependence amongemployees, departments and functions isinevitable within an organization andcitizenship behavior facilitates smoothfunctioning in such a situation throughnorms of reciprocity and cooperation.

Citizenship behavior cannot be inducedby the same incentives that influencepeople to join and continue in anorganization. It is also not enforceablethrough sanctions because it is largelydiscretionary and not defined by theformal role or responsibility. Also, mostof the acts that are termed as citizenshipbehavior are governed by individualvolition and hence extrinsic motivation isexpected to have a negative impact onthem. According to Tang & Ibrahim(1998), OCB and intrinsic motivation aresimilar, in that both are “spontaneous pro-social gestures” that are not generallyinfluenced by organizational rewardsystems. Essentially, OCBs depend onindividual volition and hence may beconsidered an indicator of the employee’sintrinsic motivation level. Tang & Ibrahim(1998) also expect OCB to be impacted bydispositional and organizational workrelated variables in a manner similar tointrinsic motivation. OCB is posited tohave several organizationally relevantoutcomes, including enhancement oforganizational, group and individualperformance.

OCB has been studied through severaltheoretical foundations. The socialexchange theory (Blau, 1964; in Wayne etal., 2002), has often been applied in theorganizational context to provide anunderstanding of the feeling of obligation,reciprocity and pro-social behavior suchas OCB. Bolino (1999), stated that OCBsarise from the motivational bases ofattitudes and dispositions, and the socialexchange theory accounts for most of the

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acts that can be termed as OCBs. Thismeans that the employees engage in OCBsas a gesture of reciprocation to theorganization and it is in the inherentnature of an individual to engage in OCBs.OCBs have also been studied in variedcultural contexts, because it is believedthat national culture would have animpact on OCB. Yui-Tim Wong et al.(2002), suggested that Chinese have astronger sense of obligation andresponsibility towards their relationshipsand are more likely to display OCBs.These findings are interpreted through adifferent set of antecedents, thefoundation of which lie in theories incommitment and loyalty.

Interest in OCB research has increasedtremendously over the past few years.Podsakoff et al., (2000) showed that morethan 122 studies have examined theconcept of OCB during a 6-year periodfrom 1993 to 1998. Most of these studiesexamined the antecedents and outcomesof OCB. The literature largely focuses onestablishing relationships between OCBand other variables, like job satisfaction(Bateman & Organ, 1983), perceivedequity or fairness (Farh et al., 1990),leadership (Farh et al., 1990) andorganizational commitment (O’Reilly &Chatman, 1986), among other variables.

Another critical issue in the review of OCBliterature is the level of analysis. OCB isposited to be a mixed-level phenomenon(Schnake & Dumler, 2003; Podsakoff et al.,2000). Kozlowski & Klien (2000; inSchnake & Dumler, 2003) clarify the issueabout level of analysis in organizational

behavior research by stating that “inorganizational science research, microphenomena are embedded in macroconcepts and macro phenomena oftenemerge through the interaction anddynamics of lower level elements.” Thisis amply evident in the literature on OCBresearch. OCB is impacted by certainmicro-level variables like job satisfaction(Smith, Organ & Near, 1983), leadersupportiveness (Smith Organ & Near,1983; Wayne et al., 2002) andorganizational commitment (O’Reilly &Chatman, 1986) and also group-levelvariables like work context (Karambayya,1990; in Schnake & Dumler, 2003) andpositive and negative affectivity at boththe group and individual level (George,1989; 1990; 1991). OCB is expected to haveboth individual and organizational levelconsequences (Podsakoff et al., 2000). Itwould hence seem useful to study theantecedents and consequences ofOrganizational Citizenship Behavior(OCB) at the individual, group andorganizational level.

It is the modest attempt of this study toanalyze and integrate these variousstreams of thought linking theantecedents and consequences of OCB atmultiple levels. A basic categorization ofthese antecedents and consequences isalso presented in this paper.

II. SCOPE OF THE PAPER AND STRUCTUREOF ANALYSIS

It has been proposed to review theliterature on organizational citizenshipbehavior (OCB) and identify antecedents

Nambudiri, Organizational Citizenship ...


and consequences of OCB. Theantecedents and consequences of OCBwill be classified as follows,

l Individual level antecedents andconsequences of OCB

l Group level antecedents andconsequences of OCB

The paper will begin by understandingthe conceptualization of OCB through itsvarious definitions and a review of thetheoretical foundations of which OCBresearch is based. This will be followedby an examination of the issues in OCBresearch, specifically understanding OCBas a multiple-level phenomenon. Theliterature is reviewed to initially identifyindividual and group level antecedents ofOCB followed by a categorization of theantecedents. Similarly, outcomes orconsequences of OCBs will be identifiedat the individual and group level.Demographic variables have not beenconsidered in this review. The reason forthis omission being that demographicvariables are ubiquitous in anorganizational setting and analyzing theeffect of changes in demographicvariables is beyond the scope of thisreview. It is however noted thatdemographic variables like age,educational level, position in thehierarchy and ordinal birth position doeffect the probability of citizenshipbehavior. For instance, a review byGregen et al. (1972; in Smith, Organ andNear, 1983), showed that educational levelwas positively correlated with generalsocial responsibility, while Hansson et al.

(1978; in Smith, Organ and Near, 1983)proved empirically that people from arural background or from smaller townswere more likely to display citizenshipbehaviors. The managerial implications ofthese antecedents and consequences arediscussed.

III. THEORETICAL FOUNDATIONS FOR OCB

Organizational citizenship behavior isrooted mainly in the social exchangeperspective and its norms of reciprocity(Gouldner, 1960; in Smith, Organ & Near,1983). Much of the altruism literature alsoleads to an understanding of citizenshipbehavior Theories of commitment andloyalty are also believed to have an impacton OCBs. D’Intino et al. (2002) has usedthe communitarian perspective(Rousseau, 1762; in D’Intino et al., 2002)to emphasize the criticality of communityand collective priorities. This perspectivefavors sacrifice of individual priorities inthe larger interest of the collective.Similarly, loyalty, which is a type ofcitizenship behavior is expected to beassociated very strongly with thecommunitarian perspective. It would,hence be worthwhile to explore thedifferent theoretical foundations on whichOCB is based.

The Altruism Perspective

Most acts of citizenship are altruistic innature and understanding the predictorsof altruism would be beneficial whileexploring OCBs. Smith, Organ & Near(1983) cite several studies (Berkowitz &Connor, 1966; Isen, 1970; Isen & Levin,

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1972; Levin & Isen, 1975) to show thatmood state impacts pro-social behavior.People were more likely to displayaltruistic behavior in a positive state ofmind. It was proposed that since jobsatisfaction was an indicator of positivemood, it would determine the extent ofcitizenship behavior shown by theemployee.

Social Exchange Theory

The social exchange perspective is one ofthe dominant theories used to explainOCB. According to this perspective OCBis a form of behavioral reciprocation theroot of which lies in the concept of socialexchange (Blau, 1964; in Wayne et al.,2002) and the norm of reciprocity(Gouldner, 1960; in Smith, Organ & Near,1983). The key component of socialexchange that affects citizenship behavioris the norm of reciprocity. Blau (1964; inWayne et al., 2002) and Gouldner (1960;in Smith, Organ & Near, 1983), suggestedthat individuals who receive favors orhelp are obligated to repay the favor in asimilar manner. This sense ofindebtedness is a strong determinant ofcitizenship behaviors like organizationalloyalty and helping behavior. The senseof indebtedness could be towards thesupervisor or a peer member or towardsthe organization in general. Employeeswho perceive high levels of organizationalsupport or who have excellent socialexchange with the leader or supervisor,feel a sense of obligation and are morelikely to reciprocate by displaying

citizenship behaviors. Cropanzano et al.(2003) have also based their model of OCBon the social exchange perspective.According to this viewpoint socialexchange relationships involve thetransfer of social and emotional benefitsand usually lead to intimate personalassociation. There is also evidence to showthat individuals who are part of a socialexchange relationship with theorganization display higher on-the-jobperformance and more citizenshipbehavior (Hendrix et al., 1998). Also,social exchange relationships tend toincrease the sense of identification withthe organization and lead to a higher levelof OCBs (Bishop & Scott, 2000). Stamper& Van Dyne (2001) extended the socialexchange perspective in their study on thevarying levels of OCB in part-time andfull-time workers. There is evidence toshow that part-time workers developeconomic exchange relationships with theorganization and not social exchangerelationships. Part time workers wereunlikely to get the same status, exposure,responsibility and training as full-timeworkers and hence would have a lowerprobability of displaying OCB. Moreover,organizational expectations from part-time workers tend to be lower than thosefrom full-time workers and this led tolower contribution from the part-timeworkers (Tsui et al., 1995; in Stamper &Van Dyne, 2001).

In summary, the social exchange theoryleads to the viewpoint that the employeeswho experience a favorable socialexchange with the organization or its



representatives are likely to reciprocate bydisplaying organizational citizenshipbehavior. Thus, explanations ofcitizenship behavior clearly rest onfoundations of the social exchangeperspective.

Commitment and Loyalty Perspectives

Organizational commitment has beenfound to impact workplace behavior andemployee job performance (Becker, 1992;in Yui-Tim Wing et al., 2002). Becker etal. (1996; in Yui-Tim Wong et al., 2002),developed a scale of commitment to thesupervisor based on identification andinternalization. There was evidence toshow that commitment to the supervisorhad a positive impact on workplacebehavior. However, commitment to thesupervisor was more correlated with in-role behavior than organizationalcommitment. Nonetheless, this serves asa good starting point for researchers inOCB. Gregersen (1993; in Yui-Tim Wonget al., 2002) showed that commitment tothe supervisor was also significantlycorrelated with extra-role behavior. Thesefindings lead to the notion thatcommitment is positively correlated withOCBs.

Communitarian Beliefs

D’Intino et al. (2002) based theunderstanding of acts of loyalty, advocacyparticipation and social participation onthe communitarian perspective. Thecommunitarian perspective was foundedin Rousseau’s (1762/ 1987; in D’Intino etal., 2002) philosophy of emphasis on the

collective priority over individual desires.It was proposed that employees whofollow communitarian beliefs are morelikely to display citizenship behaviors.The communitarian beliefs werecontrasted with individualistic beliefs bymeasurement of “sources of self-fulfillment and normative roles forgovernment welfare.”

Thus, the theoretical foundations of OCBliterature have several varyingperspectives and this leads to the varyingopinions about antecedents of OCB. Thefollowing sections will look at definitionsof OCB, explore the issues of analysis inOCB literature, identify differentantecedents of OCB and examine theresearch evidence supporting theseantecedents. Consequences of OCB will besimilarly reviewed.

IV. DEFINITION AND OPERATIONALIZATIONOF ORGANIZATIONAL CITIZENSHIPBEHAVIOR (OCB)

Organizational citizenship behavior isdefined as “individual behavior that isdiscretionary, not directly or explicitlyrecognized by the formal reward system,and that in the aggregate promotes theeffective functioning of the organization.By discretionary, it is meant that thebehavior is not an enforceablerequirement of the role or the jobdescription, that is, the clearly specifiableterms of the person’s employmentcontract with the organization; thebehavior is rather a matter of personalchoice, such that its omission is notgenerally understood as punishable”

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(Organ, 1988). Later, Organ (1997)redefined OCB to exclude the clauses ofOCB as being discretionary and non-rewarded. This redefinition however, hasnot been widely recognized and accepted.Most of the literature in OCB has beenbased on the original definition proposedby Organ (1988). Motowidlo (1999)considered the redefined version of OCBto be similar to what was termed as“contextual performance.” OCB has alsobeen described as “constructive orcooperative gestures that are neithermandatory in-role behaviors nor directlyor contractually compensated by formalreward systems”(Organ & Konovsky,1989). This review is based on the originaldefinition proposed by Organ (1988).

Dimensions of OCB

OCB can be operationalized in severalways and includes workplace behaviorthat go beyond the realm of regularresponsibility and are not dictated byorganizational policy. Meyer & Allen(1997; in Yui-Tim Wong et al., 2002) statethat OCB includes acts like providingextra help to co-workers, volunteering forspecial activities, being punctual, helpingthose who are new in the organization andparticipating in problem solving.

The OCB literature has identified 5dimensions of OCBs, viz. Altruism,Conscientiousness, Civic virtue,Sportsmanship and Courtesy (Schnake &Dumler, 2003). Stamper & Van Dyne(2001) have also used the dimension ofvoice in analyzing the antecedents ofOCB.

Altruism: This refers to the acts of helpingothers voluntarily. These acts are directedat a specific beneficiary and generallybenefit the organization.

Conscientiousness: This dimension ofOCB has also been referred to as“generalized compliance” (Smith, Organ& Near, 1983) and refers acts that are notdirected at any specific beneficiary, butwhich benefit the organization as a whole.So while, helping out a colleague inmeeting the deadline may be termed asan act of altruism, punctuality is an act ofgeneralized compliance.

Civic Virtue: Civic virtue refers to the“responsible participation inorganizational processes”(Schnake &Dumler, 2003). This would indicate actsof participation in organization-widemeetings and activities.

Sportsmanship: Sportsmanship isevident in employees who exhibit a higherdegree of tolerance to inconveniences andhardships, because of a sense ofidentification with the organization.Typically, this would mean working latehours if required without complaining.

Courtesy: Acts of courtesy includeinformation sharing and dissemination tofacilitate smooth working for co-workers.

Voice: Most of the OCB literature uses theabove five dimensions while examiningthe construct. Stamper & Van Dyne (2001)focused on the two behaviors of helpingand voice because they contrasted eachother. While helping behaviors wereclassified in a manner similar to the other



literature (Organ, 1988), voice referred tochange-oriented acts, which wereconstructive in nature.

Besides this D’Intino et al., (2002), hasconceptualized OCB in terms of thedimensions of loyalty, advocacyparticipation and social participation. Thedimension of loyalty has been alreadybeen clarified earlier. Advocacyparticipation refers to acts of “innovativeaction and maintaining highorganizational challenges and voicingopinion”. This dimension is quite similarto the dimension of voice proposed byStamper & Van Dyne (2001). Socialparticipation is similar to the dimensionof civic virtue.

Types of OCB

Podsakoff et al., (2000), have identified 7widely acknowledged types of OCBduring their meta-analytic review of theconstruct. The 7 types of OCB identifiedare (1) Helping behavior, (2)Sportsmanship, (3) Organizationalloyalty, (4) Organizational compliance, (5)Individual initiative, (6) Civic virtue and(7) Self-development.

Helping behavior: Helping behavior isalmost universally accepted as an act ofcitizenship behavior. Voluntary actsaimed at helping others or overcomingworkplace problems can be consideredacts of citizenship. Helping behavior isanalogous to the dimension of altruism,in that, it is a voluntary act targeted at aspecific beneficiary. This has also beeninterpreted in several ways in the OCB

literature. Helping behavior was classifiedas altruism by Organ (1988), interpersonalhelping by Graham (1989; in Podsakoff etal., 2000), OCB-I by Williams & Anderson(1991), and interpersonal facilitation byVan Scotter & Motowidlo (1996; inPodsakoff et al., 2000). Factor analysis hasshown that all these forms of helpingbehavior can be loaded onto a singlefactor (MacKenzie et al., 1993; inPodsakoff et al., 2000).

Sportsmanship: This refers to the OCBdimension of sportsmanship and researchhas shown this dimension to have adistinct set of antecedents (Podsakoff etal., 1996b; in Podsakoff et al., 2000).

Organizational Loyalty: These areessentially acts of loyalty towards theorganization and may include acts likedefending the organization repute andsupporting the organizational objectives.

Organizational Compliance: Thisdimension of OCB essentially refers to thesense of identification that an employeehas with the organization and wouldinclude acts like acceptance of the rulesand regulations of the organizationwithout monitoring.

Individual Initiative: Acts that benefit theorganization and are performed byindividual volition are generally classifiedas individual initiative. Creative problemsolving is an appropriate illustration ofindividual initiative. This dimension isquite similar to the dimension ofconscientiousness proposed by Organ(1988).

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Civic Virtue: This dimension has alreadybeen proposed by Organ (1988) and refersto commitment to the organizationalcause in general.

Self-development: Self-development is arelatively unknown dimension of OCB.George & Brief (1992) proposed thisdimension and included acts aimed atenhancing one’s own ability. Such acts arebelieved to have a favorable impact inenhancing organizational effectiveness. Ithas to be mentioned, though thatempirical support for this dimension isstill unavailable in the OCB literature.

Scales for measuring OCB

Several scales have been developed tomeasure OCB based on theoperationalization of the construct, someof which have been discussed in thispaper.

Most studies use variations of the scaledeveloped by Smith, Organ & Near(1983). Schappe (1998) used one suchvariation that having three items eachmeasuring altruism (e.g. “I help otherswho have heavy workload”) andgeneralized compliance (e.g. “I do nottake unnecessary time off work”).Responses were taken in a 5-point Likerttype scale and indicated the respondent’sextent of agreement with the statement.The scale had a reliability estimate of 0.69.A similar scale based on Smith, Organ &Near’s (1983) scale was used by Shore etal. (1995), with 7 items measuring altruism(Cronbach a = 0.88), and 9 itemsmeasuring generalized compliance

(Cronbach a = 0.87). Cropanzano et al.(2003) tested the effect of emotionalexhaustion on OCB and used Williams &Anderson’s (1991) scale to measureOCBO, or OCB towards the organization.OCBS or OCB towards the supervisor wasmeasured by a 5-item scale developed byMalatesta (1995; in Cropanzano et al.,2003). Using these measures supervisorsrated subordinates on OCBO, OCBS andjob performance. D’Intino et al. (2002)measured the OCB dimensions of loyalty,advocacy participation and socialparticipation using the scale developed byVan Dyne et al. (1994). This scalemeasured OCB towards organizationthrough a 7-item scale (e.g. “I participatein activities that are not required but helpthe image of the organization”).

It is then clear that most of the scales ofOCB have been developed around the fivedimensions of altruism,conscientiousness, civic virtue,sportsmanship and courtesy.

OCB as a multiple level phenomenon

It is evident from the literature that OCBis a multiple level phenomenon. Whilethere are theories that have identifiedindividual level antecedents of OCB likejob satisfaction (Smith, Organ & Near,1983), leader supportiveness (Smith,Organ & Near, 1983; Wayne et al., 2002)and organizational commitment (O’Reilly& Chatman, 1986) several others haveidentified group level variables like workcontext (Karambayya, 1990), positive andnegative affectivity at both the group andindividual level (George, 1989; 1990) and



group level prosocial behavior and groupcohesiveness (George & Bettenhausen,1990; in Schnake & Dumler, 2003) as OCBantecedents. Xiao-Ping Chen et al., (2002),conceptualized group OCB (GOCB), as a“distinct group level phenomenonconcerning the extent to which the workgroup as a whole engages in OCB.”Kidwell et al. (1997) conducted a raremultiple level analysis wherecohesiveness was taken at the group levelwhile job satisfaction, organizationalcommitment and OCB were measured atthe individual level. The finding provedconclusively that employees who werepart of a cohesive group displayed moreOCBs. Organ (1988) suggested that OCBimpacts organizational effectiveness, anorganizational-level phenomenon. Theissue that needs to be tested is whetherOCB as an individual level phenomenonaffects organizational effectiveness orOCB as an “aggregate phenomenon”impacts organizational effectiveness.

OCB literature then, can be deemed anexcellent case for a ‘meso’ level analysis(House et al., 1995; in Schnake & Dumler,2003), which integrates micro and macroperspectives. Antecedents andconsequences of OCB can be presented atthree levels viz., individual level, grouplevel and cross-level or mixed level. Thefinal model, i.e. cross-level analysis wouldexamine relationships between constructsat different level of analyses.

Some issues in OCB research

One of the key issues in mixed levelresearch is that of the effects of time (Klein

& Kozlowski, 2000; in Schnake & Dumler,2003). While individual level phenomenatend to have an immediate impact on thedependent variable, higher levelphenomena are seen to take a longer timein exerting influence. For instance, aleader’s directive will take longer to beimplemented by the group as a wholethough individual followers willimplement the same almost immediately.Van Dyne et al. (1995; in Podsakoff et al.,2000) have also observed that research inOCB has focused more on establishingrelationships between OCB and otherconstructs, i.e. substantive validity, andnot centered so much on understandingthe construct itself. Moreover theproliferation of OCB literature focusingon substantive validity (Schwab 1980; inPodsakoff et al., 2000) means that it hasbecome difficult to track developments inthe area. While it is beyond the scope ofthis paper to address the issues in OCBresearch, it is hoped that future researchwould clarify some of these issues.

V. ANTECEDENTS OF ORGANIZATIONALCITIZENSHIP BEHAVIOR (OCB)

Individual Level Antecedents of OCB

Smith, Organ & Near (1983) in one of thepioneering works on OCB had proposedworkplace environment and personalityvariables predicted OCB through theeffect of job satisfaction. Workplaceenvironment included factors like leadersupportiveness while personalityvariables referred to traits such asneuroticism. Subsequent literature haslooked at perceived organizational

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support, POS (Wayne et al., 2002),organizational commitment (Wayne et al.,2002; Yui-Tim Wong et al., 2002; Alotaibi,2001; Schappe, 1998; Podsakoff et al., 2000;Shore et al., 1995), perceptions oforganizational justice (Wayne et al., 2002;Alotaibi, 2001; Schappe, 1998; Podsakoffet al., 2000), job congruence (Vigoda,2000), personality variables like self-esteem (Tang & Ibrahim, 1998),agreeableness (Lepine & Van Dyne, 2001),leader behavior (Wayne et al., 2002;Podsakoff et al., 2000; Tang & Ibrahim,1998) and job attitudes or workplacevalues (Van Dyne et al., 1994) asantecedents of OCB. In a critical meta-analytic review of OCB Podsakoff et al.(2000) have identified and categorizedantecedents and consequences of OCB.Individual level antecedents are discussedin detail.

Job Satisfaction

Bateman & Organ (1982; in Smith, Organ& Near, 1983) showed that job satisfactionwas correlated with citizenship behavior.However, the study wasmethodologically inadequate owing tothe insignificant cross-lagged correlation.Smith, Organ & Near (1983) in theirseminal work on OCB found jobsatisfaction to have a correlation of 0.31with altruism. In another study, Organ &Konovsky (1989) propose that jobsatisfaction is among the strongestcorrelates of OCB. In a meta –analyticreview Organ & Ryan (1995) showed thatjob satisfaction was a significant predictorof OCB. Schappe (1998) tested job

satisfaction as a predictor of OCB. Jobsatisfaction was measured through theMinnesota Satisfaction Questionnaire(MSQ; Weiss et al., 1967; in Schappe,1998), which measured the extent towhich the work environment satisfied theindividual’s expectations. However, theresults did not support the propositionthat job satisfaction explained uniquevariance in OCB. Alotaibi (2001) in a studyconducted with public personnel inKuwait has proposed that the correlationbetween job satisfaction and OCBdepends on the nature of job satisfactionmeasure. Cognitive satisfaction isexpected to explain variance in moredimensions of OCB than affectivesatisfaction. Alotaibi (2001), developed a19-item scale to measure job satisfactionand gave evidence that job satisfactionwas significantly correlated with OCB.However, it was also seen that whenprocedural justice perceptions were heldconstant, job satisfaction was no longer asignificant predictor of OCB. This resultcan also be attributed to the nature of jobsatisfaction measure, which looked moreat affective satisfaction rather thancognitive satisfaction. It can be henceconcluded that while job satisfaction isindeed a predictor of OCB, it often failsto explain unique variance in OCB andmay not be as significant as otherantecedents like commitment andprocedural justice perceptions.

Organizational Justice perception

Organ & Konovsky (1989), note that whenemployees perceive fairness on part of the



organization they are likely to reciprocatewith citizenship behavior. Empiricalevidence for the relationship betweenjustice perceptions and OCB are availablein the literature (Farh et al., 1990).Moorman (1991) found support for therelationship between procedural justiceand 4 dimensions of OCB, viz., altruism,conscientiousness, courtesy andsportsmanship. Moorman et al. (1993; inSchappe, 1998) also reported similarresults using a structural-equationsmodel. Schappe (1998) examinedprocedural justice perceptions as apredictor of OCB, where proceduraljustice was measured using a 19-item 7-point Likert type scale. This studyconsidered the three antecedents, jobsatisfaction, procedural justiceperceptions and organizationalcommitment together and results showedthat only organizational commitmentemerged as a significant predictor of OCB.However, when considered in isolation,procedural justice perceptions were foundto impact OCB significantly. Alotaibi(2001) tested the relationship betweenperceptions of procedural anddistributive justice on OCBs and foundthat while both procedural anddistributive justice perceptions correlatewith OCB, procedural justice perceptionsshow the stronger correlation.

Organizational Commitment

Organizational Commitment, has oftenbeen posited to be among the dominantpredictors of OCBs. Meyer & Allen (1997;in Yui-Time Wong et al., 2002) noted that

employees with a strong affectivecommitment were more likely to displaycitizenship behaviors. Shore et al. (1995)developed a model testing the impact ofOCB on manager-rated affective andcontinuance commitment. It was seen thatOCB was significantly correlated withmanager-rated affective commitment.Schappe (1998) has shown thatorganizational commitment explainsunique variance in OCB even in thepresence of job satisfaction andprocedural justice perceptions. Alotaibi(2001) regressed organizationalcommitment, measured through a 15-itemscale developed by Porter et al. (1974; inAlotaibi, 2001) with OCB and found thatorganizational commitment wascorrelated with OCB at the individuallevel. These findings support thedominant role of organizationalcommitment as an antecedent of OCB.

Personality variables

Tang & Ibrahim (1998) argued thatemployees join jobs with dispositions thatdo not change easily. Citing Staw et al.(1986) they note that variables likeintrinsic job satisfaction are based ondispositions and are more or less stablein nature. OCBs are hence predictedthrough dispositional variables.

Negative affect / positive affect

George (1989) , showed that positive affectcould influence attendance at work, whichcan be classified under the OCBdimension of generalized compliance orconscientiousness. Positive affect was also

43

found to be positively correlated withaltruism. Van Dyne et al. (1994) have alsosuggested that positive job attitudes havea significant impact on citizenshipbehavior. The three citizenshipdimensions conceptualized for this studyare loyalty, obedience and participation.Empirical evidence supported the role ofpositive workplace attitude in predictingloyalty and obedience, but notparticipation.

Agreeableness

Agreeableness is a Big 5 personality traitthat describes “the extent to whichindividuals are trusting, straightforward,altruistic, complaint and tender-minded”(Costa et al., 1992; in Lepine & Van Dyne,2001). Lepine & Van Dyne (2001) haveused the attributional model to suggestthat peer observers will feel higher levelsof empathy for co-workers who have highagreeableness and this will lead to moreacts of helping in case of low performance.This was a conceptual paper and theproposition needs to be tested empiricallybefore it can be concluded that thepersonality trait of agreeableness could bea cause for OCB.

Extraversion and Neuroticism

Extraversion tends to be positivelyassociated with pro-social behavior inmost of the OCB literature. Krebs (1970),suggested that extraverts tend to be morecomfortable with their social environmentand this leads to more frequent acts of co-operation and helping. On the other hand,those prone to neuroticism tend to remain

pre-occupied in their own problems andare seen to be emotionally unstable, thusare less likely to display OCBs. Smith,Organ & Near (1983) found results thatsuggested that neuroticism was onlyindirectly related to altruism through jobsatisfaction.

Self-esteem

Self-esteem (SE) has been defined as a“global evaluation of the self” (Norman,1953; in Tang & Ibrahim, 1998) and isconsidered a stable disposition. Tang &Ibrahim (1998) posit that OCBs areperformed beyond the call of regular dutyand may be responsible for making one’sown job difficult. Hence, those with highSE are more likely to indulge in OCBs. Ina study conducted with respondents fromUSA and the Middle East, Tang & Ibrahim(1998) found that SE was a predictor ofaltruism and generalized compliance inthe Middle Eastern sample but not theAmerican sample. This variance could beattributed to cultural differences in thetwo samples.

Organization-based self-esteem (OBSE)

OBSE has been defined as “the degree towhich organizational members believethat they can satisfy their needs byparticipating in roles within the contextof the organization.” (Pierce et al., 1989;in Tang & Ibrahim, 1998). Tang & Ibrahim(1998) found that OBSE was a strongpredictor of both altruism andgeneralized compliance and this resultwas also evident across samples fromUSA and the Middle East. Since OBSE



involves having a good image of oneselfand the organization one works for, it islikely that this feeling enables employeesto perform beyond regular roleresponsibility.

Need for Achievement n-ACH

Puffer (1987; in Tang & Ibrahim, 1998),stated that “achievement-orientedindividuals appear to actualize their needto excel by performing tasks outside theirfocal tasks that benefit the organization.n-ACH, then seems to be a significantpredictor of OCB. Tang & Ibrahim (1998)found that n-ACH was positivelycorrelated to altruism.

Workplace values

Workplace values refer to values that aresanctioned by the organization and leadto identification with the organizationalphilosophy. Van Dyne et al. (1994) haveproposed that perceptions of a sociallydesirable workplace will positivelyimpact loyalty and obedience to theorganization. This is also relativelyunmapped terrain as far as OCB researchis concerned and the operationalization ofworkplace values is also a littleambiguous and hence it does not seemappropriate to draw conclusions from asingle study.

Communitarian belief

D’Intino et al. (2002) conducted a studyto evaluate the impact of communitarianbeliefs on OCB. Belief structures weremeasured using a new instrument calledthe individualist-communitarian beliefspreferences survey. Communitarian

beliefs involve giving precedence to thelarger cause over individual desires. Itwould seem natural to believe that peoplewho prefer communitarian beliefs overindividualist ones are more likely toexhibit OCB. The two dimensions ofcommunitarian beliefs includedfulfillment and orientation towardscommunitarian welfare. Results showedmoderate support for the prediction ofloyalty through communitarian beliefs.However, the OCB dimensions ofadvocacy participation and socialparticipation were strongly associatedwith communitarian belief structures.Being a pioneering work, it has beensuggested that the findings be validatedthrough studies with a larger sample andacross national cultures.

Job congruence

Vigoda (2000) studied the moderatingeffect of organizational politics on therelationship between job congruence andOCB. Job congruence has been defined as“the basic compatibility of an employeewith the workplace and specific job” andcomprises the two dimensions of (1) metexpectations (ME) and (2) person-organization fit (POF). It is proposed thatemployees who have a better fit tend todevelop positive perceptions towards theworkplace and display more citizenshipbehavior. Job congruence is predictedthrough variables like workplaceautonomy, advancement opportunity,and interaction with co-workers. This is arelatively unexplored proposition andmay need further examination before

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unequivocal conclusions are made.

Job characteristics

Task interdependence

Task interdependence is believed tosignificantly affect citizenship behavior.Smith, Organ & Near (1983) note thatemployees who are part of work groupscharacterized by interdependent tasks aremore likely to display citizenshipbehavior. The inevitable need to co-operate with others in such a work settingleads to OCBs. However, the empiricalevidence showed that taskinterdependence was not correlateddirectly or indirectly through jobsatisfaction to either altruism orgeneralized compliance.

Job related stress and EmotionalExhaustion

These two variables are not directpredictors of OCB, but are correlatednegatively with it. It is deemed importantto discuss some of the literature availableon this relationship. Tang & Ibrahim(1998) explored the predictive effect of jobrelated stress on OCB, through a studyconducted with respondents from USAand the Middle-East. As expected OCBwas negatively correlated with workrelated stress. Since, the feeling of stresscan also be associated with negative affectand neuroticism, this finding appearsconsistent with previous literature.Cropanzano et al. (2003) in a seminal workon the impact of emotional exhaustion onOCB, posited that emotional exhaustionwould be negatively correlated with both

OCBS (OCB towards the supervisor) andOCBO(OCB towards the organization). Itis argued that jobs, which produceemotional exhaustion are likely to violatethe conditions of social exchange andhence would have a negative effect onOCB. It was found that emotionalexhaustion was predictive of OCBObeyond the effect of demographicvariables like age and gender. However,the effect on OCBS was relativelyinsignificant. This can be explainedthrough the impact of leader support.

Contingent employment and workplacestatus

Contingent employees are essentiallylimited by the contract duration and arenot normally contracted for longerperiods of time. This condition shouldthen violate the social exchangeperspective and hinder the emergence ofa reciprocal relationship. Coyle-Shapiro &Kessler (2002) have proposed thatcontingent employees are less likely toexhibit OCBs. It was found that asexpected contingent employees had a lessfavorable view of the social exchange andhence had less positive attitudes about theorganization and this led them to bypassextra-role behavior. Stamper & Van Dyne(2001) examined the citizenship behaviorsof part-time employees with full-timeemployees and found that part timeemployees exhibited lower levels of OCB.However, there were situations whereindividuals preferred part-timeemployment, for instance working



mothers or students. In such situation thepreferred status of part-time employmentmoderated the negative impact on OCB.

Perceived organizational support

Wayne et al. (2002) examined perceivedorganizational support (POS) as apredictor of OCB. There was evidence toshow that POS was positively correlatedto the OCB dimension of altruism. It isargued that since POS creates a feeling ofobligation towards the organization, it islikely to be reciprocated through acts ofaltruism.

Fulfillment of psychological contract

It is believed that a significant proportionof employees experience a breach ofpsychological contract at some point intime. Psychological work contract hasbeen explained by Levinson et al. (1962;in Coyle-Shapiro & Kessler, 2000) as “aseries of mutual expectations of which theparties to the relationship may notthemselves be dimly aware but whichnonetheless govern their relationship toeach other.” This indicates that thepsychological contract is more in thenature of spirit and is normally unwritten.It is proposed by Coyle-Shapiro & Kessler(2000) that fulfillment of psychologicalcontract by the employer will impact theemployees OCB positively. The threefactors of psychological contract weretransactional obligations, trainingobligations and relational obligations.Measures were developed to assess thefulfillment of contract and thediscrepancy between fulfillment and

breach. Empirical support was found forthe role of psychological contractfulfillment as a predictor of OCB.

Leader behavior

Leader supportiveness is one variable thathas often been investigated as anantecedent of citizenship behavior. Smith,Organ & Near (1983) state that“supervisor consideration itself iscitizenship behavior, i.e. discretionaryacts aimed at helping others.” This meansthat the supervisor serves as a model forthe employees, who in turn would try toemulate the supervisor’s acts of helping.Moreover, the leader’s support is often theorigin of a social exchange relationshipbetween the leader and follower. Thisrelationship is manifested throughcitizenship behavior owing to norms ofreciprocity. Smith, Organ & Near (1983)found evidence that leadersupportiveness was indirectly correlatedto the OCB dimension of altruism throughjob satisfaction, with the multiplecorrelation of 0.40. However, leadersupportiveness was directly correlated tothe OCB dimension of generalizedcompliance, with a multiple correlation of0.36, without any mediational effects ofjob satisfaction. Tang & Ibrahim (1998)also examined the impact of leadersupport and found that supportive actsfrom the leader were responsible forcitizenship behavior from the employees.Wayne et al. (2002) investigated thecorrelation between Leader-MemberExchange (LMX) and employee attitudes,specifically OCB. LMX was not found to

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be significantly correlated to altruism.However, it is believed that the dimensionof sportsmanship is more likely to beimpacted by LMX, since this dimensiontests the identification with theorganization and its representatives.

Group level and higher level antecedentsof OCB

Xiao-Ping Chen et al., (2002) suggestedthat group organizational citizenshipbehavior (GOCB), was similar to otherteam models and is expected to increasecoordination and cohesiveness amonggroup members and promoteperformance of the group. GOCB, it issuggested, results from “inter-individualand inter-group”. Antecedents of GOCBare now discussed.

Organizational Justice Climate

Xiao-Ping Chen et al., (2002) proposedthat organizational justice climateinfluences GOCB positively.Organizational justice perceptionsenhance trust in the organization andsubsequently enhance the level of OCBwithin the group.

Personality Traits

Positive affectivity and negativeaffectivity at the group level

George (1989) tested the effect of positiveaffectivity at the group level, on OCB andfound that positive affect had a positivecorrelation with both altruism andgeneralized compliance, at the grouplevel. WABA analysis facilitateddemonstration of individual as well as

group level effects. Individual measuresof positive and negative affectivity wereaggregated while employee self-ratings ofOCB were measured at the group leveland aggregated for purpose of analysis.Xiao-Ping Chen et al. (2002)supplemented the above finding througha study conducted with respondents whohad worked as members of groups.

Leader behavior

George & Bettenhausen (1990; in Schnake,2003) measured leader’s positive moodand analyzed it at the group level, byproposing that the leader’s mood wasrepresentative of the group mood. Theleader’s mood had significant positivecorrelation with prosocial behavior. Xiao-Ping Chen et al. (2002) in one of thepioneering works on GOCB, suggestedthat group perception of leader supportis positively related with GOCB. It isbelieved that supportive leaders arethought of as considerate and thisperception allows them to gain the trustof members. This trust in turn leads themembers to display citizenship behaviorand loyalty to the leader. In the studyadministered with 71 part-time MBAstudents who had all been part of a team,evidence was found supporting the roleof group perception of leader support asan antecedent of GOCB.

Group Cohesiveness

George & Bettenhausen (1990; in Schnake,2003) also measured group cohesivenessand found it to be significantly positively



correlated with OCB. Xiao-Pig Chen(2002) regressed group cohesiveness inGOCB and found support for the role ofgroup cohesiveness as an antecedent ofGOCB.

Commitment to the supervisor

Commitment to the supervisor itself is amanifestation of citizenship behavior. Itis expected that this would impact the“aggregate OCB level” within theorganization. Yui-Tim Wong et al. (2002)conducted a study with 295 employeesand their immediate supervisors in theChinese context. They gave evidence thatemployees with higher levels ofcommitment to the supervisor willpositively influence the level of OCB inthe organization.

VI. CONSEQUENCES OF ORGANIZATIONALCITIZENSHIP BEHAVIOR (OCB)

Podsakoff et al., (2000) have identifiedoutcomes of OCB, primary among thembeing, worker productivity, managerialproductivity, organizational ability andstability of organizational performance ororganizational effectiveness. Theliterature has been relatively quieter aboutthe consequences of OCB as compared tothe antecedents of OCB.

Performance rating

It is often hypothesized that the positiveconsequence of OCB is likely to benefit theindividual displaying the behavior. Avilaet al. (1988) conducted a study withcomputer sales-persons and found that48% variance in performance evaluationwas uniquely attributable to OCB.

MacKenzie et al ., (1991) measured OCBand individual performance and foundthat OCBs predicted supervisor ratings ofperformance. Podsakoff et al. (2000) intheir meta-analytic review showed thatOCB uniquely contributed 42% of thevariance in employee performanceappraisal and together with objectiveperformance, it explained 61% of thevariance in performance ratings. Wayneet al (2002) also tested the impact of OCBon managerial ratings of employeeperformance and found that supervisorsindeed value OCBs and tend to use themas a measure while evaluating employeeperformance.

Individual performance

Commitment to the supervisor isexpected to be a strong predictor of in-role behavior. Tsui & Farh (1997; in Yui-Tim Wong et al., 2002) developed a 5-dimension, 17-item scale to measureloyalty to the supervisor in a Chinesecontext. It was seen that loyalty to thesupervisor positively influenced the in-role performance of the employee. Asimilar study by Chen et al (1998) alsoshowed loyalty to the supervisor to bestrongly positively correlated withindividual performance of the employee.Yui-Time Wing et al., (2002) followed upthese studies with similar results.

Organizational performance oreffectiveness

Podsakoff et al. (2000) cite Podsakoff &MacKenzie (1997) and suggest that OCBscontribute to organizational performancein the following manner,

49

l Enhancing co-worker productivityl Enhancing managerial productivityl Free resources for more productive

use by the organization

l Reduce the need to devote scarceresources for maintenance functions

l Enhance the organizations ability toemploy the best talent

l Improve the stability oforganizational performance, and

l Improve the ability of theorganization to tackle changes in theenvironment

Karambayya (1990; in Podsakoff et al.,2000) found that employees of highperformance work units were categorizedby higher level of OCBs. Schnake &Hogan (1995; in Schnake & Dumler, 2003)measured OCB and organizationaleffectiveness, where top executives wereasked to rate the frequency of OCB seenand general organizational effectiveness.Financial performance of the firms wasalso taken as an objective benchmark oforganizational performance. OCB wasseen to have a definite impact onorganizational performance, although themeasures used are deemed to be slightlysubjective. Walz & Nierhoff (1996)measured OCB through employee ratingsand found several dimensions of OCB tobe positively correlated withorganizational effectiveness.

Group Level Consequences

Work Group Performance

Xiao-Ping Chen et al., (2002) studiedGOCB as a distinct construct and shownthat GOCB is positively correlated withgroup performance. This finding can beexplained through the higher level of co-operation and trust within the groupmembers. Bolino (1999) in his conceptualpaper comparing OCB with impressionmanagement strategies, has referred towork group performance as one of theoutcomes of OCB. It has been suggestedthat OCBs are positively related to bothworkgroup and organizationalperformance. Literature supports thisperspective.

VII. SOME OTHER PERSPECTIVES ON OCB

Covenantal relationship with theorganization

Van Dyne et al., (1994) studied themediational effect of covenantalrelationship with the organization on therelationship between OCB and itspotential moderators like job attitudes,workplace values and demographicvariables like tenure and position in thehierarchy. It was hypothesized thatcovenantal relationships will be positivelycorrelated with OCB. This argument wasalso based on the norms of reciprocity. Itis argued that covenantal relationshipshave an effect beyond traditional affectivestates like satisfaction and commitment.It is beyond the scope of this paper toexamine this school of thought and it issuggested that avid followers of OCBliterature may refer thereconceptualization of OCB proposed by



Van Dyne et al., (1994) in order to examinethe mediational effect of covenantalrelationships on OCBs.

Generalizability of findings acrosscultural contexts

Paine & Organ (2000) conducted a smallsurvey across 26 countries to test theapplicability of OCB literature acrosscultures. This is an important contributionbecause it has often been suggested thatthe context within which the individualand organization operate couldsignificantly impact the occurrence ofOCBs (George & Jones, 1997). Farh et al.(1997) used a Chinese sample and foundthat two of the five OCB dimensions weredifferent from those observed in a sampleof American employees. Historical andtraditional practices are found to beembedded in workplace environment andinfluence on-the-job behavior ofemployees. Paine & Organ (2000)conducted the study using the twocultural dimensions of individualism-collectivism and power distance.Individualism-collectivism refers to theextent to which members within anorganization are closely-knit. Acollectivist culture would indicate closeties between organizational members.Power distance refers to the extent towhich society accepts hierarchicaldifferences in power. Paine & Organ

(2000) proposed that both dimensions ofculture were potential moderators of OCBthrough commitment and motivation. Itis suggested that in individualisticcultures, OCB will be positively relatedto beliefs that OCB influencesperformance appraisal (throughmotivation) and in low power distancecultures, perceived fairness will bepositively correlated with OCB (throughcommitment). Empirical support for thesepropositions is forthcoming and may beof interest to future researchers in the area.

VIII. SUMMARY OF RESULTS ANDCATEGORIZATION OF OCBANTECEDENTS AND CONSEQUENCES

It has been decided to follow thecategorization adapted by Podsakoff et al.(2000) in the meta-analytic review of theOCB literature. Accordingly, 4 majorcategories of antecedents that emergefrom the literature are,

l Individual or employeecharacteristics

l Task Characteristicsl Organizational Characteristics, andl Leader behavior

Table 1 summarizes the individual levelantecedents of OCB, categorized into the4 categories. Table 2 captures the group-level antecedents of OCB. Since, theseantecedents are analyzed at a higher level,it is not deemed necessary to categorizethem separately. Table 3 lists theconsequences of OCB at individual leveland higher levels.

51

Table 1: Summary of results, establishing the antecedents of OCB at INDIVIDUAL level

Sr. Category Antecedent Remarks No.

1 Individual Job Partially supported in the literature,Characteristic Satisfaction owing to different measures of satisfaction

of affective and cognitive satisfaction

2 Individual Perceptions of Mixed support in the literature.Characteristic organizational Perceptions of procedural justice found to

justice predict OCB more strongly thanperceptions of distributive justice

3 Individual Organizational Ample empirical evidence to suggest thatCharacteristic Commitment organizational commitment is a dominant

antecedent of OCB

4 Individual Personality [a] Positive affectivity (PA), positivelycharacteristic variables correlated with OCB

[b] Extraversion predicts OCB

[c] Agreeableness: Literature suggests thatemployees with high agreeableness arebeneficiaries of OCBs from co-workers

[d] Self-Esteem and Organization basedself-esteem are both predictors of OCB,with OBSE being a stronger antecedent ofOCB.

[e] Need for achievement (nACH) –Higher nACH employees tend to exhibitmore OCBs.

5 Individual Workplace Values fostered by the organization tend tocharacteristic values * encourage citizenship behavior in

employees

6 Individual Communita Impact OCBs positivelyCharacteristic rian beliefs

7 Task Characteristic Job congruence Positively correlated with OCB



8 Task Characteristic Task Inter If employees find themselves in situationsdependence of highly interdependent tasks, co-

operation and cohesiveness are likely toincrease

9 Task Characteristic Work related Indirect predictor, has negativestress or correlation with OCBemotionalexhaustion

10 Task Characteristic Contingent Contingent employees and part-timeemployment workers are less likely to exhibit OCBs. Ifand work part-time employment is the preferredstatus work status, the negative impact on OCBs

is moderated.

11 Organizational Perceived Positively correlated with OCBCharacteristic Organizational

Support (POS)

12 Organizational Fulfillment of Employers / organizations that ensureCharacteristic psychological fulfillment of contract are reciprocated by

contract ** citizenship behavior from the employees

13 Leader Behavior Leader Adequate empirical evidence to suggestsupportive- that supportive behaviors are more likelyness to induce OCB in members

14 Individual Demographic Empirical evidence suggests that ruralcharacteristic variables background, first-born and higher level of

education are factors that impact OCB.Examining the demographic variables isnot in the scope of this paper

* Workplace values may be categorized in either organizational or individual characteristic,depending upon the level of analysis. If viewed as a dimension of organizational culture andencouraged specifically by organizational agents, this factor would be an organizationalcharacteristic. However, if analyzed as individual perception of workplace value, this factorseems more to be in the realm of individual characteristic.

** Fulfillment of psychological contract could be a result of organizational policy or supervisorinitiative, depending on which it can be categorized as either an organizational characteristic orleader behavior

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Table 2: Summary of results, establishing the antecedents of OCB at GROUP level

Sr. Group level antecedent of OCB Remarks No.

1 Organizational Justice climate Group level perceptions of fairnessenhance OCB at both individual and grouplevel

2 Personality trait of PA PA aggregated at group level and analyzedusing WABA analysis show that PA(positive affectivity) within the group tendsto increase OCBs.

3 Leader Behavior Literature supports the view that leader’smood reflects the mood of the group andincreases cop-operation and OCBs withinthe group.

4 Group cohesiveness Mixed views about group cohesiveness asan antecedent of OCB.

5 Commitment to the supervisor Measured at an aggregate level.Commitment to the supervisor is expectedto enhance OCB towards the group andorganization.

Table 3: Summary of results, establishing the consequences of OCB at Individual and Grouplevel

Sr. Level Outcome / Remarks No. consequence

1 Individual level Performance Empirical evidence suggests that OCBs onrating part of the employees affect the performance

ratings and appraisal by the supervisor

2 Individual Job performance Literature on OCB supports the view thatOCBs enhance in-role performance

3 Group Group level OCBs at both the individual and group levelperformance positively impact the group performance and

co-ordination

4 Organizational Organizational OCB “in the aggregate” as suggested byEffectiveness ORGAN, 1988 impacts organizational

performance positively.



Implications for managers

The findings on OCB antecedents andconsequences have significantimplications for practicing managers.Some of the immediate ramifications arediscussed in this section. It becomesapparent from the findings that rewardcontingencies go a long way in inducingthe frequency of OCB. It is evident thatwhen employees perceive leaders to havepowers to rewards OCBs the frequencyof such behavior increases resulting inbeneficial consequences for theorganization. The competitive scenario isincreasingly pushing organizations intorestructuring and downsizing exercises.In such situations, the existence ofcitizenship behavior, should mitigate thenegative effects of organizational change.If employees perceive procedural justiceduring the intervention it is likely that thenegative vibes that emerge during theintervention are buffered by acorresponding increase in OCB. It is thenclear that managers need to be proactiveto understand and manage the factors thatcontribute to an increase in frequency ofOCB and thus contribute to overallorganizational effectiveness.

In conclusion, it would be appropriate tostate that research in OCB has contributedimmensely not only to the understandingof an organizationally relevantphenomenon but also to enhancedworkplace practices in organizationsacross the globe. This paper has tried toclarify some of the key issues in OCBresearch and it is hoped that the findingswould be beneficial to researchers andpractitioners alike.

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I. INTRODUCTION

The sixth Ministerial Conference (MC) onWorld Trade Organization (WTO) washeld during December 13- 14, 2005 atHong Kong against a background ofrising discontent in developing countriesagainst unfair trade practices, brokenpromises as well as manipulation of WTOrules by their developed counterparts.There is a large gap between the positionsof the developed and developing worldon every major issue. This has essentiallyhappened because the developed worldis blinded by its selfinterest and revertedto operating in a very aggressive,mercantilist mode of “take noprisoners”(Bajaj, 2005). The Doha Roundwas foisted on developing countries onthe pretext of it being a DevelopmentRound. It was supposed to open upmarkets for developing countries;especially in agricultural products

Hong Kong Ministerial Conference on WTO:A Critical Review*

Sridhar Panda 1

Abstract

Contrary to official claims and pretensions of a Development Round on WTO at Hong Kong, there washardly any progress on delivering on development concerns of developing and least developed countries.The paper analyses how developed countries have extracted more from their developing counterparts asin the past adding further to the latter’s trade imbalance.

* Received February 1, 2006.1. Faculty, Fortune Institute of International Business, New Delhi , e-mail: [email protected]

through removal of trade distortingexport and domestic subsidies.

There are three main factors contributingto the strength of developed countries inthe WTO process which enable them tohave better bargaining power. Firstly,they are politically and economicallystrong and they use this strength toachieve their objectives in the WTO.Secondly, they almost always coordinateamong themselves while preparing aproposal or response and their combinedstrength and clout are naturallyformidable. Thirdly, the governments ofthese countries coordinate fully with theirindustry, trade and services sector andcombine their political and strategicstrength with the economic andtechnological muscle of the latter (Das,2004). Even if there are differences amongmajor developed countries on someissues, they often sink these differences or


accommodate each other and face thedeveloping countries with their combinedstrength and common strategy. Also thegoals and objectives of their governmentson the one hand and of their industry,trade and services sector on the otherconverge to a great extent in economicmatters relating to expanding theireconomic space in the developingcountries. For example, the EuropeanUnion (EU) and Japan were the mainarchitects for including investment in theagenda while the United States (US) wasnot so enthusiastic. However, the lattersupported the efforts of the EU and Japanon this proposal. Similarly, the EU and USadjusted their differences in the sensitivesector of agriculture and evolved acommon frame which preserved theirown subsidy and enabled them to extractsignificant commitments from developingcountries (Das, 2004).

The ministerial meeting of WTO amountedto little more than an expensive experimentin sleep deprivation. For six days (andquite a few nights) trade ministers from 149countries haggled, accompanied by almost6,000 officials and watched by nearly 3,000journalists and more than 1,000 peoplefrom non governmental organizations.Large parts of the host city were shut downas police were attacked by demonstrators,most prominently by the South Koreanfarmers who were furious at the prospectof freer trade in their markets (TheEconomist, 2006).

The meeting’s most notableaccomplishment was that it did not

collapse as previous gatherings had inSeattle, USA (3rd MC) in 1999 and Cancun,Mexico (5th MC) in 2003. Contrary to thedoom and gloom scenarios advanced bymany, the conference concluded withsome success towards completing DohaRound as Cancun failed. The questionsbeing asked relate to whether thedeveloping world has been able to achieveanything of consequence to their interestsas it is more or less clear that thedeveloped world has not sacrificedanything of importance as far as threecritical areas of agriculture, nonagricultural market access (NAMA)particularly industrial tariffs and servicesare concerned.

These areas are, of course, crucial becauseon them will depend the future health ofthe international economy. But there isanother area which was not quite an issuebefore Hong Kong, which today hasassumed a role that could act either as awelcome catalyst for change for the betteror turn out to be the last nail in the coffinof multilateral cooperation to liberalizetrade. This is the unity that was forgedamong the developing countries and theleast developed countries (LDCs) which,at the conference led to the coalescing ofaround 110 developing countries, agrouping which, if it survives, will havegreatest influence on the working of the149 members of WTO (Choudhury, 2005).

II. BACKGROUND

The first rounds of multilateralnegotiations under the General agreement

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on trade and tariffs (GATT) mainlywitnessed tariff reduction by developedcountries. But the eighth and last roundlasting from 1986 to 1994 named asUruguay Round signified a new phase inworld trading history within a new era ofneoliberal globalization. The Roundattempted to eliminate export subsidieson agricultural products and textiles,dealt with non tariff barriers (NTBs)technical aspects of trade and traderelated investment measures (TRIMs).The Round produced a particularly largenumber of new trade agreements such asphasing out quota in textiles, trade relatedintellectual property rights (TRIPs),services etc. It also changed the nature ofGATT by transforming it to world tradeorganization (WTO) with MC being theapex decision making body. With WTOcoming into existence, trade among themember countries became more rulebased which is binding on the membercountries. In fact,WTO fulfilled thedreams of those countries who tried hardto set up a regulatory body in the form ofInternational Trade Organization (ITO) atHavana conference in mid 1940s in thepost war period which never saw the lightof the day. Though initial rounds helpedsome developing countries to have bettermarket access into rich nations, due totariff reduction, the Uruguay Round andits aftermath put intense pressure ondeveloping countries to bring down tariffssubstantially so as to provide bettermarket access for products of rich nations.The inclusion of new areas in the WTOwas basically to further the interests of

developed countries in the markets ofdeveloping nations due to the competitiveadvantage of the former.

The WTO’s declared objective is to helptrade flow smoothly, freely, fairly andpredictably. It claims to do this neutrally,by administering trade agreements,acting as a forum for trade negotiations,helping to settle trade disputes, reviewingnational trade policies, providingassistance to developing countries in tradepolicy issues through technical assistanceand training programmes andcooperating with other internationalorganizations (Peet, 2003).

Here, the WTO says its objective is fairtrade, as with non discrimination orensuring that conditions for trade arestable, predictable and transparent. Inother wards, the WTO interpretation offairness is limited to the exact conditionsunder which free trade occurs thatcountries follow the rules, act intransparent ways and so on. With thisnarrow restriction, trade can operate‘fairly’ under a system that moregenerally favours some interests whileharming others. But a careful study of itsperformance in the last six decades sinceits birth shows that terms of trade hasbeen biased in favour of developedcountries. Though there is a lowering oftariff to a great extent allowing bettermarket access, the growth of NTBs suchas anti dumping and countervailingmeasures, quantitative restrictions in theform of quota, technical standards,sanitary and phytosanitary (SPS)

Panda, Hong Kong Ministerial ...


standards etc. has come in the way oftrade promotion of developing countries.The political economic balance of powerswung against domestically orientedindustries and in favour of trans nationalcorporations (TNCs) especially the newfringe of high technology firms interestedin trade related issues such as secureexports and the protection of intellechcalproperty sights (IPRs) which they thoughtcould be protected only by internationalagreements (Peet, 2003) such as GATT/WTO.

III. FROM SINGAPORE TO CANCUN: BIRTHOF DOHA DEVELOPMENT AGENDA

The first MC at Singapore in 1996 after theformation of WTO in 1995 was sought tobring in investment, competition policy,government procurement, environmentaland labour issues as well as zero duty ine-commerce. Developed countriesmanaged a formal agreement on theseissues except ‘Labour clause’ throughclosed door meeting in ‘green house’, aterm used in WTO for informal meetingsof like minded countries. Due toopposition from developing countries,labour issue was referred to InternationalLabour Organisation (ILO) as WTO is notthe competent authority. But theconclusion of Singapore MC questionedthe transparency principle of WTO as itremained hostage to the whims andfancies of developed countries. This wasfollowed by Geneva MC which was not asubstantive one as it celebrated the goldenjubilee of GATT, the predecessor of WTO.

Since then, there is a paradigm shift in

the nature and characteristics of MCs.There has been a greater degree ofsolidarity among developing countriesto push their agenda forward. Even agood number of LDCs extend theirsupport to developing countries as theyhave realized the business interests ofTrans National Corporations (TNCs) intheir markets. Besides this, the civicbodies such as media, NGOs etc. areplaying a pivotal role in educatingpeople against the interests of developedcountries which has seen the terms oftrade being distorted in favour ofdeveloped countries since GATT cameinto force in 1948.

As developing countries weredissatisfied with Singapore issues, it wasput in the back burner by them. A muchmore ambitious round ( third MC) waslaunched at Seattle, USA in 1999, but wasaborted by concerted opposition in thestreets by civic bodies such as NGOs,media etc. Besides, USA put forth its ownagenda items instead of playing the roleof a mediator being the ‘host’ country aspractised . This was accentuated byunbridgeable differences betweendeveloped and developing countries asthe latter had been well prepared withits agenda unlike Singapore MC. Therewas also public outcry against the‘profits over people’ business policies ofpharma TNCs in South Africa and otherdeveloping African Countries under thenew patent regime of WTO andopposition by some developing countriesof Asia and Latin America concerning

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Singapore issues and trade distortion inagriculture by quad group i.e., USA, EU,Canada and Japan.

The fourth MC was launched at Doha,Qatar in 2001 against the backdrop ofSeattle fiasco. Like earlier MCs, thisround was struggling to capitalize onthe wrath of developing countries .While one developing country afteranother was making bilateral deals withthe US and EU , India with a few ofthe emerging economies stood firm toadvocate the concerns of developingcountries. Thus was born the DohaDevelopment Round. Finally , it wasrealized that developing countriesinterests would become the fulcrum ofWTO negotiations.

The Doha MC did produce an agreedwork programme which is very heavyand ambitious. (Declaration of the Dohaministerial conference, 2001) Nearly allthe major subjects of the Uruguay Roundof Agreement (URA) under the auspicesof GATT have been included in the workprogramme and some more have beenadded . Comprehensive negotiations areenvisaged in areas of agriculture ,services, subsides, anti-dumping ,regional trading arrangements, disputesettlement, industrial tariffs and evensome aspects of Intellectual PropertyRights . Besides , there will benegotiations in the area of environmenttoo. (Das, 2004) Intense work is alsoenvisaged on new issues, viz, investment,competition policy, governmentprocurement, trade facilitation and e-

commerce, the so – called Singaporeissues.

In the course of preparations for SeattleMC, the developing countries hadidentified a number of deficiencies andimbalances in the WTO agreements andhad suggested correctives, otherwisecalled implementation issues. Instead offinding solutions to ‘implementationissues’, the Conference intensified thework in new areas which were of interestto the major developed countries.Hence, the Doha Work Programme washighly unbalanced. The irony is thatthe work programme has started to becalled the ‘Doha Development Agenda(DDA)’, thereby conveying theimpression that it is all in the interest ofthe developing countries. Actually, it isheavily weighted in favour of the majordeveloped countries interests and doesnot have much content on the interestsof the developing countries.

Subsequently, the fifth MC was launchedat Cancun, Mexico in 2003 to negotiatefurther on Doha Work Programme.Inthis Round, developing countries led byBrazil and India argued their casepowerfully and put pressure ondeveloped bloc to take infamousSingapore issues off the table. EvenAfrican Caribbean Pacific(ACP) countrieshad revolted and the LDCs had rejectedthe Draft Ministerial Declaration (Mitra,2005). Cancun MC collapsed due todifferences between developed anddeveloping countries on various issues.Like Seattle, this round also witnessed



massive protest by civic bodies. Thefailure of Cancun brought strongsolidarity among developing countriesand gave birth to G-20 , the first evergrouping of 20 powerful developingcountries led by India , Brazil and China.The single rallying point was the unfairtrade regime in agriculture in the EU, USand Japan .Out of this emerged theGeneral Council decision of July 2004to drop the three controversial Singaporeissues – investment, competition policyand government procurement . Despitethe hegemony of neo-liberal ideology,the developing countries were relieved.Otherwise, they would have had to offersectors for Foreign Direct Investment(FDI) on liberal terms and even movein the direction of what is called pre-establishment national treatment, wherede facto screening process (for FDI)would have had to be substantiallydone away with . A signing of anagreement on competition policy wouldhave meant having to follow the socalled global norms related to providinginformation on the regulations onmergers and acquisitions. (D’mello,2005). In the area of governmentprocurement, developing nations wouldbe required to fall in line with WTOcompliance and reformulate theirprocurement policy in order to providenational treatment to foreign players .Even the government’s support andspending for state run enterprises andsmall and medium enterprises would bescrutinized and reduced. Governmentprocurement was initially excluded

from the GATT, article III ( nationaltreatment ) does not apply toprocurement. The code bound only itssignatories and most GATT/ WTOcontracting parties did not join , makingit plurilateral in nature. Therefore,membership remains limited mostly toorganization for Economic Cooperationand Development (OECD) countries.(Evenett, 2002).

After Cancun debacle , the negotiationsstarted again in March 2004 . The mostsignificant outcome of thesenegotiations was emergence of ‘JulyPackage’ 2004. This set the frameworkto continue with multilateral tradenegotiations under ‘Doha DevelopmentAgenda’ (DDA). This framework isstructured around three pillars ofnegotiations , namely export subsidies,domestic support and market access.Though this ‘July Framework’ was alandmark achievement in tradenegotiations after a successive failureto reach the consensus on negotiatingmodalities, it was left for 6th MC, to beheld at HongKong in December 2005,to decide the modalities.

IV. HONG KONG MINISTERIALCONFERENCE

The Doha Round, launched in 2001 wasmeant to address the concerns ofdeveloping countries who were feelinglike getting a raid deal in the UruguayRound . Negotiations over the past fouryears have, however, confirmed that alltalk of ‘development’ was just rhetoric

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aimed at bringing developing countriesaround to launch the Round. TheMinisterial Declaration after theconclusion of Hong Kong Summit hasnot only failed to address substantiallythe concerns of developing countriesbut also has actually paved the wayfor an eventual trade deal by the endof 2006, which is going to be severelydetrimental to their interests . The socalled ‘Development Round’ based on‘July 2004 Framework Agreement’ afterCancun disaster has been manipulatedby developed countries, especially theUS and the members of the EU to pushfor further trade liberalization indeveloping countries while they continueto protect their economies through highsubsidies and non tariff barriers . Thedeveloping countries gave in on thekey market access issues in servicesand non agricultural market access(NAMA) . In return they did not receivea significant gain in agriculture sectoras the removal of subsidies by theirdeveloped counterparts was minimal.Hong Kong failed to deliver somethingsubstantial for developing countries onthree main components, i.e., agriculture,NAMA and services of the so called‘development package’.

4.1 Agriculture: Export subsidies andDomestic support

At the heart of Hong Kong talks was thequestion of poor and developingcountries’ getting access to theagricultural markets of rich nations.Elimination of all export subsidies in the

agricultural sectors by 2013 by richnations such as the US, EU ismisunderstood outcomes of the HongKong MC since most take it as removal ofhundred of billion dollars worth ofsupport the EU and US give to their farmsector ($112 billion for EU and $95 billionfor US). All that Hong Kong referred towas the removal of export subsidies givenby these countries and that in the case ofEU for instance it was just around $2.5billion and in the case of USA it was theelimination of $4 billion cotton subsidiesto its cotton growers (Jain and Gupta,2005). Subsidies under the EU’s commonagriculture policy (CAP) make it moredifficult for farmers in developingcountries to export their often efficiently-grown produce to the EU market whichis the World’s biggest market.

As the French economist Jacques Berthelot(2005) points out, the ending of directexport subsidies does not mean the endof subsidies to exported products as alarge part of domestic subsidies enter intoexported products and are thus exportsubsidies in disguise. According to himformal export subsidies to EU cerealswere reduced from $2.7 billion in 1992 to$148 million in 2002. But domestic supportin the form of direct payments thatbenefited exported cereals rose from $143million in 1992 to $1.6 billion in 2002.” Ascereals exports have halved (from 36.4 to18.4 million tonnes), the subsidy perexported tonne of cereals has increased bymore than 20 percent per tonne i.e., from$ 76 to $92. In the same way, the EU



subsidies to the animal feed consumed bythe exported poultry or pork meat arelarger than the export refunds which havebeen reduced significantly (Khor, 2005).

An EU plan to remove the subsidies by2013, three years later than developingcountries had wanted, was approved inHong Kong after intense persuation. The25-nation EU (15 members before May2004) had insisted on the delay to giveEuropean farmers time to cope with tariffsscheduled to be implemented before thatdate. Although a minor achievement, itwas nonetheless a compromise retaininga degree of credibility for the overallnegotiations. Despite wealthy nation’spromises to improve the lot of the world,they are obviously unwilling to give upall of their advantages. They bargaineddown a call by the 50 LDCs to allow dutyfree and quota free privileges to 99.9percent of exports by 2008 to 97 percent(South China Morning Post, 2005).

West African cotton-producing nationsseemingly won a victory by havingwealthy countries, particularly the USagree to eliminate all export subsidies oncotton by end 2006. They havecomplained that US governmentsubsidies to American cotton growers tokeep prices low, has made it impossiblefor farmers elsewhere to compete.However, US law makers have to approvethe deal which is not a certainty given thepower of wealthy cotton farmers and theirpolitical clout in government as they fundpolitical parties during the elections. Eventhe EU’s trade commissioner, Peter

Mandelson, rightly pointed that the sixdays of negotiations achieved by littlewhich could not be termed as a success.He has also pointed out that EU will findout the modalities for reduction of exportsubsidies only when there is a parallelconcession offered by other developednations. Besides US, the EU has criticizedthe public procurement system existingin Australia and New Zealand whichdistort the trade in agriculture. It has alsotargeted some of the emerging developingcountries like India, China for theiraggregate minimum support (AMS)going beyond 10 percent in certain agri-commodities.

The Agreement on Agriculture was theresult of a compromise between theUS and the EU under Uruguay Round,which was included for the first timeas part of trade negotiations. All NTBswere to be converted to tariff, whichinvolved finding average tariffequivalents. Most of the developedcountries, particularly the quad groupresorted to very high tariff in theprocess of ‘tariffication’ of NTBs . Evenspecial safeguard measures , a safetyvalve under WTO were instituted toprovide protection to the agriculturalsector of these countries.

The agricultural sector is beingprotected in developed countriesthrough domestic support and exportsubsidies. Domectic support measureswere classified on the basis of the extentto which they ‘distort ‘ product markets, into amber box ( e.g input subsidies and

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price support ), blue box ( e .g deficiencypayment – an incentive not to produce, as a supply side management measure)and green box ( e.g rural infrastructureservices , environmental protection anddecoupled income support ) and targetsto reduce the amber subsidies , resultedin subsidies being shifted from onebox to the other.

However, the modalities to eliminate theexport subsidies are to be finalized by July2006. It is a matter of concern sincedeveloped countries resort to varioustactics before they surrender theirinterests. There has, however, been anagreement that domestic subsidies will becut, but by how much is subject tonegotiations in 2006. The proposal is thatthere will be three bands in which variouscountries will be put into, dependingupon their levels of ‘trade distorting’domestic support to farmers. The EU willbe in the top band where support levelsare greater than $60 billion, US in themiddle one where support levels arebetween $10-60 billion and a third onebelow $10 billion concerning some of thedeveloping countries. The cuts in the topband could be between 70-80 percent, butthe time frame for this has to benegotiated. It could be between 53-75percent for the US and between 31-70percent for the rest. There has also beenagreement that developing countries areallowed to retain subsidies upto a valueof 10 percent of the total value of output,otherwise known as AMS. Evendeveloped countries have agreed toprovide duty free and quota free market

access for 97 percent of exports producedby world’s poorest nations. However, allthese commitments will be fructified if themodalities are established by July 2006and in some cases by end 2006. This isgoing to be a stupendous task if weconsider the past performance of WTOnegotiations and strategies adopted bydeveloped nations to secure theirinterests. Even these commitments maynot bring much dividend for developingcountries. The early indication shows thatthe commitments may not be respectedwhile finalizing the modalities.

The past experience and strategiesadopted by developed nations show thatHong Kong may not cut much ice infavour of developing nations in agri-business. The developed countries maynot give up so easily at the time of findingmodalities. Secondly, removal of exportsubsidies may not push the agri-export ofdeveloping world as it constitutes onlytwo percent of total farm subsidiesprovided by quad group except some ofthe Latin American countries like Braziland Argentina who are highlycompetitive. Thirdly, the productsemanating from developing countries andLDCs may be discriminated in developedmarkets as they can protect three percentof their market. This means sensitiveproducts such as cotton in case of US andrice in case of Japan may be protected asusual in their respective markets. Evensome developed countries such as the UShas made it clear that it may not extendduty free access to textiles exports fromBangladesh as there has become quite



competitive. Fourthly, some Sub-SaharanAfrican and West African countries aregetting duty free and quota free marketaccess to the US market for most of theirfarm products under the African Growthand Opportunity Act, 2001. Similarly, theEU extends concessions to somedeveloping countries and LDCs under itsEverything But Arms (EBA) initiative.Therefore, Hong Kong may not bring inmuch dividend for these countries.However, developing countries will betargeted to reduce their AMS below tenpercent wherever it exists and go forliberalization by removing governmentcontrols. Whether the negotiations can beconcluded by the deadline of end 2006,when US fast track legislation to avoiddifficult senate approval expires, remainuncertain. The US budget reconciliationprocess and final vote in the congress areset to extend domestic support toagriculture and counter cyclical supportto commodities up to around 2011.Eventhe EU’s budget from 2007 to 2013adopted recently ensures that nothing canbe touched in the agriculture budget tillat least 2013. The budget shows that outof $ 1036 billion, CAP and rural supportaccount for 43.1 percent.

As a result of Uruguay Round,agriculture was largely brought underthe main WTO disciplines. Importmeasures had to be eliminated orconverted to tariffs (tariffied) and thetariffs were then subject to progressivereduction commitments, except for riceand some staples that were subject tomaximum access commitments – that is

tariff rate quotas TRQs. It was alsoagreed to reduce the level of domesticsupport, except for exempted ‘greenbox‘ policies and deminimis amounts.Industrial countries were to reducedomestic support (the aggregateminimum of support or AMS) by 20percent over 6 years , while developingcountries were to reduce their domesticsupport by 13 percent over 10 years.The agreement also included reductionsin outlays on export subsidies (forindustrial countries, a reduction of 36percent over 6 years and for developingcountries, one of 24 percent over 10years) and in the volume of subsidiesexports (reductions of 21 percent over6 years by industrial countries and 14percent over 10 years by developingcountries) (Laird, 2002). Instead ofreducing the domestic support andexport subsidies by the deadline of2001, the industrial countriesparticularly the quad group, havechanged the nature of their supportby shifting some of the items from blueand amber box to green box which ispermissible . Even the support level hasincreased over the years. It is worthmentioning here that industrialcountries, viz Australia and NewZealand joined the developing countriesin bringing agriculture under WTOdiscipline as they are quite competitive. In case of developing countries, thereis not much of an impact as most ofthem provide less than 10 percent AMSto their agriculture sector , which ispermissible. Amongst the industrialcountries, the EU is the main culprit in

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providing and increasing the hugesupport to its farm sector.

The Hong Kong Declaration sets its sealof approval on the banding approach,suggested by the G-20, to the reductionof agricultural tariffs. According to thisapproach, agricultural tariffs have beenput in four bands ranging from the lowerto the higher level, with the provision thattariffs in the higher band will be subjectto deeper cuts. This amounts to theacceptance of a non-linear approach toagriculture tariff reduction advocated bydeveloped countries.

The extent of cut in each band is yet to beagreed upon, though there were variousfigures proposed during the negotiationsprior to the Hong Kong conference.Deeper cuts in the higher bands will nodoubt bring down appreciably theagricultural tariffs of developed countries,most of which took very high tariffbindings during the Uruguay Round ofnegotiations. But it will also involvesubstantial reductions in the tariffbindings of developing countries likeIndia, which are also on the higher side.India’s tariff bindings for majoragricultural products are in the range of100 to 150 per cent. This may require Indiato accept a cut of approximately 35 percent. This is quite a drastic reduction,particularly when tariffs remain the onlymeans of protection after India eliminatedquantitative restrictions on all agriculturalproducts by March 2001.

In the Hong Kong Declaration, the

developing countries have been provideda few escape routes of an uncertaincharacter. Firstly, they have been giventhe flexibility to self designate anappropriate number of tariff lines asspecial products (SPs). But the deal is byno means clinched. The self designationof SPs will be “guided by indicators basedon the criteria of food security, livelihoodsecurity and rural development.”Developed countries are likely to exercisetheir influence in the determination of theguidelines and in the process make lifedifficult for the developing countries. Thiswas evident from the loopholes picked bythem in the indicators proposed byIndonesia on behalf of G-33, thedeveloping countries group, on SPs andrelated issues.

Secondly, developing countries memberswill also have the right to recoursetowards a Special SafeguardMechanism(SSM) based on the importquantities and price triggers “. The precisearrangements for the SSM are yet to benegotiated. Moreover, both these specialdispensations for developing countrieswill come into operation only when otherelements of the modalities for agriculturalnegotiations are put in place.

4.2 Non Agricultural Market Access(NAMA)

Developing countries have conceded theirground substantially in NAMA andservices. The surrender of their wellknown positions on these issues wasspearheaded by India and Brazil, which



perceived their interests in NAMA andservices differently from those of themajority of developing countries. Becauseof the competitive edge required by someof their manufacturing and serviceindustries, India and Brazil are apparentlyinterested in gaining greater access fortheir concessions. These countries,therefore, share the objective of developednations to adopt a more ambitiousapproach towards their liberalisation inthese sectors. In the negotiationspreparatory to the Hong Kong conference,they took initiatives to advance proposalsdesigned to put the negotiations in theseareas on a faster track. These proposalsfound general acceptance in Hong Kongand were elevated to a higher legal statusby virtue of being included in Hong KongDeclaration (Peet, 2003). Thisdevelopment brought some kind offriction in the solidarity of developingnations. Venezuela and Cubacategorically expressed their reservationson the texts on NAMA and services in theconcluding session of Ministerial. India’scomplicity in pushing the final agreementalong with Brazil, despite theunwillingness of several developingcountries, reflects poorly on the ability ofthese two major players of the G-20 toprovide leadership to developingcountries.

On NAMA, the Swiss formula for tariffreduction has been accepted by membercountries. This means deeper cuts on aline by line basis for countries levyinghigher tariffs. Since the tariff levelsmaintained by developing countries on

industrial products are much higher thanthose of developed countries, the formerwill be offering larger tariff concessionsand will not be able to protect particulartariff lines. For the first time in themultilateral trading system, developingcountries will have to be subjected to atariff reduction formula, ‘that to’ a harshSwiss formula and worst of all, on a lineby line basis (affecting all products). Theflexibilities and exemptions are minimaland even these are under threat. Thetreatment of unbound tariffs- usingapplied rates as the basis, which has neverbeen done before and should not be done,has been adopted by the ministers. Theseelements together spell a devastatingeffect on the industrial developmentprospects of developing countries. Howdeep will be the cuts will depend uponcoefficients to be agreed. Here there aretwo proposals on the table, the firststipulating a limited number of co-efficients, may be one for developed andthe other for developing countries and theother mooted by Argentina, Brazil andIndia (ABI), calling for multiple co-efficients, based essentially on the averagebound tariff of each country. It isnoteworthy to mention that LDCs maynot be affected as they import most of theindustrial products from developing anddeveloped nations. Secondly, theirconsumption level of such products isvery low. Therefore, they maintain a verylow tariff level in most of the products.

Developing countries have been givenspecial and differential treatment (S andDT) and less than full reciprocity for some

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of their products. But there is noagreement on how to apply them inconcrete terms. There is, however, aproposal that for developing countries, acertain proportion of tariff lines may besubjected to cuts lower than that obtainedby applying the Swiss formula and that acertain percentages of the tariff lines ofthese countries may be kept unbound.

There has for some time been underconsideration a proposal advanced by theUS on sectoral initiatives whereby tariffson all products in selected sectors will bereduced to zero by all countries in aphased manner within a time boundframework, the phasing being differentfor developed and developing countries,except a few like India, which perceivethemselves as competitive, and hence,prepared to consider the zero option insome of the suggested sectors. In theGeneva framework, this proposal wasrelegated to the background as one of theoptions which could be resurrected forconsideration if other approaches failedto yield the desired results. But in HongKong the sectoral approach has beenrevived. A concession made to developingcountries is that “participation should beon a non-mandatory basis”. Indianindustry by and large does not favour thesectoral approach. They are not confidentthat they can rush to zero tariffs in any ofthe sectors proposed unless they have alevel playing field vis-à-vis foreigncompetitors, mainly in matters ofinfrastructure facilities and tax treatment.

The Hong Kong formulation on NTBs

does not hold out any promise for theremoval of these barriers in the nearfuture. It is noteworthy to mention thatdeveloped countries resort to NTBs todisseminate against developing countriesas their tariff level for industrial productsis very low. Most of the NTBs are in thenature of SPS measures, technical barriersto trade (TBT) and anti-dumping andcountervailing measures. The position ofmajor developed countries has been thatNTBs be considered within theframeworks of the respective agreements.As they are strongly opposed to anysubstantive amendment to theseagreements, the most likely scenario isthat the identified NBTs will countinueand multiply in the coming years.

Developed countries, particularly the EU,had made some movement in reductionsin domestic subsidies conditional upon thedeveloping countries sharing the former’shigh level of ambition for liberalization inindustrial goods and services sectors. Aformal linkage has been establishedbetween Non-Agricultural Market Access(NAMA) and access in agriculture. Thisimplies that any movement in NAMA, theprospects for which have much improvedas a result of the ground yielded by Indiaand Brazil, both prior to and during theHong Kong conference, will triggercommensurate movement in agriculturalmarket access, leaving far behind, progressin achieving substantial cuts in domesticsubsidies. This will ideally suit the interestof the developed countries and willrepresent a shift away from the



battleground where the developingcountries have since Cancun, proved mosteffective and convincing.

4.3 Services

The Hong Kong conference has imparteda new momentum to the negotiations onservice. It has been decided to achieve “aprogressively higher level ofliberalization” and “intensify thenegotiations” to that end. New datelineshave been set for the submission ofplurilateral requests, revised offers anddrafts schedules of commitments. Theadoption as a consensus document, ofAnnex C of the draft Declaration for theHong Kong conference, is going toquicken the pace of the negotiations. TheAnnex C was unilaterally put forward bythe chairperson of the Negotiating Groupon Services, as a consensus document,despite the strong resistance ofdeveloping countries. The adoption of thiscontested document, with a few changeshere and there, represents a hugeconcession by developing countries

The developing countries have alsoaccepted the proposal of developedcountries to adopt a plurilateral approachto the negotiations on services. This has,however, been qualified to take care of theconcerns of developing countries. Firstly,this will be of a voluntary nature.Secondly, the results of the negotiationsbased on it “shall be extended on a MFNbasis” to all member countries. Thirdly,such negotiations will be conducted inaccordance with the principles of GATS s

and the Guidelines and Procedures for theNegotiations on Trade in Services.

In spite of these qualifications, theadoption of the plurilateral approach willcontribute substantially to the hasteningof the pace of the negotiations in a sectorwhere the vast majority of the developingcountries would have preferred to movewith circumspection and at a slower pace.The plurilateral approach would be usedas a lever of pressure on developingcountries to further liberalize theirservices sector. For, when a large numberof major economic powers band togetherto make a demand, it is extremely difficultfor the weaker negotiating partners notto move at least some distance towardsconceding it.

The endorsement at the Hong Kongministerial meeting of the “sectoral andmodal approach” to negotiations bringsin, through the back door, the concept ofbenchmarking and targets earlieradvanced by developed countries andstrenuously opposed by developingcountries. According to this concept,members are required to undertakecommitments in advance, as a part of themodalities, to open up a minimumnumber of sectors and agree on aminimum extent of opening across thesectors. This militates against the basiccharacter of GATS, according to whichdeveloping countries are required toliberalize only in sectors and modes ofsupply of their choice and determine theextent of liberalisation in the selectedsectors and modes. In the face of strong

71

opposition by developing countries, theterms benchmarking and targets weredeleted from Annex C of the draftDeclaration. However, the Annex as nowagreed, recognises that “the sectoral andmodal objectives as identified bymembers may be considered”. Thoughlike the plurilateral approach, theadoption of the sectoral and modalapproach is optional, there is no doubtthat the text as adopted provides anopening to developed countries to bringback their proposal for benchmarking andtargets (Dubey, 2005).

Though developing countries have beenkeen on emphasizing the opening up andmore market access for its servicesaccording to mode 1 (which relates to crossborder supply), that is activities that do notinvolve the cross border movement ofeither the supplier or consumer, but canbe delivered through other means, such asIT enabled services) and mode 4 (whichcovers the movement of “natural persons”,that is short term migration of people forthe delivery of a specific service). Therecent boom in software services and theexpansion IT-enabled services, includingoff shore business process outsourcingsuch as BPO, RPO, C-value services etc.which have increased substantially interms of both foreign exchange revenuesand incomes generated from theseactivities, have been the source of greatoptimism for India and some of developingcountries in South East and East Asia. Butdeveloped countries are reluctant to openup mode-4 due to security reasons andgrowth of unemployment in these

economies. Due to a surge of terroristactivities and civil riots in US, France, Spainand the UK, developed nations may havea very tight emigration policy. Unless anduntil, GATS visa is put into force, Mode-4will be restricted because emigration rulesof different countries will not be applicableto it.

Thus far, developed countries have beenkeen on pushing for liberalization underMode 3, which relates to allowing foreigncommercial presence for the supply ofservices. They are especially keen onallowing their multinational companies toopen subsidiaries or branches elsewhereso as to benefit from their competitiveadvantage in activities such as banking,insurance and other financial services, inretail trade, as well as in utilities such aswater supply and electricity distribution.Most of their requests and offers thus farhave essentially been in this mode. Someother interests of developed countriesrelate to Mode 2 (consumption abroad,which occurs when the consumer travelsto partake the service delivery, as is thecase in tourism or foreign travel forpurposes of education or health services).

V. CONCLUSION

Though Hong Kong MC was based on adevelopment agenda, it did not bringmuch gain for developing countries andLDCs. If modalities are formulatedkeeping in mind the interests ofdeveloping nations, it would bring somekind of balance in the already existingasymmetries of international trade againstdeveloping nations. Whether developing



countries expectations of gainingreciprocal market access for itscompetitive goods and services in thedeveloped markets are going to befulfilled is yet to be seen. In theagricultural sector, developing countrieswill have modest gain if the developednations do not play spoil sport whilefinding out the modalities and also in theimplementation process.

The prospects of concluding Doha Roundby the end of 2006 has brightened up dueto the initiatives of some of developingcountries, such as, India, Brazil and SouthAfrica. However, the magnitude ofproblems still remaining unresolvedshould not be under-estimated. Thetimetable to settle the differences amongthe members is very short, i.e. only till July2006, in many cases.

REFERENCES

Bajaj, Rahul, (2005) “What next in the Doharound?’, Business standard, New Delhi,December, 12.

Choudhary , R.R., (2005) ‘WTO: The nextbargaining phase’, The Business Line, NewDelhi, December, 26.

Das, B.L., (2004) The WTO & Multilateral tradingsystem, 2nd ed: London.

Declaration of the Doha ministerial conference,(2001)adopted on 14 November 2001, WTOdocument, WT/MIN (01)/Dec/1,November, 20.

D’mello, Bernard, (2005) ‘Doha Round:Development Round, Neo LiberalDevelopment, Economic and Political weekly,vol. XL , No. 49,Mumbai, December 3-9.

Dubey, Muchhkund, (2005) “WTO’s Hon KongConference: An appraisal’, Economic &Political Weekly, Col. XL, No. 53, MumbaiJanuary, 7.

The economist, (2006) ‘World Trade :Hard Truths’,vol. 377, No. 8458, Singapore, December 24,2005- 06, January, 2006.

Evenett, Simon J., (2002) ‘Multilateral Disciplinesand Government Procurement’ in BernardHoekmans, Aaditya Mattoo & Philip English(eds) (2002), Development, Trade & the WTO,World Bank: Washington D.C, 2002, p.417

Jain, S. and Gupta, M., (2005) ‘No time for tea’,Business standard, New Delhi, December, 26.

Khor Martin, (2005) ‘WTO’s Hong Kongconference-I: Imbalanced Outcome’ Economicand Political weekly, vol. XL, no. 52,Mumbai,December, 24.

Laird, Sam, (2002) ‘Market access and the WTO:an overview’ in Bernard Hoekmans, AadityaMattoo & Philip English (eds), Development,Trade & the WTO ,World Bank: WashingtonD.C , p.103

Mitra , Amit, (2005) The Times of India, NewDelhi, December, 30 .

Peet, Richard ,(2003) Unholy Trinity, Zed Books:London.

South China Morning Post, (2005), Hong Kong,December, 19.

Towards A New Vision of the World:Foundational Concepts for Holistic

Development & Management (HDM)*

Subhash Sharma1

* Received December 7, 2005, A version of this paper was also presented at AIMS conference heldat IIM, Ahmedabad during Jan 1-4, 2006.

1. Director, , Indian Institute of Plantation Management , Bangalore, e-mail : [email protected]

Abstract

Rooted in a new integration of three fundamental concepts, viz. Market, Society and Self, this paperoutlines the contours of a new vision of the world through the metaphor of three colours viz. Green, Redand Saffron representing management thought, social discourse and spiritual concerns. This visionprovides us a new foundational basis for Holistic Development & Management (HDM) for developmentof society as sacro-civic society. Paper also explores the linkages of this vision with the ethical foundationsof organizations and suggests that horizons of management thought and thereby management educationshould be expanded to include social discourse and spiritual concerns.

I. INTRODUCTION

In the current era of globalization, theworld needs a new vision to go beyondvarious isms. The new vision is capturedby three fundamental colours of life viz.Green, Red and Saffron. Green denotesprosperity, Red denotes equity / equalityand Saffron denotes spirituality. In ‘GRS’vision, there is a balancing betweenprosperity, equity and spirituality. ‘GRS’also corresponds to three fundamentalideas viz. Market, Society and Self /Spirituality. If we use the language of‘isms’, then ‘GRS’ refers to a new blendingof capitalism, socialism and spiritualism.For holistic development of the world,there is a need for balancing betweenprosperity, equity and spirituality

reflected through competition, co-operation and connectivity approaches toorganize human life and activities. Thisvision takes us beyond the existing ismsand provides a direction for a newintegration of various ideas about societyand human life. ‘GRS’ vision is also linkedwith the following models of HolisticDevelopment & Management (HDM) andTranscendental Management (TM):

3T Model

3T model refers to three approaches to lifeviz. Transactional (T1), Transformational(T2) and Transcendental (T3).Transactional approach is economisticand market focused. Transformationalapproach is humanistic and society


focused. Transcendental approach isspiritualistic and cosmos focused. Greencolour represents the T1, Red representsT2 and Saffron represents T3. In ‘GRS’, T1,T2 and T3 are balanced.

CCS

Competition, Cooperation and Symbiosis:Nature displays three levels of behaviourviz. competition, co-operation andsymbiosis. In societies also we find amanifestation of these three aspects ofnature in the form of individualism,collectivism and altruism as reflectedthrough spiritual connectivity. These threeaspects correspond to Green, Red andSaffron approaches to life. It may beindicated that Hoefestede (1980) in hisstudy of societies classified the societies interms of individualism and collectivism.He did not account for connectivity andaltruism dimensions that exist in societies.

MMC

Matter, Mind and Consciousness: Matter,mind and consciousness are indicative ofgross, subtle and very subtle dimensionsof life and existence. They also refer tophysical, mental and spiritual aspects oflife. While green colour is indicative ofgross, physical and matter dimensions,red is indicative of subtle aspect andsaffron is indicative of very subtle or thespiritual dimension. In MMC integrationwe get the holistic view of life.

3Es Model

This model refers to 3Es in terms ofEfficiency, Equity and Ethics and the

inter-relationships between them. The 3Esare metaphorically represented by AdamSmith, Marx and Gandhi and in GRSvision we find their integration.

Triple Bottom Line

GRS vision also reflects the concept oftriple bottom line captured through theconcept of Profit, People and Planet. InGRS vision, Green is indicative of profit,Red is indicative of CSR and Saffron isindicative of good governance.

GRS Values

GRS values refer to three types of valuesviz. market values, social values andspiritual values. Market values arerepresented by pcs (profit, competition,self-interest) worldview. Social values arerepresented by jrd (justice, rights andduties) worldview and spiritual valuesare represented by lcd (love, compassionand devotion).

L1 L2 L3

Broadly in consonance with body, mindand spirit view of human beings, L1, L2,L3 model refers to three steps of selfevolution represented by Lust (L1), Love(L2) and Light (L3) leading to the fourthstep of Liberation. L1 (Lust) implies themindset is ‘Body’ centric or materialistic,L2 (Love) implies mindset is humanisticand driven by heart and L3 (Light) impliesmindset is cosmic and consciousnessevolves from ‘hans’ to ‘rajhans’ to‘paramhans’ levels represented by CosmicEnlightenment and Awakening (CEA).

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II. IMPLICATIONS OF GRS VISION

Following are some implications of GRSvision for individuals, organizations andsociety.

For Individuals

A balancing between W1 W2 W3accounts, wherein W1, W2 and W3 aredefined as follows:

W1: Wealth in terms of physical assets(Green)

W2: Wealth in terms of goodwill / socialrelationships / social capital (Red)

W3: Wealth in terms of spiritual capital(Saffron)

For Organizations

Green represents profit, red representssocial responsibility and saffronrepresents good governance. GRS visionsuggests profit (“Green”) should be usedfor social benefit (“Red”) and should beearned through good business practicesi.e. ethical practices (“Saffron”). Inessence, GRS should find itsmanifestations in organization’s visionand mission.

For Society

GRS vision suggests a harmonic societythat is just, humanistic and sacro-civic innature. Thus, this vision providesfoundational philosophy for futureevolution of societies in terms of Sacro-Civic Society (SCS).

III. OPERATIONALIZING GRS VISION: HDM /TM IN ACTION

In order to operationalize GRS vision andvarious models of HDM and TMsuggested above, we present followingthree fundamental principles andcorresponding equations about a holisticview of life.

1) T Principle refers to Total view of lifein terms of Transactional (T1),Transformational (T2) andTranscendental (T3) approaches torelationships of human beings withothers including nature. This view oflife is represented by the followingequation:

T = T1 + T2 + T3

2) C Principle refers to the completeview of nature in terms ofCompetition, Co-operation andSymbiosis. In social andorganizational context it isrepresented by Competition (C1),Co-operation (C2) and Connectivity(C3) wherein the C3 represents theinter-connectivity of human beingswith everything often capturedthrough the concept of consciousness,particularly spiritual consciousness.Accordingly C equation is as follows:

C = C1 + C2 + C3

3) P Principle refers to humanpersonality which displays threecomponents viz. lower self (P1),middle self (P2) and higher self (P3).

Sharma, Towards a New Vision.. .


T C P

T3 C3 P3 T3 C3 P3 (Saffron)

T2 C2 P2 T2 C2 P2 (Red)

T1 C1 P1 T1 C1 P1 (Green)

Fig.1: A Holistic Worldview as a Foundation forA New Vision of HDM / TM

Red colour represents T2 C2 P2 approachand is a symbol of social transformation.T3 C3 P3 describes the situation in whichspiritualism prevails. Human relation-ships are in transcendental model. Thereis touch of altruism, harmony and connec-tivity. “Vasudhaiva Kutumbakam” is thefoundational concept. Saffron representsT3 C3 P3 approach. When combined to-gether they represent an integrative andholistic approach. Thus, GRS vision canbe translated into reality through TCPmantra of HDM and TM leading us to-wards new social vision of Sacro-CivicSociety (SCS).

During recent years many managementthinkers have stressed the need for anintegrative view of society. For example,Gupta (1994) suggests the concept of‘management by consciousness’.Chakraborty (2003) suggests the need forsacro-secular symbiosis. Athreya (2002)highlights the need for incorporating the‘Indian dimension’ i.e. self-developmentdimension in management thought.Shastri (2002) also suggests the need toincorporate ‘Indian Management’ as apart of the holistic view of managementthought. These ideas take us in thedirection of sacro-civic vision of thesociety facilitated through the TCP matrix.

IV. NEW SOCIAL VISION & ETHICALFOUNDATIONS OF ORGANIZATIONS

Towards GRS Model of Business Ethics

GRS vision presented above also leads usto an understanding of the ethical

It is also displayed through threegunas viz. Tamas, Rajas and Sattava.The personality equation or the Pequation is as follows:

P = P1 + P2 + P3

When these three TCP principles /equations are combined, we arrive at acomprehensive view of human beings, lifeand society. This view in a matrix formatcan be referred to as TCP matrix and ispresented in Fig.1. This worldview is inconsonance with GRS vision presentedearlier and it provides an operationalframework for translating HDM / TMinto action.

It may be indicated that T1 C1 P1 de-scribes the situation in which every di-mension of life is transactionalized,worldview is competitive and lower selffinds its manifestation in terms of com-petition, greed and self-interest. Greencolour represents T1 C1 P1 approach. T2C2 P2 describes the situation in whichhumanism prevails, human relationshipsare in transformational mode. Co-opera-tion prevails and the middle self moder-ates the lower self and transforms it intoco-operative and transformational modes.

77

foundations of organizations. Threestreams / principles of ethical approachesthat take us beyond the traditional“Commandment approach” are asfollows:

1) Teleological;

2) Deontological;

3) Virtue Ethics

These approaches are now part of the‘received knowledge’ in the field of ethics.For example, Hartman (2002) provides adiscussion on these perspectives inbusiness ethics.

While ‘commandment approach’ wasrooted in theology, the above threeapproaches are part of ‘ethicotarian’worldview. Thus, in the field of ethics,there is a transition from ‘theology’ to‘ethicotarian’ view, wherein focus is on‘scientific’ approach to ethics and values.This is also reflected in transition from‘church’ i.e. organized religion to ‘innersearch’ i.e. inner exploration of humanvalues.

The three approaches to ethics broadlycorrespond to the GRS vision and TCPmatrix. T1 C1 P1 corresponds toteleological worldview and T2 C2 P2corresponds to deontological worldview,T3 C3 P3 corresponds to virtue ethicsworldview. Thus, in TCP matrix, all thethree approaches to ethical decisionmaking find an appropriate place. Theseapproaches are also reflected throughthree colours of ethics, viz. Green, Red

and Saffron (GRS). Ethics in its greencolour represent the teleological /calculative / utilitarian approach. Ethicsin red colour represent the deontological/ dharma / responsibilities andobligations / ecotarian approach. Ethicsin saffron colour represent the virtueethics / cosmotarian / ethicotarianapproach. These colours also represent amodel of moral self-development whereinan individual evolves from green(Teleological level) to red (Deontologicallevel) to saffron (Virtue-ethics level) in his/ her journey of self-development. InKohlberg’s framework, these couldbroadly correspond to pre-conventional,conventional and post-conventionalstages of moral development.

We can represent the above discussionthrough E (Ethics) diagram as presentedin Fig. 2.

This diagram also represents a frameworkof ‘typology of ethics’ in terms of marketvalues, social values and spiritual values.In language of “isms” (idea-spirit and itsmanifestations), capitalism is teleological,socialism is deontological andspiritualism represents virtue ethics. Thisdiagram also has implications for thecorporates. While deontological viewprovides a rationale for corporate socialresponsibility, virtue-ethics providesphilosophical foundations for goodcorporate governance. Thus, E-diagramrepresents the essence of the newcorporate model, wherein corporates are



concerned not only with teleological viewi.e. profit maximization but are alsoconcerned with corporate socialresponsibility i.e. deontologicalworldview and good governance i.e.virtue ethics worldview.

Sadri et.al., (1999) suggested the ‘praxis’approach to ethics, wherein ethics areviewed in terms of decision makingapproach, “If the decision maker candiscuss his/her decision openly and freelywithin his/her peer group then thedecision is deemed to be an ethical one”and a ‘practical axis’ view. The praxis(“practical-axis”) approach can also beviewed in terms of a combination ofteleological, deontological and virtueethics approaches. We can extend this ideafurther and refer to it as ‘grounded praxis’approach to ethics, wherein the aim is to

reduce the gap between ideal (virtueethics) and real (teleological approach)through moderating influence ofdeontological approach. This groundedpraxis approach could also be referred toas wisdom approach to ethics, whereinthree approaches viz. teleological,deontological and virtue-ethics are useddepending upon the situational contextand the T-A (Thought-Action) mindset orthe ‘mode of thinking’ of an individual /decision maker / manager / leader. Thisapproach can be presented in a matrixformat, wherein one side of the matrixdefines T-A mode of an individual interms of teleological, deontological andvirtue-ethics and the other side of thematrix indicates the situationalrequirement. Fig. 3 an ethics grid,indicating situations in which a managerfaces ethical dilemmas.

R ed S affron

S affron R ed G reen

G reen

Fig.2: E-Diagram as a Balancing Approach for a New Vision of the World

G – DominanceT1 C1 P1 Dominance

Dominance ofTeleologicalWorldview

(Market)

R – DominanceT2 C2 P2 Dominance

Dominance ofDeontological

Worldview(Society)

S – DominanceT3 C3 P3 DominanceDominance of Virtue

Ethics Worldview(Self)

79

It may be indicated that Guna theoryincludes all the ethical approaches e.g.Sattava (S) corresponds to ‘virtue-ethics’and Rajas (R) corresponds todeontological approach and Rajas-Tamas(R-T) corresponds to teleologicalapproach. Further, Indian scriptures alsoprovide an insight on E-diagram andother frameworks suggested here. Forexample, focus of Ramayana is essentiallyon ‘virtue-ethics’. Amartya Sen (2005)considers Gita essentially a deontologicaldocument though others may differ fromthis conclusion because in Gita we findall the three approaches. In ‘yada yada hidharmsya…’, we find the echo of ‘arrivalof the best to lead the rest’. Thus, we hearthe resonance of virtue ethics approach.Kautilaya’s Arthasastra is teleologicalthough deontological and virtue ethicsalso find a place. Charvaka tradition beinga purely materialistic approach largelybelongs to teleological worldview.Amartya Sen also belongs to this tradition.It may be indicated that in different timecontexts, (“yugas”) different approaches

acquire dominance. Further, differenttypes of organizations / institutions aredriven by different T-A modes. Forexample in the construct of nation, adeontological view on the part of citizensis given greater importance.

The discussion on new social vision andits relationship with ethics can also beexplained through the acronym ETHICSand corresponding six ETHICS equations.This is presented in Table 1.

Six ‘ETHICS’ equations presented abovealso represent six HDM and TM equationsand constitute the integrative core ofmanagement thought, social discourseand spiritual concerns.

In general, management thought andthereby management education isprimarily rooted in the teleologicalworldview. For holistic development ofmanagement professionals, it is necessaryto expand the horizons of managementthought and management educationbeyond the teleological worldview.Herein lies the relevance of GRS vision

Situational Requirement

Teleological Deontological Virtue-ethics

Ethical Ethical EthicalDilemma Dilemma Matching

Ethical Ethical EthicalDilemma Matching Dilemma

Ethical Ethical EthicalMatching Dilemma Dilemma

Virtue-ethics

Deontological

Teleological

T-A Mode

Fig.3: Ethics-Grid Reflecting T-A Mode and Situational Requirements



and six ‘ETHICS’ equations formanagement education.

V. CONCLUSION

To conclude, it may be indicated that GRSvision, TCP matrix, E-diagram and otherrelated frameworks presented in thispaper could be viewed as a foundationalbasis for operationalizing the concept ofHolistic Development and Management

(HDM) and Transcendental Management(TM) to take us in the direction of a newsocial vision of Sacro-Civic Society (SCS).The aim is to achieve a balancing betweenthree fundamental colours of life viz.Green, Red and Saffron. The otherframeworks suggested in this paper arealso in consonance with ancient Indianwisdom reflected through balancing offour objects of life viz. dharma, artha,

Table 1: New Social Vision of Sacro-Civic Society & The Framework of ETHICS Equations

Components of Teleological Deontological Virtue Ethics

New Social Vision

/ ETHICS Equations

E = E1+E2+E3 Efficiency (E1) Equity (E2) Ethics (E3)

T = T1+T2+T3 Transactional (T1) Transformational (T2) Transcendental (T3)

H = H1+H2+H3 “Harvard” (H1) “Haridwar” (H2) “Himalaya” (H3)Hedonism (H1) Helping others (H2) Harmony (H3)

I = I1+I2+I3 Indulgence (I1) Idealism (I2) Integrity (I3)

C = C1+C2+C3 Competition (C1) Co-operation (C2) Consciousness /Connectivity (C3)

S = S1+S2+S3 Self-interest (S1) Sacrifice (S2) Symbiosis (S3)

Colour Green Red Saffron

Philosophical Roots Utilitarian Ecotarian Ethicotarian

Key Note Survival of the Empowerment Arrival of the bestfittest of the weakest to lead the rest

and duty of the fittest

Key Phrase Management Social Discourse Spiritual ConcernsThought

81

kama and moksha. Hence, we can referto the E-diagram and other frameworksas yantras of TranscendentalManagement, because three TCP forcesrepresented by three mindsets of T1 C1P1, T2 C2 P2 and T3 C3 P3 find aconvergence and balancing in theseframeworks.

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Athreya, M B (2002), “Indian Dimension ofManagement” in “Indian Management forNation Building: New Ideas for the NewMillennium”, Siddharth Shastri (ed.),Banasthali: WISDOM, Banasthali Vidyapith,61-69.

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Sharma, Subhash (2004), “Paradigms ofDevelopment: Implications for ManagementThought and Social Discourse”, inConference Proceedings “Managing in aGlobal Economy: Emerging Challenges toManagement Profession”, organized byAssociation of Indian Management Scholars(AIMS) International, held at IIM Calcutta,December 28-31, 2004.

Sharma, Subhash (2005), “Development of Sacro-Civic Society Through HarmonizationParadigm”, in ‘Women in Nation Building:Perspectives, Issues and Implications’,Susheela Subrahmanya, Meera Chakraborty& N.S.Viswanath (eds.), Southern Economist,Bangalore, pp.44-57.

Sharma, Subhash (2005), “Towards HolisticDevelopment & Management (HDM)”, in‘Governance for Sustainable Development”,J.S.Ahluwallia & Uma Mehra (eds.), WorldEnvironment Foundation, London, pp.92-99.



Sharma, Subhash (2005), “A Vedic Integration ofTransitions in Management Thought:Towards Transcendental Management”,Gurukul Business Review, Vol.1, Spring, pp.4-12.

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Development – A Holistic Approach”,Vilakshan, Vol.2, No.2, September 2005, pp.71-78.

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Product & Process ImprovementCapabilities in Small & Medium Enterprises*

Dillip Swain1, P. Mishra2, B. Mohanty3

* Received September 14, 2004. The research reported here is an integral part of the Ph.D. workcurrently being undertaken by the first author.

1. Lecturer, Institute of Hotel Management, Catering Technology and Applied Nutrition,Bhubaneswar, e-mail: [email protected]

2. Professor of Economics, Xavier Institute of Management, Bhubaneswar, [email protected]. Professor of General Management, Xavier Institute of Management, Bhubaneswar,

e-mail : [email protected].

Abstract

A large industrial unit can have resources to invest in R & D and can acquire product and processdevelopment capabilities. Small and medium enterprises cannot do that due to their limited resources.In this study, an attempt was made to find out the variables that lead to product and process improvementcapabilities in small and medium enterprises. Using regression analysis the factors influencing productimprovement capability and process improvement capability were separately found. The study showsthat the product improvement capabilities were influenced by specialist in R & D and external linkageand whereas process improvement capabilities were influenced by entrepreneur’s education, externallinkages and specialists in R & D. Contrary to the general understanding, access to finance, expenditureon R & D and qualified persons in the organization did not have much of effect on product and processimprovement capabilities. Factor analysis showed that three factors, namely, technological alertnessand effort, external linkage and technical qualification of the entrepreneurs explained significantpercentage (67%) of the variation. The study was based on the experience of thirty-two small andmedium scale organizations.

I. INTRODUCTION

Achieving and sustaining competitiveedge for any enterprise depends onvarious factors and one of the key factorsis the extent to which research anddevelopment activities are successfullyundertaken in such enterprises. Whilesuch research and development maystretch from basic research to applicationengineering, for small and medium

enterprises, basic research may be difficultin view of their limited resources. Theseenterprises, however, in their own waycan develop new products and newprocesses which give them thecompetitive edge (Burgelman, 1995).Such product and process developmentmay require the existence of product andprocess improvement capabilities withthe enterprise (Carolis, 2003).


Product improvement refers todevelopment of a new product orimprovement in an existing product.Product improvement may involve theexamination of products in order toidentify opportunities for improvementfor customer satisfaction and profit.Product improvement includes themodification of existing products inresponse to identified opportunities andemerging trends. The purpose of productdevelopment is to provide popular andhigh quality products in the changingmarkets and thereby ensure that suchproducts offer the best value, provide theoptimum choice, attract customers andguarantee delight. Effective productimprovement is based on knowledge ofcurrent product strengths, weaknessesand customer needs (trends) supportedby development in technology andsystems (Keith Waller, 1996). Productimprovement may be defined asproviding a product with new features orsame features with better quality. It mayinvolve improved performance features,structural change in the product, changein packaging, variable size and quantityand also the range of product (Paul Trott,1998).

Process improvement may be defined asincreasing the process efficiency throughsimplification, backward and forwardintegration, process controls, automation,choice of appropriate combination of manand machine, wastage recovery andrecycling and by-product manufacturing,which eventually reduce investment, timeand cost of production or increase

productivity (Khalil, 2000; Archibugi et.al,1994). Improving an existing process isan important aspect of incrementalchange (Berner and Tushman, 2003).

II. PRODUCT AND PROCESSIMPROVEMENT CAPABILITIES

A capability is the capacity for a set ofresources to interactively perform a taskor an activity (Hitt, 2001). For largeorganizations, product and processimprovement capabilities involveinvesting in R & D, patenting process,protecting the outcome of their research,using advanced technology or acquisitionof new and advanced machinery (Lee andO’Neill, 2003). These capabilities enablethe organizations to handle technologiesand cope with technological changes withrespect to products and processes and toundertake various technology-relatedactivities (Lall, 1992; Albu, 1997, Lampert,et.al, 2001).

In sharp contrast, product and processimprovement capability of small andmedium enterprises is determined not byhigh investment in basic R & D, or intechnology and machineries but by thecombination of intangible factors (Hitt,2001) concerning various learningprocesses, the technical qualification of theentrepreneur, R & D expenditure of thecompany, tie-up with other researchinstitutions, technologically strong parentcompany, strong government support forsuch technology, strong technologicalcollaboration as seen from technologicalagreement, alertness through attendingrefresher advanced training programmes

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related to technology; existence of R & Dspecialists in the company, number ofqualified persons in the company andaccess to finance. However, the relativeimpact of these factors may be differentfor product improvement and processimprovement.

III. OBJECTIVES OF THIS STUDY

The general perception and the findingsof some studies that product and processimprovement capabilities could bedifferent in small and medium enterprises(or SMEs) from large units, were thetriggers for the present study. Theobjectives of the present study,accordingly, were to

1. find out, from amongst the variousmethods of product and processimprovement, those methods, whichare mostly used by small andmedium enterprises and the relativefrequency of use of such methods.

2. find out the variables whichcontributed to product improvementand separately to processimprovement and the magnitude oftheir contribution

3. identify groups of variables whichsignificantly explained the variationin the process of product and processimprovement.

For the purpose of the first objective,based on the survey of literature elevendifferent methods were identified andfinally six were chosen. Entrepreneurswere asked to identify and indicate the

methods, which they used. Based on thefrequency of response, the inferences weredrawn on the relative use of thosemethods.

To achieve the second objective, twodependent variables, namely, productimprovement capability and processimprovement capability were analysedwith respect to six explanatory variables.With regard to the third objective, all theeleven methods which were mentionedearlier for assessing the extent of use, werealso used to identify the groups ofvariables which significantly contributedto the product and process improvementcapability.

IV. METHODS OF STUDY

1. Measurement of variables

Product improvement was measuredthrough the exact number of suchimprovements made by the enterpriseover a five-year period. Similarly,number of process improvement made bythe enterprise was also counted. Theseimprovements were further broken upinto major and minor improvements.Every major change was given aweightage of 2 and minor change 1. Thus,the overall scores were arrived at for eachenterprise for the two variables. Thesetwo variables were the dependentvariables in the study.

The major independent variables, whichwere expected to affect or influence theproduct and process improvementcapabilities, were identified and these are:

Swain et al, Product & Process ...


1. Access to adequate finance

2. Number of specialists in R & D in theorganizations

3. Extent of external links

4. Number of qualified persons in theorganizations

5. Educational level of the entrepreneur

6. Expenditure on R & D

With regard to access to finance, theentrepreneurs were asked to statewhether they have access to adequatelevel of funds to carry out the product andprocess improvement programmes. Theanswers were in the form of ‘Yes’ or ‘No’which were given scores of 1 or 0respectively.

For specialist in R & D, the actual numberof technical persons engaged in productdesign and development and industrialengineers engaged in processimprovement was counted. The scores forthis variable was the exact number of suchpersons available in the organizationmultiplied by due weights. The weightswere 3:2:1 for engineers, other technicalpersons and science graduatesrespectively.

External linkage was measured on thebasis of

1. Whether the firm monitored theproduct and process changeselsewhere.

2. Whether the firm has identified thesources for product and processimprovement information, and

3. Whether the firm was a member ofresearch association or laboratories.

Answers received to these questions wereadded to obtain an overall score onexternal linkage.

On the variable qualified number ofpersons in the organization, the exactnumber of qualified person at executivelevel was counted.

With regard to qualification ofentrepreneur, technically fully qualifiedpersons were given a score of 4. Thesepeople included mostly engineers. Aperson with an MBA degree was given ascore of 3 and similarly B.Sc. degreeholders 2 and general graduates andothers 1. Thus, the score in this case variedbetween 1 and 4.

With regard to expenditure on R & D, theactual expenditures on such head for 3years were taken and average wasconsidered. In collecting data on suchexpenditure, the figures provided in theirfinancial statements were considered andduly adjusted for variation inclassification after detailed interview ofthe executives of the concernedcompanies.

About the second objective, the studyused the multivariate relationship butusing scores of the above variables.

With regard to the third objective, i.e.,finding out groups of variables whichmay explain product and processimprovement capabilities (through

87

factors), eleven questions on the followingaspects were asked:

1. Technical qualification of theentrepreneurs

2. Technically competent people

3. Government support

4. Technical collaboration

5. Technical consultants

6. Prior technical experience

7. Affiliation with other technicalassociations

8. Attending refresher course ortraining programmes

9. Visit to other plants

10. Existence of technical library orannual budget for technical journals.

11. Continuous monitoring of quality.

The questions were asked in the form ofstatements. The respondents were askedto give a score on a 5-point scale on eachquestion based on their perception ofrelative importance. These were used toidentify the factors contributing toproduct and process improvementcapabilities.

2. Statistical methods used

For the first objective, i.e. on relativefrequency of use of product and processimprovement methods, tabular analysiswas used to draw inferences. For thesecond objective multiple regression was

used separately for product improvementand process improvement. Finally foridentifying clusters of variables factoranalysis was used. SPSS version 11.0version was used for multiple regressionand factor analysis.

3. Sampling & Data Collection

Study involved a combination of casestudies using a fairly comprehensiveinterview guide and a survey based on aquestionnaire. This combination ofmethods seemed to be appropriate for thestudy of small and medium enterprisessince it permitted not only the collectionof relevant statistical data, but alsoqualitative data both in the form ofinterviews with owners or managers andemployees and useful anecdotalinformation from informal worksiteobservations, which provided a boardercontext, for the interpretation of thesurvey data. This type of contextualevidence was particularly valuable sincethe actual behaviour and practice of smalland medium scale enterprises are verymuch dependent on the personal attitudesand philosophies of founders, owners ormanagers. The survey provided astatistical picture of the industries understudy, adding detail to the initial casestudies. In this paper however, a part ofthe statistical part is being presented. Thestudy is concentrated on a limited numberof sectors. The choice of these sectors wasdetermined by two general criteria:



Food 10 Consumer 2Processing ProductsChemical 4 Consumer 5

DurablesIndustrial 5 Accessories 6Products

Total 32

1. The role of small and medium scaleenterprises within the sector. That is,if the small enterprises played a keyrole in the sector, then such sector wasselected.

2. The level of product and processimprovement capabilities within thesmall enterprises. That is, enterpriseswere chosen in such a way that theywere having different level of productand process improvementcapabilities.

In so far as the enterprises wereconcerned, only those enterprises whichhad 10-150 employees and had been inexistence for at least five years werechosen for the sample. Enterprises withfewer than ten staff were not included inthe study on the grounds that very smallenterprises have different structures,modes of operation and problems that arenot comparable to those of general smalland medium scale enterprises of arelatively larger size.

Table 1: Responses on Variables determining Product and Process Improvement Capabilities

1 Access to finance Yes: 22 No: 10

2 Number of specialists in R & D Max: 20 Min: 0 Average 5

3 External linkage with number of sources Max: 7 Min: 2 Average 5

4 Number of qualified persons in the Max: 40 Min: 1 Average 9organization

5 Education level of entrepreneurs Engineering: 7 MBA: 3 Gen.Graduate 15Sc. Graduate - 7

6 Expenditure on R & D Max: Rs. 10 lakh Min: Rs.0 Average 2.14 lakh

4. Number of samples selected andresponses received

A total of 32 enterprises were selectedbased on the above criteria. These werein the following industry groups:

V FINDINGS & DISCUSSIONS

The objective on the first part was to findthe exact practice relating to the variables(there were six such variables) affectingseparately the product and processimprovement capabilities. The responsesare tabulated in Table –1 below:

Only in case of the variable 1 the responseswere in dichotomous form. In rest of thecases the exact number was available.

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Though the tables are self-explanatory, afew features are noteworthy. These smalland medium enterprises had an averageof five persons as specialists in R & D celland used on an average five sources tocollect product and process developmentinformation. In so far as number ofqualified persons in organizations isconcerned, as observed from the value ofaverage, which is 9, it is to some extentskewed towards the lower number ofqualified persons. There were roughly50% entrepreneurs who were generalgraduates. Expenditure on R & D per yearon an average was Rs. 2.14 lakh. Therewas no organization which did notimplement any product and processimprovement. There was sufficientvariability in the data (though this is notshown here), which prima-facie indicatedthat there could be certain statisticalrelationships.

To achieve the second objective of thestudy, the six independent variablesmentioned earlier were regressed onproduct improvement capability andprocess improvement capabilityseparately.

A step-wise regression was used to checkthe changes in the explanatory power inthe equation. Attempt was made bydropping collinear variables to seewhether there were changes in thecoefficient of determination. It may bementioned here that the multi-co linearityis not at all severe in both the equations.Therefore, dropping variables as aremedial measure did not lead to anysignificant improvement in the result. Theresults of the regression equations aregiven in Table – 3 for productimprovement and Table – 4 for processimprovement capabilities.

With regard to actual productimprovement and actual process

Table 2: Number of Product & Process Improvements made by Enterprises

Product Improvement Process Improvement

Major Changes

Maximum 4 5

Minimum 0 0

Average 1.31 1.0

Minor Changes

Maximum 9 4

Minimum 0 0

Average 1.84 1.4

improvement the responses were asshown in Table – 2.



Unstandardized Standardized Model Coefficients Coefficients

Variables β Std. Error Beta t Sig. R2

1 (Constant) -3.851 2.738 -1.407 .172 0.42Expenditure on R & D -1.564E-06 .000 -.143 -.623 .539Entrepreneur’s Education 1.058 .456 .457 2.322 .029Qualified persons in . -7.348E-03 .062 -.020 -.119 .906the Orgn.External Links .408 .210 .305 1.942 .064Specialists in R & D 8.176E-02 .067 .261 1.220 .234Access to finance -2.905 1.117 -.454 -2.601 .015

Table 4: Regression results with Process Improvement Capability as Dependent Variable

(i) Product improvement capabilities

As mentioned earlier productimprovement capability was used asdependent variable and the above

Table 3: Regression results with Product Improvement Capability as Dependent Variable

Unstandardized Standardized Model Coefficients Coefficients

Variables β Std. Error Beta t Sig. R2

1 (Constant) -8.007 2.374 -3.373 .002 0.70

Expenditure -6.344E-06 .000 -.460 -2.455 .021on R & DEntrepreneur’s -3.120E-02 .384 -.011 -.081 .936EducationQualified 4.688E-02 .053 .106 .882 .386persons in the Orgn.External Links .760 .180 .473 4.213 .000Specialists in R & D .330 .064 .902 5.161 .000Access to finance -.265 .960 -.035 -.276 .784

mentioned six independent variableswere used as explanatory variables. Asmay be observed from the said Table-3two variables namely, external linkageand specialists in R&D are highly

91

significant at 0.00 level of significance.The variable, namely, expenditure onR&D is also significant at 0.02 level ofsignificance. But it has a negative signwith the slope coefficient indicating aninverse relationship between the productimprovement capability and expenses onR&D. However, looking at the absolutevalue of the slope coefficient relating tothe said variable it is observed that theelasticity associated with this will behighly insignificant. Further, thestandardized coefficient which suggeststhe relative importance of theindependent variable reveals thatspecialists in R & D and external linkageare the most important variablesexplaining the variability in thedependent variable. The slope coefficientrelating to variables like educational levelof entrepreneur, qualified persons inorganization and access to finance are notstatistically significant. Moreover, thestandardized b coefficient are also veryless relating to these variables.

Therefore, it is evident that no conclusioncan be made about the influence of theseindependent variables on the productimprovement capability.

(ii) Process improvement capability

The above mentioned six independentvariables were used as explanatoryvariables to explain the variability ofprocess improvement capabilities. Theoutput relation to the regression equationhas been summarized in Table - 4. Thestatistics presented in the said tablesuggests that the independent variables,

namely, external linkage andentrepreneur’s education are statisticallysignificant. Although the variable,specialists in R&D is having a positiverelationship with process improvementcapability, it is significant at a very lowsignificance level. Access to finance isstatistically significant, but has a negativesign suggesting an inverse relationshipwith the dependent variable.

This appears to be an unusual findingsince access to finance should have apositive relationship. It may be mentionedthat sometimes, such change in directionin relationship occurs due to presence ofmulti-co-linearity, but it is observed thatin this case the extent of multi-co-linearityis relatively less. However, since the co-efficient is relatively very small, it isunlikely to affect the predictive efficiency.

The slopes of the variables likeexpenditure on R&D and qualifiedpersons with organization were observedto be not statistically significant.Therefore, no conclusion can be madeabout their impact on processimprovement capability. Thestandardized coefficient (Beta) suggeststhat entrepreneur’s education, externallinkages and specialists in R&D arerelatively more important in explainingthe variability in the dependent variable.

To achieve the third objective of the study,the principal component method of factoranalysis was used and efforts were madeto carve out combinations of variables,which explain the important features forproduct and process improvement.



The factor loading of variables significantlyexplaining the factor have been identifiedand their respective factor loadings havebeen mentioned. Eigen values for thefactors have also been mentioned undereach factor. A cut off point of 0.33 has beentaken in identifying the variable (s) undereach factor. As mentioned in the table wehave carved out three factors, whichmostly explain the product and processimprovement capabilities. The output ofthe factor analysis is summarized in Table– 5 and Table - 6.

Table – 6 : Results of Factor Analysis

Factor - 14. Strong technological collaboration (0.85)2. Number of technically competent people (0.83)7. Affiliation with technical association (0.69)10. Existence of technical library in the company (0.63)3. Govt. support for technology (0.67)

EV 4.86 P.V. 30%Factor - II

5. Hiring of technical consultancy (0.76)6. Technical people with experience in other organization (0.79)8. Attending refresher course and training programme (0.63)9. Frequent visit to other plants and industrial units (0.64)

EV 1.46 PV 25%Factor - III

Tech qualification of the entrepreneur (0.59)EV 1.08 PV 12.00Total P.V. 67%

The results of factor analysis suggest thattechnological alertness and effortsrepresented by Factor-1 is the mostimportant one explaining about 30% ofthe variation. Factor 2 can be termed asexternal links and this factor explainsabout 25%. Factor 3 is constituted of only

Table 5 : Rotated Component Matrixa

Component

1 2 3VAR00001 .381 .140 .583VAR00002 .827 5.956E-02 -.212VAR00003 .668 .413 .172VAR00004 .856 .175 -5.844E-02VAR00005 .282 .786 -.160VAR00006 -7.500E-02 .795 .177VAR00007 .690 .512 .112VAR00008 .382 .638 4.208E-02VAR00009 .264 .643 1.288E-02VAR00010 .632 .462 .405VAR00011 .334 7.837E-02 -.825

Extraction method : Principal ComponentAnalysis.

Rotation Method : Varimax with KaiserNormalization.

a. Rotation converged in 5 iterations

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one variable viz., technical qualificationof the entrepreneur with a percentvariation of 12%. Thus, the three abovefactors explain about 67% of variation,which is quite satisfactory.

VI CONCLUSION

On the basis of the above findings anddiscussions, it is found that amongst thesmall and medium scale enterprises theefforts put on variable, to achieve productand process improvement capabilitiesvary widely. Similarly, the small andmedium enterprises also vary widely interms of their product and processimprovement capabilities. Therelationship shown by the multipleregression analysis sufficiently point atthe two variables viz., number ofspecialists and the extent of external linksas the most important determinants ofproduct and process improvement.Besides, in case of process improvementthe entrepreneur’s qualification also hascome out as an important determinant.The results of factor analysis alsocorroborates the above finding. The factoranalysis shows that two factors viz.,technological alertness and efforts andexternal linkages significantly explain thevariability in product and processimprovement. These two differentanalyses essentially emphasize theimportance of skilled manpower andexternal technological alertness.

In general, literature on product andprocess improvement indicates a largenumber of variables responsible for

product and process improvementcapabilities in the small and mediumsectors. However, this study to a greatextent establishes that significantexplanation can be given to product andprocess improvement by primarily twovariables. In planning of product andprocess improvement programme thisfinding can be of significant value to theentrepreneurs as well as to the policymakers.

REFERENCES

Albu, M. (1997) Technological Learning andInnovation in Industrial Clusters in the South,SPRU Electronic Working Paper, No. 7,University of Sussex, Brighton

Archibugi,D. et. al. (1994) On the Definition andthe Measurement of Product and ProcessInnovations. In Shionoya, Y and Perlman, M(eds.) Innovation in Technology, Industries andInstitutions – Studies in Schumpeterianperspectives.

Berner, M. J. and Tushman, M. L. (2003):Exploitation, Exploration and processmanagement: The productivity dilemmarevisited, Academy of Management Review, 28,pp. 238 – 256.

Burgelman, R. A. (1995) Strategic Managementof Technology and Innovation, Boston, Irwin.

Carolis, D. M. De (2003) Competencies andimitability in the pharmaceutical industry: Ananalysis of their relationship with firmperformance, Journal of Management, 29, 27-50.

Hitt, M.A., Ireland, R.D. and Hoskisson, R.E.(2001) Strategic Management - Competitivenessand Globalisation, South Wester, ThomsonLearning, Singapore, pp. 184 – 264



Khalil, T.M. (2000) Management of Technology: TheKey to Competitiveness and Wealth Creation,Mc.Graw-Hill Higher Education, Singapore,pp. 88-89

Lall. S (1992), Technological Capabilities andIndustrialisation, World Development, 20

Lampert, M. and Ahuja, G. (2001)Entrepreneurship in the large corporation: Alongitudinal study of how established firmscreate breakthrough inventions, StrategicManagement Journal, 22 (Special issue): 521 –543.

Lee, P. M. and O’Neill, H. M. (2003) Ownershipstructures and R & D investments of U.S. andJapanese firms: Agency and stewardshipperspectives, Academy of Management Journal,46: 212-255.

Trott, Paul (1998), Innovation Management and NewProduct Development, Financial Times, PitmanPublishing, London, Great Britain, pp. 119 –123.

Walter, Keith (1996), Improving Food and BevearagePerformance, Butterworth – HeinmannPublications, Oxford, U. K.

I. INTRODUCTION

The process of economic liberalization ingeneral has opened up new vistas for thegrowth of the financial service sector. Thefactoring services have been introducedto ease the problems of collection of debtsand delayed payments from the debtors.Factoring is a global industry with vastturnover. It offers various advantages likeconsistent cash flow, lower administrationcosts, reduced credit risks and more timefor core activates. Both the domestic andinternational factoring are gainingpopularity at an impressive rate. It is nowaccepted universally as vital to the

Performance & Integration of GlobalFactoring Services - An Empirical Analysis*

N.P. Tripathy1

Abstract

The dynamics of globalization is now a major force in shaping development of nations. The InternationalCapital Market facilitated cross country financial flows which contribute to a more efficient allocation ofresources. Financial integration depends upon the flow of funds from one market to another and onecountry to another. Factoring Services have created a new energy to the financial market world wide. It isuniversally accepted as vital to the financial needs of particularly small and medium sized business. Itplays an important role in developing and emerging countries. Factoring is growing in significance,especially in the context of the globalization of trade and finance. The world economics have now becomemarket oriented in approach. So keeping this in view, the present study analyses the relationship betweenworld domestic and international factoring in the framework of risk and return characteristics. The studyused single factor regression model to determine the significance of the difference of variance in domesticand international factoring to tap the world market with greater confidence and resource strength.

* Received December 22, 20051. Associate Professor, ICFAI Business School, Bhubaneswar e-mail: [email protected]

financial needs of particularly small andmedium sized business. Factoring hasbecome well established in developingcountries as well as in the highlyindustrialized countries. The factoringgrowth is 66 percent from 1998 to 2003.The top three countries in 2003 were theunited kingdom (195 billion USD), Italy(160 billion USD) and the united states (98billion USD). The volume of factoring isvery high in Europe (about 663 billionUSD), showing a growth of 84 percentfrom 1998 to 2003, while in America it is126 billion USD, a growth of 14 percent.The volume of factoring in Asia is 107


billion USD of which the share of Japanis 73.4 billion USD and that of Taiwan is19.3 billion USD. The share of India is amere 12 percent of the world volume butits growth over the last five years is in thetune of 828.2 percent. The factoring isrelatively very popular in USA as

compared to Canada, Brazil and others.The USA accounts for 77 percent of totalfactoring in American continent, whileBrazil is 11% and Mexico and Canadamere 4 percent and 3 percent respectivelyin 2003. The volume of turnover byproduct group is exhibited in the table-I

Table-I Turnover By Product Group (in millions of EUR)

1999 2000 2001 2002 2003

Invoice Discounting 40,263 55,787 67,759 74,815 77,516

Recourse factoring 52116 58605 60925 6383 73169

Non Recourse Factoring 116491 144208 152738 15651 177173Collections

Total 16402 16028 10318 1564 12836

Domestic Factoring FCI 225,273 274628 29174 310796 340694

Export Factoring 12915 15906 1331 14649 21606

Import Factoring 6432 7447 7853 8069 8915

Total International 19347 23353 21163 22718 30521Factoring FCI

Grand Total FCI 244620 297981 312902 333514 371215

World Domestic Factoring 523485 578994 644659 681281 712657

World International Factoring 33392 44843 41023 42916 47735

World Total 556877 62384 685682 724197 760392

Sources: Factors Chain International

In the various Asian countries, the growthof factoring has been dramatic while inLatin America, financial institutionscontinue to join the industry. Similargrowth has occurred in central Europe,the Baltics and the middle East.International factoring provides a simplemethod of financing regardless ofwhether the exporter is a small

organization or major corporation. Afactor can provide exp0rtess with 100percent protection against the importer'sinability to pay. One advantage of exportfactoring has proved to be very attractiveto international traders. It is now seen asan excellent alternative to other forms oftrade finance. Factoring services havebecome available in well over 50

97

countries, including many developingnations. Currently FCI network counts180 factors in 54 countries, activelyengaged in more than half of the world'scross- border factoring volume. 2003shows an 11percent growth for worldinternational factoring, according to thelatest euro denominated figures for theindustry. countries. In US dollar terms,the growth was an even more impressive32 percent. In view of the impressivegrowth of factoring in a number of regionsfor many years, it is desirable to examinethe trend and performance of factoringservices in the Global context.

II. LITERATURE SURVEY

Factoring has played a major role in thecommercial and economic developmentof countries.

Moore (1959) has mentioned thatextension of credit by factors provides atremendous source of necessary workingcapital for manufacturers of various kindof goods. He has added that the modernfunction of a factor grows in response tothe needs of commerce in a field sospecialized that the needs cannot beadequately provided by ordinary lendinginstitutions. He has concluded that theremarkable growth of factoring in moderntimes is a testimony to its demand.

Shayetal (1968) found three reasons forgrowth of factoring business. First thisbusiness is relatively stable, second therate of return is higher, and third, thefactored accounts receivable provides a

source of future bank customers for loansor deposits.

Maberly (1979) observed that thefactoring services has great value togrowing companies.

Kohnstamm (1999) mentioned severalreasons for the success of factoringbusiness: opportunity to get a consistentcash flow, lower that in most an activitiesadministration cost, reduced credit risk,offering service to a variety of companiesand simplification of the products etc.

Kalyansundaram committee (1998) inIndia in its report, that factoring servicescan serve the cause of effecting fasteconomic development in the developingeconomics as well . International factoringsurvey (1998) has also reached the sameconclusion.

III. OBJECTIVE OF THE STUDY

The national financial systems of variouscountries get increasingly integratedacross the borders and hence influenceother markets. The national financialmarkets of major industrial countries arefast integrating globally and there isconsiderable weakening of the distinctionbetween world domestic factoring andinternational factoring. Hence the presentstudy has the objective of finding out thenecessary facts underlying the worlddomestic and International factoring. Thispaper also evaluates the performance andintegration of world domestic andInternational factoring in the frameworkof risk and return characteristics.

Tripathy, Performance & Integration...


IV. TESTING OF HYPOTHESIS

The study tests the following hypothesisin respect of integration, performance ofthe world domestic and internationalfactoring business.

l In each continent, factoring businessis earning significantly higher returnthan world factoring business.

l The world domestic factoringbusiness is significantly earninghigher return than worldinternational factoring business.

l The volatility of each continentfactoring business is significantlyhigher than world factoring business.

l Each continent factoring business issignificantly interrelated with worldfactoring business.

l The movement of each continentfactoring and world factoringbusiness are in the same direction.

l Factoring business is concentrated ina few countries only.

V. METHODOLOGY

For the purpose of study, the time seriesdata on world total factoring turnover,continent wise, world total factoringcompanies, world domestic factoring andinternational factoring have been takenfrom the year 1998 to 2004. The requireddate have been collected from the FactorsChain international.

The return are calculated in two ways:

i) The continuously compoundedreturn is measured as log(Pt/Pt-1)where Pt stands for the closing price

on day t. This is referred to as the'Price Series'.

ii) The simple return in the log scale areconstructed as

)log(

)log()log(

1

1

−

−−

t

tt

P

PP

This is referred to as the 'Return Series'.

To measures the performance of globalfactoring, regression model has beenused. Statistical tools like skewness andkurtosis have been used to determine thebehaviour of global domestic andinternational factoring. Further,correlation has been determined to findthe presence of higher explanatory powerfor domestic and international factoring.A statistical software SPSS is used for thepurpose of testing.

VI. EMPIRICAL ANALYSIS

The Table-2 presents the five year growthof return of Europe, America Africa, Asia,Australia and world’s factoringcompanies. It is evident from the table thatthe mean return of Europe, Asia andAustralia is higher than the world return.So it suggests that the performance ofthese continents is higher than othercontinent. It is also observed from thetable that the standard deviation of allcontinents is higher than the world. So itis evident that the variability of the entirecontinent is higher than the world. Thatthe higher volatility leads to higher returnis noticed in only Europe, Asia andAustralia. So some times volatility doesnot lead to high return. The normality of

99

distribution is measured by co-efficient ofskewness and kurtosis. If the distributionis normal, the co-efficient of skewness willbe equal to ‘0' and that of Kurtosis 3. Butit is found from the table that there is lackof normality of all five continents withworld factoring companies by examiningthe coefficient of skewness and Kurtosis.

Table-2 Five year Growth of Return of five continent and world factoring companies.

Mean S.D Skewness Kurtosis

Europe 13.20 5.72 -.767 .241America 3.57 14.98 .856 .039Africa 7.46 13.59 1.550 3.118Asia 8.91 18.70 -.016 -2.93Australia 32.86 16.26 -.334 -1.82World 10.90 6.85 1.301 1.67

The co-efficient of correlation measuresthe degree of relationship among thevarious countries. It is also identifies, howchange in one variable effects the changein other variable. The table-3 depictsthe correlation co-efficient of fivecontinents and world factoring. It is foundfrom the table that America and Africa

Table –3 Correlation of five continents with world factoring

World Europe America Africa Asia Australia

World 1.00Europe .827 1.00America .974** .803 1.00Africa .898* .794 .798 1.00Asia .322 -.263 .320 .267 1.00Australia .594 .292 .675 .470 .453 1.00

** Significant at 1% level (2tailed)*Significant at 5% level (2 tailed)

exhibit a significant correlation of 0.979and 0.898 with world factoring. But someof the major continents show nocorrelation at all. So it is inferred from thetable that factoring business is notgrowing significantly in the context of theglobalization of trade and finance.

The test of integration is measured byregression model. The table-4 presents thesingle- factor regression of five continentswith world factoring business. Theobserved `F' value is higher than thetheoretical `F' value only in America andAfrica. So the regression is not significant.



The world factoring is not a significantexplanatory factor of the variation in allthe continent except America and Africa.

The table-5 presents the return of worlddomestic and international factoring incontinent wise. It is inferred from thetable-5 that the mean return and variationof Europe is higher than America, Africa,Asia and Australia in domestic factoring.Similarly, the mean return and variationof Europe is higher than in other continentin international factoring. It is alsoapparent from the table that the returnand variation of all the continents ofdomestic factoring is higher than theinternational factoring. So the return in

Table 4 : Single factor Regression of five continents with world factoring

R2 AdjR2 Inter Beta F Tcept Coefficient Value Value

Europe .684 .578 -2.17 .827 6.489 2.547

America .958 .944 9.30 .979 67.932** 8.242**

Africa .807 .743 7.52 .898 12.541 3.541

Asia .103 -.195 9.85 .322 .346 .588

Australia .352 .136 2.68 .594 1.632 1.277

** Significant at 4%

domestic factoring is accompanied byhigher levels of volatility as compared tointernational factoring companies. So itsuggest that the performance of domesticfactoring is better than internationalfactoring.

The time varying shifts of mean andvolatility of domestic and internationalfactoring of five continents is exhibited inthe table-6. It is found from the table thatthe domestic and international factoringreturns are not normally distributed. Soit may be necessary to run a more rigoroustest of normality. The table-7 shows thecorrelation of world domestic factoring.It is observed from the analysis that

Table-5 Return of world Domestic and international factoring

Domestic factoring International factoringMean S.D Mean S.D

Europe 18257.78 37898.03 1275.60 2181.33

America 9989.70 24006.62 464.50 1010.99

Africa 1880.00 3005.14 66.66 47.25

Asia 5124.75 14911.70 443.75 1078.50

Australia 6953.00 9479.47 36.5 33.23

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Table 6 Co-efficient of skew ness and Kurtosis for world domestic and International factoring

Domestic factoring International factoring

Skewness Kurtosis Skewness Kurtosis

Europe 2.928 8.285 2.42 5.33

America 3.03 9.34 2.69 7.43

Africa 1.73 0 1.39 0

Asia 3.77 14.58 3.46 12.63

Australia 0 0 0 0

Table 7 Correlation of world domestic factoring

Europe Africa Asia Australia America

Europe 1.00

Africa .296 1.00

Asia .0.30 .354 1.00

Australia -1.00** -1.00** 1.00** 1.00

America -.129 .988 -.155 -1.00** 1.00

** Significant at 1% level (2-tailed)

Table 8 Correlation of world International Factoring.

America Europe Africa Asia Australia

America 1.00

Europe .093 1.00

Africa -.277 .938 1.00

Asia -.272 .566* .923 1.00

Australia -1.00** -1.00** -1.00** -1.00** 1.00

*Significant at 5% level (2 tailed)* * Significant at 1% level (2 tailed)

Australia is negatively correlated withEurope and Africa. It is also interred fromthe table that all the continent are notcorrelated with each other. So the aboveanalysis shows that the direction of

movement of world domestic factoringhas been inconsistent.

The table-8 shows the correlation of worldinternational factoring. It exhibits thatAsia is positively correlated with Europe



at 5% level of significance. Australia isnegatively correlated with America,Europe. Africa and Asia. It also showsthat some of the continents show nocorrelation at all in case of internationalfactoring. The table 9 shows that inEurope, America and Australia domesticfactoring shows significant correlationwith international factoring at 1% level.So it suggests that the direction of

movement has been consistent only inthese three continents.

The table 10 presents the single factorregression of world domestic andinternational factoring. The observed `F'value is higher than the theoretical `F' at1% level of significance only in Europeand America. So domestic factoring is nota significantly explanatory factor of thevariation in factoring business except inEurope and America.

Table 9 Correlation between world domestic and International factoring

Domestic International

Europe Domestic 1.00International .635** 1.00

America Domestic 1.00International .940** 1.00

Africa Domestic 1.00International .940** 1.00

Africa Domestic 1.00International .978 1.00

Asia Domestic 1.00International .211 1.00

Australia Domestic 1.00International 1.00** 1.00

**Significant at 1% level (2 tailed)

Table 10 Single- factor Regression of world Domestic and International factoring

R2 Adj r F Value Intercept Beta T valuecoefficient

Europe .403 .380 17.575* 4183.02 .635 4.192*

America .884 .869 60.925* -380.370 .940 7.805*

Africa .957 .915 22.40 2267.76 -.978 4.733

Asia .045 -.024 .655 3827.559 .211 .809

Australia .964 .928 26.630 -2555.64 .982 5.160

* Significant at 1% level

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The table -11 depicts the return of tenlargest factoring turnover countries. Thereturn of France is highest among all thecountries followed by Switzerland, Italy.

Table 11 Return of Ten Largest factoring turnover countries

Countries Mean S.D Skew ness Kurtosis

Finland .65 94.30 1.45 2.21France 53.26 54.22 .77 1.69Germany -21.95 39.02 1.26 1.41Italy 41.17 80.92 -.29 -3.981News Zealand 2.18 23.75 -.24 -3.97Spain 20.92 99.71 1.50 2.74Sweden -8.31 87.07 1.97 3.93UK -.74 18.16 .02 -5.78USA 19.31 11.11 .22 -3.58Switzerland 44.70 93.65 -.82 -1.28World 20.79 8.96 -.76 -1.63

Table 11 Correlation of Ten Largest Factoring countries

World Finland France Germany Italy News Spain Sweden UK USA Swaziland

land

World 1.00Finland -.791 1.00France .111 -.443 1.00Germany .556 -.796 .878 1.00Italy -.410 .829 -.838 -.939 1.00News Zealand -.520 .384 .656 .244 -.156 1.00Spain -.932 .845 .049 -.433 .404 .747 1.00Sweden .577 -.042 -.695 -.343 .500 -.718 -.562 1.00UK .890 -.533 .226 .545 -.273 -.170 -.667 .542 1.00USA .071 -.227 -.603 -.367 .113 -.841 -.418 .285 -.350 1.00Swaziland -.343 .721 -.937 -.965* .975* -.354 .264 .567 -.309 .330 1.00

* Significant at 5%level.

The table-12 shows the correlation of tenlargest factoring countries. It exhibits thatSwaziland is significantly correlated withGermany and Italy at 5% level of



significance. So the findings support thatthe factoring business is concentrated onlythese two countries. It is apparent fromthe analysis that most of the countries arenegatively correlated with each other. Soit suggest that inspite of globalization oftrade and finance factoring services is notable to bring fast economic developmentin the global context.

VII. CONCLUSION

This paper has examined and ascertainedthe characteristics of world factoringbusiness. The empirical results reportedhere do not lend support to thehypotheses considered in the study. Theevidences exhibit that, except a few, thereis no correlation between factoringservices in some of the continents. Thedirection of movement of world domesticfactoring and international factoring hasbeen inconsistent. Domestic factoringdominates the market share in the total

factoring business, but the factoringbusiness is not growing significantly inthe context of the global trade and finance.

Reference

Gujrati, Damodar N. (1995) “Basic Econometrics”MacGraw Hill Inc; New York, USA

Kohnstamm, Jeroen (1999), “Basic Econometrics”,MacGrew Hill Inc; New York, USA.

Maberly, Michael (1979) “ Let the Factor financeyour Expansion”, Accountancy, Vol. 90, No.10,30 June

Moore, Carroll G. (1959), “Factoring – A uniqueand Important Form of Financing and Service”,The Business Lawer, Vol. XIV, No. 3.

Shay, Robert p. and Carl. Greer (1968), “BanksMove into High Risk Commerical Financing”,Harvard Business Review, Vol. 46, No.6,Nov-Dec

Tripathy, Nalini Prava; (2004) “FinancialInstruments and Services”, Prentice Hall ofIndia Pvt. Ltd., New Delhi, India.

Foreign Direct Investment:A Review of Literature*

Amar KJR Nayak1

Abstract

The focus of this paper has been to compile and classify the various research studies on foreign directinvestment with a special reference to developing economies. This paper aims to provide a critical analysisof the various streams of research studies on foreign direct investment and outlines the potential areasfor future research. In its analysis, this study identifies four major areas of research in Foreign DirectInvestment, viz., (a) determinants of direct investment by foreign firms, (b) policies on foreign directinvestment by the host countries, (c) impact of foreign direct investment on host countries, (d) strategiesand performance of foreign firms in host country. In the final analysis, the paper identifies potentialareas for research that will add to the epistemology of International Business with reference to operationsof multinational enterprises in developing countries.

* Received November 9, 2005.1 Assistant Professor, General Management, Xavier Institute of Management, Bhubaneswar.

Email: [email protected]

I. INTRODUCTION

International trade and investment havebeen of significance to the growth anddevelopment of the world economy. Thedeveloped countries and the developingcountries have been debating andnegotiating on trade and investmentpolicies since the Bretton WoodsConference in 1944. In the last twodecades, the issue has been of muchinterest to policy makers at thegovernment level as well as at the firmlevel. Within international trade andinvestments, Foreign Direct Investments

(FDI) has been a major area of study.Given its importance to the Globaleconomy, FDI has been an issue of interestto researchers of several fields of studieslike international business, developmenteconomics, international trade, economicand business history and multinationalenterprises.Foreign Direct Investment (FDI) dependsupon two key agents, viz., a firm desirousto invest in another country, i.e. investingforeign firm and a country open to foreigninvestment i.e. host country. The interplaybetween these two agents determines thefactors that effect flow of FDI and


subsequent relationship between thesetwo agents generates varied outcomes foreach. Most of the available literature onFDI can accordingly be classified into fourmajor areas of studies, viz., (a)determinants or motivations of FDI forinvesting firm, (b) host country policiesto attract FDI, (c) impact of FDI on host

economy, and (d) performance ofinvesting firm in host country (Please referto Table 1). This simple classification,however, does not include all studies fromthe vast literature on FDI, internationalbusiness and multinational enterprises asthey are beyond the scope of the presentstudy.

Table 1: Classification of FDI Studies

Determinants of / Strategy/PerformancePolicies for FDI of FDI

1 4Foreign Firm Resource Seeking New Area of Research

Market SeekingEfficiency Seeking

OLI Paradigm

2 3Host Country Liberalization

Privatization Heterogeneous ImpactGlobalization

A brief discussion of these four majorresearch areas will provide a backdrop tothe questions that have been raised in thisstudy and will also bring to fore therelevance of potential areas suggested inthis paper for further research in thefuture.

II. DETERMINANTS OF FDI FOR INVESTINGFOREIGN FIRM

Literature on the factors that motivateforeign firms to invest in host countries,especially industrially developingcountries is expansive. The motivationalfactors identified in these studies havebeen discussed with reference to the

country of origin of the investing firm,which in most cases are from theindustrially developed countries ofAmerica, Europe, and Japan and the hostcountries, which are usually fromdeveloping countries. Foreign firms havebeen motivated to invest in thedeveloping host countries primarily onaccount of availability of resources andmarkets in the host countries. Foreignfirms have also been motivated by lowerfactor costs for production in thedeveloping countries. Further, locationaladvantage and ownership advantagehave been key driving factors for foreignfirms to invest in host countries.

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Dunning (1988) has aptly summarized thekey determinants of FDI for foreigncompanies. The ‘Ownership-Location-Internalization’ an eclectic paradigm ofDunning (1988) includes the motivationsof resource seeking, market seeking,efficiency seeking, and strategic assetseeking. Later Dunning (1998) reasonedthat multinational enterprises (MNEs)invested in a host country only when theyfound both ownership advantage andlocation advantage. He has advanced hisargument that location advantage as anincreasingly important determinant.Indeed many of the previous studies haveused Dunning’s framework to explainfactors that have motivated firms toundertake FDI.

While some have contended thatinternalization is the cornerstone of theOLI paradigm and hence the OLIparadigm is an extension ofinternalization as expounded byWilliamson (1985). However, Dunning(1998) counterargued that internalizationof Williamson (1985) only explains theexistence and growth of multi-activityfirms and not the character of MNEs.However, MNEs internalize cross-bordermarkets based on the comparative costand benefit between the two locations i.e.,in the home economy and the hosteconomy of the MNE.

To seek resources in the host countries hasbeen a major driving force behind FDI inthe late 19th and early 20th century. In a

study on the history of FDI, Jones (1996)finds that towards the beginning of thetwentieth century, the initial motivationfor firms to engage in FDI was to seekresources in the foreign markets, and henotes that by the end of the Second WorldWar many of the world’s naturalresources were in the hands of largemultinational enterprises. Dunning (1998)and Rugman and Verbeke (2001) alsoidentify ‘resource seeking’ among manyother factors as a motivation of firms togo outside their home markets. Recentstudies of Chandprapalert (2000) and Park(2003) with reference to FDI from USA inThailand and FDI from Japan in USArespectively provide empirical evidenceto resource-seeking factor behind FDI.

Large unexplored markets have beenanother factor for FDI by foreign firms inthe developing countries. Vernon’s (1966)discussion of international product lifecycle highlighted this phenomenon.Foreign firms had to go out of their homemarkets that had matured to new marketsin the less developed and developingcountries to sell their products. Milnerand Pentecost (2001) discussed theAmerican firms investing directly in UKowing to the large market size in UK.Similarly, studies of Chaudhury and Das(2001) and Park and Lee (2003) show thatthe American firms invested in China totake advantage of the potential market inChina. Anand and Delios (1996) show thatthe Japanese firms were motivated to seekmarkets in India.

Nayak, Foreign Direct Investment ...


Yet another motivation for firms toengage in FDI has been to take advantageof the low cost of production in the hostcountries. Vernon’s (1966) explained FDIof American firms in UK and Canada onthis basis. Increased FDI in developingcountries in Asia in the last two decadeshave been largely explained from thispoint of view. Vertical integration of USMNEs in a host country as per Tang (2002)was induced by the comparatively lowlabor cost in the host economy. Similarly,Walkenhorst (2004) argues that FDI inPoland was determined by lower capitalcost in Poland. Yong, et al (2000) foundthat favorable interest rates and wagerates influenced foreign companies toinvest in Australia.

Some have also argued that host country’spath and pace of structural reforms andopenness to trade have influenced firmson FDI decisions. Resmini (2000) findsthat the path and pace of structuralreforms was a crucial factor in attractingFDI in the Central and Eastern Europeancountries (CEEC). Galego, et al, (2004)imply that potential market demand,openness to world trade, and lowerrelative labor compensation levels wereresponsible for the flow of FDI into CEEC.Chakrabarti (2001) in his sensitivity cross-country regressions, finds that a hostcountry’s openness to trade has a bettercorrelation with its inward flow of FDIthan with other variables like tax, wage,exchange rate, tariff, growth rate of GDPor trade balance.

Political instability, low intra-regionaltrade and small size of national marketsin the Balkans region have been cited asreasons for low FDI in the region bySlaveski and Nedanovski (2002). Ok(2004) provides a similar explanation tothe lower amounts of FDI in Turkey. Inanother case Zhao and Levary (2002)found that flow of FDI in the retailindustry was dependent upon the riskand uncertainty in the economic andpolitical climate in a host country. Sara &Newhouse (2001) interpreted openness intrade and business as a part of efficiencyseeking measures of foreign firms. Theyasserted that firms seek locations thateconomize bounded rationality andminimize losses from opportunism. Whilea fair legal system and friendlyGovernment policies in the host countrycan economize bounded rationality, astable and unambiguous commercial codeto protect against dishonest local agentsminimizes losses from opportunism.

Gaining ownership of strategic assets andlocation advantage has been shown to beother key factors for foreign firms whiledeciding on whether or not to invest in ahost country. Cieslik & Ryan (2002) showthat FDI from Japanese firms in EastEuropean countries has been largelymotivated by scopes for greaterownership in the host country. It isobserved that more of the Japanese firmschose wholly owned subsidiaries overminority-owned joint ventures whileentering the East European host countries.

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On a similar argument, Choe (2000)discussed Japanese FDI in the ElectricalMachinery and Appliances industry in theUnited States. He argued that Japanesefirms were motivated to invest in USAbecause of ownership advantage overknowledge-based assets and locationaladvantage of agglomeration economiesand skilled labor in the host economy.Anand and Delios (1996) show thatJapanese firms were motivated bylocation specific productive resources toenter China.

Ellis and Fausten (2002) also indicate intheir comparative study of Japanese,Korean and American firms thatownership structure has significantimplications for luring initial FDI. Rajib,et al (2003) also indicate that many foreignfirms in India moved from efficiencyseeking to ownership seeking in the recentyears after 1991. A summary of thesestudies is shown in Exhibit 1.

The approach of this strand of researchseem to explain a general businessbehavior and tries to provide theoreticalexplanation to the motivation of MNEs toinvest directly outside their homeeconomies. All the studies relating todeterminants of FDI have been looked atfrom the perspective of firms seekingdirect investments in foreign countries. Itis assumed that once FDI is parked in ahost country, the host country willinvariably benefit, and therefore thedeterminants of FDI is sacrosanct to thegrowth of FDI world-wide.

The determinants of FDI for multinationalenterprises are seen from a globalperspective of the enterprises operationand not in terms of MNEs business unitin the host country. In other words, MNEsheadquarters seem to look at the overallperformance of its global operation thanperformance of individual business unitsin respective host countries. All the majordeterminants like those of resourceseeking, market seeking or efficiencyseeking has been seen from the interest ofmultinational enterprises. In other words,multinational investments have been seenas a one-way process and has ignored thatdirect investment in a foreign host countryis very different from making investmentsin the domestic market of themultinational enterprise.

III. POLICIES ON FDI BY THE HOST COUNTRIES

Host countries have invited FDI with thehope that it would bring along with it anincrease in industrial productivity, growthin trade and commerce, and overalleconomic development. Much research hasbeen done on the policies of the hostcountries that help attract FDI. Most ofthese researches suggest that the hosteconomies in the developing countriesshould liberalize their economy, privatizebusiness and globalize in order to get theshare of FDI into their respective countries.

In order to invite FDI, less developednations have been advised to provideunique, non-replicable and created assetsto MNEs interested in investing in their



Focus of Study Author [Year]

1. Resource seeking Dunning [1988], Jones [1996], Dunning[1998], Rugman & Verbeke [2001],Chandrapalert [2000], Park [2003]

2. Market Seeking Vernon [1966], Milner & Pentecost[2001], Park & Lee [2003], Anand &Delios [1996]

3. Efficiency Seeking

a. Low Production Cost Vernon [1966]b. Low Labor Cost. Tang [2002]c. Lower Capital Cost. Walken Horst [2004]d. Favorable interest rates and wage rates. Yong, et al [2000]

e. Path & Pace of Structural Reform Resmini [2000]in Central and Eastern Europeancountries (CEEC).

f. Market demand, openness to world Galego, et al [2004]trade, and lower relative laborcompensation levels in CEEC.

g. Host country’s openness to trade. Chakravarti [2001]

h. Political stability, intra-regional Slaveski & Nedanovski [2002] trade and size of market with regard & Ok [2004]to Balkan region & Turkey.

i. Risk and uncertainty in the Zhao & Levary [2002]economic and political climate.

j. Openness in trade and business Sara & New house [2002],

k. Gaining ownership of strategic Cieslik & Ryan [2002]assets & location: Japanese firms inEast European countries.

l. Japanese FDI n the electrical machinery Choe [2000]& appliances industry in USA.

m. Location specific productive resources: Anand & Delios [1996]Japanese firm in China.

n. Ownership structure. Ellis & Fausten [2002]

o. Move from efficiency to ownership. Rajib, et al [2003]

Exhibit 1: Determinants of FDI

111

economics. Host Governments thatprovide complementary created asset-based location-specific advantages areconsidered to be successful in attractingFDI. Further the host countries have toprovide good governance along with theright kind of immobile assets and allowmobile investments to be locked into theseassets as in Narula and Dunning (2000).

Brewer (1992) claimed that Governmentpolicies are integral to the internalizationtheory of FDI. Wage subsidies, traininggrants, relaxation of industrial relationslaws, direct subsidy, sales tax exemption,subsidized building, subsidizedtransportation, subsidized loans,subsidized equity, and guarantee againstexpropriation attract FDI. Similarly,Pradhan (2002) proposed that incentiveslike direct tax grants, employment grantsand training allowances, subsidies onland and building purchase, interestsubsidies, tariff protection, exemptionfrom imports and exports duties,exemption from income tax, dividend andcapital gains, guarantee for currencyconversion, guarantee for profits andcapital repatriation can attract FDI.

It has also been suggested that hostcountries can be successful in seeking FDIif they provide investment supportpackage to the MNEs. Host countries areto first target the appropriate MNEs andthen tailor-make an appropriate packageof incentives for those MNEs as inMudambi (1999). Host countries shouldpay attention to the political system, the

quality of democracy and rule of law tomake themselves desirable to MNEs as inOliva and Batiz (2002). There has been aproliferation of incentives offered bycompeting host countries to allure MNEsto invest in their economics. Rolfe, et al(1992) showed that fifty-one differenttypes of incentives were being offered bythe developing countries to attract FDI.

The policy prescriptions to developingcountries for attracting FDI looks like thewish list of MNEs to reduce cost andincrease profits. What appears from theabove two stands of FDI research is thatif the policies of the host country canreduce the cost of investment, then FDIcan be easily attracted. A major problemwith these studies is that policiessuggested to host countries for attractingFDI have been derived from factors thatmotivate MNEs to engage in FDI. Whilethis may look logical, the efficacy of suchmeasures can be evaluated only afterlooking at the outcome of FDI on both thehost country and the investing foreignfirms in a host country. There are indeeda number of studies that argue that thegovernment of the host country have tobe alert to the liberal polices for free globaltrade and investments (Trivedi, 2004). Asummary of these studies is shown inExhibit 2.

The studies in this strand of research seemto emanate from the arguments placed inthe previous stream of study, viz.,determinants of FDI. These studies looklike a campaign to facilitate the firms in



Exhibit 2: Policies of Host Country

Focus of Study Author (Year)

1. Good governance along with the right Narula & Dunning [2000]kind of immobile assets and allow mobileassets to be locked into these assets.

2. Wage subsidies, training grants, Brewer [1992] relaxation of industrial relations laws,direct subsidy, sales tax exemption,subsidy building, subsidizedtransportation, subsidized loans,subsidized equity, & guarantee againstexpropriation.

3. Incentives like direct tax grants, Pradhan [2002]employment grants andtraining allowances, subsidy on land and building purchase, interest subsidiestariff protection, exemption from importand export duties, exemption fromincome tax, dividend from capital gains,guarantee for currency conversion,guarantee for profits and capitalrepatriation.

4. Tailor-made investment support package Mudambi [1999]of incentives for MNEs.

5. Improve the political system, the quality Oliva & Batiz [2002]of democracy and rule of law.

6. Identified 51 different types of incentives Rolfe, et al [1992]that one being offered by host countries.

7. Host countries need to be alert to the liberal Trivedi [2004]policies for free global trade and investments.

113

the saturated markets to makeinvestments in the developing countries.The differences in the market structuresin the developed, developing and poorcountries have not been considered.Further, the concerns of the developingcountries in terms of employmentgeneration or enhancing productivity intheir respective local economy have beenignored. The policy prescriptions havebeen visualized only in terms of thosefactors that will motivate foreign firms toinvest in a developing host country.

IV. IMPACT OF FDI ON HOST COUNTRIES

Literature on the impact of FDI on the hostcountry highlights that FDI has hadheterogeneous effect on host countriesover time and across the world. Wilkins(1994) brought this out very clearly in herstudy. She argued that FDI had differentoutcomes in different host countrydepending on the host country conditions.While some studies show that FDI hasbenefited a host country, many otherstudies show that they have had negativeimpact or no impact on a host country.

Zhang’s (2000) study asserted that FDIpromoted income growth in the coastalregions of China. Ng and Tuan (2002) alsosuggested that the upsurge of FDI inChina has made a profound contributionto the country’s income and assetformation. Ramirez’s (2000) study onimpact of FDI in Mexico points out thatincrease in lagged foreign investmentshave had a positive and significant effect

on the rate of labor productivity growth.Ericsson and Irandoust (2001) found thatFDI has had a positive impact oneconomic growth in Norway.

There are several works that argue for thepositive impact of FDI in India. Johri(1983) by studying the business strategiesof foreign multinational companies in thedrug and pharmaceutical industryshowed that domestic companies greatlybenefited by the investments of foreignpharmaceutical companies in India.Kumar (1990) shows that Indiancompanies have benefited from theoperations of multinational companies inIndia. Similarly, Kumar (1996) projectedthat domestic companies benefited fromFDI in India. Myneni (1990) & Debroy(1996) argued that free flow ofinvestments and trade are good for thecountry.

On the contrary, a number of highlycompelling studies show that FDI has notbeen beneficial to host countries. Reichertand Weinhold (2001) study the impact ofFDI over twenty-four countries indifferent stages of development andfound that FDI has had a heterogeneousimpact. Country specific analyses of hostcountries show that FDI has not helpedthem in meeting their national objectives.Trevino, et al (2002) argued that FDIinflows by trade liberalization andprivatization have not helped to optimizethe economic goals of Argentina, Brazil,Chile, Mexico, Peru, and Venezeula. Thesecountries together draw 85% of FDI in



Latin America. A similar observation hasbeen made with respect to FDI in someScandinavian countries. Ericsson andIrandoust (2001) reported that arelationship between increasing FDIinflow and economic growth could not beestablished in the case of Finland andNorway.

Host countries have looked for transfer oftechnology from foreign companies todomestic companies by inviting FDI.Some studies show that even though FDIhas had a positive impact, on economicgrowth it has not been able to bring abouta technological spillover on the hostcountry. Technological joint ventures toohave not generated spill over effects inmost cases. Malairaja and Zawdie (2004)show that FDI with technology transferconstituted a very small portion of totalFDI in Malaysia. The local partners in suchcases were relegated to activities thathardly involved the challenge ofinnovation. Deolalikar and Evenson(1989) however have found thatpurchasable foreign technology hasbrought about greater adaptive researchand development in India.

With respect to impact of FDI on India,Kidron (1965) and Kurian (1966) assertedthat FDI had a severe negative impact onthe Indian economy. Lall (1999) arguedthat the nature of exportable items fromIndia were low technology and lowvalued products and hence notcompetitive in the world market. Theexports and import composition of India

is rather deplorable as it can be observedin Principal Exports from India andPrincipal Imports of India. The trends offoreign exchange reserves of India havealso fluctuated severely as can be seen indatabase of the Reserve Bank of India(2003). Sharma (2000) showed that thegrowth in exports during 1970-98 fromIndia was not because of increased FDI toIndia but because of a favorable rupee-dollar exchange rate. Kumar (2003) showsthat the large Indian companies havefailed to generate enough foreignexchange despite the imports of foreigntechnology.

Chakraborty and Basu (2001) inferred thattrade liberalization policy of the IndianGovernment did have a positive impactin the short run but on the whole FDI inIndia tends to displace labor. Sahoo andMathiyazhagan (2003) showed that FDIhad a lesser positive elasticity coefficientthan exports when compared with GDPand Industrial productivity. Nayak (2003)showed that while FDI had positivedegree of association with exports andimport substitution during the 1955-1965,FDI had negative impact on importsubstitution in the period after 1979 to2000. Nayak (2002, 2004, 2005) highlightedthat FDI on the whole in India has neitherbeen effective for India nor for the foreigncompanies in India.

Despite growing FDI across the world,there have been severe doubts on theimpact of FDI on host countries. Vernon(1972) feared that foreign companies

115

could be the conduits for exercisingcontrol over the host country by foreigngovernments. Chang (2003) criticizeddeveloped countries for imposing policyof free trade and investment ondeveloping countries. He argued thatdeveloped countries themselves adoptedprotective measures in the past when theywere in developing stage. Similarly,Stiglitz (2002) remonstrated thatglobalization as pursued by USA andother developed countries have led to awider global discontent as it failed todeliver what it promised. Yaffe (2003) seesglobalization as pursued by theindustrially advanced countries as a guestfor a new world-order of imperialism.Vernon (1971) explained how sovereigntyof nations was at risk with the expansionof multinational companies.

While the studies on determinants of FDIfor foreign firms clearly identified thefactors that motivate foreign firms toinvest in a host country, the studies onpolicies of developing host countries toFDI showed various incentives that canattract FDI. Despite such understandingFDI in general has had a mixed impacton host countries. Although, Wilkins(1994) points out that the difference inimpact is because of the host country, itleaves out the role of foreign firms in thesuccess or failure of both host country andforeign firm due to FDI. The currentliterature on FDI has focused itself on theabove three strands of research on FDI.However, unless equal focus is given onthe conduct and performance of foreign

firms in host country situation, it isdifficult to get a clear picture of thedynamics of FDI in general. A summaryof these studies is shown in Exhibit 3.

The impact of FDI across the world hasappeared to be heterogeneous in nature.In some countries the impact have beenpositive and some countries the impacthave been negative. Some studies havebeen carried over a specific period of timeor for a specific aspect or for a smalleconomy. Interpretations based on suchstudies are hard to make. Correlationcoefficients in some of the studies havebeen seen as cause and effect phenomenavis-a-vis the degree of association.

V. STRATEGIES AND PERFORMANCE OFFOREIGN FIRMS IN HOST COUNTRY

There have been a number of studies withreference to the characteristics andstructures of multinational enterprises.Birkinshaw and Morrison (1995),Birkinshaw and Hood (2000), Barlett andGhosal (2002), and Hennart (2000) havefocused on the characteristics andstructures of multinational enterprises.Vernon (1966) explained the process bywhich large American firms expandedtheir operations in Europe and lessdeveloped countries. However, researchon factors that determine goodperformance of foreign firms in a hostcountry is still in nascent stage. Thedeterminants of success and failure offirms in host country situation as afundamental issue in business strategyhas been highlighted by Rumelt, et al,



Exhibit 3: Impact of FDI on Host Countries

Focus of Study Zhang [2001]

1. FDI promoted income growth in the coastal Zhang [2001]regions of China.

2. FDI has had profound contribution to the Ng & Tuan [2002]country’s income & asset formation.

3. FDI had a positive & significant effect on the Ramirez [2000]rate of labor productivity.

4. FDI had a positive impact on economic growth. Ericsson & Irandoust [2001]

5. FDI has had positive impact. Johri. [1983]

6. Indian companies have benefited from Kumar [1990] & Kumar [1996]the operation of MNEs in India.

7. Free flow of investment & trade are good Myneni [1990] & Debroy [1996]for the host country.

8. Purchasable foreign technology has brought Deolalikar & Evenson [1989]about greater adaptive research and development.

9. Heterogeneous outcomes depending on the Wilkins [1994]host country.

10. FDI has had a heterogeneous impact. Reichert & Weinhold [2001]

11. FDI inflows by trade liberalization and Trevino, et al [2002]privatization have not helped to optimizethe economic goals of host countries.

12. Relationship between increasing FDI inflows and Ericsson & Irandoust [2001]economic growth could not be established.

13. Technology transfer constituted a very small Malairaja & Zawdie [2004]portion of total FDI.

14. FDI has had a severe negative impact. Kidron [1965]& Kurian [1966]

15. Nature of exportable items from India were Lall [1999]of low technology and low value

16. Growth in exports has not been because of Sharma [2000]FDI but because of favorable rupee-dollarexchange rate.

117

17. Large Indian companies have failed to generate Kumar [2003]enough foreign exchange despite imports offoreign technology.

18. Trade liberalization policy led to displace labor. Chakravorty & Basu [2001]

19. FDI had a lesser positive elasticity coefficient than Sahoo & Mathiyazhaganexports when compared with GDP and Industrial [2003]productivity.

20. FDI has had in different time periods. Positive Nayak [2003]impact in a regulatory regime of the host country& had negative impact in the de-regulated period.

21. FDI on the whole has neither been effective for the Nayak [2002, 2004, 2005]host country on the investing foreign subsidiary.

22. Foreign companies could be conduits of foreign Vernon [1972]governments exercising control over the hostcountry.

23. Developed countries generally impose policy of Chang [2003]free trade & investment on developing countries.

24. Globalization as pursued by USA and other Stiglitz [2002]developed countries have led to a wider globaldiscontent.

25. Sovereignty of nations was at risk with the Vernon [1971]expansion of multinational companies.



(1994) and more recently by Rangan andDrummond (2004). And, the study ofNayak (2005) with regard to theinvestment strategy and success of SuzukiMotor Corporation in India highlights theneed for a holistic investment strategyespecially in an emerging economy.

Success of foreign firms in a host countrysituation has been attributed to factors liketiming of entry, length of operation,distance of foreign firm from a hostcountry, host government policies,technological intensity, and a combinedfactor of host local partner and conductof foreign firms and host government.

Rivoli and Salori (1996) argued thattiming of investment has been critical forsuccess of foreign firms in host country.Using the concept of timing, Luo (1998)exhibited that early entrantsoutperformed late movers in terms oflocal market expansion and assetturnover. Early entrants of FDI achievesuperior asset efficiency but are inferiorin terms of the accounting performancein the first three years.

Length of operation of a foreign firm in ahost country has been contended as afactor for success of foreign firms in thehost countries. Carlsson, et al (2005)through their survey research, showedthat length of operation has been crucialto the performance of Scandinavian firmsin China.

Distance of foreign firm from host country

has been explained as an importantdeterminant of entry as well as a factor ofsuccess of foreign firms in a host country.Ghemawat (2001) argued that differentkinds of distances such as; culturaldistance, administrative distance,geographic distance, and economicdistance between the investing companyand the host country affected theperformance of foreign firms in a hostcountry.

Patronage from the host Government hasbeen identified as another key to successof foreign firms in host country. In hishistorical study of private investments inIndia during 1900s-1939, Bagchi (1972)pointed that the strong political patronagehelped the British companies flourish andgrow in India. Encarnation (1989)demonstrated that multinationalcompanies fell victim to the process ofobsolescing bargain in 1970s by thealliance of local firms, state financialinstitutions, and regulatory authorities inIndia. Bjorkman and Osland (1998)attributed the success of foreigncompanies in China to managing goodrelationship with the ChineseGovernment.

Poynter (1986) proposed that success ofan MNE depended on the appropriatedefense strategy, political strategy andstaffing in the host country. He suggestedthat a global firm may have state of theart technology, exports, and intra-MNEsourcing as its defense strategy. Givinglower priority to the host country may be

119

its political strategy. And, short termtechnologically oriented staffing may beits staffing strategy. A multi domesticMNE may introduce new products as adefense strategy. High local politicalknowledge and interaction can be itspolitical strategy and can have long termstaffing strategy to be successful in thehost country.

The traditional ideas that the success of aforeign firm depends on successfullymanaging the host government have beenconcurred by some. Moon and Lado(2000) suggested that the bargainingpower of a multinational enterprise lay inits technological intensity, advertisingintensity, intra-MNC sourcing, exportintensity, staffing policy, and productdiversity. They argued that theperformance of the MNE will depend onexercising these bargain powers.

Taking the success of foreign firms inIndia as internal to competence of theBritish firms, Tomlinson (1989) displayedthat the short-term structures created byBritish expatriates and multinationals togenerate immediate success limited theiroptions for future evolution after 1950s.

Andersson et al (2001) observed throughtheir survey research of Swedish firms inthe US market that technologyembeddedness was critical for success.Taggart (1999) through another surveyresearch showed that active involvementof the subsidiary in the local hostimproved performance of the subsidiary.

Chen (1999) through another surveyresearch showed that internationalperformance of multinational firmsdepended on firm specific assets and thetype of ownership with which themultinational entered the host country.On the contrary, Li, et al (2000) haveshowed that capital and technologyintensiveness helped in higherperformance and not the firm’s locationor ownership in China.

Franko (2001) observed that the UScompanies accepted minority ownershipin the host countries. Often the ‘secondrank oligopolists’ adopted this strategy.He reasoned that success of these MNEsdepended on variety of factors like thekind of local partner, MNE conduct andhost government. A summary of thesestudies is shown in Exhibit 4.

In the above stand of research, severalissues like timing, length of operation,ownership by investing firm, assetspecificity of foreign firm, distance ofinvesting firm from the host economy,political patronage of the hostgovernment toward the investing firmhave been identified to be factors forsuccess of a foreign firm in a host country.While each of these factors may be criticalto a particular company in a specific hostcountry situation, the study by Nayak(2005) presents a holistic investmentpattern for success of foreign firms in adeveloping host country situation.However, more number of country-



Exhibit 4: Strategy of FDI

Focus of Study Author [Year]

1. Highlight the importance of studying the determinants Rumelt, et al [1994],of success and failure of firms in host country situation. & Rangan &

Drummond [2004]2. Foreign firms in a developing host country situation Nayak [2005]

can of foreign succeed by adopting a holistic investmentpattern.

3. Timing of investment has been critical for success Rivoli & Salori [1996]firms in host country.

4. Early entrants outperformed late entrants in terms Luo [1998]of local market expansion and asset turnover.

5. Length of operation of foreign firms in a host country is Carlsson, et al [2005]critical for its success in the host country.

6. Distances in terms of culture, administrative, geographic, Ghemawat [2001]economic between investing company and host countryaffect performance of investing firms.

7. Patronage from host Government has been crucial for Bagchi [1972] &high performance of foreign firms in host country. Encarnation [1989]

8. Managing good relationship with the Chinese . Bjorkman &Government Osland [1998]

9. Appropriate defense strategy, political strategy and Poynter [1986]staffing in host country.

10. Multinational enterprise manages the host Government Moon and Lado [2000]better using its bargaining power of advanced producttechnology, advertising intensity, export intensity,staffing policy and product diversity.

11. Short-term structures of British firms resulted in their Tomlinson [1989]limited success in India.

12. Technological embedded ness was critical for success of Andersson, et al [2001]Swedish firms in the US market.

13. International performance of multinational firms depended Chen [1999]on firm specific assets and the type of ownership.

14. Capital and technology intensiveness helped in higher Li, et al [2000]performance and not the firms location or ownership.

15. Factors like the kind of local partner, MNE conduct and Franko [2001]host Government were critical for success of second rankUS oligopolies.

121

specific studies especially with regard tovarious industries needs to be studied toenrich the understanding of success offoreign firms in a host economy.

VI. SUMMARY OF PROBLEMS & GAPS INTHE PAST RESEARCH

From the above study of the existingliterature on FDI, there are many potentialareas for research in the above categoryof research studies on FDI. However,there are a few aspects in the aboveliterature on strategy and performance offoreign companies that needs to be lookedinto. First, the factors like early entry,longer stay, specific asset advantage,distance, and good rapport with hostcountry can give an edge to a foreign firmin a host country. However, whether theseconditions by themselves are sufficient forsuccess of a foreign firm remains to beexamined. Further, whether the abovefactors per se or the processes by which aforeign firm implements its strategy holdthe key to success, need examination.

Second, many of the past studies haveadopted survey research in their analyses.Given the complexities that aboundsresearch on strategy and success of foreignfirms in a host country, whether surveymethods will capture the realities of thesituation needs to be looked into. Buckleyand Casson (2001) have expressed similarconcern on methods of research used ininternational business and havesuggested researchers to seek newmethods of research.

In the developing country framework,

most of the industries have been in anascent stage while some have been in theemerging stage. Each host country mayhave some characteristics that may bedifferent from the other host countries.The nature of economy, industry, andinfrastructure will be specific to a hostcountry. Within the same host country,some industries may be in a nascent stagewhile some others may be in an emergingstage and some others may be indeveloped stage. FDI strategy for successwill therefore be highly contextual. Henceresearch studies relating to FDI strategyhave to be sensitive to the methodologyof research.

Third, though there have been a numberof case studies on performance ofmultinational enterprise, these casesstudies have been based on convenientsampling. Comparison of the cases acrossindustries has not been done. Hence,whether the findings of these studies canbe deduced to understand strategicpattern of investment for success in hostcountry situation is a point of concern.

More studies in the above research strand,viz., strategies and performance of foreignfirms in a host country context is a needof the hour as these will refresh theexisting literature in the other three standsof FDI research as pointed out earlier. Aninteraction of ideas of these variousstrands will help understand the complexissues involved with FDI and its successfor both the host country and investingforeign firms. In the present circumstance,there are a number of issues to be explored



in several contexts of foreign firm and hostcountry.

VII. SOME GUIDELINES FOR FUTURERESEARCH

From the analysis of the four majorresearch areas in FDI, there seems to be ahuge scope to understand and explainissues related to the determinants ofsuccessful FDI strategy especially withreference to the developing economies.There are at least five research areas in FDIthat could be potential areas of researchamong many others. First, exploring theFDI strategy of successful foreign firmsin the developing economies. Second,examining the investment strategy offoreign firms that failed in some of thehost economies. Third, investigatingwhether the holistic FDI strategy (Nayak2005) suggested with reference to adeveloping country like India holds truefor the success of foreign firms inindustrially developed countries. Fourth,finding out whether successful FDIstrategy in the manufacturing industrydiffers from that in the non-manufacturing industry. Fifth, studyingthe impact of an individual successfulforeign firm on a host economy.

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I. INTRODUCTION

Shipping is an expanding, global businessthat carries most of the world’s tradedgoods. It is relatively free of capacityconstraints, and less harmful to theenvironment than other modes transport.The future offers substantial opportunitiesfor the shipping industry, bringing withthem the potential for significant inwardinvestment and wider economic benefitsfor India. Efficient shipping is vital to our

Discrete Event Simulation Model of AContainer Terminal *

K.C. James1 and M Bhasi2

* Received February 27, 2006

1 Reader, Department of Statistics, Cochin University of Science and Technology (CUSAT) Kochi-682 022, e-mail: [email protected]

2 Reader, School of Management Studies, Cochin University of Science and Technology (CUSAT)Kochi-682 022, e-mail: - [email protected]

Abstract

According to estimates by the World Bank and others, world sea borne trade is expected to increase atthe rate of 4% a year over the next decade, almost doubling current volumes by the year 2010. Containertransport is growing beyond the most optimistic expectations in recent years. For the better terminalmanagement different aspects of container flows at different times must be considered. The role ofsimulation in evaluating alternative system design and operation management policies is well established.In this paper we present the development of a simulation model of the operations of the container terminalin a South Indian Port and demonstrate its use for taking decisions regarding system design andoperational policies. The model computes ship turnaround time and determines resource utilization at ahigh level of detail. This helps planners ti view the performance of the system much before implementation.The model allows planners to see operational constraints and bottlenecks through statistical reports,graphs and charts.

economic well-being. In general above80% of external trade by weight moves bywater. The competitiveness in global traderequires that international shippingmarkets are open and not unnecessarilyexpensive.

Container transport is a complex multi-modal chain, the importance of which isgrowing beyond the most optimisticexpectations in recent years. Some salientfeatures of containerized traffic are:


l Longest distances are traveled bylarge container ships, alongtransoceanic routes linking thedifferent continents

l Other modes of transport (mainlyroad, railway and inland navigationwhen possible) cover the remaininglegs to effect a door-to-door service.

The number of containers handled inports worldwide was well over 200million TEUs in the year 2000 and it ispredicted that by 2005 this figure will top300 million TEUs, and further reaching500 million TEUs by 2015.

For faster movement of material,operators search to cut times, puts portsnear the shortest route at an advantage,even if this is countable only in terms ofhours. Obviously this only applies tothose ports that prove to be competitivein a market that is currently demanddriven. A little difference in the qualityof service can influence ship owners’choices to an extent that wasunimaginable in the past. Regardless ofhow it is achieved, the users’ point of viewonly takes into account the external (orgross) productivity, by measuringparameters such as the turnaround timeof ships in ports. On the other hand,terminal operators have to cope with theinternal efficiency of their systems; hencethe need to measure a set of parametersconsidering the efficiency and utilizationof the resources employed. As the cargovolumes continue to grow, planners andengineers are working on solutions to

move cargo more efficiently. This push isprompted by: (a) The ever-decreasinginventory which manufacturers andretailers keep on hand to supply assemblylines and customers (b) Increasingcongestion around traditional maritimecenters due to truck traffic and trainservice (c) Increasing competition forwaterfront property for non-industrialuses, such as tourist and shopping centers,business parks and condominiums.

Literature in the field has provided a greatamount of works, both from the externaland the internal point of view, in whichvarious techniques have been used toanalyze the productivity, sometimes ofthe terminal as a whole, sometimes of aspecific part of it (Ottjes et.al., 1994; Veekeand Ottjes, 2002; Ryan, 1998). Simulationhas been used as tool for studying variousaspects of port operation. In the nextsection we present a brief introduction ofsimulation and situations where it can beused for modeling port operationsespecially in container terminals

II. OVERVIEW OF SIMULATION

Simulation is considered as one of themost powerful tools available to decision-makers responsible for the design andoperation of complex processes andsystems. It makes possible the study,analysis and evaluation of situations thatwould not be otherwise possible. In anincreasingly competitive world,simulation has become an indispensableproblem solving methodology forengineers, designers and managers.

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Simulation has a number of advantagesover analytical or mathematical modelsfor analyzing systems. First of all, thebasic concepts of simulation are easy tounderstand and hence often easier tojustify to management or customers thansome of the analytical models. In addition,a simulation model may be more credibleas its behavior can be compared to that ofthe real system or because it requiresfewer simplifying assumptions and hencecaptures more of the true characteristicsof the system under study. We can testnew designs, layouts, etc. withoutcommitting resources to theirimplementation. It can be used to explorenew staffing policies, operatingprocedures, decision rules, organizationalstructures, information flows, etc. withoutdisrupting the ongoing operations.Simulation allows us to identifybottlenecks in information, material andproduct flows and test options forincreasing the flow rates. Simulationallows us to control time. Thus we canoperate the system for several months oryears of experience in a matter of secondsallowing us to quickly look at long timehorizons or we can slow downphenomena for study. Simulation’s greatstrength is its ability to let us experimentwith new and unfamiliar situations andto answer “what if” questions.

Simulation of port operations: Simulation isallowing experimentation ininfrastructure, technology and operationswithout the money spent in actualconstruction. In addition, with the high

level of competition in the industry, whichdecides not only the mode of transport butalso the choice of specific carriers, ports,railroads and trucking companies,simulation allows for experimentationwithout the potential penalty of lostproductivity and customer share.

In order to improve terminalmanagement, parameters like patterns ofcontainer flows at different time scales,times durations of activities, such asqueues are important. The terminaloperators use historical data to producereliable forecasts of container flows,according to the ship schedules and theterminal characteristics. In recent years,simulation has become an important toolto improve terminal operations. Adetailed discussion on this can beobtained Steenken et al(2004) in whichsimulation has been applied for strategic,operational and tactical aspects ofterminal management. Ottjes et al(1994)presents the use of a simulation model ofthe container terminal service in the portof Rotterdam. Ryan(1998) discussescomputer simulation for two majorconcepts in handling the future cargovolumes: big ships and fast ships. Veekeand Ottjes(2002) presents a genericsimulation model for systems of containerterminals for global studies. Gambardellaet al(1998) focus on the optimization ofthe allocation process and for thesimulation of the terminal. The former isbased on integer linear programming; thelatter is a discrete event simulation tool,based on the process-oriented paradigm.

James et al, Discrete Event Simulation ...


III. OBJECTIVES OF THE STUDY

It is proposed to develop a simulationmodel of Rajiv Gandhi ContainerTerminal(RGCT) at Cochin Port with thefollowing objectives.

l To develop a simulation model thatcomputes throughput capability anddetermines resource utilization at ahigh level of detail.

l Capability to allow planners to seeoperational constraints andbottlenecks, as opposed to inferringoperational limitations throughreviewing the statistical reports,graphs and charts.

l To study the effect of inter-arrivaldistribution change

l To be able to determine the numberof vehicles, cranes etc to employ,given the layout of the terminal andits required throughput

l To evaluate the flexibility of a systemchosen

l De-bottlenecking a given system

V. METHODOLOGY

The application of simulation involvesspecific steps. Regardless of the type ofproblem and the objective of the study,the process by which the simulation isperformed remains almost same. Law andKelton(1990) discusses the steps for asimulation study. We have followedsimilar methodology for our simulationstudy consisting of the following steps.

1. After the system study related to theoperations at RGCT to obtainoperational flow charts and time datain respect of operation times,maintenance times and resourcerequirement are found out. Thestatistical distributions for these dataalso were found out.

2. A modeling platform was selectedand a model was made to getsufficient representation of the actualoperations. The model developedwas verified and validated.

3. Experiments were done on the modelby changing inter-arrival rates of theships and its effect on the inter-arrivaltime, utilization of equipments andresources were studied.

4. The effect of equipment breakdownswas incorporated in the model andcorresponding effects were alsostudied.

The following section presents anoverview of the operations of thecontainer terminal at RGCT.

V. THE OPERATION OF CONTAINERTERMINAL

Containers are large boxes that are usedto transport goods from one point toanother. The use of standardizedcontainers helped in inter-modalism ofinternational trade, and the movement ofcargo from an origin in one country to adestination in another by more than onetransport mode became commerciallyfeasible. A container terminal interfaceswith the sea and land operations of

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container movement. Various functions atthe terminal include planning andperforming orderly loading andunloading of ships and storage, handlingand delivery of containers in the terminal,while collecting all necessary informationregarding ship’s schedules, bookingposition, land transportation situation,progress of jobs in the container yard,container freight station (CFS), demandand supply of container, deliveryschedules, etc to organize smooth flow ofcontainers through all segments. Thisstudy is related to the operations at theRajiv Gandhi Container Terminal (RGCT)at Cochin Port. In 2003-04 the Porthandled 169965 containers (TEU’s), thetotal volume of container cargo being21.25 lakhs tonnes.

The Discrete Event (DE) model developedhereis primarily based on the operationsin the RGCT with respect to the use of thefollowing equipment.

Transfer Cranes(TC) : these cranes operateat import yard and export yard to load orunload the containers to and from trailers.

Quay gantry cranes (QC): These cranesoperate at the shipside for liftingcontainers from the ship and load themin trailers. QC’s are also used to load shipby lifting the containers from the trucksto the ship.

Trailers/trucks: Trailers are used to carrythe containers inside the yard. Theyusually operate inside the terminal.Trucks carry imported containers to

respective position in the storage yard.Trucks that carry the containers fromstorage space to a position near ship forloading the containers to the ship.Containers are taken to or sent out of theterminal gate by trucks operated byprivate parties.

Broadly there are two types of operationsbeing carried out in the container yard i.e.import operations and export operations.When ship arrives at the port it waits inthe outer sea for berthing permission.When the berth is free it is berthed.Usually ships coming to Cochin port willbe unloaded first and then loaded. Ifsufficient QC’s are available bothoperations are done simultaneously. QCpositions unloaded containers on thetrailers. This will be moved to a pre-assigned space the temporary storagearea. From here TC’s will load theimported containers to the trucks ofconcerned operators. These trucks leaveout through the yard gate to destinations.Trucks from outside with containers forexport enter through the yard gate intothe yard and TC’s unload them to a pre-assigned space in the storage yard. TC’sload the trailers operating inside the yardwith the demanded containers for theoutgoing ship and these trailers are takento a position near the ship. QC’s unloadthem to the ship for export.

VI. THE MODEL OF CONTAINER TERMINAL

A model of the operations at the containerterminal was developed to study theoperational performance and to identify



bottlenecks under varied conditions.When developing the model the actualworking of the terminal was kept in mindrather than the ideal situations. Sufficientdata regarding activities times, inter-arrival times, etc were collected. Thesetimes were modeled by using a triangulardistribution.

The model logic can be divided intofollowing sections:

(a) Modeling ship arrival (b) ModelingImport side operations (c) Modelingexport side operations (d) Modeling thedeparture of ships

Information Blocks: Plotters for the changesin buffer size is useful for visualizing howthe import and export buffers areconsumed. Statistics blocks gets collectiveinformation regarding the utilization ofeach activity blocks, average length,maximum length, average wait andmaximum wait in each queue, utilizationof each resource required etc

Maintenance Consideration: For most ofmachines/equipments the model givesthe flexibility to add maintenance andrepair times. The model has 178 blocks intotal. The model contained the followingtypes of blocks.

l Executive - Needed in every discreteevent model to handle events

l Activities - Processing items

Besides the above blocks the modelcontains numerous blocks for

l Routing - Moving items to the correctplace

l Batching - Joining and dividing items

l Information - Getting informationabout items

l Arrays - Storing, accessing globaldata

l Decisions - Routing or decidingwhich value to use

l Holding -Accumulating or storingvalues

l Input/Output - Reading and writingfiles, or generating values

l Math - calculating values

l Statistics - Calculating Mean,Variance

Some Features of the model are:

l Many of pre-defined informationblocks and plotters

l Easily changeable parameters for asimulation study

l Can be modified easily to incorporateadditional resources of same type

l Statistical distributions or empiricaldata can be used.

l Can easily be adapted to multipleship processing

l Flexibility to add maintenance orrepair times as per statisticaldistributions

Assumptions: considering operationalrealities, following assumptions weremade in the model

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1. Berthing permission is given to onlyone ship at a time.

2 . First operation on the berthed shipsis import. Once it is completed exportoperations and loading of containersinto the ship starts.

3. Only one QC is available at time.

4. The number of TCs available at a timeis four.

5. The operation times, inter-arrivaltimes etc follows triangulardistribution

6. The role of manpower as a directrecourse is ignored. Instead this isindirectly included in the operationtimes of machines and equipmentsand in repair times.

7. The difference in stacking time due

to height in positioning of containersin the storage yard is not considered.

8. There is no restriction on theavailability of manpower.

VII. SIMULATION RUN RESULTS AND THEIRINTERPRETATION

Finding ship turnaround time: The modeldeveloped collects information about shipturnaround time, which is the averagetime; a ship spends in the system from itsarrival to departure from berth. Thisperformance measure depends on severalfactors. The important factors identifiedincludes the inter arrival time of ships,and the number of containers carried bythe ship.

The model was subjected to differentexperimental conditions and the steadystate behavior is noted. Figure 1 show the

Figure-1: plot of ship turnaround time when simulated for1000000 minutes at an arrival rate of 1440 minutes



Figure-2: plot of interarrival time vs. utilisation

average turnaround time of the ship whensimulated for 1000000 minutes at anarrival rate of 1440 minutes (ie one ship aday). It shows a steady behavior after asimulation time of over 1million minutes.

The effect of inter-arrival time on shipturnaround time is depicted by figure 2.It clearly indicates the possibility ofexponential increase in ship turnaroundtime with decrease in inter-arrival time

Figure-3: plot of interarrival time vs. utilisation

EFFECT OF INTERARRIVAL TIME ON TURNAROUND TIME

05000

1000015000200002500030000

0 500 1000 1500 2000 2500INTERARRIVAL TIME(MINUTES)

TU

RN

AR

OU

ND

T

IME

(MIN

UT

ES

)

Interarrival time vs utilisation

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

500 700 900 1100 1300 1500 1700 1900

Interarrival time(minutes)

QC importutilisation

TC importutilisation

QC exportutilisation

TC exportutilisation

Birth utilisation

Truck importutilisation

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from 1980 minutes to 720 minutes. Thisshows that it will become almostunmanageable if frequency of arrival isjust doubled.

Resource utilization : The model allowsexperimentation to see the utilization ofeach resource used. In particular the effectof interarrival time on the utilization oftransfer cranes, quay cranes, trailers andberth are considered. Figure 3 indicatesthat with increased arrival rates resourceswill be driven to extreme utilization levelwhich is not desirable. Notice the highutilization requirements of TCs for exportoperation. The berth utilization is alsovery high. Thus this study clearlyindicates that

1. If more ships arrive, the turnaroundtime may become very high andalmost unmanageable with presentresource levels if inter-arrival time ishalved.

2. The utilization rates of TCs put atexport is very high. This in turn willbecome a bottleneck if inter-arrivaltime decreases from the presentlevels.

VIII. CONCLUSION

The face of the transportation industrycontinues to change. Propelled by thedynamic growth of international trade,shipping lines and other factors,transportation providers will have toformulate potential advances ininfrastructure, information technology

and operations. This paper considered themodeling aspects of the operations of acontainer terminal in a strategicallylocated port in South India. It was foundthat with the present available facilitiesthe port will be grossly inadequate withan increase in container arrivals.

This study is a part of an ongoing workon modeling of container terminaloperations. Future work will be based onthe design and experimentation of anelaborate model considering the scope ofmore number of berths and equipmentsavailable and finding de-bottleneckingstrategies in the situation.

REFERENCES

Gambardella, L.M, Rizzoli, A E., Zaffalon,M.,(1998) Simulation and Planning of an IntermodalContainer Terminal ,Special IssueSIMULATION on Harbour and MaritimeSimulation, 1998

Krahl David., (2001). The EXTEND simulationenvironment, Proceedings of the 2001 WinterSimulation Conference, B. A. Peters, J. S. Smith,D. J. Medeiros, and M. W. Rohrer, eds

Law ,A.M and Kelton ,W.D., (1990). Introductionto Discrete Event Simulation, McGraw Hill,1990

Ottjes J.A,Hengst S,and Tutuarima W.H., (1994).A simulation model of a sailing container terminalservice in the port of Rotterdam, Proceedings ofthe conference on modeling and simulation, June,1994.

Ryan Nora K., (1998). The future of maritime facilitydesigns and operations, Proceedings of the 1998



Winter Simulation Conference,D.J. Medeiros,E.F. Watson, J. S. Carson and M. S.Manivannan, eds.,1223-1226, TranSystemsCorporation

Steenken ,D.,Vob, S. and Stahlbock,S., (2004).Container Terminal Operations and Operations

Research- a classification and literature review ,OR Spectrum(2004) 26: 3-46

Veeke H.P.M and Ottjes J.A., (2002) A genericsimulation model for systems of containerterminals, Proceeding of the 16th EuropeanSimulation Multiconference, June 2002

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The Game of the Name �A Key Factor in Brand Building*

M. N. Tripathi1

Abstract

Brand Managers have always felt on thin ice whenever there is an issue of naming a new brand. Thesuccess of a brand is important to a marketing manager as it might mean climbing up the organizationalhierarchy as a reward for its success or getting jettisoned out, in case of failure. The naming exercise formost new brands is fraught with great risk. This paper attempts to explore the issues that go intomaking a name into a great brand. It deals with the complexities and pluralities of this importantexercise of branding. There is no foolproof formula for a great brand name. Yet, experience and knowledgehas served marketers to navigate the rough waters and know what not to do, in this uncertain exercise.Many of the views, opinions and examples are taken from the long years of experience of the author inindustry and the corporate sector.

* Received December 29, 2005.1 Associate Professor, Xavier Institute of Management, Bhubaneswar, [email protected]

Perspective

I. INTRODUCTION

“A rose by any other name would smellas sweet”. Though we have heard thismany times before, yet, in our lives, aname assumes importance as soon as it ismentioned. It conjures up images,experiences, episodes and brings a smileor a frown to the face, depending on theinteraction. We cannot imagine any of uswithout a name as it creates for us anidentity and the manner in which we areaddressed. Misra Productions No.2 orSharma’s untitled venture are howuntitled films are called in Bollywood, buteven they need to be christened, beforethey are released.

II. NAMES DO MATTER

In most families, the arrival of a baby inthe family is an occasion of great joy.Parents, relatives, grandparents, friendsgo to great lengths in suggesting andinsisting on suitable names.Numerologists, astrologists, pundits areconsulted by anxious parents wishing thebest for their child, in trying to select thebest suitable name. Others, not soinclined, but nevertheless, modern inoutlook discard the otherwise suitable‘Ratikanta’ for the more contemporary‘Rahul’, if it is a boy, and reject ‘Mrinalini’for the modern ‘Mona’, when it is a girl.Almost everyone who is close to the


family would have a view on what shouldbe the name.

There was a study carried out to provethat names do matter in our lives. A groupof ten men in their early twenties weregathered to decide which of two beautifulladies was prettier. They were circulatedthe photographs of these ladies and askedto mention individually, which of themwas prettier of the two. When the verdictcame, it was a tie. Five rated one as morebeautiful and the other five mentioned theother lady to be more beautiful. Then thesame test was carried out again with adifferent group, but with one additionalinput. The names of the ladies werementioned. One was Abhilasha and theother was Malleswari. The verdict was 8:2, in favour of Abhilasha. Therefore,names do matter.

Marketers think that with the rightproduct with the right price is the mantrafor success in the market. Innovationalone is never enough. Along withinnovation, a company needs the rightmarketing to ensure the brand’s survivaland success. The heart of a goodmarketing programme is a great brandname (Ries & Ries, 2004).

III. FIRST STEP TO BRAND BUILDING

Naming brands is the first step of thebrand building process (Grimaldi, 2004).If you are not selling brands, you are inthe business of selling commodities. Greatbranding helps to add value to yourproduct, build preference, retainscustomers and brings in new customers.

Great brands sell and sell repeatedly.However, it is easy to lose focus andseveral well known brands in the past,such as Murphy, Dalda, Ovaltine andBrown and Polson have withered andfaded out since the focus got dissipated.It is focus that creates successful brandsand helps businesses grow not only byincreasing sustainable sales and pricepremia, but also attracting and retainingthe best talent and facilitating relationswith all stakeholders.

Great brands are more than the sum oftheir parts (Grimaldi, 2001). Coca-cola ismore than water, syrup and bubbles.When the memory is gone, the emotionremains. It is deeply rooted in psycho-sociology. People who buy the brand orwould possibly want to buy in the future,(out of the entire population who couldafford the brand and therefore comprise- the economic target,) comprise themarketing target. The goal is to rally thateconomic target to identify with yourmarketing target. Marlboro smokers buythat cigarette because it makes them feelindependent and free like a cowboy, notbecause they are cowboys!

A name can make or break a business(Grimaldi, 2003). In the last two decadesof the twentieth century, AndersenConsulting had accumulatedextraordinary brand equity, largelyemanating from its founder ArthurAndersen. It was the result of lengthylitigations between the consulting andaccounting arms that eventually pushedAndersen Consulting to abandon its name

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in 2001. Today, the renamed consultingfirm, Accenture enjoys a level ofindependence that largely shielded itfrom the collapse of Arthur Andersen.

Successful product and company namesmay appear to have been created bymagic, but it is possible to develop namesthat are dynamic and effective and whichcan fully leverage a brand’s potential ifyou have the right process in place. Suchprocesses that are clear, insightful, logicaland focused will lead to names that arepowerful components of your brandstrategy and that pave the way for buy-inthroughout the organization (Javed, 2003).

Great names create a powerful force in thebranding, marketing and advertisingcampaigns of the companies they workfor. They differentiate you fromcompetitors, make an emotional

connection with your audience and helpto build a brand that ignites the passionof your customers. Therefore goodnaming companies are strategicallyfocused, fluent in emotional shorthandand are more than a creative powerhouse.For most consumers, the first interactionwith the brand is the name.

IV. FUNCTIONS AND FEATURES OF A GOODBRAND NAME

The first function of any name is to givethe named, an identity – an identification.But that is not the end of the story. Thereare several other functions that a name hasto accomplish before it can be thought ofas a great name and what it can contributeto the brand.

The above figure allows us to think of thevarious dimensions a brand namecontributes to the brand

Fig. 1 Seven functions of a brand name (Ellwood, 2002)

Brand Name

Unique identity Describe

benefit

Easy to pronounce

Global usage

Legal barrier

Equity asset

Feel good

Tripathi, The Game of the Name ...


1) It gives it a unique and distinctiveidentity

2) It is part of the equity of the brand

3) It should give an indication of the keyfunctional/emotional benefit

4) It should be easy to pronounce andspell

5) It should be legally protectable acrossmarkets

6) It should have versatility in beingable to be used everywhere withoutcultural mismatches

7) It must have a ‘feel good’ factor

This is not to say that brands notconforming to the above rules cannotsucceed. In fact, many do, but those aremore exceptions to the rule.

V. THE POWER OF BRAND NAMES

The brand’s name is often revealing of thebrand’s intentions. Not only do brandnames get selected because of theguidelines given above, but often theycould get selected because of subjectivereasons rather than for any objective orrational reason. Why did Steve Jobs andSteve Wozniak select Apple as the namefor their brand? Surely it would not fallstrictly into any of the guidelinesmentioned earlier. Yet, it went on tobecome one of the most well knownbrands in the world. With this name, thebrand demonstrated its values: in refusingto idolize computer science: in refusingto take itself too seriously. The makers ofApple wanted the machine to become

something to enjoy, rather than to revereor fear. ‘Apple’ sounds fun, not serious.Mercedes is a Spanish Christian name, yetthe brand has made it a symbol ofGermany. We do not think of roofingwhen we refer to Mrs. Thatcher, nor dowe think of the river when we mentionAmazon.Com.

VI. THE FEEL OF A GREAT BRAND NAME

It is important that the name must soundright. Research has shown that the soundof a name has an important influence onthe way people perceive that name andthat person. Psycholinguistics andphonetics are now being very extensivelyused in shortlisting names in nameresearch. Akio Morita, founder of Sonyhad mentioned that one of the reasonsthey used Sony as a brand name was itsounded like ‘sunny’ in many languagesand had a positive connotation. Manybrands which otherwise were excellentproducts have failed because it just didnot sound right or meant differently.

Gerber, the nutrition baby foodmanufacturer tried to launch a brand ofsmall servings of ready-to-eat beefburgundy called ‘Singles’ for singlehouseholds - bachelors, divorcees, collegestudents, etc. The launch was a disasterbecause the target segment did not wantto be identified as singles eating alone.Years later, another company introducedthe same concept as ‘Smart Ones’ alsohighlighting the benefits of nutrition andconvenience with no reference to thesingles market, which was a resoundingsuccess (Engel, Blackwell, Miniard, 1995).

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Naming requires a creative, disciplinedand strategic approach (Wheeler, 2003).Those companies who dismiss it as asuperficial exercise do so at their brand’speril. The brand name must be chosenwith a view to the brand’s future anddestiny, not in relation to the specificmarket and product situation at the timeof its birth. In today’s competitive world,a name must function as a totalmessenger. It is only right that some ofthe myths in the naming activity need tobe exploded here.

1) Myth No.1

Naming a company/product is easy, likenaming a baby.

Truth - Naming is a rigorous andexhaustive process. Frequently hundredsof names are processed before finding onewhich is legally available and works.

2) Myth No. 2

I’ll know it when I hear it.

Truth - People often indicate that theywould be able to make a decision oncethey hear the names. In fact, good namesare a strategic fit that needs to beexamined, tested, sold and proven.

3) Myth No.3

We’ll just do the search ourselves.

Truth - Name search agencies need tocheck for intellectual property rights andconduct extensive search to ensure thatthere are no conflict of interests. It’s toolarge a risk, since names are expected tolast over time.

4) Myth No.4

We can’t afford to test the name.

Truth - Various thoughtful techniquesmust be utilized to analyze theeffectiveness of a name to ensure that itsconnotations are positive in the marketsserved.

VII. NAMING BLUNDERS

It is for this reason that even in business,companies go to great lengths to decideon names for their products or evennames for their companies. These days,name search agencies are in great demandfrom companies who want to selectsuitable brand names, which would be ofan enduring nature, catchy, easilyremembered and can conjure up strongbrand associations. More important, thenames should not be insulting orderogatory in any other language ormarket. China wanted to export ‘Pansy’underwear for males to the U.S. It is smallwonder that the venture was still-born.‘SuperPiss’ is the name of a defreezingmixture used in winter to thaw car doorhandles in Finland, so that the key can beinserted in the door handle to open thecar (Aaker,1995). Can you imagine such aproduct with a name like that to do wellin English speaking countries? Our veryown Ambassador car had a brand called‘Nova’ which was a moderate success andhas now been phased out. It would havebeen a non-starter in Spain, because inSpanish, Nova means ‘not move’!

Even the best of companies make suchblunders despite being considered



professional, savvy and efficient. Google,since introducing the Gmail brand name,had to stop using that name in UK andGermany since it had not done the requisiteresearch prior to introducing it worldwide,whether it was already being used by someother company. In the UK, IndependentInternational Investment Research wassuccessful in defending its Gmailtrademark. Google’s Gmail is now knownas ‘Googlemail’ in the UK. In Germany,Giersch Ventures successfully defended itsGmail trademark, which is used as an e-mail service. The German court declaredthat Giersch Ventures Gmail service wasregistered and used long before Google’ssearch engine (Lozito, 2005).

Ikea, the Swedish home requirementsmajor, has just one person responsible fornaming the over 7000 SKUs in an Ikeastore. It employs a system to managenames. Dining tables are named afterplaces in northern Sweden. Rugs getDanish place names. Bookcases arenamed after professions, whilemathematical terms designate curtainrods. Desks and chairs get male nameswhereas anything meant for a bathroomis named after a body of water.

The Ikea name is an acronym derived fromthe first letters of the founder’s name –Ingran Kamprad and the village where hegrew up – Elemtaryd Agunnaryd. He wasdyslexic. In the initial days, when he wasnaming the SKUs himself, he made thefamous faux pas of naming a child’s bed as‘Gutvik’ which would have been quitesuitable, had it not been for the Germans,

where this word describes an activity notsuitable for children, but results inchildren! It is then that he decided to handover the naming business to a professional.

VIII. CORPORATE CHRISTENING

Such problems are also existent whencorporate naming is required. There hasbeen a steady rise in corporate renamingbecause of the M&A activity taking placeacross the globe. The new entities formedafter the merger or the acquisitionnecessitates reidentification of the newidentity of the reconstituted company(Mesa, 2004). When one company takesover another, you either have to settle forone of the old names, combine the two,or think up a new name. Many times, it isa compromise, such as when Sprintacquired Nextel, Sprint’s adoption ofNextel’s yellow and black colour scheme,along with the tag-line display the best ofwhat is called ‘co-branding’ nowadays.Novartis, the merged entity of theerstwhile Swiss major, Ciba-Geigy andSandoz Laboratories was an example of acompletely new identity. Sometimes, itcan just be an unimaginative coining ofboth names – DaimlerChrysler,ExxonMobil, and KonicaMinolta.

Renaming a company usually requires thehelp of a branding agency who can do theresearch required for finding new namesand how they will appeal to stakeholders.However, even the best researched namescan go sour, if mismanagement andcorporate bungling tarnishes the image ofthe company. The most famous exampleis Enron, which was result of The Houston

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Natural Gas and InterNorth mergingtogether.

IX. PROTECTING NAMES

Having a name that is popular anddistinctive is not the end of the problem.For many such names, protecting therights to that name takes up a lot of timeand effort. The moment a name gatherssome modicum of popularity and equity,there are many who try to hitch a free rideon that name and all its associations.Starbucks appears to be learning the hardway about the difficulties aroundprotecting one’s trade mark in China. Itis taking coffee shop chain ShanghaiXingbake to court for appropriatingStarbuck’s fonts, logo and colour schemeto provide Chinese coffee drinkers with aquasi-Starbucks experience. The nameitself is a phonetic copy of Starbucks(Xing, pronounced ‘Shin’, means ‘star’ inChinese, While ‘bake’ pronounced ‘bake-kuh’ is the phonetic rendering of ‘bucks’)Therefore, one of the prices for owningworld class brands, is to have big budgetfor legal infringements that are bound toarise at different places.

FCUK, the fashion brand which waslaunched in 1998 succeeded initiallybecause of its ‘shock marketing’ value. Itwas the answer to the millions of anti-establishment youth who preferred towear their revolt, than keep saying it. By2004, the brand was ‘tired’ and ‘tacky’ andit was time to move on. Does it mean thatthe demise of FCUK is a signal of a newtrend in consumer morality? Probablynot. However, shock brands get less

shocking as they become mainstream andpeople become immune to it. It no longerremains a ‘statement’ product.

X. BRAND ASSOCIATIONS ANDREBRANDING

The name identifying the brand is morethan a promise. It is an experience. Thatexperience is reinforced by the brandname. Virgin Atlantic refers to its NewYork to London flight as ‘Suite Dream’.Singapore Airlines names its businessclass services as the ‘Raffles Class’. Rafflesis also an exclusive and upscale hotel inSingapore. It is known for its unparalleledguest service.

Sometimes, you could have the perfectname but somebody has alreadytrademarked it, even though it is not beingused. Marketers, in their bid to outdoother competitors are always on apreemptive strike to secure likely brandnames to their account, not to use themin the future, but just to preventcompetition accessing it later. Corona, theMexican beer producer had to negotiatein several countries to sell the brand,which means crown in Spanish. In Spain,it had the biggest problem. Corona hadto be adapted to ‘Coronita’ as acompromise, since this brand name wasalready being used for a wine, which wasclubbed in the same product category(Beristain,2004).

Whyte and Mackay (India) Limited, theIndian JV of the international liquormajor, when they launched their range ofIndian Made Foreign Liquor(IMFL),



introduced a classic deluxe whisky called‘Whitehall’. This would have probablygone unnoticed, except that the brandstarted doing exceptionally well in thelaunch market which was AndhraPradesh. When the news reached theforeign principals in Glasgow, Scotland,there was a huge furore on the use of thatbrand name because ‘Whitehall’ was thename of the building that housed theBritish Parliament. Intense pressure wasbrought on the Indian company to have achange in the name, which after a lot ofthought and deliberation was changed to‘Whytehall’. Fortunately, the impact tothe brand in the market was minimal andthe rechristening passed off without majordamage. Today the brand exists and isdoing reasonably well in most markets.

Another potential landmine is translationor association issues across countries orregions (Beristain,2004). Ford Motors hadto change its ‘Pinto’ to ‘Corcel’ in Brazil,since the former meant the male sexualorgan in Portuguese. The Brazilians couldnever accept this name, although theywere quite happy with the car. InBelgium, telecommunications brand,Orange lost its trademark to competitorMobistar. The company had to spendmonths to rebrand itself as ‘Base’, with itsattendant marketing costs, before it couldconvince customers that it is still inoperation, albeit through a differentname.

XI. BRAND PERSONALIZATION

The Dutch have taken a lead in

personalizing brands with names as ifthey were people (Wijman, 2004). Moreimportant, they wanted to attach a‘friendly’ image to the brand by using firstnames. Three ex-Unilever executives whostarted ‘Food Sense’ introduced anarrangement of peanut butter, jelly andhazel nut paste called ‘Fred and Ed’. Atelephone call centre is called ‘Annie’.‘Jackie’ is a monthly lifestyle glossymagazine named after Jackie KennedyOnassis. ‘Alex’ owned by Rabobank isNetherland’s biggest online broker. Usingfirst names helps these brands stand outin mass communication as if they werepersons of flesh and blood. It helps thebrand gain an association as anacquaintance, one that is already veryclose to the consumer. The brand can actas a friend. However, using first namesdoes not guarantee success. “A first nameis always marked. I mean, people whoalready know a Ben and hate the guy,won’t buy a product named Ben.”Therefore negative associations likely toarise can be severe pitfalls to using firstnames for brands.

Most brand consultants agree that thecommon factor to successfulnomenclature is clarity ( Mesa, 2004).“Consumers have to understand youbefore they can appreciate you. The mostsuccessful brands are easy to understand,relevant and differentiated.” FederalExpress, which revolutionized the processand shipping habits of individuals andcompanies, had to rename their products

145

which totaled over 100, because it was notexplicit. “In some cases, they were usingacronyms that just didn’t mean anything”says Dave Hulbert, then director ofnaming at Landor, its advertising agency.“Even some of the people at FedEx didn’tknow what they were. We madeeverything into plain English.” It is nevertoo soon in a company’s lifecycle toreconsider nomenclature strategies.

XII. CELEBRITY ADVERTISING

The inherent upside of attracting acelebrity to a brand is that the brandliterally has a face, name and personalitythat immediately projects the image of aliving, breathing credible person asopposed to a faceless corporate entity (Mesa, 2004). The downside is thatindividuals are not stable or as easilycontrollable as corporate entities. Famecomes and goes. So does the equity of thebrand when its fortunes are linked to thatpersonality.

Jennifer Lopez earned unprecedentedsuccess as a music and actingphenomenon, including her debut albumthat went five times platinum and acommanding salary of $12 million a film.Her signature perfume ‘Glow by J.Lo’released in 2002 was an instant hit among15 to 21 year old females – the same groupwho buy her albums. Industry observersestimated sales of $ 44 million in the firstfour months of launch.

Closer home, we have our AmitabhBachhans, Sharukh Khans and SachinTendulkars endorsing products from

FMCG, durables, automotives, servicesand many other product categories. Howcan the same personality be attached tosuch a wide range of products?Conventional marketing logic dictatesthat marketers would possibly not begetting value for their money. Yet,marketers are falling over one another tosign up these celebrities with the price taggoing northwards. Unlike in othercountries the mass adulation enjoyed bythese personalities overshadows the otheraspects of multi endorsement fatigue.Proof of the value of such celebrities, isthe bourgeoning bottom line that isattributable to the increased sales of suchbrands of such companies (Cabell, 2003).However, everything is fine as long as theaudience hold these celebrities in highesteem. Once their celebrity statusdeclines or dwindles, it does havetremendous adverse effects on the brandsales.

Magic Johnson, the US basketball legendwas endorsing Nike until it was foundthat he was suffering from Aids.Overnight, his contract was terminatedand a new endorser found for the brand.Kapil Dev’s “Palmolive ka jawab nahin”went into hibernation when his name gotlinked with the cricket scam. Itreappeared only when he was absolvedof his alleged involvement by the Boardof Cricket Control, India (BCCI).Azharuddin went into oblivion, themoment he was banned frominternational and domestic cricket. SauravGanguly is finding it extremely difficultto hold on to his endorsements contracts



with his recent loss of form and non-inclusion in the one day team. At the sametime marketers are queuing up to sign onthe new stars in the making – MahendraSingh Dhoni and Sania Mirza.

XIII. NUMERAL BRANDING

Using numerals as brand names seems tobe a trend that is fast catching up (Granell,2005). 3M, 3I, Channel 4, 3663 all happento be brands. While words work becausethey are inherently evocative and rich inmeaning, numerals however, do notportray any such meaning universally.However, certain numerals havesignificance depending on the region. Inthe west, the no.13 long considered to beunlucky has necessitated the whole hotelindustry never to have a 13th floor! Indiannumerologists have long advised peoplethat the nos. 7 and 9 are auspicious andlot of people make sure that their carnumbers and telephone numbers total upto these numbers.666 is considered as thedevil’s sign in Christianity whereas 888is considered lucky in Chinese. 786 is themost auspicious number for Muslims. Sowhile it is all right to use a number as abrand name for regional brands it canbecome a liability, when you do want tointernationalise it. The benefit ofnumerical names is that they can be usedas a blank slate into which a brandpersonality can be built, rather than theother way round.

There are limits to the way numbers work.They are not as flexible as words.Numbers are harder to protect than wordssince they derive their communication

from other aspects of communication orbrand experience, and establishing suchnames could be expensive. However,when they work, almost always they havethe potential to stand out among thecrowd.

XIV. UMBRELLA NAMES

Many practitioners believe that in time,the added values of a brand getsembodied in the name and that thesevalues can be transferred to anotherproduct by using the same brand name(Jones,1998). This is the rationale for thestrategy of using an umbrella name for anumber of different products, mostlyused in line and range extensions. JagatjitIndustries Ltd has ‘Aristocrat’ as theumbrella name for its whiskies, brandies,rums, vodkas and gins.

There are powerful incentives in havingan umbrella brand name. Firstly, themarketing expenses incurred for thepromotion of this name gets shared by thenumber of products and managementfeels that no single brand is getting adisproportionate share of expenses.Secondly, consumers who use oneproduct under the same brand name caneasily be persuaded to try out a secondproduct of the same name, especially iftheir previous experience of the firstproduct has been a pleasant one.

However, there are also compellingreasons as to how this entire strategy canboomerang if the mother brand startsfaltering in the market. Then the adversebacklash can limit the tempo of the other

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extensions, even if they are doing well.This is what exactly happened to Jagatjit’sAristocrat brand, when the mother brand,which was Aristocrat Whisky started totake a beating in the market. The prospectof cannibalization of one product’s salesover another using the same brand namecannot be ruled out, especially when theyare in the same category.

John Philip Jones has maintained that theeconomic advantages of umbrellabranding are substantially illusory in theshort and medium term. Umbrella namesare in general no worse and no better thancompletely new names. As a general rule,the success of a new brand is moredependent on support levels than on thename per se. It is possible that umbrellanaming can provide greater stayingpower in the market by enabling a greateraddition to added values, but this is notdiscernible in the short run. Therefore,those who practice it, do so more as anact of faith, rather than any strong beliefthat umbrella branding is superior togiving different brand names.

XV. GENERIC BRANDS

When we talk of brands and aboutbranding, the reality is most consumersbuy categories, not brands. The decisionprocess is usually category first beforebrand. The brand name is shorthand forthe attribute represented by the category.The day consumers forget that Dettol isassociated with ‘antiseptic’ the brandwould cease to have much of its brandvalue. Obsessive brand managers become

paranoid about their brands becominggeneric because the other brands in thatcategory get a free ride on the brandleader’s equity. Actually, much of thesefears are unfounded. Dalda, whichbecame generic to the vanaspati categorydid not really suffer from the othervanaspati brands although it helpedexpand the category to the advantage ofits competitors. Therefore, just as wordsin the dictionary have several meanings,users learn to associate the right meaningdepending on the context. Xerox, whichis generic to the duplicator category,really means duplication of documents tothe consumer as well as the brand, Xerox.The brand value generally does notdiminish.

XVI. SOME FINAL THOUGHTS ANDCONCLUSION

The brand name is often the most highlyvisible and long lasting connectingelement of a brand for the consumer. Itshould encapsulate the experience of thebrand or what it stands for in a singleword or phrase that can be communicatedacross markets and protected. It shouldform an impenetrable barrier againstcompetitors and define the position of thebusiness in the minds of the consumer.Just like our own names, that identifiesus as to who we are, which family wecome from, which sex we belong to, brandnames have a similar role that identifiesit with the product and its pedigree. Whilemany changes may be done with thebrand over its lifetime, it is quite likelythat the name will be sacred and remain



unchanged, unless in times of mergersand acquisitions, when names sometimescomes up for revision. It has the power tofocus and shape the formation of theproject and business structure. It can alsoinspire employees, trade and consumers.

A brand name is just not a name. It hasmany functions and a great brandtypically performs all of it. It identifies thecompany or product/service as unique tothe consumer. It could describe or denotea core emotional benefit. It should be easyto pronounce and spell and can be usedacross markets without any culturalmismatches. It should be distinctive, opento legal protection and should providebarriers to counterfeiting. The equityshould be such that it can be traded andlast but not the least, should have a ‘feelgood’ factor.

Every big brand has a great name to beginwith. It is like the first runner in a relayrace. ‘Well begun is half done.’ Manybranding exercises may fail for a varietyof reasons, but successful brandingexercises always had a great name to startwith. Lest people think that there isalways a sure shot way of getting a greatbrand name, it must be known that this isstill a matter of chance. This highlights theultimate subjectivity of the name. Thereare any number of exceptions to thegeneral rules mentioned earlier whichhave met with success, but that is life andwhat makes the marketer’s jobchallenging.

REFERENCES

Aaker, David, (1991), Managing Brand Equity, TheFree Press

Beristain, Sergio, (2004), Does your brand registerabroad?, www.brandchannel.com , December20.

Cabell, A.K., (2003), Celebrity Endorsements reachfor the stars, www.brandchannel.com, June 2.

Ellwood, Iain, (2002), The Essential Brand Book,Kogan Page

Engel,Blackwell,Miniard, (1995), ConsumerBehaviour, The Dryden Press

Grannel, Chris, (2005), Counting on your brand’sname, www.brandchannel.com, August 22.

Grimaldi, Vincent, (2001), What makes a brandgreat?, www.brandchannel.com, November12.

Grimaldi, Vincen, (2003),The Trials and Triumphsof Naming, French Accent, Brandspeak,www.brandchannel.com, March 10.

Javed, Naseem,(1993),Naming for Power: Creatingsuccessful names for the business world,Linkbridge Publishing, Mississauga, Ontario,Canada

Jones, John Philip, (1998),What’s in a brand?Building Brand Equity through Advertising,Tata McGraw Hill

Lozito, William, (2005),When it comes to productnaming, even Google ‘stubs their toe’,www.brandchannel.com, November 8.

Mesa, Alycia de, (2004), Sell-ebrity: Products getstar treatment, www.brandchannel.com,March 29.

Mesa, Alycia de, (2004), Naming names,www.brandchannel.com, May 3.

Ries, Al and Laura,2004,The Origin of Brands,Harper Collins

The Igor Naming Guide to creating Product andCompany Names, Building the perfect beast

Wijman, Erwin, 2004,Branding on a first name basis,www.brandchannel.com, November 15.

Wheeler, Alina, (2003),Designing Brand identity,John Wiley and Sons Strategic nameDevelopment, How to judge good namingCompany, www.namedevelopment.com

Maruti�s Product Recall: A Case of QualityConsciousness and Customer Care *

B.P.Patra1

* Received December 9, 2005. The author thanks Mr. Sibaprasad Kar (PGP 1997-99 XIMB),Mr. Hemant Kumar Swain an engineer of Maruti Udyog and Prof. B. Mohanty (editor Vilakshan)for their help and suggestions in preparing this case. The author also has, to some extent, reliedon the report of Manjari Raman which appeared in financial Express - June 6, 1997 and this isduly acknowledged.

1. Associate Professor, Xavier Institute of Management, Bhubaneswar, e-mail: [email protected] .

Management Case

I. INTRODUCTION

Maruti Udyog Limited, the largestpassenger car manufacturer of India,recalled nearly 60,000 cars producedbetween January 5, 1997, and April 11,1997, for changeover of steering pinionson free of cost basis. It was one of thelargest product recalls in the history ofIndian automobile industry on qualitygrounds.

Maruti procured the sub assembly of thesteering systems from its joint venturecompany M/s Sona Steering Limited,Gurgaon. The sub-assembly consisted oftwo engaged gears, which helped, intransferring the rotary motion from thesteering column to the wheels. Thesegears were made of hard alloy steel so thatthese could withstand the abuses, wearsand tears during the course of running ondifferent terrains and driving conditions.Failure of the gears could make it verydifficult for the driver to steer the vehicleand this could lead to fatal accidents.

Sona Steering bought the required hardalloy steel from its supplier M/s MukundIron, Thane. In 1997, due to a materialmismatch, which was inadvertent,Mukund sold a lot of relatively soft alloysteel to Sona Steering. As Sona Steeringfollowed sampling inspection method forquality testing of incoming raw materials,the softness of the metal could not bedetected. However, the worker whoworked on the metal and made it into gearlevers noticed the unusual softness in thematerial and brought this to the notice ofhis immediate supervisor. The supervisorwho was busy could not attend to theproblem and only when the workerrepeated his observation, a materialtesting of the metal was undertaken. Thetest lab of Sona Steering came out withthe report that the material was of poorquality. Maruti and Sona Steering wereoperating on a “Just in time” (JIT)inventory basis and by the time this factwas verified the poor quality gear hadalready been fitted in to a number of cars


and dispatched from Maruti premises toits dealers and customers.

Sona Steering immediately informedMaruti of the defective steering parts, butit was too late. Maruti managementimmediately took some steps to ensure100% verification of the remainingcomponents. Besides to understand thepossible implication of defective part,they fitted the defective steering columnin some cars for rigorous endurancetesting and ran the cars for 24 hours on acontinuous basis.

In the meantime Maruti managementestimated that with the particulardefective lot of steel, that was sold to SonaSteering, only about 40 sets of steeringcomponent could be produced. But theseforty sets could have been put to any ofthe twenty thousand cars that wereproduced and dispatched during thatperiod to the market. However becauseof the delay in identification of theproblem and taking corrective measuresanother twenty thousand vehicles hadbeen dispatched. Existence of the inferiorcomponents in these twenty thousandvehicles could not also be ruled out. Toprovide for further safety Maruti addeda further twenty thousand numbers to it.Thus effectively, the company had toverify 60,000 cars to detect the defectivecomponents.

II. HOW WAS IT DETECTED?

Satinder Singh Rawat, an operator on theheat treatment section at Gurgaon factory

of Sona Steering Systems, unexpectedlydiscovered that the reading on his dialgauge of hardness tester were grosslyincorrect.

Since last four years, Satinder had beenprocessing batches of six inch long alloysteel rods that form the pinions, which areat the heart of a steering column. Thepinion in a steering system translates therotary motion of steering wheel to theturning of the wheels of an automobile.Satinder had been taking care tostraighten out any pinion, which mighthave got bent out of shape during a 900degree Celsius heat treatment process.

Satinder knew from his experience, as toexactly how much pressure to apply withthe pneumatic press for each deviation ofa pinion from the standard norm. But thistime, he found that despite applying justenough pressure to straighten the pinion,the steel rod was actually bending in theopposite direction.

So, 28 year old Satinder did what he hadbeen taught to do when faced with anyabnormality on the shop floor; press analarm, which promptly halted the entireassembly line at the Rs 50crore SonaSteering facilities.

Satinder did not just buzz a small problemon the shop floor; he sent a loud warningsignal to every company, which in someway was involved in the total qualitymovement on its shop floor. For nosooner did Sona swing into action tofigure out what went wrong, by midnight

151

it was clear that the quality of the steelused to manufacture some of the pinionsdid not match the chemistry of the GradeSCM415 steel, usually used. This unveileda series of pressure points whicheventually led to a snapping of the qualitychain, which ironically, consists of threerespected companies committed to totalquality: Mukand Ltd., Sona Steering andMaruti Udyog Ltd (MUL).

Says Dr Surinder Kapur, Chairman andManaging Director, Sona SteeringSystems, “Of course there is pain, but Iam proud of the values we have shownand for not having waited for failures inthe field. Unless you go through pain youdon’t change” says Dr. K Kumar, the thenexecutive director MUL, “TQM is a herbalmedicine, it is not a tetracycline. It takestime” Adds Sukumar Shah President andDirector, Mukand Ltd: “What qualityconscious companies need to bear in mindis that quality is an ongoing continuousprocess and is a moving target andnothing must ever be taken for granted”.

So, just what went wrong in this instance?The first cracks began to appear inOctober 1996, when Mukand cast a specialsteel Grade SCM 415 according to theJapanese Industrial Standard in its 45tones capacity arc furnace. A total of 42tonnes of steel was generated in the heat;constituting 72 hot rolled coils out ofwhich this only Glitch number one:- theday, the Grade SCM 415 lot was cast, therewas a breakdown in the conveyor of theMukund rolling mill and that day the coils

had to be manually stacked. “Mukundnow tells us that in the confusion, one coil,which was from the next heat and had achemical composition quite different fromthat of Grade SCM 415’s inadvertently gotmixed up with the 72 coils” says KiranDeshmukh, Director (Technical) Sonasteering Systems.

According to Sona sources, later, Mukundwas to find an extra SCM 415 coil on itspremises and would have dispatched itto another customer. Snafu number two:- The coils then had to be sent toMukund’s sub vendor M/s. Kamdar tostraighten them into bars of 22 mmdiameter, a specification requested bySona for crafting the steel into pinions. Aquality inspector checked the chemistryof each coil with a mobile spectrometer,before it left the mill. He discovered thatout of the 72 coils, Coil No 7 was not madeof SCM 415 steel.

While the inspector made a note ofdiscrepancy in his register, and by thetime the message went up to the craneoperator, Net 72 coils, including theoffending No 7 were dispatched forstraightening operations.

III. FINANCIAL IMPLICATIONS

The Maruti dealers did not have thefacilities to test these defective parts.Therefore, the company managementreasoned that they had two options –Either these parts were to be replaced bygood parts and the inferior parts sent backto Maruti or the company should do

Patra, Maruti�s Product Recall ...


nothing and when the component failsand insurance liability arises during thewarranty period it pays for the liabilities.The financial implications for the twoalternatives were as follows:

Alternative 1: Replacing the part for 60,000 cars

Rs. In Crores

Steering column change @ Rs. 450 per car 2.70Labor cost @ 150 per car 0.90Recall cost 0.10Transport cost for defective parts 0.12

Total: 3.82Alternative 2: Meet the liabilities when they ariseCompensation cost of damage to car@ Rs. 2lac for 40 cars 0.80Compensation for victims @ Rs. 2lac for 40 victims 0.80

Total 1.60

basis of all forty cars meeting accidentwithin the warranty period. The companytest engineers however had pointed outthat the probability of an accident takingplace with such defective steering systemsub-assembly was just about 1 per cent.This meant that the actual liability underalternative two could be much less thanRs. 1.60 crore. That means that clearlyfrom the financial point of viewalternative two was superior toalternative one. But there was a dilemma,the dilemma between absolute safety,from the point of view of human livesversus the financial benefit for thecompany. Maruti management after greatdeal of discussion decided that it wouldgo for alternative one as human lives wereprecious and even one percent probability

It was obvious that replacing the partswas much more expensive than waitingfor the accidents to take place andliabilities to arrive. Moreover, theliabilities have been calculated on the

of accidents was unacceptable. No doubt,Maruti management was in favour of amore ethical decision.

After Maruti took the decision to replacethe sub-assembly, the news spread toSona Steering and Mukund Iron, both ofwhom agreed to share a part of the recallexpenses. In the supply chain the responseof Sona Steering and Mukund Iron wasjust in time. Maruti in the whole incidentlost some money but eventually it createda goodwill with the customers, whoappreciated how the company cared fortheir lives. Experts believe that Marutilost a couple of crores of rupees but gainedmuch more in terms of goodwill. Thequality drive of Maruti enhanced theintegrity of the product and reputation ofthe organization.

I. INTRODUCTION

In June 2005, the officers in the fisheriesdepartment of the Government of Biharwere concerned about the growth offishery as an occupation in the state.Inland fish farming historically had beena major occupation not only among thefishermen but also among other castes.Large and small water bodies in the stateunder private as well as governmentownership were available for fishery butwere not fully used (see Appendix-I fortotal available water spread areas in thestate and Appendix-II for potential for useof fallow land). These water bodies werea source of revenue generation for thegovernment, but no one was sure whetherthis really generated optimal revenue.There was the issue of providinglivelihood to lakhs of people who wereengaged in fish farming and social andeconomic well being of these people couldnot be neglected. The villagers also haddifferent interests. They wanted to usewater from the ponds for irrigationpurposes, which came in conflict with theobjective of fish farming, particularly

Inland Fisheries in Bihar*

Samir Kumar1

Management Case

when the water levels were low in theponds. Dominance of local political forcesand musclemen also prevented thebenefits of fishery to percolate to therelatively deprived class of fishermen andrelatively less well-to-do other castepeople engaged in fishery. Thus, therewere various stakeholders of the systemwhose interest was to be looked afterthrough proper kind of state policy andexecution of such policies.

II. STATUS OF FISHERY IN BIHAR

Among allied agricultural activitiesfishery occupies a prime place in most ofthe states in India and particularly in allthe states in the eastern region, However,prior to the seventies, fishery was more apastime than a regular occupation.Professional fishery came intoprominence during the later five-yearplans.

In the state of Bihar, fishery contributesabout1.6 % of SDP. It holds out a hugepotential for growth and proper planningin this sector could provide livelihood tomillions. It was a matter for concern for

* Received February 12, 2006. The case has been written by the author under the supervision ofProfessor B. Mohanty of the Xavier Institute of Management, Bhubaneswar. The case issignificantly based on a Summer Project Report which received the best Summer Project Awardfrom National Human Resources Development Network (NHRD), Bhubaneswar Chapter.

1. The author is a second year student of the Post-graduate Programme in Rural Management atthe Xavier Institute of Management, Bhubaneswar, but would shortly be joining SKS MicrofinanceLtd., Hyderabad as Area Manager. Email: [email protected]


bureaucrats and policy makers that thissector did not grow as expected.

2.1 History of fishery in Bihar

The documented history of fish andfisheries of Bihar dates back to 3rd centuryB.C. Kautilya’s Arthashastra, writtenbetween 321 and 300 B.C. mentions ofsecret means of rendering fish inreservoirs poisonous in times of war(Book XIV, chapter 1 pp. 478-479, quotedby Hora and Pillay, 1962). This indicatesthat fish culture in Bihar flourished at thattime even in reservoirs. In a 6th centuryB.C. account, three fish with a commonhead (a symbol of fertility) had beenfound depicted on the footprint ofBuddha before the Vajrasan throne ofMadhubani. Fish occupied place of pridein the erstwhile princely state of Bihar.Fish was the state symbol of the erstwhileprincely states of Darbhanga. Thecelebrated fisheries scientist late V.G.Jhingra stated that until about the end of19th century warm-water fish cultureinvolving collection and transport of carpspawn from rivers and stocking the pondsadopting empirically developedtraditional methods of pond managementwas confined only to Bihar, Bengal andOrissa. . Afterwards, it gradually spreadto other states of India. In the traditionalsystem of fish culture of Bihar, fish (meen)occupied the pride of place along withmakhana (Euryale ferox), a prizeddelicacy and paan (betel) in the traditionalhospitality of the society.

Bihar occupies third position in inland fishproduction (2.012 lakh tonnes) after WestBengal (8.3lakh tonnes) and AndhraPradesh (2.60lakh tonnes) based on thelatest available comparative data for theyear 1998-1999.

2.2 Fishery Resources of Bihar (2004)

Bihar is very rich in water resources,required for fish farming but poorlypoised in terms of infrastructure .Theavailable water resources, infrastructureand fish production data are given intable-1.

III. FISHERY AS AN OCCUPATION IN INDIA

3.1 Aquaculture in India

Aquaculture may be defined simply asfarming fish and other aquatic organisms.Fish is used here generally to include allfarmed aquatic organisms. Land basedsystems are commonly integrated withagriculture by stocking fish in rice fields.Water based systems are for raising fishin water bodies such as rivers, lakes,reservoirs or bays. Asia accounts for about90 % of global production with Chinadominating the scene. Aquaculturecontributes to the livelihoods of the poorthrough food supply, employment andincome. Though there are many aquaticorganisms shrimp culture has receivedmore publicity. However, it contributesto 10 % of global production and carriedout by better off farmers. Fisheries havebeen recognized as a powerful incomeand employment generator as itstimulates growth of a number of

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Table 1. Status of fishery in Bihar

Resources Area/Number

Rivers 14 (Ganga, Kosi, Gandak, Burhigandak, Bagmati,Kamla, Balan, Mahananda, Kankai, etc.)

Ponds and Tanks 65,000 ha Ox – bow lakes (Mauns) 9000 ha Floodplain lakes (Chaurs) 35,000 ha

Infrastructure

Fish seed Hatchery 16

a) corporate sector – 2, Raghopur (Sitamarhi) and Rampati (Madhubani)

b) Private sector – 14.

Fish seed farms 121

Production and productivityAnnual fish seed production 300 – 350 millionAnnual Fish seed requirements 600 millionNumber of FFDAs (Fish farmers 33development agency)

Water area developed 26,000 haunder FFDAs

Average production in 2175 kg/haFFDAs pondsEstimated fish production from 2.4 – 2.5 lakh tonnesall resourcesEstimated annual demand of fish 4.56 lakh tonnes% functional fish seed farms 10%

(Source- Directory of Fishery, Bihar )

subsidiary industries and is a source ofcheap animal protein. It is an instrumentof livelihood for a large section ofeconomically backward population of thecountry. Fisheries is the only sector that

offers cheap and good animal protein tothe people, particularly to theeconomically weaker sections of thesociety and thereby it serves as a meansto ensure national food security. It is also

Kumar, Inland Fisheries ...


contributor of foreign exchange earningsfor several countries including Indiathrough export. The potential forwardand backward linkages through boatbuilding, construction of fishing harbours,fish processing etc., contribute further todiversification and strengthening of theregional and national economy.

India occupies second position in theworld in aquaculture production andcontributes to about 7 % of worldproduction. Fishery sector in Indiaprovides employment to about 6 millionfishermen and another six million areemployed in fishery related activities.That amounts to about 1 % of the totalpopulation that depends upon fisherysector in India.

Inland aquaculture has been the majorfish producing system in India. InlandProduction includes catches from rivers,tanks, reservoirs and lakes. Major states,which are involved in inland aquaculture,are West Bengal, Andhra Pradesh, Orissa,Tamilnadu, Madhya Pradesh, Karnatakaand Maharastra. Aquaculture is generallydominated by traditional species but thereis a tendency for production of high valuespecies like shrimp, which is alsoenvironmentally degrading and has comeunder increasing scrutiny and criticism.India is the third largest producer of fishand second largest producer of inland fishin the world. It is a source of cheap andnutritious food besides being a majorforeign exchange earner .The fisheriessector provides employment to over 11

million people engaged fully, partially orin subsidiary activities pertaining to thesector, with an equally impressivesegment of the population engaged inancillary activities.

Potential of fish production from marineand inland sources has been estimated at3.9 million tonnes and 4.5 million tonnes,respectively. Having almost reached aplateau in production from the coastalwaters, the scope for increasing fishproduction from marine sources now liesin the deep sea. A comprehensive MarinePolicy was launched in November 2004to facilitate sustainable deep sea fishing .In the inland sector, the potential forfishery development in East and North-Eastern State is immense. Fish is animportant constituent of diet of the peopleof these States. Development of fisheriescan go a long way to tackle the problemof food as well as unemployment in theseStates.(Table-2)

The inland fisheries resources of India arenoted as much for their heterogeneity incomposition as for as their opulentproductive potential. India is endowedwith a vast expanse of open inland watersin the form of rivers, canals, estuaries,lagoons, reservoirs, lakes, ponds, tanksetc. (Table 3).

Although the vast and varied inlandfishery resources of India have a richproduction potential, this potential hasnot been achieved. The productionpotential of the major river in India, theGanga, in its lower reaches, is estimated

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Table-2: Production and export of marine and inland fish in India

Year Fish Production (Million tonees) Export of marine products

Marine Inland Total Quantity Value(‘000 tonnes) (Rs. Crore)

1950-51 0.5 0.2 0.7 20 21960-61 0.9 0.3 1.2 20 41970-71 1.1 0.7 1.8 40 351980-81 1.5 0.9 2.4 80 2351990-91 2.3 1.5 3.8 140 8932000-01 2.8 2.8 5.6 503 62962001-02 2.8 3.1 5.9 458 58152002-03 3.0 3.2 6.2 521 67932003-04(P) 3.0 3.4 6.4 412(P) 5739

Source : Department of Animal Husbandry

at 198.3 kg/ha/yr, whereas the actual fishyield is 30.0 kg/ha/yr, and thus, only15.2% of the potential is harvested (Sinha1999). At the present level of management,the yield from the Indian reservoirs, onan average, is about 30 kg/ha, whereas aproduction of 50-100 kg/ha can be easilyachieved from large and mediumreservoirs, while the small reservoirs have

the potential to yield 100-300 kg/ha. Thefloodplain wetlands, commonly calledbeels in India, have a rather poor yield,100-300 kg/ha, against a productionpotential of 1,000-1,800 kg/ha/yr throughscientific management. The presentaverage productivity from aquacultureponds and tanks is 1,830 kg/ha/yr againsta much larger potential.

Among the other states of India, WestBengal provides largest quantity of fishfrom inland fisheries. The second largestis Andhra Pradesh, but is a poor second.Orissa is the third largest followed byTamilnadu. In marine fish, Gujarat is thelargest, producer followed by Kerala andMaharastra. The production data in milliontonnes and per capita fish production inmajor states are given in Table-4

Among the fish consuming states, percapita consumption of fish is the highest

Table 3: Inland Water resources of India

Type Quantity

Rivers and 45,000 km + 126, 334 kmCanalsReservoirs 3.15 million hectareEstuaries 2.7 million hectareFloodplain 0.24 million hectarewetlandsPonds and 2.25 million hectaretanks

Source: Sinha and Sinha (1999)



Table-4 Levels and Per Capita Output of Fish in Major Fish-Producing States

States Fish Production Per capita Fish Production(Million Tonnes) (in Tonnes)

Marine Inland Total Marine Inland Total

Andhra Pradesh 15.2 20.40 35.60 0.21 0.28 0.49Gujarat 60 0.6 60.60 1.32 0.01 1.33Karnataka 21.75 0.87 22.62 0.44 0.02 0.46Kerala 53.3 0.49 53.79 1.72 0.02 1.74Maharashtra 38.7 0.77 39.47 0.45 0.01 0.46Orissa 12.32 13.49 25.81 0.36 0.39 0.75Tamil Nadu 34 10.8 44.80 0.57 0.18 0.75West Bengal 15.3 74 89.30 0.21 0.99 1.20Goa 8.42 0.36 8.78 6.06 0.26 6.32Source- Directory of Fishery ,Bihar

Table 5: Annual Per Capita Consumption of Fish in Major States of India

States Quantity (0.00K.G) Fish Consumptionper 1000 Households

Andhra Pradesh 0.84 240Gujarat 0.24 79Karnataka 0.96 116Kerala 12.72 829Maharashtra 0.96 160Orissa 2.4 517Tamil Nadu 0.24 206West Bengal 5.64 848Goa 14.64 926

Source: NSS of India; cited in Handbook on Fisheries Statistics, Orissa, 1996-97, Directorate of Fisheries,Government of Orissa. P. 135.

in Goa. West Bengal and Kerala are inclose second and third position. Theannual per capita consumption of fish andconsumption per thousand householdsare given in Table 5.

IV. FISHERY POLICY IN BIHAR

The fishery policy of the government ofBihar consists of four major componentsas compiled from the various circulars ofthe government . These are :

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1. Leasing policy,

2. Subsidy Policy,

3. Fish seed hatchery and infrastructuralsupport,

4. Powers , controls and conflictresolution.

4.1 Leasing Policy in Inland cultureFishery in Bihar

The leasing policy is a very important toolin the hand of the government to effectany change in aquaculture at the groundlevel. The leasing arrangement of fishingrights is different in different states. In thecase of Bihar, prior to FFDA, (Before 1981)the Circle Officers (C.O.) of the districtsunder the administration of theDepartment of Revenue and Landdevelopment were mainly responsible forthe lease of the government ponds.

In 1981 FFDA was combined with DistrictFishery Department for bettercoordination. Today in Bihar, DistrictFishery Officer is redesignated as DistrictFishery Officer cum –Executive Officer ofFFDA. According to the leasing policy ofthe government of Bihar, as stated in theCompendium 2001, there are three typesof leasing Policy: -

1. Long term settlement (LTS) for 10years

2. Short-term settlement (STS) for3years.

3. Open bid (auction / dak system) for1 years

1. LTS For 10 years

The prime focus of the government for thelong-term lease was to construct theponds. Those ponds, which were in badcondition, the department wasresponsible to frame a project to renovatethe pond and this project proposal wassent to a concerned lead bank whichfunded the project .The time period to getthe money recovered was about 8 years.

The state of Bihar has government ownedponds with an area of 65000 ha. It hadbeen estimated that every pond neededreconstruction and renovation of at leastonce in every ten years. A pond thatoccupies a hectare of land requires Rs.4lakh of for such reconstruction. Biggerponds or smaller ponds neededproportionately more or less funds.

2. STS for 3 years

Such three-year lease is given to acooperative society at the block level. Itwas the government’s decision to helpfishermen’s cooperative and there wasone such cooperative generally in eachblock and such cooperative was given thelease. Usually, only one cooperativesociety got all the ponds available for leasein a block. To strengthen the cooperatives,a provision was made by which everyfisherman was to contribute 2 ½% of hisincome to the cooperative.

3. Open Bid/Dak system for 1 year

The open bid or dak system was followedwhen,



a) There was no cooperative society inthe block.

b) The previous cooperative has beendeclared as a defaulter.

c) There has been no election of theexecutive body.

d) No auditing of the cooperative hasbeen done.

e) No general meeting of the society hadbeen held.

f) When cooperative did not show anyinterest to take any particular pond/tank and there was a chance that theseponds would remain as ‘Parata’ orunleased.

In the case of long term lease or short termlease, the society or the individual paidsecurity deposit or Jalkar which wasdecided on the basis of the annualproductivity of the pond. For the pond ofsize 4 hectare, security deposits was to bethe 10% of annual production of the pondsand for the pond of size more than 4hectare it was be 5 % of annual production.For example, if a pond of size of one hectarehave yield of 80 kg and the price of fish inmarket is Rs.20 /kg, the total value of thefish produced would be Rs 16,000 ( 80kg [email protected]) and security deposit would beRs.1600. The production figure wasassessed at the end of the every three years.

The estimated production figures andannual productivity were decided by acommittee consisting of Deputy Director(fisheries) as the president,representatives, of Matsya Jeevi Sahyog

Samiti nominated by government(member), representative of Matsya palaknominated by the government ( member),District-fishery-officer cum chiefexecutive officer and Asst. fishery director– member secretary.

However, if the security deposit wasabove Rs 50,000 and less than Rs. 1 lakhthe committee was headed by Director ofthe fishery department as president withjoint fishery director( headquarter), JointRegistrar, cooperative committee,representative of state level Matysa Jeevicoop. committee and Deputy director asmembers.

For ponds having security deposit of morethan Rs 1 lakh, security deposit wasdecided on the recommendation of acommittee formed at the director level,and decided by the government. Some ofthe other aspects related to leasing weregiven in various other circulars, the gistof which is given below.

1. Ponds having size 4 hectare or morethan 4 hectare, which were not underthe LTS, would be settled withMatsya Jeevi Sahyog Samiti formedat the Block level (in case thecooperative is ready to take the pondsby paying the fixed deposit).

2. If cooperative society is not willingto take the ponds at the pre-determined security deposits, thensuch ponds would be settled by openauction in the newspaper. For thepond having annual deposits of morethan Rs.10, 000/ invitation for the bid

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should be published in thenewspapers. Information of the dakshould be sent to the Mukhiya ofGram Panchyat. A notice of dakshould also be sent to the State levelMatsya Jeevi Samati 15 days beforethe starting of the leasing process.

3. Open auction should be done in thepresence of following officers

a) Deputy fishing director

b) DFO cum executive officer

c) Asst. fishery director

d) Fishery Inspector of the area

e) Mantri of Matsya Jeevi SahyogSamiti of that area.

4. There was no need to give informationin newspapers for Jalkar havingsecurity deposits less than Rs.10,000but other processes were the same.

5. The settlement was to done before thedeadline in order to make nextsettlement on time.

6. If ‘Pattedar’ (lessee) was lazy indepositing the security money, ashow cause notice was sent to him.

7. With regard to the settlement andrevenue collection of the pond it wasprovided that the settlement of allJalkar should start from 1st April everyyear .One third of the lease amountshould be collected before thesettlement, one third before 31st Julyand the rest before before 31st Januaryof the next year. If the settlement isdone with any individual for a year

then half of the total amount of leasefor a year should be taken beforeallowing the pond on lease.Remaining half of the amount shouldbe collected in two instalments at theregular interval of three months. Iftotal amount of the security is Rs.1000 then entire amount should bedeposited before grant of lease.

8. Only fishermen of that Panchayat inwhich Jalkar lies would be selectedfor the LTS. In the absence of anyfisherman in that panchyat it wouldbe done by fisherman of nearbyvillage panchyat. The rules providedfor involvement of as manyfishermen as possible. For example,

Size of pond Settlement is done

Upto 1.5 acre pond One of the memberof the fishermanfamily

Upto 3 acre Two separatemember of twofisherman family

Upto 3 to 10 acre Each member of afisherman family @2 acre per person ofa fisherman familyIt would be donecollecting groupleader would bechosen by them.

4.2 Pattern of assistance or subsidygiven to fish farmers by the BiharGovernment.

If the pond or tank is used for the fishfarms, the government provided subsidy



of 10-15 % of total cost based on the costsand economic condition. If the pond ortank is being utilized for hatchery, thegovernment provided subsidy of 20%.General subsidy was given based on thecaste system. For the renovation orreclamation of the village ponds, the inputsubsidy was 20% for the general caste and25% for the SC/ST and others.

With regard to the loan, as soon as theregistration of the loan was completed, theproject proposal, for the concerned pondwas prepared by Jaklar Engineer under theguidance of the chief executive officer.This project proposal, with the consent offishery executive officer who wasauthorized to approve the loan, was sentto bank with the required certificates.

It was the duty of DFO-cum-CEO thatloan was sanctioned within 6 month of thesettlement. The development work of thejalkar was to be done within a year of thesettlement. If it was not done, a showcause notice was sent to the concernedperson. It was the responsibility of theDFO, fish executive officer and the fisheryinspector to ensure the on time repaymentof the loan to the bank.

It was be the responsibility of the Deputyfield Inspector (regional) to inspect theponds given on LTS after every 3 monthsin order to ensure that there is

(a) Proper collection of revenue from theponds,

(b) Repayment of installment of theBank-loan on the time, and that

(c) Development work of the pond wasdone after the approval of the loan.

A copy of the inspection report was to besent to the Department of fishery. A showcause notice was to be sent to the lessee,if he did not follow any of the rules.

4.3 Hatchery

There were subsidies provided to theextent of 25% of the cost of setting uphatcheries. But only 10% of the hatcherieswere functional in the state. The table-6shows the subsidy, investment andhatchery sizes.

Mr. Sadai Mukhiya of Tamuriya Villageof the Lakhnaur Block of the Madhubanidistrict ran a hatchery unit. His caseprovided a typical example of privatehatchery in the state. Total no. of the

Table 6: Hatchery size, subsidy and investment

Size of Expected Subsidy SizeHatcheries Expenditures

(in Lakhs)

1 ha 2.765 Either Rs.20,000 or Rectangle25% of the cost

1.75 ha 4.205 - do - Circular

3 ha 5.289 - do - Circular

163

temporary labors hired by Sadia Mukhiyain his hatchery was 15( for 3 [email protected]/month). These labour wereused for pond reclamation, netting andbringing brooder. Total umber of thepermanent labour employed was 3. Theyworked for 12 months @ Rs.1500/ monthfor selling Jeera, Brooder, etc. So totalnumber of people employed was 18.

Before establishment of the pond, theselands were used for the rice cultivationand ponds were being used for makhanaand fish cultivation. Source of watersupplies in the hatchery unit and theponds was met by his own motor pump.The arrangement for procurement of fishseed in the village is met y the NarmadaPokhara which was near the village.Mostly Spawn were sold at the hatcheryunit and local fishermen and smallretailers came to hatchery to purchase it.Sometimes Brooder is sent to local fishmarket of Tamuriya to get good price.

There was no social conflict as it is aprivate hatchery. There were no cases ofpoaching (inspection by labours).Sometimes cases of poisoning were found.

Sadai Mukhiya annually investedapproximately. Rs.1000 for themaintenance of his hatchery.

This is a private hatchery and SadaiMukhiya got the entire profit. Benefits ofthis hatching unit were employment to thelocal fishermen and timely availability offish seed to other fish cultivators. Therewas no such problem faced by SadaiMukhiya while working in the village.

Mr. Sadai Mukhiya is an innovative farmer.He practised the technique of integrated fishfarming. He produced ‘Makhana’ in his fishponds. Mr. Mukhiya was not happy withthe department of fishery. He did get anysubsidy or assistance for the maintenanceof his hatchery as there is a provision ofproviding subsidy only to the individualwho shows his willingness to establish ahatchery, not to exiting hatcheries for thepurpose of maintenance.

4.4 Power for Pond Lease, Control, &Dispute Settlement

The decentralization of power by theGovernment of Bihar in respect of annualdeposit for the ponds was as follow:

Name of the officers Settlement of pond up to theannual security deposit

District fishery officer – cum – Rs.2000 rupeesChief executive officerDeputy fishery director (Regional) Rs.2000 – 5000District Samaharta Rs.5000-20000 with Recommendation from the

district Samaharta to DFO and deputy fisheryofficer

Director, fishery Rs.(20000-50000) on the Recommendation fromdistrict Samaharta director, fishery

Recommendation by the Government. Rs.50000



In case of LTS , as bank loans wereinvolved , to ensure collection of revenueand repayment to the banks, certaincontrol were provided.The fixation of dateof netting of the ponds was to be jointlydone by DFO-cum-CEO and lessee andthis information was sent to the Banks.Allthese directions of the government werefollowed by FFDA strictly in that district.

All the dispute settlement was done by acommittee headed by Deputy-fisheryDirector (Regional), DFO-cum-CEO, andFFDA would send the recommendationof this committee to samaharta-cum-president. Any dispute was to be settledwithin 3 months.

According to Durga Mukhiya acooperative society faces conflicts indifferent ways: Sometimes there is aconflict over the allotment of the pondsto the members. Conflict over the selectionof a sangathan Karta for a particular pond,conflict over the number of fisherman tobe employed for a pond under aSangathan Karta and conflict over thepoaching by Sangathan Karta and itsmembers existed to a great extent.

The Conflict resolution by the cooperativeis done as follows: If the conflict wasbetween members of particular pond thenit was solved by Sangathan Karta. If theconflict was between Sangthan Karta andmembers, then it was solved by executivecommittee. If any of the members didn’tobey the decision of the executivecommittee, firstly, other ponds indifferent panchayat were allotted to him.If he is not ready then his membership

was cancelled by executive committeeand information was sent to DCO.

V. PRODUCTION AND ECONOMICS OFINLAND FISHERY

In order to find out the economics ofinland fishery , a study was undertakenin the two districts of the state –theMadhubani district of North Bihar(having highest fish production) andRohtas district of South Bihar ( havinglowest fish production ) . Such choice wasintendendly made to enable appreciationof a good district and a bad district. A fieldresearch was taken over a period of twomonth (April-May, 2005) in these districts.Five cases of cooperative fish cultivationand six cases of private fish cultivationwere studied in details. Exhaustiveinterviews were conducted with the helpof open-ended checklist. Besides visitingsome sites at the villages, discussions wereheld with Secretary/Chair Persons of co-operatives, contractors of village pondsand private owners separately. Severalsessions with the fishery departmentofficials at various levels like DeputyDirector , District fishery officers , DEO ,fish traders and other players tounderstand and document the evolutionof inland fisheries policy in the state andits impact on inland fisheries economywere also held .

5.1 Sample studies of fisheries

As stated above, all the cases have beendivided into two groups. One iscooperative or collective and the other isnon-collective. Again under collective

165

Table: 7(a) Economics of collective fishery (Cooperative experience)

Name Location Area Lease Fix Variable Total Value Profit Profit Production Produ(Ha) Amou ed Cost Cost Cost (Rs) (Rs) (quintal) ctionction

mt (Rs) /ha

Pandol Village - 25 1,50,208 4,94,000 4,94,000 7,50,000 2,56,000 10,240 150 6MatsyaJeevi BhagawatipurSwalambi Block- PandolSamiti Dist-

Madhubani

Rajnagar Village - 30 ha 3,50,000 13,10,000 13,10,000 Rs. 18,00,000 4,90,000 16333 360 12Prakhand Raghopur /yearSamprava- Ballatrtit Matsya Block-Jeevi Samiti Ragnagar

Dist-Madhubani

Aandhra- Village - Thari 2.125 20,530 8000 60,130 68,130 Nill 68,130 NA Nil 0thari Block- ha .00 (No prodPrakhand Andhrathari uction dueMahilla Dist- to fllod )matsyajeevi MadhubaniSwalambisahyogsamiti

Matsya zeevi Village - 75 ha 70,000 2,10,000 2,10,000 6,00,000 4,90,000 6533 300. 4sahyog Bharkarsamiti , Block-KochasKochas Dist-Rohtas

Kum

ar, In

land F

isherie

s ...

166

Vila

kshan, X

IMB Jo

urn

al o

f Manage

ment

Table: 7(b) Economics of Non-Collective fishery (Private owners/Contractors experience)

Name Location Area Lease Fix Variable Total Value Profit Profit Production Produ(Ha) Amou ed Cost Cost Cost (Rs) (Rs) (quintal) ctionction

mt (Rs) /ha

Aandhri Village –Andhri 0.5 ha . 2300 Rs.10,000 Rs 12,500 Rs. 22,000/- Rs. 10,500/- 2,100 5 3Pokhar Block-Benipatti

Dist-

Daroga Village - 3 21,000 1,38, 000 1,38, 000 2,40,000 1,02,000 17,000 18 3Machali Farm Mahdiganj

Block- SasaramDist-Rohtas

Mithila Village- 2.5 ha 9,000 Rs. Rs. Rs. 20,40,000 Rs. 40,800 Spawn(50- NAMatsya Tamuriya 2,71,150 2,72,050 17,67, 60000)Hatchery Block— 150.00 thousandLakhnaur Lakhnaur Dhani fry

Dist- (1.5 crore)Madhubani

Radhika fish Village - 1ha 3 45,000 48,000 1,80,000 1,02,000 40,800 30 12farm Garnokha

Block –NokhaDist-Rohtas

Raja fish farm. Village - Diliya 6 ha. 10,00 36,000 46,000 Rs. 1,50, 1,04,000 5200 5 lacs 20Block- Dehari 0.00 000.00 fingerlingsDist-Rohtas

167

Figure-1. : Production of fish in Bihar during 2000-05 in metric tonnes

Years Production (inthousand metric tones)

2000-01 22.16

2001-02 240.40

2002-03 261.00

2003-04 266.49

2004-05 249.25

(Source- Directory of Fishery ,Bihar

there are two groups - one is cooperativeformed at the Block level in each districtand the other is village community pond.In case of non-collective, group is dividedagain into two subgroup- privatecontractors and private owners. Thesetogether involved 10 cases , taken from10 villages .

The table 7(a) and (b) in the last two pagesgives the overall summary of the 10 cases.

5.2 Production Trend of fish in Bihar - anOverview

The total fish production in recent yearsafter the creation of Jharkhand state canbe seen from the following figure 1, andfigure table-8.

It may be seen that there was a steadyincrease in fish production up to 2003-04,there has been a decline in 2004-05.

Table 8: Production of fishes in Bihar during 2000-2005


0 50

100 150 200 250 300

Production

20 00- 01

20 01- 02

20 02- 03

20 03- 04

20 04- 05

Years

Production ( in thosand metric tonnes)

Production ( in thosand metric tonnes)


5.3 Construction of hatchery in privateland

There is a provision for consolidation ofhatchery in private lands . There are threemodels (which are not explained here).

5.4 Deployment of Capital and Labour

The fish cultivation is capital intensive(just contrary to the agricultural sector,which is labour intensive) Based on thecase studies, we can see that the privateowners are using only 2 or 3 permanenthired labourers on an average and

amount of capital employed is betweenRs 50 thousand to 1 lakh withproductivity around 9.25quintal perhectare.

5.5 Structure and returns from the urbanmarket of Madhubani district

The structure and return of variousoperators in the distribution channel inMadhubani, which is one of the districtsstudied here, are given in the Table 9.

5.6 Traditional and non-traditional fishercastes in inland fisheries in Bihar

Information about traditional and nontraditional groups are given in Table 10.Table 9: Income of various operators in distribution channel

Whether Margin Estimated Annual netfishermen earned turn over income caste (rolling) (kg/yr)

Wholesaler/preharvest No 5% N.A. Rs.2– 2.5lakhcontractor

Commission agent No 5% Rs.40–50 Rs.70–80(adhat owner) thousand thousand

Retailer/vendor Yes 5–7 % N.A Rs.10–20thousand

Table 10: Characteristics of traditional and non traditional fishery groups

Sl. Items Traditional Non-traditionalNo. fishercates groups

1 Scale of production 10w/subsistence Commercial/high

2 Technology Low High

3 Awareness/skills Traditional New/scientific

4 Credit Little access Accessible

5 Market Retail Wholes all

6 Income Low High

7 Role of women Significant None

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5.7 Competitive Analysis of Inland Fisheryin Bihar (SWOT Analysis )

The competitive analysis (SWOT analysis)of inland culture fishery sector in Biharindicates that rich natural resources andlow land cost are the strengths of the stateand the unused Ox – bow lakes (Mauns)of 9000 ha , floodplain lakes (Chaur) of35,000 ha , reclaimable fallow land of2,08,000 ha in agri zone I , 1,65,000 hain agri zone II , 1,02,000 ha in agri zoneIII can be considered as opportunity todevelop inland fish cultivation . Lack ofhatchery to supply good fish seeds,inadequate institutional arrangement(loophole in leasing policy), possibility of

only inland culture fishery, centralizationof power to cooperative, villagepanchayat having no role in leasing outvillage ponds and unavailability of easyinstitutional credit are the weaknessprevailing in this sector. Invasion ofAndhra fish and fish from other stateswere draining out approximately Rs. 7crore per month from the state. Increasingnumber of silted and dead governmentponds are have also become threats toinland fish cultivation in Bihar.

In the context of such strengthopportunities, weaknesses and threats,the following SWOT chart (see table 11)for fisheries can be drawn:

Table-11 : Competitive analysis of Fishery Sector in Bihar

STRENGTH OPPORTUNITIES

Rice natural recources Ox – bow lakes (Mauns)-9000 haLow land cost Floodplain lakes (Chaur- 35,000 ha)

Reclaimable Fallow land (ha)

l Agri Zone I — 2,08,00

l Agri Zone II – 1,65,000

l Agri Zone III – 1,02,000

l Increased Market acess

WEAKNESS THREATS

l Lack of hatchery l Invasion of Andhra fishes

l Inadequate institutional arrangement

l Only inland culture fishery possible

l Centralization of power to cooperative

l Village panchayat have no role

l Unavailability of easy institutional credit



VI . THE PARADOX OF LEASING POLICY

Earlier, the leasing policy was based onthe dak or open system. It generated thelarge revenue of the government as therate for dak was open. Government usedto get 10 times more revenue in open dakthan it got by leasing it to cooperatives.

But the main focus of the new leasingpolicy was to promote employment,livelihood, and self-employment amongfishermen, although it had reduced therevenue generation of the government.New leasing policy was intended to focuson the downtrodden section of the society.New leasing policy was also focused onthe fishermen’s caste.

VII. ALTERNATIVE ORGANISATION FOR

FISHERY

As explained earlier the fishery systemoperated either through cooperativesocieties or through private individualwho took out to the fishponds either onshort term or long-term basis. Thecooperative societies also got the priorityover individual in getting these ponds.

The Cooperative societies in the state weregoverned by the State Cooperative Act,1935 as amended from time to time. Thecooperative societies were of two types –Shajog Samiti in which government hassubstantial share capital or ownership.The cooperative’s day-to-day function

was with the executive bodies consistingof seven members, out of whom one wasdesignated as Mantri and one asPresident. There was also in everycooperative society a Cashier. The Mantriwas selected by an open ballot system butin reality more often the selection wasmade depending upon the social statusand power enjoyed by him in hiscommunity.

The other kind of cooperative society wasSwalambi Samiti. These kinds of samitiswere started by the fishermen themselves.Here also, there were seven members inthe executive body out of whom one waselected as President and other sixcontinued as executive members. Therewas no provision of Mantri in SwalambiSamiti. All the executive members wereselected in the general meeting byfishermen who were members of thesociety. The basic differences between thetwo societies are shown in Figure-2.

In case of Swahalambi society one of theexecutive body members was selected asChief of the Executive Body. The Chiefwas endowed with power to settle thedisputes and claims. The Swahalambisociety was created in accordance with thestate cooperative act as per its 1996amendment.

In the execution of various schemes thepowers were divided between the

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Figure-II : Differences between two types of Cooperative Societies

Cooperative Societies

As per 1935 coop Act As per 1996 Amendment

l It is known as ‘Sahyog Samiti’ l Such coops are known as‘Swalambi Samiti’

l There is a share capital of the l No Share of the govt.govt. in such coops

l Total no. of members in l Total no. of members inexecutive body = 7 executive body = 7

1 – Mantri l No. provision of Mantri

1 – President 1-President

1 – Cashier 6- executive members

1 – Executive member

l Here Mantri is selected by l Out of the remaining member isopen Bahot selected as Chief executive

l Chief executive have power forsettlements

l Chief executive holds the post as perthe desire of executive body

l Out of the 7 member of executivebody, one is selected as president

l Members of an executive body areselected by a common meeting ofmembers.

executive engineers of the irrigationdepartment and the fisheries officers ofthe Government. In respect of executionof schemes similarly with regard tosanction of subsidy, the power wasdivided between Assistant fisheries

development officers and district fisheriesofficers. The respective limits of financialpower are given in the table 12.

It needs no mention that all these officersworked under the direct supervision ofthe concerned superior of the department.



Table 12 : Schedule Of Powers As Per Expenditure On Works

Nature of Delegation Designation of Extent of P. Work RemarksExecution of Schemes Officers

Construction of a. Executive Above Rs.10,000 Subject toNurseries renovation Irrigation Minor in each case Budget Provisionrepair and Irrigation Division

Improvement of tanks b. Asst. Fisheries Uptp Rs.10,000 Subject toand other water area Development officers in each case Budget provision

and District fisheriesofficers

Sanction of Subsidy

Sanction of subsify of 1. Asst. Fisheries 50% of the total Subject ofrenovation repair and Development cost of subject Budget provisionimprovement and officerprivate tanks 2. District fisheries Maximum of

Officer Rs.250 in eachcase .

VIII. FISHERY AND POLITICS

Fishery has been one of the driving forcesof the politics in the state. Therefore thecooperative system which does notgenerate the maximum revenue for thegovernemt is patronized by thegovernment because through this systemthe political parties in government cancreate the vote banks. It also becomepossible for the political leader to createlocal leadership through which they canreach the villages and particularly thefishermen communities. The governmentfrom time to time has advocated supportfrom such cooperative on the grounds ofraising the standards of the poor sectionsof the community by improving theirsubsistence level. There is always aquestion that in order to support the

weaker section, the productivity in fisheryand commercial viability of the fisheryschemes are sacrificed.

IX. ISSUES AS VIEWED BY THESTAKEHOLDERS

In course of the study the case writervisited serveral villages and helddialogues with the village executives ofthe cooperative society and governmentofficers in fishery and irrigationdepartment. The views expressed bysome of them are stated below:

One of the district level officers in fisherywhile commenting on the fishery policysaid; “Earlier, the leasing policy was basedon the dak or open system. It generatedincreased revenue for the government. Asthe rate for dak was open, government

173

used to get 10 times more revenue in opendak than by leasing it to cooperative”.

Another person remarked, “The mainfocus of the new leasing policy is topromote employment, livelihood and self-employment among fisherman, althoughit has reduced the revenue generation ofthe government. New leasing policy ismore focused on creating opportunitiesfor the downtrodden section of the socity.New leasing policy is more focused on thecaste”.

One of the village leaders who also hasfish pond, had somewhat negative viewon the fishery policy of the stateparticularly in terms of its effect inremoving economic deprivation. Hisstatement was as follows: “The groundreality is that the leasing of governmentponds to fisherman have not helped themto improve their economic status becasueevery year 20,000 hactare area of thegovernment ponds are leased out, onlyponds having area 10,000 ha(25000 acre)are productive. Suppose the averageproductivitiy is 1000kg/acre and the priceof the fish in market is Rs.40/Kg then totalvalue of fish produced is Rs.100 crore(2500 acre x 1000 kg/acre @ Rs.40/kg).Government takes only 1/10 of totalproduce as lease amount, that is equal toRs.10 crore. If remaining Rs.90 crore isshared between all fisherman, theireconomic status would only nominallychange. This figure negates thegovernment’s objective of employmentgeneration and livelihood promotion.

One of the village elders mentioned thata major problem in long term lease asstated by fish pond lessees was that therewas a lack of coordination betweendistrict fishery office and the sponsoredBank. More often the significant part ofthe lease period expired without anyrenovation work being taken up on theponds. As a result, fish in initial period oflease got affected and productivity perhectare was generally low.

Another said that there were suspectedcases of corruption and malpracticesbetween Banks and government officials.In the process of clearance of projectproposal. Sometime the delay was asmuch as 10 years.

Highlighting the problems of the fishery,one of the executive members of thefishermen’s cooperative societymentioned about the maintenance of theponds. He said that some of the pondswere taken on short-term basis andtherefore the lessee is more interested ingetting back their money without makingany further investment in the ponds. Thishas given rise to variety of problems suchas ponds becoming sallow due to soilerosion, erosion of the embankmenttherefore reduced water retentioncapacity, negligence towards cleaning ofthe ponds and in-adequate planning of thefish culture.

Besides, under the cooperative scheme,since the cooperative soceity got the lease,no individual member of the society wasparticularly totally committed to theproject. In case of private individuals



getting the lease, this particular aspectseemed to make a major difference.

According to Kamata Jee, an entrepreneurin fishery, poisoning of the tanks,poaching and serveral power cuts are theproblems he faced. Villagers due to theirpersonal rivalary put poision into hisponds. Last year, one pond of size 0.8hactare was destroyed due to poisoningmade by his known competitors. Hisponds are spreaded in other villages; hefaced a lot of problem of poaching in theseponds, which are far from his house.

He had kept a Chawkidar to look afterthese ponds but it was of no use, as mostof the poaching was done by the youngboys of (14-18) age. Besides, competitiors,in order to earn quick money, arecultivating thai Mangur which have beenbanned in Inida. During Mansoon seasondue to overflood of the ponds, ThaiBangur were carried into his ponds andthet ate all the small fish in his tank. Thiscreated a conflict between them last year.

Regarding fish seeds and spawns it is saidthat in 1 hactare , approx. 10,000 zeera fishseed should be put but he put zeera20,000/hactare as, fish dies due toprevelant diseases in the ponds. Mr.Kamta Prasad had a good reputation inthe market and he said that a goodreputation in the market helped him toget good feed from the market.

Mr. Kamta Prasad had all type ofarrangement for the fish ponds in his firm.He had prepared ‘Happa’ to keep the fish.Happa is a small water tank made ofcement. He used cotton net to catch fish

to avoid injuries to fishes. He had his owntube-well motor pump for which he usedelectricity. He had no diseal set. Rs.325was monthly bill for his house and hisconnection was from the village electricitypole. He has some kind of officialarrangement with electricity department.He had kept oxygen cylinder for theoxygen packaging of the fish as he didretail selling of the fish. He charged @Rs.4per pack. The annual expenditure ofkeeping cylinder was Rs.1200 (Rs.200 x 3-4 times).

Kamta Prasad, about his own experiencesaid, “If the colour of water is greenish,there is no need of potash, urea orcowdung for the pond and it is an idealcondition of the water. If the colour of thewater is white, there would be no growth.(Slow growth). If the colour of water isblack - possibility of dying of fish andspread of diseases in the pond could bepossible. So urgent need to put Chhunaor Banana tree (which have sufficientcalcium) was essential.

Kamta Prasad Singh brought fish seedfrom the local river son at Dehri-on-sone.Either the local fisherman or the Bengalifisherman came for spawing in the monthof July – August. This time fishermen puttheir net into the river. The red colour ofwater showed the presence of jeera in thewater.

One business secret Mr. Kamta Prasadrevealed was that to take Baati of jeeraafter one or two days of collectionincreased the survival rate of spawns. As

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a major part of the fish feed (Zeera) wassupplied to local fishermen from the riverSone as they did not have sufficient capitalto purchase seeds from Howrah. But thisriver has been polluted by the wastages ofthe different factories which are engagedin the manufacture of paper, chemicals,sugar, cement etc. Theese are the majorsources discharging over 4 million gallonsof wastes per day into the river Sone.

The construction of the anicut in the mainriver, Sone has rather restricted the flowof water during summers only to the tuneof 100-15- cusecs. In the absence ofadequate dilution, there has been a seriouspollution hazard in the river whichextends up to a distance of 22 kms of theriver down below, the fallout of which isthat no major crap could survive. Thehighly putrescible organic matter presentin the waste drew heavily on the oxygenbody of the stream and changed thecharacter of the water.

The entire environment acted as a barrierto upward and downward migration of theflood fish. Fish captured in the area wasnot relished because of the offensive odour.A case of heavy mortality was alsorecorded. It is due to high concentrationof chlorine from plants and paper millwastes which caused the low oxygen level.

It is not that fisheries had only lot ofproblems. It also helped in social activitiesin the village. There is one school invishunpura village, an Upper PrimarySchool. It is partially aided by theGovernment. This aid is insufficient tomeet the salaries of the school teachers.

There are totally forty eight studentsstudying in Class five to eight with threeteachers to cover the syllabus. Hence, thevillage headman and other members of thelocal committee, in consultation with thevillagers, decided to hand over the incomeof community fish pond to vishnupuraupper primary school, in the larger interestof the village, so that the revenue obtainedthrough angling from the communitypond could be used to pay the salaries ofthe school teachers and a part of thebalance to be spent for the purchase offingerlings for stocking the pond.

In 2001, and agreement was entered intobetween the village loval committee andthe school management under which 75%of the total revenue collected will of to theschool management to meet the salaries ofteachers and the remaining 25% of theamount will be used by the village localcommittee for the following activities: Tomeet the petty expenditures during thecleaning of village, which took place oncein a year; b) on death of person in thevillage, money to be provided to the familyfor the purchase of wood; and c) to meetthe expenditure of the village sports club.

The total revenue obtained in the year2004 was Rs. 45,048.00 of whichRs.26,048.00 was through angling onSaturdays and Rs.19,000.00 throughleasing.

The community fish pond at Vishnupuris the first of its kind in the Rohtashdistrict, where the recreational fishery iswell organized and the revenue collectedis utilized for meeting the salaries of



school teachers and also for the villagewelfare activities. The reponse of anglingenthusiasts at vishnupura communitypond as well as the monetary benefitsobtained from angling had startedinspiring small and marginal fish farmersof neighbouring villages to adopt a similarmethod of sport fishery in their ponds toincrease their income. A small farmer inthe neighbouring vishnupur village hadalready adopted the same technique ofallowing people to do angling in his pondfor a fixed fee of Rs.15/- per rod on alldays excepts on sundays.

Thus, the villagers of vishnupura haveproved that substaintial income ispossible from a community pond throughrecreational fishery development. Theyhave also proved that a communityapproach for an organized sport fisheryactivity could result in better utilizationof revenue for the welfare of the village.

X. THE FULL CIRCLE

The adminstrators in the state fisheriesdepartment were partly worried that theinland fishery in the state was not doingas well as it should. They wanted that thesubject should receive some more

attention of the professionals who werecompetent and had expertise aboutfisheries and also of management experts,who could to thoroughly examine theissues and make appropriaterecommendations to the government.

REFERENCES

Directory of Fishery, Government of Bihar.

Economic Survey of India 2003-04.

Handbook of Fisheries Statistics, 1996-97,Directorate of Fisheries, Government ofOrissa.

Handbook of Fishery Statistics, 2000-01,Government of Bihar.

Inland Fishery – Leasing Policy, Government ofBihar.

Sinha, V.R.P & Ramchandran V., Freshwater FishCulture,

Sinha, N. & Sinha, S., (1999) adoption of Aqua-culture for optional utilisation of water bodiesfor Improvement of socio-economic Studiesof weaker sections, Indian Council ofAgricultural Research, New Delhi.

www.indnet.org/res/ecnomic html

177

Appendix : I

Number of Blocks, Water spread areas in Hectares (Private and GovernmentSectors, their total) and the Average Water Area (ha) per Block

Name of Number Number of Number of Ponds Water spread Area (ha) Water AreaDistricts of Blocks Villages Govern Pvivate Total Govern Pvivate Total (ha) per

ment ment

Patna* 23 1294 739 411 1150 2101.82 74.55 2176.37 94.62

Bhojpur 14 993 701 174 875 1235.20 107.20 1242.40 88.74

Buxar 11 1134 456 125 581 500.00 75.00 575.00, 52.27

Kaimur 11 1715 N.A. N.A. N.A. N.A. N.A, 2469.00 224.45

Nalanda 20 1065 225 905 1175 2598.00 868.00 3466.00 173.30

Rohtas 19 1695 385 297 682 1150.00 235.00 1385.00 72.89

Gaya* 24 2925 1106 N.A. 1106 2175.60 400.00 2575.60 107,31

Arwal 5 426, N.A. N.A. 295 N.A. N.A. 656.06 131.21

Aurangabad 11 1884 444 N.A. 444 1187.00 220.00 1407.00 127.90

jchanabad 5 521 N.A. N.A. 275 N.A. N.A. 520.40 104.08

Nawada 14 1099 N.A. N.A. 511 1831.50 1352.50 3184.00 227.42

Saran* 20 1813 908 1300 2208 530.00 1000.00 1530.00 76.50

Gopalganj 14 1566 209 30 239 929.68 68.20 997.88 71.27

Si wan 16 1553 630 564 1194 639.92 171.74 811.66 50.72

Muzaffarpur* 16 1852 744 187 931 1473.92 348.18 1822.10 113.88

Sitamarhi 17 845 1354 1582 2936 1430.72 968.00 2398.72 141.10

Shcohar 5 208 232 105 337 114.00 175.30 289.30 57,86

Vaishali 15 1638 667 438 1105 704.00 268.69 972.69 64.84

East 27 1345 519 341 860 3622.97 380.57 4003.54 148.27

Kum

ar, In

land F

isherie

s ...


Appendix-II

Possibilities of the Excavation/Construction of new ponds in the 10% of the Current fallowLand and the Number of ponds Likely to be Constructed/Excavated in Each District of Bihar.

Agro- Distict Reclaimable 10% of the Number of pondsclimatic Fallow current fallow of 0.1276 ha thatZones Land (ha) land can be Constructed

1. Darbhanga 35,000 3,500 27,4292. Madhubani 30,000 3,000 23,5103. Samastipur 8,000 800 6,2694. Sitaraarhi 10,000 1,000 7,836

Zone I 5. Sheohar N.A, N.A, N.A.6. Muzffarpur 1 24,000 2,400 18,8087. Vaishali 6,000 600 4,7028. Saran 20,000 2,900 22,7279, Stwan 6,000 600 4,70210. Gopalganj 4,000 400 3,13411, East Champaran 15,000 1,500 11,75512. West Champaran 41,000 4,100 32,131Total Zone-1 2,08,000 20800 1,63,00913. Kishanganj 16,000 1,600 12,53914. Purnea 39,000 3,900 30,56415. Araria 29,000 2,900 22,727l6. Katihar 36,000 3,600 28,20

Zone II 17. Madhepura 13,000 1300 10,18818. Saharsa 8,000 800 6,26919.Sapaul 7,000 700 5,48520. Kliagaria 11,000 1,100 8,62021. Begusarai 6,000 600 4,702Total Zone-II 1,65,000 16,500 1,29,3V22. Patna 34,000 3,400 26,64523. Na!anda 33,000 3300 25,86224. Bhojpur 14,000 1,400 10,97125. Buxar 11,000 1,100 8,62026. Rohtas 9,000 ~900 7,05327. Kaimur(Bhabhua) 19,000 . 1,900 14,89028. Gaya 1,49,000 14,900 1,16,77129. Jchanabad 6,600 660 5,1723O. Arwal 4,400 440 3,44831. Nawada 39,000 3,900 30,56432. Aurangabad 55,000 5,500 43,103

Zone III 33. Bhagalpur 30,000 3,000 23,51034. Banka 20,000 2,000 15,67335. Muncr 44,000 4,400 34,48236. Lakhisarai N.A. N.A. N.A.37. Jamui 34,000 3,400 34,48238. Shcikhapura N.A. N.A. N.A.

(Source- Directory of Fishery ,Bihar )

Kurien, Verghese (2005) I too had a Dream

Roli, New Delhi, pages 250, Rs.395*

Reviewers : S.K. Chakraborty1

& D. Chakraborty2

* Received February 13, 20061. Former Professor and Founder-Convenor, Management Centre of Human Values, Indian Institute

of Management, Kolkata2. Lecturer, Birla Institute of Technology (Mesra) Ranchi – Deemed University (Kolkata Extension

Centre)

Book Review

Dr. Kurien’s autobiography offers to itsreaders a saga of impregnable integrity. Inthese days of dis-integrating integrity andvanishing ethico-morality the tales told inthe book show how ethico-moralcompetence, as a foil to professionalcompetence, is not an exercise in fancifulidealism. He emphasizes the point, earlyin the book, and correctly at that, thatintegrity unto one’s own self is a pre-condition to integrity in dealings withothers (p.xiii). Probably the most tellingexample of this principle in action was inhis confrontation with Jagjivan Ram, aheavy-weight central minister and astutepolitician of his times (pp.165-66). Thelatter had summoned Dr. Kurien to helpset up a private dairy with funds from thecooperative dairy system. He refused tooblige, and therefore had to bear the bruntof the minister’s wrath. But he had therequisite ethical stamina, so did not buckle.

There are two fundamental philosophieswhich govern our lives. One emphasizesthat an individual should run after nameand fame. This is called ‘ambition’. Theother prefers name and fame to run afteran individual who concentrates fully on

duties at hand. For those inspired by thelatter, the life of Kurien could serve as aworthy model. In a letter ( in the Prologue)to his grandson he wrote,

“To be quite honest, service to our nation’sfarmers was not the career I hadenvisioned for myself. But somehow, aseries of events swept me along and putme in a certain place at a certain timewhen I had to choose between one optionor another. I was faced with a choice thatwould transform my life. I could havepursued a career in metallurgy andperhaps become the chief executive of alarge company. … Yet, I chose none ofthese because somewhere, deep down, Iknew I could make a more meaningfulcontribution (emphasis added) byworking here in Anand, Gujarat.” ( p.XII)

The learning from the above is that it wasnot a calculated move by him to earn moremoney or position. It was an intuitivedecision impelled by a higher cause.Reward and fame followed himincidentally.

In the same letter, reflecting on the valueswhich stood him in good stead, he held


‘personal integrity’ to be most important.He wrote,

“I have often spoken of integrity as themost important of these values, realizingthat integrity – and personal integrity atthat – is being honest to yourself. If youare always honest to yourself, it does nottake much effort in always being honestwith others.” (p.XIII)

He follows it up later in the book with twomore values,

a) to lead by personal example (p.216)b) respect for time (p.216)

Kurien amply demonstrated the abovevalues in his career and life. One suchincident occurred in connection withmopping up of the mess (corruption) inthe Delhi Milk Scheme within forty-twodays, and making it a new brand (p.88).He did this even at the risk of makingenemies in Delhi’s corridors of power.Thus, he managed a complete turnaroundin just six weeks, leading from the front.

There is yet another important learningfrom the same Prologue/letter. He reflected,

“Yet, there is little correlation betweencircumstances of people’s lives and howhappy they are. Most of us compareourselves with someone we think ishappier … But when we start lookingclosely we realize that what we saw wereonly image of perfection. And that willhelp us understand and cherish what wehave, rather than what we don’t have.”(pp. XIII-IV)

This is a more sound and realisticprinciple of happiness. It is indeed truethat the root of unhappiness is

comparison with others in terms of whatwe do not have (money, status, positionin organization etc.) instead of what wehave and others do not. Of course, it isnot clear why the phrase ‘image ofperfection’ has been used. Instead, ‘imageof happiness’ would have been theappropriate expression. One should learnto feel happy by comparing oneself withpersons less fortunate than oneself.

It is a general Indian belief that the higherDivine Will works for our good, thoughwe may not be able to perceive or evaluateit properly in the immediate. Kurien’s lifewas no exception. In no uncertain termshe expressed his displeasure (pp.9-10) onbeing deputed by the Government of Indiato the National Dairy Research Institute atAnand. He had big dreams of leading aluxurious life and in no way Anand suitedhis temperament. He hated Anand (p.20).But he had to accept the posting becausethe government had spent for his highereducation in the USA. As destiny wouldhave it, he came in contact with, and wasintrigued by a band of tenacious dairyfarmers and their leader - TribhuvandasPatel (pp.22-23). Gradually he fell in lovewith Anand. He quit the government joband joined the Kaira Milk Cooperative. Therest is history. Now he wants that even hisbody be cremated in Anand only (p.236).This network of events shows that thegrand design of Providence cannot alwaysbe comprehended through secularrationality only.

The chapter on ‘History in the Making’refers to an interesting incident involvinga chhaya jyotishi who had predicted aphenomenal rise in Kurien’s career (p.26).

181

He, although a non-believer in occultmatters (p.27), admitted that this prophecyhad indeed turned out to be true. However,he also added that it was, “ … one of life’scurious accidents” (p.27). Such a remarkabout the jyotishi’s accurate prophecysmacks of uncharitableness towards acapacity which is as thorough as any other.Rather, this experience in Kurien’s lifecorroborates what has been said in theprevious paragraph: the inscrutableProvidence presiding over all affairs.

There is an English phrase ‘living forothers’ which has been called in theBhagavad Gita as, ‘sarva bhuta hite ratah’.Kurien’s philosophy of life epitomizes this.He avers, “ … but if you work for others,there is a deeper sense of fulfillment and ifthings are handled well, the money too ismore than adequate (p.28). The last part ofthe statement refutes a common argumentthat a life lived for an ideal necessarilyimplies sacrificing material goals. Similarviews have been echoed by him elsewherealso like:

a) “I chose to remain in Anand, as anemployee of farmers, all my life” (p.81).

b) “ … an employee of farmers has toplease only the farmers” (p.100).

Nowhere has it appeared that Kurien hadbeen a discontented man, not satisfiedwith his life and its myriad circumstances.

At one place Kurien provides soundinsight into cohesive teamwork. Three menwere at the helm in running the KairaCooperative: Tribhuvandas Patel (theperson representing the dairy farmers), Mr.Dalaya (a colleague of Kurien) and Kurienhimself. However, as Kurien added, the

three had, “ … distinctly different …manners and skills” (p.37). Yet they formeda cohesive team because of, “ …tremendous respect for the integrity andthe strength of the other two” (p.37). Thisenabled them to find solutions amicably,instead of falling apart over differentviewpoints they had. This quality is calledmudita in Patanjali’s Yogasutras.

Kurien displayed no hesitation in exposingthe business motives of the MNCs.Generally bureaucrats leaders in India, fortheir own reasons, are found to ignore thedirty games played by the MNCs. But hebluntly observed, “ … the technical adviceof ‘experts’ is all too often dictated by theeconomic interests of the advancedcountries and not by the needs or groundrealities in developing countries” (p.42).Later in the chapter ‘From organization toInstitution’ he highlights another incidentwhich involved a heated altercation of hiswith the Chairman of Nestle whosedealings were bordering on bullying tacticscommonly adopted by the MNCs. Kurienretorted:

“ I’ve been in this game for fifty years andI know your modus operandi well … Youare unable to buy him (Kurien himself out,which is what you’d normally do. But youcan’t buy me out …”

Whenever situations demanded he used torise to the occasion and face it resolutely.He observed, “ … with adequate support,confrontation at the right time pays off”(p.46). Thus he had confronted theUNICEF when it was wanting to dictateterms over the kind of powder plant thecooperative desired, although its role wasto offer financial assistance only.

Kurien, I too had a Dream ...


The Chapter ‘On a Roll’ imparts a uniquelesson on advertising and marketingethics. When Amul decided to ventureinto marketing baby food it had tocompete against Glaxo (p.71). It was adifficult challenge. However, the hurdlewas decided to be overcome by taking, “… a holistic view of marketing” (p.71).This would even include teaching themothers about reconstituting milkproperly (without undermining breast-feeding) to prevent malnourishment ofbabies. However, in addition, normaladvertising was also done. For the firsttime in India extensive surveys wereconducted in three big cities, “ … to findout behavioural and consumptionpatterns of consumers” (p.71). Ultimately,Amul did give Glaxo a run for its money.This is a good example of sustainablegrowth by focusing on the quality ofmeans adopted i.e. ethical marketing.

The ruling gospel – ‘fast and heady winsthe race’ - in the corporate sector has beencontested by Kurien in terms of long-termsustainability. He believed that thephilosophy of the Cooperative is toprogress in a ‘slow and steady’ manner(p.75). Patience was his watchword.However, he candidly admitted that theadvantage with the cooperatives lay in thefact that they had no compulsion toplacate either the shareholders or any bossby making profits their raison detre.

An individual’s or group’s obsessive lovefor power is widely prevalent. So, whenthere is even a remote possibility of losinggrip over it, the wielder of power feelsthreatened. This is exactly what hadhappened when Lal Bahadur Shastri, the

then Prime Minister of India, expressedhis intention to Kurien thus,

“ The Government of India will give you ablank cheque, it will create any body, anystructure you want, provided you willhead it. Please replicate Anand –throughout India … whatever you need forit, the Government will provide” (p.100).

On the basis of this proposal it was decidedto establish the National DairyDevelopment Board (NDDB). However, itmet with stiff resistance as the bureaucratsbelonging to the Ministry of Food andAgriculture felt that this proposal wassquarely unfair and an insult to them.(pp.100-102) He therefore confronted them.Later, Kurien probably hinted at this groupof bureaucrats when he observed,

“ … it was power that we exercisedprudently over those who tried to expandour country’s imports unnecessarily; …by their corrupt practices (they) held thecountry back from true development.”(p.129)

Nowadays the phrase ‘holistic approach’is in wide circulation. However, what itmeans to be holistic is not often well-understood. The success of OperationFlood, which had ushered in the WhiteRevolution in India, may throw some lightin this direction. When the idea ofOperation Flood was floated, it met withcriticism from certain quarters whoquestioned its feasibility. Kurien realizedthat in part this was honest criticismbecause India could never afford toprovide one acre of green grass to each cowor buffalo for it to give 40 litres of milk eachday (p.139). This prompted him and his

183

team of researchers to research on feed,animal health and animal nutrition. Suchan integral approach enabled them toensure, “ … that our milk productionshould come from fodder and feed whichman could not eat, … (and which) wasproduced in the process of producing foodfor human beings” (p.139). Thus, it wasproved to the detractors that the NDDBwas formed, not for dairy developmentthrough milk production only, but alsothrough proper care of allied aspects likeanimal husbandry, feed, fodder etc.

It is not uncommon for autobiographiesto be affected by self-projection, evenegotism, in varying degrees. One of thefrequently used words in I Too Had ADream is ‘pride’. No doubt the book is astanding proof of how one can beunflinching in matters of ethics,unrelenting in the cause of the farmers,unbending in dealing with obstructivebureaucrats, and unremitting in love forthe nation. Yet, in his claim to be a non-believer e.g. his dismissal of the faultlessaccuracy of the jyotishi’s predictions abouthis glorious career, while recounting somany illuminating career episodes, onelooks in vain for the gentle touch ofhumility. Even the letter (Prologue) to hisgrandson carries the flavour of self-glorification (e.g. the award of PadmaVibhusan), bordering on pride.

Acharya (Sir) Prafulla Chandra Ray, a DScfrom Edinburgh, had been the pioneeringauthor of Hindu Chemistry, and the fatherof indigenous Indian chemical andpharmaceutical industry. Hisautobiography (1932) contains thefollowing testament:

“Whatever field I have ploughed I haveploughed as an humble instrument in thehands of Providence. My failures are myown … But my successes, if any, are to beattributed to the guidance of the All-knowing who chose me to be His humbleinstrument.”

PC Ray did believe in the occult (whichmeans invisible, yet real), the spiritual, theDivine wholeheartedly. And he must alsohave battled against odds no less toughthan Dr. Kurien did – especially in pre-independent India ruled by the British.The following words, as an interestingcontrast, are reported to have been utteredby Jawaharlal Nehru about the author:

‘ …Jawaharlal Nehru turned to me,embraced me and said, “ Kurien, I’m so gladthat our country has people like you –people who will go ahead and achieve eventhat which seems unachievable’ (p.53).

Similar references to Presidents, otherPrime Ministers, Chief Ministers etc. arealso frequent. And the book seems tomention no ‘failures’ at all.

The preface of M.K. Gandhi’sAutobiography (1925) also reflects hishonest reservations about adopting thewestern custom of self-narration. He toohad been an openly believing man, andused to feel quite uncomfortable aboutbeing called ‘Mahatma’. The mystic, yetsocially engaged Rabindranath Tagore’sJeevansmriti (1912) also abounds with theutterly simple truths and facts of his lifetill the age of 51. The Nobel Prize was stilla couple of years away. Confrontationsand accolades, battles and victories – allwere left to others to discover and write.

Kurien, I too had a Dream ...


Infact, initially he was angry with arenowned publisher for even suggestingto him to write about his own life. Andhe too had lived till eighty years.

The instances of Ray, Gandhi and Tagoreshow that it is perhaps safer to leave thetask of recounting and evaluating a greatman’s life and achievements byindependent biographers. Theautobiographies by this sacred trio of pre-independence India, through their choiceof themes and style of expression,constitute an object lesson in the art ofwriting without much intrusion of the self.

As for the IRMA events of 2005, thereviewers remember once more thepristine principle of vanaprastha (not to betaken literally). The far-sighted and high-sighted rishis of Bharatvarsha understoodhuman character far more holisticallythan modern intellect can. After all theywere holy, so holistic. One of theirmodern-day representatives, SwamiVivekananda, had spoken these words toan elite Los Angeles audience in 1900:

“The bee came to sip the honey, but itsfeet stuck to the honey pot and it couldnot get away. Again and again we arefinding ourselves in that state … Work,constantly work; but be not attached, benot caught. Reserve unto yourself thepower of detaching yourself fromeverything, however beloved, howevermuch the soul might yearn for it, howevergreat the pangs of misery you feel if youwere going to leave it …’

Verse X.41 of the Bhagawad Gita (VibhutiYoga) pronounces the following

conclusive holistic, and sacred law for allmen/women of action:

‘Every such being as is glorious, brilliantand powerful know that, to be a partmanifestation of My Glory.’

The problem is the inability anddisinclination of the secular, non-believing ego to cultivate this disposition.Sci-tech victories of mankind haveconsiderably inflated its ego which has cutloose from all sense of springing from theOne Ultimate Source. And one of thecommon results of such magnified I-nessis our pronounced tendency towardsnarcissism. That is why the Gita haswarned us repeatedly about this dangerlurking round the corner. For instance,earlier in verse III.27 the secular Arjun hasbeen warned by the sacred Krishna:

‘The fool, whose mind is deluded byegoism thinks “ I am the doer”.’

Sri Aurobindo has captured this verytruth in the aphorism:

‘Do not try to possess the Power thatshould possess you.’

The observations in this section of thereview do not detract an ounce from ourunequivocal admiration for Dr. Kurien. Infact, it is only because of such genuinefeeling that this thought kept occuring tous again and again: but for this particularstreak of image-creation, we would haveloved to hold Dr. Kurien as a rajarshileader. JRD Tata and RK Talwar readilycome to mind as very recent examples ofthe latter.

185

Friedman, Thomas, (2005), The World is Flat,Penguin Books (Indian Reprint), London, Price: £. 8.50*

Reviewer: Rajeev Roy1

Book Review

‘The World is Flat’ is about how the globalplaying field has been leveled. Friedmanhas a very flexible idea of what constitutesthe flatness of the world. He has includednew developments in technology orbusiness practice that can be described asbreaking down barriers or connectingpeople.

While Friedman, lately, is best known forhis columns about the Bush presidencyand the Iraq War, in this book he findshimself speaking in an almost exclusivelyoptimistic manner about the new waysthe world is becoming connected. Theauthor observes that globalization usedto be primarily driven by the west butnow it is going to be driven by groups ofindividuals from every corner of theworld. He seems to be greatly enthusiasticof the way India and China have taken tothe new world. He does not dwell toomuch on similarly exciting initiatives inother parts of the developing world. Thisbook primarily talks about the newrelationship between the West and theemerging economies of the East - arelationship chiefly characterized byoffshoring and outsourcing.

This book certainly doesn’t stop at that,but also explores other phenomenonrevolutionizing the way business is donethe world over. He has chapters devotedto subjects as diverse as the new efficientsupply chains on the one hand andopensource software, on the other.

The ideas in this book gain credence asthey are reflected in the opinions andviews expressed by many CEOs andpresidents of major internationalcompanies. The book is replete withstatements from Bill Gates, NandanNilekani, Kenichi Ohmae and others.

He has looked at outsourcing in detail. Hehas talked to stalwarts of the industry likeJerry Rao and has also found time toinvolve himself in the day-to-dayoperations of a small call centre. He paintsa very realistic picture of the call centrefloor or of a voice training session. He hasinteracted not only with workers in callcentres but also with accountants whoknow US tax regulations, executiveassistants who research and preparePowerPoint presentations, softwaredesigners, and aircraft engineers – all.While discussing some issues he has

* Received January 27, 2006.1. Assistant Professor, Xavier Institute of Management, Bhubaneswar, e-mail: [email protected].


lumped the Indian software industry withthe ITES sector.

He has appreciated the threat of the Westlosing more and more jobs but haspointed out the need for western societyto adapt quickly and acquire newcompetencies. He fails to address theconcerns regarding invasion of privacyand data security. Nor does he talk aboutcomplains regarding falling levels ofservice.

If he fails to convey the impression thatoutsourcing is an Indian phenomenon, hecertainly manages to convey theimpression that offshoring is a Chinesephenomenon. He talks about howmanufacturing is migrating to China fromthe US, Mexico and even Egypt. He hasquoted examples of how statues of the‘Virgin of Guadalupe’, the nationalsymbol and patron saint of Mexico, arenow being made in China. He has alsodescribed the impact of modern Chinesemade lamps replacing traditionalreligious lamps in Egypt, another countryseemingly with low cost of labour. He hasalso pointed out that the other advantageof setting up a manufacturing base inChina is access to the large Chinesemarket.

The book emphasizes the importance oftechnology in bringing about this new era.Broadband connectivity, Wi–Fi networks,search engines like Google, opensourcesoftware, all have been given dueacknowledgement for having speeded upthe process of intense globalization. Hehas been very insightful in describing the

growth and proliferation of opensourcesoftware like Apache and also opencontent, community-built sites likeWikipedia.

The book also thanks two recenttechnology driven economic disasters fortheir facilitating role. The dot com bubbledrew in a lot of investment into ITinfrastructure and the dot com bust freedup the infrastructure for other uses. TheY2K scare introduced the western worldto the skills of the Indian IT professionaland in the period thereafter when theWestern companies felt the need to callupon the professional services of theirnew Indian friends.

The investment of millions of dollars intechnology leading to the establishmentof broadband connectivity around theworld, undersea cables and other creativeideas have resulted, he says, in the joiningof such cities as Boston, Beijing andBangalore in remote development. Theresult, continues Friedman, is that“intellectual capital can be deliveredanywhere,” thus providing an excitingsense of freedom in the work we do.

The book gives a detailed account ofspecific business processes in leadingglobal companies like Walmart and UPS,to drive home the point of revolutionarychanges taking place around us. There isa full chapter devoted to the centralized,efficient supply chain of Walmart. Thenhe talks of how the service offerings ofUPS allow smaller firms access processesallowing them advantages previously

187

available only to large firms.

He has not failed to mention the breakingdown of the Berlin Wall which led to asequence of events which enabled thewhole of Eastern Europe to participate inthe new global economy.

Some of the key points the author is tryingto convey about the new era ofglobalization:

l Globalisation empowers individualsand groups of individuals, even morethan countries.

l Globalisation helps the small firms asmuch as the big firms, perhaps evenmore.

l Globalisation is not bad for the West.It is good for the world.

Toward the end of the book Friedmanacknowledges that most of the globalpopulation does not live in a “flat world”— and that many have no desire to do so.He attributes this to cultural variables. Heargues that intrinsically open cultures willblossom in the 21st century, while closedcultures will wither. He refers toeconomist David Landes, who argues thatin the Arab Muslim world, “culturalattitudes have in many ways become abarrier to development.” Friedman refersto the Arab-Muslim world as the “unflatworld” and notes its feelings offrustration, insecurity and illness.

The book also talks at length about howthese new forces of globalization are beingutilized by terrorist networks. It talks ofhow Al Qaeda and other terror outfits

have used the same technology driven,connected, ‘flat’ world to collect funds,recruit, disseminate information and planattacks. Also, the book observes theWestern world’s knee jerk reaction ofsetting up protective barriers which alsowork towards negating all the positivesof globalization. That makes it even moreimportant that we have books out thereexplaining the many ways thatglobalization makes the world a betterplace to live.

In the final chapters he acknowledges thatmost Indians and Chinese still live inpoverty. He sees for himself that a lot hasto be done to include the larger sectionsof the society in this new economy and tobring home the benefits of globalizationto the disadvantaged in India and China.

This book does not dwell on the growingconcerns regarding intellectual propertyrights. The growing threat to the globalenvironment is also not discussed in detailnor does he deal with the energy needs ofthis new ‘flat’ world. Also, Africa does notfind too much of a mention in Friedman’svision of a global future.

The tone of this book is conversationaland there are many anecdotes. Thatmakes the 468 page book pleasant to readto a varied audience. In spite of theprevalence of technical jargon, Friedmanis quite good at making his pointsunderstandable. Martin Wolf’s ‘WhyGlobalization Works’, on the other hand,has a very business like approach to thesame subject.

Friedman, The World is Flat ...


Thomas Friedman has won the PulitzerPrize thrice. He is currently a columnistwith the New York Times. He has beencalled “the most important columnist inAmerica today”. He is best known as anadvocate of globalisation, having come toprominence through his book The Lexusand the Olive Tree (1999), in which he

argued that the new mobility of ideas andcapital (represented by the Lexus) couldstrengthen, rather than threaten, localidentities (the olive tree). As one wouldexpect from the author of From Beirut toJerusalem, his treatment of 9/11 andMiddle Eastern issues is insightful anddeeply informed.

In the end, ‘The World is Flat’ is a bookabout the changes taking place around usand how individuals and societies mustadapt to keep up with the changes.

189

One of the best and recent contributionsto the software engineering discipline isthe unified modified language (UML).Seamless unification among three disjointmethods i.e. “Booch method”, “ObjectModeling Techniques” and “ObjectOriented Software Engineering” is fastevolving to a standard. The UML, thougha language, is neither a process nor amethod, but is the link between these twowith strong documentations. Therefore,this language is being viewed as aninvaluable support to the formal analysisand design methods, and is independentof the programming language used fordevelopment as well as implementation.The strength of the UML lies in its use forlarge projects, eliciting and formalizinguser requirements at the organizationallevel. This provides scalability and abetter life cycle to the projects. Modelinguser requirements, organization’sdynamic requirements are measuresetback for any software engineeringprocess model and the UML may providea platform to capture this behavior as itevolves in near future!

This book is a reference manual andtherefore, its strength is the dictionary

Rumbaugh, James; Jacobson, Ivar and Booch, Grady; (2005),The Unified Modeling Language Reference Manual,

Second Edition; Addison Wesley, ISBN 0-32-24562-8;719 pages, Price $64.99.*

Reviewer: H Misra1

* Received December 10, 20051. Associate Professor, Institute of Rural Management Anand, e-mail:[email protected]

provided for understanding the notationsand its use. All the methods discussed areprecise and focused. Since the languageis evolving, this reference guide willcertainly change in its dictionary andtherefore, this book may have a short lifecycle. Besides, the UML defines a numberof models such as use case diagram,conceptual diagram, activity diagram anddeployment diagram. Modeling the realworld is a risky proposition and efficiencyin implementing these models lies withbetter abstraction. In this book however,the examples provided to explain thesemodels are very simple to understand, butare not truly representative of complexworld in terms of relationships andinterfaces. Choosing a complex examplewith progressive solutions specific to thelanguage and models along with the useof dictionary could have provided a betterunderstanding and provided a largercanvas for the reader.

As expected of a reference manual, thebook exposes the reader to the basicconcepts of the UML, its evolution, whileproviding an overview of its utility andscope in applying its strengths for asoftware development process. It also

Book Review


outlines the concept behind such a unifiedmodeling environment to handle softwareprojects. Authors here suggest thatmodeling is a complex phenomenon andUML is no exception. It is therefore, wiseto make specific use of the UML to meet adesired result, the authors add. Theconcept of UML, as authors suggest, isbased on static structure, dynamicbehavior; dealing with modelingapplication software concepts andmapping through object orientedmethodologies. The static behavior can bewell organized through UML diagramsleading to a better representation andanalyses of the software delivery. Thedynamic behavior is well captured byanalyzing the objects, their collaborationwith other objects andunderstanding thecontrol flows among them. This approach,authors argue, provides a scope for thesoftware project manager to keep controlover the deliverables of the project at ahigher level.

Adopting a good modeling technique isan important exercise for a softwareproject manager and it is essential thatunderlying principles behind modelingshould be understood properly. This bookprovides a good scope for the reader tounderstand these principles in chapter 2.

“The UML is not a programming language,and it does not include a step-by-stepdevelopment process” authors caution. TheUML basically is not intended to be acomplete development method andlargely discusses the concepts behind. Thestrength of the book, therefore, is basedon elaborating the concept of UMLthrough various views it supports and

through expressions the language uses. Italso extensively discusses the dictionaryof terms used for the UML as a language.The dictionary is well planned andorganized for the reader to understand theapplicability of each term and iscomprehensively supported by examples.

Modeling and documenting the processesin an organization are very complex. Thecomplexity increases as the organizationevolves and so is the case with theprocesses which are exposed to dynamicambient conditions. Therefore, a softwareproject, which is normally intended tocapture the dynamics of a process andreflect through an effective design andengineering, is also complex in nature.Capturing and defining requirements byinvolving all the actors in the process arealso not easy. UML provides a tool tomodel such complex processes and offersan opportunity to the software projectmanger as well as the business processowner to collaborate and model thecomplex process and narrate the possiblerelationships among the processes beforeembarking on real development ofsoftware. The utility of this evolvinglanguage is, therefore, quite stronglyrealized in the present context ofautomating business processes.

This reference manual has been grosslyupdated in its second edition. This editionincludes the latest version of UML (UML2.0). This book is rightly timed and itwould be the best used by any reader whois acquainted with object orientedtechnologies. This book however, will behard for beginners to appreciate.

191

XIMB in association with Reliance WebWorld has launched a unique programme‘Postgraduate Certificate Programme inBusiness Management (PGCBM)’ via virtualclassroom. Across the world, managementeducation via Video Conferencing (VC)mode is one of the most sought aftereducational systems. It not only helps aworking executive to simultaneously workand study but it also takes high qualityeducation to a large number of studentsspread across the country. XIMB has foundan ideal partner in Reliance Webworld forproviding the VC platform and the VCclassrooms spread across India.

This PGCBM Programme provides a live andinteractive classroom environment using thepower of cutting edge Video conferencingtechnology. This VC Technology facilitatesmultipoint interaction between the Professorand the students, as seen in a conventionalclassroom. Reliance Webworld, thetechnology leaders in Video conferencing,are providing this cutting edge VCtechnology as well as the virtual classrooms.Thus, this two-way video VC technology ofXIMB overcomes the limitations of one-wayvideo seen otherwise, in various existingprogrammes running across India.

The programme is available simultaneouslyacross 24 cities in India: Ahmedabad,Bangalore, Bhopal, Bhubaneswar,Chandigarh, Chennai, Cochin, Coimbatore,Cuttack, Delhi, Gurgaon, Hyderabad,Indore, Kolkata, Jaipur, Jamshedpur,Lucknow, Mumbai, Noida, Patna, Pune,Ranchi, Trivandrum and Vishakhapatnam.

The Programme consists of 12 courses:

l Cost & Management Accountingl Basic Economics for Managersl Organisational Behaviourl Quantitative methods for Business

Decisionsl Financial Managementl Human Resource Managementl Production & Operations Managementl Marketing Managementl Information Technology for Managersl Ethical & Legal Environment of Businessl Strategic Issues in Managementl Emerging Business Paradigms

Academic Calendar : The entire programmeconsists one year duration, having 240 hoursof live video conferencing and 60 hours ofrigorous on-campus classes at XIMB, spreadover one week duration.

Certification : The Institute awards the PostGraduate Certificate Programme in BusinessManagement to students who havesuccessfully completed the entire coursework and have successfully completed allacademic requirements as mentioned in theManual of Policies. The Manual of Policieswould be provided to those students whoare admitted to the programme.

On campus stay at XIMB : The PGCBMprogramme includes a seven-day on-campusstay at XIMB. During this one-week, thestudents would be exposed to 60 hours ofrigorous real-time classroom interaction bythe renowned XIMB faculty. The studentswould have access to world-class facilities ofXIMB.

XIMB has launchedPost Graduate Certificate In Business Management (PGCBM)

Announcement


Xavier Institute of ManagementBhubaneswar

Xavier Institute of Management, Bhubaneswar (XIMB) has completed 18 years ofpurposeful existence, offering management education “with a human face”. Duringthis short span of its existence, XIMB has established an identity of its own and aconsistent position among the best B-schools in the country. It is known not only for itsPost-Graduate Programmes but also for developmental projects. The institute owes itsorigin to a “Social Contract” between the Government of Orissa and the OJS (OrissaJesuit Society). The Management of the institute is in the hands of a Board of Governors,consisting of Jesuit Fathers, senior representatives of the Government of India andOrissa State Government, eminent industrialists and educationists.

The institute offers three post graduate programmes, a certificate programme and one doctoralprogramme (known as Fellow Programme). These are :

l PGP : Two-Year Full-Time Post-Graduate Programme in Business Management(Residential);

l PGPRM : Two-Year Full-Time Post-Graduate Programme in Rural Management(Residential);

l Ex-PGP : Three-Year Part-Time Post-Graduate Programme in Business Managementfor Working Executives;

l PGCBM : One year Post-Graduate Certificate Programme in Business Managementusing Video Conferencing Technology.

l FPM : Fellow Programme in Management (Residential).

The two-yearfull-time course leading up to the Post-Graduate Diploma in BusinessManagement (PGDBM) of the institute is approved by the All India Council for TechnicalEducation (AICTE), Government of India. Since XIMB is an autonomous institute not affiliatedto any university, it does not grant degrees.

The full-time PGDBM of XIMB is recognised by the Association of Indian Universities (AIU)as equivalent to an MBA degree from an Indian University.

National Academic Recognition Information Centre for the United Kingdom (UK NARIC)recognises XIMB’s PGDBM as comparable to British Master’s degree standard.

XIMB has a tie-up with the University of Antwerp, Belgium for an exchange of faculty andprofessionals.

XIMB JOURNAL OF MANAGEMENT

Volume III Issue No. 1 March, 2006

ILAKSHAN

Xavier Institute of ManagementBhubaneswar - 751 013

March, 2006

ISSN 0973-1954

Publisher

Fr. E. Abraham, s.j.,Director, Xavier Institute of Management,Bhubaneswar

Subscription

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

Printer

Fr. E. Abraham, s.j.,Xavier Institute of Management,Xavier Square, Bhubaneswar - 751013

Printed at

Capital Business Service & ConsultancyB-51, Sahid Nagar, Bhubaneswar - 751007

Telephone : (0674) 2545484

THE CREST OF THE XIMB

The lamp on the book stands for the spread ofknowledge, the chimney for industrialdevelopment, the two plants for ruraldevelopment and the IHS logo for the JesuitSociety which manages the institute.

Copyright with Xavier Institute ofManagement. No part of the publication may bereproduced in any form without prior permissionof Director, Xavier Institute of Management,Bhubaneswar. However, the views expressed inthe papers are those of the authors and not ofthe Editoral Board or Publisher.

ARTICLES

1. Determinants of Public Utility’s Sanjay Gupta, 1Performance V. Ranganathan

& L. Prasad

2. Organizational Citizenship Behavior : Ranjeet Nambudiri 31A Review of the Individual and GroupLevel Antecedents and Consequences

3. Hong Kong Ministerial Conference Sridhar Panda 57on WTO: A Critical Review

4. Towards A New Vision of the World: Subhash Sharma 73Foundational Concepts for HolisticDevelopment & Management (HDM)

5. Product & Process Improvement Dillip Swain, 83Capabilities in Small & Medium P. MishraEnterprises & B. Mohanty

6. Performance & Integration of Global N.P. Tripathy 95Factoring Services - An Empirical Analysis

7. Foreign Direct Investment: Amar KJR Nayak 105A Review of Literature

8. Discrete Event Simulation K.C. James 127Model of a Container Terminal & M Bhasi

PERSPECTIVE

9. The Game of the Name – A Key Factor M. N. Tripathi 137in Brand Building

MANAGEMENT CASES

10. Maruti’s Product Recall: A Case of Quality B.P.Patra 149Consciousness and Customer Care

11. Inland Fisheries in Bihar Samir Kumar 153

Contents

BOOK REVIEW S

12. Kurien Verghese (2005), I too had a S.K. Chakraborty 179Dream, Roli, New Delhi & D. Chakraborty

13. Thomas Friedman (2005), The World is Flat, Rajeev Roy 185Penguin (Indian Reprint), London

14. James Rumbaugh, Ivar Jacobson, and H. Misra 189Grady Booch (2005), The Unified ModelingLanguage Reference Manual,Second Edition, Addison Wesley

XIMB JOURNAL OF MANAGEMENTVolume III Issue No. 1 March, 2006

ILAKSHAN

Xavier Institute of ManagementBhubaneswar - 751 013

ISSN 0973 -1954

Articles

Determinants Of Public Utility’s PerformanceSanjay Gupta, V. Ranganathan & L. Prasad

Organizational Citizenship Behavior : A Review of the Individual and Group Level Antecedents and Consequences

Ranjeet Nambudiri

Hong Kong Ministerial Conference on WTO: A Critical ReviewSridhar Panda

Towards A New Vision of the World: Foundational Concepts for Holistic Development & ManagementSubhash Sharma

Product & Process Improvement Capabilities in Small & Medium EnterprisesDillip Swain, P. Mishra, B. Mohanty

Performance & Integration of Global Factoring Services - An Empirical AnalysisN.P. Tripathy

Foreign Direct Investment: A Review of LiteratureAmar KJR Nayak

Discrete Event Simulation Model of a Container TerminalK.C. James and M Bhasi

Perspective

The Game of the Name – A Key Factor in Brand BuildingM. N. Tripathi

Management Case

Maruti’s Product Recall: A Case of Quality Consciousness and Customer CareB.P.Patra

Inland Fisheries in BiharSamir Kumar

Book Review

Verghese Kurien, I too had a DreamS.K. Chakraborty & D. Chakraborty

Thomas Friedman, The World is FlatRajeev Roy

James Rumbaugh, Ivar Jacobson and Grady BoochThe Unified Modeling Language Reference Manual

H. Misra

March, 2006

Volume III Issue N

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Volume III Issue No. 1 March, 2006

Articles

Determinants Of Public Utility’s PerformanceSanjay Gupta, V. Ranganathan & L. Prasad

Organizational Citizenship Behavior : A Review of the Individual and Group Level Antecedents and Consequences

Ranjeet Nambudiri

Hong Kong Ministerial Conference on WTO: A Critical ReviewSridhar Panda

Towards A New Vision of the World: Foundational Concepts for Holistic Development & ManagementSubhash Sharma

Product & Process Improvement Capabilities in Small & Medium EnterprisesDillip Swain, P. Mishra, B. Mohanty

Performance & Integration of Global Factoring Services - An Empirical AnalysisN.P. Tripathy

Foreign Direct Investment: A Review of LiteratureAmar KJR Nayak

Discrete Event Simulation Model of a Container TerminalK.C. James and M Bhasi

Perspective

The Game of the Name – A Key Factor in Brand BuildingM. N. Tripathi

Management Case

Maruti’s Product Recall: A Case of Quality Consciousness and Customer CareB.P.Patra

Inland Fisheries in BiharSamir Kumar

Book Review

Verghese Kurien, I too had a DreamS.K. Chakraborty & D. Chakraborty

Thomas Friedman, The World is FlatRajeev Roy

James Rumbaugh, Ivar Jacobson and Grady BoochThe Unified Modeling Language Reference Manual

H. Misra

March, 2006

Volum

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EDITORIAL BOARD

EditorBrajaraj Mohanty

Professor, Xavier Institute of ManagementBhubaneswar

Members

John C.Camillus, Donald R.Beall Professor of Strategic Management,University of Pittsburgh, Pittsburgh,U.S.A.

S.K. Chakraborty, Former Professor, Indian Institute of Management, Kolkata

Keith D’Souza, Director (Organizational Effectiveness), Pfizer Limited, Mumbai

Ranjan Ghosh, Professor, Indian Institute of Management, Calcutta

M.G. Jomon, Associate Professor, Xavier Institute of Management, Bhubaneswar

Jerome Joseph, Professor, Indian Institute of Management, Ahmedabad

Oswald A. Mascarenhas, s.j., Kellstadt Professor of Marketing,University of Detroit-Mercy, Detroit

Sasi Misra, Distinguished Fellow, Entrepreneurship Development Institute of India,Ahmedabad

Amar KJR Nayak, Assistant Professor, Xavier Institute of Management, Bhubaneswar

Gopal Krishna Nayak, Professor, Xavier Institute of Management, Bhubaneswar

H.K. Pradhan, Professor, XLRI, Jamshedpur

V.Ranganathan, Professor, Indian Institute of Management, Bangalore

Latha Ravindran, Professor, Xavier Institute of Manavement, Bhubaneswar

Subhash Sharma, Director, Indian Institute of Plantation Management, Bangalore

W.S. William, Professor & Dean, Xavier Institute of Management, Bhubaneswar

For inquiries, subscriptions and contributions, please write to

Editor, ILAKSHAN

XIMB Journal of ManagementXavier Institute of Management

Xavier Square, Bhubaneswar - 751 013, IndiaPh. : 91 674 2300007 (20 lines), Extn. : 293, Fax : 91 674 2300995

E-mail : [email protected]

ILAKSHAN is a bi-annual journal. The paperspublished in the journal are generally peer-reviewed. It publishes original research-basedarticles, perspectives, cases on topics of currentconcern and book reviews in all areas ofManagement. A general guideline for contributorsis listed below.1. Manuscripts should be of approximately 10,000

words (20 to 40 A-4 size pages, typed in doublespace). Manuscripts should be submitted alongwith a soft copy or by e-mail with the cover pagebearing only the title of the paper and author’snames, designations, official address, e-mail andphone/fax numbers.

2. Article should accompany an abstract of about150 words.

3. Tables and Figures : Their location in the textshould be indicated as follows :

Table-I about here

If the tables and figures are imported into thetext from Excel, Powerpoint etc., the original filesfrom those software should also be attached.

4. Endnotes : All notes should be indicated by serialnumbers in the text and literature cited shouldbe detailed under reference in alphabetical orderof the surnames followed by year of publicationsat the end of the author’s name.

5. References :The list should mention only thosesources actually cited in the text or notes.Author’s name should be the same as in theoriginal source.

a) In the text, the references should appear asfollows : Dayal (2002) has shown.... or Recentstudies (Ramnarayan 2002; Murthy, 2001)indicate...

b) Journal references should be listed as follows:Khandwalla, P. N., (2001). “CreativeRestructuring, “Vikalpa, 26(4), 3-18.

c) Books should be referred to as follows :Sugandhi, R. K., (2002). Business to BusinessMarketing, New Delhi : New Age International.

d) References from Internet should be referred toas follows : Hesterbrink, C., E-Business and ERP :

GUIDELINES FOR CONTRIBUTORS

Bringing two paradigms together, October 1999;Pricewaterhouse Coopers., www.pwc.com.For more than one publication by the sameauthor, list them in chronological order, with theolder item first. For more than one publicationin one year by the same author, use small (lowercase) letters to distinguish them (e.g., 1980a,1980b).

6. Follow British spellings throughout(Programme, not program)

7. Use of numerals: One to twelve in words, thirteenand above in figures, unless the reference is topercentages (5 percent), distance (5 km), or age(10 years old). Use 1990s and 19th century.

8. No stops after abbreviations (UK, MBA). Usestops after initials (K. S. Singh).

9. Use double quotes throughout. The use of singlequotes to be restricted for use within doublesquotes, e.g., “In the words of Szell, the ‘economicquestion’ is today....” Quotations in excess of 45words should be separated from the text with aline space above and below and indented on theleft. Quotes should be cited accurately from theoriginal source, should not be edited, and shouldgive the page numbers of the originalpublication.

10.Capitalisation should be kept to the minimumand should be consistent.

11.An author will receive free of cost 10 offprintsand a copy of the issue in which his/her paperappears and in addition, one copy each of thethree subsequent issues.

12.Manuscripts which do not conform to theseguidelines will not be considered for publication.

13.Manuscripts not considered for publication willnot be sent back. Those submitting papers shouldalso certify that the paper has not been publishedor submitted for publication elsewhere.

14.Manuscripts and all correspondence should beaddressed to : Editor, Vilakshan, XavierInstitute of Management, Xavier Square,Bhubaneswar - 751013, India, Ph.: 91 674 2300007(20 lines) Extn. 293, Fax : 91 674 2300995,E-mail : [email protected]

deter mit ants of public utility

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