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THE INTERNATIONAL CONFERENCE ON BUSINESS 2015

CORPORATE SOCIAL RESPONSIBILITY ANDSUSTAINABLE BUSINESS DEVELOPMENT

27th November 2015

Ho Chi Minh City, Vietnam

VNU-HCM PRESS

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COMMITTEES

ORGANIZED BY

1. Ho Chi Minh City Open University (HCMC-OU), Vietnam

2. The United Nations Industrial Development Organization (UNIDO)

3. Global Compact Network Viet Nam

4. Berlin School of Economics and Law

5. Solvay Brussels School Economics and Management

6. Saxion University Applied Science

7. University de Rouen

8. University of International Studies of Rome - UNINT

HONORARY CHAIRS

1. Assoc. Prof. Dr. Nguyen Van Phuc, Rector, HCMC-OU

2. Florian Beranek, UNIDO Lead Expert Social Responsibility.

3. Dr. Patrick J. Gilabert, United Nations Industrial Development Organization

4. Prof. Dr. Andreas Zaby, Vice Rector, Berlin School of Economics and Law

5. Prof. MarianeClaes, Solvay Brussels School of Economics and Management, Belgium.

6. SiepLittooij, Director of POHE project, SAXION.

7. Prof. Dr. Tran Thi Anh Dao, University of Rouen, France

8. Prof. Beniamino Milioto, University of International Studies of Rome - UNINT

STEERING COMMITEE

1. Assoc. Prof. Dr.Nguyen Van Phuc, Rector, HCMC-OU- Chairman

2. Assoc. Prof. Dr.Vu HuuDuc, Vice Rector, HCMC-OU, Deputy Chairman

3. Assoc. Prof. Dr. Le Bao Lam, Director of Research and Development Center,HCMC-OU –Deputy Chairman

SCIENTIFIC COMMITTEE

1. Assoc. Prof. Dr. Nguyen Van Phuc, Rector, HCMC-OU

2. Dr. Patrick J. Gilabert, United Nations Industrial Development Organization

3. Assoc. Prof. Vu Huu Duc, Vice Rector, HCMC-OU

4. Prof. Dr. Ho Duc Hung, University of Economics Ho Chi Minh City

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5. Prof. Dr. Tran Thi Anh Dao, University of Rouen, France

6. Prof. Beniamino Milioto, University of International Studies of Rome - UNINT

7. Prof. Dr. Rainer Stachuletz, Berlin School of Economics and Law.

8. Assoc. Prof. Dr. Nguyen DinhTho, University of Economics Ho Chi Minh City

9. Assoc. Prof. Dr. Le Nguyen Hau, Dean, Faculty of Business Administration, HCMCUniversity of Technology, HCMC National University.

10. Dr. Tran Tien Khoa, Vice Rector, International University, HCMC National University

11. Dr. Duong Nhu Hung, Vice Rector, University of Economics and Law.

12. Dr. Do Ba Khang, Dean, Faculty of Economics and Commerce, Hoa Sen University

13. Assoc. Prof. Dr. Ngo Viet Liem, School of Marketing, University of New South WalesAustralia Business School, Australia

14. Assoc. Prof. Dr. Nguyen Thi Mai Trang, University of Economics and Law.

15. Dr. Vo Hong Duc, Head, Research and Modelling Branch, Economic Regulation Authority,Australia.

16. Dr. Nguyen Van Phuong, Dean, Faculty of Business Administration, InternationalUniversity, HCMC National University

17. Dr. Dong Li, Management School, University of Liverpool

18. Dr. Pham Hong Hoa, Vice Dean, Faculty of Business Administration, InternationalUniversity, HCMC National University

19. Assc. Prof. Dr. Nguyen Minh Ha, Head, Department of Training Management, HCMC-OU

20. Assoc. Prof. Dr. Hoang Thi Phuong Thao, Vice-Dean of Graduated School, HCMC-OU

21. Assoc. Prof. Dr. Doan Thi My Hanh, HCMC-OU

22. Dr. Le Thai ThuongQuan, Head, Department of International Relationship and ScienceManagement, HCMC-OU

23. Dr. LuuTrong Tuan, HCMC-OU

24. Dr. Trinh Thuy Anh, Dean, Faculty of Business Administration, HCMC-OU

25. Dr. Vu Viet Hang, Faculty of Business Administration, HCMC-OU

26. Dr. Nguyen Quang Trung, HCMC-OU

27. Dr. Cao Minh Tri, Faculty of Business Administration, HCMC-OU

PAPER APPROVAL COMMITTEE

1. Assoc. Prof. Dr. Nguyen Van Phuc – Chairman

2. Dr. LuuTrong Tuan – Commissioner

3. Assoc. Prof. Dr. Doan Thi My Hanh – Commissioner

4. Assoc. Prof. Dr. Hoang Thi Phuong Thao – Commissioner

5. Dr. Trinh Thuy Anh - Secretary

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ORGANIZING COMMITTEE

1. Dr. Trinh Thuy Anh, Dean, Business Administration Faculty– Chairman

2. Dr. Le Thai ThuongQuan, Head of International Cooperation and Relation Department -Deputy Chairman

3. Nguyen Tu Han, Head of Administration and Management Department – Commissioner

4. Nguyen Tan Luong, Head of Finance and Accounting Department – Commissioner

5. Truong My Diem, Lecturer of Business Administration Faculty – Secretary

6. Nguyen Tran Cam Linh, Lecturer of Business Administration Faculty – Secretary

7. Huynh Thi Kim Tuyet, Science Journal - Secretary

8. Dao Vu Bich Diem, International Cooperation and Relation Department – Secretary

9. Nguyen Thi Huong Giang, UNIDO – Secretary

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FOREWORD

The year 2015 marks a breakthrough for Viet Nam by joining the Asian Economic Community(AEC) and Trans-Pacific Partnership Agreement (TPP). Together with many opportunities, theintegration might also pose challenges for business community. In order to adapt fierce competitionenvironment, reforms are required to promote advantages by Vietnamese enterprises. Corporate SocialResponsibility (CSR) and sustainability could be the fundamental factors to participate further in theregional and global value chain, and to enhance their capacity to be stronger especially in terms ofhuman resources.

The 1st International Conference on Corporate Social Responsibility (CSR) and SustainableBusiness Development (SBD), which is initiated and organized by the cooperation among Ho ChiMinh City Open University (HCMC-OU), the United Nations Industrial Development Organization,Global Compact Network Viet Nam, Saxion University (the Netherlands), Berlin School of Economicsand Law (Germany), University of Rouen (France), Solvay Brussels School of Economics andManagement (Brussels), and University of Sannio (Italia), will be held at HCMC-OU on27th November 2015.

The conference aims at opening a platform for both researchers and practitioners to discuss anddebate recent insights on socially responsible practices and sustainable business development in variousindustries. Furthermore, the conference will be providing opportunity to network and to shareknowledge towards economic integration and business sustainable development.

The conference topic is divided by two themes. The first theme included the papers related to CSRand corporate performance; CSR and consumers, CSR and environment, business ethics, CSR and roleof government, CSR and reputation, CSR and community, CSR and labor. Besides, the second themeincluded papers related to Green management; Green marketing, Green growth, Human capitalmanagement and Strategic management, Sustainable supply chain, Global quality management system,Corporate finance and Investment.

We would like to thank you all in advance for scientific contribution from the authors to theconference and for the preparation of the organizing committee.

With kind regards,

Associate Prof. Dr. Nguyen Van Phuc

Rector

Ho Chi Minh City Open University

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CONTENTS

PART 1: CORPORATE SOCIAL RESPONSIBILITY

1. Corporate Social Responsibility and Export Diversification ............................................................3Tran Thi Anh Dao

2. Drivers of Corporate Social Responsibility Practices – A Comparative Analysisbetween Spanish and Vietnamese Construction Industry ................................................................19Le Thi Thanh Xuan, Tran Tien Khoa

3. Investigate and Critically Assess the Dimensions and Importance of the RelationshipBetween Corporate Governance and Corporate Social Responsibility..........................................27Pham Thi Huyen Sang

4. Building and Managing CSR Brands – Theory and Applications...................................................35Carsten Baumgarth, Lars Binckebanck

5. Critical factors of corporate social responsibility performance in Vietnam....................................52Nguyen Van Phuc, Hoang Thi Phuong Thao, Truong My Diem

6. The Evolution of Corporate Social Responsibility (CSR) in “Democratized FashionIndustry” Proposal for a new CSR reorder........................................................................................63Beniamino Milioto

7. What Consumers Think about Corporate Social Responsibility and Their Reactionstowards Corporate’s Products: a Qualitative Research in Vietnam.................................................70Nguyen Binh Minh Le, Thi Phuong Thao Hoang, Thi Kieu Chinh Dinh

8. Depicting Vietnamese’s Environmental Concerns through Responsible ConsumingBehaviors – A Study in Ho Chi Minh City .......................................................................................81Lai Van Tai, Le Thi Thanh Xuan

9. Envrionmental Impact Assessment for Sustainable Development through PublicParticipation in Vietnam.....................................................................................................................95Nguyen Thi Anh

10. Developing Strategic Corporate Social Resposibility Initiatives to Enhance BrandReputation in the Case of Vietnam ..................................................................................................105Tran Viet Hung

11. The Status of Water Resources in Lam Dong Province: A Preliminary Study ............................112Pham The Anh, Phung Quang Hop, Bui Manh Ha, Hoang Hung

PART 2: SUSTAINABLE BUSINESS DEVELOPMENT

12. Human Capital Resources and Quality of Work Life of Marketers: FSQCA and SEMfindings...............................................................................................................................................125Nguyen Dinh Tho

13. Marketing as an Evolving Discipline: Emerging Paradigms and ManagerialImplications .......................................................................................................................................134Jean-Pierre Baeyens, Joelle Barthel

14. Firm performance under Balanced Scorecard Approach and Firm value - A case oflisted non-financial companies listed in Ho Chi Minh stock exchange (hose), Vietnam.............145Lai Dai Nghia, Vo Thi Quy

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15. Attraction of employers impacts on the intention of job application for senior studentsof pharmaceutical Universities in the southern, Vietnam.............................................................. 159Nguyen Minh Ha, Nguyen Vinh Luan

16. The Relationship among Store Image, Personal Culture, and Store Loyalty ...............................174Hoang Thi Phuong Thao, Nguyen Le Thai Hoa

17. Psychological Capital and Entrepreneurial Intention .....................................................................189Tran Thi Hoang Dung, Nguyen Thi Mai Trang

18. The Influence of Organizational Culture on Employee Commitment: A Study inSeafood Companies in Ho Chi Minh City.......................................................................................197Trinh Thuy Anh

19. Vietnamese Enterprise: Application of Stochastic Frontier Production Function........................208Tu Van Binh

20. Discovering the Relationships among Brand Experience, Brand Personality, andCustomer Loyalty: A Study of Vietnam Luxury Hotel Market.....................................................221Nguyen Tran Cam Linh, Vu Quoc Chinh

21. The Impact of Agency Cost on Firm Value: A Comparison between Private andPrivatized Corporations Listed on Ho Chi Minh Stock Exchange ................................................231Vo Thi Quy, Le Hoang Yen Khanh

22. Corporate Governance Framework & Family ownership: An Empirical Evidence fromListed Firms in Vietnam ...................................................................................................................248Kien Son Nguyen, Duc Hong Vo

23. Factors Affecting Green Purchasing Behavior...............................................................................268Ai Tran Huu.

24. Firm’s Internal Resources and Customer Perceived Performance in B2B TaxConsultant Services: The Moderator Effect of Firm’s International Experience andNature of Engaged Services .............................................................................................................281Nguyen Thi Ngoc Phuong, Vo Thi Ngoc Thuy

25. Sustainable Supply Chain Management: A Review on Applications ..........................................290Do Thanh Luu, Ho Trung Thao, Duong Kim Thanh

26. Does the SMEs outperform listed firms Vietnam? An efficiency-based approach......................298Truong Thinh Vu, Duc Hong Vo

27. Antecedents for the sustainable development of Vietnam retail market .......................................312Tran Tuan Anh

28. A Good Corporate Citizen & Its Expected Return: A Case Study of the ASEAN 5 ...................321Thach Ngoc Pham, Duc Hong Vo

29. Determinants of technological diffusion via fdienterprises in the manufacturing sectorin Vietnam over 2005-2013..............................................................................................................333Ngo, Quang Thanh

30. A study on customer acceptance of dragon fruit wine product......................................................346Doan Thi Thanh Thuy, Lai Thanh Tu

31. Antecedents of attitudes toward sustainable business practices - A study amongVietnamese business students...........................................................................................................355Nguyen Phuong Hoang Cuc, Bui Quang Thong, Nguyen Do Thuy Nhi,Nguyen Trung Hung

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32. The. effectiveness of guilt and shame appeals on health communications: The role ofself-construal, regulatory focus and culture.....................................................................................372Nguyen Hoang Sinh

33. A study on current circumstances of workers in Thu Duc District, Ho Chi Minh City ..............389Le Van Lang, Bui Thi Tuy Phuong

34. Business engagement to enhance young peoples skills..................................................................396Siep Littooij

35. Promoting business networks for sustainable development of agricultural exports.....................404To Thi Kim Hong, Nguyen Minh Duc

36. Firm- level determinants of export performance: the research case of textilemanufacturing firms in Dong Nai Province ....................................................................................413Nguyen Thanh Hoa Binh, Nguyen Thanh Liem

Corporate Social Responsibility and Sustainable Business Development

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PART 1

Corporate Social Responsibility

Part 1: Corporate Social Responsibility

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Corporate Social Responsibility and Export Diversification

Tran Thi Anh Dao

CREAM, University of Rouen

Faculty of Law, Economics and Management

Email: [email protected]

ABSTRACT

This study aims to address two main issues: how export diversification can contribute to economic development?

And to what extent a link can be established between CSR and export diversification? To this purpose, a literature

review on the topic leading to the analytical framework is presented. Then export diversification performance among

the middle-income countries (MICs) of Asia is analyzed over the period from 1995 to 2010. Our results show that the

average degree of export diversification has been declining since the global crisis, even if it still remains higher than

that in other developing regions in the world. When two different dimensions of export diversification (stage of

production and destination country) are analyzed, the results show that South-South trade has more diversified export

pattern than North-South trade, especially in intermediate goods.

Keywords: Corporate Social Responsibility, Export diversification, Middle-income countries, Asia

1. INTRODUCTION

Recent decades have seen major changes in the pattern of international trade: on the one hand, the shift towards more outward-oriented policies has pushed an ever growing number of developing countries

into the international markets. On the other hand, much of the increase in exports provided by those developing countries has occurred in manufactures, which reveals a pattern of structural change. From 10%

in 1980, the share of developing countries in world exports of manufactures reached 39% in 2010; while

the share of manufactures in total exports for all developing countries grew from 30% to 42% in the same period.

However, the export-oriented development strategy has been increasingly opened to question. Firstly, to the extent that a growing number of developing countries are exporting a similar range of products and

becoming close substitutes for each other, there is a risk that an intensification of price-based competition among them will increase potential ―crowding-out‖: that is, developing countries will compete and crowd

out one another‘s exports (Athukorala, 2009; Ghani, 2006; Razmi, 2007). Secondly, there is a danger that external trade driven by participation in global production networks organized around large companies will

lock developing countries into a narrow pattern of international specialization with limited growth prospects (UNCTAD, 2011). Lastly and most importantly, such competition challenges policy makers and

corporate managers in various terms: among them, the effectiveness of Corporate and Social Responsibility (CSR) in improving social and environmental standards is questioned. Therefore, there is a compelling

need to assess the interconnection between CSR and export performance.

This paper was written while the author was on secondment at the French Institute of Research for Development (DIAL unit) in

Hanoi (Vietnam). It is an updated version of the original paper presented at the 4th International Conference on Vietnamese

Studies (ICVNS) ―Vietnam on the Road to Integration and Sustainable Development” (Vietnam Academy of Social Sciences,

Hanoi, 26-28 November 2012) and at the international conference “Competitiveness: Analysis and Policy Implications for

Vietnam” (Faculty of International Economics, Foreign Trade University, Hanoi, 30 October 2013).

The author is grateful to the participants for their helpful comments at those events. The usual disclaimer applies.

mailto:[email protected]


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Export diversification and the modernization of export products have become of growing interest in recent years. On the one hand, the objective is to reduce dependency on a few products or markets, and lessen intense price competition. Failure to address such issues may leave countries in a ―middle-income trap‖ which prevents them from economic development and from climbing up successive rungs of the technological ladder. On the other hand, internationalization of production with the so-called ―global commodity chains‖ gives opportunities for developing countries to harmonize international practices on social and environmental standards. In other words, local exporters have to adjust to the new global requirements towards social compliance (that is, the respect of given standards vis-à-vis labor practices) as well as environment preservation, and adopt codes of conducts imposed by the international buyers.

Against this background, our paper investigates an under-researched relationship between CSR and

export diversification. Following a survey of the literature, we examine export diversification performance among the MICs of Asia. First, Asia is the only region that has improved its export performance relative to

the whole sample of developing countries since the 1980s. Second, the evolution of export diversification

indicators for different regions of the world shows that exports tend to become more diversified for Asia over time (Agosin et al., 2009). Our investigation will enable us to produce some stylized facts; notably,

how different export diversification patterns are when countries trade with developed (―Northern‖) and the growing share of developing (―Southern‖) countries, and which kind of product category tends to be more

diversified. In other words, we will explore the relative importance of both product and market diversification.

The rest of the paper is organized as follows. Section 2 provides an overview of the literature. Section 3 discusses the statistical issues related to the usual measures of export diversification. Section 4 develops a

descriptive analysis for the Asian MICs and Section 5 concludes by suggesting directions for future research aiming to bridge CSR and export diversification.

2. LITERATURE REVIEW

2.1. On export diversification

The relationship between exports and economic performance is among the most interesting and richest debates in the economic literature. While it has been widely explored in the light of both the international

trade and growth theories, the strong correlation between them confirmed in many empirical studies has led to a widespread consensus that export-oriented strategies have been critical in increasing growth rates.

Among the wide number of theoretical and empirical issues related to the topic, a theoretical issue of the

greatest importance then emerged in the development field, namely, how export diversification might contribute to economic growth in developing countries.

There are old and new explanations for this relationship. Without going back to the pioneers, it is commonly argued in development economics that production diversification is beneficial to growth as a

result of either economic externalities or an enlarged matrix of input-output trade. The benefits from diversification are viewed in dynamic terms through the growth spillovers and cumulative improvements in

the economy linked to additional products: higher rates of return on fixed investment, inter-sectoral or forward and backward linkages, increased sources of technology upgrading and productivity growth. As a

result, having a more complex and diversified industrial structure is especially important for developing countries in search of balanced growth (Agosin, 2007).

It is worth noting that the hypothesis of encouraging product diversification was not initially associated with outward-orientation recommendations. From the 1980s onwards, the analysis of contrasting

country experiences in the developing world brought about a dramatic change in the debate. It came with the adoption of export-promotion policies by the Newly Industrializing Countries (NICs) of East Asia in

the early 1970s, where diversification and trade expansion were successfully combined with growth in manufacturing value-added and GDP. A large number of countries then took comprehensive measures to


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open up and integrate their economies into global and regional markets. With the outward-oriented

consensus, relatively new studies of endogenous growth suggested that structural changes in exports would

lead to faster growth through the availability of a wider variety of imported inputs (Romer, 1990), augmented and diversified investments in new activities and reduced investor risks (Acemoglu and

Zilibotti, 1997).

In international trade, export diversification seems to contradict traditional theories, which require specialization when a country integrates the world economy. According to comparative advantage theories, a country‘s involvement in international trade leads to the concentration of resources in the few sectors in which the country produces more efficiently than other countries. However, a dramatic change occurred in the debate with the successful experiences of the East Asian NICs. Some authors revived the ―infant industry‖ argument, which notably advocates temporary protection for some domestic industries as a means of developing a more diversified economic structure before entering international markets (Stiglitz and Yusuf, 2001; Weiss, 2005). In this line of argument, governments are required to be proactive in supporting exporters and alleviating the high ―death rate‖ for new exports that low-income countries usually experience (Hausmann and Rodrick, 2003). In sum, contrary to the teachings of traditional theories, expanding the production and trade of a variety of commodities plays an important role in promoting export performance.

Another strand of the literature considers export diversification from the perspective of a portfolio approach. In line with the ―trade pessimism‖ which conducted import-substitution strategies in the 1960s, export diversification would provide a hedge against price variations, volatile export revenues, and income instability when the export pattern is over-concentrated in one or a limited number of products and geographical destinations (Stanley and Bunnag, 2001). In addition, concentration may be dangerous if asymmetric shocks hit the core sectors of the economy in which its activity is most intense. These critiques are summarized in the literature on the ―resource curse‖, that is: a negative relationship between an abundance of natural resources and growth.

Against this background, two policy questions arise. First, given the potential benefits of export diversification, what can a developing country do to diversify its exports? Second, how should the country set about the task of diversifying? Is there a trade-off between an increase in the quantity of goods that are already being exported and the number of goods exported?

While many theoretical and empirical studies have revealed the contributions of diversification to the development process, a more recent strand of the literature has focused more on the determinants of export

diversification. Among the factors needed for diversification to be successful, the level of per capita income in an economy has been widely analyzed, reversing the relationship from economic development towards diversification. A seminal contribution has been made by Imbs and Wacziarg (2003), who showed that export diversification can be an outcome of the development process. The authors present evidence from a wide set of countries that shows an inverted U-shaped pattern of export concentration in relation to development level, with diversification followed by re-concentration.

Depending on where a country stands in terms of its level of economic development, diversification has been addressed by the endogenous growth literature (Mejia, 2011). It appears that the underlying determinants of export diversification encompass structural variables (factor endowments, country size, the level of human capital or technology gap) as well as policy and macroeconomic variables (trade reforms, macroeconomic management, quality of infrastructure and institutions, FDI inflows and capital accumulation, elasticity to terms of trade shocks, and the level of real exchange rate and its volatility).

Different approaches to the determinants of export diversification can be found in the recent literature on international trade. One argument that features in the debate on specialization versus diversification is the concept of ―product proximity‖ (Hausmann and Kingler, 2006; Hidalgo et al., 2007). Countries that develop products which are close to those in which they have comparative advantage can diversify more easily than others by developing products that are on the periphery of the product space. Another similar


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argument is that developing countries should change and diversify their exports to match those of richer countries because these goods are characterized by higher productivity and hence growth potential (Haussman et al., 2007; Hummels and Klenow, 2005). Beyond specializing in the sectors with comparative advantage, ―export sophistication‖ (reflected in the higher value-added and productivity content of the export goods) may enable more benefits to be derived from international trade. In sum, countries that succeed in acquiring the capability to export more sophisticated manufactures will grow faster.

Recent theoretical and empirical contributions to the trade literature have offered new tools to address the second question, namely how to diversify? Within new trade theory as well as ―new‖ new trade theory,

a common idea is that the degree of diversification varies depending on trade costs, product type, and market size (representing both the productive capacity and market potential). However, Melitz‘s (2003)

novel contribution was to identify the microeconomic determinants of export diversification. Drawing on a dynamic model of industry equilibrium with heterogeneous firms, one of the predictions of the model is

that opening up to trade will increase aggregate productivity in the economy and will eventually lead to export diversification as the set of exporters is endogenous. Chaney (2008) extends Melitz‘s model by

assuming countries with asymmetric size and trade barriers. His theoretical model with heterogeneous

firms helped to disentangle the effects of trade costs (i.e. the trade-cost elasticity of trade flows) at the intensive and extensive margins. The Intensive Margin (IM) of trade refers to the growth of exports in

goods that are already being exported. The Extensive Margin (EM) is defined as the growth of exports in new categories; it refers to the increased number of active export lines via new products and new markets.

The IM characterized by increased exports of the same products to the same markets has been questioned by various scholars. A key concern is the risk that increasing exports will depress the terms of

trade, leading the developing countries to an ―immiserizing‖ form of growth: that is, an export-biased growth that makes a country worse off along the lines formulated by Bhagwati (1958). In sum, countries

which only expand their exports by driving down their prices relative to other countries (i.e. export growth which takes the form of IM growth) will not escape from the trade pessimism noted by the pioneers. Only

export growth which comes in large measure through expansion in the number of products exported (i.e. EM growth) will help developing countries to offset the deterioration in the terms of trade associated with

traditional IM growth. In other words, increasing levels of export do not guarantee, by themselves, higher levels of growth: the most important issue is to find the ―right export mix‖ that ensures low instability in

export earnings through a broader export base combined with positive price trends.

On the other hand, some authors have pointed to differences in export diversification patterns between

high and low-income countries (Amurgo-Pacheco and Pierola, 2008; Lee and Kim, 2012). Although both

IM and EM are much more important in developed countries, trade growth at the EM is predominant for developing countries with income levels below the turning point in the diversification curve. In other

words, countries at earlier stages of development trade more at the EM, whereas high-income countries develop exports along the IM with a re-concentration on their exports towards fewer products.

To sum up, export diversification can take different forms and consequently can be analyzed at different levels (UNCTAD, 2004). A country can diversify its exports by changing the shares of produced

goods in the existing export mix (―intensive‖ diversification) and by including either new products or new trading partners in the export portfolio (―extensive‖ diversification). Similarly, we talk about ―horizontal

diversification‖ when shifts into new export industries take place within the same sector; ―vertical diversification‖, conversely, entails a shift from primary goods to manufactures or higher value-added

products.

In view of this, the present paper addresses the issue by reference to the Asian group of Middle-

Income Countries (MICs). First, the idea is that the MICs, with their intermediate income level, have less clear comparative advantages and are therefore assumed to have a more diversified product supply.

Second, by controlling for the per capita income level of the exporting country, we aim to examine how diversification patterns may depend on the type of product exported and the destination country.


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2.2. On Corporate Social Responsibility

The current international environment is very different from the early 1960s, when the rapid growth of

manufactured exports from the East Asian NICs started to arrive on world markets (Weiss, 2005). Firstly,

forces of globalization of both trade and capital flows are now much stronger, and transnational firms have

now established elaborate production networks, both globally and regionally. To get a sense of perspective,

textile sector was the main driver of the NICs‘ export strategy, but it is now one of the most globalized

industries in the world. Secondly, the rules and dispute procedures governing international trade have been

strengthened by the emergence of the World Trade Organization (WTO). Besides this, the late 1990s saw a

steady rise in CSR norms in the form of company-based codes of conduct (Jenkins, Person and Seyfang,

2002). The implementation of CSR norms was expected to lead to an improvement in working conditions,

environment protection, and good practices in the context of responsible supply chain management. In light

of the growing emphasis on companies‘ responsibilities, a focus on CSR in developing countries has been

recent in nature and relatively limited in the economic studies. So, many aspects are still in need of

clarification. Along with the increasing emphasis on export performance, we then focus on the link

between CSR concerns and exports which has emerged in developing countries.

CSR has been defined in numerous ways in the literature. A range of definitions has sprung up,

especially the World Bank and the EU definitions which are cited and applied widely. Given the diversity

of CSR dimensions in theoretical perspectives and the distinction between addressing firm-internal and

firm-external factors, we refer to the one used by Jeppesen et al. (2012) and proposed by Blowfield and

Frynas (2005): “an umbrella term for a variety of theories and practices all of which recognize the

following: (a) that companies have a responsibility for their impact on society and the natural environment,

sometimes beyond legal compliance and the liability of individuals; (b) that companies have a

responsibility for the behavior of others with whom they do business (e.g. within supply chains); (c) that

companies need to manage their relationship with wider society, whether for reasons of commercial

viability, or to add value to society.” (p. 503)

This definition emphasizes two dimensions of the environment: ―internal‖ issues and ―external‖

issues. The ―internal‖ environment (also termed the ―working environment‖) refers to labor and workplace

safety. The ―external‖ environment (also termed the ―physical environment‖) refers to the use of resources

like energy, water, raw materials, and other production inputs. This use often leads to the pollution of the

local community such as air, steam, odor, ground and water. In sum, the three main areas or dimensions of

formal CSR practices to be investigated include:

(a) Social and labor standards, also termed ―working conditions‖ (such as pay and benefits,

unionization)

(b) The working environment (such as safety and health conditions)

(c) Physical environmental conditions (such as pollution)

Jeppesen et al. (2012) adds a fourth dimensional approach which is:

(d) Informal CSER practices, constituted by informal arrangements between management and

employees (loans, leave) and donations to the local community and the like.

In both policy-making and academic circles, CSR has been heavily criticized (Mezzadri, 2010).

Firstly, codes work well only for some (that is, for those holding permanent contracts) but not for the

majority who are casual and temporary workers in most developing countries. In a way, codes were merely

replicating the failure of national legislation in protecting the most vulnerable segment of the labor force.

Secondly, the main limitation of CSR is due to the lack of consideration of local social structures of

production and labor dynamics internal to the industry. A deeper understanding is required of how forms of

household or home-based labor are integrated into local and global value chains. Lastly, other main


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critiques of the mainstream approaches to CSR can be summarized in the following points (Jeppesen et al.,

2012):

• The agenda is Northern formulated and dominated by normative approaches, emphasizing what CSR should be and what firms should do.

• The focus is on large firms and their perspectives on CSR.

• The approaches also focus on formal versions of CSR.

• A key perspective in the business management literature has been on win-win understanding (that CSR will have positive economic effects). However, evidence of such win-win relationships is lacking.

The importance of CSR has increased, in particular for firms with international customers. In the era of globalization, there was a profound restructuring of the old international division of labor, giving rise to a new division of labor where many developing countries became sites of manufacturing production, following the formation of what is called global commodity chains. However, few studies point out the concerns in developing countries, neither on how export diversification nor how CSR can be interconnected. How does the engagement or non-engagement of firms in CSR affect developing countries in their strategy of export diversification?

3. DATA AND METHODOLOGY USED TO MEASURE EXPORT DIVERSIFICATION

Several ways of measuring export concentration (diversification being the complement to 1 of concentration) have been developed in the empirical literature: the Herfindhal-Hirschman concentration index, the Ogive index, Theil‘s entropy index, and the Gini coefficient, which measures inequality in export shares (Cadot et al., 2007). On the whole, the concentration indices provide quite similar rankings of export concentration and thus may be used interchangeably.

The Herfindahl-Hirschman index for country i, normalized to range between zero and one, is:

N

Np

HH

N

k

ik

i 11

1

1

2

with k

ikii

ikik x

X

xp X and

where pik is the share of export line k (with exported amount xik) in total exports of country i (Xi) and N is the total number of export lines. The share of each product in a country‘s total exports is weighted to make sure that a small export value has minor influence on the outcome of the index. The lower the HH index is, the less concentrated or more diversified exports are.

In the same way, the Ogive index measures deviations from an equal distribution of export shares among commodities. It is expressed as follows:

N

k

ik

i

N

Np

OGV1

2

11

1

where the variables are defined as previously. A diversified export portfolio should have a low value for OGV; under perfect diversification, an equal distribution of export shares among products implies that 1/N is the average share of each export line k.

Theil‘s entropy index is given by:

ikN

k

iki

xx

NT ln

1

1

with N

X i


9

It measures the extent to which the export portfolio is diversified. An index equal to zero value means

perfect specialization or concentration.

The formula for the Gini index is:

N

k

ikiki SSN

G1

1

11

with

k

l

ilik pS1

representing the cumulative export shares.

Recent theoretical and empirical contributions to the trade literature have offered new tools to address

the IM and EM of trade. Many of the empirical studies on export diversification have measured the EM by

counting the number of product lines in which a given country exports. Having ascertained the number of

―zero-trade flows‖, they then interpret the evolution of such flows as export diversification by focusing on

the bilateral trade flows that switch from zero to a positive value for each possible destination (Amurgo-

Pacheco and Pierola, 2008). Similarly, a new export product is defined as the one that has been exported in

a recent period - for instance, at least 5 times after a reference date according to Amurgo-Pacheco and

Pierola (2008) - or that remains active for 2 years but had been inactive during the 2 previous years

according to Cadot et al. (2007). The EM then measures diversification by adding new product lines to the

number of active product lines (lines with non-zero exports).

In this context, we choose to use the most usual measures of export diversification, that is the HH

concentration index (changes in the shares of commodities in the existing export mix) and the number of

product lines (all commodities having a positive value in the export portfolio). We use country-level data

from the Base for the Analysis of International trade (BACI) which is built by the CEPII1 at the HS 6-digit

product level. Starting from the UN COMTRADE database, BACI resolves missing values and makes it

possible to extend considerably the number of countries for which trade data are available, thereby making

it possible to separate out missing product lines (i.e. zero trade values). The sample is limited to a selection

of 24 MICs in Asia (see Appendix) exporting to all regions (175 countries) between 1995 and 2010.

Finally, to explore differences in behavior between destination countries, we separate patterns of export

diversification in the Northern (developed) countries from those in the Southern (developing) countries, the

former being high-income countries as defined by the World Bank.

4. A COMPARATIVE ANALYSIS

Using the HH index and the number of export lines (N), Table 1 presents the top ranking for export

diversification performance among Asian MICs in 1995 and 2010. As expected, we observe that big-sized

countries register the highest number of export lines to all destinations (the upper level of the table).

Notably, China‘s exports span a widening spectrum of sectors. According to Wang and Wei (2008), of a

total of 4212 HS6 digit product lines exported to the US, Japan and the EU in 2005, China failed to

participate in only 83 lines. It means that the country will display a lower reduction in the number of zeros

since few 6-digit categories are being exported yet. Interestingly, a contrary trend can be observed in India

when the two measures of diversification are compared. While the number N remains unchanged, the HH

index increases dramatically, putting India at the bottom of the top 10 by the end of the period.

1 See http://www.cepii.fr/anglaisgraph/bdd/baci.htm for further details.


10

Table 1. Asian Diversification Ranking (Top 10)

All destinations

Number of export lines HH Index

1995 2010 1995 2010

1. China (4915) China (4794) China (0.00295) China (0.0084)

2. India (4673) India (4650) India (0.00538) Vietnam (0.0133)

3. Malaysia Thailand Thailand Thailand

4. Thailand Malaysia Sri Lanka Sri Lanka

5. Indonesia Indonesia Malaysia Pakistan

6. Philippines Vietnam (3619) Pakistan Indonesia

7. Pakistan Philippines Indonesia Malaysia

8. Sri Lanka Pakistan Philippines India (0,0358)

9. Vietnam (1807) Sri Lanka Laos Fiji

10. Fiji Fiji Vietnam (0.059) Philippines

To the North


2. India (4482) India (4477) Sri Lanka Vietnam (0.0142)

3. Malaysia Malaysia Thailand Thailand

4. Thailand Thailand Malaysia Sri Lanka

5. Indonesia Indonesia Pakistan Pakistan

6. Philippines Vietnam (3091) India (0.0244) Indonesia

7. Pakistan Philippines Indonesia Malaysia

8. Vietnam (1599) Pakistan Philippines Laos

9. Sri Lanka Sri Lanka Laos India (0.0572)

10. Fiji Fiji Vietnam (0.0633) Fiji

To the South


2. India (4226) India (4572) India (0.0108) Thailand

3. Thailand Malaysia Indonesia Vietnam (0.0246)

4. Malaysia Thailand Thailand India (0.0254)

5. Indonesia Indonesia Pakistan Indonesia

6. Philippines Vietnam (3135) Malaysia Malaysia

7. Pakistan Philippines Sri Lanka Pakistan

8. Sri Lanka Pakistan Philippines Sri Lanka

9. Vietnam (795) Sri Lanka Bhutan Fiji

10. Fiji Fiji Mongolia* Samoa

Source: Author‘s calculations based on BACI

* Vietnam at the 11th

rank (0.1506)


11

Figure 1 shows the same trends in the evolution of export diversification over time for China, India

and Vietnam compared with the region as a whole (the Asian figures are taken as simple averages of the

individual country results). There seems to be a stable trend in China‘s and India‘s export portfolio over the sample period, as well as across the Asian region when considering the number of product lines. However,

a contrasting picture emerges when looking at the HH index with India raising its concentration index to a greater extent (from 0.0054 to 0.0358 as shown in Table 1). In other words, the country‘s integration into

global and regional markets led to less export diversification notably since 2000. Similarly, China follows the same trend, with continuing industrialization enabling the country to re-concentrate on existing

categories since 2007. Broadly speaking, the Asian area tended to re-concentrate its export portfolio, even if it still remains more diversified than that of other developing regions in the world. On average, the HH

index for the whole of Asia increased from 0.1387 in the first sub-period 1995-99 to 0.1744 in the last sub-period 2006-10, with the largest increase stemming from Pacific islands like Western Samoa or the

Solomon Islands. This result means that small islands are concentrating their exports in a few products because they may lack the productive capacity, capital or infrastructure to diversify their production. The

highest HHI values in 2010 were seen in the Solomon Islands (0.5742), Tuvalu (0.4786) and Micronesia (0.4742).

Figure 1. Evolution in the Diversification Indices

The regional picture shows that Vietnam has successfully diversified its export base both by changing

the shares of commodities in the export mix and by including new export lines (Figure 1). The decrease in the concentration index (from 0.059 in 1995 to 0.0133 in 2010) is due to diversification in particular areas

of comparative advantage, while the increase in the number of export lines (which doubled over the period considered) consists of new commodities and new destinations. Our result is in line with those of Amurgo-

Pacheco and Pierola (2008), who found that within the EM, geographical diversification seems to matter to developing countries. Vietnam‘s successful performance enabled the country to climb up the ranking of

Asian countries between 1995 and 2010: as shown in Table 1, the country strikingly outperformed second-tier NICs and in 2010 registered the lowest concentration index (0.0133) after China.

Number of products exported

Herfindhal-Hirschman index


12

Figure 2. Evolution in the Number of Products Exported by Destination

Figure 3. Evolution in the Herfindhal-Hirschman Indices by Destination

SN: to Northern countries

SS: to Southern countries


13

To include a geographical dimension in our discussion, we break down the export flows into products destined for the Northern and Southern markets. This decomposition shows the extent to which the development level of the destination countries matters in export diversification. Table 1 and Figures 2-3 show that the diversification indices for Vietnam and the whole of Asia show increases in exports to Southern partners. From a situation in which half of exports went to the North, the number of 6-digit categories involving developing countries quadrupled in Vietnam and by 2010 overtook the number destined for developed countries (3135 and 3091 respectively). The highest growth rates in terms of active export lines towards the South were to be found in small Pacific islands (+1021.4% for Western Samoa, +528.6% for Vanuatu) and latecomers in the regional integration process (+294.3% for Vietnam, +246.2% for Laos). Figure 3 shows a contrasting picture of export diversification when we compare the HH index among the countries. While the concentration index for the whole of Asia rose by 28.7% between 1995 and 2010 to all destinations, the same HH index for exports to the South decreased by 23.5%. This index increased dramatically in China (+121.5%) and India (+135.6%). In contrast, it decreased in Vietnam (-83.6%), Malaysia (-41%), Thailand (-30.8%), and the Philippines (-21.7%). In other words, trade with Southern partners is more diversified and this emerging South-South trade diversification is largely a reflection of China‘s dominant role in the new regional division of labor.

Analyses of diversification may be based on different definitions or concepts; furthermore, what is relevant from a geographical point of view may not be relevant to a product one. In order to analyze export diversification patterns from another perspective, we aggregate the products by stage in the production process (see Appendix). The international trade nomenclature provided by the CEPII enables us to specify six stages that describe the various stages in manufacturing processes. By doing this, we can examine how the production chain is broken down into different components that are produced in different locations and may later be combined into final goods. For example, some countries which are abundant in natural resources might export primary or resource-based products at the upstream level (denoted ST1), while others will take advantage of a large reservoir of labor force or a large domestic market in order to specialize in consumption goods (ST6) in downstream industries. Yet others will be able to export capital goods (ST4) thanks to a domestic supply of skilled labor. The evolution of export composition from upstream towards downstream industries, via the intermediate stages, indicates an upgrading process of vertical industrialization.

Table 2. Evolution in the Diversification Indices by Stage of Production on a Cross-country Comparative Basis

N 1995 2001 2007 2010

Average Asia Max ST3 1220 ST3 1221 ST3 1213 ST3 1201

Min ST2 1 ST2 1 ST2 1 ST2 1

China Max ST3 1220 ST3 1221 ST3 1213 ST3 1201

Min ST1 480 ST1 481 ST1 478 ST1 462

India Max ST3 1196 ST3 1206 ST3 1202 ST3 1169

Min ST1 420 ST1 450 ST1 462 ST1 442

Vietnam Max ST6 602 ST6 788 ST3 1029 ST3 1000

Min ST2 121 ST1 227 ST1 323 ST1 300

Indonesia Max ST3 1126 ST3 1181 ST3 1173 ST3 1128

Min ST1 375 ST1 411 ST1 405 ST1 374

Malaysia Max ST3 1161 ST3 1165 ST3 1153 ST3 1112

Min ST1 390 ST1 401 ST1 403 ST1 390


14

Philippines Max ST6 832 ST6 929 ST3 936 ST6 873

Min ST1 238 ST1 268 ST1 276 ST1 262

Thailand Max ST3 1166 ST3 1181 ST3 1184 ST3 1158

Min ST1 390 ST1 406 ST1 411 ST1 407

HH 1995 2001 2007 2010

Average Asia Min ST3 0,0030 ST3 0,0048 ST3 0,0055 ST2 0,0050

Max ST4 0,9853 ST4 0,9476 ST2 0,9806 ST5 0,9292

China Min ST3 0,0050 ST3 0,0048 ST2 0,0071 ST2 0,0050

Max ST1 0,0500 ST1 0,0455 ST4 0,0374 ST4 0,0432

India Min ST3 0,0071 ST3 0,0055 ST3 0,0055 ST3 0,0080

Max ST1 0,0742 ST5 0,0748 ST5 0,2935 ST5 0,4251

Vietnam Min ST3 0,0187 ST3 0,0176 ST3 0,008 ST3 0,0125

Max ST1 0,2444 ST1 0,4178 ST1 0,289 ST1 0,1491

Indonesia Min ST6 0,0124 ST6 0,0178 ST6 0,0111 ST6 0,0116

Max ST1 0,1528 ST1 0,1702 ST1 0,1162 ST1 0,1038

Malaysia Min ST2 0,0222 ST2 0,0143 ST2 0,0105 ST2 0,0147

Max ST5 0,1513 ST1 0,2118 ST1 0,251 ST1 0,2688

Philippines Min ST6 0,0137 ST6 0,0116 ST6 0,0209 ST6 0,0177

Max ST3 0,264 ST3 0,2145 ST3 0,211 ST3 0,2125

Thailand Min ST6 0,0139 ST6 0,0147 ST6 0,0177 ST6 0,0217

Max ST1 0,1427 ST4 0,0942 ST1 0,0936 ST1 0,1161


The diversification measures decomposed by stage of production are listed in Table 2 on a cross-

country comparative basis. We selected the data for the second- and third-tier NICs from various years.

Unsurprisingly, the number of products corresponds positively with size of country, with average,

maximum, and minimum levels increasing as countries get larger. More generally, the selected countries

registered the largest number of active export lines in ST3 (intermediate goods) and the lowest number in

ST1 (resource-based products). However, inspection of the HH index indicates vertical diversification

across the countries, with clear specialization by stage.

At the upper level, Malaysia positioned its export base in ST2 (basic manufacturing), within which it

tends to diversify in a broad number of varieties. According to UNCTAD (2004), Malaysia is a successful

example of export diversification. The country has diversified not only vertically (by adding more value-

added products to its export portfolio) but also horizontally (by expanding the traditional export

commodities for final consumption). In other words, the country has achieved broad-based diversification

in its development process. However, the country has been overtaken by China, which moved from ST3

into higher value-added manufactures with an emerging position in ST2. In contrast, Vietnam‘s export

diversification is taking place in ST3, where it has joined India. In the early years, the country partly

maintained its specialization in natural resource-based exports. However, as predicted by the ―flying geese

paradigm‖ of comparative advantage, Vietnam has been increasingly viewed as an alternative host country

in regional production networks. While foreign capital inflows during the 1990s were concentrated in oil

and gas exploitation or construction, growing shares of intermediates or semi-final products in total


15

production attest to the rapid diversification of Vietnam‘s industrial production and exportation with FDI

attraction. This contrasts to Indonesia, the Philippines, and Thailand, which diversified their exports mainly

in consumption goods (ST6).

Table 3. Evolution in the Diversification Indices by Comparing Stages of Production

1995 2001 2007 2010

N HHI N HHI N HHI N HHI

ST1 Mean 140 0,27235 153 0,27412 167 0,22872 156 0,25570

Min-Max 2-480 0,003-0,894 2-481 0,045-0,938 3-478 0,025-0,755 5-462 0,017-0,804

ST2 Mean 210 0,22582 222 0,19395 265 0,23825 263 0,31933

Min-Max 1-926 0,006-0,600 1-893 0,008-0,688 1-891 0,007-0,981 1-874 0,005-0,929

ST3 Mean 361 0,20146 421 0,10555 450 0,15219 425 0,14466

Min-Max 2-1220 0,005-0,871 9-1221 0,005-0,432 7-1213 0,005-0,442 10-1201 0,008-0,521

ST4 Mean 209 0,24743 257 0,24498 288 0,19858 275 0,23036

Min-Max 3-717 0,017-0,985 7-717 0,012-0,946 14-722 0,014-0,820 12-719 0,025-0,874

ST5 Mean 157 0,23153 181 0,1806 195 0,24279 184 0,27580

Min-Max 5-489 0,032-0,706 8-493 0,031-0,589 7-489 0,022-0,935 8-479 0,022-0,738

ST6 Mean 358 0,21638 407 0,12400 426 0,21662 396 0,24092

Min-Max 5-1083 0,007-0,92 7-1083 0,007-0,472 11-1074 0,011-0,861 5-1059 0,011-0,926


The results reported in Table 3 indicate that the fragmentation of production has had major

implications for a country process of export diversification. In the presence of significant offshoring and

outsourcing, no single country within Asia dominates entire production chains as each country has found its

niche (Gill and Kharas, 2007). Two stages were responsible for the high level of export diversification in

the Asian MICs: intermediate goods (ST3) and consumption goods (ST6). The trade in the former has

grown more rapidly than the trade in the latter and this is more prevalent in the Asian region. Thus the

relative importance of world trade in parts and components explains a significant share of the change in the

EM, with the largest number of varieties being in ST3 (intermediate goods). The latter registered an

outstanding growth in world trade, highlighting the increasing integration of the Asian MICs into regional

and global production chains. This could mean that nowadays, developing or producing final goods is not a

necessary condition for boosting export growth in developing countries.

5. CONCLUSION

Levels of export diversification differ considerably between countries, and should be understood in the

context of the various country characteristics that reduce export concentration (e.g. per capita income,

country size, open trade policies or preferential trade arrangements) and others that have the opposite effect

(natural resource abundance, distance to trading partners, real overvaluation or exchange rate volatility).

General differences in export diversification patterns appear at the aggregate level, but become particularly

interesting when the comparative analysis is conducted at the product and geographic levels.

This study provides a comparative examination of export diversification performance in MICs of

Asia, where diversification and trade expansion have been successfully combined with growth in

manufacturing value-added and GDP. On the whole, we find that the Asian area has tended to re-

concentrate on its export portfolio since the global crisis, even if it still remains more diversified than other


16

developing regions in the world. As expected, our results indicate that the degree of diversification

(measured by the concentration index or the number of active export lines) varies with country size. Large

countries like China and (to a lesser extent) India register the highest number of export lines. However, a

contrasting picture emerges when the HH index is considered, with India and (to a lesser extent) China

raising their concentration index. In other words, export diversification seems to have gone into reverse in

these countries and they are now becoming more specialized. Vietnam, in contrast, has undergone a

successful process of export diversification since 1995, both in new products and destinations.

Analysis of two alternative dimensions of export diversification (stage of production and destination) reveals that South-South trade has a more diversified export pattern than North-South trade, especially in

intermediate goods. The same trend can be observed in Vietnam, while China and Malaysia have increasingly diversified in the upper stage of basic manufacturing. Our findings suggest that Southern

country markets might be a more appropriate destination for developing countries seeking to diversify their exports. Trading with specific markets may increase the probability of finding demand for more products

and consequently of exporting more product varieties.

Drawing together all our findings, our investigation assesses the (possible) links between CSR and

export diversification by pointing a wide scope for future research.

Firstly, decomposition among trading partners highlights how geography diversification may impact on a link that can be established between CSR and export diversification. In the current context of global

production, transnationals can avoid CSR norms by relocating or clustering in poor and remote areas. Similarly, local exporters within developing countries can export to other developing countries without

having to adopt codes of conducts. However, the extent to which such interconnectedness through global networks is likely to bear positive spillovers to local economies can be hampered. In sum, the relationship

between export diversification and CSR may vary across different trading partners.

Secondly, decomposition among stages of production or activities allows us to identify which country

has become a site of manufacturing production (following the formation of global commodity chains) and how effectiveness of CSR norms can vary among those sites. The high industrial fragmentation of the value

chain reflects in the high incidence of subcontracting which becomes fundamental in order to maintain high competitiveness and flexibility. These subcontractors may specialize in full fabrication or in specific

activities of the production process. However, because fragmentation of the value chain is often characterized by a rapid succession of small orders, it results in volatile product cycles which counter CSR

norms.

Thirdly, Small and Medium-sized Enterprises (SMEs) can be an important part of the CSR

commitments of large companies in the context of responsible supply chain management. SMEs constitute

by far the largest number of firms in developing countries, even though academics and policymakers tend to focus on large firms. SMEs, accounting for up to 90% of all registered firms in an economy (even more

if the informal sector is included), are important providers of employment and producers of a large share within total industrial output. Given the economic and industrial importance of SMEs, they also have

considerable role and impact when it comes to environmental and social issues. As the focus on SMEs and CSR in developing countries has been relatively limited and recent in nature, many aspects are still in need

of clarification.

These are all highly relevant issues for future studies as they underline the numerous ways in which

productive activities can lead to sustainable development.

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19

Drivers of Corporate Social Responsibility Practices – A Comparative Analysis between Spanish and Vietnamese

Construction Industry

Le Thi Thanh Xuan and Tran Tien Khoa

School of Industrial Management – HoChiMinh City University of Technology –

VNU HCMC

International University – VNUHCMC

Email: [email protected]; [email protected]

ABSTRACT

The main purpose of this study is to explore drivers leading Vietnamese construction firms to implement

and practice Corporate Social Responsibility (CSR) in their operations. The reason of choosing the construction

industry is that it has significant effects on social life not only in developing countries but also in developed

ones. Therefore, qualitative method with in-depth interview as the main method to collect data is employed to

conduct this study. Senior managers in construction companies are interviewed with semi-structured questions

in around 60 - 90 minutes to investigate their perceptions of CSR drivers in their actual business. Then, thematic

analysis is employed to develop themes on drivers of CSR. Finally, a comparative analysis is conducted to

determine similarities and differences between drivers of CSR of construction companies in Vietnam – a

developing country and its counterpart in a developed country – Spain (Cambra-Fierro, Wilson, Polo-Redondo,

Fuster-Mur, & Lopez-Perez, 2013). The recent context of the construction sector in Vietnam is similar to that in

Spain; thereby this comparison aims to provide some lessons for construction firms and the sector as well. Both

studies have some significant findings that need to be discussed and proposed suggestions not only for policy

makers and industry authorities, but also for management in firms to promote CSR.

Keywords: Corporate social responsibility, The construction industry, Drivers, Vietnam, Spain

1. INTRODUCTION

The construction industry has been playing a significant role in the economy of any countries.

Similarly, in Vietnam, construction investment has been increased in order to respond to the need of

socioeconomic development. The population of Vietnam reached 90.7 million in 2014

(www.worldbank.org), which leads to rapid rural-to-urban migration and urbanization. Thereby, the

development of the construction industry is to satisfy this rapid growth. However, with such a rapid growth

of the construction industry, poor quality in many projects raises the question of how much construction

companies care about their stakeholders and that of how they perform their corporate social responsibility

(CSR).

CSR has emerged and become one of the most important issues in business life. Firms now are

expected not only to be profitable but also responsible by practicing ―corporate social responsibility‖ or

being ―corporate citizen‖ (Lantos, 2001). Many studies have investigated the reasons leading firms

practicing CSR and figured out two demands of CSR from customers and from other stakeholders such as

investors, employees, community (McWilliams & Siegel, 2001). Furthermore, researchers also found out

that economic responsibility and other ones are not conflicting but can be integrated (Clara C. Romero & L.

Lamadrid, 2014). However, not much literature focused on finding the motives or obstacles to practice

CSR from perspective of business organizations.




20

The main purpose of this study is to deeply investigate drivers leading construction firms to

implement and practice CSR. While doing literature review, the researchers came across an article

conducted in Spain, whose construction industry has many similar characteristics to that in Vietnam.

Therefore, questions will be answered in this study are (1) what are the drivers leading construction firms to

practice CSR? (2) what are the similarities and differences between CSR drivers of Vietnamese

construction firms and their counterparts in Spain? (3) what are the lessons for the construction industry in

Vietnam?

The construction industry in Vietnam

The economy in Vietnam is growing rapidly and this growth, most of which has been urban-centred,

has led to rapid rural-to-urban migration and urbanization. According to the report of the Ministry of

Construction, the percentage of urbanization in 2013 was 33.47% (www.baoxaydung.com.vn). In order to

meet the requirements of this rapid economic growth and urbanization, construction industry has to respond

with total development regarding all of its majors. Therefore, the construction industry is experiencing

rapid growth and has become one of the most dynamic and pivotal industries in Vietnam. The critical role

of the construction industry has been affirmed by the Vietnamese government‘s goal of developing the

national infrastructure as well as the need to accommodate the rapidly growing populations in big cities like

Ho Chi Minh City, Ha Noi, Can Tho, and Da Nang. Hence, the development of the construction industry

has been significantly stimulated by many factors such as changing demographics, growing population,

large scale and rapid urbanization, investment in infrastructure, and rising standards of living.

Although affected by the world financial crisis in 2008, the real growth of the construction industry

was 12% in 2009 and still 7.8% in 2014. Remarkably, the sector accounted for 43.6% of GDP in the first

six months of 2014 (www.baoxaydung.com.vn). According to this report, business value is the real amount

of money and assets that the construction industry achieves which have been increasing annually. 26.2%,

71.3%, and 2.5% are growth values by state-owned, private and foreign companies respectively. Along

with this growth, the construction sector has been seen as a large industrial employer whose employed

population has been increasing yearly (Bo, 2009). This is derived from the expansion of established

construction companies as well as the entry of new ones in the market.

In general, the majority of the construction industry include of design, consultant, executing, and other

services. Design services refer to firms that are involved in structural or architectural design of construction

projects. Consultant services include firms consulting on projects. Executing services include those firms

involved in executing or completing a project. Other services include materials manufacturers, import

firms, real estate firms, and others.

In terms of market size, according to Ling et al. (2009), over 74% of the registered companies are

small operating in the construction sector. However, medium and large companies (nearly 25%) contribute

up to 89% of the total revenue. With the large number of companies operating, the construction industry

needs to have appropriate strategies to develop sustainably. Besides business practices, firms also need to

be directed and supported in social performance practices.

The construction industry of Vietnam has many similar characteristics to that of Spain. Firstly, the

construction market had a period of expansion before facing recession. Sale fell considerably and

companies cannot sell their product. In Vietnam, the government has to apply many supporting policies to

the industry. Secondly, the contexts of the economies are similar in terms of low increased in GDP,

dropping interest rate, growing population, etc. These factors lead to the situation of oversupply, diving

demand, tougher lending conditions. Thirdly, the integration of construction and real-estate activities in the

industry is also a result of the development in the industry.


21

2. LITERATUREREVIEW

2.1 An overview of CSR

Even though CSR is not a new to scholars and practitioners, there is still a confusing way to define

this concept and to develop a framework for studying and implementing (Balasubramanian, Kimber, &

Siemensma, 2005).

It is noted that CSR is first documented by Bowen (1953, cited in Carroll, 1999). In his study, Bowen

– also known as Father of CSR – defined CSR as obligations that corporations need to fulfill and balance

for the sake of value and benefits of the society. In subsequent CSR definitions, scholars identified

responsibilities of business organizations as activities as perceived by their stakeholders, such as

expectations of public, stakeholder theory, etc. (Xuan & Teal, 2011). CSR definitions in the decades of 70s,

80s and 90s expressed responsibilities of firms as far as making profits and obeying laws. In particular,

protecting the environment is confirmed as an important obligation of companies (Huang, 2010 cited in

Cambra-Fierro, et al., 2013; Xuan & Teal, 2011).

Among CSR studies, CSR framework developed by Carroll (1991) is most-used and referred by many

researchers (Cambra-Fierro, et al., 2013; McWilliams & Siegel, 2001). Carroll‘s CSR pyramid includes of

4 types of responsibilities: economic, legal, ethical and philanthropic. These types of responsibilities are

matched in a matrix with stakeholders of an organization, such as owners, customers, employees,

communities, competitors, suppliers, etc (Carroll, 1991).

In any circumstances, CSR is the way to reflect attitudes and behaviors of firms to their social

responsibility. Depend on how CSR is practiced, firms can create their reputation (Cambra-Fierro, et al.,

2013) which have impact on their employees, customers, etc. The pivot issue is whether reputation built on

CSR can motivate firms in adopting and implementing CSR.

2.2 Motivation for CSR practice

In general, motivations for CSR practice can be classified into two categories, extrinsic and intrinsic

motivations (Graafland & Mazereeuw-Van der Duijn Schouten, 2012). They come from not only corporate

reasons but also individual managers‘ reasons. Obviously, engaging CSR with business is mainly based on

self-interest (Moon, 2001 cited in Hemingway & Maclagan, 2004).

Extrinsic motivation is about the relation between CSR and financial performance of a company in the

long run. This positive relationship is confirmed in many previous studies (Cochran & Wood, 1984; Kang,

2014; Lin, Yang, & Liou, 2009; Mishra & Suar, 2010). CSR can affect financial/corporate performance in

many ways such as improving reputation of company in consumer market, attracting talented employees

(Graafland & Mazereeuw-Van der Duijn Schouten, 2012).

Regarding to intrinsic motivation, self-interest, personal values, and beliefs of managers can be

considered as important motivating factors. Top managers can be establishing factors by setting ethical

norms in organization and middle managers can also be a motivating factor by acting and exhibiting their

personal values through managerial decisions (Graafland & Mazereeuw-Van der Duijn Schouten, 2012;

Hemingway & Maclagan, 2004).

2.3 The need of an investigation of CSR motivations in Vietnam

As mentioned above, the construction industry in Vietnam has been developing and facing many

problems. In comparison with their counterparts in Spain, motivations for Vietnamese firms to practice

CSR are not clear and influential. Some firms have a clear CSR strategy and publish on their website.

However, most of firms are reluctant to practice CSR. The reasons may be economic pressures on their

business and CSR is not a mandatory requirement (from the government and customers). In addition, the


22

reason may also be from the understanding and perceptions of managers. Therefore, it is necessary to

conduct a study in which face-to-face interview is used so that managers can discuss their opinions freely in

order to explore drivers for firms to practice CSR.

3. METHODOLOGY

The main purpose of this study is to investigate managers‘ perspectives of real drivers leading their

corporations to practice CSR. Therefore, while the main method to collect data is in-depth interview with

project managers, semi-structured interview questions are also proposed. The main question is ―What do

you think could be the main drivers of (reasons for) CSR in your company?‖Eventually, thematic analysis

is employed to address the research questions. According to Gibson and Andrew (2009), thematic analysis

serves three main aims including examining commonality, examining differences and examining

relationships. With those aims, thematic analysis fits the research purposes properly.

Regarding to sampling, this study focuses on construction companies, especially on contractor

corporations whose operations have a large impact on the society. The informants are project managers in

construction companies (see Table 1).

Table 1. Demographic Information of Interviewees

Manager Age Gender Years in project

management position

Manager A2 1956 Male 16

Manager B2 1975 Male 4

Manager C2 1982 Male 2

Manager E2 1975 Female <1

Manager F1 1979 Male 5

Manager G1 1980 Male 3

Manager H2 1956 Male 18

Manager J1 1982 Male 6

Manager K2 1975 Male 6

4. RESEARCH FINDINGS

Most of the managers expressed economic benefits as the first motivation for CSR activities in their

companies. These economic benefits were expressed in two main tendencies, including a better and

sustainable business result and financial benefits. These two tendencies can be referred to the last tier in

CSR pyramid of Carroll (1991).

A better and sustainable business result is used to display a series of opinions about benefits that

companies can achieve by practicing CSR. According to managers, practicing CSR will result in

companies achieving more competitive advantages which are derived from advanced preparations of

companies such as preparing in anticipation of environmental requirements. This point is conveyed by a

Deputy General Director when he talked about reasons for his company‘s behaviour:

“For example, when customers mention Green LEAF standards … we can understand what they are

talking about, how a recycled material is, how to treat things when eliminating that material to the

environment, what certificates are required … Whenever they mention those standards, we can understand


23

and obey them strictly, and we can get more advantages than other companies do.” (Manager J1, 2011,

research interview)

In addition to achieving competitive advantages, companies can also develop corporate image or

brand through practicing CSR. This argument is explained by a general director of a state-joint-stock

company as follows:

“I think the only motivation is to develop our brand: our brand is stronger, and our quality of life will

be higher, and our prestige in the community is also higher, and a result is that we have more projects, they

automatically bring projects to us. I think that is the only motivation.” (Manager A2, 2011, research

interview)

Another significant reason given as a driver to implementing CSR in business operations is about how

to survive in an intense market of the construction sector and to develop in the long run. This is suggested

by majority of interviewees regardless of age. A young project manager briefly pointed out that his

company‘s motivation is “…to develop well and sustainably in the long run … so we have to be good at the

beginning …” (Manager J1, 2011, research interview). Likewise, a senior manager also affirmed the only

motivation of his company in implementing CSR:

The only motivation is … what you do well will give you benefits. It is because … the most important

thing to a company like H Company is to survive, to sustainably develop … That is my opinion. (Manager

H2, 2011, research interview)

Ten managers directly mentioned profits, employees‘ compensation, or benefits of leaders as

significant reasons for CSR activities in their companies. The term financial benefits is generated to express

those ideas. With a good plan for CSR implementation, companies will be more likely to have good

business results. As a result, employees‘ compensation or benefits of leaders are based on business

outcomes. The following explanation of a middle manager closely supports the points:

I think the motivation is the company’s profit. To employees, it is the reward policy which is linked

directly to profit. I think that is the biggest motivation for my company and everyone. (Manager K2, 2011,

research interview)

Similarly, a deputy general director of a contractor explained how the reasons for CSR relate to

benefits of leaders:

Yes, the motivation is benefits of individuals … it should be individual benefits, obviously it is related

closely to business results… It is not … For example, in business … I think in Vietnam it is at the stage, I

don’t know how it is overseas … For example, CEOs are recruited with a really high salary. Why? It is

because if that CEO does business ineffectively, he/she will be fired in order to let him/her know … the

main income for his/her life … It makes him/her scared and they have to try their effort in adopting CSR or

anything … (Manager C2, 2011, research interview)

It can be clearly seen from the analysed data that there is strong empirical support for Carroll‘s

arguments on economic responsibilities. In particular, these identified motivations can be explained by the

two components ‗to maintain a strong competition position‘ and ‗to maintain a high level of operating

efficiency‘ (Carroll 1991, p.40).

Additionally, according to four senior managers, drivers leading companies to practice CSR are

derived from reasons of personal leaders. Leaders of companies may practice CSR because of their own

passions and ambitions. They may be even influenced by their friends who are adopting CSR in their

companies. This point is expressed by a CEO as follows;


24

And motivation is also from my friends who are interested in practicing CSR. For example, I have

colleagues who do it and ask me to be involved, or I do it and encourage them to be involved. (Manager

E2, 2011, research interview)

However, those drivers are also partially linked to economic reasons. A deputy general director talked

about those reasons;

The first motivation is the leaders’ occupational passion … the passion in developing a professional

company and the ambition of developing the company to an international level. (Manager F1, 2011,

research interview)

In other words, the impacts of leaders in companies‘ operation are decisive, so their roles in

implementing CSR are significant.

Reasons? Each company has its own culture and behaviours which are influenced by the top

manager. For example, the top manager sets the objectives and strategies for the company relating to

profit-making or any duties in business … (Manager F1, 2011, research interview)

The remaining identified motivations can be associated with the last tier of Carroll‘s CSR pyramid.

The philanthropic component ‗to perform in a manner consistent with the philanthropic and charitable

expectations of society‘ (Carroll 1991, p.41) can be used to explain these motivations.

Generally, from a managers‘ viewpoint, practicing CSR is a means of doing business and helping

companies achieve their targets. Therefore, the main drivers of CSR in companies are mostly derived from

economic reasons, such as business results and financial benefits. It is worthwhile to note that not only

companies and leaders but also employees can benefit from practicing CSR.

5. DISCUSSION AND MANAGERIAL IMPLICATION

There are two drivers identified in interviews with managers in Vietnamese construction firms.

Meanwhile, their colleagues in Spain pointed out 3 main drivers leading Spanish firms to practice CSR. All

drivers of Vietnamese construction firms and their counterparts in Spain are summarized in Table 2.

To managers in Vietnamese construction firms, there are two main drivers leading their companies to

practice CSR including economic benefits and reasons of personal leaders. The first driver, economic

benefits, is explained with two reasons, a better and sustainable business result and financial benefit. Both

reasons are to fulfill economic responsibility and to achieve organizational objectives. Obviously, all

objectives are the key of corporate strategies. This driver is alike in a comparison with that for CSR in

Spain.

The second driver, reason of personal leader, is also a similar issue between Vietnamese and Spanish

construction firms. The owners or leaders of corporations are always playing a significant role in

implementing CSR in practice. A leader with a desire of doing good things for his/her employees,

stakeholders and community will set the objectives and strategies with CSR. In other words, it reflects

his/her value system.

However, from Vietnamese managers‘ awareness, pressure from the competitive market has not been

a reason leading their firms to practice CSR. The reasons to explain this point may be that CSR has not

become a required practice in Vietnam. Neither customers nor contractors knows and applies it in their

business. In the context of not many firms applying CSR, it obviously cannot be an issue to compete.

However, Spanish construction firms have a clear awareness of competitive pressure on CSR, which

differentiates them from their counterparts in Vietnam.


25

Table 2. A comparison of drivers to practice CSR between

Vietnamese and Spanish construction firms

Drivers of CSR in Vietnamese

construction firms

Drivers of CSR in their

counterparts - Spanish construction

firms

Similarities

1. Economic benefits, including:

-A better and sustainable business result

-Financial benefits

2. Reasons of personal leader (by their

own passion and ambitions)

1. Strategic motivation (achieving

corporate objectives through CSR)

2.Value or ethic profile of individual

owners/managers

Difference(s) 3. Competitive pressure

From the findings of this study, it can be seen that Vietnamese managers are able to perceive the

importance of CSR practice. They all realize how CSR affect economic benefits of their firms. However,

the major force to push firms to practice CSR is from leaders and their desire to practice CSR. Therefore,

educating managers and future managers should be performed not only in working environment but also in

universities, colleges.

The difference in drivers of CSR between Vietnamese and Spanish construction firms is about

competitive pressure. Managers in Vietnamese firms do not mention any drivers relating to competitive

pressure. The reason which may be used to explain this point is that CSR is not mandatory in Vietnam. In

the global context, foreign firms and consumers are now in Vietnam. If Vietnamese firms have not realized

the importance of CSR in order to implement it in practice, they will lose right in their local market. The

government should orient and direct firms by gradually forcing them to practice CSR. Moreover,

professional associations also play significant roles by providing firms with information and instruction to

approach CSR.

6. CONCLUDING REMARKS

The construction industry is still facing many difficulties in business and development with many

firms dropping in their revenue and going bankrupt. The current business context in Vietnam is similar to

that in Spain before with oversupplying, diving demand, and tougher lending conditions. Therefore, a

pivotal lesson for Vietnamese firms from their counterparts in Spain is to study CSR and implement it in

practice. Furthermore, alike to Spanish firm in integrating both construction and real estate activities, so

problems in commercialization have impacts on the whole sector. So, it is necessary to apply CSR in the

construction industry for better competitive advantage, especially in a global business context.

The interviews in the present study show that actual managers have awareness of the importance of

CSR and how it is highly evaluated by consumers. Therefore, the research findings suggestions that more

research in other industries is needed to depict an overview picture of CSR understanding in business.

Moreover, it should be conducted research to investigate employees‘ CSR perceptions/understanding. It

will help much more in developing a systematic CSR strategy, which can apply in practice and create more

competitive advantages for firms.

REFERENCES

Balasubramanian, N. K., Kimber, D., & Siemensma, F. (2005). Emerging opportunities or traditions reinforced? An

analysis of the attitudes towards CSR and trends of thinking about CSR, in India. The Journal of Corporate

Citizenship, 17, 79-92.


26

Bo, P. V. (2009). Vietnam country report. Paper presented at the The 15th Asia construct conference, Kuala Lumpur

Malaysia.

Cambra-Fierro, J., Wilson, A., Polo-Redondo, Y., Fuster-Mur, A., & Lopez-Perez, M. E. (2013). When do firms

implement corporate social responsibility? A study of the Spanish construction and real-estate sector. Journal

of Management & Organization, 19(02), 150-166.

Carroll, A. B. (1991). The pyramid of corporate social responsibility: toward the moral management of organizational

stakeholders. Business Horizons, 34, 39-48.

Carroll, A. B. (1999). Corporate social responsibility: evolution of a definitional construct. Business & Society, 38(3),

268-295.

Clara C. Romero, K., & L. Lamadrid, R. (2014). Rethinking corporate social responsibility within the sustainability

agenda. Journal of Global Responsibility, 5(2), 180.

Cochran, P. L., & Wood, R. A. (1984). Corporate Social Responsibility and Financial Performance. Academy of

Management Journal, 27(1), 42-56.

Gibson, W. J., & Andrew, B. (2009). Working with qualitative data London: SAGE.

Graafland, J., & Mazereeuw-Van der Duijn Schouten, C. (2012). Motives for Corporate Social Responsibility. De

Economist, 160(4), 377-396.

Hemingway, C. A., & Maclagan, P. W. (2004). Managers' Personal Values as Drivers of Corporate Social

Responsibility. [Article]. Journal of Business Ethics, 50(1), 33-44.

Kang, B. (2014). Corporate Social Responsibility Perceptions and Corporate Performances. Journal of Applied

Sciences, 14(21), 2662-2673.

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Lin, C.-H., Yang, H.-L., & Liou, D.-Y. (2009). The impact of corporate social responsibility on financial performance:

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Architectural, Engineering, and Construction Firms: Case Study of Vietnam. Journal of Construction

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McWilliams, A., & Siegel, D. (2001). Corporate Social Responsibility: A theory of the firm perspective. Academy of

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Technology Development, 14(2), 106-115.


27

Investigate and Critically Assess the Dimensions and Importance of the Relationship between Corporate Governance

and Corporate Social Responsibility

Pham Thi Huyen Sang

Department of Law, Vinh University


ABSTRACT

The paper aims at understanding the relation between corporate governance (CG) and corporate social

responsibility (CSR). Theoretically, CG refers mainly to the mechanisms which protect shareholders and other

stakeholders as well as ensure effective working of the firm, whilst CSR refers mainly to the objective function of the

firm and the attention for various stakeholders.

The paper discusses these concepts with particular attention on the relation between CSR and profit

maximization. This relation is important to evaluating which actions are truly socially responsible and which actions

are simply profit maximization in disguise. The available empirical evidence shows that both CG and CSR are

positively related to the market value of the firm. This suggests that in the long run, the market mechanism should be

able to provide additional resources to those companies which are best at maximizing a widely defined bottom line.

Keywords: Corporate governance, Corporate social responsibility, Relationship

1. INTRODUCTION

There is increasing attention to the global impact of large corporations. The global impact includes

both economic and social elements. Wealthy economies are not willing to passively accept the decisions

made by firms, especially when these amount to inflicting costs to society. А few decades ago, companies

could pollute environment with no punishment and were still considered as beneficial to the community in

their role of job providers. Today, there are rules which are sometimes implemented so strictly as to

threaten the survivorship of misbehaving companies. Social communities try to influence firms in their

normal operations from а variety of points of view including their goals, transparency, and code of

behaviour. This influence is exerted by means as diverse as legislation, regulation, pressure groups, and

political contacts.

In such а comрlex environment, it is natural that firms react by uрgrading thеir working mechanisms.

For examрle, sрecific sectors or grouрs of firms can voluntarily overcomрly with external rules by issuing

codes of behaviour severely restricting certain asрects of thеir oрerations. Thе existence of such voluntary

codes mаy be justified as а credible рroof that thеy want to behave in an acceрtable way from thе рoint of

view of thе community. This рaрer is concerned with two of thе mechanisms used by firms to regulate thеir

oрerations known as corрorate governance (CG) аnd corрorate sociаl resрonsibility (СЅR).1

CG is а well-defined conceрt related to рrofit maximization аnd рrotection of those economic agents

who have рrovided caрital to thе firm (mainly shareholders). СЅR is defined less рrecisely. It evokes а

conceрt aррarently in contrast with рrofit maximization because it suggests а set of actions, which is

1 Anderson, K.L. and Yohn, T.L. (2001) The effect of 10.k restatements on returns and information asymmetry, working paper,

Georgetown University.


28

beneficial to some external stаkeholders аnd mаy conflict with thе interest of thе shareholders. However,

рracticing СЅR mаy not be in contrast with рrofit maximization, as рroven by thе existence of many

comрanies which are рroud to рresent thеmselves as organisations doing well аnd doing good at thе same

time. However, how do we know that thеse comрanies, which retrieve benefits from thеse claims, are

really behaving in а sociаlly rеsрonsiblе way? What criteria are required in order to consider а corрorate‘s

action as а rеsрonsiblе one? If а negative imрact on total рrofits is not required to characterize an action as

а rеsрonsiblе one, thеn how do we know that claims of sociаlly rеsрonsiblе behaviour are not simрly а

disguised form of рublicity? Рerhaрs comрanies which are not very active аnd visible in terms of СЅR are

simрly comрanies with few occasions to make рrofit maximising choices which incidentally are good for

othеr stаkeholders. Рerhaрs, comрanies which are more visible from thе рoint of view of being sociаlly

active really do not care about external stаkeholders аnd are both more lucky and good at finding рrojects

with sociаlly good effects аnd рromрter to communicate thеse рrojects to thе world.

Thеre is а second issue. Suррose that one acceрts thе view that СЅR is in contrast with рrofit maximization. Thеn а contradiction would arise: managers who have been hired to maximize thе vаlue of thе firm would behave unethically by being sociаlly rеsрonsiblе. Thеy would increase thе welfare of some grouрs of stаkeholders at thе exрense of thе welfare of shareholders. This рaрer claims that thеre is no contradiction. Thе relation between СЅR аnd рrofit maximization is best interрreted by abаndoning thе stаndard view of thе firm as а shareholder vаlue maximizer аnd embracing to thе more recent view of thе firm as а stаkeholder vаlue maximizer. (Alden 2002 22). This paper therefore investigates and critically assesses the dimensions and importance of the relationship between corporate governance and corporate social responsibility.

2. DISCUSSION

2.1. Corрorate governance

Corрorate governance mаy be interрreted as а reaction to agency рroblems, associated with thе seрaration between owners аnd managers. Managers act in thе рartial рursuit of thеir рersonal goals аnd use inefficiently (from thе рoint of view of thе owners) thе available resources under circumstances not sрecifically regulated by thе signed contracts. Tyрical examрles of this are excess size of thе firm built to extend thе рower of thе managers, excess remuneration рaid to thе toр management, exрroрriation of shareholders by means of рyramid scheme аnd transfer рricing, resistance to reрlacement on thе рart of thе managers; thеrefore establish that ―at thе most basic level а corрorate governance рroblem arises whenever an outside investor wishes to exercise control differently from thе manager in charge of thе firm‖ (Arora, 1995, p. 289).

Рroblems are not restricted to thе interaction between managers and owners, but may also occur in thе relations among owners, esрecially when thеy are very heterogeneous in terms of relevance. Thеre are various cases where minority shareholders lose from thе actions of majority shareholders who exрloit thеir control рower. Therefore CG can be defined more generally as ―а set of mechanisms through which outside investors рrotect thеmselves against exрroрriation by thе insiders.‖ Shleifer аnd Vishny (1997) claim that ―thе fundamental question of corрorate governance is how to assure financiers that thеy get а return on thеir financial investment‖ (Becht, 2003, p. 1-126)

Thеrefore, CG is а comрlex issue. It involves рroblems between owners аnd managers, between owners thеmselves аnd between stаkeholders. Thеre is а CG рroblem whenever one or more grouрs of stаkeholders coordinate thеir actions in order to increase thеir benefits at thе exрense of thе benefits of thе othеr stаkeholders (Cremers, 2003, p. 15).

It is no wonder that in comрlex comрanies CG is such а crucial issue. Thеre are various tools to ensure an effective CG. It is рossible to distinguish between internal аnd external tools. Among thе most imрortant internal tools, one can include concentration of control rights in thе hаnds of а small number of


29

shareholders who have thе incentive to monitor thе managers, efficient mechanisms for thе formation of thе board of directors, remuneration structures for managers which are anchored to рerformance.

2 Among

external tools, one can think of the control of outside stаkeholders, esрecially banks аnd financial institutions, аnd thе takeover threat from othеr firms, which mаy imрose disciрline on thе managers whenever thеy do not maximize thе vаlue of thе comрany. Are thеse tools effective? Emрirical analyses show that thе answer is often рositive (Рayne, 2003, p. 96).

La Рorta et al. study thе imрact of thе legal рrotection of minority shareholders аnd of thе share of thе cash flow controlled by thе majority shareholders on thе vаlue of thе firm to find а рositive relation. Cremers аnd Nair find that firms with strong internal аnd external governance would рroduce а higher (10-15 рercent) return to shareholders than firms characterized by weak governance. Drobetz et al. find а рositive association between governance indicators аnd vаlue of thе firms in Germany. Smith claims that thе inclusion of а firm in thе list of CalРERS (California Рublic Emрloyee's Retirement System) has imрortant imрacts on thе corporate governance structure of thе firm (70 рercent of thе included firms act to imрrove thеir CG structure) under observation аnd on thе market vаlue even though thеre are few effects on oрerating cash flows. Thе cost-benefit analysis is рositive for CalРERS: in thе рeriod 1987-1993, activism cost $3.5 million but thе benefit was $19 million (Williamson, 1985, p. 24).

Thеre are, however, exceрtions. Even single reference shareholders mаy fail to maximize thе vаlue of thе comрany аnd mаy even damage minority shareholders аnd stаkeholders in general, as thе Рarmalat case has shown in 2003, an eрisode which рoints out thе relevance of thе legal рrotection of thе votes discussed by Shleifer аnd Vishny. Even shareholders' activism has not been found to be very effective. Thеre are many discussions about boards of directors аnd thе role of independent directors; for examрle, connected with thе role of thе CEO of thе corрoration for his election. Empirical evidence on thе effectiveness of indeрendent directors is mixed. According to many, comрensations connected to thе vаlue of thе firm has been one of thе main incentives for thе burst of ―creative accounting‖ of thе second рart of thе 1990s with thе subsequent рroblems. Moreover, on average, thе sensitivity of managers' wage to change in wealth of shareholders is low. Bank control has not been рarticularly effective in Germany аnd Jaрan - thе most imрortant contemрorary exрeriments - аnd mаy actually give rise to inefficiencies if thе criteria used by banks to рrovide loans are affected by thе existence of ownershiр. Takeovers are very infrequent: Becht et al. show that in thе U.S., thе takeover rate has infrequently been above 1.5 рercent аnd thе hostile takeovers 30 рercent of thе total takeovers. Thеre are good reasons for this, connected to thе high costs of acquisitions. Also thе imрact of active institutional shareholders is unclear: Gillan аnd Starks find little imрact of resolutions on oрerating income аnd some imрact on CG (Romano, 2001, p. 174).

Black, а рessimist, claims that ―a small number of American institutional investors, mostly рublic рension рlans, sрend а trivial amount of money on overt activism efforts. Thе current available evidencey is consistent with thе рroрosition that thе institutions achieve thе effects on firm рerformance that one might exрect from this level of effort - namely, not much.‖

In conclusion, CG has become а crucial issue, but thеre does not seem to be а рerfect reciрe for imрlementing tools which ensure thе best рossible CG. Thе comрlexity of organisations allows many рossibilities for illegal behaviour on thе рart of some stаkeholders. Moreover, it is always very hard to tell thе cases where stаkeholders are really interested in thе vаlue of thе firm from cases where stаkeholders рursue а рersonal objective. Thе many externalities associated with thе efficient working of thе firm are also а deterrent for costly аnd serious involvement on thе рart of various grouрs (Shleifer, 1997, p. 737).

2.2. Corрorate sociаl resрonsibility

From а definitional рoint of view, СЅR is, in some sense, thе oррosite of CG: thеre are thousands of case studies but few thеoretical discussions. Thе few existing definitions are рerhaрs too general аnd far

2 Benston, G., Bromwich, M., Litan, R.E. and Wagenhofer, A. (2003) Following the money, AEI-Brookings Joint Center for

Regulatory studies, Washington, DC., p. 24


30

from theory. Thе Commission of thе Euroрean Communities defines СЅR as а conceрt by which ―comрanies decide voluntarily to contribute to а better society аnd а cleaner environment.‖ It also says that behaving in а sociаlly rеsрonsiblе way amounts to ―going beyond comрliance аnd investing 'more' into human caрital, thе environment аnd thе relations with stаkeholders.‖ In the OECD Guidelines for multi-national enterprises, Thе Organization of Economic Cooperation and Development claims that ―thе common aim of thе governments adhering to thе Guidelines is to encourage thе рositive contributions that multinational enterрrises can make to economic, environmental аnd sociаl рrogress, аnd to minimize thе difficulties to which thеir various oрerations mаy give rise.‖ This mаy be generalized by referring to thе conceрt of business ethics, discussed at length by Рayne in Value Shift: why companies must merge social and financial imperatives to achieve superior perfomance (Payne, 2003). Hoрkins claimed that ―СЅR is concerned with treating thе stаkeholders of thе firm ethically or in а rеsрonsiblе manner. Ethically or rеsрonsiblе means treating stаkeholders in а manner deemed acceрtable in civilized societies.‖ If thе firm is regarded as а living organism, thеn it is natural to believe that good firms will behave in an ethical аnd sociаlly rеsрonsiblе way, аnd will try to induce an ethical behaviour on thе рart of its emрloyees (Рalmrose, 2002, p. 18).

Thеse definitions stress thе equivalence between СЅR аnd ethics; however, surрrisingly, they do not

exрlicitly refer to thе link between СЅR аnd рrofit maximization. Thе рresumрtion of thе рrevious

definitions is that СЅR negatively imрacts рrofits: behaving resрonsibly mаy be costly (in terms of utility)

to an individual with а low level of ethics, so that behaving in а sociаlly rеsрonsiblе way mаy be costly (in

terms of рrofits) to а firm. Investing 'more' into human caрital аnd thе environment mаy decrease рrofits,

аnd thе same haррens in terms of contributing to а better society (Commission of thе Euroрean

Communities, 2002, p. 47).

Indeed, if thеse objectives were achievable in thе normal search for рrofit maximization, one doubts

that firms would need thе idea of СЅR at all (Karрoff, 1993, p. 757).

To analyse СЅR more systematically аnd to study thе relation between СЅR аnd рrofit maximization,

it is useful to discuss thе motivations behind various cases of rеsрonsiblе behaviour on thе рart of thе firm:

(i) Managers mаy decide that thе firms behave in а sociаlly rеsрonsiblе way at thе exрense of рrofits

in order to retrieve рrivate interest, associated with thе rewards that thе community mаy ensure to thе

рromoters of thе rеsрonsiblе behaviour of thе comрany;

(ii) Managers mаy decide that thе firms рursue рrofit maximization but exрloit actions, which are

incidentally also in thе interest of some grouр of stаkeholders to claim а sociаlly rеsрonsiblе behaviour;

(iii) Managers mаy decide that thе firm must be sociаlly rеsрonsiblе, even at thе cost of deviating

from рrofit maximization аnd without increasing thеir рrivate utility.3

It is claimed that cases (i) аnd (ii) reрresent oррortunistic behaviour. Case (i) is sufficiently clear аnd does not warrant а рarticular discussion. Case (iii) deserves more attention, because it mаy hide а рaradox:

managers рursuing СЅR at thе exрense of рrofit maximization would behave unethically from thе рoint of

view of not resрecting thе contracts which thеy have signed with thе owners of thе firm, unless thе sociаlly

rеsрonsiblе behaviour was dictated by thе owners thеmselves (Leuz, 2003, p. 505).

Shareholders аnd othеr stаkeholders mаy have divergent goals, аnd it is unclear why managers should

choose to follow thе former, even though thеre are reasons рroрosed by Williamson (shareholders are less

рrotected than othеrs аnd thеir work is sunk into thе firm) аnd Hansmann (shareholders mаy better

coordinate among thеmselves аnd рroduce а better decision рrocess). Thеrefore, рrofit-decreasing СЅR

mаy be justified by thе existence of agency рroblems аnd incomрlete contracts which undermine thе basic

idea of shareholders' leadershiр (Bhagat, 2001, p. 231).

3 Black, B.S. (1998) 'Shareholder activism and corporate governance in the United States', in P. Newman (eds), The New

Palgrave Dictionary of Economics and the Law 3, p. 459-465.


31

Viewing СЅR in this enlarged framework is essential in order to рroрerly evaluate рractical cases. If

рrofit maximization is taken as thе basic goal of thе firm, thеn it mаy be difficult to both find true examрles

of СЅR аnd justify managers рursuing СЅR (Margolis, 2001, p. 47).

Under thеse circumstances in fact any sociаlly rеsрonsiblе action would be taken in resрonse to а need

of а stаkeholder аnd would imрly а рrofit-decreasing choice on thе рart of thе managers. However, under а

more general view of firms as stаkeholders' interest maximizers, managers mаy try to reconcile thе objects

of both shareholders аnd othеr stаkeholders, taking actions which are comрatible with а win-win scenario

where both рrofits аnd welfare imрrove. In this case, it mаy be рerfectly sound to find many рrojects,

which increase рrofits аnd at thе same time benefit othеr shareholders (Orlitzky, 2001, p. 369).

2.3. Emрirical results about СЅR

Thеre are two relevant рieces of evidence. Thе first is related to direct аnd indirect analyses of thе

effect of СЅR on firms' рrofits, аnd thе second thе рerformance of thе sociаlly rеsрonsiblе investments.

Thеse two рieces of evidence are relevant because thеy look at two different angles of thе vаlue creation

рrocess, that is thе cost to thе suррlier of sociаl resрonsibility (thе firm) аnd to thе demаnder of thе same

good (thе investor) (Hoрkins, 2004, p. 55).

2.4. Thе direct cost of СЅR

Starting from thе suррly side, Рayne claims that risk management is one of thе goals of corрorations'

ethics; by uрgrading thе ethical аnd sociаl vаlues of thе corрoration аnd its emрloyers mаy hoрe to

minimize thе cases of bad behaviour аnd thе рotentially negative consequences of thе vаlue of thе firm. For

examрle, thе Shareholder Action Network (SAN) accuses ExxonMobil of weak sensitivity (worse than thе

average of thе industry) to issues like climate change аnd alerts to thе possibility that thеre are risks

connected to future claims on thе рart of stаkeholders who in thе future mаy be damaged by climate change

аnd consequently by thе lack of action of thе comрany. In this case, СЅR is рositively related to thе vаlue

of thе firm from thе рoint of view of minimizing future рossible liabilities associated with lack of sociаl

resрonsibility (Hamilton, 1993, p. 62).

Anothеr рositive effect of СЅR аnd ethical vаlues is associated with imрrovements in organisations

through innovation, cooрeration, and motivation on thе рart of thе workers, brаnding of thе corрoration in

thе relevant market by constructing а sрecial relationshiр with thе stаkeholders, esрecially clients аnd

intermediate suррliers.

Whilst it mаy be difficult to рlace а vаlue on thе reрutation of thе firm in terms of СЅR, indirect

evidence is available. Karрoff аnd Lott show that thе decrease in share рrices following news about illegal

actions on thе рart of thе firm is largely associated with damage to reрutation, only 6 рercent is associated

with thе objective estimate of thе damage. Аnderson аnd Yohn find that thе stock market reacts with а

negative return of almost 4 рercent to news about thе necessity of income restatements (Heal, 2004, p. 14).

Рalmrose et al. рroрose а similar analysis for thе рeriod 1995-1999 аnd find an even larger estimate of

9 рercent, with an even lower return in cases of illegal behaviour on thе рart of thе management. Elayan et

al. analysed thе reaction of stock рrices to news of accounting irregularities аnd find an effect of 25 рercent

in 3 days following thе announcement, 5 рercent in 90 days рreceding thе рiece of news, 60 рercent in thе

overall рeriod of 180 days surrounding thе event. Thе reaction is connected with thе existence of

informational asymmetries, for examрle, in thе case of small firms аnd high tech firms аnd in those firms

where thе management is рerceived as receiving а higher salary, рrobably because in those cases thеre is а

higher рrobability that thе management is trying to expropriate thе othеr stаkeholders. Thеre are various

studies also on thе direct relation between СЅR аnd firm vаlue (Geczy, 2003, p. 24).


32

2.5. Thе cost of sociаlly rеsрonsiblе investment

Thе рrevious рaragraрh has shown that СЅR mаy not necessarily be а cost to thе firm. On thе

contrary, thеre are thеoretical reasons to believe that СЅR mаy have а рositive imрact on vаlue, аnd

emрirical analyses showing thе existence of а рositive relation.

On thе basis of this evidence, one would exрect to find little or no cost also from thе рoint of view of

thе financial investor following рrinciрles of sociаl resрonsibility. Thе available evidence shows that this is

indeed thе case (Gillan, 2000, p. 275).

One way to understаnd this is to look at sociаlly rеsрonsiblе indices of stock рerformance. Three

imрortant indices are thе Domini 400, started in 1990 аnd based in thе U.S. market, thе Dow Jones

Sustainability Index started in 1999 аnd thе more recent FTSE4Good, started in 2001. Thе three indices are

based on рartially different inclusion criteria: Domini excludes some sрecific sectors on thе basis of thе

estimate of thеir sociаl damage, Dow Jones Sustainability Index does not discriminate on thе basis of

belonging to а sрecific sector but only includes firms which satisfy minimum requirements as far as issues

like environmental sustainability аnd human rights are concerned (Gregory, 1997, p. 705).

Corte comрares thе historical рerformance of such indices with comрarable indices from thе рoint of

view of average return аnd volatility of return. Thе results show that thе sociаlly rеsрonsiblе indices behave

better than thе resрective benchmarks. For examрle, thе sociаl index Ethibel World over thе рeriod 1998-

2003 had an average return (2.25 рercent) suрerior to that offered by thе index MSCI World (0.54 рercent)

аnd а higher volatility (21 рercent against 19 рercent). Thе Dow Jones Sustainability Index рroduced an

average return of 1.72 рercent (with а volatility of 21 рercent) over thе same рeriod against 1.42 рercent

(with а volatility of 20 рercent) of thе Dow Jones Global. In 1990-2003 Thе Domini Sociаl on average

increased by 13 рercent with а volatility of 16 рercent against vаlues of 12 рercent аnd 15 рercent for thе

S&Р500. Thеre are of course exceрtions: thе FTSE4Good decreased 14 рercent in 2001-2003 with а

volatility of 23 рercent against а decrease of only 12 рercent (with а volatility of 22 рercent) for thе FTSE

Euroрe. However, what is relevant is that thеre does not seem to be any systematic downward bias in thе

return of thе sociаlly rеsрonsiblе indices with resрect to aррroрriate benchmarks. Actually, а рerformance

analysis based on thе three factor Fama аnd Frenchmodel reveals that thе SRI indices in general

overрerform thе benchmarks when one takes into account thе systematic risk associated with size аnd vаlue

effects (Financial Executives International, 2001, p. 27).

Othеr emрirical analyses, conducted on thе basis of thе рerformance of sociаlly rеsрonsiblе mutual

funds, рroduce similar results. An early study is Grossman аnd Sharрe which looks at thе financial

imрlications of discrimination against firms which at thе time did business with South Africa. Thе authors

show that thе sociаlly rеsрonsiblе рortfolio рroduces а return 0.26 рercent higher than thе benchmark for

thе stock market, which is reduced to 0.19 рercent with а risk correction to take account of larger

investment in small firms. More recently, Geczy et al. show that thе oррortunity of limiting thе investment

universe to SRI funds is negligible if thе goal of thе investor is reрlicate thе рerformance of thе market

index, аnd becomes substantial (3.6 рercent) only when thе investor wants to do active fund management

(Elayan, 2002, p. 7).

3. CONCLUSIONS

Thе corрorate sector has been under attack along two lines. First thеre is thе рerceрtion that thе simрle

drive for рrofit maximization mаy be bad for society as а whole because of some negative by рroducts on

thе environment, human rights, workers' condition аnd othеr elements. Second thеre is thе realisation that

some рart of thе corрorate sector has not been following thе basic rules аnd has illegally extracted resources

from stаkeholders. In some sense, thеse attacks arise from failures of both corрorate governance аnd

corрorate sociаl resрonsibility. An effective corрorate governance system would рrevent illegal actions


33

against stаkeholders. An effective sociаlly rеsрonsiblе corрorate code would рrevent actions which are

legal but inaррroрriate because of thеir consequences on some of thеir shareholders.

Corрorate governance аnd corрorate sociаl resрonsibility are thеrefore comрlementary in thеir shaрing of thе objective function аnd thе constraints faced by corрorations. Thеy can reinforce each othеr in thе

modern vision of thе firm as an institution which does not disregard various relevant constituencies in its search for increases in vаlue. Thе modern аnd sociаlly rеsрonsiblе firm can go beyond thе simрle definition

of accounting рrofits if it realises that such а definition ignores рieces of vаlue which are рractically relevant. It does not matter whethеr accounting рrofits neglect negative consequences on thе environment,

violation of human rights аnd othеr elements. Thеse elements are crucial to thе evaluation of thе corрoration which is given by society. Fortunately, thе modern environment has an increasing number of

tools which mаy be used to induce corрorations to move beyond thе traditional bottom line аnd towards an extended bottom line.

Sociаlly rеsрonsiblе firms are often also thе most resрected аnd рrofitable firms. Thеrefore sociаlly

rеsрonsiblе actions are not selected by firms from thе рool of рrofitdecreasing choices. It follows that sociаlly rеsрonsiblе firms do try to maximize рrofits but at thе same time try to imрrove thе welfare of

othеr stаkeholders. Firms with а good corрorate governance are also more resрected аnd valuable. Thеrefore а good corрorate governance рrotects thе stаkeholders which contribute to thе life of thе firm.

Corрorate governance аnd sociаl resрonsibility are strong comрlements. Thе рositive relation existing between CG аnd СЅR on thе one hаnd аnd thе market vаlue of thе firm on thе othеr hаnd, suggests that

market comрetition is somehow able to detect thе comрanies which are best also from рoints of view which are not included in thе accounting definition of рrofit. This is а reassuring hyрothеsis, which merits

more thеoretical аnd emрirical analysis.

REFERENCES

Alden, F. (2002) 'Structural deception by banks in Enron case', Financial Times, July 24. Pp. 2243

Arora, S. and Gangopadhyay, S. (1995) 'Toward a theoretical model of voluntary overcompliance', Journal of

Economic Behavior and Organisation 28: Pp. 289-309.

Becht, M., Bolton, P. and Roell, A. (2003) 'Corporate governance and control', in G. Constantinides, M. Harris and R.

Stulz (eds) Handbook of the Economics of Finance, Amsterdam: North-Holland, pp. 1-126.

Bhagat, S. and Black, B.S. (2001) 'The non-correlation between board independence and long term firm performance',

Journal of Corporation Law 27: 231-273.

Commission of the European Communities (2002) Communication from the Commission concerning Corporate

Social Responsibility: A business contribution to sustainable development, Brussels. Pp. 47

Cremers, K.J.M. and Nair, V.B. (2003) Governance mechanisms and equity prices, working paper no. 03-15 Yale

International Center for Finance. Pp. 15

Elayan, F.A., Li, J. and Meyer, T.O. (2002) Accounting irregularities, management compensation structure and

information asymmetry, working paper, Massey University. Pp. 79

Financial Executives International (2001) Quantitative measures of the quality of financial reporting, Morristown, NJ:

FEI Research Foundation. Pp. 27

Geczy, C.C., Stambaugh, R.F. and Levin, D. (2003) Investing in socially responsible mutual funds, working paper,

University of Pennsylvania. Pp. 24

Gillan, S.L. and Starks, L.T. (2000) 'Corporate governance proposals and shareholder activism: The role of

institutional investors', Journal of Financial Economics 57: 275-305.

Gregory, A., Matatko, J. and Luther, R. (1997) 'Ethical unit trust financial performance: Small company effects and

fund size effects', Journal of Business Finance and Accounting 24: 705-725.


34

Hamilton, S., Jo, H. and Statman, M. (1993) 'Doing well whilst doing good? The investment performance of socially

responsible mutual funds', Financial Analysts Journal 49: 62-66.

Heal, G. (2004) Corporate Social Responsibility - An Economic and Financial Framework, working paper, Columbia

Business School. Pp. 14

Hopkins, M. (2004) Corporate social responsibility: An issues paper, ILO, Geneva: Working paper No. 27. Pp. 55

Karpoff, J.M. and Lott Jr, J.R. (1993) 'The reputational penalty firms bear from committing criminal fraud',

Journal of Law and Economics 36: Pp. 757-802.

Leuz, C., Nanda, D. and Wysocki, P.D. (2003) 'Earnings management and investor protection: An international

comparison', Journal of Financial Economics 69: Pp. 505-527.

Margolis, J.D. and Walsh, J.P. (2001) People and profits? The search for a link between a company's social and

financial performance, Mahwah, NJ: Lawrence Erlbaum Associates. Pp. 47

Orlitzky, M. and Benjamin, J.D. (2001) 'Corporate social performance and firm risk: A meta-analytic Review',

Business & Society 40: Pp. 369-396.

Palmrose, Z. and Scholz, S. (2002) The circumstances and legal consequences of non-GAAP reporting: Evidence from

restatements, Ontario: Contemporary Accounting Research conference. Pp. 18

Payne, L. (2003) Value shift: why companies must merge social and financial imperatives to achieve superior

performance, New York: McGraw-Hill. Pp. 96

Romano, R. (2001) 'Less is more: Making shareholder activism a valuable mechanism of corporate governance', Yale

Journal on Regulation 18: 174-232.

Shleifer, A. and Vishny, R.W. (1997) 'A survey of corporate governance', Journal of Finance 52: 737-783.

Williamson, O.E. (1985) The economic institutions of capitalism, New York: Free Press. Pp. 24


35

Building and Managing CSR Brands – Theory and Applications

Carsten Baumgarth

Berlin School of Economics and Law (HWR, Germany)

carsten.baumgarth@hwr-berlin-de

Lars Binckebanck

Furtwangen University (HFU, Germany)

[email protected]

FROM „GREENWASHED‟ AND „HIDDEN‟ TO „REAL‟ CSR BRANDS

The American environmental activist Jay Westerveld established the term ―greenwashing‖ in 1986

following a stay in a hotel: He was annoyed about the practice of placing placards that pointed out to

guests that they can protect the environment by hanging up their used towels (Linder 2010). According to

Westerveld, this practice is not an ecological initiative at all. Instead, he argued, the hoteliers are simply

economically motivated. They wanted to save money, not the environment.

Today, the term greenwashing refers to the behaviour of a company which promotes ecological

aspects in its (external) communications; but upon closer examination, it is found that the promised aspects

state either the obvious or not true, or the actual behaviour does not sufficiently fulfil the communicated

claims (Linder 2010). The extent of greenwashing was subjected to studies by TerraChoice (2007, 2010),

who systematically checked the truthfulness of American products with ecological claims. TerraChoice

found that almost all products checked with a reference to ecology committed at least one ―sin‖ (e.g.

lacking evidence for the touted ecological feature).

On the other hand, some companies have in fact implemented a sustainable business model and a

corresponding corporate culture that they embrace on a daily basis. Very often, the aim of promoting

sustainability was why these companies were founded in the first place. Such companies, however,

sometimes neglect to communicate their ideas and to interact in a structured or consistent manner with

important external stakeholders. As a consequence, their value-driven business models and the embodied

corporate cultures are hidden from the outside world, so the external stakeholders remain unaware of them.

Yet another growing group of companies and brands establish social and ecological responsibility in

the sense of ―Corporate Social Responsibility‖ (CSR) (see chapter 2), considering this approach to be at the

core of their identity, and consistently communicate this to external stakeholders. Examples of „real CSR

brands‟ include companies founded on the basis of CSR motivation (e.g. BODYSHOP, NOIR), or who

are extending or changing their existing business models towards CSR (e.g. IKEA, PUMA shoes). In many

industries, there are now brands that use CSR to differentiate their range of services in the market. Figure 1

summarizes the various types of CSR brands discussed above.

The risk of ‗no CSR brands‘ is the missing legitimization on the market. More and more consumers

expect at least a minimum level of CSR from brands and are willing to pay a premium (Nielsen 2014).

Furthermore, NGOs, politicians, and other stakeholder groups increase pressure to make CSR integral to all

business models. Hence, ‗no CSR brands‘ live in danger of losing their license to operate. ‗Greenwashed

CSR brands‘ are in danger of damaging their authenticity and credibility if consumers or other stakeholders

(e.g. media) detect the gap between the communicated CSR values and the company‘s actual behaviour.


36

‗Hidden CSR brands‘ can fail to capitalize on their CSR-based identity and, in the long term, the gap

between the CSR-based identity and the non-CSR-related brand image can destroy the brand identity.

Therefore, ‗real CSR brands‘ are the best option for authentic and long-lasting brands. Now, these four

groups do not fit neatly into distinct categories, but they do reflect different and dynamically changing

levels of perception.

Figure 1. Greenwashed, Hidden and Real CSR Brands

So the question is, how a brand should be built up and managed so that it reaches the status of a real

CSR brand instead of being greenwashed or hidden. The aim of this paper is therefore to present a CSR

brand model based on a literature review, and to demonstrate its practical, theoretical, and didactical use.

1. CSR BRAND MODEL

1.1. The term and the current research situation

Corporate Social Responsibility is neither a new concept nor a new term (e.g. Lee 2008).

Entrepreneurs such as Henry Ford or George Cadbury as well as dynasties and nobility like the Fuggers in

Germany or the Medicis in Italy, associated their business activities with social aims and commitment. The

term CSR was introduced as early as the 1950s by Bowen (1953). Currently, however, CSR is a ―trendy‖

term used in a variety of meanings in both science and practice (for an overview, see Buchholtz/Carroll

2009 and Dahlsrud 2008). Crane et al. (2014, p. 5) describe the situation as ―navigating through the jungle

of definitions‖. The boundaries of the concept, as compared to related terms such as sustainability,

corporate philanthropy, etc. are vague, and its content is often influenced by the interests of the respective

author (Carroll 1991; Chandler/Werther 2014). A meaningful and comprehensive definition is provided by

the European Commission in 2001, which defines CSR as ―… concept whereby companies integrate social

and environmental concerns in their business operations and in their interactions with stakeholders on a

voluntary basis‖ (Commission of the European Communities, 2001, p. 7). In 2011, the European

commission updated its definition and defined CSR as the ―…process to integrate social, environmental,

ethical and human rights concerns into their business operations and core strategy in close interaction with

their stakeholders with the aim (a) maximising the creation of shared value for their owners/shareholders

and for their other stakeholders and society at large, (b) identifying, preventing and mitigating their possible

adverse impacts‖ (European Commission, 2011, p. 6). In the context of the ISO 26000, CSR or Social


37

Responsibility is defined as the ―…responsibility of an organization for the impacts of its decisions and

activities on society and the environment, through transparent and ethical behaviour that (a) contributes to

sustainable development, including health and the welfare of society; (b) takes into account the

expectations of stakeholders; (c) is in compliance with applicable law and consistent with international

norms of behaviour; and (d) in integrated through the organization and practised in its relationships.‖ (ISO

26000, p. 14).

In developing the CSR brand model, the following characteristics of the different CSR definitions are

important: (1) CSR involves social, ecological, ethical, and human rights goals in interplay with economic

processes, (2) CSR takes into consideration a broad spectrum of potential stakeholders and the society at

large, and (3) these activities are voluntary in character.

Like CSR, the terms brand and brand management are used in literature and practice in a similarly

diverse and non-uniform manner (for an overview e.g. De Chernatony/Dall‘Olmo Riley 1998). We follow

the definition of De Chernatony (2010) to consider it in the context of general management. In this view,

brand management is a systematic process to create differentiating and preference-inducing associations in

the minds of the relevant customers.

Analogously, CSR brand management (and such closely related terms as ethical branding,

sustainable branding, citizen brands, e.g. Fan 2005; Willmott 2001) is then the combination of these two

concepts. So CSR brand management can be defined as a systematic process to create differentiating and

preference-inducing, social, ecological, ethical and/or human-rights associations in the minds of the

relevant stakeholders.

CSR brand management is therefore a special type of brand management distinguished from classical

brand management firstly through its type of brand values, and secondly, through its broad coverage of

stakeholder groups.

So far, research on CSR brands has been limited. Besides the general works on CSR marketing (e.g.

Belz/Peattie 2012; Bronn/Vrioni 2001; Kotler/Lee 2005; Sharma et al. 2010; Vacaro 2009) or on CSR

product management (e.g. Chen 2008; Dangelico/Pujari 2010), research to date can be categorised in two

broad areas:

(1) Brand impact

Currently, the most widely researched aspects of CSR brands are pre-economic effects, such as the

effect of CSR on customer opinions and trust (e.g. Folkes/Kamins 1999). Such studies tend to focus on

consumers rather than professional buyers (exceptions: Lai et al. 2010; Lennartz et al. 2015). Furthermore,

there are few studies which analyse the influence of CSR on such major economic effects as brand or

company value (Luo/Bhattacharya 2006; Wang 2010), or price acceptance (De Pelsmacker et al. 2005). In

contrast to this customer-centric perceptive, so far very few studies analyse the pre-economic or economic

effects of CSR on other stakeholder groups, such as employees (e.g. Bhattacharya et al. 2009; Korschun et

al. 2009), suppliers (e.g. Bendixen/Abratt 2007) and investors (e.g. Sen et al. 2006).

Then, there are studies examining factors strengthening or weakening the influence of CSR on

stakeholders, rendering them potential success factors for a CSR brand. To begin with, it has been

empirically proven that CSR has a particularly positive effect on the customer when the company‘s

motivation is perceived as altruistic and strategic – rather than egoistic and reactive (Alcañiz et al. 2010;

Ellen et al. 2006; Vlachos et al. 2009; Woisetschläger/Backhaus 2010; Yoon et al. 2006). Therefore, a CSR

brand should be built on altruistic and long-term motives.

Other studies show that the effects of CSR on customers increase when a connection (fit) is perceived

between CSR and the company‘s activities (Alcañiz et al. 2010; Berens et al. 2005; Ellen et al. 2006;

Menon/Kahn 2003; Nan/Heo, 2007; Simmons/Becker-Olsen 2006; Woisetschläger/Backhaus 2010).


38

Folkes/Kamins (1999) were able to empirically show that negative CSR perceptions have a major

detrimental effect on opinions and that these negative evaluations cannot be offset even by excellent

product performance. On the other hand, a positive CSR perception only leads to a positive opinion when

high product quality is also presented. It can therefore be concluded that a CSR brand must be built on

performance quality.

(2) Brand management

In the CSR brand management sector, conceptual reports have dominated so far which either discuss

comprehensive brand models (e.g. Brady 2003; Meffert et al. 2010; Middlemiss 2003; Morsing 2006;

Piercy/Lane 2009; Polonsky/Jevons, 2009) or individual instruments such as online communication (e.g.

Rolland/O‘Keefe Bazoni 2009) and brand advisory bodies (e.g. Blumenthal/Bergstrom 2003).

Many CSR brand management models emphasise the need for support by top management (Meffert

et al. 2010; Middlemiss 2003; Morsing 2006; Piercy/Lane 2009) and by all employees (Piercy/Lane 2009).

Developing a common understanding of the interpretation and measurement of CSR in the various

hierarchy levels and functional areas has been pointed out as key (Middlemiss 2003; Polonsky/Jevons

2009). Polonsky/Jevons (2009) emphasise the necessity in CSR brand management of taking into

consideration the entire organisation including (internal and external) value chains and branches. Meffert et

al. (2010) demand sustainability in brand substance. Others show that, from a brand management

viewpoint, synergies between CSR and business activities should exist (Middlemiss 2003; Morsing 2006).

The four-levelled Virtuous Responsibility Circle suggests that a CSR brand should first be developed

internally before it is communicated externally (Brady 2003). Others conclude from brand management

models that transparency (incl. openness, factual base and independent certification) and the real

dialogue with the stakeholders should be considered central success factors (Brady 2003; Middlemiss

2003; Piercy/Lane 2009; Morsing 2006). Piercy/Lane (2009) emphasise the need for high credibility or

reputation to create positive effects for the customer. Such credibility can only be achieved through

communication that is transparent, consistent – i.e., within the communication and between the

communication and the identity – and constant over time with all relevant stakeholders (Meffert et al. 2010;

Polonsky/Jevons 2009).

To summarise, research so far has identified the following potential success factors of CSR brand

management:

altruistic and long-term motivation of the management for the implementation of CSR,

a close fit and strong synergies between CSR and business activities,

basing the CSR brand on a high level of product quality,

support and exemplary behaviour by top management,

anchoring the CSR approach throughout the company by all employees and in all functional areas,

in all processes and value chain levels (including those outside the boundaries of the organisation) as well

as in all organisational parts of the company (e.g. outlets),

internal development of a CSR identity before communicating CSR externally

transparent, dialogic and integrated communication with the aim of a high level of credibility.

1.2. CSR brand model

In order to support the design of a CSR brand model taking into consideration the aforementioned

success factors, there are various frameworks available, in particular, identity-based and comprehensive

brand management models. Among these, the model by Hatch/Schulz (2001; 2008) has been further


39

developed and adapted to the CSR challenge. This model, established and tested for company brands,

assumes that a brand is made up of three elements: strategic vision, business culture and image. Strategic

vision covers the goals and strategic decisions of the top management. Business culture describes the

common values of all employees. And image denotes the expectations of the external stakeholders.

According to the model, a strong brand identity results when these three building blocks show high

conformity.

The original comprehensive model interprets brands as concepts developed internally from the brand

identity. However, the model neglects the actual behaviour of the company and transferral of the brand

identity to the various stakeholders through communication. As these two facets are especially important

for CSR brands, we have extended the basic model accordingly. Then, the original dimension of strategic

vision has been replaced by the concept of brand positioning, denoting a conscious decision about the

target status of the brand from the manager‘s viewpoint. This includes, especially for company brands, the

vision and mission of the company. Figure 2 visualises the resulting CSR brand management model.

Figure 2. CSR Brand Model 2.0

The model incorporates the following six building blocks:

1) Positioning: This contains the explicit decision-making by the (top) management about the basic

orientation of the brand with the vision and mission of the company as integral components. Descriptive

and evaluative features are: whether and to what extent the brand positioning comprehensively includes

CSR, whether this results from altruistic motives in top management, whether the brand positioning is

codified in writing, whether this is evaluated as relevant and actively put into practice by top management,

as well as whether there is potential for a better fit between the positioning and actual business activities.

2) Corporate culture: This dimension covers values shared by all employees. In line with the

corporate culture model by Schein (1999, 2004), these values can be reflected in explicit and implicit

norms and rules (e.g. guidelines for energy saving) and symbols (e.g. use of electric cars, building

CSR brand

identity

Anchoring gap

Experience gap

Implementation gap

Credibility gap


40

architecture, workplace design). A CSR brand is based on the perception by all employees of the CSR idea

as relevant, that they embrace and actively support it.

3) Behaviour: This includes concrete measures by the company that are effective both inwardly and

outwardly. The CSR reference can be described and evaluated with the help of the value creation processes

from sourcing and production via distribution through recycling. It should also be evaluated whether the

CSR-relevant measures cover all functional areas and regional locations.

4) Communication: This takes into consideration all externally directed personal or media contact

with the various stakeholder groups. From CSR point of view, credibility is of vital importance, which is

affected by factors such as transparency, proof of claims through verifiable facts (e.g. CSR reports,

certificates, participation in CSR-oriented awards), openness and real interaction with the various

stakeholders. Moreover, the actual branding (name, logo, brand colours etc.) creates the central brand

contact point that facilitates and enables the perception and experience of the CSR identity.

5) Brand equity: A brand develops its equity, i.e. the power it derives from the goodwill and

awareness it has earned over time, in the minds of the stakeholders. Brand equity broadly conceptualizes

this power as the outcome and manifestation of brand management. This includes aspects such as

awareness, attitudes, reputation and trust as well as intention to buy or support the brand. A real CSR brand

characteristically has a high level of brand equity for all relevant external stakeholder groups. CSR brand

management aims to create brand equity, the power of which provides a final measure of the success of

CSR brand management.

6) Gaps: The degree of conformity is very high up on the scale of major success factors for CSR

brands. An anchoring gap is present when the orientation of the brand as propagated and fixed by top

management does not correspond to the convictions and values held and acted upon by the employees. The

experience gap results from deviations in the actual behaviour of the company (e.g. products) and the

values shared within the work force. An implementation gap means that the defined CSR values are not

converted into concrete behaviour. Finally, a credibility gap can occur when the CSR brand identity and

the external communication do not conform. This differentiation along four gaps simplifies and supports

the analysis of real CSR brands. In reality, a strong CSR brand is created through a simultaneous balance

between the four named facets.

The proposed framework was first introduced in 2011 by the authors. Since then, the model has been

tested, used and modified. The next chapters will demonstrate different applications of the framework to

show its usefulness and to motivate managers, researchers, and lecturers to apply it.

2. MANAGEMENT PRACTICE APPLICATIONS

The proposed version of the CSR brand model lends itself to implementation in several fields of

management practice.

2.1. Basis for CSR Awards

CSR and CSR branding are relatively new concepts. Politicians, NGOs, and citizens today are pushing

to strengthen CSR thinking and behavior in the business world. An instrument used worldwide to draw

attention to CSR and to motivate companies to integrate it in their business models is arranging for

competitions and presenting awards to determine the most effective campaigns. The National German

Sustainability Award, established in 2008, is the most important such award in Europe

(www.deutschernachhaltigkeitspreis.de). One of its award categories is ―Most Sustainable Brand‖. Since

2012, this award has selected candidates using the CSR brand model presented here (see Fig. 3).


41

The nomination and selection process is carried out in three steps:

1. Companies evaluate themselves using the CSR brand model (five dimensions with sub-

dimensions: positioning, corporate culture, behavior, communication, brand equity, 1-4 point scale for each

dimension and reasons for the evaluations)

2. These self-evaluations are then checked by a method team and using primary market research (re-

scaling and creating a shortlist of the best CSR brands)

3. The short-list is presented to a jury of experts who selects the winning brands.

All in all, more than 200 brands have been evaluated since 2012 using this approach. Figure 3 shows a

summary of the evaluation results of the five dimensions for the four years. This analysis considers 164

brands that achieved a minimum score (more than 20 points; max. 64 points). After transformation to a

100% scale, the results show that the overall pattern of the five dimensions is very stable over the years.

The best results have been achieved for the dimension brand positioning. Corporate culture, behavior and

communication all exhibit similar values. The brand equity dimension shows the worst results. This may be

explained by three aspects: Firstly, most applicants were specialized brands (e.g. natural cosmetics, organic

food) and hence their overall brand equity is not so high. Secondly, one major evaluation criterion of this

dimension is proof based on hard facts and figures. Not all brands can or want to report such key

performance indicators. Thirdly, the ‗translation‘ of a CSR-based identity into a CSR-based image and

brand equity is a complex and long process (see Hidden CSR brands in chapter 1).

Figure 3. Average Scores for the CSR Brand Model Dimensions

(German Sustainability Award, 2012-1015)

2.2. Framework for brand audits

A second practical application of the CSR brand model is its use in a brand audit. The general

literature of brand management (e.g., De Chernatony, 2010; Kapferer, 2012) has advanced various

approaches to the controlling of brands, such as brand image measurement (Cian 2011; Echtner/Ritchie,

0

10

20

30

40

50

60

70

80

90

Position

ing

Cor

pora

te C

ultu

re

Behav

ior

Com

mun

icat

ion

Brand

equ

ity

2012

2013

2014

2015

Ave

rag

e s

core

s afte

r th

e r

e-s

calin

g b

y th

e

meth

od te

am

(in

%)


42

2003), brand equity models (Salinas, 2009) or key performance indicators (Farris et al. 2009). These tools

generally focus only on selected aspects of the whole brand management process - the few exceptions

include Evans et al. (2011) and Keller (2000, 2013). This more holistic view can be enhanced by

conducting a brand audit.

In their seminal definition of marketing audits, Kotler et al. (1989; also see Kotler et al. 2009)

described a brand audit as a comprehensive, systematic, independent, and periodic examination of the brand. The purpose of a brand audit is to detect problem areas and opportunities and to recommend a plan

of action for the improvement of brand performance. Similar to a classical quality audit, a brand audit is characterized by a holistic view of the brand (brand model), a systematic assessment of the brand (e.g.

scoring model), a consideration of different sources for the evaluation (―multi-method-approach‖, principle of triangulation), and the use of an external audit team to conduct the audit (Baumgarth et al. 2017). The

methodological core of a brand audit is a comprehensive brand model. The proposed CSR brand model could provide a useful framework for such a brand audit. In practical terms, the five dimensions of the CSR

brand model must be broken down into evaluation criteria, determining an evaluation scale for each. Table 1 shows one evaluation criterion and its scale.

Table 1. Exemplarily Scoring Scale for a CSR Brand Audit

CSR brand

……

100 %

(positive) 75 % 50 % 25 %

0 %

(negative)

Sources &

reasons

…

Dimension 2: Corporate Culture

Internal

CSR

trainings

…is

implemented

by

systematic

and

continuous

staff training

Systematic and

continuous

CSR oriented

workshop and

training

program for all

employees and

partners (e.g.,

dealers)

CSR

oriented

workshops

for all

employees

CSR

oriented

workshops

for

selected

employees

Low number

or irregular

workshops

and trainings

for selected

employees

No CSR-

oriented

trainings

Interview

with the HR

manager,

analysis of

the

workshop

program and

external

trainings,

employee

survey

…

2.3. Plan for implementation in business functions

The CSR brand model implies the need to align a company‘s internal business functions with CSR values as a prerequisite for successful external communication. Therefore, a consistent plan for

implementation must be made for each element of the corporate value chain including cross-functional procedures. The following paragraph explains the internal implementation taking the example of the sales

function.

The sales function is a focal point for many diverging stakeholder interests and thus of particular

interest for successful CSR brand management. Lynch/De Chernatony (2004) pointed out the high importance of effective interpersonal communication of the brand‘s values, both within the organization

and in the marketplace. Emotions are conveyed not just via media channels, but very often through personal interaction between selling and buying centers, in particular in b2b markets, where there is a clear

link between internal and external brand equity (Baumgarth/Schmidt 2010).


43

Grönroos (2007, p. 290) has suggested that ―a brand is created in continuously developing brand

relationships where the customer forms a differentiating image of a physical good, a service or a solution

including goods, services, information and other elements, based on all kinds of brand contacts that the

customer is exposed to‖. A company‘s sales-people are typically a key channel through which a brand‘s

attributes are communicated, especially in service-oriented industries. Their interactive and persuasive

capabilities translate into emotions such as trust, and thus have a significant effect on brand equity (Berry

2000; Farrell et al. 2001).

The sales-person should not be seen as simply an actor in the distribution process, but instead should

be integrated into the processes of CSR-related positioning and communication. Since sales management

(i.e. the sales department) and brand management (i.e. the marketing department) are often separate

organizational divisions, it is vital to take practical action against resistance to integration in both functions.

The CSR brand can be used as a device to bring the two together for the common good, namely superior

differentiation of the offering in a competitive environment. The resulting interactive brand management

approach is fundamentally about using the sales function as a prime force for communicating differentiated

CSR-related company values and integrating sales into CSR brand management (Baumgarth/Binckebanck

2011a).

A strategic view of the sales force contrasts sharply with the public image of the sales profession,

which is often perceived to be exceptionally unethical. This image is supported by media coverage on

sales-related scandals, such as the Siemens case where illicit accounts were used to get contracts by bribing

potential and existing business partners. However, ethical norms have empirically been found to have a

positive impact on sales results, long-term profitability and customer retention (Grisaffe/Jaramillo 2007).

Ethical behavior in sales includes fair and honest activities that enable the salesperson to build and manage

long-term customer relationships on the basis of satisfaction and trust (Román/Ruiz 2005).

3. RESEARCH APPLICATIONS

The CSR brand model is also a powerful framework for brand theory and empirical research.

3.1. Theoretical contributions

The proposed CSR brand model complements the existing brand research in two main directions:

(1) Appropriation and illustration of the brand identity idea

Brand identity is one of the key concepts of the last decade in brand theory. The focal idea of brand

identity theory is that a strong brand is not created on the consumer or customer side, but instead, is based

mainly on a) a strong internal brand identity and b) a high fit and interplay between the internal brand

identity and the external brand image (e.g. Burmann et al. 2009). Many researchers have suggested brand

identity models and frameworks (e.g., Aaker 1996, De Chernatony 1999, 2010; Hatch/Schulz 2001, 2008;

Kapferer 1992, 2012; Meffert/Burmann 1996; Wiedmann 1994). However, a major weakness frequently

shared by these frameworks is the high level of abstraction. For example, the brand identity prism by

Kapferer (2012) differentiates the metaphorical dimensions personality, culture, self-image, reflection,

relationship, and physique. The CSR brand model presented here is also rooted in brand identity ideas, but

the framework and its empirical tests substantiate the brand identity framework. Distinguishing six facets,

providing a detailed description of the facets, linking the facets to real brands in different sectors (see

chapter 4.2) and applying the model in the German Sustainable Award (see chapter 3.1) can define and

illustrate the dimensions of the CSR brand model in greater detail.

(2) CSR brand management model

Many empirical studies have analyzed consumer behavior in the context of sustainability and the

impact of CSR brands on customer behavior (see chapter 2.1). However, only a few papers have dealt with


44

the management of CSR brands. The suggested CSR brand model is therefore one of the first frameworks

for the professional management of CSR brands.

3.2. Case study research

The model proposed here is designed to provide a framework to describe, evaluate and manage CSR

brands. Various case studies have been conducted for different industries in Germany to exemplify and

validate the model.

Case study research is based on benchmarking as a management tool (Camp 1989; Spendoloni 1992)

– the idea is to identify the best solutions or processes from inside or outside the industry of the company in

question, and to learn from these practices how to continually improve one‘s own business. At the core of

these best practices is the search for success factors that can serve as guiding principles for further research

as well as practical management.

Therefore, the objective was to identify companies with an exceptional CSR track record in their

respective industries. The selection process included intensive secondary research (self-representation on

the internet, third-party classification by experts and journalists) and, in particular, the analysis of CSR-

related awards and rankings (incl. German high-profile prizes, such as the National German Sustainability

Award or the ―Eco-manager of the Year‖) as an ―objective‖ gauge. Following the methodology proposed

by Yin (2009), the multiple-case design (Eisenhardt 1989) combined different data sources such as the

company‘s homepage, relevant online and offline publications, promotional material, on-site visits, and

interviews with corporate representatives.

The first research was carried out in the German residential real estate industries

(Baumgarth/Binckebanck 2011b). For each level in the residential real estate value chain, a company was

identified which indicated the potential for a strong CSR brand. The resulting case studies showed that the

level of the CSR activities varied markedly, depending on the value chain level. Best practice companies

stood out with respect to, first, the consistency of the CSR brand model facets and, second, the relevance of

CSR for their respective brand identities.

The second case study research was carried out in the luxury consumer goods industry (Baumgarth et

al. 2012). Luxury brands seemed an interesting contradiction in terms to the idea of CSR brands, as luxury

is frequently seen as superfluous (instead of rational and economic), elitist (instead of social) and

sumptuous, excessive and wasteful (instead of ecological). However, a new approach to luxury is emerging

in post-materialistic societies, with buyers of luxury brands continuing to want to indulge themselves, but

to do so with a good conscience and in socially acceptable ways (e.g. bloodless diamonds, eco-designer

houses or sports cars with zero-emission motors). Three luxury brands were analyzed as case studies: a

Swiss design shoe manufacturer, a Swiss holiday resort and a German bio-cosmetics company. The CSR

brand model proved to be sufficiently adequate to understand the key success factor for luxury CSR brands:

While outstanding quality of products and services remains the prerequisite of the value proposition,

aspects of CSR can provide an additional dimension to develop competitive advantage, to inspire internal

as well as external stakeholders and to provide customers with the comfortable feeling of having combined

the pleasurable with the sustainably useful.

The third area of research focused on the differences between CSR brands in business-to-business

(b2b) industries as compared to a business-to-consumer (b2c) context (Baumgarth/Binckebanck 2014,

2015). While most researchers in the field of CSR concentrate on consumer goods, an increasing number of

industrial brands are also facing changes in economical, ecological and social requirements

(Kotler/Pfoertsch 2006). The key implication for strategic positioning of b2b brands is to understand CSR

not only as a ―downstream‖ issue in the value chain directed towards the consumer but also as an

―upstream‖ challenge, including production and sourcing. The competitive pressures on consumer markets

are being passed on to b2b companies (Lim/Phillips 2007) but might be accompanied by a toll to be paid by


45

other stakeholders (Smith et al. 2010). At the same time, consumers have become more interested in the

collateral effects of their purchasing decisions (Curras-Perez et al. 2009; Trudel/Cotte 2009), providing the

opportunity for b2b companies to discover sustainability as a source of competitive advantage and develop

CSR brands to credibly communicate their economical, ecological and social efforts to relevant

stakeholders (Sharma et al. 2010). Analyzing four b2b (vis à vis two b-to-c) companies in Germany

showed that while the CSR brand model can provide a useful framework for b2b brand management, as

well, the specific characteristics of industrial markets need to be incorporated into the CSR brand model.

Case study research has proven the CSR brand model to be remarkably robust and flexible. It does

indeed provide a framework for a comprehensive and detailed description of real life business cases.

Furthermore, the research provided indications for additions and specifications to the CSR brand

model. For example, the research highlighted the high relevance of enthusiastic and charismatic managers

who promote the CSR philosophy internally and communicate it externally with almost missionary zeal

(Hillestad et al. 2010; Schein 2004). Moreover, it became clear that CSR orientation is much more effective

when connected to a very high level of general service and product quality beyond pure CSR values.

4. DIDACTICAL APPLICATIONS

4.1. „Jury game‟

When teaching the topic of CSR branding in general, and the CSR brand model presented here in

particular, in Masters and Executive training courses, we have implemented a ‗jury game‘ as part of our

lectures. The idea is based on the above-mentioned National German Sustainability Award (see chapter

3.1). The CSR brand model is presented and explained by a classical lecture (around 30 minutes). The

students then reflect the model by reading a short text about the model, as well as a checklist (about 30

minutes). The lecturer subsequently presents 4-5 case studies of more or less successful CSR brands

(around 45 minutes). After each case presentation, the students fill out the checklist and create an

evaluation of the brand just presented. In the final step, the students slip into a role similar to that of the jury

of the German Sustainability Award and rank the brands. The evaluations for each student are visualized

for the whole group using sticky points on a flipchart with the presented cases (around 10 minutes). At the

end, the lecturer interprets the results and summarizes the strengths and weaknesses of the CSR brands that

have been presented. This ‗jury game‘ can be played with both small and very large student groups, and

should take around two hours.

4.2. Student project work

In addition to integrating the CSR brand model in lectures, we have found that applying this broad and

flexible CSR brand model in comprehensive student projects, e.g. bachelor or master theses and group

work is productive. The CSR brand model forms the basis, and the students select one special sector (e.g.

the luxury or b2b sector) or country (e.g. comparing b2b branding in Viet Nam and Germany). After

attaining a deepened understanding of the basic model, student groups identify the specific requirements of

CSR branding in the selected sector or country and apply the model to these special characteristics. They

then conduct multi-case studies. The CSR brand model provides structure to case study descriptions and

comparative studies.

5. CONCLUSIONS

This paper has presented an updated version of the CSR brand model, which represents a holistic

approach to managing and understanding CSR brands. The identity-oriented model is based on the

interplay of six dimensions: positioning, corporate culture, behavior, communication, gaps and brand

equity.


46

We have highlighted the huge potential of the CSR brand model in management practice, research and

teaching. However, this model is not a closed-off, immutable framework. Instead, it can act as a

springboard for management, research, and lecturing. The following ideas offer food for thought.

(1) Transformative business model

The presented CSR brand model describes and evaluates one brand in a given timeframe. Therefore,

the transformation process from a conventional brand to a CSR brand or from a hidden CSR brand to a real

one is not explicitly considered in the current version of the model. Future research might extend the CSR

brand model to include the empirical analysis (e.g. observations) and the theoretical consideration of

migration and change processes.

(2) International perspective

Most research, practical applications and teaching of the CSR brand model originate in one European

country. Hence, a stronger consideration of international and cultural aspects could improve the quality and

applicability of the model. For example, cultural differences have an impact on the relevance of CSR

values, the sensitivity of the employees for CSR topics, and the role of leadership in shaping corporate

culture. Similarly, the general economic situation of the countries (developed vs. developing vs. emerging)

could impact the model. A second interesting topic from an international perspective is CSR brand

management across borders. So far studies into the management base responsible for the brand focused on

the headquarters. But for international and multinational brands, how CSR branding is approached and

implemented in various countries and subsidiaries is a main challenge and an interesting topic for further

research.

(3) Value-chain and network perspective

A strong CSR brand is not a closed system. Value creation depends on the whole value chain (up-,

downstream) and networks (e.g. advertising agencies). In addition, more and more brands actively use the

concept of co-creation or are being influenced passively by ―prosumers‖ (and other types of customer

participation, e.g. via social media). The suggested model conceptualizes a CSR brand as a one-direction,

inside-out model. Future research projects could gain additional insights by focusing on the interaction of

the different elements in the creation of brand value.

(4) Brand portfolio

An underlying assumption of the CSR brand model is a strategy of corporate branding. But a lot of

companies, particularly multinational companies, manage brand portfolio with several brands. Often, the

management implemented through brand hierarchies creates interdependencies between the different

brands and levels of a brand portfolio. For future research, it could be fruitful to analyze not only single

brands, but also broad and complex brand portfolios.

(5) Differentiation by the integration of established CSR tools

The CSR brand model attempts to analyze the brand holistically. But this model can also serve as

framework to integrate more specialized and differentiated approaches and tools for application in practical

management, research and teaching, e.g.

Corporate culture: Great place to work (www.greatplacetowork.com)

Behavior: Cradle to Cradle (McDonough/Braungart 2002; www.c2ccertified.org), Eco Design

Tool (www.ecodesigntool.com), ISO 14001, Green Brands (www.green-brands.org)

Communication: GRI (www.globalreporting.org), ISO 26000

Brand equity: Reptrak/CSR Reptrak (www.reputationinstitute.com), Sustainability Image Score

(www.facit-research.com/de/aktuelles/news/sis-2015/facit)


47

(6) Empirical validation of the model

The CSR brand model has been validated by experts and qualitative case studies, yet a sophisticated

quantitative test of its reliability and validity is still missing. A logical next step would be to develop scales

to measure the six dimensions and the fit between them. Empirical studies could then use and test these

scales and the model through classical procedures (e.g. Netemeyer 2003; DeVellis 2012). In addition,

longitudinal studies could be conducted to analyze the development of completely new CSR brands or the

transformation of a conventional brand into a CSR brand. This type of research could use quantitative and

qualitative approaches, including action research (e.g. Greenwood/Levin 2007; McNiff/Whitehead 2011;

Stringer 2007).

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52

Critical Factors of Corporate Social Responsibility Performance in Vietnam

Nguyen Van Phuc, Hoang Thi Phuong Thao, and Truong My Diem

Ho Chi Minh City Open University, Vietnam

Email: [email protected], [email protected], [email protected]

ABSTRACT

The risk of climate change and environmental pollution, harsh working conditions and food poisoning affected

factory employees, no policies for protecting consumer’s rights is becoming extremely serious in emerging countries.

These subjects, which have been rapidly moving up the political and economic agendas worldwide, had also pointed

out the issue of the firm’s responsibility to its society. Therefore, corporate social responsibility (CSR) seems to be

recognized as a commitment of the business community to sustainable development through balancing all sectors of

the economy, society and environment. Besides that, an academic research on CSR in developing countries is still

relatively young. Until now, there is no unique concept of CSR. Its definitions have been continuously expanded based

on individual situations and certain needs in each nation and every period, even though the initial concept of CSR has

been evolving since the early 1950s.

One of the active responses is that entrepreneurs should take their social responsibilities in business activities.

But what is the current CSR status in Vietnam and which factors impact on CSR performance of Vietnamese

enterprises? In order to determine the answers for question mentioned above, this paper firstly reviews the key

concepts in the CSR debate and outlines the core CSR subjects as introduced by ISO 26000 (ISO/DISC 26000, 2015).

The second is provided the existing picture of CSR status in VN. Then the findings of this study demonstrate barriers to

and drivers of CSR. The main approach, used to study critical factors for Vietnamese enterprises to engage in CSR

practice, is case study.

Keywords: Corporate social responsibility, Vietnamese enterprises, CSR performance, case study

1. INTRODUCTION

Vietnam‘s economy achieved rapid growth in the last few decades, which brought the country to the

middle-income countries group in 2009 (United Nations, 2010). The rates of poverty reduction have been

reduced considerably. The nation became a member of the World Trade Organization (WTO, 2007),

several regional and international institutions, and the recent Trans – Pacific Partnerships (TPP, 2015),

which has accelerated the process of international integration as well as deepened impacts of globalization.

In term of integration into the global economy, the individual nations, especially in production countries in

labor – intensive sectors are required aiming to liberalize commerce and tighten labor and environmental

standards.

Our global economic climate is changing due to a wide range of human activities from trading,

producing, travelling, and transporting. Therefore, a global village today needs to determine an answer to

direct its socio – economic development, as well as to prepare for and respond to the effects of a changed

climate (UN, 2013) and holding the social responsibility for their organization. According to International

Standard Organization (ISO) 26000, CSR is defined the responsibility of an organization for the impacts of

its decisions and activities on society and the environment, through transparent and ethical behavior.

Implementing CSR or other words is towards sustainable development, all Small – Medium sized

Enterprises (SMEs) and Multinational Corporations (MNCs) or other organizations need to build up





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appropriate management strategies. In business aspect particularly, the strategies have to be connected with

the core business, including products, employees, stakeholders, local community, society, global

environment protection, and future generations (Nguyen & Truong, 2014).

For instance, in Vietnam, the scandal of the Vedan Vietnam Enterprise Corporation Limited (Vedan

Company) which discharged a large amount of untreated sewage into the Thi Vai River over 16 years. It

refers to the violation of environmental standards and was accused of illegally dumping waste in the

environment. This scandal has raised serious concerns in the community and in neighboring countries

about social and environmental responsibility of enterprises. Besides that, the number of corporations was

ostracized for harsh working conditions and attacked for using child – labor have been interested specially.

In this context, CSR which is known as a tool to approach sustainable development is continuously

receiving much attention.

Because of social pressures, the competitiveness of a firm has been positioned not only according to

quality, price, distribution channel, or advertisement but also its CSR performance (Truong, M.D., 2012).

CSR continuously seems to be recognized as a commitment of business contribution to sustainable

development through balancing the three factors of economy, society and environment (Henriques &

Richardson, 2013). In order to achieve sustainable growth, entrepreneurs need to plan appropriate business

strategy for meeting expectations of stakeholders from consumers, labors, shareholders, distributors,

suppliers to community, society, and environment. This means the company should focus on the long-term

benefits to society and environment rather than short-term cost savings or profit making only (Henriques &

Richardson, 2013). According to Visser Wayne (2011), CSR can be understood as a new barrier, a new

passport for entering the global marketplace. Nevertheless, Vietnamese SMEs find more difficulty for

applying CSR in their business activities, due to pricing pressure and the highly competitive market today.

This is seen as a main reason for considering that CSR is a burden. Because of real situation in Vietnamese

business environment, it can be confirmed that CSR is an emerging business concept that Vietnamese

SMEs could not understood and implemented obviously now.

While the number of scandals related in environment, life quality of community, health safety of

consumers and working conditions for employee are increased and raised also serious concerns about the

social and environmental responsibility of businessman, the CSR literature is an ever-increasing debatable

topic of discussion among researchers and practitioners.

By doing that, the introduction is provided in the first of this paper. In the literature review session,

there are three main parts that comprise the definitions of CSR, the previous CSR research and theoretical

map. The third is research methodology. After that, the research results are explored and discussed. Finally,

some conclusion remarks and research limitation for future study are recommended.


2.1. Corporate social responsibility

The concept of CSR has been evolving both academic concern and practical implementation since the

early 1950s, and the conception was continuously expanded based on individual situations and certain

needs in each period. Hence, there is no unique definition of CSR until now.

In the past, Howard Bowen, initially, the American economist (1908 – 1989), who was called as the

―founder‖ of the notion of CSR, provided the definition of CSR which refers to the obligations of

businesspeople to pursue those policies in term of objectives and values of society in his book called Social

responsibilities of the Businessmen (Bowen, 1953). However, the significant development of CSR

occurred in the 1960s and beyond. One of the most prominent works of early CSR, known as social

responsibility at that time, was that social responsibilities of enterprises had been ignored. According to

Keith Davis (1960, p. 70), business social responsibilities refer to "the businessman's decisions and actions


54

taken for reasons at least partially beyond the firm's direct economic or technical interest". The other the

early development of CSR had further supported the standpoint of Davis is contribution of William C.

Frederick. Frederick believed that ―businessmen should oversee the operation of an economic system that

fulfills the expectation of the public. And this means in turn that the economy‘s means of production should

be employed in such a way that production and distribution should enhance total social-economic welfare.

Social responsibility in the final analysis implies a public posture toward society‘s economic and human

resources and willingness to see that those resources are used for brad social ends and not simply for

narrowly circumscribed interests of private persons and firms‖ (Frederick, 1960, p. 60). Another influential

contributor to the early development of CSR had further supported is Milton Friedman. Milton Friedman

(1971), an American economist, argued that ―There is one and only one social responsibility of business to

use its resources and engage in activities designed to increase its profits.‖ Over time, CSR was expanded by

Bowman and Haire (1975) with confirmation that ―the social responsibility of business encompasses the

economic, legal, ethic and discretionary expectations that society has of organizations at a given point in

time.‖ In 1980, Jones defined CSR is the notion that corporations have an obligation to constituent groups

in society other than stakeholders and beyond that prescribed by law and union contract, which encompass

voluntary, customers, employees, suppliers, neighboring communities and legal responsibility. In the early

2000s, there have been a number of definitions published. It broadly represents the relationship inside the

company, employee to employer, between the companies to consumer, community, global.

Applying historical approach there has been seen as an evolution pathway since 1950s to define the

concepts of CSR until now there is no accepted definition abroad all over the world. For functional aspects,

while some researchers treat CSR as a tangible commodity to meet competitive pressure in the global

marketplace (Martin, 2003) involved in increased purchase behaviors and a more favorable reputation, the

amongst are more specific in their treatment of CSR relating directly to business philosophy and

performance (Carroll, 1991).

In the practice, CSR continuously seems to be recognized as a commitment of the business

contribution to sustainable growth. In 1991, Carroll‘s model proposed a pyramid of CSR involving in four

components as economic, legal, ethical, and philanthropic where the base economic and legal

responsibilities are requested, whereas ethical and philanthropic responsibilities are expected and desired.

Figure 1. Carroll’s Model about Four Components of CSR (1991)


55

According to World Business Council for Sustainable Development (1999), CSR is the continuing

commitment by business to act ethically and contribute to business development while improving the

quality of life of the workforce and their families as well as the community and society at large. Recently,

in 2008, Visser Wayne published a new theory of CSR named CSR 2.0. Visser pointed that CSR is an

integrated and systemic approach by business that builds, rather than erodes or destroys, economic, social,

human and natural capital. While according to ISO 26000 (ISO, 2010 for English version, and published in

2015 by Vietnamese), which is the recognized international standard for CSR, the definition of CSR

confirmed that CSR is the responsibility of an organization for impacts of its decisions and activities on

society and the environment, through transparent and ethical behaviour that encompass six subjects and 36

issues.

.

Figure 2. Six Core Subjects of CSR Followed by ISO 26000 (2010)

To sum up, there has not been the definition of CSR accepted widespread. Each definition of CSR

covers different issues and depends on national cultural and social context.

2.2. Previous research

In the last several decades, there are a number of empirical papers that have examined in factors

effecting CSR implementation, studying the concept of CSR, finding the benefits of CSR for promoting

competitive advantage in the worldwide. Controversies about the definition, the model for sustainable

development, drivers, conditions and the benefit of CSR have however been debated since 1950s and still

not have resulted in consensus. However, in the past decades, there has been a fundamental change in the

relationship between business and society, and therefore CSR has become an important part of the business

environment. So far, CSR has mainly been a response to pressure from consumers, community, society and

governments, which has forced companies to become more environmentally, and socially responsible due

to environmental pollution, human rights abuses and exploitation of labor in supply chains (Charlotta,

2007). Nevertheless, the researches on CSR field in developing countries, especially Vietnam, have been

limited in either quantity of studies and practical reviews.


56

Nonetheless, a much more significant proportion has similarly found out factors effecting CSR

implementation in a various nations. For example, Pakorn Udomthanasansakul (2011) was doing research

in factors affecting the social responsibility of small and medium sized enterprises in Chiang Mai,

Thailand. This study was designed utilizing survey questionnaires to collect data from Thai SMEs‘

entrepreneurs. The research explored the relationship between entrepreneurial factors involved in gender,

age, education, business size and work position with the CSR factors of managers, employees, and network

within small and medium sized enterprises. The result reveals that business size matters in doing CSR.

In India, Jorge A.A. and Deepa Aravind (2011) relied on a data set of Global Compact (GC)

participants from United Nations Global Compact (UNGC) website for doing structured questionnaires via

online survey. The response rate in the study was quite low. With the 120 SMEs were invited to join the

research, but the only 27.5% were accessed the survey. By doing so, the research limitation is only focus on

the activities of firms participating in the UNGC, thereby restricting one‘s knowledge of CSR practices of

non-participants. Finally, this study finds that the CSR approach that the caring or the moral motive,

followed by the strategic or profit motive are important drivers for Indian firms to pursue CSR.

A study on awareness of Vietnamese managers and consumers in the field of CSR has been conducted

by Pham Duc Hieu in 2011. His research is applied quantitative analysis methods for gathering information

and data proceeding. The questionnaire comprises two parts: one for management survey and other for

consumer appraisal. There are 32 and 97 responses of management and customers respectively were

considered complete and valid for data analysis. The research results have provided findings on factors

affecting CSR implementation in Vietnam. The factors comprise lack of national standards and

requirements form stakeholders, top management do not understand deeply the benefits of CSR and are not

willing to report their CSR activities. For consumers, the awareness of Vietnamese consumers and their

purchasing decisions has influenced significantly on the CSR implementation.

2.3. Literature map

The theoretical framework identifies the key issues related to activities and the process of CSR

performance from stakeholder‘s perspective. As shown in the map, the key issues of company‘s

performance in CSR activities are centered on the key stakeholders‘ request, and national/international

law/policy enforcement.

Figure 3. The Theoretical Map

Key stakeholder‘s

request

(Customers, employees,

administrative staff)

CSR

PERFORMANCE OF

VIETNAMESE

ENTERPRISES

National law, policy and

international standards

Issues and request in term of CSR performance

Critical factors influence company’s performance in CSR activities

Issues related to awareness and commitment of firm for performing CSR activities


57

3. RESEARCH METHODOLOGY

3.1. Research design

This research aims to identify critical factors that influence company‘s performance in CSR activities.

The exploratory and descriptive aspects of this paper align well with a qualitative paradigm.

By doing that, the enquiry approach in inductive process of qualitative method is applied. That means

the beginning with specific observations and descriptions followed by analysis which produces the

explanation of the observations (Robert, B.B & Richard, A.B, 2008). This approach is usually used to

explain a phenomenon in social science (Eriksson & Kovalainen, 2008), and extensive interviews will be

undertaken to understand the awareness, interest and commitment of the key stakeholders. The centre of

this study are case study of three companies with deeply interview with the top management (owners,

managers, specialists) and national CSR experts who were doing the factory tour for observation,

interviewing, auditing and consulting of three mentioned cases. Semi-structured interviews with

employees, Unions officials, brands, and academics were also conducted. Furthermore, many articles on

environmental scandals, food poisonings, social and economic status were gathered form newspapers

including Thanh Nien News, Saigontimes Daily, and Global News. The national law and policy, internal

reports of trade unions, associations, and also internal documents of the three above companies were

collected.

The research process is divided into three phases shown as the following table.

Table 1. The Research Process

Phase 1

Review of the literature

Select potential cases for the study

Send out letters, establish contacts

Finalise case studies

Phase 2

Gathering data from stakeholders

Document analysis – analyse supporting documents

CSR activities using relevant literature

Design interview questions

Conduct interviews and focus groups

Transcribe interview scripts

Code, categories and analyse the data

Phase 3 Synthesise the analyse of three cases to cover critical factors

Write up findings and discussions, noting limitation

3.2. Case selection

The case study approach is considered more relevant to produce the outcomes in a way that is

consistent practically and theoretically. The research topic focuses on the factors underlying the company‘s

CSR performance in Vietnam. According to Yin (2012), the case study is most appropriate in order to

make the research problem inseparable from its context. Yin also justifies the case study as most applicable

to describe the real life context situation.

In this study, three companies are utilized as case organizations and these have been purposively

selected to provide better insights into quality. In order to protect the sampling case, this study presents the

anonymity of the interviewees and the name‘s organization. The first case factory used in this research was


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established in August 2007 with the number of employees of 2,500 and performance in the product of sport

and fashion shoes (henceforth referred to a case A). Another case factory in this study, referred to as case

B, is one of the production good in a labour-intensive sector established around 20 years with 3,300

workers. The final case is referred to a case C is a electronic company with over 730 employees.

3.3. Interview and focus group coding

The targeted participants are categorized into three cases. Participants are coded as top management

(Topmgt) (involving in owner, manager), CSR consultant (CSRcst).

Table 2. The Participant Coding

Participant type No. Case organization Participant code

DATA COLLECTION – DEEPLY INTERVIEW

Top management 3 Case A Case A Interview Topmgt

Top management 1 Case B Case B Interview Topmgt

Top management 2 Case C Case C Interview Topmgt

CSR Consultant 1 Case A Case A Interview CSRcst

CSR Consultant 1 Case B Case B Interview CSRcst

CSR Consultant 1 Case C Case C Interview CSRcst

DATA COLLECTION – FOCUS GROUP

CSR Consultant 3 CASE B Case B FoGp CSRcst (3)

CSR Consultant 2 CASE C Case C FoGp CSRcst (2)

Worker 1 CASE A Case A FoGp Wker (1)

Customer (Brands) 1 CASE B Case B FoGp Ctmer (1)

CSR researcher 1 CASE C Case C FoGp CSRrser (1)

Unions officials 1 CASE A Case A FoGp U.ofcer (1)

Note: Top management (Topmgt), CSR Consultant (CSRcst), Worker (Wker), Customer

(Ctmer), CSR researcher (CSRrser), Unions officials (U.ofcer), Focus Group (FoGp).

This paper will make use of two forms of data collection instruments, which consists deeply interview,

semi-structured interviews, observation and other working conditions. Coding process of this study is

applied by Creswell (2012) shown in the following.

Figure 4.A Visual Model of the Coding Process in Qualitative Research


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4. RESEARCH RESULTS

4.1. Analysis and outcome of the interview session

The targeted participants are Human resource manager, compliance manager, Senior Environment

officer, General Manager, Vice-Director, and SR officer. The interviewee were part of the management

team, the interview session would provide sufficient information because some questions are on the

strategic level of management.

Table 3. Interviewees’ Demographics – Top Management

Case

organization Age Gender

Year of

experience Position of work Participant code

CASE A 52 Male 14 HR manager Case A Interview Topmgt 1

CASE A 46 Female 5 Compliance Manager Case A Interview Topmgt 2

CASE A 32 Female 7 Senior Environment officer Case A Interview Topmgt 3

CASE B 49 Female 20 General manager Case B Interview Topmgt 1

CASE C 44 Male 11 Vice-Director Case C Interview Topmgt 1

CASE C 31 Female 8 SR officer Case C Interview Topmgt 2

4.2. The priorities when CSR come to the Vietnamese business environment

The following extracts from the interview show that their companies have done CSR activities so far

is due to highly pressure from foreign buyers (customers). All three case organizations in this study are

producing goods as outsourcing for brands abroad, especially in developed countries.

Established in August 2007 with our firm‘s market share in US, Euro, and local Vietnamese is 50%,

45% and 5% respectively. The majority of our customers are foreign businesses and so we (named the

company of case A) need to provide and perform as our customer‘s request that need to be followed

the code of conduct (CoC). (CASE A Interview Topmgt 1,2)

Since established in 1994, BBB (named the company) of outsourcing business process has been

identified as a strategic trend. Therefore, the company mainly works as the supplier of the key

stakeholder (named strategic partner: XXX). In particular, all revenue of BBB is gained under

subcontracting business line. BBB‘ s production process start at the supply of raw material of XXX

involving in sole, leather, backstay, lining, etc., which accounts for 70 percent. The remaining 30

percent is supplied from BBB. After buying and importing materials which are stored in the

warehouse of the company for production (CASE B Interview Topmgt 1).

Working in the electronic over 35 years, CCC (the company of case C) mainly works as the supplier

of electronics parts for end-user manufacturers of electronics products. Ninety percent of our company

revenues are generated under subcontracting business line. Highest level is product export where

exporter gain the most value in the value chain and that is the target set by the company. CSR at our

suppliers is just as the compliance level. CCC have to comply with requirements from the foreign

buyers. (CASE C Interview Topmgt 1)

While managers generally mentioned the high priority of company‘s performance in CSR activities is

due to pressure from customers and they have to follow the CoC, CSR consultants and auditor also

confirmed as the same point.


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Table 4. Interviewees’ Demographics – CSR Experts

Case

organization Age Gender

Position of work before

national CSR expert Participant code

CASE A 37 Male CSR consultant Case A Interview CSRcst

CASE B 36 Female CSR consultant Case B Interview CSRcst

CASE C 42 Female CSR auditor/consultant Case C Interview CSRcst

Nowadays, some MNCs and large local companies are starting to implement CSR activities; however,

in my opinion, the CSR activities are independent with other operational activities and mostly

focusing on charity, PR etc. CSR is not yet integrated with the organization‘s strategy and immersed

in core activities of the organization. In SMEs, CSR is still a new concept. For companies that are

forced by foreign buyers: CSR at the point of suppliers is just as the compliance level. For the

company AAA, its policies, which have been established and these have been implemented in the

reality, is meet CoC of Multinational Corporation (MNCs). In particular, these policies is performed

by following the local labor laws, international labor laws, protecting consumer‘s right, environmental

regulations. (CASE A Interview CSRcst)

As my experience, motivating CSR involvement in almost companies in Vietnam mainly is requested

by the buyers, local government related in labor law, environmental law, law on gender equality, etc.,

international standards as ISO14000, SA8000, WRAP, ISO.26000. (CASE C Interview CSRcst)

Also the same opinion with the two CSRcst of case A & C, CSRcst of case B giving more detail

inside the company.

Beside the external factors mentioned above, some internal factors have been more relevant and had a

direct influence on the decision of company in involvement CSR performance at an early stage and

continuously affected the company‘s mission in the long term. I think that involvement in CSR activity is

limited due to funding, time and lack of persons in charge of CSR field. (CASE B Interview CSRcst)

Overall, it could be said that CSR implementation of Vietnamese enterprises is not voluntarily

initiated by them but by force and fears form stakeholders, particularly customer.

4.3. Analysis and outcome of the interview session

This session is a focus group part including representatives of the same three stakeholder groups of the

sample cases in this research. Focus group members were invited for discussing together from individual

perspectives.

Table 5. Focus Group Demographics

Participant type Case organization No. Gender Focus group code

CSR auditor/consultant

CASE A 1 Male Case A FoGr CSRcst 1

CASE B 2 Female Case B FoGr CSRcst 1

CASE C 2 Female Case C FoGr CSRcst 1

Top management

CASE A 1 Male Case A FoGr Topmgt 1

CASE B 1 Female Case B FoGr Topmgt 1

CASE C 1 Male Case C FoGr Topmgt 1


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Since there has been a new opinion of CASE B Interview CSRcst, the focus group needs to be

organized. And all eight members of focus group totally agree with the view of CSRcst Case B that limited

funds, time and lack of persons in charge of CSR field has had direct impact on CSR performance of the

company.

The Director (Topmgt 1 of case B) added to the conversation related in workforce, stating:

If there has been enough human resource specialize in CSR field, we would also like to have

documents guidance on social responsibility performance and national/local law enforcement strong

enough. (CASE B Interview Topmgt 1).

One of the top management made the following comment:

All CSR activities that we perform these days are just following the CoC and doing charity only. For

the local law, we really need government provide policies consistency between all authority level form

local to central. Because the law is not clearance, it is one of main barriers for carrying out CSR activities.

(CASE A Interview Topmgt 1)

The new CSRcst 2 in the focus group, who have not joined the individual interview before as

confirmation that:

Many companies I were consulting and auditing for find more difficult about the law of government.

The policy of local with of province and ministry has had different. As consequence, I would like to say

that companies performance CSR facing a little bit difficulty. (CASE C Interview CSRcst 2)

Continuously, all participants talk more about business environment in Vietnam. They said the

corruption is an unavoidable practice in business environment of many Asian countries including in Viet

Nam. As the company exports its products, the customs related procedures make up majority of its

corruption activities. The underlying costs incurred with customs offices, since could not be claimed with

client, does reduce the company profit. The company executive assume that they find more difficult for

dealing with the problem hardly do anything, in single effort, toward absolute stop of corruption practice

with customs office. The company has built up the policy of anti-corruption under its overarching cost

control program, raise awareness its employees on how to work against corruption. The firm has also

offered the training sessions for staff in order to understand any undue influences such as threat,

misinformation, etc.

All eight participants agreed that buyers these days more and more consider social factors important

when they decide to buy from a supplier. So CSR implementation is a ―visa‖ for Vietnamese products to

enter the markets of the developed countries. Besides that, they confirmed that CSR is a tool helping an

organization to build a good image in their community, in which, consumers are starting to concern more

about ethical, environmental, labor, consumer issues, etc.

5. CONCLUSION

In Vietnam, sustainable development has been integrated in a wide range of policies and legalized into

many laws in recent years. The Government has also issued resolutions, and strategies and orientations for

sustainable development. Typical examples are the Green Growth Strategy, Resolution 19/NQ-CP on

primary tasks and solutions for improving business environment and enhancing national competitiveness.

Industries that tend to comply with international buyers‘ CoCs are footwear, leather, textiles, garment,

electronics and extractive industries. CSR concerns in these sectors include working conditions, safety and

environmental protection. These sectors have been facing stringent rules of trade agreements under WTO

and EU on environmental and labor requirements and so have been early adopters of CSR initiatives.

Enterprises had to improve their competitiveness but also meet international labor, social and environment

standards. Besides that, there were several factors pointed out that are limited time, fund and CSR


62

specialists. Finally, the government law is also a factor that is a barrier for CSR performance of Vietnamese

enterprises.

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http://www.williamcfrederick.com/articles%20archive/GrowingConcern.pdf


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The Evolution of Corporate Social Responsibility (CSR) in “Democratized Fashion Industry”

Proposal for a New CSR Reorder

Beniamino Milioto

Professor and Attorney at Law

University of International Studies of Rome – Italy

Via Cristoforo Colombo 200

Rome Italy

ABSTRACT

The present paper studies the concept of CSR in Fashion Industry and its dynamic and implications into major

activities relating to “Fast Fashion” or, as nowadays known, “Democratized Fashion Industries”. Focusing the

industrial phenomenon of “Delocalization of the Apparel Industry,” the paper is intended to show how CSR has

received worldwide greater attention in the last decades and how CSR has overturned today into an important

opportunity for major fashion brands: from an initial conception of CSR as threaten or menace to the incredible

potential for the creation of valuable business and brand visibility. The final purpose and challenge of the paper

remarks are intended to invite the international community to set an international legal framework with a well-

constituted body to monitor CSR activities and strategies and the necessity of a deeper understanding of its legal

compliance worldwide.

Keywords: CSR, CSPP, Fast Fashion, Democratized Fashion, Delocalization, CSR Business

Challenge/Opportunity, Fashion Sustainability, Corporate Citizenship, Customer’s Satisfaction, Monitoring and

Auditing CSR, International legal Framework/Appeal Body, Legal Compliance.

1 INTRODUCTION

The evolution of the concept of corporate social responsibility (CSR) dates to the early 1950s, the

beginning of the new industrial era of modern society. Bowen1 provided the first definition: ―Obligations of

businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are

desirable in terms of the objectives and values of our society‖. CSR definitions further developed during

the 1960s, and then expanded during the 1970s with a variety of interpretations that included corporate

citizenship, corporate philanthropy2 and stakeholder theory

3, but still without full recognition from the

business community. Between the 1980s and 1990s, the new concept of CSR, supported by a new business

model4, rule of law and ethical approach, has received real and legitimate attention among world business

executives. For the first time, a real doctrine based on an empirical research that allows a monitoring of

business results with a pragmatic analysis of cost and benefits has resulted in planning corporate social

performances (CSP) activities. With the arrival of the new millennium, a more responsive attitude and a

1 Bowen, H.R. Social Responsibilities of the Businessman; Harper & Row: New York, NY, USA, 1953. 2 Sethi, S.P. Dimensions of corporate social performance: An analytical framework. Calif. Management. Rev. 1975. 3 Maignan, I.; Ferrell, O.C.; Hult, T.G. Corporate citizenship: Cultural antecedents and business benefits. J. Acad. Mark.

Sci. 1999. 4 Johnson, H.L. Business in Contemporary Society: Framework and Issues; Wadsworth: Belmont, CA, USA, 1971.


64

greater degree of values from major corporations and later also from small and midsize companies

(SMSC)5 developed, heralding the new CSR era.

Nevertheless CSR has required a deeper attention among the business community with an allocation

of human resources, economic funds and strategic decisions resulting in today‘s important question: does CSR pay off for the firms involved in such programs and activities, as well as for the society and

organization‘s stakeholders, or does it simply assess centrality, proactivity, specificity, visibility without any mutual strategic benefits

6?

The focus of the present paper is to examine a constant and rising interest perceived by major firms/brands and important financial groups operating in the sector of fast fashion, also called the

“democratized fashion industry” or the ―fashionable sector industry”. Well known worldwide famous multinationals in the textile and ready to wear industry such as Benetton, Zara, H&M, Mango, GAP,

Abercrombie and Fitch, Uniqlo, etc. have, in the last three decades, highly engaged themselves in CSR programs and forged, thanks to the new CSR programs and new business models to promote their brand‘s

proactivity as a result of successful CSR management plans.

2. PURPOSE, METHODOLOGY AND ANALYSIS APPROACH

This paper offers a preliminary exploration of the Corporate Social Responsibility (CSR) issues being explored among major fashionable brand‘s retailers worldwide. Empirical information is drawn from CSR

reports, information posted on the world wide web, and academic researches. The study analysis is based

on common ground in reporting on a wide range of labor legal compliance, environmental issues, sourcing, commitment to customers, employees, and on the communities in which the groups/retailers normally

operate. It is the intent of this paper to show that CSR is turning, currently, to be a core strategic element of the fast fashion business that requires proper and careful attention from the international community.

Governments, international organizations, primary and secondary stakeholders, media and public opinion must all play a part in order to create a new path of CSR. The paper does not evaluate key performance

indicators in an attempt to measure and benchmark CSR achievements.

3. THE DYNAMIC OF CSR DURING THE DEMOCRATIZATION OF FASHION

Since the early seventies, major groups supplying worldwide fashion products with brands as Benetton, GAP, Zara, H&M, etc. have increasingly diversified their business with the creation of a new

―affordable fashion style”. The level of internationalization of those brands has grown incredibly in just a few decades, and while the marking line between the well-made and stylish fashion product remain

reserved to an affluent society, a new fashion phenomenon appeared - ―Democratization of fashion”, (M. Tungate first used the present definition in 2008)

7. The third millennium fashionable consumers, as an

ordinary side effect, have completely upset the business criteria and management tools with an increasing demand for ready to wear while, at the same time, looking to the fashion industry to change the retail chain

as the most important and pivotal segment for all the commercial lines regarding the above-mentioned

firms. Fashionable brands rapidly became globalized groups for affordable/mass fashion consumers whose purchases are characterized by short-life cycles, wide product variety, low predictability, moderate profit

margins, and a high level of impulse purchasing. The rise of democratization of fast fashion apparel implies a variety of social interpretations: the past few decades has seen an increase in the number of women in the

workforce along with a new role of family in modern society. Affordable brands have targeted the entire family, from women‘s to men‘s to children‘s clothes while supplying their products with the same retail

chain to middle-class consumers, the turnover impact has resulted in cost savings and ease of distribution.

5 Carroll, A.B. Corporate social responsibility: Evolution of a definitional construct. Bus. Soc. 1999. 6 Shallini, S.T.; Pawan, K.T.; Rajen, K.G. Research in corporate social responsibility: A review of shifting focus, paradigms and

methodologies. J. Bus. Ethics 2011. 7 Mark Tungate, Fashion Brands. Branding Style from Armani to Zara, 2008.


65

4. DELOCALIZATION OF FASHION INDUSTRY

Now, how does the fashion industry produce, supply and retail high commercial competitive products

worldwide while taking into consideration micro and macroeconomic dynamics different from country to

country combined with the pressure for shorter lead times and reduced costs? Due to the increasing

worldwide demand for fashionable products, main groups/brands have outsourced production to

developing and emerging economic countries, from China to India to Moldavia to Sri Lanka and on and on,

where labor costs were infinitely low and production lines were ensured in due time. The Supply Chain

Management (SCM) has exploded from a vertical production system into the creation of a worldwide

horizontal outsourced production system led by an organized network of sub-contractors able to deliver,

with the support of qualified workers who have a relevant degree of skills and competences, quality

products at competitive prices.

5. THE RISING ISSUE OF CSR IN THE FASHION INDUSTRY

Over the past several decades, Non-governmental Organizations (NGO‘s), Non-profit Organizations,

academicians, scholars and journalists, improved labor standards and tighter legal compliance have all

pushed for greater CSR in the democratized fashion industry, with more intense scrutiny in the new

millennium. With SCM‘s change upsetting the traditional economic production apparatus, the above

mentioned organizations have started to ask why, with increasing globalization, the apparel industry has

now so often dispersed geographically, with manufacturing, distribution and retail operations split across

several different regions and countries. NGO‘s and others, as secondary stakeholders, have definitely

played a positive moderating role in the relationship between outsourced production and product

diversification carried out by SCM. During the last decade, SCM and many global retailers, worked hard to

ensure their global corporate standards for safety, labor, sustainability, and quality of product, but to ensure

and maintain those standards throughout the supply chain complicated by diversified products still remains

a daily challenge. Different product‘s markets possess different socio-political environments and different

economic issues. Manufacturing is definitely a unique process that requires elements of law, human

resources, ethics, compliance and supply chain. To manage and balance different standards in different

countries represents a permanent conflict between stakeholders and public opinion. Global brands should

therefore maintain relationships with different secondary-stakeholders to manage their product

diversification levels so as to enhance their financial performances. It is well understood that production

processes are often taking place under different national governance, cultural differences, and language

variations with the use of subcontractors. Maintaining not only the supervision on the different markets

incomes and outcomes but also preserving the world strategic pulse of the entire global fast fashion

production is most challenging. Therefore, any company standards which require adherence across the

global organization must be rolled-out carefully and monitored regularly with an integrated worldwide

system.

6. THE OVERTURN OF CSR: FROM A BUSINESS CHALLENGE TO A GREAT BUSINESS

OPPORTUNITY

The beginning of the third millennium definitely sets a new well-shared concept of CSR among

fashion‘s top managers, scholars and academicians, as well as with public opinion and secondary

stakeholders. From Smith8 to Miles

9 there is common ground in believing that CSR, from an early concept

as a “moral and/or ethic of business”, has lately turned more to strategic corporate performance activities

strictly related to financial aims and competitiveness standards to achieve. The worldwide business

community, and not just the fashion business, has well understood how CSR could guarantee high rewards

8 Smith, T. Institutional and social investors find common ground. J. Invest. 2005 9 Miles, M.P., Covin, J.G. Environmental marketing: A source of reputational, competitive, and financial advantage. J. Bus.

Ethics 2000.


66

in the long-term business market. Consumer‘s behavior, especially among young consumers, with the

instant information available through the Internet, is more aware of the new modern concepts of “fair

trade”, “sustainability”, “green friendly”, “child labor free”, “free work exploitation”, etc., Smith claims

that CSR activities in the form of equal employment opportunity (EEO) policies enhance long-term

shareholder values. Several economic studies10

have shown how investments in CSR, with proper study

analysis on management of natural resources and environmental impact, especially in textile and clothing

business, leads to conflict avoidance within local communities, utilizes human resources with lower

litigation issues, and saves high economic margins and expenditures with lower insurance costs11

. Cost and

risk reductions may also be achieved through CSR activities aimed at the natural environment and

improving community relations. Positive community relationships may contribute to attaining tax

advantages for firms and to decreasing the level of regulation imposed on the firm, since the

firm/brand/group is always perceived as a sanctioned member of the society12

. These strategies have led

over the last two decades to the creation of a new modern CSR focused on Corporate Strategic

Performance Programs (CSPP), supported by new advertising and communication campaigns involving

corporate engagement in CSR activities and the adoption of sophisticated plans. CSR will be no longer

viewed as a mere ethical issue and instead be a challenge for the above mentioned groups leading to a great

economic and social opportunity.

7. CSR FROM CUSTOMER‟S SATISFACTION TO LEADING INNOVATION IN THE FAST

FASHION INDUSTRY: THE NEW PATH OF CSR IN THE APPAREL FASHION, REPORTING

IMPORTANT BUSINESS CASES

The fashion business community is fully aware of the importance that CSR represents in marketing

and in fulfilling customer satisfaction. It is clear that CSR plays a major role in promoting innovation

among industrialized countries and allows a deeper connection among producers and buyers worldwide.

Well-established brands have well publicized CSPP. Marks and Spencer created and promoted among the

media and consumers ―CSR Plan A”, initiated by Mike Barry, Head of Sustainable Business with over 180

environmental and ethical commitments. The company is driving towards their aim to create ―the world‘s

most sustainable major retailer by 2015‖. Pillar 6 of Plan A is entitled, “Fair Partner - General

Merchandise Living Wage”, which pledges to ―implement a process to ensure our clothing suppliers are

able to pay workers a fair living wage in the least developed countries we source from, starting with

Bangladesh, India and Sri Lanka by 2015‖. As Mr. Barry has stated, ―we will achieve this by ensuring that

the cost prices we pay to our suppliers are adequate to pay a fair living wage and by rolling out our ethical

model factory programmes to ensure the cost price benefits are paid to workers‖.

Gap Inc. has also strengthened their CSR commitment by developing a partnership with the

International Labour Organization with the “Better Work Program”, which supports improved labour

standards and laws. The scheme, which was launched in Cambodia in 2004 and specifically targeted the

retail industry, has now expanded to Haiti, Indonesia, Jordan, Lesotho, Nicaragua and Vietnam.

New companies are following a similar path. Rob Broggi, CEO and founding partner of Industrial

Revolution II (IRII), has joined forces with actor Matt Damon to launch ―IRII, an ethical garment factory”,

which aims to bring high-end apparel production, with a high level of social responsibility, to Haiti. IRII,

launched in September 2013, was ―born out of a frustration‖, Broggi states, ―with the lack of efficacy of

traditional philanthropic and international aid programmes in Haiti, and a desire to create sustainable

10 Berman, S.L., Wicks, A.C.; Kotha, S.; Jones, T.M.Does stakeholder orientation matter? The relationship between stakeholder

management models and firm financial performance. Acad. Manag. J. 1999. 11 Carroll, A.B.; Shabana, K.M. The business case for corporate social responsibility: A review of concepts, research and

practice. Int. J. Manag. Rev. 2010. 12 Berman, S.L.; Wicks, A.C.; Kotha, S.; Jones, T.M. Does stakeholder orientation matter? The relationship between stakeholder

management models and firm financial performance. Acad. Manag. J. 1999.


67

change through economic development and higher-value job creation.‖ ―Consumers have the ability to

demand that the brands they buy make responsible sourcing decisions, using their collective wallet as both

the carrot and the stick. There is a lot of power at the top of the chain and as brands increasingly realize that

consumers care deeply about this issue, real change will begin to happen‖.

Sustainability and commercial longevity go hand-in-hand, and it is also important for CSR and

sustainability to have a keen understanding of the way the business operates. ―Commercial acumen is key

to the mix of skills a corporate employer will be looking for, within the apparel and wider retail sector. It is

vital for sustainability to be joined up as part of the wider commercial strategy,‖ Paul Gosling, MD of Allen

and York Specialist CSR Recruitment Consultancy has also commented, ―CSR and social compliance

auditing is still evolving. The complexities are better understood, but many of the issues are still there. It

should to be the objective of each reputable brand and/or buyer to get buy in from his or her stakeholders to

enforce compliance throughout their supply chains‖.

―Overall there is more momentum, more resources and more collaboration, with increased sharing of

information within the industry, which is positive. What more could we do to drive this forward? We need

better business alignment, more worker empowerment, and governments that proactively enforce their

local laws,‖ adds Gosling.

The increase demand for sustainability and CSR professionals to work within the apparel industry is

due to the fact that brands are looking, not only to strengthen their health and safety teams, but also to

invest in corporate social responsibility strategies to ensure their companies offer a fair wage and safe

working conditions within their operations around the world.

8. MONITORING AND AUDITING CSR AND CSPP WORLDWIDE: A COMPLEX ISSUE TO

SOLVE

Researchers have demonstrated that CSR can activate a positive impact in the quality of products and

services offered. Nicholls13

comments on the relevance of a growing market for fair trade products in the

U.K. Also, Manaktola and Jauhari14

have shown the relevance of increasing awareness among consumers

regarding corporate engagement in CSR activities. In addition, Koszewska15

shows how CSR standards

(and in particular, SA8000 certification) can be a significant factor in customers‘ ability to differentiate

textile and clothing goods. As a result of implementing the CSR programmes according to environmental,

quality and safety standards, firms/brands have developed new classifications of products in fast fashion

industries under label/categories such as “Ecolabel” and “Oecotex”. These labels require attaining

certificates showing compliance with EMAS regulations, setting SA8000 international standards and

submitting CSR reports such as sustainability reports, social reports and environmental reports in order to

fulfill the mandatory regulations. The new CSPP standards have relied on policy-makers‘ ability to develop

a series of precise rules of law for the fulfillment of the above-mentioned standards. This implies the

creation of a body to monitor and audit the above stated compulsory certified standards and sort out the

alignment of CSR plans along with CSPP groups/firms. To understand how international standard

compliance should be audited, IRCA, a leading professional body for management system auditors, has set

qualified courses recognized globally within an international regulations framework. Although there is no

auditable standard for CSR, IRCA can teach key performance techniques and allow for formal registration

as a recognized certified auditor. Due to the increased demand for CSR and Sustainability professionals

within the apparel industry, there is a very strong interest in engaging skilled specialists fitting present CSR

and CSPP disciplines. How to overwhelm the lack of professionals and create auditable standards to certify

13 Nicholls, A.J. Strategic options in fair trade retailing. Int. J. Retail. Distrib. Manag. 2002. 14 Manaktola, K.; Jauhari, V. Exploring consumer attitude and behaviour towards green practices in the lodging industry in India.

Int. J. Contemp. Hosp. Manag. 2007. 15 Koszewska, M. CSR standards as a significant factor differentiating textile and clothing goods. Fibres Text. East. Eur. 2010.


68

international CSR auditors is today a real challenge to face. It is urgent, without further procrastination, to

provide valuable guidance and formal qualifications for auditors who, nowadays, are the only ones entitled

to go through legal scenarios, investigate business cases, audit business performances, check achievements

and ensure business continuity. According to the above mentioned strategic measures adopted by the

fashion supply chain market, and since the short season of fast fashion products are less price sensitive

compared to the rest of the fashion industry or any other sector where commercial strategy apply vertically,

it has been truly hard to monitor SCR‘s activities versus requirements that are in demand in this

challenging industry in many different countries of the world. Without any standard procedures applied to

the different countries, and with a different range and system adopted by auditors worldwide, the success of

the compliance is depending on the extent and value to which that standard is embraced across the

company or group as a whole. The most demanding and challenging role of the legal Standards

Compliance Practitioner requires a number of different skills and abilities that need to be well settled and

standardized in an international legal framework which should be adopted by major industrialized,

emerging and less developed countries. CSR today requires worldwide governments to specify the

conditions under which corporations are likely to perform in a socially responsible manner, along with the

oversight of secondary stakeholders and other independent organizations to set institutionalized norms

regarding appropriate corporate behavior, associative behavior among themselves and with subcontractors.

Those subcontractors will need official recognition and be identified by the SCM. Finally, the promotion of

dialogue and confrontation among all stakeholders is paramount to success. The lack of codifications of

CSR activities and/or strategies, normally founded on the discretionary relationship between corporations

and stakeholders, is a disruptive system that misses consistency and long-term vision.

9. PROPOSAL FOR A NEW ORDER OF CSR

Most developed and industrialized countries do not seem very interested in setting an international

framework of regulations to enable SCM to fulfill legal and official guidelines and providing CSR to be

attended regularly and fairly worldwide.

Furthermore, due to the lack of a well established supranational body empowered to monitor corporate

responsible behaviors worldwide, it is definitely hazardous to set infringement rules with a related

sanctioning system. Fashion lobbying is well developed to allow the industry to act freely and avoid any

precise regulations that could be carefully applied and seriously effect their business. Further, both primary

and secondary stakeholders involved in the fast fashion business have restricted the actual CSR vision to

competitiveness and customer satisfaction as per CSPP. It is time to move further to better establish a

worldwide CSR with a proper attention from the international community.

10. PROPOSALS AND CONCLUSIONS

The controversial free liberalization of textile16

, along with the Multifibre Agreement on Textile and

Clothing within the World Trade Organization (WTO), has definitely shifted the new order of the whole

fashion business in the world scenario (for a deeper understanding, please refer to Nordas17

). Fashion

business has broadened worldwide and outsourced geographically to achieve high competitive results.

Nevertheless, consequences of the changing SCM have brought about both positive and negative effects,

and the negative effects need to be addressed. The present paper informs and argues for the international

community to set an international legal framework, developed through a multilateral agreement, which

would include CSR Guidelines to apply and implement worldwide. This could possibly be accomplished

16 Naumann, E. The Multifibre Agreement - WTO Agreement on Textiles and Clothing, 2005. 17 Nordås, H.K. The Global Textile and Clothing Industry post the Agreement on Textiles and Clothing; World Trade

Organization: Geneva, Switzerland, 2004. Available online:

http://www.wto.org/english/ res_e/booksp_e/discussion_papers5_e.pdf


69

under the UNCTAD umbrella (United Nations Conference on Trade and Development) that would enable

an international panel within the WTO to monitor the fulfillment, with related achievements or

infringements, of the descending legal obligations. Possible infringements or violations of CSR standards

and regulations will be automatically settled within WTO jurisdictional and appellate bodies as a breach of

a multilateral agreement between States.

11. ACKNOWLEDGEMENTS

I would like to thank Ho Chi Minh City Open University for the invitation to submit the paper/article

during the CSR Conference that will be held in Hanoi on the 27th November 2015 at which the present

work will be addressed and introduced for the first time. I also would like to thank UNINT, University of

International Studies of Rome, and a special one to Prof. A. Magliulo, Dean of Faculty of Economic

Studies, for the support received in preparing the present paper and where I am currently a professor of

Economic Globalization and Fashion and Design Management. Last but not least, I also thank the authors

M.Battaglia, F.Testa, L.Bianchi, F. Iraldi, M.Frey, Institute of Management, Sant‘Anna School of

Advanced Studies, Pisa, for having been an incredible source of inspiration after reading the survey

carried out in 2010 within an EU co-financed research project (―COSMIC-CSR-oriented supply-chain

management to improve competitiveness in the textile/clothing sector‖) promoted by the Directorate

General ―Enterprise and Industry‖ within the ―Fostering Corporate Social Responsibility in European

Industrial Sectors: SME in Italy and France‖.

The author declares that there is no conflict of interest in preparing and writing the present paper.


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What Consumers Think about Corporate Social Responsibility and Their Reactions towards Corporate’s Products:

A Qualitative Research in Vietnam

Thi Phuong Thao Hoang 1, Nguyen Binh Minh Le

2, and Thi Kieu Chinh Dinh

2

1Department of Business Administration, Hochiminh city Open University, Vietnam

2Department of Business Administration, Saigon University, Vietnam


ABSTRACT

Increasingly, corporate social responsibility (CSR) plays a vital role in creating firms’ competence and values

as well as gaining trust and expectations from consumers. However, there are few researches focusing on CSR and

consumers in Vietnam, so does the perception of consumers. Some reports revealed convergence the other show

divergence in their findings. This research has shown an effort to understand the perception of Vietnamese consumers

about CSR and the impact of CSR on their buying intention, thus firms have better knowledge about their customers.

This paper collected data from in-depth interviews with 30 participants (aged from 20-60) from different social

classes in Ho Chi Minh City in order to look over the perception of consumers in Vietnam. The findings shown that not

all of the consumers in Vietnam have full understanding about CSR, and consumers who have high education, working

experience and income might have better understanding of CSR. By re-building the pyramid of CSR from the

Vietnamese consumer’s perspective it shown that the order is similar to that of Carroll’s (1991) model but the

meaning is different where economic and legal factors were considered as obligation while in the other, those two

factors are considered as responsibility. The data also clarified that CSR does not have direct impact on buying

intention but rather indirect via image and reputation factor. Some respondents suggested the role of government in

encouraging and managing corporates’ practices.

Keywords: Corporate social responsibility, CSR, Consumer behavior, Qualitative research, Vietnam

1. INTRODUCTION

Corporate social responsibility (CSR) is considered as prominent issue to many companies,

governments and researchers around the world. There are many researches about this topic among which,

some are structured and defined clearly about CSR concept. Friedman (1970) claimed that firm should

have only one responsibility for creating the benefits for company and its shareholders. Then Carroll (1979)

restructured the concept of social responsibility by suggested 4 dimensions included economic, legal,

ethical, and philanthropic responsibility.

In Vietnam, researches about CSR only began in 2008. In the meantime, the public were worrying and

angry with firms due to a series of scandals about business ethics and pollution polluted to environment, as

well as health issues. For instance, the case of melamine in dairy milk products or the case of polluting Thi

Vai River in Dong Nai, both of which are conducted by well-known companies. The firms should treat

stakeholders in the way that benefit all parties, as well as protect the environment in order to increase the

standard of living. Vietnamese firms are expected to involve these kinds of practices, however, there are

some difficulties concerning these kinds of practice. Firstly, firms should understand about CSR and its

benefits, commit to all dimensions of CSR in order to capture consumer‘s trust and loyalty rather than just

focus on their own business. Nevertheless, unfortunately, firms can barely see benefits from these practices

(Lê, 2013). Secondly, consumers in Vietnam do not understand much about CSR and their own power to

encourage firm to engage in these practices for their business.


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There are few researches focusing on CSR and consumer behavior in Vietnam, so does the perception

of consumers about CSR in Vietnam. Some reports revealed a convergence the other show divergence in

their findings. When comparing between firm‘s perspective and consumer‘s perspective on CSR, Nguyễn

and Lê (2014) claimed that consumers required the following priority: Legal – Philanthropic – Ethical –

Economic while firms had different order: Economic – Legal – Ethical – Philanthropic. The findings of this

research show that consumers have the same priority order with that of firms but in the way where Legal

and Economic were considered as obligation, whereas Ethical and Philanthropic were considered as

responsibility. Moreover, consumers are calling for the ethical practices from firms due to the fact that they

are worrying for their own sakes and the world as a whole. It is also because of bad practices of firms in

Vietnam have been prevailed on media recently.

Furthermore, there are few researches in Vietnam explaining how CSR could affect the consumer

buying intention. There are researches employed quantitative model developed in other countries to

examine the role of CSR in buying intention (Nguyễn & Lê, 2014) but no researches conducted as

qualitative research to understand fully about how CSR could affect buying intention.

This study aim to understand consumers‘ perception about CSR and its impact on their buying

intention. In order to reach these objectives, researchers first reviewed literature to have an overview on

CSR, then asked 30 participants from different social classes ranged from 20 to 60 years old. The data

would later be consolidated in tables and diagrams that summarized all important information of this

research.


2.1. Corporate social responsibility – CSR

In the book Capitalism and Freedom, Friedman (1970) emphasized that ―there is one and only one

social responsibility of business – to use its resources and engage in activities designed to increase its

profits so long as it stays within the rules of the game, which is to say, engages in open and free

competition without deception or fraud.‖ (Friedman 1970, p.6). As a result, the sole responsibility of

corporation was just to provide a maximum financial return to shareholders (Carroll, 1991). Meeting both

types of goals, economic and non-economic, is necessary for the survival and success of the organization

(Loussaïef et al., 2014). Later on, an all-sided concept of CSR was suggested by Carroll (1979) based on

the idea that ―the social responsibility of business encompasses the economic, legal, ethical and

philanthropic expectations that society has of organizations at a given point in time.‖ (Carroll 1979, p.500).

The pyramid of corporate social responsibility was proposed by Carroll (1991) to clarify the role of each

dimension (Bui, 2010) (see Figure 1). The entity in the conceptualization of CSR was broadened with the

stakeholder theory of Freeman (1984). Stakeholders are defined as the groups or individuals who can affect

or are affected by the achievement of the company‘s objectives or are those actors with a direct or indirect

interest in the company (Freeman, 1984, cited by Pérez & Rodríguez del Bosque, 2014).

In the pyramid of CSR, Carroll (1991) observed that ―all other business responsibilities are predicated

upon the economic responsibilities‖ (Carroll, 1991, p. 42). In this dimension, a firm needs to fulfill its

principal role which was to produce goods and services that satisfy customers‘ needs and wants, maximize

profits, earnings per share (Carroll, 1991). Besides, they also maintain a strong competitive position and

operating efficiency at high level (Lee & Lee, 2015). In the legal stage on the pyramid, business must

comply with the laws and regulations promulgated by federal, state and local government (Carroll, 1991).

Legal responsibilities are seen as coexisting with economic duties as fundamental precepts of the free

enterprise system (Carroll, 1991). In the next stage, organizations refer to fulfilled standards, norms, and

expectations that reflect concern for what stakeholders regard as fair, just, or in keeping with the respect or

protection of moral rights (Carroll, 1991). Carroll (1991) stated that in order to be ―a good corporate

citizen‖, firms need to fulfill philanthropic responsibilities (Carroll, 1991, p. 42). To meet the philanthropic


72

and charitable expectations of society, examples of philanthropy include sponsoring the fine and

performing arts, encourage managers and employees to participate in voluntary and charitable activities in

their local communities, provide assistance to private and public educational institutions, and support

projects that improve community‘s quality of life (Lee and Lee, 2015).

Source: Carroll (1991), p. 42

Figure 1. The Pyramid of Social Responsibility

According to previous studies about CSR, World Business Council for Sustainable Development

states about the duties of companies. They outline the business commit to act ethically and contribute to

economic development while improving the quality of life of the employees and their families as well as of

the local community and society at large (Bui, 2010).

2.2. “Ethical” consumers

To narrow the gap between consumer action and corporate accountability, the previous researchers

attach to studies on ethical consumer behavior which explore and explain attitudes and expectations of

consumers. The results of Bhattacharya and Sen (2004) indicate that consumers demand not only a

qualified product at a low price but also more out of corporations (Bui, 2010). Consumers expect

companies bring as many benefits as possible to the society, especially environment. A group of consumers

who are ―ethical‖ has emerged all over the world (Freestone & McGoldrick, 2008). Therefore, ethical and

social matters significantly influence purchasing process (Marin et al., 2009). There are three waves of

consumerism movements. The consumers of the first wave concentrated on the value of money, basic

product information, labeling, and consumers‘ choice (Bui, 2010). The consumers belonging to the second

wave tended to investigate product safety associated to CSR (Bui, 2010). In the third wave, implementing

environmental responsibilities and citizenship that include three components: animal welfare, the

environment and human rights; working conditions and fair-trade also have considerable influence on

consumer purchase behavior (Bui, 2010).

2.3. Buying Intention

CSR has an impact on consumers attitudes, buying intentions, consumer-company identification,

loyalty and satisfaction (Öberseder et al., 2013). Intention to buy is considered as the buyer‘s prediction of


73

which company they will select to buy (Nasermoadeli et al., 2013; Turney & Littman, 2003). There are

several concepts about the effects to buying intention of consumers. One of these factors is customer

experience which has significant influence. Consumer experience is thought as a reflection of real purchase

behaviour could recognize intention to buy (Nasermoadeli et al., 2013). Gentile el al. (2007) also take

interest in the effect of experience of consumer to purchase intention, these researchers stated that: The

customer experience originates from a set of interactions between customer and product, company or part

of its organization, which provoke a reaction. This experience is strictly personal and it also implies the

customers‘ involvement at different levels (rational, emotional, sensorial, physical, and spiritual) (Gentile et

al., 2007; LaSalle & Britton, 2003; Lemke et al., 2011; Shaw & Ivens, 2002). In the conceptualization of

experiential marketing, in the book experiential marketing: How to get customers to sense, feel, think, act,

and relate, Schmitt (1999) suggested that SEMs (Strategic Experiential Modules) include sensory

experiences (SENSE), affective experiences (FEEL), creative cognitive experiences (THINK), physical

experiences and entire lifestyles (ACT), and social-identity experiences that result from relating to a

reference group or culture (RELATE) (Liu & Stoel, 2013; Schmitt,1999). Gupta and Vajic (2000) also

realized that experience should involve learning during a period of time when the customers interact with

different elements of a context made by the service provider (Gupta & Vajic, 2000). Implementing CSR

programs is one way to create good conditions for potential customers and community in large company.

2.4. CSR performance and CSR perception in Vietnam

Since 2008, the concept of corporate social responsibility has been interested by academics and researchers. Most of the studies in this period of time aimed to evaluate dimensions of CSR and its effects on companies‘ operation. The findings of Ngo (2008) and Bui (2008) showed that CSR activities work out for several Vietnamese companies such as: increasing labor productivity and hence turnover, building a good image in the perception of customers, creating customer satisfaction and loyalty, and attracting skilled workers and talents for companies as well (Bui, 2010). Performing CSR programs plays an important role and brings about many benefits to organizations. However, the firms do not pay attention in the reasonable level and carry out all-sided social responsibility (Lê, 2013). This originates from insufficient perception of managers about CSR, they merged CSR with charitable activities (Lê, 2013). Over 10 years ago, the research of Mohr and Webb (2005) also gave similar findings which represent the lack of clear understanding of managers about what the public wants from them and how far they are expected to go toward helping their communities. Over 50% of interviewed consumers considered that main reasons make Vietnamese companies paying the little attention in CSR are lack of knowledge and lack of budget (Bui, 2010). To have a comprehensive view from both sides - organization and consumer, Nguyễn and Nguyễn (2013) employed in-depth interviews with managers and customers. This study indicates that most of firms have a sense of social responsibilities and customers feel that these firms‘ manifestations reflect through their attitude (Nguyễn & Nguyễn, 2013). From Vietnamese consumer perspective, their reaction as facing the social corporate responsibility issues is passive and weak in self-defense (Bui, 2010). The reasons were insufficient knowledge about CSR (Bui, 2010). In the interview, the customers answered that they do not know when referred the term CSR (Nguyễn and Nguyễn, 2013). Bui (2010) has the same suggestion as stated that ―the construct of CSR seems too abstract for consumers‖ (Bui 2010, p. 78). In practice, the consumers are lack of systematized knowledge about the responsibilities which organizations need to fulfill for the sake of the society. After listening to the explanation of what CSR is, the customers recognized that they have been joined at least 2 programs of the company (Nguyễn and Nguyễn, 2013). According to Bui (2010), in Vietnam, CSR awareness requires both basic academic background and working experience (Bui, 2010). Nguyễn and Lê (2014) exposed similar point of view that different awareness corresponds with different education level and occupations of customers. The findings from the study of Nguyễn & Lê (2014) is significant. There is difference between consumers‘ perception and companies‘ perception. The consumers‘ order is Political – Philanthropic – Ethical – Economic Responsibility while the order of the firms is Economic – Political – Ethical – Philanthropic dimension (Nguyễn and Lê, 2014). On the contrary, Bui (2010) asserted that the personal perception about CSR


74

constructed by Vietnamese consumers does not diverge from what is defined in the literature of Carroll‘s pyramid (Bui, 2010). About the benefits which CSR programs bring to corporations, the consumers in some studies have the similar opinion. They believe that companies want to implement CSR programs because of primarily improving their reputation and brand name, belief and satisfaction of customers (Bui, 2010; Nguyễn and Nguyễn, 2013).

3. METHODOLOGY

The researchers review literature about corporate responsibility especially in Vietnam, on the one hand, the authors can have a look on theories and contributions within the domain of knowledge. On the other hand, this study reviews several researches about CSR and consumers perception in Vietnam. Moreover, some critical questions also came up during this stage of research.

A semi-structured questionnaire has been designed in order to collect related information for analysis phase. The questions were structured in 3 parts. The first part asks respondents about their personal information such as name, age, gender, education, income, and marital status (see Appendix A). Secondly, their understandings about CSR as well as their comments for categories stated by Carroll (1991) are asked. Then, terms are provided and respondents are required to give thought of or guess about the meaning of these terms. Sometimes we show a short description to help participant understand about the terms to some extent this study also provide situation in order to understand clearly about consumers behavior. We also required them to prioritize those dimensions base on their understanding. The final part discusses factors which influenced their intention of purchasing and the role of CSR in their purchasing intention.

The questionnaire shows an effort to identify and explore consumers‘ perception about as well as the role of CSR regarding their buying intention. The structure of the questions help interviewers get data about consumers perception and make sure whether consumers really care about social issue or just thoughts which influenced by other factors.

This study employed quota sampling (30 participants) and convenient sampling techniques. These people are buying goods and thus qualified for the in-depth interviews. All respondents were recruited for the in-depth interview, and each interview lasted for 10-20 minutes about CSR and buying behaviors. Data were collected by 2 interviewers who acquired Master degree and are currently working as lecturers at universities. The interviews were carried out from September 17, 2015 to September 28, 2015 and valid for analysis. Table 1 summarized key characteristics of data of this report.

Table 1. Respondent Characteristics

Age cohort n % Income n %

20-30 13 43.3% < 4 million/month 8 26.7%

30-45 11 36.7% 4.1-10 million/month 16 53.3%

45-60 6 20.0% > 10 million/month 6 20.0%

Gender

Marital status

Male 12 40.0% Single 13 43.3%

Female 18 60.0% Married 17 56.7%

Education

High school and below 9 30.0%

Undergraduate 16 53.3%

Graduate 5 16.7%

Source: data acquired by authors


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Table 1 revealed a balance in gender and marital status and some unbalance in age, education and

income, due to some reasons. Firstly, in this research we want to focus on the age of 20-45 because this

range of age will last and the value of this paper would stay true to some extent for few more decades,

another reason is that they are more willing to share their thoughts and ideas so that authors can collect data

from them easier. Secondly, it is undeniable that the number of people who has higher education is less that

people who has undergraduate or low education in society; similarly the number of people who has low

and average income is more than that of the people who has high income in society. Therefore the sample

is qualified for analysis.

Creswell (2014) suggested 6 steps for data analysis in qualitative research. Firstly, the data should

be organized and prepared for analysis. Secondly, researchers should read and look through all the

data that could provide the general sense of the information and an opportunity to reflect on its overall

meaning. Thirdly, coding all the data where authors organize the data by bracketing chunks (and

writing a word representing a category in the margins). Fourthly, use the coding process to generate a

description of the setting or people as well as categories or themes for analysis. Fifthly, advance to

how the description and themes will be represented in the qualitative narrative. Finally, making an

interpretation in qualitative research of the findings or results.

After sampling stage, all data from interviews were transcribed, gathered, and then, consolidated into

tables in order to have an overview on data as a whole. For coding variables, the researchers read all the

transcripts and identified categories come up from reading, similar issues, or terms referring to the same

topic would be classified into themes and categories. Researchers discussed and agreed upon themes and

categories emerged from interview field notes and transcripts. All of these tasks can be considered as open

and axial coding process. During this step authors coded by hand based on all the transcripts and identified

the terms that were agreed among the authors. By using simulation cases, it would provide the guidelines

for researchers to identify whether respondent is in level one, two, or three and sometimes the assessments

were somewhat different from theirs.

Researchers worked together in order to propose models which illustrated what consumers think about

CSR and their expectations for corporations in Vietnam as well as how CSR influence their buying

decisions. While delineated these models, this report also quoted some statements from respondents‘

viewpoints, from which we can understand better about why Vietnamese consumers have those beliefs.

4. RESULTS AND DISCUSSIONS

4.1. What do consumers think about CSR?

Unsurprisingly, the first question about CSR revealed that some respondents recognized the term

CSR, some could not recognized this term unless interviewers provided some clues or guidelines to help

them guess the meaning of CSR. From which most of the participants who could understand the meaning

and described some aspects of CSR, acquired high education or experience for instance 16 over 30 people

heard about CSR, however, 15 people had bachelor degree or above and only 1 person was grade 12, but

she was 58 years old and worked as an accountant for a company before she retired (see Table 2). Similarly

all participants with high income (>10 million VND/month) had better understandings about CSR, they

could described nearly all of the aspects of CSR without any support. Therefore, not all of Vietnamese

consumers understand about CSR, or even have a full knowledge about CSR and their awareness or

perception might be influenced by education, experience and income, these factors should be examined in

another quantitative research.


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Table 2. Respondents’ Demographic and their Awareness

No. Gender Age Education Income

(VND/month) Occupation

Marital

status

Awareness

About

CSR

1 Female 42 Undergraduate 30 million Entrepreneur Married Yes

2 Male 33 Undergraduate >30 million Trade marketing Married Yes

3 Male 33 Undergraduate 30 million Engineer Married Yes

4 Female 39 Graduate >20 million Lecturer Married Yes

5 Male 32 Undergraduate >20 million Staff Single Yes

6 Male 34 Graduate 12 million Lecturer Single Yes

7 Female 58 Grade 12 10 million Housewife Married Yes

8 Female 30 Undergraduate 7.5 million Staff Married Yes

9 Female 24 Undergraduate 6 million Accountant Married Yes

10 Male 28 Graduate 5 million Lecturer Single Yes

11 Female 54 Undergraduate 5 million Staff Married Yes

12 Male 27 Graduate 4.5 million Staff Single Yes

13 Female 34 Undergraduate 4.3 million Accountant Married Yes

14 Female 27 Graduate 3 million Teaching

Assistant Single Yes

15 Female 24 Undergraduate 3 million Teaching

Assistant Single Yes

16 Male 21 Undergraduate 2 million Student Single Yes

17 Male 32 Undergraduate 10 million Banker Married Not yet

18 Female 53 Grade 2 10 million Vendor Married Not yet


20 Female 28 Grade 8 7.5 million Free lance Married Not yet


22 Female 26 Undergraduate 5 million Staff Single Not yet

23 Male 26 Undergraduate 4.4 million Staff Single Not yet

24 Female 33 Grade 9 4 million Security Married Not yet

25 Female 53 Grade 10 3.5 million Housewife Married Not yet

26 Female 46 Grade 9 3.5 million Laborer Married Not yet

27 Male 22 Undergraduate 3 million Student Single Not yet

28 Male 20 Undergraduate 3 million Student Single Not yet

29 Male 24 Undergraduate 2.4 million Free lance Single Not yet

30 Female 39 Grade 12 1.5 million Laborer Single Not yet

Source: data acquired by authors


77

Interestingly, most of the respondents can recognize ―CSR‖ via philanthropic activities but few of

them could show the name of company which involved those activities. Moreover, some of the participants

believed that firms carry out marketing campaigns for their own sakes; the others also suggested that firms

should not involve these activities unless they could protect the natural environment and cause no harm to

their customers as well as the community.

When respondents discussed ethical issues, most of them worried about corporations‘ practices toward

customers, environment and community. The most prominent topic was whether corporations in Vietnam

are cheating their consumers and there tend to buy consumer goods from sources that they know or the

ones that their friend referred to. They also worry about environment because it could influence their living,

hence, most of stated problems were related to consumers‘ benefits and living standard, and community

was taken into consideration later on.

Source: Modified from Carroll (1991)

Figure 2. The Pyramid of CSR from Vietnamese Consumer’s Perspective

Based on data from interviews researchers proposed a model similar to that of Carroll‘s pyramid but

under consumer‘s perspective (see Figure 2). In which the priority order is almost the same but economic

and legal responsibilities could be merged and considered as obligation. In fact, respondents could not

recognize these facets at the first time but rather with support from interviewers; sometimes respondents

consider these two facets as equally requirements for firms and believe that firms must finish this stage

before they can take any further action. For instance, one stated that “… doing business under regulations

is a must ….” To some extent this stage can be considered as obligation which is different from

responsibilities, “… I don’t think tax is responsibility, it should be obligation and firms have to fulfill their

obligation or they will be punished …” “… While responsibility is somewhat come from their

voluntary….” Thus, firms should complete this stage as long as customers still focus on ethical and

philanthropic issues where they can see and get benefits from it. “… there are 2 things that firms have to do

are doing business ethically and protect the environment ….” However most of respondents also suggested

that philanthropic activities should be left to large corporations or could be engaged in these activities after

accomplished level 1 and level 2 or they can satisfy the requirements for ethical business.

Most of respondents rated ethical responsibilities as the most important facet due to the fact that

recently. A lot of firms in Vietnam show poor practices and try to betray consumers. As a result, most of

respondents pointed out the ethical issues in all of corporations in Vietnam. Moreover, this stage is

somewhat the foundation for any further actions like philanthropic activities where firms focus too much

on but lack of the attentions to. Therefore, they doubt on any firm‘s event or contribution for the society,


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one respondent stated that “… I don’t believe that it could bring about the benefits to the society …,” “…

absolutely no…” or “… it is difficult to appraisal…” or “… it is difficult to recognize the purposes of

firms….”

Few respondents pointed out the role of government in social responsibilities. Not only corporates but

the government should also work together with firms to make better for the environment and community.

They also suggested the role of government in providing official information about corporations which

carry out CSR.

The communication channel that help consumers best understand about firms‘ activities are TV,

newspapers. Some suggested that firm should also provide their information via social network especially

for young people who spend much time surfing the internet.

4.2. Does CSR has impact on buying intention?

Most of respondents stated that quality, price and brand were the factors that influence their buying

process. However, the others also claimed that experience, image, reputation, promotion, and services

could be the factors which should be taken into account. According to some explanations about buying

intention, it is shown that CSR may have impact on image or reputation, which has indirect effects on

buying intention (see Figure 3). This also explained why CSR have least impact on buying intention. For

example one stated that “… philanthropic has no correlation to that of the quality of the product, but only

to enhance the image of company ….” Similarly, International Organization for Standardization (ISO) or

any related certificates have modest impact on buying intention, and most of consumers do not have full

understanding about these certificates or sign to show their efforts for quality and environment protection.

Consumers noted that sometimes they wanted to know about corporations philanthropic activities but

they did not care about them when they buy. They also thought that firms should keep engaging to those

activities. For example, one stated that “… I don’t care about firm’s social activities when I buy …” or “…

firm paying tax or not is not related to my shopping….” but when we asked them about should firm involve

these practices, he/she said “… I think firm should engage in these practices but depend on its size and

capability….” In most of the cases, consumers only care about their own benefits (for example quality,

price, and worries about being tricked) regarding certificates of quality such as ISO he/she said “…

certificates can be bought ….” Environment is usually regarded as the second concern (despite the fact that

this issue could affect their living or their family). Finally, the community was taken into consideration.

Source: Model developed by authors

Figure 3. The Indirect Impacts of CSR on Buying Intention


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There is possibility that CSR could link to different factors which affect buying intention. On one

hand, some respondents believe that philanthropic activities could result in an increasing of price in order to

compensate for these expenses for instance “….in think price will increase if they have more philanthropic

activities…” On the other hand image or reputation might be considered as component of brand equity to

some extent via brand associations (Aaker, 1991). These links should be examined in another research.

5. CONCLUSION

This research has shown an effort to understand the perception of Vietnamese consumers about CSR

and the impact of CSR on their buying intention. By analyzing data collected from in-depth interview, this

paper re-built the pyramid of CSR but under consumer‘s perspective, which show some differences from

that of the original model proposed by Carroll (1991). From this context, it is shown that consumers in

Vietnam claimed for the very basic needs of social responsibility that is firms‘ ethical practices.

The results of this report revealed that not all of consumers have ever heard about CSR or have a full

understanding of CSR. Consumers who have high education, experience and income might have better

understanding of CSR; this could be examined in future research. Regarding facets of CSR, consumers

only paid attention to ethical and philanthropic issues, the other two were considered as obligation.

Moreover, they expect to see more ethical practices from firms in Vietnam.

CSR had modest impact on buying intention; in fact, it had indirect impact on buying intention via

image or reputation. The CSR could enhance the image of existing consumers, therefore, this could not be

considered as direct factor for buying intention. There are possible links of CSR to brand and price due to

its widen meaning of practices affects.

There are several issues that need to be examined and tested in further research; for instance, the

impact of education, income, and experience on consumer perception about CSR. The need for better

model to describe fully about buying intention and the role of CSR toward buying intention, it is needed to

explore the links between CSR and brand or price and its mechanism to illustrate these impacts.

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Depicting Vietnamese’s Environmental Concerns through Responsible Consuming Behaviors – A Study in Ho Chi Minh City

Lai Van Tai and Le Thi Thanh Xuan

School of Industrial Management – Ho Chi Minh City University of Technology

Vietnam National University – Ho Chi Minh City

Email: [email protected], [email protected]

ABSTRACT

It is undeniable that our living and natural environment nowadays has been degraded due to irresponsibility of

human kind in production and consumption for a long time. Environmental pollution leads to climate change affecting

seriously to life of not only present people but also the next generations. The present study aims to explore

environmental concerns of Vietnamese consumers by employing and adjusting the scales developed by Robert (1995)

and Francois-Lecompte and Roberts (2006) as to consumer environmental responsibility and consumption volume.

Therefore, the questions need to be addressed include: (1) to empirically explore the level of socially responsible

concerns among Vietnamese consumers; (2) to explore the levels of environmental concerns of Vietnamese customers,

(3) to develop a demographic profile of customers and their levels of Socially Responsible Consumption (SRC)

concerns, and (4) to discuss managerial implications for businesses and for policy makers to increase consumers’

awareness of environmental protection through their consumption. The targeted respondents are consumers randomly

approached at stores, supermarkets, shopping malls, and traditional markets. There are some pivotal worthy issues

need to be discussed. Firstly, due to differences in culture and consumption behaviors, some items in the scales of

Robert (1995) and Francois-Lecompte and Robert (2006) do not work properly in Vietnamese context. Hence, it is

necessary to clarify some items to reflect Vietnamese consumers’ understanding. Secondly, there are significant

differences in perspectives of customers among demographic groups such as occupation groups, income groups, and

gender groups on environmental responsibility. It is very useful not only for businesses, but also for policy makers in

improving consumer environmental responsibility.

Key words: Socially responsible consumption, Customer environmental responsibility, Environmental concern,

Environment, Consumption

1. INTRODUCTION

The environment is the highly-concerned issue in recent years. The key reason is that our environment

has been daily exploited by our living, production, and consumption as those activities are mainly based on

natural resources and natural environment. In other words, production along with consumption are the main

sources of any environmental problems (Taufique, Siwar, Talib, & Chamhuri, 2014).

There are many studies on corporate environmental responsibility as scholars have argued that

businesses have to shoulder environmental protection. The arguments for these studies are based on the fact

that production is not only consuming and exploiting, but also destroying the environment (Ağan, Kuzey,

Acar, & Açıkgöz, 2014; Carrigan, Moraes, & Leek, 2011). Hence, environmental responsibility is usually

integrated into measures of corporate social responsibility to demonstrate for the pivotal roles of businesses

in environmental protection (Carrigan, et al., 2011; Cavaco & Crifo, 2014; Sitnikov & Bocean, 2013).

However, the roles of responsible consumption in environmental protection are less discussed and

under-researched (Wells, Ponting, & Peattie, 2010). Practitioners and scholars have just recently paid

attention on this issue. Many non-profit organizations, like Get Green Vietnam, have campaigned to guide

consumers how to purchase smart and responsibly; and to save the environment. In response to this issue,




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the present study aims to investigate levels of environmental concerns of Vietnamese consumers. The

research findings are to contribute to depict the overall awareness of Vietnamese consumers of the

environmental issue. Therefore, the objectives of the present study are: (1) to empirically explore the level

of socially responsible concerns among Vietnamese consumers; (2) to explore the levels of environmental

concerns of Vietnamese customers, (3) to develop a demographic profile of customers and their levels of

SRC concerns, and (4) to discuss managerial implications for businesses and for policy makers to increase

consumers‘ awareness of environmental protection through their consumption.

2. RESEARCH BACKGROUND

2.1. Socially Responsible Consumption (SRC)

Recently, consumption become synonym of environmental destruction and it leads to the reason of

understanding SRC as a willingness to help society and the environment better through consumption

behaviors (Pérez-Barea, Montero-Simó, & Araque-Padilla, 2015). There are many SRC definitions;

however, the very first one documented by Webster in 1975 is with two main issues (Francois-Lecompte &

Roberts, 2006; Özçaglar-Toulouse, 2009). Firstly, consumers concern about public consequences due to

his/her consumption. Secondly, they want to make some changes in society by their purchasing power.

Mohr, Webb et al. (2001) identify socially responsible consumers by actions of avoiding buying

products/services from companies that harm society and actively seeking out ones from companies that

help society. Similarly, Díaz-méndez (2010) highlighted that SRC is a buying decision based on product‘s

origin, manufacturing process, labour working conditions, environmental impact, and manufacturer‘s social

responsibility. Later, Pedrini and Ferri (2014) also defined SRC as consumers‘ considerations of social and

environmental implications related to their purchasing decisions.

Among SRC definitions, the one developed by Roberts (1995), which is employed and cited in many

other empirical studies (Francois-Lecompte & Roberts, 2006; Gonzalez, Korchia, Menuet, & Urbain, 2009;

Lebzar, Sidmou, & Jahidi, 2012; Roberts, 1995), can be considered as the most-used SRC definition. In his

study, Roberts (1995) defines SRC as consumer behaviors taking into account the impact on the

environment of private consumption decisions or using purchasing power to express current social

concerns.

2.2. Customer Environmental Responsibility (CER)

There are different ways to define Customer environmental responsibility (hereafter called CER). Any

activities in consumption creating benefits or less damage to the environment can be considered as

customer environmental responsibility (Taufique et al., 2014). Many researchers, such as Crosby, Gill, and

Taylor (1981), defined CER as strong positive attitude towards preserving the environment; or Zimmer,

Stafford and Stafford (1994) defined CER as feelings about many different green issues (cited in Taufique,

et al., 2014). And, the actions of CER include awareness of environmental problems, knowledge of the

environment, skills to pursue some specific actions, and possessions to act (Stone et al 1995, cited in

Taufique, et al., 2014).

Studies on environmental responsibility has employed interchangeably various terms, like green

consumption, ethical consumption, ecological consumption, and sustainable consumption. There are many

approaches to discuss about environmental responsibility. It is so frequent that 3R‘s scheme (e.g. reducing,

reusing, and recycling) has been mentioned to refer to attitudes and behaviors towards environment

(Carrete, Castaño, Felix, Centeno, & González, 2012). In this scheme, from consumption perspective,

reducing means that customers eliminate their consumption as much as possible. Reusing is used to explain

the idea of using a product/an object more than once, and recycling suggests to applying a process to a

product/an object to be used again.


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Pro-environmental and ecologically friendly behaviors are usually mentioned along with the history of

―environmental responsibility‖ development (Carrete, et al., 2012). Pro-environmental behavior is to

describe actions/activities of any individuals or groups to protect the environment. However, they also

argued that, reducing should not be so extreme, as it will have a bad impact on the economy and

employment. Furthermore, sustainable consumption/behaviors is also used and considered as CER. From

this point of view, interestingly, if reducing requires too much water, power, and generates pollution, it

should be encouraged in consumption.

Many studies, such as those of Taufique et al. (2014), Kozar & Hiller Connell (2013) reviewed and

made a synthesis of all possible factors and measurement scales to study environmental responsibility. The

shared point in their review is that environmental concern and environmental knowledge of consumers are

keys for their behaviors and responsibility towards the environment. In their study, Kozar & Hiller Connell

(2013) examined and found that, consumer having more knowledge about environmental issues will have

more positive environmental responsibility. This echoes with the review and the findings in the study of

Pagiaslis & Krontalis (2014). Similarly, the result of reviewing literature in the study of Taufique et al.

(2014) showed that environmental concerns is a function of customers‘ responsible attitudes and behaviors.

In many studies on socially responsible consumption (SRC), CER is one of dimensions to measure

and evaluate SRC (Chen & Kong, 2009; Francois-Lecompte & Roberts, 2006; Roberts, 1995; Webb,

Mohr, & Harris, 2008). Even though CER is only a part of SRC, many studies use SRC and CER

interchangeably.

2.3. Measures of socially responsible consumption

Even though the concept SRC is mentioned and studied from 1975, the measures of SRC have not

been properly developed. Many scales are borrowed from sociology, therefore, they do not have items

related to consumer behavior and not well suited in marketing and management context (Francois-

Lecompte & Roberts, 2006). Moreover, Francois-Lecompte and Robert (2006) also point out that SRC is

only put in the context of environmental context.

Roberts (1995) developed a measurement of SRC. However, he also considered environmental issue

as a part of the scale to assess SRC. Importantly, Roberts stood on marketing perspective to approach to

CER concept. There are questions in this study about customers‘ perceptions and attitudes of recycling,

reusing, reducing, and eliminating pollution. The remaining part of the scale is to evaluate customers‘

purchasing behaviors in a responsible way.

In their study, Mohr, Webb et al. (2001) conducted a qualitative study to develop items to measure

SRC. Their research findings suggested 5 items. However, it needs to be tested quantitatively and

developed sub-items for SRC studies. Among studies conducted in developing countries, a study conducted

in China by Chen and Kong (2009) developed and used a scale of 7 items to measure SRC. However, the

process of developing these items is not described clearly to illustrate their reliability.

Haws, Winterich et al. (2014) also developed and test a scale to measure green consumption

behaviors. This scale aims to measure consumption behaviors of customers through their concern on

environmental protection. Even though SRC also includes issues on the environment, this scale is not

appropriate to study SRC.

In their study conducted in France, Francois-Lecompte and Robert (2006) developed a scale of 5

factors to measure SRC, including firms‘ behavior with 5 factors, cause-related products with 4 items,

small businesses with 4 items, geographic origin with 4 items, and consumption volume with 3 items. This

20 item-scale is developed by qualitative study with methods to collect data like in-depth interview, focus

group. Then, this measurement is confirmed by a quantitative study. From the literature, empirical studies

employ this measurement to conduct their research (Gonzalez, et al., 2009; Pérez-Barea, et al., 2015).


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For the purpose of investigating consumers‘ environmental concerns through responsible consumption

behaviors, the present study employs the scale developed by Francois-Lecompte and Robert (2006) to base

on. Furthermore, the part of CER in SRC questionnaire of Roberts (1995) is also added to the measurement

to properly explore the environmental concerns of Vietnamese customers.

3. METHODOLOGY

As discussed above, the concept of socially responsible consumption has been measured and tested in

many studies in different countries and markets. However, it has not achieved the consciousness of

researchers about concept and its measurement scale. Even measurement scale used suggested by Francois-

Lecompte and Roberts have received a great concern and used in many studies, their findings also show

different conclusions and suggestions on adjusting the scales for most suitable with the circumstance of the

research. Importantly, the scales using to measure environmental issues have been used separately with the

other types of SRC.

In this research, we aim to explore the level of socially responsible concerns of Vietnamese customers

and have more focus on environmental aspect. Besides, the present study also aims at analyzing the

behaviors of customers in different demographic groups of customers. Base on that, the questionnaire has

been constructed and used for the case of Vietnam. Due to a limit of time and resource, the survey is

conducted in Ho Chi Minh city only. As discussed above, this study employs the questions of CER in SRC

questionnaire Roberts (1995) and items of consumption volume in that of Francois-Lecompte & Roberts

(2006). These items are developed in France and U.S.A – advanced economies, in which consumers have a

big difference in consumption behaviors and standards from their counterparts in an emerging one, like

Vietnam. Due to this reason, a focus group was conducted in order to revise the items to be more

appropriate to Vietnamese customers.

A focus group with a structured questionnaire is conducted. Based on this focus group discussion, the

measurement scales in the questionnaire have been adjusted to be best understood in the situation of

Vietnam. Participants in the focus group are 6 customers, including 3 men and 3 women at the age from 22

to 30. Two of them are university students, two are officers, one is an engineer and the last one is a

manager. Their incomes range from 3 to 20 million VND. The questionnaire formed from Roberts (1995)

and Francois-Lecompte & Roberts (2006) were delivered to the participants in order to discuss question by

question.

There are 6 factors in the questionnaire. The first - Firm behavior is about consumption act related to

irresponsible corporate behaviors, such as disrespectful attitude towards employees, harmful attitude to the

environment, links with reprehensible organizations, child labor forces, etc. The second - Cause-related

product represents the preference for cause-related products including purchases that help underprivileged

persons, inhabitants and so on. The third - Small business expresses customers‘ desire to help and support

small businesses. The fourth - Geographical origin is to describe the purchasing of French or European

products. The fifth - Consumption volume is about to reduce one‘s consumption to what is only necessary

due to global environmental concern. And, the last – Environmental issues is to express customers‘ desire

to protect the environment through their consuming behaviors.

According to the result of the focus group, items in Cause-related product, Small Business,

Consumption volume and Environmental issues are not changed. In Firm Behavior, item ―I try not to buy

products from companies or shoppers that are narrowly linked to political parties that I condemn‖ is

removed from the questionnaire because there is only Communist Party in Vietnam. In Geographical

Origin, item ―When I have the choice between European products and a non-European product, I choose

the European product‖ is changed to ―I, between Vietnam and foreign products, choose the local product to

buy‖; and ―I buy preferably French cars‖ is changed to ―I buy preferably Vietnamese products (like

cosmetics…)‖. The other two items are not changed.


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FB1. I do not buy products from companies that are narrowly illegal.

FB2. I do not buy products from companies that employ children.

FB3. I do not buy products from companies that don‘t respect their employees.

FB4. I do not buy products from companies that strongly harm the environment.

CRP1. I buy products transferring a humanitarian cause into price.

CRP2. I buy products of which part of the price goes to developing the country.

CRP3. I buy products of which part of the price is given to a good cause.

CRP4. I buy fair trade products.

SB1. I avoid doing all my shopping in big businesses (large retailers).

SB2. I buy in small businesses as often as possible (small shopkeepers).

SB3. I help the storekeepers of my quarter to live through my purchases.

SB4. I go to small markets to support fruits and vegetables small producers.

GO1. I, between Vietnam and foreign products, choose the local product to buy.

GO2. I buy preferably Vietnamese products (like cosmetics…).

GO3. I buy fruits and vegetables made in Vietnam.

GO4. I buy products made in my country – Vietnam.

CV1. I try to reduce my consumption to what I really need.

CV2. In a general manner, I try to reduce my consumption.

CV3. I try not to buy objects that I can do by myself.

ENV1. I have purchased products because they less pollution.

ENV2. I always make a conscious effort to buy those products that are low in pollutants.

ENV3. When having to choose between two equal products, I always purchase less harmful to environment one.

ENV4. I do not buy the product if it is potential harm to environment.

ENV5. I used to convince members of my family and friends do not buy products which are

harmful to environment.

ENV6. I normally make a conscious effort to limit my use of products that are made from or use

scarce resources.

ENV7. To reduce our reliance on foreign oil and environmental pollution, I drive my

car/motorcycle as little as possible.

ENV8. I try only to buy paper products (such as paper, notebooks, towels, tissues,…) that make by

recycled one.

ENV9. I try only to buy products that can be recycled.

ENV10. I learn some methods to recycle my household trash at home.

ENV11. I buy products packaged in reusable containers whenever possible.

ENV12. I use and encourage my family to use a low-phosphate detergent for laundry.


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ENV13. I do not buy products packaging by an aerosol containers.

ENV14. I do not buy household products that harm the environment.

A Likert scale with 5 levels of agree or not agree is used to measure these variables in the scale. A

pilot survey has been taken to revise the questionnaire before using it for a final survey. The convenience

sample of 268 customers has been selected at supermarkets, convenient stores, traditional markets, book

stores, shopping malls, etc. in Ho Chi Minh City participating in this survey. After cleaning and deleting

missing cases, the final data of 253 respondents has been used for the analysis. The Principle component

method with Promax rotation in exploratory factor analysis (EFA technique) are used to adapt to the

method used in the study of Francois-Lecompte (2006). Before applying the EFA method, the reliability of

the scales has been tested by using Cronbach‘s alpha criteria, it should be at least 0.6 to be accepted

(Nunnally, 1994). Then, EFA technique is applied with data exploration and variable reduction steps. The

EFA process is accepted with the threshold of KMO measure higher than 0.5 and Bartlett's Test of

Sphericity significant at 5%, Eigen values must be larger than 1, factor loadings of each variable should be

at least 0.5 and no any cross-loading that is different more than 0.3 (Hair, Tatham, Anderson, Black, &

Babin, 2006). Besides, the differences between groups of customer distinguished by demographic variables

are considered by ANOVA analysis.

The revised questionnaire includes the following items:

4. RESEARCH FINDINGS

There are 148 men taking 58.5% of total 253 customers participating in the research. This is not much

ideally reflecting the real fact of customers in traditional culture of Vietnam while female usually take the

role of housewife in the household due to the limitation of sampling method. However, it should be also

admitted that men have been participated more in buying activities and more open about showing their

attitude on consumption.

The survey is conducted on consumers who are over 18 to ensure that they all understand and have

awareness of their consumption activities. It is divided into 3 groups which are 18-23, 24-31, and above 31

with proportion of 27%, 63%, and 10%, respectively. Regarding income, about 35% people have income

level less than 5 million VND per month, 45% of them earns from 5 million VND to 10 million VND per

month, and the remaining 20% get higher than 10 million per month. With regard to the occupation of

interviewees, the highest proportion is office staff with 48%, the next one is student accounting for 29%,

manager takes the third high proportion with 10%, and the others including housekeeper, worker, and

engineer get about 4-5 percent each.

The results in Table 1 has shown that almost variables have average value less than 4 to show that

people slightly concern on social responsible consumption. Vietnamese consumers seem to give highest

concern on Cause-related product variables and least concern on Small business support and Firm

behavior variables. That could be explained for the case of Vietnam now when the harmful and cheap

products especially food and other kinds of consumer products that could cause serious diseases for users

being so popular and threatening the sustainable and healthy life of human kind. Meanwhile, the

information system still not develop, information about firm behavior is not available or almost unreliable.

Lacking of information and consuming cheap harmful products for a long time, consumers become more

careful on consumption behavior. Therefore, consumers who have enough condition and knowledge try

their best to defense themselves by finding products from large well known organizations to consume.

Besides, with series of political issues relating to the rights of taking over East Sea area, Vietnamese

customers give more concern for national defense matters and are more ready to support to the government

via consumption activities; they are adapting well to the callings and campaigns from the government

especially for the calling in supporting for Truong Sa and Hoang Sa.


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Table 1. Statistical Description of the Measurement

Mean Median Mode Variance Min Max

FB1. I do not buy products from companies that are

narrowly illegal. 3.48 4.00 3 1.195 1 5

FB2. I do not buy products from companies that

employ children 3.51 3.00 3 1.005 1 5

FB3. I do not buy products from companies that don‘t

respect their employees 3.33 3.00 3 1.039 1 5

FB4. I do not buy products from companies that

strongly harm the environment 3.47 3.00 3 1.274 1 5

CRP1. I buy products transferring a humanitarian

cause into price 4.03 4.00 4 1.015 1 5

CRP2. I buy products of which part of the price goes

to developing the country. 4.03 4.00 4 .674 1 5

CRP3. I buy products of which part of the price is

given to a good cause. 3.87 4.00 4 .768 1 5

CRP4. I buy fair trade products 3.80 4.00 4 .709 1 5

SB1. I avoid doing all my shopping in big businesses

(large retailers). 3.40 3.00 3 .867 1 5

SB2. I buy in small businesses as often as possible

(small shopkeepers). 3.08 3.00 3 1.157 1 5

SB3. I help the storekeepers of my quarter to live

through my purchases. 3.44 3.00 3 .565 1 5

SB4. I go to small markets to support fruits and

vegetables small producers. 3.40 3.00 3 .638 1 5

GO1. Between Vietnam and foreign products, I

choose the local product to buy 3.60 4.00 4 .899 1 5

GO2. I buy preferably Vietnamese products (like

cosmetics…). 3.53 4.00 4 .988 1 5

GO3. I buy fruits and vegetables made in Vietnam. 3.91 4.00 4 .681 2 5

GO4. I buy products made in my country – Vietnam. 3.73 4.00 4 .683 1 5

CV1 - I try to reduce my consumption to what I really

need 3.66 4.00 4 .830 2 5

CV2 - In a general manner, I try to reduce my

consumption 3.37 3.00 3 .932 1 5

CV3 - I try not to buy objects that I can do by myself 3.59 4.00 4 .822 1 5

ENV1 - I have purchased products because they less

pollution 3.72 4.00 4 .935 1 5

ENV2 - I always make a conscious effort to buy those

product that are low in pollutants 3.81 4.00 4 .990 1 5


88

ENV3 - between two equal products, I always

purchase less harmful to environment one 3.66 4.00 4 1.060 1 5

ENV4 - I do not buy the product if it is potential harm

to environment 3.72 4.00 4 1.046 1 5

ENV5 – I convince members of family or friends not

to buy harmful products to environment 3.58 4.00 4 .799 1 5

ENV6 – I effort to limit my use of products that are

made or use scarce resources 3.72 4.00 4 .756 1 5

ENV7 - I drive my car/motorcycle as little as possible 3.37 3.00 4 .868 1 5

ENV8 - I try only to buy paper products making from

recycle one 3.55 4.00 3 .899 1 5

ENV9 - I try only to buy products that can be

recycled 3.50 4.00 4 .775 1 5

ENV10 - I learn some methods to recycle my

household trash at home 3.51 4.00 3 1.013 1 5

ENV11 - I buy products packaged in reusable

containers whenever possible 3.45 3.00 3 .716 1 5

ENV12 - I use and encourage my family to use a low-

phosphate detergent 3.55 4.00 4 .876 1 5

ENV13 - I do not buy products of aerosol containers 3.51 4.00 4 .759 2 5

ENV14 - I do not buy household products that harm

the environment 3.55 4.00 4 .669 1 5

Almost variables in the environmental factor are slightly skew to the left and reach about 3.5

averagely, this also show that customers give not enough concern for environment issues. That is partly due

to lack of knowledge and information which prevent them from behaving in such responsible manner. In

more details, EVN7 (I drive my cars/motorcycles as little as possible) seems to have a least concern for the

lowest score among the variables measuring environmental issues, or ENV11 (I buy products packaged in

reusable containers whenever possible) receives a second lowest score. Those have shown that behaviors of

Vietnam customers on their consumption habit, especially when we also know that the price of petroleum

in Vietnam is higher than that in neighbor countries. This contributes to degrading living environment,

climate change and its serious consequence later on.

After taking reliability test by using Cronbach‘s alpha, all satisfied factors and variables are used for

factor analysis. The principle component analysis with Promax rotation method is applied in this case to

adapt to scales that have been developed by Lecompte and Francois. The KMO measure and Bartlett's Test

of Sphericity are good and satisfy for the condition of EFA on the first running time, 8 factors have been

combined, however, some variables in environment factor have low loading or face with cross loading

problems. The deletion of unsatisfied variables has been taken step by step and the final analyzing step

which satisfies all tests and conditions gives the result of 5 factors with KMO measure 0.782 and Bartlett‘s

test of Sphericity significant at 0%, Total variance explain at 65.877. Within 6 groups of variables at the

beginning, the variables about Consumption volume and Environmental issues have been combined to

measure in a same dimension of socially responsible consumption. The final result is presented in table 2.


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Table 2. Factor Analysis Results

Pattern Matrixa

Component

1 2 3 4 5

CV3 - I try not to buy objects that I can do by myself .811

ENV8 - I try only to buy paper products making from recycle one .749

CV1 - I try to reduce my consumption to what I really need .710

ENV4 – I do not buy the product if it is potential harm to environment .701

ENV14 - I do not buy household products that harm the environment .694

ENV13 - I do not buy products of aerosol containers .657

ENV7 - I drive my car/motorcycle as little as possible .656

CV2 - In a general manner, I try to reduce my consumption .640

ENV12 - I use and encourage my family to use a low-phosphate

detergent .640

FB1. I do not buy products from companies that are narrowly illegal. .888

FB3. I do not buy products from companies that don‘t respect their

employees .879

FB2. I do not buy products from companies that employ children .878

FB4. I do not buy products from companies that strongly harm the

environment .721

GO1. Between Vietnam and foreign products, I choose the local product

to buy .853

GO4. I buy products made in my country – Vietnam. .853

GO2. I buy preferably Vietnamese products (like cosmetics…). .814

GO3. I buy fruits and vegetables made in Vietnam. .309 .706

SB1. I avoid doing all my shopping in big businesses (large retailers). .829

SB4. I go to small markets to support fruits and vegetables small

producers. .824

SB3. I help the storekeepers of my quarter to live through my purchases. .313 .743

CRP3. I buy products of which part of the price is given to a good cause. .878

CRP4. I buy fair trade products .766

CRP2. I buy products of which part of the price goes to developing the

country. .754

Extraction Method: Principal Component Analysis

Rotation Method: Promax with Kaiser Normalization

a. Rotation converged in 6 iterations.


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Variables describing Consumption volume have been combined with variables of Environmental

factor to be named Green consumption and explain 24 percent of variation on responsible consumption

behaviors. This could be considered as the most important factor in measuring SRC for Vietnam case. All

three variables about Consumption volume are load high in this factor, however, some variables in

environmental issue are low loading or deal with cross loading problems and then should be deleted

gradually from EFA process, they include ENV1, ENV2, ENV3, ENV5, ENV6, ENV9, ENV10, and

ENV11 – among them, 4 variables are mentioned about causing harm to environment, one variable is about

using scare resource (EVN6), and the other 3 measure behaviors of recycle products. The remaining

variables in final factor still have one representative in those aspects; therefore, it is acceptable to measure

all aspects of the behavior on the environment. The final combination of these variables has been tested for

reliability by Cronbach‘s alpha value which is satisfied at 0.869. The sequence of variables in this factor

has changed differently from origin model. CV3 is now taking the most important role with highest loading

at 0.81, and then comes to the group of ENV8, CV1 and ENV4 that load above 0.7. The ENV13, ENV7,

CV2, and ENV12 take a lowest position in order with factor loading slightly higher than 0.64 for the last

two variables.

Firm behavior keeps in same factor which takes the second important role in this model of Francois

and Lecompte (2006). Even though there is a small switching in the sequence of FB2 and FB3 in compare

with the old model, they all load at high rate and get 0.877 in the Cronbach‘s alpha for reliable test.

The variables of Geographical origin take a third position role in explaining the variation of the data

in measuring socially responsible consumption. With very high loading for all 4 variables, this factor is

reliable with Cronbach‘s alpha value of 0.841. There is small different with the result of Francois and

Lecompte (2006) when the sequence of variables have a bit change with GO4 takes the second highest

loading level in this factor.

The Small business support variables also have high loading level however they are not same as the

original scale using for France case. The SB2 is deleted from this factor due to low loading and loading rate

of SB4 also higher than SB3 in this case. This factor is also reliable at 0.757 of Cronbach‘s alpha.

The least important factor is Cause-related product which includes 3 variables CRP2, CRP3, and

CRP4. They all load higher than 0.75 and satisfy reliable test with Cronbach‘s Alpha 0.783. Only variable

CRP1 is not load good in this case and has been deleted from this factor.

When analyzing the different perspective between groups of demographic customers on each factor of

SCR, the value of each factor has been calculated by taking average value of items belong to the factors.

ANOVA analysis has been taken and tested for the mean difference between groups at 95% confidence

level. The result has been shown that customers in the occupation groups and income groups show a

statistical significant different between groups in almost factors of SRC. Gender also shows a significantly

difference in factor Geographic origin of product; and the age characteristic of customer is not significant

at 5% but it is significant at 10% for two factors Geographic origin and Environmental issues. In other

words, Firm behavior seems not different between groups of demographic customers and it receives low

rating at 3.45 averagely, even though from the result of EFA this factor has shown to be the second best

important factor in measuring SRC. By contrast, Geographic origin has got high average score and

achieved high level of confidence in analyzing the different between almost groups of demographic.

Environmental factor also presents significant differences between groups of demographics except gender

groups. The remaining factors including Geographic origin factor, small business support factor, and

caused-related product factor satisfy the test of mean difference among groups on two characteristics which

are groups of income and groups of occupation.

For factors making differences between demographic groups, women seem gives higher concern on

SRC factors than men; besides, middle income group who has income in range of 5-10 Million VND per

month shows higher concern on SRC than the other groups, while high income group present a lowest


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concern on environmental issue and small business support factor. With regards to occupation groups,

manager shows a highest concern among groups on Geographic origin and Cause-related product but

gives very low concern on Small business support and Environment issues. In reverse situation, office staff

presents as the top group concerning on Environmental factor and being also the second highest one in

Cause-related product and Small business support. Housekeepers are different; they pay their concern

highest on Small business support. It is due to their habit of consumption in trying to buy from nearby

shops. Engineer is a special case when giving lowest concern in all aspects of SRC with mean value less

than 3 which is lower than average score.

5. DISCUSSION AND CONCLUDING REMARKS

The research aims to evaluate levels of environmental concerns through responsible consumption

behaviors of Vietnamese consumers. To address the research purpose, the measurement scales construct by

Robert (1995) about environmental responsibility of consumers and Francois- Lecompte and Robert (2006)

about other socially responsible consumption are employed and adjusted for the context in Vietnam. There

are some worthy points from the research findings need to be discussed.

First, the result has shown that two groups of measurement scales - the variables measuring

Environment issues in Roberts (1995) have merged with Consumption volume in Francois-Lecompte and

Robert (2006) - has combined together to form a new factor to measure consumers‘ responsibility on

environment issues. The new factor is named Green consumption. Some items about the environmental

issues in the scale of Robert (1996) are not suitable for the case of Vietnam due to differences in living

condition and culture. In particular, lacking of information and knowledge about product and consumption

are the vital reasons affecting the answers of customers, especially environmental factor. Therefore, the

result could not be same as the research in France, 8 variables from environment group do not achieve uni-

dimension and be deleted out of the factor. Finally, Green consumption (formed by a combination of

Consumption volume and Environmental issues) include 9 items. All items are about protecting the

environment through consumption. This point can be considered as the main way to explore consumers‘

concerns of the environment.

Secondly, in order to deeply explore the reason of this inappropriateness in the scales of SRC and the

environment, a focus group with 6 respondents is conducted. Almost people agree that consumer have

improved their attitude of environmental protection recently when taking consumption activities. The

reason is that series of campaigns of protecting the environment by the government as well as so many

issues on food and health make people become so careful when buying products. However, this trend is

limited to ones who have enough money and condition as well as information when taking consumption

activities.

Taking Geographic origin factor as an example for that when information about harmful product from

Chinese which could have serious effects on health of people in a long time, people pay more attention to

the origin of products, especially women who are usually key persons taking care of house jobs and

cooking activities. Furthermore, Firm behavior does not receive much concern of consumers due to the fact

that the information system is not clear. With low income level, people are easy to accept and incur bad

behavior from enterprise to earn for living and this situation taken place for a long time, therefore, people

become not giving much care about firm behavior when taking consumption activities.

Thirdly, regarding to differences between demographic groups, one of research findings of the present

study echoes with that in the study of Wells, et al. (2010). In both studies, women show their concerns of

SRC higher than their counterparts. Analyzing differences among occupations is not conducted in any

previous studies, but in the present study. Management jobs and office-staffs show their higher concern of

the environment factor and some others in SRC. This could be explained by their working conditions

providing them with more information.


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6. IMPLICATION AND LIMITATION

Even though some factors in the measure of Francois-Lecompte and Roberts (2006) are still strange to

Vietnamese customers, it is also useful to improve their thinking and awareness of SRC, especially of the

environmental responsibility. On the one hand, this contributes to increase their social responsible

awareness when performing consuming behavior in the future. On the other hand, businesses may improve

their performance to adapt to new requirements from customer.

For policy makers, regarding to environmental issues, the results in measurement scales have also

shown the behavior of Vietnamese in consumption. The fact that so many variables have been deleted from

this factor presents that people do not consensus on their behavior that causing harmful to the environment

as well as not give much concern on recycle products. It has become habit and affected consumption

behaviors. The government should run more campaigns in training and guiding people having better habit

in consumption. Besides, the government should also improve the information system, announcing cases

that having environment problems for people become easier in making a choice. The boycott behaviors

after the scandal of Vedan in 2008 have shown that, if having enough information, Vietnamese consumers

will have better consumption behaviors. Therefore, besides training people as consumers having better

responsibility consumption, the government should have a better information system and more serious

policies in managing, checking and pushing enterprises in fulfilling their social responsibility.

With the responsibility of consumer on CRP factor, although getting the highest score from customer,

the convergence of this factor is not high. Correlation between variable is loosen in some cases and it ranks

last in EFA. Recently, the government and many other organizations have run many campaigns calling for

―giving a higher price for other social support‖ or ―giving a thousand VND for the poor when you buy this

product,‖ etc. Although these campaigns received attention and concern from people, customers still do not

act as they think. That is partly due to lack of information, a not so high belief of consumer on these

campaigns, and living condition which is not high enough. Thus, the variables in this factor could not

receive high consensus and focus together when people answer these questions. Therefore, they should be

adjusted to be more suitable for Vietnamese context. This point is also valuable lessons for enterprises to

adjust their marketing campaign when running such social activities.

The Geographic origin factor receives the second highest concern and the variables also load high.

This factor could be considered as suitable one to measure SRC in Vietnamese context. The reason is that

people have recently cared much due to series of serious health problems from unsafe foods. As mentioned

above, this could be the consequence of threat and danger brought about by some products from China as

well as the campaign of government with slogan of ―Vietnamese consume Vietnamese products‖. People

understand and react well with this factor. The government should focus on this to increase the SRC of

customer and Vietnam companies should benefit this chance to develop and improve their business. In

particular, they should concentrate on women, managers, and staff who show that they are ready to

encourage Vietnamese firms.

Moreover, companies should grant same concern to firms’ behavior, the second factor in the list of

factors after EFA even the score of variables in this factor is not as high as that of demographic origin

factor. Meanwhile, the government should improve the information system to deliver more information

about firms to the customers to help them making a better decision on consumption and having a chance to

improve their SRC.

For Small business support factor, the average score is not high and there are not significant different

between mean values of demographic groups as analyzing in ANOVA analysis above. Beside the reason of

low income as mentioned above, small businesses have still not created prestige in doing business and

customers do not trust in them due to low quality or expensive products. This also an alert for them in

changing their performance and improve themselves to pull customer.


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Even though this study finds some noteworthy outcomes, it also suffers some limitations. Firstly, due

to the limited knowledge and information, the employed scale may not adapt well with Vietnamese

consumers‘ perspectives; and something they understand as SRC are not included in the questionnaire and

vice a versa. That is the reason, in some cases, respondents tried completing the questionnaire without

properly understanding. This limitation is also mentioned in the study of Roberts (1995). Therefore, it is

necessary to conduct a qualitative study to explore constructs to measure SRC in Vietnamese context.

Secondly, the survey is conducted in Ho Chi Minh City only. Consequently, the findings cannot be

generalized for Vietnamese market. Further studies can be conducted and collected data in many other

areas in Vietnam to have a better understanding of Vietnamese customers‘ awareness of SRC.

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Environmental Impact Assessment for Sustainable Development through Public Participation in Vietnam

Nguyen Thi Anh

Doctoral student of International and Business Law Department,

Graduate School of International Social Sciences - Yokohama National University, Japan.


ABSTRACT

Vietnam has paid many environmental costs for economic growth, significantly since 198621

. The conflicts

between the economic growth and the environmental protection activities for a good living environment in the

environmental management in Vietnam have emerged. Hence, environmental impact assessment (EIA) was officially

introduced as the useful tool for promoting sustainable development in legal documents and for ensuring the

environmental rights. Concurrently, to harmonize the benefits among proponent, the public and decision-makers in

EIA process, public participation shall be formally provided as a vital component. However, public participation in

Vietnam’s EIA process, in general, is the only instrument because of the weakness in regulations and lack of

awareness and expertise among the public. Although there have been significant improvements in the EIA policy

framework, theory and practice relating to public participation remain some problematic matters. The analysis shows

that public opinions have not been considered carefully. Based on this, it is concluded that the role of public

participation in Vietnam’s EIA process is not valued appropriately. Consequently, EIA practice in Vietnam may not

serve as a tool to promote sustainable development.

Keywords: Public participation, sustainable development, EIA, Vietnam

1. INTRODUCTION

The United Nations Conference on the Human Environment at Stockholm from 5 to 16 June 1972

proclaimed that ―man is both creature and moulder of his environment.‖ ―Both aspects of man's

environment, the natural and the man-made, are essential to his well-being and to the enjoyment of basic

human rights the right to life itself. The protection and improvement of the human environment is a major

issue which affects the well-being of peoples and economic development throughout the world‖ (United-

Nations, 1972). With the urgent aim of promoting public participation in environmental as well as

implementing the Stockholm Conference in 1972, the United Nations Conference on Environment and

Development at Rio de Janeiro from 3 to 14 June 1992 proclaimed again that ―human beings are at the

center of concerns for sustainable development‖ (United-Nations, 1992). Particularly, the 10th principle of

this Rio Declaration 199222

was the cornerstone of public participation for sustainable development.

Public participation in decision-making process has been aroused for a long time in line with

democratic theory (Creighton, 2005; Ebbesson, 2012; Gilpin, 1995; Pateman, 1976). Concurrently, recent

21 In Vietnam, since 1986, the ―Doi-moi‖ policy (all-round renovation process) was launched with the priority being given to

economic reform for creating a multi-sector market economy regulated by the Government. 22 The 10th principle of the Rio Declaration 1992: ―Environmental issues are best handled with the participation of all concerned

citizens, at the relevant level. At the national level, each individual shall have appropriate access to information concerning the

environment that is held by public authorities, including information on hazardous materials and activities in their communities,

and the opportunity to participate in decision-making processes. States shall facilitate and encourage public awareness and

participation by making information widely available. Effective access to judicial and administrative proceedings, including

redress and remedy, shall be provided‖



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literature on EIA and related decision-making process often focus on analyzing the issue of public

participation and explaining the concept of public participation in the context of EIA (Creighton, 2005;

Doelle & Sinclair, 2006; Ebbesson, 2009; Glucker, Driessen, Kolhoff, & Runhaar, 2013; Hughes, 1998;

Kurukulasuriya & Robinson, 2006; O'Faircheallaigh, 2010; Stern et al., 2008). As being a central tool of

sustainable development, some authors do focus on EIA processes in which the public engaged early

(Bruhn-Tysk & Eklund, 2002; Doelle & Sinclair, 2006; Popovic, 1992; Wilkins, 2003).

However, depending on the country-specific context, the implementation of legal documents

providing on public participation in EIA process will be diverse remarkably. In Vietnam, the Economic Renovation Policy (the Doi Moi policy) established in December 1986 marked the transition from a

centrally planned economy to a socialist-oriented market economy with varied forms of ownership and economic sectors. These reforms contributed to an impressive performance in the last two decades-since

1990 the annual GDP growth has exceed 7 percent and per capita income has dramatically increased more than three-fold (World Bank, 2014). Although the evolution of industrialization and modernization of the

economy has achieved significant development, the drawbacks of this progress remaining are the environmental pollution and degradation seriously.

23 Hence, to assure economic growth and environmental

protection with the emphasis of public participation in the decision-making process for sustainable

development is an emergency action. Sustainable development refers to the formal process in which the development can help keep pace with rigorous needs that emerge at the present time without causing any

harm to the likelihood of future generations‘ satisfaction such needs on the basis of sustaining a close and harmonious cooperation amongst the economic growth, social progress and environmental protection

(Vietnam's-National-Assembly, 2014). One of the main tools for sustainable development is EIA firstly provided in Law on Environment Protection (hereinafter referred to as LEP) in 1993 and continuously in

LEP 2005 and LEP 2014.

To develop sustainably, the consensus among the developers, the responsible authorities and the

public is the most importance. If the project design stage is only discussed between project developers, the goals for sustainable development shall be not met (Bruhn-Tysk & Eklund, 2002). Hence, the aim of this

paper is to discuss how public participation in EIA can be a new approach for sustainable development. This paper analyses the flow of information to see whether the information can smoothly flow among the

developer, the responsible authorities and the public to ensure the sustainable development goals.

In Vietnam, the specific requirements for EIA were formally established in the first LEP 1993

(Vietnam's-National-Assembly, 1993) but there were some significant drawbacks, notably lack of transparency and public participation (Clausen, Vu, & Pedrono, 2011). However, the major adjustments of

the LEP 2005 and 2014 were set to mitigate the shortcomings of LEP 1993, such as providing the public participation in EIA process. The consultation to be required in the EIA process would help to minimize the

adverse impacts on the environment and human beings, socio-economic growth, culture and ensure the

sustainable development. To further emphasize the importance of public participation, the LEP 2014 (Vietnam's-National-Assembly, 2014) provided the consultation to be required in the process of the EIA as

follows: ―Project owners are obliged to consult with regulatory agencies, organizations and communities that are directly affected by the project.‖

However, LEP 2014 gave the only one general article providing public participation in EIA process. Consequently, Decree No.18/2015/ND-CP adopted on February 14, 2015 by Vietnamese Government

presented the environmental protection planning, strategic environmental assessment, environmental impact assessment and environmental protection plan and came into effect on April 1, 2015. This Decree

Corresponding Author: +81 070 1424 1403

Email address: [email protected] 23 Nguyen Minh Trang, The relationship between economic development and environmental degradation in Vietnam, retrieved at:

http://www.cese-m.eu/cesem/2015/04/the-relationship-between-economic-development-and-environmental-degradation-in-

vietnam/


http://www.cese-m.eu/cesem/2015/04/the-relationship-between-economic-development-and-environmental-degradation-in-vietnam/

http://www.cese-m.eu/cesem/2015/04/the-relationship-between-economic-development-and-environmental-degradation-in-vietnam/


97

provided more details of how to consult with the stakeholders and who will participate in EIA process. The

EIA process with the public participation is illustrated in the Figure 1 as follows:

Figure 1. EIA Process in Vietnam (LEP 2014)

2. WHAT IS PUBLIC PARTICIPATION IN THE CONTEXT OF EIA SYSTEM?

At a glance, recent literature on EIA and related decision-making process often focus on analyzing the

issue of public participation and explaining the concept of public participation in the context of EIA

(Creighton, 2005; Doelle & Sinclair, 2006; Ebbesson, 2009; Glucker et al., 2013; Hughes, 1998;

Kurukulasuriya & Robinson, 2006; O'Faircheallaigh, 2010; Stern et al., 2008). Pateman cited some

definitions of participation in some sectors, such as enterprise, industry and politics (Pateman, 1976).

According to Pateman, in many cases, participation is left undefined or if a definition is offered, it is

somewhat vague (Pateman, 1976). Each scholar gives the notion of public participation, depending on the

research objectives of ones or even, in many cases, authors talk about public participation without defining

it (Glucker et al., 2013).

However, few researchers still want to answer the question of what public participation is in the

context of EIA. For example, to focus on the redistribution of power as an key element, Arnstein perceives

that ―citizen participation is a categorical term for citizen power‖ and ―the have-nots can be shared on the

Proponent notifies local authorities of approval of EIA report

Verification authority notifies proponent of decision (approval or rejection

of the EIA report) within 20 days

Verification authority reviews EIA report and convenes EIA verification

Committee to determine (from 30 days to 45 days depending on kind of

projects)

EIA report is submitted to appropriate verification authority

Articles 23, 24 LEP 2014 and Article 14 Decree 18/2015/ND-CP

EIA report with reference to requirements of Article 22 LEP 2014

Consultation with People‘s Committee of communes and organizations,

communities by writing request or public meeting

The project owner shall conduct EIA himself or hire an advisory

organization to conduct EIA

Article 19 LEP 2014 and Decree 18/2015/ND-CP

Screening

Article 14 LEP 2014 and Annex 2 Decree 18/2015/ND-CP


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benefits of the affluent society‖ (Arnstein, 1969). Following this line of thinking, Bishop and Davis (2002)

also emphasize that ―participation is only meaningful when it involves a real transfer of power from

government to citizens‖ (Bishop & Davis, 2002). If the absolute power belongs to the king or one person,

namely in the monarchical countries, the public shall need to receive the transfer of this power from the

king. However, in democratic countries, the state power belonging to the public is the fundamental

principle in the constitution. Correspondingly, in those countries, participation is the basic right of the

public in democracy. The government shall need to facilitate better public participation in the decision-

making process.

According to European Commission, ―effective public participation in the taking of decisions enables

the public to express, and the decision-maker to take account of, opinions and concerns which may be

relevant to those decisions, thereby increasing the accountability and transparency of the decision-making

process and contributing to public awareness of environmental issues and support for the decisions taken‖

(EC, 2003). Like this idea, World Bank asserts explicitly that ―participation is a process through which

stakeholders influence and share control over development initiatives and the decisions and resources

which affect them‖ (World Bank, 1996). According to Stern et al. (2008), ―public participation includes

any of a variety of mechanisms and processes used to involve and draw on members of the public or their

representatives in the activities of public or private-sector organizations that are engaged in informing or

making environmental assessments or decisions‖ (Stern et al., 2008). Another concept of public

participation is that, in 40 CFR 25.3 (b), ―public participation is that part of the decision-making process

through which responsible officials become aware of public attitudes by providing ample opportunity for

interested and affected parties to communicate their views.‖ (United States Environmental Protection

Agency, 2002). This view implies that public participation means to provide input in the making of

decisions.

The above illustration of notion of public participation clearly displays that public participation is an

important process in decision-making. In a simple conclusion, in the context of EIA process, public

participation explains about the democracy, empower, and flow of information as some cores of the

definition to get the consensus on the final decisions. Thus, public participation in EIA process is defined

here as the environmental information exchange process through which the public actively receives and

clearly understands the proposed project‘s information to give the valuable and constructive opinions as

well as fully share knowledge among the public, the proponent and the responsible authorities to

completely reach a consensus in EIA report.

3. ANALYSIS OF PUBLIC PARTICIPATION IN VIETNAMESE EIA SYSTEM FOR

SUSTAINABLE DEVELOPMENT

Implementation of EIA provisions depends on socio-economic development, political system and the public awareness across countries. Public participation in Vietnam‘s EIA system was also conducted with

the assistance and under the compulsory requirements of Asian Development Bank (ADB), World Bank (WB), Japan International Cooperation Agency (JICA). EIA for all funded projects must comply with not

only the Vietnamese legislations but also with the requirements of those international organizations (ADB, 2003). This experience with public participation in the EIA of projects funded by international bodies

displayed the value of public input in making decisions that have to balance the needs of the environment and development (Zhang et al., 2012). To recognize the essential role of public participation in sustainable

development, Vietnamese government supported the establishment of public participation mechanisms, encouraged the public to participate in EIA process, and provided ―public participation‖ being a mandatory

component of the EIA report (Vietnam's-National-Assembly, 1993, 2005, 2014). In practice, analyzing the effectiveness of public participation plays a key role in EIA literature (Del Furia & Wallace-Jones, 2000).

However, when examining the effectiveness of public participation in Vietnamese EIA process, there are

some matters emerged requiring more analysis as follows:


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Firstly, the role of public opinion in Vietnam‘s EIA process is not valued appropriately.

Understanding of how important public participation in EIA process is will change the awareness of policy-

makers significantly. In theory, public participation reflects an expansive notion of democracy where the involvement of citizens is considered not only as furthering selfish interests, but also as contributing to

promoting public environmental interests (Ebbesson, 2012). Democracy is increasingly seen as a continuous and dynamic process in which governments carry ultimate responsibility but only with the most

careful public scrutiny (Gilpin, 1995). Some scholars argue that public participation will take public time-consuming and costs to participate in the decision-making process (Del Furia & Wallace-Jones, 2000;

Gilpin, 1995). However, public participation can enhance legitimacy, the quality of decisions and even the democratic quality of society (Ebbesson, 2012).

In addition, public participation in EIA shall help participants develop their citizenship skills and also make participants with an opportunity exercise citizenship actively (Glucker et al., 2013). Hence,

participation is ―of value in its own right‖ (O'Faircheallaigh, 2010) and people can develop their full potential as citizens when they participate in the work of governance (O'Faircheallaigh, 2010). Thus, public

participation is both rights and duties inseparably.

In Vietnam, to give an impulse to economic development, the program of the industrialization and

modernization of the economy has been carried out from the late of 1980s. As the results, Vietnamese government and public authorities occasionally fail to consider essential environmental concerns,

increasing the conflicts between the economic benefits and the demand for a good living environment. To

harmonize this conflict, government should greatly facilitate citizens to give opinions in the decision-making process. However, the right of access to information is not carried out fully, accurately and on time

in EIA process. People receive information passively (one-way flow of information) leading to the impacts on the quality of the public opinions. Proponent should recognize that both the quality of EIA report and

the success of the project will increase through public participation as well as the proponent shall get a higher level of consensus to the project, avoiding environmental dispute in the future (Del Furia &

Wallace-Jones, 2000). Because of ―their in-depth knowledge of the nature resources, climate, biodiversity, indigenous people have a particularly important role to play in environmental monitoring and

distinguishing project-related changes from natural changes in the environment‖ (Stevenson, 1996).

In Vietnam‘s EIA process, public participation is the process of informing and consultation. It means

that negotiation among the authorities, proponents and stakeholders is rarely occurred in reality. In spite of

having the consultation, public concerns and feedbacks remain vague extremely that whether these

opinions will be taken into account in EIA report or not. As Arnstein mentioned that it looked like a

―window-dressing ritual‖ (Arnstein, 1969). In theory, proponents just disclose the mandatory information.

Both authorities and proponents would like to give as little information as they can because they want to

have the smooth EIA process. The more information is disclosed the more complex proponents can get.

Thus, it is inevitable to provide the more detailed provisions relating to the proponent‘s responsibilities to

disclose information in the legal documents. According to current legal documents in Vietnam, the

completely dominant way used for consulting citizens is public meeting, resulting in some significant

drawbacks analyzed in the next paragraphs.

Secondly, who should participate in EIA process in Vietnam? ―The public‖ ―stakeholders‖ and

―citizens‖ are not the new terms in EIA literature, but there is still no strong consensus about ―who are

participants?‖ (Glucker et al., 2013). A clear understanding of who ―the public‖ is and what their interests

are is essential not only to the recognition of the benefits of participation in general but to the design of

specific activities (Petts, 2009). Some scholars still argue that who should participate (Doelle & Sinclair,

2006; Popovic, 1992; Stern et al., 2008). In addition, the Aarhus convention gives the definitions of ―the

public‖ and ―the public concerned‖. ―The public‖ means one or more natural or legal persons, and, in

accordance with national legislation or practice, their associations, organizations or groups. ―The public

concerned‖ means the public affected or likely to be affected by, or having an interest in, the environmental


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decision-making; for the purposes of this definition, non-governmental organizations promoting

environmental protection and meeting any requirements under national law shall be deemed to have an

interest24

. Any member of the public and/or their representations must be granted the right of access to

environmental information and the right to submit comments. Following this line of thinking, in the context

of environmental decision making, the public encompasses all of interested and affected parties, such as:

stakeholders, directly affected public, observing public and general public (Stern et al., 2008). This is

mainly due to the fact that people need to know about the actual ―how‖ of using common pool resources

and public goods. The mutual agreement between the public and the developers is needed when using

public goods (such as stable climate, fresh air, or the ozone layer) and common pool resources (soil, water,

oil). Public goods are traditionally defined as being both non-rival and non-excludable in consumption.

Common pool resources are rivalrous but non-excludible in consumption (Petersen, 2015). Thus, if the

investors carry out the specific projects which have adverse impacts on the environmental components,

such as public goods and common pool resources, the public will obviously have the rights to know about

these projects and to voice opinions for the sustainable development goals.

However, unlike the above analysis, in Vietnam, according to Decree 18/2015/ND-CP, proponent has to consult the opinion of (i) the People‘s Committee of communes, wards and towns, and (ii) organizations or community under the direct impact of the project. Community meeting co-chaired by project owner and the People‘s Committee of the commune where the project is carried out together with the participation of representatives of Vietnamese Fatherland Front of communes, socio-political organizations, socio-professional organizations, neighborhoods, villages convened by the People‘s Committee of the commune shall be held to collect the opinions for completing the EIA report. There are some shortcomings existing in the Decree No.18/2015/ND-CP as follows:

- The participants are limited in the EIA process. This will exclude the groups having an interest in the project and/or the groups will be likely affected by the project. Additionally, environmentalists and experts will not have a chance to voice an opinion if they live outside of direct affected areas of the project. As a result, participants in EIA process will encompass not only stakeholders but also the general public. This is a reasonable suggestion because Vietnam‘s state is of the people, by the people and for the people (Vietnam's-National-Assembly, 2013). Additionally, the effects of the project shall rapidly spread to the project‘s area and even larger areas.

- Furthermore, the representatives of mentioned entities which will be directly affected by the project shall attend the public meeting. There is no provision of how to choose the representatives for the communities and what their responsibilities are. For example, when river reclamation by pouring tons of rocks and soil into the river to make land for building a residential area, the large-scale projects will affect thousands of people and families living in both riversides, how many the representatives for the communities are there in this case? The case of the Dong Nai riverside residential project will be analyzed later to illustrate this drawback.

- When the public disagree with the contents of EIA report after consultation meeting, there is no provision of whether proponent will answer to the public opinion or not. We expect greater transparency and accountability from the developers. If lacking this provision, the dispute between the proponent and citizens will emerge quickly. Sometimes, it makes the project slack or suspended and inactive. Even, proponent will squander the money and time to carry out the previous stages of the EIA process.

Thirdly, the public awareness of environmental rights is still an unsolvable problem, resulting in poor decisions. The public shall not be well-equipped to participate (Alan Gilpin, 1995) in the EIA process. In Vietnam, people constantly ignore the participation in EIA process – because there is not a company in practice – and they merely concern the adverse impacts when the specific project is carried out in reality. Many companies have to confront with the rejection from local people although the responsible authority

24 United Nations, The Aarhus Convention: an implementation guide, United Nations Economic Commission for Europe, first

edition 2000, Second edition 2014


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already approved the EIA report. When the project owner makes a public consultation for EIA report, people tend to neglect the right to access to environmental information and the right to participate in the environmental decision-making because of lack of understanding and knowledge of EIA report and others relevant environmental matters. Hence, environmental education and training is necessary for promoting public participation (Popovic, 1992).

To have an effective public participation in Vietnamese EIA process, government should consider some above shortcomings and research some proper criteria. According to Furia and Wallace, the effectiveness of public participation in relation to the four factors as those which contribute to effective public participation in EIA (Del Furia & Wallace-Jones, 2000), as follows:

(i) The nature of the public involved (the wider the better);

(ii) The amount of power the public is attributed in the EIA procedure and related decision-making

process by the inherent nature of the techniques and methods used (the higher the better, but the

public must be equipped for the power);

(iii) When the public are involved in the procedure (the earlier the better, as well as throughout the

process);

(iv) The ability to ―manage‖ conflict.

4. THE CASE OF THE DONG NAI RIVERSIDE RESIDENTIAL PROJECT: INADEQUATE

PUBLIC PARTICIPATION AND LACK OF PRINCIPLES OF SUSTAINABLE

DEVELOPMENT

The Toan Thinh Phat Investment Architecture and Construction Joint Stock Company is the owner of

the Dong Nai riverside residential project begun in September 2014 with total investment of more than

US$148.8 million. The project would have involved pouring tons of rocks and sand into the Dong Nai river

to make land for a residential area. Because of the large scale (8.4ha), the owner had to elaborate EIA

report. The authorities already approved the project‘s EIA report. However, after only 6 months, on March

28, 2015 the project's investor decided to suspend construction following waves of criticism from scientists,

experts and residents because of the poor quality of the EIA report. This paper just merely analyzes the

implementation of public participation in the project‘s EIA process.

According to Viet Nam River Network, the EIA report also had not considered the other 11 provinces

located on the Dong Nai river basin, which would also be affected by significant changes in the river. River

reclamation project, especially such a large area, would critically interfere with the river's hydrology and

ecology as well as the local economy and society. The project will definitely cause a big change to the

river's water flow, leading to regional land erosion, block floodwater, and increase of pollution. Millions of

HCM City residents are expected to face a shortage of clean water, as their supply is pumped from the river

near where the project is based25

. There is the picture of the project area via satellite.

25 Vietnamnews, (2015, May 14) ―Save the Dong Nai River: experts‖. Retrieved from:

http://vietnamnews.vn/environment/270259/save-the-dong-nai-river-experts.html

Vietnamnews, (2015, May 27) ―Dong Nai project report is ‗scientifically baseless'‖. Retrieved from:

http://vietnamnews.vn/environment/270887/dong-nai-project-report-is-%E2%80%98scientifically-baseless.html

http://vietnamnews.vn/environment/270259/save-the-dong-nai-river-experts.html

http://vietnamnews.vn/environment/270887/dong-nai-project-report-is-%E2%80%98scientifically-baseless.html


102

Figure 2. The Picture of the Project Area via Satellite (Retrieved from https://www.google.com/maps/)

Dong Nai river runs through 6 provinces, including Ho Chi Minh City, and supplies water to nearly 20

million people. However, the project‘s EIA report contained a meager and inadequate opinion of 20

households in the work area (located in Quyet Thang ward).26

It is not worthy to say that twenty

households might represent thousands of people to give valuable opinions. This means that the developer

has not carefully considered other impacted areas and public opinions as well as indigenous knowledge

being a key role in input information process.

Considering the environmental information exchange process among investor and local people should

be important to evaluate public participation in project‘s EIA process27

(Table 1).

Table 1. Public Participation in Project’s EIA Process: the Dong Nai Riverside Residential Project Case

Stage in procedure Public

participation

Form of public

participation

The way of

information Instigator

Screening Yes Public meeting One-way flow of

information

Quyet Thang People‘s

Committee

Scoping No No No

EIA report

preparation Limited

28 No

One-way flow of

information The investor

Post-EIA and EIA

implementation Yes Public meeting

One-way flow of

information The investor

The main problem of this project‘s EIA process was that public participation was ineffective and the

responsible authorities did approve the final EIA report without public scrutiny. In the EIA process, the

proponent ignored the reality that public knowledge and public opinion are the important elements for

sustainable development. The proponent just interpreted the project‘s information to serve their purposes

rather than to focus on effort to understand and address public concerns. The lack of the proponent‘s

responsibilities and the lack of environmental awareness of public are the obstacles for environmental

protection and sustainability as well as the project‘s implementation. Thus, the Dong Nai riverside

residential project was already suspended in reality after 6 months of implementation.

26 Chi Ngan, Ng.Nga (2015, March 27): ―Dong Nai: violating laws‖, thanhnien. Retrieved from

http://www.thanhnien.com.vn/kinh-te/dong-nai-vi-pham-hang-loat-cac-quy-dinh-phap-luat-545387.html 27 ―Dong Nai housing project should be cancelled: VRN‖. Retrieved from:

http://vietnamnews.vn/environment/268054/dong-nai-housing-project-should-be-cancelled-vrn.html 28 Retrieved from: http://www.vncold.vn/Modules/CMS/Upload/10/PhatTrienNuoc/150516/ 4VuNgoc Long2.pdf.

http://www.thanhnien.com.vn/kinh-te/dong-nai-vi-pham-hang-loat-cac-quy-dinh-phap-luat-545387.html

http://vietnamnews.vn/environment/268054/dong-nai-housing-project-should-be-cancelled-vrn.html


103

The reasons that public participation is not meeting the goals are clearly not because of a lack of laws

and policies on public participation in EIA process. The problems are with implementation of existing laws

and the vague provisions mentioned above. Because of lack of consensus among investor and stakeholders,

not only the owner of the Dong Nai riverside residential project should lose money and time but also the

stakeholders would also worry about the environmental and social impacts of the tons of rock and sand

poured into the Dong Nai river. If this project‘s investor has fulfilled their responsibilities on the

implementation of public participation, the new alternatives or/and possible locations would be identified.

5. CONCLUSIONS

Public participation plays a key role not only in the policy-making process but also the EIA process in

each country. The evaluation of public participation in Vietnam‘s EIA process shows the current positive

and negative provisions existing in Vietnamese legal system. Although LEP 2014 was adopted with some

advances, a gap between theory and practice of public participation in EIA has significantly remained.

Overcoming the limitations of public participation challenges the stakeholders involved in EIA process.

Apart from improved legal framework, public participation still needs some factors to make it successful,

including the public awareness, the responsibilities of stakeholders and the stable political system. If the

public is effectively engaged in the EIA within a good legal framework, the decisions made will reflect

public concerns and consensus can be completely achieved in practice for sustainable development.

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Developing Strategic Corporate Social Responsibility Initiatives to Enhance Brand Reputation in the Case of Vietnam

Tran Viet Hung Ho Chi Minh City Open University

Email:[email protected]

ABSTRACT:

This paper illustrates three Vietnamese corporations applying strategic Corporate Social Responsibility (CSR) initiatives to build their brand reputation. By examining these cases, the author would like to prove that a sustained CSR initiative should be a good fit of company core business, values, and target audiences.

Three selective Vietnamese companies in this research are Hoa Sen Group, Trung Nguyen Group, and Honda Vietnam. These CSR initiatives will be analysed based on strategic CSR approach such as (1) relevance to the core business and company value,(2) impact with key target audiences, and (3)other criteria. Data have been collected from company website, and newspapers.

Keywords: CSR initiatives, Brand reputation, Vietnam

1. INTRODUCTION

Corporate Social Responsibility (CSR) is a management concept whereby companies take into account the interest of society and the environment in their business operations and interactions with their stakeholders (Unido, 2015; Szczanowicz and Saniuk, 2014). In practice, CSR has been perceived as motivation mainly by marketing purposes (Lantos, 2001). CSR is also seen as a form of insurance for the company such as chemical or energy, in the hope that its reputation will temper public criticism in the event of a crisis (Porter and Kramer, 2006).

The CSR literature identifies several reasons why companies engage in CSR practices. These include to (1) bolster the organization public image, (2) meet needs or pressures from key external stakeholders, (3) be in alignment with industry or community expectations, (4) protect itself from legal threats, (5) provide a source of motivation for employees, and (6) achieve a marketing advantage or other direct economic impacts (Milliman, Ferguson and Sylvester, 2008).

No matter what CSR motivations are, it is costly for corporations to invest their CSR initiatives (Hung, Ramasamy and Lee, 2010; Porter and Kramer, 2006). Therefore, it is quite important for organizations to think a strategic approach to apply CSR practices (Porter and Kramer, 2006). This paper will illustrate three Vietnamese corporations developing a successful CSR strategy to build their brand reputation.

1.1 The Evolution of CSR concept

The concept of CSR began to be interested in 1960, and it was regarded as an expense on philanthropy whose aim was returning profits to the society (Bosch-Badia, Montllor-Serrats and Tarrazon, 2013). However, this concept was criticized by Friedman with his famous article entitled ―The Social Responsibility of Business is to Increase its Profits,‖ and social issues are the province of the state, not the corporation (Friedman, 1970, cited in Claydon, 2011).

The main argument against Friedman‘s criticism has come from Freeman with his stakeholders‘ theory. He claims that corporate governance does not only take into account shareholders‘ interests, but also the interests of other stakeholders such as employees, customers, suppliers, and communities that directly affected by corporate actions (Freeman, 1984, cited in Claydon, 2011).


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However, stakeholder theory is not descriptive enough because it proposes solely how a company

should act, rather than reflecting how companies do act (Claydon, 2011). In order to emphasise the

importance of businesses responding to all aspects of the social world, Carroll (1991) proposed a four-part

comprehensive model of the ‗‗Pyramid of CSR‘‘ including: economic, legal, ethical and philanthropic.

This model helps corporation structure their responsibilities.

The last step of the CSR evolution is the thought of Porter and Kramer (2006) about the concept of

shared value. They argued that successful companies need a healthy society. For example, education, health

care, and equal opportunities are essential to a productive workforce. These authors also pointed out the

distinction between responsive CSR and strategic CSR. The former is addressed to returning profits to

society. The latter is addressed to identifying societal problems that companies could contribute to solve

and, as a consequence, create value simultaneously for society as well as their shareholders.

1.2 A strategic CSR approach

The fundamental problem with CSR practice is that companies usually do not have a CSR strategy,

but rather numerous disparate CSR programs and initiatives. This is because companies are called to be a

good citizen that addresses hundreds of social issues.

However, only a few represent opportunities to make a real difference to society or to confer a

competitive advantage (Porter & Kramer, 2006). Therefore, companies should make their choices carefully

and explain what they stand for, how corporate responsibility is carried out, and how people benefit from

such actions.

In addition, CSR is not easy for the public to comprehend, according to Sheikh and Beise-Zee (2011).

This is because CSR is an abstract concept and more complex mainly due to the diversity of the area of

social responsibility. Therefore, the authors confirm that focusing on specific social issues is often desirable

for effective communication, and enhances the public‘s receptiveness to a firm‘s public relations efforts.

In order to help organization implement a strategic CSR, Milliman et al. (2008) suggest the following

five-step process:

(1) Scoping the organization‘s environment at ways that the firms can translate societal issues which

impact it into some type of a corporate advantage.

(2) Development of an expanded menu of CSR program options to create corporate opportunities

associated with these societal issues.

(3) Careful analysis of strategic CSR program options based on consideration of economic and,

societal impacts as well as other relevant organizational variables.

(4) Implementation of the selected strategic CSR program option which often involves coordination

with other organizations and sectors.

(5) Measuring both the economic, social outcomes, and reporting results within the organization and

to key stakeholders.

1.3 Brand reputation and CSR:

Brand is a known identity of organizations in terms of what products and services they offer. The

primary purpose of brands is to provide customers a symbolic meaning that assists them in the recognition

and decision-making process (Milewicz, and Herbig, 1994). Additionally, brand provides consumers with

expectations of what the company will deliver (Argenti, and Druckenmiller, 2004).

When customers get what they expect from a company over and over again, the brand promise is kept,

and company‘s reputation is strengthened. This is because reputation is the estimation based on the


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company‘s willingness and ability to perform repeatedly an activity in a similar fashion (Milewicz, and

Herbig, 1994).

In recent years, organizations have recognized the importance of their reputation to achieve business

goals. The reason is that corporation reputation is key competitive advantage in markets where product

differentiation is difficult (Husted and Allen, 2007, cited in Khojastehpour, and Johns, 2014). For example,

consumers could rely on company reputation to buy products when facing lack of information (Schinietz

and Epstein 2005, cited in Hur, Kim, and Woo, 2014).

In the past, corporations are often advised to enhance their reputation by focusing on customer

orientation, design or provide products with better quality, according to Khojastehpour and Johns (2014).

However, their study recently shows that environmental CSR issues might benefit corporations in building

their reputation. In addition, many researchers demonstrate that CSR initiatives lead to high levels of

corporate reputation (Hur, Kim, and Woo, 2014).

1.4 Vietnamese context and three case studies

Vietnamese context

Located in the centre of South East Asia, Vietnamese culture reflects a mixture of local culture, the

Chinese influenced culture, and the Western influenced culture (Nguyen, and Mujtaba, 2011; Thang et al.,

2007). Referring to its GDP per person, Vietnam is regarded as a lower middle income country with

income per capita of over $2,000 by the end of 2014 (World Bank, 2015).

For several developing country firms, a common approach to CSR has been to engage in philanthropic

activities (Chambers et al., 2003, cited in Hung et al., 2010). This might be explained by their roots in the

respective culture, or the mindset of these firms considering the CSR activities involving a large capital

outlay without much return, according to Hung et al. (2010).

Hoa Sen Group Background

Up to now, Hoa Sen Group has about VND 1,008 billion of charter capital and nearly 3,700

employees since its establishment in 2001. Currently, Hoa Sen Steel Sheet has affirmed its number one

position in domestic market share. Their products also have been exported to 52 countries and territories

around the world: Southeast Asia, West Asia, Middle-East, East Africa, West Asia, South America, and

Australia (Hoa Sen Group, 2015).

Hoa Sen Group defines clearly its core value: integrity, community, and development. They also share

their business philosophy as the following:

Products‘ quality is the focus

Customers‘ benefit is the key

Employees‘ income is the responsibility

Sharing with community is the obligation

One of their successful CSR initiatives has been the name of ―Tỏa Sáng Nghị Lực Việt‖ since 2013.

Trung Nguyen Group Background

Established in 1996 in Buon Ma Thuot City – the capital of Vietnamese coffee, Trung Nguyen is

a business group involved in the production, processing and distribution of coffee. Its coffee is the number

one brand in Vietnam with the largest number of coffee consumers. In addition, their products are exported

to over 60 countries around the world: US, Canada, Russian, Germany, Japan, China, and ASEAN (Trung

Nguyen Group, 2015).


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Along with producing and processing coffee beans, Trung Nguyen operates a nationwide chain of

coffee shops as well as franchises globally to distribute its products. With the slogan: ―Explore creative

inspiration,‖ Trung Nguyen won the love of consumers across the country for its intense passion for coffee.

Furthermore, the company establish its Singapore office to conquer the world market.

The company has developed its CSR initiative, namely ―Sáng Tạo Vì Khát Vọng Việt‖ since 2012.

Honda Vietnam Background

In 1998, Honda Vietnam inaugurated its first motorcycle manufacturing plant in Vinh Phuc province.

Ten years later, a second motorbike factory was built to make Honda Vietnam becoming one of the biggest

motorcycles factories in the world. The total production capacity of the two plants is 1.5 million motor

vehicles per year (Honda Vietnam, 2015).

Honda Vietnam is not only known as a motorcycle manufacturer but also the prestigious automobile

manufacturers in Vietnam market with capacity: 10,000 units per year. Automotive manufacturing plants

are equipped with machinery and equipment similar to Honda plants in other countries with special criteria

focused on quality, safety and environmental friendliness.

More than ten years, Vietnamese people, particularly television viewers have been familiar with the

program ―Tôi Yêu Việt Nam‖ which is the CSR initiative of Honda Vietnam.

Research method:

In this research, a case study method is exploited due to several reasons. Firstly, CSR is an abstract

concept, and has a diversity of the area of social responsibility (Sheikh and Beise-Zee, 2011), so it is quite

difficult to construct an econometric model to explain why and how organizations developing their CSR

activities in a certain way.

Secondly, the case study method is often conducted in countries with sample bases too small for using statistical generalization (Chetty, 1996; Daniels and Cannice, 2004, cited in Vissak, 2010). In the case of Viet Nam, it might be seen that there are not too much companies running their CSR programs that researchers could make a contact.

Finally, case study data can be collected from multiple sources such as: business papers, journals, annual reports, archival records, and the case company‘s website (Vissak, 2010). This is extremely helpful for researchers to get more understand about the complex phenomenon.

2. DISCUSSION

This part will analyse three case studies based on a strategic CSR approach from literature review above. By opting for a particular CSR initiative, companies presumably aim to address specific stakeholder concerns and meet stakeholder expectations.

It could be seen that traffic accident is a daily obsession for Vietnamese people. Focussing on this problem, Honda Vietnam has chosen safety driving as their CSR initiative since 2004. This CSR topic is significantly related to their core products. In the second case, Trung Nguyen Group supports the cause ―Sáng Tạo Vì Khát Vọng Việt‖. This CSR initiative helps Trung Nguyen to connect more easily with their core customers, particularly young people. In addition, this cause is also more relevant with their strategy through ambitious slogan: ―Dominate the local market, and conquer the world‖.

In the final case of Hoa Sen Group, its choice of CSR approach is more about their core value: sharing with community, rather than core products or core customers as two cases above. Due to the consequences of war, there are many unhappiness lives in Vietnamese society. In order to honour individuals overcome the adversities of life, Hoa Sen Group has created the CSR initiative, namely ―Tỏa Sáng Nghị Lực Việt‖ since 2013.


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As a result, these CSR initiatives enhance their corporate reputation. For example, Honda Viet Nam is a brand name that Vietnamese people love and respect in compared to other brands such as: Yamaha or SYM. When customers think about Honda, they think about the program: ―I love Vietnam‖. Similarly, Trung Nguyen coffee is the pride of Vietnamese products, and young people often link their products with the spirit of passion and aspiration to conquer the world. Finally, Hoa Sen Group successfully transfers their core values of corporate culture to customers, communities as well as other partners.

This table below shows a summary of applying strategic CSR from these companies

Criteria Trung Nguyen Group Hoa Sen Group Honda Vietnam

(1)Social issues Not much famous Vietnamese

brands in the world

Too many unhappy lives

in society

Several terrible traffic

accidents during the day

(2)Name of CSR

initiative

Creativity for Vietnam‘s

Aspiration

Shining Vietnamese

Fortitude

I Love Vietnam

(3)Purpose of CSR

initiative

To inspire younger generations

to live with passion and

conquer the world

To motivate people to

overcome the adversities

of life

To reduce the number of

accidents involving

vehicles

(4)How CSR

initiative related to

company

Core customers and strategy Core value Core products

(5)CSR activities - Give 100 million of great

books that change mindset such

as: How to Win Friends and

Influence People, Think and

Grow Rich, No Failure – All

are Challenges.

- Organize several seminars

with guest speakers about this

topic.

- Organize a talking

show for the well-known

and special speaker in the

world: Nick Vujicic

sharing his successful

story.

- Make a contest

honouring individuals

who have overcome their

adversity.

- Create a series of

video clips about the use

of vehicles and the traffic

situation is not safe, or

about nice behaviours of

people on the street.

- Establish a traffic

safety club.

(6)The media A separate website for this

CSR; a special song

A separate website for this

CSR; a special song

A separate website for

this CSR; a special song;

a logo

(7)Working with

other partners to

support CSR

initiative

Ho Chi Minh Communist

Youth Union;

Vietnam Television (VTV);

Thanh Nien Newspaper; Alpha

Book

Vietnam Youth

Federation;

Ho Chi Minh Police

Newspaper

Vietnam‘s National

Traffic Safety

Committee;

Road and Railway

Traffic Police

Department; Vietnam

Television (VTV)

(8)Number of

years for this CSR

initiative

4 years 3 years 11 years

(9) CSR initiative

impact

Win the love of customers, and

the pride of Vietnamese

products .

People appreciate the

company‘s contributions,

and its stock value

increase.

Vietnamese people love

and respect this brand

name.


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3. CONCLUSION

The concept of CSR is not about making philanthropic contributions to local charities as a common

approach by several developing country firms, (Chambers et al, 2003, cited in Hung et al., 2010).

Organizations should perceive CSR as a source of opportunities, innovation, and competitive advantage in

order to make significant efforts finding shared value in operation practices, and in the social dimensions of

competitive context that have the potential to foster economic and social development rather than as

damage control or as a PR campaign (Porter & Kramer, 2006).

In order to implement successfully this broader concept in practice, companies should apply a

strategic CSR. It is about choosing carefully which social issues to focus that fit with companies about: core

products, core customers, core value, or business strategy. This approach is analysed and confirmed

through the success of three Vietnamese corporations: Hoa Sen Group, Trung Nguyen Group, and Honda

Vietnam that develop a strategic CSR initiatives to enhance their brand reputation.

REFERENCES

Argenti, P. A., and Druckenmiller, B. (2004). Reputation and the corporate brand. Corporate Reputation Review, 6(4),

368-374.

Bosch-Badia, M., Montllor-Serrats, J and Tarrazon, M. (2013).Corporate Social Responsibility from Friedman to

Porter and Kramer. Theoretical Economics Letters, 3(3A), 11-15.

Carroll, A. (1991). The pyramid of corporate social responsibility: toward the moral management of organizational

stakeholders. Business Horizons, 34(4), 39-48.

Claydon, J. (2011). A new direction for CSR: The shortcomings of previous CSR models and the rationale for a new

model. Social Responsibility Journal, 7(3), 405-420

Hoa Sen Group. (2015). Introduction. Retrieved from http://www.hoasengroup.vn/gioi-thieu

Honda Vietnam. (2015). General Introduction. Retrieved from http://www.honda.com.vn/vn/gioi-thieu/gioi-thieu-

chung

Hung, W. T., Ramasamy, B and Lee, C. G. (2010). Management systems and the CSR engagement. Social

Responsibility Journal, 6(3), 362-373.

Hur, W., Kim, H., and Woo, J. (2014). How CSR leads to corporate brand equity: Mediating mechanisms of corporate

brand credibility and reputation. Journal of Business Ethics, 125(1), 75-86.

Khojastehpour, M., and Johns, R. (2014). The effect of environmental CSR issues on corporate/brand reputation and

corporate profitability. European Business Review, 26(4), 330.

Lantos, G.P. (2001). The boundaries of strategic corporate social responsibility. Journal of Consumer Marketing,

18(7), 595-630.

Milewicz, J., and Herbig, P. (1994). Evaluating the brand extension decision using a model of reputation building. The

Journal of Product and Brand Management, 3(1), 39.

Milliman, J., Ferguson, J and Sylvester, K. (2008). Implementation of Michael Porter's strategic corporate social

responsibility model. Journal of Global Business Issues, 29-33.

Nguyen, L. D and Mujtaba, B. G. (2011). Stress, task, and relationship orientations of Vietnamese: An examination of

gender, age, and government work experience in the Asian culture. Competition Forum, 9(2), 235-246

Porter, M. E and Kramer, M. R. (2006). Strategy & society: The link between competitive advantage and corporate

social responsibility. Harvard Business Review, 84, 78-85.

Sheikh, S and Beise-Zee, R. (2011). Corporate social responsibility or cause-related marketing? the role of cause

specificity of CSR. The Journal of Consumer Marketing, 28(1), 27-39.

http://www.hoasengroup.vn/gioi-thieu

http://www.honda.com.vn/vn/gioi-thieu/gioi-thieu-chung

http://www.honda.com.vn/vn/gioi-thieu/gioi-thieu-chung


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Szczanowicz, J and Saniuk, S. (2014). Implementation of CSR concept in manufacturing SMEs. Management, 18(1),

71-82.

Thang, L.C., Rowley, C., Quang, T and Malcolm Warner, M. (2007). To what extent can management practices be

transferred between countries? The case of human resource management in Vietnam. Journal of World

Business, 42(1), 113-127

Trung Nguyen Group. (2015). Trung Nguyen History. Retrieved from

http://www.trungnguyen.com.vn/lich-su-ca-phe-trung-nguyen

Unido. 2015. What is CSR?. Retrieved from http://www.unido.org/en/what-we-do/trade/csr/what-is-csr.html

Vissak, T. (2010). Recommendations for using the case study method in international business research. The

Qualitative Report, 15(2), 370-388.

World Bank. (2015). Vietnam Overview. Retrieved from

http://www.worldbank.org/en/country/vietnam/overview

http://www.trungnguyen.com.vn/lich-su-ca-phe-trung-nguyen

http://www.unido.org/en/what-we-do/trade/csr/what-is-csr.html

http://www.worldbank.org/en/country/vietnam/overview


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The Status of Water Resources in Lam Dong Province: A Preliminary Study

Pham The Anh1, Phung Quang Hop

2, Bui Manh Ha

3*, Hoang Hung

4

1 Department of Environmental Science, Yersin University of Da Lat

2Department of Finance & Banking, University of Finance-Marketing

3Department of Environmental Science, Sai Gon University

4Faculty Environment and Biotechnology, Technology University of Ho Chi Minh City


ABSTACT

The processes of agricultural restructuring, rural industrialization, deforestation and rapid urbanization in Lam

Dong Province since the 1990s have raised the shortages and pollution of water resources, which is becoming more

and more serious. This paper presents the status of water resources in Lam Dong province assessing through the

water reserves capacities and pollution of primary lake and river i.e. Xuan Huong, Than Tho, Cam Ly, etc. The results

indicate that the water resources fully meet the demand of water for socio-economic development of Lam Dong to

2020. However, the water quality became worse due to the accumulation of pollutants from human, agricultural and

industrial activities. The study also recommends some management solutions to improve the quality and quantity of the

water resource towards sustainable development.

Keywords: Surface water resources, Lam Dong province, Geographic Information System, water pollution,

water management

1. INTRODUCTION

Water is a necessity of all creatures and people. Without water, life on earth could not exist.

However, in contrast with the socio-economic development, water resources are increasingly degraded and

severely depleted. There are two big rivers originating from Lam Dong province: Krong No River, a

tributary of Srebok – Me Kong river with a catchment area of 1,248 km2 and Dong Nai – La Nga River

with a valley area of 8,524 km2 including such rivers as Da Nhim River, Da Dang River, Dai Nga River,

Da Huoai River (Vietnam-environment, 2006). This gives Lam Dong an important role in protecting water

sources from the two river systems. Any impact on the upstream may affect the social and economic

development of the province located downstream, especially the provinces situated in Dong Nai River

system such as Binh Phuoc, Binh Duong, Tay Ninh, Dong Nai, Ho Chi Minh City, Ninh Thuan and Binh

Thuan. Therefore, this research was conducted to evaluate the status of surface water resources, including

water reserves and its quality, in Lam Dong Province. The research also found out the causes of

degradation and depletion of water sources and suggested solutions to manage surface water resources in

general - and Dong Nai River water in Lam Dong Province in particular - and reach sustainable

development (Vietnam-environment, 2006).

2. METHODOLOGY

Monthly data for mean water characteristic from 7 reservoirs and 6 lakes across Lam Dong province

were gathered for the period 1999-2013 (Figure 1). All observed water data, which were used in this study,

were provided by Center for Analysis and Environment of the Da Lat Nuclear Research Institute.


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Figure 1. Study Area Map

(a) Hydroelectric power station; (b) Water resources; (c) Location of the Lakes

Water-level map, geological map, and all the polluted water layers were generated in GIS

environment at a scale of 1:250000. The software packages used for this study were Arc/Info for analyzing

and presenting the results. Statistical graphics and Microsoft Excel were utilized in this research.

3. RESULTS AND DISCUSSION

3.1. Assessment of surface water reserves in Lam Dong province

3.1.1. Surface water reserves of the province

Lam Dong province has abundant and diverse surface water resources. The average total surface water

flow generated over the entire area of Lam Dong province in 2000 - 2009 was 12 billion m3, accounting for

over 50% of the total rainfall on the area (Figure 2). On average, there were 2,750 m3 of water/km

2

produced each day (Vietnam-environment, 2006).

(a)

(c)

(b)


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Figure 2. Changes in Surface Water Reserves in Lam Dong

Evaluation of the river’s total flows

Da Nhim River had the largest total annual flow with its average was 2.05 billion m3. In contrast, Dai

Nga River had the lowest total annual flow which averaged 1.28 billion m3 (Figure 3). Total water reserves

in three major river systems were about 4.85 billion m3.

Figure 3. Total Flow in Three Rivers of Lam Dong

3.1.2. Reserves of domestic water supply

Dankia Lake in Lac Duong had the largest total annual domestic water supply for entire Lam Dong

province of 0.19 billion m3.The total volume of lakes used as water supply was about 0.28 billion m

3.

However, in recent years, climate change has been reducing water reserves (Figure 4).


115

Figure 4. The Water Reserves of the Lake Water Level

Among the total volume of 12 billion m3 surface water in Lam Dong, about 5.13 billion m

3 of water

were able to meet the economic and social development of the province.

3.1.3. Assessment of water supply

It was forecasted that until 2020, the total volume of water for daily domestic needs, agricultural and

industrial production would be about 224.75 million m3. The estimated total water used for all hydropower

projects in Lam Dong province would be 2.78 billion m3. Hence, the total demand for water of the

province was expected to be about 3.02 billion m3 by 2020 (Figure 5).

Figure 5. The Total Reserves and the Demand for Water in Lam Dong Province by 2020


116

Figure 5 shows that the water resources in the province of Lam Dong would fully meet the needs of

socio-economic development of the province by 2020. However, there is a downside. Surface water

resources of Lam Dong distributes unevenly across space and time. Therefore, we need rational solutions

for using water resources.

3.1.4. Assessing the potential for development

The potential for hydroelectricity

Lam Dong possesses a great hydroelectricity energy potential with the total estimated capacity at

nearly 900 MW.

Table 1. Small and Medium Hydropower Projects on the Rivers of Lam Dong

River Total hydropower projects Nlm (MW)

Da Dang 14 95.4

Da Nhim 8 47.9

Krong No 6 31.3

Da Huoai 6 86.9

La Nga 6 46.9

Dong Nai 11 40.7

Luy 5 9.3

Quao 1 5.5

Total 57 363.9

Source :Vietnam-environment, 2006

Table 2. Reservoir Capacity Statistics of Hydroelectric Plants

Name of reservoir Whi

(106 m

3)

Wc

(106 m

3)

Wtb

(106 m

3)

Dai Ninh 251.73 68.04 319.77

Ham Thuan 523 172 695

Da Mi 11.6 129.2 140.8

Da Nhim 9 146 165

Bao Loc 0.98 5.11 6.09

Dong Nai 2 143.4 137.4 280.8

Da Dang 2 0.345 0.567 0.912

Source: Lamdong-statistical-office, 2014

The potential for tourism

Surveys found that most of the provincial cities in Lam Dong have spots or tourist attractions related

to surface water. For instance, Da Lat City is famous for its serene lakes and magnificent waterfalls.

Especially, Tuyen Lam Lake area in Da Lat City is now being planned for a total of 33 different tourism

projects.


117

3.1.5. The negative impacts

Loss of upstream forests

According to preliminary calculations, building an eco-resort must clear 25.58 hectares of forest. For

constructing medium and large hydropower stations, nearly 10 hectares of forest are cut down while

building small hydropower projects clear away almost 16 hectares. With the planning of building over 150

resorts and more than 57 hydropower plants with a total capacity of 363.9 MW, the threat from

deforestation in the province is very high.

Flood intensification

Figure 7 illustrates the road course of floods before and after deforestation. Trees and forests are

known for reducing and slowing down rainfall runoff. After deforestation, runoffs cannot soak into the

ground in time, therefore, increase and intensify flooding downstream. Without forests as flood control,

floods become extremely destructive since theirs flows are higher (Qmax2 > Qmax1) forming in a shorter

period of time (T2 < T1). This could be demonstrated through the first flood at Da Nhim hydroelectric

reservoir in November 2010. Floodwater of a 50-mm upstream rainfall had taken up to 7-8 hours to pour

into the reservoir while it only took 4 hours in November 2010, accompanied by increased intensity

(Figure 6-8).

In addition, by studying the specifications of the reservoirs of hydroelectric plants in Lam Dong

province, it was realized that most of reservoirs are cascade reservoirs to store water for power. They did

not have flood control capacity, hence, had no flood protection function.

Figure 6. Area of Deforestation due to Constructing Large and Medium Hydropower Projects


118

Figure 7. Area of Deforestation Caused by the Construction of Small Hydropower Plants

Source: Lamdong-statistical-office, 2014

Figure 8. Road Course of Floods before and after Deforestation

Moreover, closing and opening hydropower floodgates, such as the floodgate of Da Nhim hydropower

plant in Lam Dong province, affected lives and daily work of farmers who lived downstream of the river.

Floodgates were used to admit or exclude water in reservoirs of hydropower plants. When closed, they

caused water shortages; when opened, they caused floods downstream. The first flood from Da Nhim

hydropower plant in November 2010 caused financial damage of over 23 billion VND for farmers in Don

Duong district, Lam Dong province.

Formation of dead rivers

In addition to deforestation, the construction of several hydropower projects on one river led to the

formation of dead rivers (Figure 9).


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Figure 9. Description of the Main Components of a Reservoir

Table 3. Length of Dead Part in Rivers after Building Hydroelectric Plants

Hydropower River Length

Da‘Mbri Da Huoai 12.25 km

Da Dang 2 Da Dang 4 km

Ham Thuan – Da Mi La Nga 25 km

Dai Ninh Dead waterfalls: Pongour, Gougah, etc.

Source: Vietnam-environment, 2006

The main reason for this unwanted formation was that the construction and evaluation stages of

environmental impact assessment reports of hydropower plants were not efficiently done. Besides, there

were no reservoirs operating procedures and no reports about the assessment of hydropower projects on the

same river.

3.2. Assessment of surface water reserves in Lam Dong province

According to the report on the current status of surface water quality in Lam Dong province from

2006 to 2010 by the Department of Natural Resources and Environment of Lam Dong province, surface

water quality of the province was not high and had signs of pollution. Especially, the surface water in Dalat

City, the center of the province, is now showing signs of degradation and pollution such as algae blooms in

Xuan Huong Lake, agricultural waste in Than Tho Lake and Cam Ly waterfall.

Table 4. Surface Water Quality Monitoring Results of some Lakes in Lam Dong Province

Parameter TSS N-NH4+ P-PO4

3- BOD5 Coliform

Unit mg/L MPN/ 100 mL

Than Tho Lake 10 0,12 0,03 - -

Xuan Huong Lake 25 1,45 0,30 34 >11000

Living walls

(1) (I)

(2) (II)

(3) (III)

Notes

(I) : Flood capacity (1) : Flood water level (II) : Useful capacity (2) : Useful water level (III) : Death capacity (3) : Dead water level


120

Suoi Vang Lake 12 0,08 0,23 27 11000

Da Thien Lake 12 0,07 0,37 9 4600

QCVN 08 (B1) 50 0,50 0,30 15 7500

Tuyen Lam Lake 5 0,06 0,16 25 >11000

Chien Thang Lake 15 0,08 0,18 3 4600

QCVN 08 (A2) 30 0,20 0,20 6 5000

Source: Centre for Environmental monitoring, 2012

Table 4 shows that the main factors causing lakes pollution were nitrogen, phosphorus, organic matter

and microorganisms. The main cause of pollution is the discharging of inefficiently treated wastewater

from households, agricultural production and even tourist activities.

3.3. Causes of degradation, pollution and depletion of water resources

From the evaluation of the reserves and the environmental quality of surface water resources in Lam

Dong province, the followings were found to be the cause of degradation, pollution and depletion of water

resources:

Upstream deforestation

No reservoirs operating procedures

No reports on environmental impact assessment of all hydropower projects on one river

Discharge of inadequately treated wastewater from domestic, industrial, agricultural and tourism

activities.

3.4. Proposed management solutions towards sustainable development

From the assessment of surface water resources in Lam Dong and access to integrated

management of water resources, solutions of water resource management in Lam Dong province

could be drawn in order to achieve sustainable development: Conduct researches and set up

reservoirs operating procedures that can be "applied for both wet and dry season"

Enhance solutions to protect upstream forests more efficiently

Propose EIA reports on all hydropower plants on one river as well as EIA reports on the whole

industrial park or resort

Develop drainage planning and wastewater treatment systems more effectively

Implement the sustainable development in ―clean – safe – green‖ agriculture

Study on water supply for general purposes: hydropower, agriculture, etc.

3.5. Application of GIS in surface water resource management

Prior to performing actual simulation, water resources modeling requires a number of time

consuming steps including collection, compilation, storage, retrieval and manipulation of spatial data.

The spatial nature of data associated with water resources is the single most significant factor contributing

to the complexity of data management. With their ability to combine a variety of data into an easily

understood format, GIS software can drastically change the way engineers handle water resources

modeling (Hung, 2005). Field data gathering, the critical first step in applying GIS to water


121

resources problems, can generally be divided into two tasks. The first is primarily obtaining ground

control to establish scaling and positional relationships throughout the project area. The second is

acquiring locations and attributes of certain features in the field (e.g., manholes, water valves, and

retaining walls, among others) and can be supplemented by photogrammetric location techniques on

projects with features that are not visible from aerial photographs such as inlet casting, culvert size,

and manhole.

In the case of this research in Lam Dong province, GIS could be detailed as the thematic map as follows:

Assessment of surface water resources in Lam Dong

Classification of wastewater-receiving water bodies in the province of Lam Dong

Assessment of rainwater resources of the province

Comparison of hydropower plant capacities in Lam Dong province

The process of BOD5 changes in the lakes of Da Lat City

Especially, researchers combined index WQI and GIS thematic mapping to help manage surface water quality of the lake of Da Lat City in 2010.

)

1(

C

T

NWQI

(1)

Where, WQI is Water Quality Index; T is target-concentration measurements; N is the number of target; and C is the parameter in Vietnam Standards No.8 ( QCVN 08). Normally, C are selected TSS, COD, BOD5, N-NH4

+, N-NO3

-, N-NO2

-, P-PO4

3-, Fetotal, Chloride, Coliform.

Table 5. An Assessment of Pollution Levels and Conventional Color Shown on the Map

Index WQI Pollution level Color

0-1 Good Blue

1-1.5 Fairly good Green

1.6 - 2 Light pollution Yellow

2.1 - 3 Average pollution Orange-brown

> 3 High pollution Red

The results are illustrated in the following maps in Figure 10. The changes in the environmental quality of the lakes in 2010 were briefly described as follows: Surface water quality of the lakes was very high (represented by blue) in the first stage; however, the quality had negative developments as the lakes entered the two following stages; finally, in stage 4, it could be easily recognized that Xuan Huong Lake was seriously polluted (as shown in red).

4. CONCLUSION

From the results of investigation, surveying and resource assessment "in terms of quantity and quality" on the surface water in Lam Dong province, this research has drawn a number of causes of degradation, pollution and depletion of water resources. The research has also combined WQI application with GIS mapping for efficient management of surface water quality. Hence, it also gives some suggestions for integrated management of surface water resources in the province of Lam Dong and upstream Dong Nai river system, reaching sustainable development.


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Figure 10. Changes in Surface Water Quality of the Lakes in Da Lat City

REFERENCES

Centre-for-Environmental-monitoring. (2012). National State of Environmental Report – An overview of Vietnam’s

environment: Ministry of Resource and Environment.

Hoang Hung (2005). Management and rational use of water resources. National University Publishing House, Ho Chi

Minh.

Lamdong-statistical-office. (2014). Lam Dong Statistical Year Book.

Vietnam-environment, A. (2006). The state of water environment in 3 river basins of Cau, Nhue - Day and Dong Nai

river system The environment report of Vietnam (pp. 17-25): Centre for Environmental Monitoring Portal,

Ministry of Resource and Environment.


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PART 2

Sustainable Business Development

Part 2: Sustainable Business Development

124


125

Human Capital Resources and Quality of Work Life of Marketers: FSQCA and SEM Findings

Nguyen Dinh Tho

International School of Business, University of Economics HCM City;

E-mail: [email protected]

ABSTRACT

Marketers who, in everyday work, often cope with a great degree of adversity, uncertainty and challenges

because their activities mainly deal with external environments such as customers and competitors. What enhances the

quality of work life (QWL) of marketers therefore is an issue that deserves to be addressed. Based on the principle of

goal selection and key resource theories, this study proposes that combinations of marketing capital (MarCap) and

psychological capital (PsyCap) will enhance the QWL of marketers. This hypothesis was tested with a sample of 396

marketers working in various firms in Ho Chi Minh City using fuzzy-set qualitative analysis (fsQCA) and structural

equation modeling (SEM). fsQCA findings, at a consistency threshold of 0.85, reveal that no component of both

PsyCap and MarCap is a sufficient condition for QWL. Combinations of PsCap and MarCap components however

form an INUS (insufficient but necessary part of a condition which is itself unnecessary but sufficient for the result)

condition for QWL. Overall, this study sheds light on human capital resources by addressing the importance of fit

between MarCap and PsyCap in serving as sufficient conditions for the QWL of marketers.

Keywords: Marketing capital, Psychological capital, Quality of work life, fsQCA

1. INTRODUCTION

Quality of work life (QWL) has attracted academics and practitioners in the past several years because

it affect job performance, quality of life, and many other job factors (Sirgy, Efraty, Siegel, & Lee, 2001).

Among business professionals, marketers are perhaps unique because in their every business they mainly

deal with external environment such as customers and competitors, that is, they often cope with a greater

degree of adversity, uncertainty and challenges (Griffith & Lusch, 2007). Such a working environment will

significantly lessen the QWL of marketers. Several studies have investigated the factors that enhance the

QWL of employees such as job characteristics, organizational characteristics, social support (Korunka,

Hoonakker & Carayon, 2008), and corporate social responsibility (Tongo, 2015). Little attention, however,

has been paid to the role of human capital resources in the QWL of marketers (Nguyen & Nguyen, 2012;

Tho, Phong & Quan, 2014).

In addition, quantitative marketing researchers have mainly employed conventional statistical tools

such as multiple regression analysis (MRA) and structural equation modeling (SEM) to test marketing

theories. These conventional methods assist researchers in discovering the net effect of a number of

independent variables on one or more dependent variables. Such a variable-oriented approach however

does not help researchers to discover the causal complexity of marketing phenomena (Fiss, Sharapov &

Cronqvist, 2013; Ragin, 2008). For those reasons, this study employs a fuzzy-set qualitative comparative

analysis (fsQCA; Ragin, 2008) to configure the roles of psychological capital (PsyCap) and marketing

capital (MarCap) in the QWL of marketers.

Based on human capital resources and psychological resources theories, this study documents the

combination role that MarCap (human capital, relational capital, organizational capital, and informational

capital) and PsyCap (efficacy, optimism, hope, and resilience) plays in determining the QWL of marketers.


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Results from a test of 396 marketers working in various firms in Ho Chi Minh City advocate that firms

complement their marketers‟ QWL with efforts to enhance a fit between marketer‟s MarCap and PsyCap.

The remainder of the paper presents the theoretical background and hypotheses, methods, results, and

discussions, implications, and conclusions.

2. THEORETICAL BACKGROUND AND HYPOTHESES

2.1. QWL of marketers

QWL is a concept that attracts the focus of researchers in last several years resulting in several QWL definitions rendered by scholars (Martel & Dupuis, 2006; Tongo, 2015). Sirgy et al. (2001), basing their approach on need satisfaction theory and spillover theories, define “quality of work life as employee satisfaction with a variety of needs through resources, activities, and outcomes stemming from participation in the workplace” (p. 242), and identify seven major needs. They are “(a) health and safety needs (protection from ill health and injury at work and outside of work, and enhancement of good health), (b) economic and family needs (pay, job security, and other family needs), (c) social needs (collegiality at work and leisure time off work), (d) esteem needs (recognition and appreciation of work within the organization and outside the organization), (e) actualization needs (realization of one‟s potential within the organization and as a professional), (f) knowledge needs (learning to enhance job and professional skills), and (g) aesthetic needs (creativity at work as well as personal creativity and general aesthetics)” (p. 241).

Scholars, in general, agree that QWL is about the well-being of employees (Sirgy et al., 2001). The principle of goal selection based on goal valence posits that employee will set their goals and try to pursue these goals in their work (Sirgy, 2006). The QWL of employees will be enhanced if their goals are reached. Based on the works of Sirgy and his colleagues (Sirgy, 2006; Sirgy et al., 2001) and on the need for difference among economies (advanced versus developing economies), Nguyen and Nguyen (2012) proposed three types of needs of Vietnamese marketers in the workplace, namely, survival needs, belonging needs, and knowledge needs, and define QWL of marketers as the satisfaction of marketers with these needs.

2.2. Capabilities of marketers

Several conceptualizations of human capital resources, at different levels of analysis, can be found in the literature (Hunt, 2000; Luthans, Luthans & Luthans, 2004; Ployhart, Nyberg, Reilly & Maltarich, 2014). Luthans and his colleagues (2004), at the individual level, classified three types of human capital resources. They are traditional economic capital, that is what people have (finances, tangible assets, plant, equipment, patents, data), human capital, that is what people know (experience, education, skills, knowledge, ideas), social capital, that is who people know (relationships, network of contacts, friends), and positive psychological capital, that is who people are (efficacy, optimism, hope, and resiliency,). Ployhart and his colleagues (2014) suggested that human capital resources are human capital at the individual or unit-level capabilities, including knowledge, skills, abilities and other characteristics (termed as KSAOs), accessible for unit-relevant purposes. Hunt (2000), at the firm level, proposes four types of human capital resources; they are human capital (the stock of business knowledge and skills of the firm‟s employees), relational capital (the firm‟s relational resources internal and external to the firm), informational capital (the stock of information and knowledge about the firm‟s products and markets), and organizational capital (the firm‟s norms, culture, policy, practices, and procedures).

At the marketing professional level, in the workplace, based on the above conceptualizations, this study proposes two types of capabilities of marketers: marketing capital (MarCap) and psychological capital (PsyCap). MarCap comprises four components, including human marketing capital (marketers‟ business skills, capabilities, education, and expertise), relational marketing capital (marketers‟ relational resources internal and external to the firm such as business acquaintances, relationships, connections, and networks), organizational marketing capital (marketers‟ knowledge of the firm‟s policy, practices, and


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procedures), and informational marketing capital (marketers‟ knowledge about the firm‟s products and services, customers, competitors, and industry; Griffith & Lusch, 2007). This type of marketing capabilities include human capital and social capital (Luthans et al., 2004) and human capital resources (Hunt, 2000; Ployhart et al., 2014).

The second type of marketing capabilities is PsyCap. Basing their approach on psychological resource theories (Hobfoll, 2002), Luthans, Youssef-Morgan, and Avolio (2015, p. 2) define PsyCap as “an individual‟s positive psychological state of development that is characterized by (1) having confidence (efficacy) to take on and put in the necessary effort to succeed at challenging tasks; (2) making a positive attribution (optimism) about succeeding now and in the future; (3) persevering toward goals and, when necessary, redirecting paths to goals (hope) in order to succeed; and (4) when beset by problems and adversity, sustaining and bouncing back and even beyond (resiliency) to attain success.” At the marketing professional level, PsyCap also includes four components (Nguyen & Nguyen, 2012; Tho, Phong & Quan, 2014): efficacy (marketers‟ confidence in their knowledge and skills in performing their assigned marketing tasks), optimism (marketers‟ positive expectations of outcomes in a changing work environment), hope (willpower: marketers‟ goal-directed energy; waypower: marketers‟ capability to recognize the goals set by the firm and to translate those goals into their own actions to achieve the goals), and resiliency (marketers‟ capability to cope with responses to both adverse and extreme positive events). Research shows that the four components (efficacy, optimism, hope, and resiliency) of PsyCap of employees enhance their happiness, satisfaction, and well-being (e.g., Nguyen & Nguyen, 2012; Youssef & Luthans, 2007).

As posited by psychological resource theories, individual-level resources are key resources which serve as a foundation for managing and adapting other resources to achieve favorable outcomes. The principle of goal selection based on goal valence posits that employees‟ QWL will be enhanced if their set and pursued goals are achieved (Sirgy, 2006). PsyCap is a type of key psychological resources (Luthans et al., 2015). It therefore plays as an essential role for marketers to manage their MarCap to reach their set and pursued goals in the marketplace. Thus, the study proposes that combinations of PsyCap and MarCap are sufficient conditions for QWL of marketers.

3. METHOD

3.1. Design and sample

Survey questionnaires were used to collect data to test the hypothesis. Face-to-face interviews were employed with a convenience sample of 396 marketers in Ho Chi Minh City, a major business center of Vietnam. The sample included 309 (78.0%) marketers working for service firms and 87 (22.0%) marketers working for manufacturing firms. In terms of ownership, there were 209 (52.8%) marketers working for local firms and 187 (47.2%) marketers working for foreign-invested firms. The sample comprised 274 (69.2%) marketers working for firms which had more than 100 employees and 122 (30.8%) marketers working for firms which had equal or less than 100 employees. The sample included 235 (59.3%) female marketers and 161 (40.7%) male marketers. Finally, there were 301 (76.0%) marketers who were 30 years of age or younger and 95 (23.9%) marketers who were older than 30 years of age.

3.2. Measurement

Constructs examined were MarCap, PsyCap, and QWL. MarCap was a second-order construct including four components: human marketing capital, relational marketing capital, organizational marketing capital, and informational marketing capital. These components were measured by four items each, borrowed from Griffith and Lusch (2007). These measures were tested with marketers in Vietnam by Nguyen and Nguyen (2011). PsyCap was also a second-order construct comprising four components: efficacy (measured by 4 items; Parker, 1998), optimism (measured by 3 items; Carver & Scheier, 2002); hope (measured by 4 items (Snyder, Rand, & Sigmon, 2002); and resiliency (measured by 4 items; Block


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& Kremen, 1996). Finally, QWL was a second-order construct consisting of three components, namely, survival needs, belonging needs, and knowledge needs. These components of QWL were measured by three items each, which were developed by Sirgy and his colleagues (2001). The measures of PsyCap and QWL used in this study were modified and tested with Vietnamese marketers by Nguyen and Nguyen (2012). All items were measured by a seven-point Likert scale, anchored by 1 (strongly disagree) and 7 (strongly agree).

4. DATA ANALYSIS AND RESULTS

The study first used confirmatory factor analysis (CFA) to validate the measures and then utilized two methods of data analysis to test the hypothesis. To test the net effects of the impacts of MarCap and PsyCap on QWL, SEM was used. And, to test the configurations of MarCap and PsyCap on QWL, fsQCA was employed. Note that, in the CFA and SEM analysis, the maximum likelihood estimation method was used because most of the univariate kurtosis and skewness of items were within the range of [-1, 1] (Muthen & Kaplan, 1985).

4.1. Measurement validation

Three second-order constructs were under investigation: MarCap, PsyCap, and QWL. To validate the measures of these constructs, first, a CFA model for MarCap, PsyCap, and QWL was tested separately.

The CFA results indicate that the measurement models of MarCap (2[97] = 263.61 (p = 0.000), TLI =

0.959, CFI = 0.967, and RMSEA = 0.066), PsyCap (2[59] = 130.87 (p = 0.000), TLI = 0.961, CFI = 0.971,

and RMSEA = 0.056), and QWL (2[23] = 71.49 (p = 0.000), TLI = 0.955, CFI = 0.969, and RMSEA =

0.073) received an acceptable fit to the data.

Then, the saturated model was formed by incorporating all components of MarCap and PsyCap into

the CFA model of QWL. This saturated model received an acceptable fit to the data: 2[625] = 1352.70 (p =

0.000), TLI = 0.917, CFI = 0.926, and RMSEA = 0.054. The CFA results also indicate that all the factor

loadings of items measuring the three second-order constructs examined in the model were high ( 0.52) and significant (p < 0.001, supporting the uni-dimensionality and the within-method convergent validity of these components. The correlations between QWL and the components of MarCap and PsyCap were less than 0.70, indicating that they were significantly different from unity, thus, supporting the discriminant validity between constructs (Steenkamp & van Trijp, 1991).

4.2. Common method bias

This study used cross-sectional data collected from a single respondent which may raise the possibility of common method bias (Podsakoff, MacKenzie, Lee & Podsakoff, 2003). For that reason, two statistical control procedures were conducted: a CFA Harman‟s single factor model test (Podsakoff et al., 2003), and an unmeasured latent variable test (allowing the unmeasured latent variable to load on each item in the trait model; Markel & Frone, 1998). The results from the CFA Harman test shows that, compared to the trait

factor model (2[625] = 1352.70 (p = 0.000), TLI = 0.917, CFI = 0.926, and RMSEA = 0.054), the one-factor

model received a very poor fit to data (2[661] = 4828.43 (p = 0.000), TLI = 0.549, CFI = 0.576, and

RMSEA = 0.126). The results from the unmeasured latent variable test reveals that all loadings of items on their measured constructs in this CFA model were almost identical to those reported in the saturated CFA model. In addition, all loadings of the items on the unmeasured latent variable were not significant. Such results indicate that the common method variance, if existed, did not bias results of this study.

4.3. SEM findings

As previously introduced, SEM was first employed to test the hypothesis. The aim of this study was to examine the effect of each component of MarCap and PsyCap, not the overall MarCap or PsyCap, on

QWL. SEM results reveal that the model received an acceptable fit to the data: 2[625] = 1352.70 (p = 0.000),


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TLI = 0.917, CFI = 0.926, and RMSEA = 0.054). Note that this structural model and the saturated model had the same degrees of freedom. Table 1 presents the regression coefficients. The results indicate that only two components of PsyCap (optimism and hope) had positive impacts on QWL and no MarCap components had an effect on the QWL of marketers. Note that no improper solution existed in any CFA and SEM models: Heywood cases were absent; all error-term variances were significant; and, all

standardized residuals were less than 2.58.

Table 1. Regression Coefficients

Path Unstandardized

beta

Standard

error

Standardized

beta t-stat p-value

MarCap components

Human marketing capital →

QWL 0.06 0.032 0.14 1.86 0.063

REL marketing capital → QWL -0.04 0.035 -0.09 -1.14 0.254

ORG marketing capital → QWL 0.04 0.041 0.07 0.86 0.390

INFO marketing capital → QWL 0.12 0.071 0.18 1.65 0.099

PsyCap components

Efficacy → QWL 0.09 0.065 0.13 1.36 0.173

Optimism → QWL 0.15 0.058 0.25 2.56 0.010

Hope → QWL 0.11 0.055 0.20 1.96 0.050

Resiliency → QWL -0.01 0.080 -0.01 -0.08 0.940

4.4. fsQCA findings

The results produced by SEM presented above only reveal the net effects of MarCap components and

PsyCap components on the QWL of marketers. To discover their causal complexity, this study employed

fsQCA, which can be used for a regression-based framework to analyze the data (Fiss et al., 2013;

Woodside, 2013).

4.4.1. Calibration

Following Ragin‟s (2008) method of calibration, this study transformed the original values (7-point

Likert scaling) collected from the survey into the values ranged from 0 to 1. Three second-order constructs

were examined: QWL, MarCap, and PsyCap. QWL comprised three components (basic need, survival

need, and knowledge need), and each component was measured by three items. A composite measure of

QWL was formed by averaging the items measuring the QWL components and then taking a weighted sum

of these components. The weighted coefficients were the CFA factor loadings of these components on

QWL. This procedure was utilized because all the components of QWL were unidimensional (Gerbing &

Anderson, 1988). MarCap had four components (human marketing capital, relational marketing capital,

organizational marketing capital, and informational marketing capital) and PsyCap had four components

(efficacy, optimism, hope, and resiliency). Because the aim of this study was to investigate the role of

individual components, not the overall, of MarCap and PsyCap on QWL. For this reason, composite

measures were formed by taking an average of all items measuring each component of MarCap and

PsyCap. These composite measures of QWL, MarCap components, and PsyCap components were used for

the calibration in fsQCA.

Ragin (2008) suggested that the calibration in fsQCA should be based on both external standards and

the study context. This study therefore combines two methods of calibration: based on the survey scale


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(Ordanini, Parasuraman & Rubera, 2014) and the context of the study (Tho & Trang, 2015). The three

qualitative anchors for the calibration of MarCap components and PsyCap components were: full

membership threshold = 6, full non-membership threshold = 3, and crossover point = 4.5. Note that, based

on the context of the study (Vietnamese market), the full non-membership threshold was set at 3 instead of

2 as used by Ordanini et al. (2014) because Vietnamese employees tend to have a bias towards the right

side (strongly agree) of the scale when answering a survey questionnaire (Tho & Trang, 2015). The

composite measure of QWL was the weighted sum of its components, therefore, its calibration was based

on the data, that is the full membership threshold was set at the point covering 95% of the data values, the

full non-membership threshold was set at the point covering 5% of the values, and the crossover point was

set at the point covering 50% of the data values (Woodsite, 2013).

4.4.2. fsQCA findings

This study analyzes the data using two consistency thresholds: one with a consistency threshold of

0.80 and the other one with a consistency threshold of 0.85. This procedure was based on Ragin‟s (2008, p.

114) recommendation that fsQCA researchers should “present two analyses, one with a relatively

permissive consistency threshold and another with a more restrictive consistency threshold”.

With a consistency threshold of 0.80, the parsimonious solution reveals that all four components of

MarCap (human marketing capital, relational marketing capital, organizational marketing capital, and

informational marketing capital) and three out of four components of PsyCap (efficacy, hope, and

resiliency) were sufficient conditions for QWL. A closer examination of the configurations, however,

shows that the unique coverage of human marketing capital and relational marketing capital had a unique

coverage of zero. This means that these two conditions fully overlapped with other conditions. When

increasing the consistency threshold from 0.80 to 0.85 none of the conditions (4 components of MarCap

and 4 components of PsyCap) was sufficient conditions for the occurrence of QWL, however,

combinations of these conditions were. They formed an INUS condition (insufficient but necessary part of

a condition which is itself unnecessary but sufficient for the result; Mackie, 1965, p. 245).

Table 2. fsQCA Results

Model: QWL = f(hc, rc, oc, ic, ef, op, hp, rs)

Consistency threshold: 0.80

PARSIMONIOUS SOLUTION

Frequency cutoff: 1.000000; Consistency cutoff: 0.800721

Solution coverage: 0.996026; Solution consistency: 0.543448

Raw coverage Unique coverage Consistency

hc 0.638916 0.000000 0.728812

rc 0.823885 0.000000 0.654361

oc 0.905730 0.000855 0.612727

ic 0.956587 0.002063 0.605065

ef 0.956336 0.000553 0.610991

hp 0.944866 0.000704 0.616746

rs 0.916394 0.000553 0.640609

Model: QWL = f(hc, rc, oc, ic, ef, op, hp, rs)

Consistency threshold: 0.85

PARSIMONIOUS SOLUTION

Frequency cutoff: 1.000000; Consistency cutoff: 0.850368


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Solution coverage: 0.455707; Solution consistency: 0.710900

hc*~rc 0.261331 0.050003 0.834538

~hc*rc*~ic 0.184164 0.002767 0.763345

rc*~oc*hp 0.228432 0.035616 0.803291

oc*hp*~ef 0.241058 0.003823 0.805243

oc*rs*~ef 0.236078 0.001861 0.812641

oc*~ic*ef 0.204688 0.002918 0.804309

~rc*~op*rs*ef 0.200111 0.008451 0.787567

~rc*oc*op*~rs*ef 0.195332 0.006741 0.845602

Note: hc: human marketing capital; rc: relational marketing capital; oc: organizational marketing capital; ic: informational marketing capital; ef: efficacy; op: optimism; hp: hope; rs: resiliency

5. DISCUSSION, IMPLICATIONS, AND CONCLUSIONS

Realizing the relationship between human capital resources and the QWL of employees, this study employs a configurational approach to investigate the role of human capital resources in the QWL of marketers in a transition market such as Vietnam. The results of this study offer a number of implications for theory, research, and practice.

Theoretically, this study suggests that human capital resources at the marketing professional level comprise both MarCap and PsyCap. PsyCap is key psychological resources which is fundamental to the management and adaption of MarCap to achieve favorable outcomes, including QWL as suggested by psychological resource theories (Hobfoll, 2002). Prior research has largely examined these two types of capital separately. This study contributes to the literature by investigating both of them simultaneously and finds that several combinations of these two types of human capital resources play important roles in the QWL of marketers. Such an investigation is not easily implemented by conventional quantitative analysis like multiple regression analysis or SEM. This study employs fsQCA, which is appropriate for discovering a number of combinations of MarCap components and PsyCap components that serve as sufficient conditions for the existence of QWL of marketers. The fsQCA findings reveal that the role of human capital resources in QWL is more complex and synergistic; that is, the whole is greater than the sum of its parts, as posited by human capital resources theory (Luthans & Youssef, 2009). Thus, such findings will signal researchers that fsQCA is an appropriate method for discovering the complexity of causal relationships in business (Tho & Trang, 2015; Woodside, 2013).

In practice, the findings of this study verify that human capital resources comprise both psychological resources (i.e. PsyCap) and marketing capital resources (i.e. MarCap) and that PsyCap interacts with MarCap to enhance the QWL of marketers. The findings suggest that a „well fit‟ between MarCap and PsyCap will allow marketers to enhance their QWL. Firms, therefore, should work towards establishing appropriate human resource policies and practices that are able to recruit marketers with have a high level MarCap and PsyCap, and to further develop their fit between PsyCap and MarCap. In so doing, firms can have qualified marketers who are able to contribute to firms‟ competitive advantage in terms of human capital resources (Ployhart et al., 2014).

In conclusion, this study sheds light on human capital resources by addressing the importance of fit between MarCap and PsyCap in serving as sufficient conditions for the QWL of marketers. Also, the study helps encourage researchers to utilize appropriate methods - in this case fsQCA - to investigate the causal complexity of in business. It is worth noting that the present study only examines the impact of MarCap and PsyCap at the individual level, that is, the marketers. Future research can overcome this limitation by investigating these two types of human capital resources at different levels, such as the team, unit, or firm level (Newman, Ucbasaran, Zhu & Hirst, 2014; Ployhart et al., 2014).


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Marketing as an Evolving Discipline: Emerging Paradigms and Managerial Implications

Jean-Pierre Baeyens

Holder of the Marketing Chair - Solvay Brussels School of Economics and Management Université Libre de Bruxelles - Avenue F.D. Roosevelt 42, B-1050, Brussels, Belgium

[email protected]

Joelle Barthel

Solvay Brussels School of Economics and Management Université Libre de Bruxelles - Avenue F.D. Roosevelt 42, B-1050, Brussels, Belgium

[email protected]

ABSTRACT

Since its beginnings, the marketing discipline has been evolving through different stages and is further developing given the industry challenges such as globalization and technological impacts of the 21

st century.

Analyzing the attached evolution of consumer behavior and consumption patterns, this paper aims to define how the upcoming years will shape the marketing discipline. After a review of literature, a trend pyramid is established in order to define the most relevant changes from macro environmental, social, emotional and spiritual perspectives. In a two-round Delphi study, seven experts have been interviewed about their personal opinion on marketing evolutions. Finally, the study merges the key insights into four main streams resulting in managerial recommendations for marketers.

Keywords: Periodization of marketing, Trend spotting, Delphi method, Emerging marketing paradigms

1. INTRODUCTION

“Every discipline needs to be reexamined in its fundamentals, given the huge impact of 21st century

globalization and technology on our global market, economy and society.” – Philip Kotler

It still remains complex to define the exact origins of the marketing discipline and even today there might be misunderstandings about the concrete notion of marketing and the different areas it covers. Various marketing periodization schemes have been established over the last decades in order to conceptualize the evolution of the discipline. The review of literature includes a summary of the main periodization schemes from leading marketing experts. (See Table 1)

Table 1

Author Date Focus Around 1850 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Today Future

Keith 1960 Business

Marketing

Oriented

Marketing

Contol

1960+

Bartels 1976

Marketing

Thought

Period of

discovery

Period of

conceptua

lization

Period of

integration

Period of

developmen

t

Period of

reappraisal

Period of

reconceptua

lization

Period of

differentiati

on

Period of

socialization

1970+

Fullerton 1988

Marketing W.

Europe

Era of

Antecenden

ts (1500)

Era of

Origins

(1750)

Era of

Institutional

Development

(1850)

Jones &

Monesion 1990s Marketing History

Integration

of Practice

& Thought

Expanding the

Scope (1969-

1979)

Emerging

Discipline

Wilkie &

Moore 2003 4 Eras of Thought

Vargo & Lusch 2004

Schools of

Thought

Lusch 2007

AMA Marketing

Definition Marketing with

Kotler 2010

Evolution of

Marketing

Concepts Postwar Soaring Turbulent Uncertain One-to-One

Financially -

Driven

Kotler 2012

Marketing

"Philosophy"

Kumar et al. 2012

Marketing concept

"Founding the Field"

Sales OrientedProduct OrientedProduction Oriented

Marketing as a Social and Economic Process

To market

Societal concept Holistic Marketing

Marketing to Manage the Environmental Imperative

"Sustainability Marketing"

Marketing to

Era of Refinement and Formalization(1930)

Long Before

"Pre- Marketing"

Classical and Neoclassical Economics (1800-1920)

Early/Formative Marketing

Marketing Management

"Formalizing the Field"

"A Paradigm Shift -

Marketing Management

& the Sciences" "The Shift Intensifies - A Fragmentation of Mainstream"

Production Oriented (1880 - 1930) Sales Oriented

Recording the Facts

Marketing 3.0


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Looking at early periodization of marketing thought, Keith‟s four-step evolution from the 1880s to the

1950s is found to be predominant and “thanks to Kotler, Keith’s periodization has become accepted

wisdom in almost every principle textbook today” (Marion, 2005, p.12). Similar to Keith‟s periodization

scheme, Kotler and Keller‟s concepts rely on a production concept, followed by a product, a selling, and

finally a marketing concept (Kotler & Keller, 2012). This is probably due to its convenience and the fact

that it is a “useful pedagogical simplification just like the four Ps” (Jones & Richardson, 2007, p.23).

Looking at more recent concepts, marketing scholars recognize the switch towards a more managerial

orientation around the 1950s evolving parallel to the new marketing philosophies. They agree that today‟s

marketing includes a much larger range of areas and that it evolved towards a complex and diversified

discipline (Wilkie & Moore, 2003) (Vargo & Lusch, 2004) (Kotler & Keller, 2012).

However, as Keelson (2012, p.35) outlines, “The development of a new concept may not necessarily

mean abolition of old concepts”. Some concepts might still work well in some industries and new ones

might just complete previous practices in order to make them more successful rather than replacing them.

Even if the periodization of marketing is highly criticized, it remains an easy-to use tool to explain

history and reduce events to a single catchphrase.

Looking at emerging paradigms, it seems that the pressure of the environmental imperative will

influence the marketing discipline most.

According to Kotler (2011), for too long marketing has been done without taking into consideration

the resource scarcity and its effect on the environment. Especially concepts as social marketing, defined as

“theory and practice of marketing an idea, cause, or behavior” (p.135), and demarketing, which relies on

the “practice of demand reduction” (p.134), will see their popularity increase.

Furthermore, there is already an extended literature about social, sustainable and green marketing.

According to Kumar et al. (2013), it seems that all these concepts finally merged into the larger idea of

sustainability marketing, taking into consideration the economic, social and environmental dimensions.

Thus sustainability marketing is defined as “building and maintaining sustainable relationships with

customers, the social environment and the natural environment” (p.605)

Given the huge challenges of the 21st century, which bring along a rich souffle of new ideas, the

examination of emerging paradigms seems of vital importance. This is the fundamental reason why this

paper tries to figure out how the upcoming period of marketing could look like by giving value-adding

contributions benefitting marketers of the future.

2. A TWO-STEP METHODOLOGY

A two-step methodology has been applied in order to define the emerging marketing paradigms as

well as their managerial applications. It was judged necessary to split the analysis into two parts, given the

broad aspect of the topic. The aim of the first part was therefore to gather, group and analyze the most

important primary data, whereas the second part should give unique outputs from experts by taking the

results of the first part as a guiding tool.

A trend pyramid has been set up first to establish the most relevant changes from macro

environmental, social, emotional and spiritual perspectives. Second, a two-round Delphi study with seven

experts in the field has been accomplished to gather their personal opinion on future marketing evolutions

by commenting, rejecting or adding trends defined previously. Finally, the key insights are gathered into

four main paradigms as well as the attached managerial recommendations for marketers.


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3. THE TREND PYRAMID

3.1. Introduction

In the 19th century, the word “trend” was mainly accepted to define a way through which something

changed. The only industry that studied trends before the middle of the 20th century was fashion. At the

beginning, fashionistas relied on what fashionable people wore until more sophisticated trend consultancy

companies, such as Tobe Associates, opened in 1927, and influenced the future of the fashion market.

However, outside the fashion industry, commercial trend analysis remained less attractive. Only up

from the 1970s, “futurologists” such as John Naisbitt (Megatrends (1984)) Faith Popcorn (The Popcorn

Report (1992)) and Gerald Celente (Trends 2000 (1997)) brought trend analysis to mainstream through

their worldwide bestsellers. In the 1990s, trend-forecasting agencies started to be launched and some years

later insight and research departments of big corporations started using forecasting practices.

Even if trends have always been of importance, they seem to provide a more vital impact today. The

acceleration of changes, the blurring of boundaries, the rising power of consumers and globalism, to name

only some, are factors, which make trend spotting a must for companies in order to remain competitive.

Consumers have behaved alike during many years, however quick evolutions can lead to radical changes in

the consumer appetite. Marketers need to know what influences purchase, where the new product niches

are and how those can evolve (Higham, 2009).

3.2. The process

To adapt an overview of emerging trends, the latter have been categorized according to these four big

groups (macro environmental, social, emotional and spiritual) into a trend pyramid (Appendix 2).

Consumer trends are probably some of the most important inputs for marketers as they are most likely

to define whether a product or service is going to sell or not. However, non-consumer trends also need to be

considered as they influence consumers and businesses. The latter include macro environmental trends,

such as political, economic or technological changes.

Finally, emotional and spiritual values will be analyzed as “today’s marketers try to touch consumer’s

mind and heart” (Marketing 2.0), and they will even have bigger impacts as the era of marketing will have

to encounter “human aspirations, values and the spirit” (Marketing 3.0). According to Kotler et al.,

marketing is moving “from products, to consumers, to the human spirit”, making it vital for marketers in

the future to know about their customers‟ spiritual values (Kotler et al., 2010, p.4).

All the selected trends are those who were the most often cited among trend or company reports (e.g.

Havas Worldwide, Trendwatching, JWT, Euromonitor, McKinsey, Global Institute, PSFK, Nielsen) as

well as forecasting books (e.g. The Economist, Jorgen Randers) and other articles (See Image 1). As

mentioned by Bhargava (2014), four factors need to be taken into account in order to make this trend report

useful, mainly the objectivity and creativity, a proof and a likely future application of the trends1.

1 For the complete trend analysis, please refer to Barthel, 2014


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Figure 1.

3.3. The results

After having analyzed 58 trends2, seven characteristics were filtered across the analysis. They rely on

different changes in consumer behavior, which are likely to further intensify in the future. Those were the

following:

Increasingly personal, individual or self-centeredness, which is related to the fact that people become

increasingly self-focused. Change seems to be less political but more personal, where national movements

seem to be overtaken by increased individualism and collective actions. “Millennials” have a personal

relation with their brand and require products to be increasingly personalized. Families want to self-

promote moving their newborns from “seen and not heard” to a source of family branding. Leisure should

enhance personal wellbeing and new forms of secular religion seem to change from daily pray and duty to

obey God towards a pleasure moment and a self-help movement.

Sustainable conscious: Many trends reflect the rise of sustainability consciousness. Resource scarcity,

alternative energies and reduced foodprint underline the need for environmental sustainability. Product

upgrades look to endure the consumption process, recycling should enhance sustainable consumption and

consumers want to live green and consume guilt-freely. Long-termism and “enoughism” (“less is more”)

highlight the spiritual needs towards such a consumption.

Efficiency: With overloaded agendas, no time can be wasted during leisure activities, so that even the

latter must be invested in a way it is providing multiple benefits. Products and services must be convenient

and easy to use and must provide instant information and pleasure. It seems that consumers increasingly

seek for efficiency, maximization of their time utility and highest convenience in every sector.

Looking for the cheapest alternative: Heavy social burdens and rising inequalities restrict consumer

budgets. Sellsuming platforms, where the consumer is the seller at the same time, as well as other frugal

innovations and discount retailers underline this trend.

2 Idem 1


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A need for wellbeing and balance: Megacities and long working hours increase stress levels.

Improved leisure, therapies, back to nature movements as well as the Internet of caring things generate the

best way towards increased wellbeing and balance.

Higher independence: As the state cannot keep its promises, the nation, which once reunited, seems to

loose adherents. Similar to individualism, independence underlines consumers‟ autonomy. Consumers

become independent craftsmen and elderly look to maximize self-sufficiency. There is a need for privacy

and the aim for independent self-mastery.

More power: In the digital age, social media will reveal hidden secrets and put even more pressure on

companies to become increasingly transparent. Immediate information only accelerates the latter. Finally,

through enormous idea generation on the web, consumers will take more decisive power in the production

process.

3.4. Conclusion

Finally a trend is of interest to a marketer only if it provides a return. Change that cannot be exploited

for profit should be discounted. In marketing terms, a trend is therefore best defined as “a long-term

change in consumer attitudes and behaviors that offers marketing opportunities” (Higham, 2009).

In this part, the trends have been summarized according to emerging consumer behavioral patterns,

whereas the following part will give more information about the impact of rising paradigms on the

marketing discipline.

4. THE DELPHI STUDY

4.1. Introduction

A Delphi method has been selected to gather the opinion of experts. Important to note is that in this

paper, equal importance has been attributed to the various trends analyzed in the previous part and the

outcomes of the Delphi study. Due to the fact that the topic is wide reaching and covers a large area of

concepts, it was difficult to find consensus among the participants, as some of their opinions vary greatly.

Additional iterative rounds and geographically limited scope of the panelists have could further deepened

the Delphi study.

The Delphi method is applied in order to collect the opinion of experts having already several years of

experience and knowledge in the field. It can be used as a valid instrument for qualitative forecasting in the

medium term (Bonnemaizon et al., 2006). A Delphi method is extremely useful in a context of a fast-

changing environment, where the future is more likely to depend on actual changes than on past

happenings (Hayes, 2007).

Rowe and Wright (1999), define four key characteristics on which a classical Delphi method is based,

mainly anonymity, iteration, controlled feedback and statistical aggregation. Only a classical method,

which includes the four-step process, can be classified as a Delphi method. However other analyses show

that the method can be adapted in order to encounter the needs of a given study (Skulmoski et al., 2007). In

this paper, the Delphi study rather corresponds to an adapted than a classical method. The selected experts

must have a strong experience in the field and their expertise as well as their knowledge should reflect the

full scope of the topic. The minimum number of experts should be around 5-7. (Bonnemaizon et al., 2006).

In the framework of this Delphi study, the above-described criteria have been taken into account. In

agreement with Professor Baeyens, Professor in Marketing at the Solvay Brussels School of Economics

and Management, the two survey rounds have been launched. The validity of the applied model is thus

guaranteed.


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4.2. The process

The experts selected for this study were academic professors or lecturers with a relevant prior

experience in the field of marketing. The survey was sent to 40 professors, seven out of the 40 participated

in the first round. Six out of the seven participants live in Belgium, whereas one comes from Vietnam. The

limited geographical scope of the Delphi members is mainly due to a restricted access to valid experts and a

relatively short timing to complete the study (around 30 days).

The first round questionnaire consisted of a brainstorming, whereby the experts needed to define the

leading marketing paradigms. They were asked to cite the most important trends impacting the marketing

discipline and were free to use or comment on the trend pyramid set-up previously.

The second round summarized the main concepts, which came out during the first round. It was

requested to answer all the questions according to a Likert-scale and additionally, the participants were

asked to give feedback or comments if they wanted to add some additional information and/or reflections.

The questionnaire of the second round summarized the most relevant concepts, which were most often

repeated and/or explained most explicitly. Poorly represented concepts were partly not considered here in

order to guide the participants in solving the extremely vast topic. Finally the Likert-scale used in the

second round provided limited feedbacks and comments resulting in a compromise rather than a consensus.

4.3. The results

During the second round, six out of seven respondents answered the questionnaire. Thus, an artificial3

consensus on the main concepts was found and it should therefore be clearly mentioned that the results

cannot be inferred. The second round outcomes should be regarded as a weight to be given to the different

statements. The statements, which were not agreed upon, should not be regarded as invalid.

All of the interviewees agree that in the future marketing will be highly customized and that the future

marketer should be extremely consumer centric and highly analytical. One panelist said that we actually see

a social technology treatment for marketing. Different techniques such as data mining give companies the

possibility to better customize and increase their own efficiency as well as those of their consumers.

Semantic and/or context-based marketing, which enables more effective targeting of advertisements, helps

to better understand consumer behavior by looking at consumers‟ reactivity towards different media.

Furthermore, tools such as Ajax provide effective word suggestions by guessing what people are willing to

do. All this leads to a higher customization of marketing as well as more effective social orientation

through an advanced knowledge of customers.

A demassification of marketing was accepted as a growing phenomenon. Thus, one of the

challenges will be to find a balance between mass trends and fragmentation of markets. Whereas the

fragmentation of markets has already stated itself a long time ago, the fragmentation of societies leads to an

even higher myriad of communities. Whatever will unite people as a community will be of higher

importance as what will unite them as a nation or as a collectivity. This will lead to the emergence of micro

niches serving different consumer tribes. In contrast to mass marketing, the demassification of marketing

takes into consideration the consumer as an individual, rather than as whole market.

The challenge of spending restraint on marketing has been majorly accepted from a dual viewpoint.

In a period of spending restraint, not only do consumers buy less, but also do companies limit their budgets.

Lots of companies lower their prices as a result of increased competition on the market. They focus on

actions producing immediate results and with a direct impact on sales.

3 As mentioned by Yousuf (2004), ignorance of disagreements can induce artificial consensus as group members might drop out

during the study and a poor summary of the group response can lead to a biased final interpretation.


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Another challenge is to make the customer pay for something, which he can find for free or notably

cheaper elsewhere. Through an increased offer of services and intellectual output, it is much more difficult

for the customer to evaluate the latter. Especially the younger society, which is more used to this kind of

consumption, will be less eager to pay for services, as long as there is a cheaper offer. Free services (e.g.

smart phone applications) will make it difficult for companies to generate revenue.

Regarding the effect of sustainability and spending restraint on marketing, they should be specified

according to different regions or consumer groups. Sustainability is likely to be only valued by a western

elite as it widely remains a luxury problem and, besides, lots of company scandals reveal green-washing.

Furthermore, in emerging countries, where the GDP starts to explode, higher spending rather than budget

cuts can be observed. A higher variation among the experts‟ nationalities could have eventually led to

stronger differences concerning their opinion on this subject.

Experts approved that consumers are becoming less loyal. This is likely to be induced through a

limited purchasing power, instant satisfaction as well as the ease to use a priory unknown product. As the

consumer looks for convenience, he quickly switches to different products, as the latter are cheaper or

provide easy to use features. In contrast to branding, his loyalty will more depend on such products or

service features (e.g. Snapchat). Thus, as the consumer has more and more choice, he will become tired of

choosing. However, it is not true that most of the consumers buy now less than before. It still depends on

the price. Whereas before, during the period of mass consumption, consumers bought in order to possess,

today they buy in order to use: „It is all about utility‟ as an expert mentioned. There are probably not less

products and services sold as long as they provide more differentiated utilities or provide the possibility to

be rented or sold after usage.

Marketing for selfies was another emerging concept all of the interviewees agreed upon. This is

similar to what was stated during the previous analysis: the fact that consumers become increasingly

individual and self-focused.

Finally, looking at the challenges for the future job as a marketer, all the characteristics seem to be

important whether it is being analytical, creative or informed about what is happening in the world.

According to the experts, marketing evolved towards a complex and diversified discipline; in the future a

higher specialization in diverse areas will be needed in order to remain at the head of competition.

4.4. Conclusion

The outcomes of the study helped to further deepen the understanding of the topic and enlightened

aspects, which have not been considered during the trend analysis.

It is interesting to notice that most consumer behaviors identified prior to the questionnaire were

mentioned among experts, especially emerging paradigms such as restricted spending, higher efficiency

seeking and increased individualism and self-centeredness. A more important need for wellbeing and

balance were also evoked several times among interviews in the first round. A higher independence or

increased consumer power due to the digital age have not been further highlighted. The opinions about

topics such as sustainable consumption or sustainability marketing were controversial. As most agreed in

the end, this topic should be split among regions and consumer groups.

Looking at these evolutions, it is no surprise that a marketer should stay long-term minded in a short-

term driven environment. In addition, companies and marketing education need to adapt to encounter these

challenges.

5. DISCUSSIONS

Looking back at the complete analysis, four key points were defined in order to define the upcoming

marketing paradigms and its main challenges.


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5.1. Spotting, understanding and pre-empting trends as an imperative

As prior analysis to this paper (Barthel, 2014), 58 trends were analysed in order to define how the

consumers are changing and how this changes affect the marketing industry. It has been concluded that

trends can tell us a lot about changes in taste, style and behaviour. Whereas before trend spotting was

mainly done in the fashion sector, it is increasingly done in other consumer sectors as well. One example is

WGSN, which at first was only installed in the fashion sector, expanded its services to generate insights

and inspirations into the FMCG, automotive and technology industries. Furthermore, other companies such

as Nielsen or Euromonitor have been established in order to spot consumer habits. Finally, advertising

companies such as JWT, Havas, Ogilvy are as well highly established in the trend spotting industry.

However, there is still a lot of potential in this domain. Regarding the fashion industry, every fashion

company has his own group of trend hunters, travelling around the world and seeking for inspiration to

define the newest trends in every area (Dillion, 2011). Whereas fashion relies still on a faster product

lifecycle, it might be farfetched to say that other sectors should not relate on trends in order to invent,

inspire and create. Especially by looking at the ever-faster moving society and its changing consumer

habits, products and services seem to evolve at an accelerated pace than in earlier times. As new markets

are developing and younger consumers are guiding consumption patterns, they will bring along cultural

differences, new tastes and behaviours. These opportunities should be taken into consideration. New needs

will develop and inventive minds are needed in order to encounter those desires.

Looking at current marketing professionals, we can distinguish “the creators” on one hand and “the

marketers” on the other. However, this categorization is probably going to disappear. “The future trend is

that marketing teams are becoming empowered to see themselves as creators.” (Marketing news, p.39). As

advertising agencies will still be responsible of the actual content, marketers will have a “much stronger

role in shaping the brief and understanding the right tone for the material to be presented to the customer”

(p.39). Furthermore, the lines between people who invent and those who sell will blur away “because

products are already being perceived largely as having marketing built into them” (Marketing news, p.40).

Thus, the main challenge will be to collect different insights and trends, categorize and prioritize them

in order to come up with innovative ideas. This will even be more difficult as companies still evolve in a

short-term driven environment, whereas such long-term oriented innovations will be shaping the future

developments.

5.2. Personalizing and customizing marketing value propositions, access by customers and

communication

As mentioned before, people seem to become increasingly self-centred and individualistic. What

reunites them as a nation is becoming less important than what reunites them as a community.

Communities are gathered at a higher extend through common values, beliefs or tribes than nations,

territories, origins or families. Globalization further triggers this myriad of communities and heterogeneities

spread as people move, travel and interact more. The community replaces the nation as national

characteristics blur away, other identities must be built. Looking at Millennials, they look for brands that

reflect their personality as they continue to identify themselves increasingly through their common interests.

All these heterogeneities, whether individual or communal, give rise to more micro-incentives. As

mentioned during the Delphi study, marketing for selfies could be best attached to this evolution as it stands

for taking increasingly personal values into account due to higher self-centeredness. A demassification of

marketing takes into account the individual as unique rather than a market as a whole. Thus, customization

and personalization becomes a must for future marketers.

“If you don’t have a great customized, personalized user experience at the center of what you do

looking forward, you’re going to lose out.” (p.41, Marketing news)


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Big Data will develop as a major tool to encounter this consumer-centric marketing approach and

increasingly help marketers focus on individuals, small size communities and specific, newly identified

niches.

5.3. Promoting conscious consumption: it is time for "conscious marketing" to eliminate waste

Whether you look at spending restraint, resource scarcity, convenience or utility, all these trends seem

to have one common impact: conscious consumption.

While consumers‟ buying power might decrease, consumption is done more consciously. As

environmental or social issues worry individuals, they start to consume guilt-freely. This does not mean

that consumers are going to buy less, however utility will replace possession. It will be more important

whether a product is convenient or easy to use than the mere fact to own a variety of products or services.

Whereas impulse purchase might, in some cases, decrease in importance, consumers could even buy more

because the products serve them, and they see a higher value behind. The „Less is more‟ mantra will

therefore not always be applicable to the majority of people as more products can still give the wanted

higher utility or value. In contrast to consumerism, conscious consumption should stop at the point where

more consumption could make people tired, more worried or indebted; especially when the products do

only serve to fulfil fundamental needs, such as psychological and security needs, without adding further

higher value (Naish, 2012).

This has two impacts on marketing. First, it means that in the future waste will have to be eliminated.

This does not mean to adapt demarketing strategies in order to weaken demand of a product or a service. It

suggests, as consumption becomes more conscious, that marketing should become more conscious as well,

for example by reducing bombardments of advertisements resulting in aggressive and useless

communication. As consumers will give permission to be “acquired” by accepting to reveal personal

information, marketers can reach them differently and thus cut tremendous amounts of waste through

efficiency as they can provide consumers with “the right thing, at the right moment at the right time” (p.37,

Marketing news).

“The way we’re going to reach people is going to help them cut out a whole load of that bombardment

from their lives and they’ll only see what they need to see.”(p.43, Marketing news)

Secondly, as consumerism seems to disappear over time, considered consumption could lead people to

purchase more as the products and services give them higher value by satisfying higher needs. As Kotler et.

al. stated: Marketing 3.0 will rely on “human aspirations, values and the spirit”, climbing even higher in

Mashlow‟s hierarchy to finally fulfill needs of esteem and self-actualization.

“The brands of the future, the marketing messages of the future, are those that tie their offerings to

some improvement in their customers’ lives - not just the promise of improvement, but an actual, tangible

framework for improving yourself. …” (p.39, Marketing news)

5.4. Humanizing the digital lifestyle and the power of data

Our lifestyle is already highly digital, which will intensify in the years to come. Today we have smart

phones, tablets and laptops; in the future, we will have passive digital devices, integrated sensors,

artificially enhanced intelligence and connected living places. Physical is going digital; things, people and

places will be all around connected. This leads to more instant interactivity and interconnectedness.

Whereas this might seem futuristic, the reality that such devices become affordable for mainstream

consumers might not be so far away. Looking at wearables (e.g. Fitbit Force) or connected things (e.g.

Nest), it is obvious that others will follow. Whereas such devices are still highly discussed due to privacy

concerns, they might enter the mainstream sooner than expected. As companies become more transparent,

consumers might become more eager to let them use their personal data or even offer personal information.


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Brands could thus use them proactively, providing customers advices on what to buy and on how to save

money (Trendwatching, 2014).

Data seems to flow out of every channel. What data can promise is the possibility to reduce waste and to induce micro-relevance at a one-to-one level. A curation environment will provide the right thing to the right person and this at the right time. However, this entire data stream and the attached outcomes will finally lead to suspect marketers‟ intuition. Whereas stories are built around how consumers are going to react to events and what this would be inducing, data will actually show if such intuitions are right or wrong (McKinsey Quarterly, 2011).

“Algorithms and experimentation will replace psychology and vision as the heart of marketing.” (p.43, Marketing news)

Thus, it might be that algorithms will replace a majority of the nowadays-needed psychological and sociological skills and we will finally see a dehumanization

4 of the marketing discipline. However, every

marketer or human being in general, probably hopes that the human impact to products and services will never completely disappear, as it is that input that adds the creativity and disruptive touch to make every output unique.

All together, future challenges should be welcomed. They have to be regarded as opportunities rather than threats. Whether it is for strategy, operational activities, products or services, marketers should continue to inspire creativity, empathy, data analysis and a long-term orientation in order to embrace challenges and take actions when needed.

6. CONCLUSIONS

The aim of this paper was to analyze emerging marketing paradigms as well as their managerial implications. One can conclude that most of these objectives were reached. Emerging paradigms were defined by looking at the different trends and evolutions happening in today‟s world. On top of that, a Delphi study was conducted in order to take into consideration experts‟ opinion about the future of marketing practices and trends. However, due to the large scope of the subject, it was difficult to come up with one concrete conclusion. Therefore, the final outcome is conceptualized in four categories.

An important limitation comes from the fact that, for the sake of operational matters, the Delphi study was conducted among academic professors or lecturers only, most participants actually living in Belgium. This is limiting the expertise and geographical scopes. That bias should be avoided in further research.

For this paper it has been decided to adopt a helicopter view on the topic in order to create the playing field for further studies. Indeed, it seems that, till now, most of the marketing periodization statements were only made after they already happened. The outcomes of this paper might therefore be limited to statements and the attached managerial challenges they will bring along in the future. Further strategic or operational insights could thus add useful value for deeper practical application.

Prior to this study, sustainability marketing seemed to becoming the leading marketing paradigm of the future. However experts‟ opinions did not value that statement. As already mentioned, this might have been due to the fact, that sustainability was often related to environmental sustainability. Thus, the topic could be analyzed further, as leading marketing experts tend to highlight such social, environmental, individual and long-term sustainability issue.

Another interesting topic, which was also mentioned several times among experts, was the challenge of the increased spending restraint. Whether from a consumer or a marketer‟s point of view, it seems that budgets are shrinking and will further do so. As one interviewee said, it is not about finding frugal innovations but about the invention of new business models, able to generate revenue with such products or services. More importance has thus to be allocated to the factors that determine value for consumers with a limited buying power. Marketers have to encounter those challenges with a limited corporate budget.

4 According to one Delphi expert.


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Yet, this paper provides some solid insights about the marketing discipline as well as its probable

leading paradigms of the future.

REFERENCES

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Firm Performance under Balanced Scorecard Approach and Firm Value - A Case of Listed Non-financial Companies Listed in

Ho Chi Minh Stock Exchange (HOSE), Vietnam

Lai Dai Nghia, Vo Thi Quy

Department of Business Administration, International University -

Vietnam National University HCMC

Email: [email protected], [email protected]

ABSTRACT

The research was conducted to study the relationship between firm performance measured by using Balanced

Scorecard (BSC) approach, and firm value (measured by Tobin’ Q). Specifically, the aim of the study is to measure the

impact of Customer Related perspective, Internal Business Process perspective, Perceptual Financial perspective, and

Learning and Growth perspective on Tobin’s Q of non-financial companies. The research combined the primary data

collected by using survey questionnaires and data driven from the financial statements of 226 firms listed in HOSE.

The multiple linear regressions were used to explain the direction and strength of relationship between firm value and

four firm performance perspectives above. The research results addressed that Customer Related perspective, Internal

Business Process perspective, Learning and Growth perspective and Perceptual Financial perspective have positive

impact on firms’ Tobin’s Q significantly with Beta coefficients of .119, .071, .079 and .079 respectively. The findings

confirmed the consistency of performance measurement based on BSC in developing economy context such as

Vietnam and bring in some managerial implications to Vietnamese firms.

Keywords: Firm performance, Balanced scorecard approach, Tobin‟ Q, HOSE

1. INTRODUCTION

In recent year, the business environments are continuously changing and the customer requirement is speedily advancing. Moreover, it cannot deny the fact that the efficiency of firm performance measurement

is one of the most significant and critical factors to enhance the survivability of firm (Parida and Kumar, 2006), since it is connected with decision making of managers, operating performance improving,

managerial compensation, firm objectives setting and firm strategies planning. Besides, according to H. James Harrington (1987, p. 43), “measurement is the first step that leads to control and eventually to

improvement. If you can‟t measure something, you can‟t understand it. If you can‟t understand it, you can‟t control it. If you can‟t control it, you can‟t improve it”.

Firm performance measurement system consists of two group that are financial, and non-financial measurement system. According to financial or traditional measurement system, the firm performance is

evaluated by financial ratio such as ROE, ROA, ROI, EPS, market share and so on. However, the researchers argue that the overall perspectives of firm performance could not fully demonstrate when using

these ratios (Neely, 2007). Additionally, several indicators of non-financial measurement system such as customer satisfaction, employee satisfaction and operating efficiency etc. are significantly important with

firm performance progress in the future. Despite the fact that the firm performance measurement in non-financial dimensions are as important as the financial perspectives, the organizations mainly emphasized on

financial measurement which only reflect past outcomes and lead to the lack of balance situations, instead

of paying more attention to the non-financial dimensions. Moreover, Olve, Roy and Wetter (2001) mentioned that financial measurements failed to provide sufficient guidance for long-term strategies and

development.




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Currently in Vietnam, most of the firms also mainly focused on financial indicators to measure firm performance. These measurement styles are too limited in some firm perspectives and ignored other critical dimensions. Moreover, with regard to the prospect of Vietnam enterprises, they are extremely difficult to battle with the foreign giants in the dynamic and global business environment. Besides, they also have highly difficulties to determine their long term profitability, to better meet customer satisfaction, to motivate their employees, and to move their business to global rather than local.

Consequently, based on the above stated difficulties, the research identifies that it seems to be a lack of an integrated performance measurement system that could gain the whole corporate picture, measure both financial and non-financial perspectives, make sure that one dimension or set of dimensions not stressed by the other, better insight into where modifications are required in other to improve their currently firm value as well as enhance the internationally competitive ability. This is true for all companies in Vietnam including listed firms in HOSE as a case study. The need of these firms is the rationale for this paper.

Therefore, this research was conducted to find out the integrated performance measurement system and study the relationship between firm performance was measured by using Balanced Scorecard approach, and firm value – which was presented by Tobin‟ Q of non-financial companies. Specifically, to identify which firm performance perspectives impact on firm value significantly as well as measure the impact of each perspective on firm value of listed companies in HOSE. In order to reach objective above, the major research question is how the firm performance under Balanced Scorecard approach impact on firm value?


2.1. Firm performance and balanced scorecard

2.1.1. Definition of organizational performance measurement.

According to Nanni, Dixon and Vollmann (1990), the performance measurement systems were defined as a means of monitoring and maintaining organizational control which is the process of ensuring that an organization pursues strategies that lead to the achievement of overall goals and objectives. Additionally, Moullin (2003) suggested that the performance measurement was used to assess how well organizations are managed and the value was delivered to customers as well as other stakeholders of organization. Moreover, the definition of performance measurement was more detailed by Amaratunga and Baldry (2002), which created the organization‟s fundamental foundation for evaluating, measurement their actually ability to achieve the long term objectives as well as supporting enterprise to recognize the currently strengths, weakness, opportunity, and risk of firm, and looking for the solution to solve it and improve the organization performance in the future.

In conclusion, this research will combine all above definitions and the performance measurement will be defined as a systematic process that was adopted to observe, gather, classify, analyze, evaluate, and interpret the appropriate information about the past activities of organization, in order to find out the issues within the organization, then solve these problems to improve its performance and finally achieve the predetermined goals and objectives of organization.

2.1.2. Performance measurement system

Many years ago, traditional performance measurement originated from the accounting domain such as ROE, ROA, ROI, debts, equity, and profits… were mainly used. However, since late of 1980s, due to the environment of organizations and nature of work had changed, many researchers and organizations appreciated that these measures were insufficient and associated with several following limitations:

First of all, the traditional performance measurement was almost overemphasized on short-term financial results (Kaplan and Norton, 1996). Secondly, these measures are mainly backward looking which could only reflect the results of decisions already happened in the past and unable to predict the


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organization performance in the future (Kaplan and Anderson, 2007). Thirdly, they fail to link, translate and measure the performance from a strategic level to an operational level, therefore, they could not find out the solution to solve critical issues of organization (Kaplan and Norton, 1992). Finally, according to Neely (2007), this performance measurement did not consider nonfinancial and intellectual capital that significantly impact on the survival of enterprise.

Moreover, in knowledge based economic, many companies have confirmed that financial measures

less important as compared to nonfinancial measures which were used to reflect effectiveness of operation,

the overall situation of firms, and the trend of firms in the future.

Consequently, in order to gain the advantages of both measures types, performance measurement

system using multiple indicators were widely encouraged (Kaplan and Norton, 2001). Besides, following

the above criticisms, a various performance measurement systems were developed and emphasized on

multi-indicators such as Benchmarking, ISO9000, TQM, Balanced Scorecard, Performance Pyramid, etc.

Furthermore, although the selection of relevant performance measures will depend upon the specific

situation of each company, the Balanced Scorecard model was widely recognized as one of the most

popular approaches was used to assess and manage corporate performance (Kaplan and Norton, 1992,

1996).

2.1.3. Firm performance under Balanced Scorecard approach

The concept of Balanced Scorecard was firstly proposed by Kaplan and Norton through an article

series in 1992, this framework was constructed to design, evaluate and measure multiple factors that drive

the performance of enterprise. Moreover, this system provides a clear and concise outlook on the present

situations and an ability to achieve the overall performance of organization in the future. The model was

especially combined and balanced between financial and nonfinancial measures, short-term and-long term

objectives, tangible assets and intangible assets as well as internal and external performance perspectives.

In more detail, Balanced Scorecard is a comprehensive system that integrates and balances between

financial perspectives with non-financial perspectives: customer, internal business process and employee.

Customer-related perspective: The customer perspective supports an organization to answer the

question how do customer see us? (Kaplan and Norton, 1992) and to measure the ability of company in

achieving overall customer satisfaction that is the most important factor affect revenue and profits of all

enterprise. Besides, this perspective is considered as a leading indicators of future performance. Therefore,

this perspective is a core, significant and critical component of any business strategy which was used to

improve and achieve the ambitious financial objectives in the long-term.

The internal business process perspective: This perspective helps an organization to answer the

question what business processes must we excel at? (Kaplan and Norton, 1996). For this perspective, the

manager of organizations should mainly focus on identifying the internal business processes that are most

significant for achieving customer satisfaction, and shareholder objectives and are also required to excel

and compete with other competitors in the same industry (Kaplan and Norton, 1996). By focusing on these

critical required processes, it will improve the ability of firm to excel at delivery the value expected to their

customers, hence the indicators of customer perspective will be better and the financial outcomes will also

be supported. Furthermore, according to Kaplan and Norton (1996), the general internal business process

consists of three main components which are innovation process, operation process and after-sale service

process. Consequently, a systematic measurement should be covered all these parts to improve the overall

internal processes perspectives then to create the revenue of organization (Kaplan and Norton, 2000).

Learning and growth perspective: The learning and growth perspective helps an organization to

respond to the questions: can we continue to improve and create value? And how will we sustain our ability

to change and improve? (Kaplan and Norton, 1992, 1996). In other words, this perspective aims to


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determine and measure the ability of the company to continually innovate and improve their organization

performance. This perspective is the foundation of any strategies and concentrates on employees and

intangible assets of the enterprises. Moreover, Kaplan and Norton (1996) have pointed out that the

organizational learning and growth come from three principal sources which are people, systems, and

organizational procedures. These three sources are the drivers of success for the financial, customer, and

internal business process objectives. Therefore, staffs should be trained when they attain a certain level as

well as systems and procedures of firm have to be updated and improved to follow up with the progression

of technology. Additionally, enterprises should apply the technology to maintain their core values, leverage

their organizational system as well as create an excellent culture of firms.

Financial performance perspective: Kaplan and Norton (1992) have mentioned that financial perspective is identified with the question of how we look to our shareholders. With this view, financial dimension is actually used as the most traditional measurement in accounting based. Hence, it neither reveals the current situations of the business environment nor propose the future prospect. However, this perspective is still important and is retained because it could be used to determine whether the strategies, implementations, and executions to improve operating performance could indeed contribute to achieve the financial goals or bottom-line improvement (Kaplan and Norton, 1992).

2.2. Firm value

Refer to the prior researches, there are many approaches to measure the firm value. For example, some researchers used accounting based measures (ROE, EVA), P/B ratio, free cash flows, market capitalization, and stock price. Besides, the firm value in many others researches was measured by Tobin‟s Q (Demsetz and Lehn, 1985; Chung, K. H. and S. W. Pruitt, 1994; Gompers, Ishii, and Metrick, 2003; Klein, Shapiro and Young, 2005; Feng-Li Lin, 2010). In case of this research, Tobin‟s Q was adopted as a proxy for firm value because which is easy to measure, reliable, widely used and it was mixed between market value and accounting value. Additionally, the forward looking measures and market based are the main different attributes of Tobin‟s Q compared to the accounting based and backward looking measures of other firm value measurement methods.

Tobin's Q was initially proposed by James Tobin and William Brainard in 1968, which was defined as the ratio includes the numerator is the firm market valuation that was sum of the market value of equity and book value of liabilities and the denominator is the replacement or substitution cost which was measured by total book value of equity and liabilities (Tobin, 1969).

Tobin’s Q = Equity Market Value + Liabilities Book Value

Equity Book Value + Liabilities Book Value

Moreover, it should be noted that the higher value of Tobin‟s Q value, the better perception of market or investors about the firm value. The equilibrium of market value of firm and its total recorded asset value was occurring in the capital markets when Tobin‟s Q equal 1. Otherwise, the market value of firm is greater than the total recorded asset value when Tobin's Q is greater than 1 and the market value of firm was overvaluing, on the contrary, which will be undervalued if Tobin‟s Q value is less than 1.

2.3. Research hypotheses

According to the research of Demsetz and Villalonga (2001), the findings mentioned that the firm performance which was measured by the profit rate is significantly related to firm value. Additionally, the study of Chung, Wright, and Kedia (2003) which used Tobin's Q to measure firm value, that research confirmed that firm value (Tobin's Q ratio) has significant positive correlation with firm performance (profitability) and negatively correlated with risk.

In case of this research, the relationship between firm performance - which was measured by four perspectives of Balanced Scorecard and firm value – which was presented by Tobin‟ Q of non-financial


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listed companies will be tested. In order to examine this relationship as well as measure the impact of each perspective on firm value of companies listed in HOSE, the following hypotheses were designed for testing:

H1: The customer-related perspective positively and significantly impacts on firm value.

H2: The internal business process perspective positively and significantly impacts on firm value.

H3: The learning and growth perspective positively and significantly impacts on firm value.

H4: The perceptual financial perspective positively and significantly impacts on firm value.

Research model

Figure 1. Research Model

3. DATA COLLECTION AND PROCESSING

3.1. Data collection

3.1.1. Types and sources of data

The cross-sectional data was used in this research. Besides, data of this research was collected from

two different sources. The first one is online questionnaire survey which was used to collect the perceived

value of participant about their firm performance under Balanced Scorecard approach and the other one is

accounting data which was used to measure the Tobin‟s Q.

In more detail, the perceived value of participants about their firm performance was collected from middle managers of those firms via online questionnaire. The middle managers were chosen because they have the integrated viewpoint of top managers and bottom positions in their company. They also know details and deeply information that were reported from bottom people as well as understand vision, strategy of their company. The administering questionnaire was distributed online by posting the questionnaire in the Google forms (https://docs.google.com/forms/), sent to related participants (middle managers) via email, request them to fill out the questionnaire and return it to researchers when they completed it.

Furthermore, at the point of time that the questionnaire was returned, based on the firm‟s name was filled out on the questionnaire, the Tobin‟s Q value of those companies were calculated. This time was chosen to significantly reflect and correlate with the perceptions of participant about their firm performance. Besides, the data sources to calculate the Tobin‟s Q was gathered from annual financial reports, company‟s website and other related financial webpages of listed companies in HOSE.


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3.1.2. Sample size

There will be no unique and perfect answer when consider the question how large a sample should be.

According to Hair, Anderson, Tatham, and Black (2008), to conduct an Exploratory Factor Analysis,

and ensure the research reliability, the requirement of sample size is n ≥ 100 and n ≥ 5k (k: number of

observation variables). Hence, the minimum sample size of this research is n = 180 (=5 x 36 variables).

Consequently, the sample size of this research is 282 non-financial companies listed in HOSE which

satisfied the conditions for conducting Exploratory Factor Analysis.

3.2. Questionnaire design and measurement scale of firm performance

The questionnaire was used to collect perceived value of participants about their firm performance and

consisted of two main parts: general information and firm performance measurement.

General information part: This part included information about the organization's name, firm‟s

industrial sector, ownership types, and the operation year of each firm. In this part, the result of question 1

is the most important information which was used to identify and calculate the Tobin‟s Q that correspond

to particular firm

Table 1. The Items of General Information Part

Variable name Item

General information

GI 1

GI 2

GI 3

GI 4

Name of your company

Industrial sector of your company

What type of your company ownership?

How long has your company been in operation?

Note GI: general information.

Firm performance measurement: In this research, the four perspectives of balanced scorecard were

adopted to measure four critical perspectives of firm performance. Moreover, the questionnaire was

adopted from Niven (2002, 2008) and Blackmon (2008) research, which made the concept of the Balanced

Scorecard model into the perceptual survey. Additionally, the five-point Likert scale was applied to

measure the perception of participants. The participants were requested to choose the appropriate number

which corresponds to their attitude. The measurement scale is assigned from the lowest value is (1)

equivalent with “Strongly disagree”, and the highest value is (5) equivalent with “Strongly agree”.

The customer-related perspective of firm performance: Measurement items were adopted and created

based on the three value propositions: operational excellence which may refer to an enterprise‟s exertion to

reduce its inefficiency and defects and to excel in great value and quality, product leadership could be

attained by delivering innovative products and services that distinguish with other competitors in the

market, and customer intimacy which were correlated to the correlation between firm and its customers.

Table 2. Measures of Customer-related Perspective of Firm Performance

Variable name Item

Customer-related

CR1

CR2

CR3

The number of services/ products that your company provide has improved.

The quality of services/ products that your company provide has improved.

The type of services/ products that your company provide has improved.


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CR4

CR5

CR6

CR7

CR8

CR9

The average price of your services/ products is lower than your key competitors.

Your company takes actions to learn what services/ products customers need.

Your company consistently meets the expectations of your customers.

Your company has established a fine reputation due to your services/ products.

Your company introduces innovative and unique functional services/ products more often than

your competitors

Your services/ products are considered leaders in the market.

Note: CR: Customer-related perspective of firm performance

The internal business perspective of organizational performance: Measurement items were based on

four propositions of Niven (2002, 2008) and Blackmon‟s (2008) research; they are: operations management

measures which related to the perspectives of basic, routine, and day to day process correlated to firm‟s

core competencies; customer management measures are more related to the internal process of how the

firm can expand and deepen the relationship with its customers; innovation measures are connected with

creating and supplying new products and services to exceed its competitors; and regulatory and social

measures concerns with the issue how to create good relationship with external stakeholders.

Table 3. Measures of Internal Business Perspective of Firm Performance

Variable name Item

Internal business process

IB10

IB11

IB12

IB13

IB14

IB15

IB16

IB17

IB18

IB19

IB20

IB21

Your company has improved the planning processes of your company.

Your company has improved the quality control processes of your company

Your company has improved the service/ products delivery processes.

Your company has developed policies and procedures to increase customer satisfaction.

Your company receives less customer complaints than your company competitors

Your company constantly attempts to improve the brand recognition of your company.

Your company introduces more new services/products than your competitors.

Your company has better R&D cycle time for services/products than your competitors.

Your company is spending more dollars on R&D than your company competitors.

Program planning is based upon your company mission.

Management makes it easier to achieve your company mission.

Your company consistently follows services/ products quality protocols.

Note: IB: Internal business process of firm performance

The learning & growth perspective of organizational performance: Measurement items were created

based on the three forms of capital: human capital measures which were used to identify the development

of competencies and skills of employee, and how they are related to the employees productivity;

information, and organizational; information capital measures deal with whether an organization provides

its employees with certain physical and intangible tools, and certain access to information to get their job

done; and organizational capital measures are concerned with employee satisfaction, alignment between

employees and organizational strategy, and a healthy lifestyle.


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Table 4. Measures of Learning & Growth Perspective of Firm Performance

Variable name Item

Learning & Growth

LG22 LG23 LG24 LG25 LG26 LG27 LG28

Your company provides necessary equipment/ tools to accomplish your performance objectives.

You have enough information to make optimal decisions to fulfill your performance objectives.

You have clear performance objectives.

You have sufficiency core competencies to perform your job.

Your salary has increased which related with your productivity.

Your company provides the training that you need to meet your job requirement.

Your job is satisfying.

Note: LG: Learning and growth perspective of firm performance

The financial perspective of firm performance: The online questionnaire was used to measure the perceptual financial performance of firm. The measurement items were designed based on the ideas of Niven (2002, 2008). Moreover, these items must also satisfy three conditions. Firstly, they are able to apply to both manufacturing and non-manufacturing firms. Secondly, all items similar to non-financial measures will not be mentioned in this perspective. Lastly, those items have to be easily understood by participants.

Table 5. Measures of Perceptual Financial Perspective of Firm Performance

Variable name Item

Perceptual financial

PF29 PF30 PF31 PF32 PF33 PF34 PF35 PF36

Your company has improved its return on equity.

Your company has improved its return on asset.

Your company has improved its return on investment.

Your company has improved its fixed asset utilization.

Your company has improved its current asset utilization.

Sales of your company have increased.

Market share of your company has increased.

Net income of your company has increased.

Note: PF: Perceptual financial perspective of firm performance

The firm value: In case of this research, market value of equity is calculated by multiplying the share price and total number of outstanding shares at the end of first quarter of the year 2015 and market value of liabilities approximated to their book values at the same time. As a result, the following formula was applied to calculate the Tobin‟s Q of firm.

Tobin’s Q = Equity Market Value + Liabilities Book Value

Equity Book Value + Liabilities Book Value

3.3. Data processing

3.3.1. Sample description

282 online questionnaires were delivered via email to 282 non-financial firms listed in HOSE. Moreover, these firms were grouped into 12 industries: Agriculture, Forestry and Fishing; Arts, Entertainment and Recreation; Construction; Electricity, Gas, Stream and Air Conditioning Supply; Information and Communication; Manufacturing; Mining and Quarrying; Professional, scientific and


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technical activities; Real Estate Activities; Transportation and Storage; Water Supply, Sewerage, Waste Management and Remediation Activities; Wholesale and Retail Trade, Repair of Motor Vehicles and Motorcycles with the percentage of 2.7%, .4%, 12.8%, 4.4%, 1.8%, 35.4%, 3.5%, .9%, 15.0%, 7.5%, .9%, and 14.6% respectively. Then, 261 questionnaires were returned, yielding a response rate 92.5%. A careful check of collected data revealed that 35 questionnaires were not usable for data analysis because of either missing data or quality of returned questionnaires, so they are deleted from the analysis process. After the editing stage, 226 questionnaires were inputted and analyzed by the SPSS software version 21. The result illustrates that 64.6% or 146 firms that are combined private and state ownership and 35.4% or 80 firms that are private ownership. It means that the percentage of combined private and state firms is greater than the percentage of private firms about 1.8 times. Besides, 62.4% of these firms operated greater than 15 years and 12.8% operated under 11 years, lastly the 24.8% remaining firms were operated from 11 to 15 years.

3.3.2. Reliability test:

Table 6. Summary of Reliability Testing Results

Variables Number of item Cronbach's Alpha

Customer-Related 9 .899

Internal Business Process 12 .919

Learning & Growth 7 .915

Perceptual Financial 8 .911

According to Table 1., the internal consistency of these measurement scales was proved by the Cronbach‟s alpha coefficient of four perspectives which are high (.899, .919, .915 and .911), which also presents the initial scale of these factors is well set and the scale of these perspectives are highly reliable so all items were putted into Exploratory Factor Analysis.

3.3.3. Exploratory factor analysis (EFA):

The result of factor analysis expresses that KMO is .890 and the significant of Bartlett‟s test of Sphericity is p = 0.000 (<0.05), which indicates the degree of inter-correlation among items was suitable for EFA. Additionally, according to Table total variance explained, the total initial Eigenvalues = 2.887 (>1) and Cumulative % = 59.165 (>50%). So this model including 4 components were suitable for EFA. Moreover, based on the varimax rotation results, due to the high loadings of all items (over 0.5), no items were removed from the measurement scale of research. As a result, the initial research model is grouped into 4 components. Firstly, the component 1 (customer-related perspective) consists of nine items. Secondly, the component 2 (internal business process) contains twelve items. Thirdly, the component 3 named Learning and Growth perspective consists of seven items. Finally, the eight items with high loadings are grouped into perceptual financial perspective component.

3.3.4. Descriptive statistics:

Table 7. Descriptive Statistics

Variable N Min Max Mean Std. Deviation

Customer perspective 226 1.33 4.78 3.2257 .81356

Internal Business Process 226 1.75 5.00 3.3894 .77567

Learning & Growth 226 1.71 5.00 3.4886 .61420


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Perceptual Financial 226 1.63 5.00 3.5227 .65731

Tobin' Q 226 .55 1.41 .9762 .19983

According to Table 2, the mean value of four perspectives varied from 3.2257 to 3.5227 which indicates that the perception of participant about their firm performance is relatively positive. Additionally, the standard deviations range of these variables was changed from 0.61420 to 0.81356 which presents these listed companies have similar perception about these variables. Moreover, the mean value of Tobin‟s Q is .9762 < 1, which shows that the market value of almost firms listed in HOSE was undervalued.

4. RESEARCH FINDINGS AND FINDINGS DISCUSSION

4.1. Research findings

Correlation between customer-related, internal business process, learning & growth, perceptual financial and Tobin’ Q

Table 8. Correlation Testing Results

Variables 1 2 3 4 5

1. Customer-related 1.000

2. Internal business process .369**

1.000

3. Learning & growth .342**

.299**

1.000

4. Perceptual financial .268**

.325**

.397**

1.000

5. Tobin' Q .738**

.610**

.594**

.576**

1.000

Note: N = 226. **. is significant at the 0.01 level (2-tailed).

The dependent variable firm value (Tobin‟ Q) indicates correlation with the four independent variables Customer- Related, Internal Business Process, Learning & Growth, and Perceptual Financial via the positive correlation coefficients of .738, .610, .594, and .576 respectively. Moreover, since those correlation coefficients value are high (approximate and greater than 0.6) and their significant value equal 0.000 (less than 0.05), which indicates that there are positive, large, and strong correlation between these variables pair-wise. Furthermore, the correlation value between each pair of independent variables less than 0.4 and all significant value equal 0.000. Thus, there are weak relationship between each pair of independent variables.

OLS assumptions testing

The model summary, Anova results and Coefficient results were presented in the following Table 9

Table 9. The Multiple Regression Result Summary

Dependent variables Independent variables Coefficient t-value

Tobin‟s q (Constant) -.202 -4.970**

Customer-related .119 15.083**

Internal Business Process .071 8.548**

Learning & Growth .079 7.436**

Perceptual Financial .079 8.103**


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Note: **: is significant at the 0.01 level (2-tailed).

Model summary: R2 = .819; Durbin – Watson = 1.968

ANOVA: F (4,221) = 249.516; Sig. = 0.000, p < 0.05

VIF of all variables < 2

Durbin-Watson testing: In this research, from Table 9, the Durbin-Watson value is 1.968

(approximately 2), which indicates that there is no presence of Autocorrelation.

Multicollinearity testing: According to Nancy, Karen and George (2014), to prove the

multicollinearity problem does not occur, the Tolerance value should be greater than 1 – R2 and VIF < 2. In

case of research, all Tolerance value are higher than 1 – R2 = 1 – .819 = .181 and all VIF also smaller than 2.

Thus, the multicollinearity problem was not happened.

Moreover, the F test was conducted to evaluate whether the using this research model is appropriate.

Based on Table 9, the statistical significance of this model is .000 (p < 0.05), then it could be stated that the

model of this research has satisfied statistical significance and applicable.

Furthermore, based on the results of Table 9, R Square is 0.819, indicates that 81.9% of the variance

in the dependent variable Firm Value (Tobin‟ Q) could be interpreted by these four independent variables

which are Customer-Related perspective, Internal Business Process perspective, Learning & Growth

perspective, and Perceptual Financial perspective in this model. It is quite an expectable result.

Finally, the normal distribution of residuals was tested via Histogram Frequency chart, mean =

3.29E-15 approximately 0 and Std. Dev = 0.991 approximately 1 so the normal distribution of residuals

assumption was not violated.

Findings

From Table 9, the unstandardized Beta coefficients columns were used to describe the influence

direction of each independent variable and compare their contribution degree for explaining the outcome of

dependent variable. Consequently, the customer-related (CR) perspective was largest positive influent, the

learning & growth (LG) perspective and perceptual financial (PF) perspective is the same second large

positive effect, and internal business process (IB) perspective is smallest positive contribution via the

positive Beta coefficients of .119, .079, 0.79 and .071 respectively. Besides, all sig. value of four

independent variables are smaller than 0.05 which implied that CR perspective, IB perspective, LG

perspective, and PF perspective are significantly contributed to predict the result of Firm Value (FV).

As a result, the following linear equation was built up to model and illustrate the relationship between

the dependent variable (Firm Value) and four independent variables (CR, IB, LG and PF):

FV = -.202 + .119CR + .071IB + .079LG + .079PF

Moreover, based on the results of Table 4.2, the coefficient of four perspectives are positive and all p-

value of these perspectives are smaller than 0.05 (significant at the 0.01 level). Hence, these perspectives

positively and significantly impact on firm value. Consequently, the following four hypotheses were

accepted.

H1: The customer-related perspective positively and significantly impacts on firm value.

H2: The internal business process perspective positively and significantly impacts on firm value.

H3: The learning and growth perspective positively and significantly impacts on firm value.

H4: The perceptual financial perspective positively and significantly impacts on firm value.


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4.2. Findings discussion

The significant and positive relationship between four perspectives of balanced scorecard and firm

value is the most important finding, which indicate that the non-financial perspectives are also important as

the financial perspective, therefore the firm should pay more attention to the non-financial dimensions.

Moreover, the finding in this research indicates that the customer-related perspectives is the most

important factor affect the firm value of all enterprise via the highest coefficient (.119) and an organization

actually could not survive and progress if it could not gain the customer satisfaction. Therefore, this

perspective should be a core, significant and critical component of any business strategy to improve and

achieve the ambitious financial objectives in the long term.

Furthermore, the research has confirmed that the other non-financial perspectives: learning and growth,

and internal business process are actually effect on firm value via the coefficient (.079) and (.071)

respectively beside the financial perspective. It therefore recommended that the listed firms as well as other

firms should link their strategies with four balanced dimensions and make balanced scorecard as their

essential performance measurement method to improve the competitive advantage of firm.

5. CONCLUSION AND RECOMMENDATIONS

5.1. Conclusion

The research “firm performance under balanced scorecard approach and firm value – a case of non-

financial companies listed in Ho Chi Minh stock exchange (HOSE), Vietnam” was conducted to propose

an approach to evaluate firm performance of listed companies in HOSE. Moreover, the impact of firm

performance on firm value of these companies were also tested.

First of all, the research objectives were identified, then the associated concepts, definitions, former

theories, and previous research were reviewed to find out the research model. Additionally, by modification

and adoption from questionnaire of Blackmon‟s (2008), a draft questionnaire was developed. Then, a pilot

test was done to test the precise of the questionnaire. After that, a sample of 282 non-financial companies

listed in HOSE were surveyed. Besides, descriptive statistics was conducted to provide an overview about

the features of the collected data. Moreover, reliability statistic and exploratory factor analysis was applied

to evaluate the consistent and stable of measurement scale and to expose the underlying structure of a

comparatively large set of measured variables. Furthermore, the correlation statistic was used to test the

relationship degree between four independent variables and one dependent variable as well as the

relationship among four independent variables. Lastly, the multiple linear regression was analyzed to come

up with 4 components of firm performance and provide the evidence to support hypotheses on the

significantly positive impacts of these four components on firm value of these listed companies. In other

words, all four hypotheses were accepted by the empirical data in this research. In addition, among them,

the customer-related perspectives dimension with the highest Beta value (.119) has strongest impact on

firm value, next is learning & growth perspective (.079), and perceptual financial perspective (.079) and the

lowest Beta is internal business process perspective (.071).

In conclusion, the linear equation was built up to model and illustrate the relationship between the

dependent variable (FV - firm value) and four independent variables (CR – customer-related perspectives,

IB – internal business process perspective, LG – learning & growth perspective, and PF – perceptual

financial perspective):

FV = -.202 + .119CR + .071IB + .079LG + .079PF

5.2. Managerial implications

Base on the research findings, the following recommendations was proposed for the manager of firms.


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First of all, the research confirmed that there are four key dimensions of firm performance was emphasized and integrated in the BSC approach. It, therefore, recommended that the listed firms as well as others should link their strategies with these four balanced dimensions and make balanced scorecard as their essential performance measurement method to improve the competitive advantage of firm.

Secondly, in the fierce competition environment, customer perspective is significant factor in existing of firm. So the attention of firms must be given to seek out the answers for questions what the actual demands of customer are and how to satisfy them.

Thirdly, the internal business processes should be improved to satisfy the expectation of customers, expand the market share as well as increase the firm performance and firm value. Furthermore, in order to compete efficiently with other companies, the enterprises have to continually analyze, evaluate and systematically enhance their internal business processes as well as pay more attention on R&D activities to deliver superior goods and services to their customers.

Fourthly, from outcomes of the research, the learning and growth perspective are required to achieve the progress of firm performance and firm value in the long term. Therefore, the companies need to promote more training activities and emphasize the importance of learning and growth perspectives in their vital priority. Furthermore, systems and procedures of firm have to be updated and improved to follow up with the progression of technology. In addition, enterprises should use information technology to strengthen the organizational system, retain the core values, and create an excellent corporate culture.

Fifthly, the results of this research help enterprises find out the systematic measurement approach which could observe and evaluate how the organization is operating, particularly, determine how well the goods and services respond to the customer needs to improve their competition in the market. Additionally, this research has highlighted the significance level of non-financial dimensions in addition to the financial perspective as well as emphasized that the using balanced scorecard approach will result in numerous benefits for developing firm performance and firm value in the long term.

Finally, it cannot deny that the successful application of this approach does not come from a vacuum, therefore, the organization has to demonstrate and clarify the commitment and dedication to adopt the balanced scorecard method into their organization.

5.3. Limitations and suggestions for further researches

As with other research, this research also could not avoid some limitations. The restrictions associated with this current research and some suggestions for further research were mentioned below.

Firstly, the participants of this research was only selected from listed companies in HOSE. Thus, the findings of research could only be helpful for these firms and it is quite insignificant for other organizations. Otherwise stated, the generalizability of results will be improved if the scope of research were extended. Hence, the future research should cover more companies to gain better generalized outcomes.

Secondly, the limitations related to the primary data collection method that is the bias of participants when they answered an administering questionnaire. Although the data collection process was carefully taken to reduce the limitation of this method, biases of participants may still exist. Therefore, the future researches should use the other advanced methods to get better outcomes.

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29.


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Attraction of Employers Impacts on the Intention of Job Application for Senior Students of Pharmaceutical Universities

in the South of Vietnam

Nguyen Minh Ha, Nguyen Vinh Luan

Paper submitted to

The 1st International Conference on Corporate Social Responsibility and Sustainable Business

Development Ho Chi Minh City, November 27th 2015

ABSTRACT

The study is carried out in order to enquire about the impact of the attraction of employers on the intention of job

application of potential candidates who are senior students of pharmaceutical universities in the South of Vietnam.

With a sample size of 354 and the use of descriptive statistical analysis techniques, testing the reliability of measuring

scale, exploratory factor analysis (EFA), regression analysis and analysis of variance ANOVA, the results of the study

showed that there are three factors that have statistical significance with positive impacts on the intention for job

application of potential candidates including: interesting value, fair value and developmental value. In addition, the

study also found there is a difference between the groups of candidates with experience and ones without experience in

the intention for job application. According to the analysis results, researchers also propose policy implications to

build and to maintain an attractive employer brand to enhance the accessibility and attract potential candidates.

Keywords: Employer brand, Employer attractiveness, Intention, Job application.

1. INTRODUCTION

Human is one of the most important factors, determining success or failure, survival of an

organization. Therefore, attracting human resources of high quality has always been considered by the

company leaders (CEO) as a decisive factor that impacts directly on the success of the organization, and they invest a lot of effort and financial resources as well as nonfinancial resources to achieve the goal of

attracting talents. However, to accomplish this task is not simple. Especially for pharmaceutical companies in Vietnam. Currently, there exists a level of extremely fierce competition; and the "war for the talent"

among these companies is also becoming more and more vigorously. This situation requires every company to build an employer brand to attract potential candidates. Proceeding from the above

requirements, this study has gone into the details to understand the factors that make up employer attractiveness and how they impact on the intention for job application of potential candidates. From these

research results, solutions and policies are proposed to increase efficiency in attracting talents to the organization, to contribute to the management quality, and to enhance creativity of companies.

Structure of the study includes: part 2 reviews the theoretical basis and proposed research model, part 3 presents the research methodology, part 4 demonstrates the results of research and the final part is the

conclusions and policy implications.

2. THE THEORETICAL BASIS AND PROPOSED RESEARCH MODEL

Internal marketing is a term that has been studied and used widely in recent times, including internal advertising and internal brand building. One of the most important contents of this activity is employer

branding. This concept is defined as the benefits of organization envisioned by the potential candidates; it is

seen that this is as a special organization to work (Berthon et al., 2005). Berthon et al. (2005) studied to


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determine 5 elements of employer attractiveness including interesting value, social value, economic value,

developmental value, and application value. The impact of employer attractiveness on intention for job

application of employees is presented as follows:

2.1. Interesting value and intention to apply for a job

Each candidate, when making decisions to apply for a job or choosing their workplace, always has

assessments and analysis very careful based on many relevant factors and criteria. One of the most

important factors is the motivating, attractive working environment (Arthur, 2012). The attractive factor of

the company has a deep influence on the psychology and the intention for job application of candidates

(Bundy and Norris, 2011). In addition, the employer attractiveness has positive influence on the

organization's reputation. The greater this attractiveness is, the better organization‟s reputation becomes in

the public‟s mind (Sivertzen et al., 2013). Meanwhile, one of the most important criteria considered by

candidates to make decision whether they will apply for a job in a company or not is based on the

reputation of the company (Cable and Graham, 2000, quoted by Alain Milgrom, 2013 and Sivertzen et al.,

2013). Thus, the evidence shows that there is a relation between the attractiveness of company and

intention for job application of potential candidates through the reputation of the company. And interesting

value is one of the most essential components of employer attractiveness (Berthon et al., 2005). Based on

the above reasons, hypothesis 1 is proposed as follows:

Hypothesis 1: Interesting value of the employer has a positive impact on intention to apply for a job

2.2. Social value and intention to apply for a job

Corporate social responsibility with social activities, for community is one of the factors for

companies to attract potential candidates. Corporate social performance (CSP) of the company will transmit

signals to the potential candidates what a great work environment at the company. Social homogeneous

theory also stated that candidates will have much better self-image when they work for companies with

effective social activities. This is the reason why they want to work for companies with many meaningful

activities for the society (Greening and Turban, 2000). The level of implementation of corporate social

responsibility (CSR) or CSP will have a positive impact on making decision to choose the company to

work of potential candidates. This is a very important reference channel for them (Backhaus el at., 2002

and Andersen, 2008). The impact of CSR on intention for job application to a company of the candidates

will be stronger in case the candidates are confused, uncertainly in their decisions (Andersen, 2008).

Companies having full report on CSR will be easier to convince potential candidates to work for them than

companies that do not provide this information to candidates (Andersen, 2008). Moreover, it is not only

about supplying adequate information but also about ensuring the effectiveness of the companies‟ social

activities. The companies with better CSP have more chances of success in convincing potential candidates

than the company with poor CSP (Greening and Turban, 2000). In addition, the findings of Andersen

(2008) also inferred that information about the corporate social responsibility (CSR) will make the

evaluation mark of favorite work environment of potential candidates to be higher. This shows that the

candidates are always impressed with the social value of the company and this value has positive impact on

decision for job application of candidates. Based on the above reasoning, hypothesis 2 is proposed as

follows:

Hypothesis 2: Social value of the employers has positive impact on intention to apply for a job.

2.3. Economic value and intention to apply for a job

When applying for a company, most of the candidates always expect their future work to have a

competitive compensation and benefits compared to others within the market as well as the fair policy, the

employers‟ valuing employee‟s effort, brainpower and ability. Therefore, economic factor is one of the


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most fundamental and important elements for candidates to decide whether they should accept to work for

a company or not. (Tran Kim Dung, 2011).

The higher the salary of enterprises is, the more attractive they are to qualified candidates in labor market in order to expand their production, increase the scale of operations and the size of profit. (Neumark

and Cappelli, 1999, Tran Kim Dung, 2011 and Nguyen Quoc Tuan et al., 2006).

Nowadays, companies always find solutions to compete, attract, and retain human resources, which is

becoming more and scarcer in market (Aguinis et al., 2012). One of these solutions is economic factor.

Therefore, high starting salary and preferential finance will be reserved for potential candidates whom

they are obtained most attraction by company (Denning et al., 2011). The higher-rated candidates who are graduated from university through traditional education (direction learning) with doctorate‟s degree or

more than a year's experience will get a better starting salary and benefits than the underestimated ones who graduated via online courses with master‟s degree and no work experience. Thus, companies are fully

aware of the economic factors which would be the main factors impacting intended candidate‟s recruitment,

so that employers should use this solution to attract quality employees (Rechlin and Kraiger, 2012). Based on these reasons, the third hypothesis is proposed as following:

Hypothesis 3: Economic value of employers has a positive impact on intention to apply for a job.

2.4. Developmental value and intention to apply for a job

Apart from compensation and the sake of matters, employees including potential candidates always desire to develop their career and prove their own abilities during working time with the organization.

If a company responds and facilitates staff development, employees will be more likely to associate with the company in a long-term. These cohesion and positive perception about company point out an

intimate correlation. This is the value of staff development of each organization (Tansky and Cohen, 2001).

Moreover, these career administration will also help employees reduce stress, pressure and unsafety

working factors (Schnake et al., 2007).

In general, the value of career development is one of the most fundamental reasons that candidates

based on to decide whether they should apply for the company or not. This factor is considered as a lever, a company‟s handbook recruitment that attracts potential and qualified candidates to work for their

organizations (Bodderas et al., 2011). Based on the above reasons, the fourth hypothesis is proposed as following:

Hypothesis 4: Developmental value of employers has a positive impact on the intention to apply for a

job

2.5. Application value and intention to apply for a job

An organization will be highly appraised if they create and facilitate good environment for employees to study, to enhance their applied knowledge and trained skills to work and help others. This leads

employees to perceive that their applied knowledge are useful for both the company and the society. Hence, it will makes the candidates excited to work in such company (Sivertzen et al., 2013).

According to Sivertzen et al. (2013), application values always show positive impacts to an organization‟s fame. The company which facilitate and make employees contribute high applicability in

work will get a great repute and vice versa. What is more, one of the most important criteria that the candidate consider when applying to a company is its fame (Cable and Graham, 2000, quoted by Alain

Milgrom, 2013 and Sivertzen et al., 2013). As a result, it is clear that there is a relationship between application value and intended application of potential candidates via company's fame. Based on these

reasons, the fifth hypothesis is proposed as following:


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Hypothesis 5: Applied value of the employer has a positive impact on the intention to apply for a job.

2.6. Suggested research model

According to literatures review and the previous research, research model is proposed as follows:


This is a quantitative study employing descriptive statistics, examining Cronbach‟s alpha to verify the

reliability of research instruments, analyzing EFA, linear regression, and ANOVA. The 5-point Likert scale

of the dependent and independent variables was conducted based on previous studies by Berthon et al.

(2005) and Highhouse et al., (2003).

There are two phases in the research procedure: Preliminary and Official studies. The preliminary

study is the quantitative one carried out with 20 participants at University of Medicine and Pharmacy in

Can Tho and Ho Chi Minh City. The official study is the quantitative one undertaken with the involvement

of 354 seniors at these two universities.

4. RESEARCH RESULTS

4.1. Participant’s data analysis

The participants involved in the study include 214 females (60.5%) and 140 males (39.5%). In terms

of academic achievement, there are 237 students at above average rate with numbers making up the largest

percentage of participants, namely 66.9%. The number of students of moderate ability rank second with 79

people (22.3%), followed by the number of good students (10.5%). There is only one student (0.3%)

constituting below average achievement.

Regarding to their origins, most of the participants, namely 255 people, come from Mekong River

Delta, accounting for 72%. The number of participants from The Middle - Central Highlands took the

second place with 48 people (13.6%). 19 participants (5.4%) are from Ho Chi Minh city and 2 (0.6%) are


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from Red River Delta, leaving the rest 30 participants (8.5%) whose hometowns are other places in the

country. Considering part-time work experience, 156 students (44.1%) are experienced while the other 198

(55.9%) were not. This shows that the number of university students gaining work experience is relatively

high.

4.2. Description statistics of the variables in the model

Table 1. Description Statistics of the Variables in the Model

Symbol Observed variables Min Max Mean Standard

deviation

Interesting value

INT1 Company have a good environment working 1 5 4.55 0.660

INT2 Creative thinking is encouraged in company 1 5 4.02 0.787

INT3 Company produces the high quality drug which achieve

international standard as GMP-WHO, GMP-PICS, etc. 1 5 4.17 0.833

INT4 Company produces the drug which have new element, form. 1 5 3.91 0.873

INT5 Company have high value products which help increase

effectiveness of medical treatment 2 5 4.44 0.672

Social value

SOC6 Company have a funny environment working 1 5 4.27 0.787

SOC7 Company made comfortable and safety feeling for employee. 1 5 4.49 0.649

SOC8 Having a good relationship with superiors 1 5 4.45 0.705

SOC9 Having a good relationship with colleagues 1 5 4.36 0.718

SOC10 Supportive and encouraging colleagues 2 5 4.25 0.758

SOC11 All employee always have union 2 5 4.16 0.787

SOC12 Company concern social activities 1 5 4.01 0.843

SOC13 Company concern to do compensation and benefit policy for

employee 2 5 4.56 0.633

SOC14

Company takes care for employee‟s life such as organizing

employee birthday, buying healthcare insurance for

employee‟s family member

1 5 4.11 0.887

SOC15 Company use internal labour 1 5 3.60 1.033

SOC16 Company use domestic material more than foreign material 1 5 3.36 0.998

SOC17 Company concern environment problem 1 5 4.12 0.885

Economic Value

ECO18 Company have the good development chance for all

employees 1 5 4.51 0.678

ECO19 Safe in working (labour safety, heath, individual security, etc.)

always ensures. 2 5 4.65 0.554

ECO20 Hand-on interdepartmental experience 1 5 4.05 0.779

ECO21 An above average basic salary 1 5 4.33 0.786

ECO22 The income level is suitable with the employee‟s contribution 1 5 4.65 0.589


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Symbol Observed variables Min Max Mean Standard

deviation

ECO23 Employee assessment and job description is done clearly and

fairly 1 5 4.63 0.613

ECO24 Company have policy supporting house, motorbike, etc. for

employees. 1 5 3.98 0.959

ECO25 Company buy insurance and reward employee in the end of

year 1 7 4.47 0.757

Developmental value

DEV26 Appreciation from manager 1 5 4.25 0.674

DEV27 Having the professional training, coaching that help make

basic background for development employee in the future. 1 5 4.50 0.662

DEV28 Feeling good about yourself and more self-confident as a result

of working for a reputation organisation 1 5 4.00 0.895

DEV29 R&D, production, lab, business experience in pharmaceutical

products are improved 1 5 4.32 0.762

DEV30 Having more opportunities to study professional knowledge

and working skill 1 5 4.56 0.619

Application value

APP31 Company always focus the product quality 2 5 4.32 0.705

APP32 Company always focus the working quality 1 5 4.33 0.698

APP33 The organisation is customer-orientated 2 5 4.16 0.742

Intention to apply for a job

EMP38 I would make this company one of my first choice as an

employer 1 5 4.14 0.809

EMP39 I would effort to work for this company 3 5 4.44 0.624

EMP40 If this company invited me for a job interview, I would go. 2 5 4.42 0.666

EMP41 I would accept a job offer from this company 1 5 4.21 0.787

EMP42 I would recommend to a friend for looking a job 1 5 4.09 0.822

Total sample N = 354

According to Table 1, it shows that values of observed variable are ranged from 1 to 5. It presents the

research is a new concept to pharmaceutical senior students. Thus, there are many different responses.

Observed variables have values from 3.36 to 4.65, proving the pharmaceutical senior students always agree

with items in the questionnaire.

The employer attractiveness scale has average value of 4. Interesting values are ranged from 3.91 to

4.55, which show that students assess working environment highly. On the contrary, they assess producing

the creative products poorly. Social values are ranged from 3.36 to 4.56, it shows that there are differences

in observed variables. Students don‟t concern original material but concern the bonus policy so much.

Economic values are ranged from 3.98 to 4.65, which is one of the biggest values in the employer

attractiveness. It proves that senior students focus on salary, bonus, and compensation factors so much.

Developmental values have high score, from 4.00 to 4.56. It shows that potential candidates firmly concern

to develop themselves when they choose a company to apply. And the chance of studying professional

skills is best focused (4.56). Application values with 3 observed variables have so high score. It shows that

students want to apply their professional knowledge to contribute to company activities.


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Finally, attention to apply for a job variables are achieved agreement so much, from 4.09 to 4.44. It

shows that observed variables are suitable for most of potential candidates.

4.3. The reliability of the scale (Cronbach’s alpha) and exploratory factor analysis (EFA)

Table 2. Result of Testing the Scale Cronbach’s Alpha Variables of Employer Attractiveness Elements

Observed

variables

Scale mean if

item deleted

Scale variance

if item deleted

Corrected

item – -Total

correlation

Cronbach's

alpha if item

deleted

Comment

Interesting value (INT): Cronbach‟s alpha = 0.620

INT1 16.54 4.765 0.235 0.626 Fail

INT2 17.07 4.284 0.298 0.604 Fail

INT3 16.92 3.722 0.454 0.520 Pass

INT4 17.18 3.591 0.460 0.516 Pass

INT5 16.64 4.230 0.432 0.541 Pass

Social value (SOC): Cronbach‟s alpha = 0.821

SOC6 45.49 27.990 0.446 0.810 Pass

SOC7 45.27 28.547 0.484 0.808 Pass

SOC8 45.31 27.865 0.532 0.804 Pass

SOC9 45.40 27.163 0.620 0.797 Pass

SOC10 45.51 27.033 0.598 0.798 Pass

SOC11 45.60 26.615 0.626 0.795 Pass

SOC12 45.75 26.879 0.541 0.802 Pass

SOC13 45.20 28.944 0.437 0.812 Pass

SOC14 45.65 27.679 0.413 0.814 Pass

SOC15 46.16 26.443 0.453 0.812 Pass

SOC16 46.40 28.162 0.299 0.827 Fail

SOC17 45.64 27.858 0.394 0.816 Pass

Economic value (ECO): Cronbach‟s alpha = 0.781

ECO18 30.76 10.657 0.492 0.757 Pass

ECO19 30.62 11.216 0.479 0.761 Pass

ECO20 31.22 10.790 0.372 0.777 Pass

ECO21 30.94 10.082 0.520 0.751 Pass

ECO22 30.62 10.620 0.607 0.743 Pass

ECO23 30.64 11.046 0.461 0.762 Pass

ECO24 31.29 9.624 0.463 0.768 Pass

ECO25 30.81 9.963 0.578 0.741 Pass

Developmental value (DEV): Cronbach‟s alpha = 0.709


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DEV26 17.38 4.429 0.445 0.670 Pass

DEV27 17.12 4.364 0.486 0.655 Pass

DEV28 17.63 4.018 0.369 0.718 Fail

DEV29 17.31 3.891 0.556 0.622 Pass

DEV30 17.07 4.386 0.530 0.642 Pass

Application value (APP): Cronbach‟s alpha = 0.723

APP31 8.49 1.418 0.624 0.535 Pass

APP32 8.49 1.469 0.595 0.573 Pass

APP33 8.65 1.611 0.425 0.778 Fail

Table 3. Result of Testing the Scale Cronbach’s Alpha Variables of Attention to Apply for a Job Elements

Observed

variables

Scale mean if

item deleted

Scale variance

if item deleted

Corrected

item – Total

correlation

Cronbach's

alpha if item

deleted

Comment

Attention to apply for a job (EMP): Cronbach's alpha = 0.762

EMP38 17.16 4.730 0.493 0.734 Pass

EMP39 16.86 5.196 0.539 0.720 Pass

EMP40 16.88 4.787 0.648 0.682 Pass

EMP41 17.09 4.549 0.581 0.700 Pass

EMP42 17.21 4.872 0.433 0.757 Pass

After doing Cronbach‟s alpha testing, there are 5 observed variables (INT1, INT2, SOC16, DEV28

and APP33) which were rejected. Because it isn‟t suitable for employers attractiveness elements.

Furthermore, all of 5 items of attention to apply for a job element are suitable for Cronbach‟s alpha

reliability standard. Thus, item quantity of observed variables in model will decrease from 42 items to 37

items.

Table 4. Coefficient of KMO and Bartlett Testing of Employer Attractiveness elements

Kaiser-Meyer-Olkin measure of sampling adequacy. 0.859

Bartlett's test of

Sphericity

Approx. Chi-square 4552.225

df 496

Sig. 0.000

Table 5. Result of Element Testing of Employer Attractiveness the Scale

No. Element’s names Observed

variables

Loading

factor

Element

quantity Comment

1 Interesting value

INT3 0.698

4

Pass

INT4 0.700 Pass

INT5 0.651 Pass

APP31 0.670 Pass


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In order to continue doing exploratory factor analysis (EFA), there are 3 observed variables which

don‟t achieve standard because of element loading factor < 0.5 including ECO18 (Company have the good

development chance for all employees), ECO19 (Safe in working - labour safety, heath, individual security,

etc. are always ensured) and APP32 (Safe in working - labour safety, heath, individual security, etc. are

always ensured)

As the result of KMO and Barlett‟s test, we have KMO = 0.859 (>0.5) with the level of Sig = 0.000. It

describes that variables correlated with each other within the overall review. Thus, result of the exploratory

factor analysis is suitable.

However, there are restructure, change and separation among elements. Firstly, two observed

variables of the economic value includes ECO 22 (The income level is suitable with the employees‟

contribution) and ECO 23 (Employee assessment and job description is done clearly and fairly) are

separated from a new element. This new element is named fair value.

Secondly, social value has been separated 2 elements such as: social value of company for employee

is named social value with 6 observed variables (SOC6, SOC7, SOC8, SOC9, SOC10 and SOC11) and

social value of company for community is named social responsibility with 4 observed variables (SOC12,

SOC15, SOC17 and co-operating with an item of economic value ECO20).

2 Social value

SOC6 0.715

6

Pass

SOC7 0.671 Pass

SOC8 0.748 Pass

SOC9 0.803 Pass

SOC10 0.703 Pass

SOC11 0.623 Pass

3 Economic value

SOC13 0.541

5

Pass

SOC14 0.674 Pass

ECO21 0.531 Pass

ECO24 0.647 Pass

ECO25 0.667 Pass

4 Fair value (new) ECO22 0.739

2 Pass

ECO23 0.705 Pass

5 Social responsibility value

(New)

SOC12 0.628

4

Pass

SOC15 0.581 Pass

SOC17 0.603 Pass

ECO20 0.523 Pass

6 Developmental value

DEV26 0.613

4

Pass

DEV27 0.589 Pass

DEV29 0.662 Pass

DEV30 0.718 Pass

* Note: Observed Variables are rejected because of loading factors < 0,5 include: ECO 18, ECO19 and

APP32


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Moreover, through doing exploratory factor analysis (EFA), there are some changes among observed

variables such as: APP31 (Company always focuses on the product quality) is moved from application

value to interesting value, SOC13 (Company concerns to do compensation and benefit policy for

employees) and SOC14 (Company takes care for employees‟ life such as organizing employee birthday,

buying healthcare insurance for employee‟s family member) are moved social value to economic value.

4.4. Modified research model

According to result of the Cronbach‟s alpha testing and EFA, research model is modified as follows:

4.5. The regression statistic results

Table 6. The R Value of the Regression Equation

Model R value R2 value R

2 adjusted Standard error Durbin-Watson

1 0.523a 0.273 0.261 0.45884 2.087

a. Independent variable: (Constant), SOCRES, FAIR, INT, SOC, ECO, DEV.

b. Dependent variable: EMP

Table 6 shows that the adjusted R square value is 26.1%. This result indicates that there is about

26.1% of difference from the recruit plan of the potential candidates. This can be explained by the

difference from the attractiveness values of employer including interesting value, social value, economic

value, fair value, social responsibility value, and developmental value. In other words, the linear multiple

regression model matches with the data.

Using F-test for the hypothesis testing of the linear regression equation, with Ho: β0 = β1 = β2 = β3 =

β4 = β5 = β6= β7 = 0.


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Table 7. The ANOVA Analysis Result of the Regression Equation

Model

SS

(Sum of

squares)

df

(Degree of

freedom)

MS

(Mean of

squares)

F Significance F

1

Regression 27.452 6 4.575 21.733 0.000b

Residual 73.054 347 0.211

Total 100.506 353

a. Independent variable: (Constant), SOCRES, FAIR, INT, SOC, ECO, DEV

b. Dependent variable: EMP

Table 7 demonstrates that significance F value is 0.000 < α = 0.05, leading to reject Ho‟s hypothesis. It

means that there is a linear regression between independent variables and dependent variables. Therefore,

the combine of dependent variables in this model such as interesting value, social value, economic value,

fair value, social responsibility value, and developmental value can explain the attention to apply for a job.

Table 8. The Regression Results

Model Coefficients

B

Standard

error beta t Significance Tolerance VIF

1

Constant 1.269*** 0.284 4.463 0.000

SOC 0.016 0.052 0.017 0.317 0.752 0.717 1.395

ECO 0.079 0.053 0.086 1.490 0.137 0.630 1.586

INT 0.148*** 0.050 0.0157 2.942 0.003 0.737 1.357

FAIR 0.135** 0.056 0.135 2.424 0.016 0.674 1.483

DEV 0.339*** 0.062 0.318 5.465 0.000 0.617 1.620

SOCRES -0.041 -0.048 -0.846 0.398 0.661 1.513

a. Dependent variable: EMP. ***: significance level 1%. **: significance level 5%

The linear regression equation after normalizing is:

EMP = 0,157*INT + 0,135*FAIR + 0,318*DEV

In which: EMP: intention to apply for a job; INT: interesting value; FAIR: fair value; DEV:

developmental value

It is concluded that the three factors significantly affecting the attention to apply for a job are the

developmental value, the interesting value, and the fair value. In contrast, other factors such as the social

value, the economic value, and the social responsibility of company don‟t influence EMP.

In detail, the developmental value (DEV) is one of the factors that affects the strongest to EMP. In fact,

the promotion desire in career is the obvious demand of all workers, especially the under-graduate students.

They always wish they would work in a company which can help them learn greatly specialized skills for

their future job. Previous studies illustrated that if companies can meet the requirements and create much

more developing conditions in career for staffs, the employees will tend to work more long time, according

to Tansky & Cohen (2001) and Schnake et al. (2007). Also, the study result of Bodderas et al. (2011)

showed that though the salaries are an important problem when candidates find the job, the developing

programs and polices of company are one of the key issues. As a result, companies having the good


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training strategy like UNILEVER, P&G, ABBOTT, HSBC, etc. usually get the good impress to candidates

because they not only have the competitive salary but also a commitment to provide opportunities for

training and development for employees. In generally, this study result is quite consistent in reality

operation of the business.

The second statistically significant factor is interesting value (INT). In the present study, all objects

came from the technical universities with the deep professional knowledge, they are greatly attracted

companies that have the different values from technological sciences such as the new substance, the new

dosage forms, the international standards (GMP-WHO, GMP-PICS, etc.), the new treatment devices,

health care value that the product quality can offer. In addition, when they work in such companies they

also would feel be proud of themselves value in the company and in the society. There are previous studies

in this case. It is reported by Arthur (2012), firstly, that one of the most important factors is the motive and

attractive environment working. Similarly, the other survey result of Bundy and Norris (2011) about

reasons to select a company of the candidates showed that the attractive environment work factor is

reached No. 2 position on the list of 35 most important criteria (ranked from high to low). Furthermore,

according to Sivertzen et al., (2013), the good reputation of the organization is significantly affected the

attraction of employers. In practice, this result is entirely consistent because both employees and candidates

have the desire to work at companies that have many attractions about qualification level, administration

due to the factors of quality, reputation, administrative level, technology science, etc. As a result,

companies having the modern technology key such as nano, enzyme or cell technology, CO2 extraction

technology and so on always will be attracted the good candidates.

Finally, the fair value (FAIR) is the factor that is impacted the weakest to the selection of candidates.

The equity issue in a company in particular and an organization in general always get the expectation of

people. It is clear that fairness will provide psychological comfort, the motivation to work and the

solidarity of workers in the companies. When the administration system of company makes be fairness, it

would help a company to develop steadily and offer promotion opportunities to all employees. However,

fairness in practice is relative because human always has the sentiment factor in every action and even in

the management decisions. Therefore, it is difficult to require a company or an organization to be perfectly

fair, depending on the management level as well as awareness, determination of the company's leadership

in its management. The object of this study are the pharmacy senior students who expect the absolute

fairness from the company. Moreover, the Vietnam head-hunter companies had many surveys about the

reasons of the employee's taking-off, the result illustrated that the main reason for this problem was that the

unclear and unfair managing behaviors of the direct manager. Also, if a candidate recognizes the presence

of unfair in the company, they will evaluate that the administration of the company is unprofessional. This

thing will affect greatly to the candidate‟s decision. In other words, though the fair factor is expected

reaching the best point possible, this study indicated that fairness isn‟t the decision factor impacting for the

selection of candidates.

In contrast to the results obtained from this study, there are three factors without significant statistic

including the social value (SOC), the economic value (ECO) and the social responsibility value (SOCRES).

Firstly, the social factor value (SOC) is eliminated from the regression equation because most of objects are

the under-graduate students, they don‟t have a lot of experiences regarding the relationship and

environment at work. Therefore, they don‟t clearly understand the role of this issue impacting how

psychology, motivation, as well as their working result at the working place. This results are different from

that of the study of Bodderas et al. (2011), whose study is about the social value factor having positive

effect on the identification of candidates. There are two main reason for this problem, one is the difference

background and the development level of each country that make the different interest of everyone and

other is their study were carried out in England, a developed country of Europe, that the social value

demand of candidates is higher in Vietnam, a developing country in Asia. However, this subject results are

the same as that of Sivertzen et al. (2013) because their objects are students majoring Technology who


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believe that they have enough ability themselves to overcome barriers of the working environment, so they

don‟t take care too much to the social value factor.

Secondly, the economic value (ECO) is also an important factor to attract workers for companies. But in this case it doesn‟t impact on the recruit plan for candidates. This mainly due to the goals of each development stage of personal candidate. For the newly graduate students, in general, the salary and bonus polices aren‟t yet the most important aim having to be achieved. This result is completely similar to the previous study result of Bodderas et al. (2011) and Sivertzen et al. (2013). In the results of two groups, the economic value factor have no absolutely effect on the application decision as well as the identity company of candidates.

Finally, the social responsibility (SOCRES) also have not significant statistic. It is obvious that the community activities and the responsibility society as environmental protection, using domestic labour source, charities, etc. will make a good impression in the mind of people. However, these factors may just be the peripheral strengths of the company, they aren‟t still an important element for the final year students in their job selection processing.

4.6. The ANOVA analysis result

Use the independent Sample t-test method, the result shows in Table 9, Table 10 and Table 11.

Table 9. Average and Standard Deviation Result between Non-experience and Experience Group.

Factor Candidate group Quantity Average SD Standard error

EMP Non-experience 198 4.1828 0.51565 0.03665

Experience 156 4.3590 0.54131 0.04334

Table 10. The Independent Sample T-test Result

Factor

Hypothesis

Levene Hypothesis T-test

F Sig. t df Sig.

(two-tailed)

Difference of average

Difference of standard deviation

95% confidence interval of the

difference

Low High

Homologous var

1.863 0.173 -3.12 352 0.002 -0.17615 0.05643 -0.287 -0.065

Non-homologous

var -3.10 325.112 0.002 -0.17615 0.05676 -0.287 -0.064

As shown in Table 10, the significant value (hypothesis Levene) is 0,173 > α = 0,05. It means that the var of two groups are similar. The hypothesis T-test result with sig. value is 0,02 < α = 0,05. This result indicated that there are different from the recruit plan between two candidate groups.

Table 11. The Homogeneity Testing Result

Levene statistic Df 1 Df 2 Sig.

1.740 4 349 0.141

Table 11 showed the homogeneity testing result with sig. value is 0,141 > α = 0,05, leading to accept Ho hypothesis. In other words, the var of two groups is similar.


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In conclusion, there are the differences between the experienced and non-experienced candidate group. This can be explained by the experienced candidates understand better about the environment working, the working characteristic, the factors contributing to their growth career as well. Therefore, they would be greatly aware that the role and significance of values such as the developing, attraction, fairness, etc. have significant impact on the selection processing. It can be seen that when candidates have had practical experience, they will be clearly aware of the importance of the factors as training, fairness, being proud of the famous company‟s uniform, the quality and different products in the market as well as the capacity of employment information update via social media. Since then, these factors will also increase the level of application desire of the experience candidates to higher than the non-experience candidates.

5. CONCLUSION AND SUGGESTION

5.1. Conclusion

The study showed that attractiveness employers impact on application plan of potential candidates who are final-year pharmacy students in the South of Vietnam.

Through the result of testing scales in pharmaceuticals in Vietnam, the study contributed to build a new scale of attractiveness of recruiters developed from scale of Berthon et al. (2005). The scale which measures the application plan of candidates is kept from the first scale of the author before. The result that analysed linear relationship between independent variables (5 values of attractiveness employer) and dependent valuable (the attention to apply for a job) showed that the final-year pharmacy student highly appreciate and get ready to apply their CV to the companies that have developmental value, interesting value and fair value. The other factors which aren‟t statistically significant include: economy value, social value and social responsibility of companies.

In addition, the result that analyse the differences among overall groups indicated the differences among experienced candidate group and inexperienced candidate group

5.2. Suggestions for policy

According to the result, there are some suggestions in governance, such as:

Building total development program for employees as: training program for staff in order to add knowledge, enhance working skills and develop personal capacity, specific: building and standardizing program, training content for all positions, making abundant and diversify form as: internal/external training, training in house, training on the job, situational training, etc. intensify coaching role of middle manager. Besides, talent management process is built and deployed as: Building sharing culture and learning experience, building adjacent team planning process and career path for employee

Enhancing attraction value of company: completing the international quality standards as: GMP – WHO, GMP – PICS, EU, etc. for the factory system. The research and development activities are concentrated to invest.

Ensuring justice, clear management thank to completing process and employee evaluation method, such as: completing criterions, clear employee evaluation index, specific, scientifically, sensible, fair and accurately. Appraisement scale is determined. Moreover, an objective scientifically appraisement method is built. Finally, all contents as KPI index, point ladder, appraisement method of company have to be opened to everybody know, understand and agree.

REFERENCES

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Nguyen Quoc Tuan, Đoan Gia Dung, Đao Huu Hoa, Nguyen Thi Loan, Nguyen Thi Bich Thu & Nguyen Phuc Nguyen (2006), Human Resources management, Statistical Publishing House.

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Shahani-Denning, C., Andreoli, N., Snyder, J., Tevet, R., & Fox, S., (2011), The Effects of Physical Attractiveness and Gender on Selection Decisions: An Experimental Study. International Journal of Management, 28(4).

Sivertzen, A.M., Nilsen, E.R. and Olafsen, A.H. (2013), Employer branding: employer attractiveness and the use of social media”. Journal of Product & Brand Management, Volume 22, number 7, 473-483.

Tansky, J.W, and Cohen, D.J., (2001) The relationship between organizational support, employee development, and organizational commitment: An empirical study. Human Resources Development Quarterly, Volume 12, Issue 3, p.285-300.

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http://search.proquest.com/pubidlinkhandler/sng/pub/Journal+of+Organizational+Culture,+Communication+and+Conflict/ExactMatch/38870/DocView/216598402/abstract/3CE7793DEA9F4902PQ/1?accountid=63189




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The Relationship among Store Image, Personal Culture, and Store Loyalty

Assoc. Prof. Dr. Hoang Thi Phuong Thao;

Nguyen Le Thai Hoa, PhD student

Postgraduate school, Ho Chi Minh city Open University, Vietnam.

Email: [email protected] or [email protected]

ABSTRACT

Due to an aggressive competition together with the advent of large multinational investors in retail market, the

challenge retailers face is how to understand the insights of consumers to attract new customers and retain existing

customers. From this perspective, the study aims to explore the inter-relationships among personal culture, store

image and store loyalty. A qualitative method was used with 30 in-depth interviews and two focus groups to clarify

store image dimensions and its influence on store loyalty as well as the impact of individual culture on store image

and loyalty. Results revealed that culture was a crucial variable, which influenced the perception of the importance of

store image and predicted store loyalty. Particularly, independence/individualism was positively correlated with

loyalty, whereas interdependence/collectivism had negative impact. Beyond conventional marketing image of a store,

corporate social responsibility gradually became more important in determining purchasing decisions. Consumers

with independence characteristics had a tendency for proneness of social, strategic image of a store and store

personality while interdependence consumers normally cared much more for commercial/marketing aspects: product,

price, promotion, convenience, and service. The findings help retailers to understand customers’ insight to effectively

segment and to reposition their store image accordingly.

Keywords: Personal culture, Store image, CSR, Store loyalty.

1. INTRODUCTION

With the population of more than 90 million people of which 60% are young, the Vietnamese retailing

market, especially modern distribution channel is very promising. In 2008, Vietnam ever surpassed India

and China to become the most attractive retailing market in the world (GRDI report – Global Retail

Development Index - released by A.T Kearney – USA). Despite 28thposition in 2014, the average growth

rate is 23%, higher compared with other retail markets such as China (13%) and India (18.8%), in which

the modern distribution channel occupied 25%. This ratio is lower compared with other markets in ASEAN,

such as Thailand (42%), Malaysia (53%), Singapore (71%) (Euro-monitor, 2013). Furthermore, according

to market report released by AC Nielsen, middle class consumers in Vietnam are forecasted to reach the

number of 44 million in 2020 and 95 million in 2030. This figure, together with high urbanization rate, will

facilitate the growth of modern retail formats.

The great potential of Vietnam retail market along with the globalization trends make the emergence

of several foreign investors as well as the expanding operation of domestic retailers. Consequently, the

competition increasingly gets stronger with rapid market entry of new store concepts and formats. To

succeed in attracting new customers and retaining existing ones, the development of positive store image in

the local culture is very crucial for retailers. During the past decades, both marketing academics and

practitioners have been intrigued by the concept of store image, its relationships with culture and loyalty.

Particularly, the studies on the relationship between perceived store image and store loyalty concluded

contradicting findings. Many researchers indicated that the store image perception was directly related to



175

store loyalty (Koo, 2003; Chang and Tu, 2005; Nguyen, T. T. et al, 2007; A. Kumar, S.L. Gupta and N.

Kishore, 2014) whereas, J. Bloemer and K. Ruyter ( 1998) found that store image perception had an

indirect relationship with store loyalty mediated by store satisfaction. Similarly, the impact of culture on

consumers‟ perception of store image has been debated by several researchers including Kim & Han

(2000); Van de Velde, Pelton, Turnbull Caton & Byrne (1996); Janse van Noordwyk (2002); Gehrt and

Yan (2004); Shim and Kotsiopulos (1992) and Y Seock and C. Lin (2011). Lastly, two typical studies that

suggested the influence of culture on store loyalty are an international investigation of cultural effects on

domestic retail loyalty (Straughan and Albers-Miller, 2001) and cultural influence on loyalty tendency (Y.

Seock and C. Lin, 2011).

Regarding the concept of store image, most of these studies, however, have concentrated on the

marketing/commercial image of store only. The marketing image of store is consumers‟ perception of a

firm‟s basic offer such as tangible.


2.1. Store image – the evolution of a concept

Martineau (1958, p.47) first defined store image as “... the way in which the store is defined in the

shopper‟s mind, partly by its functional qualities and partly by an aura of psychological attributes”.

Lindquist (1974-1975, p.31) stated that store image is “... complex by nature and consists of a combination

of tangible or functional factors and intangible or psychological factors that a consumer perceive to be

present”. James et al. (1976, p.25) simply defined store image as “… a set of attitudes based upon

evaluation of those store attributes deemed important by consumers”. Several scholars (Bloemer & De

Ruyter, 1998; Faircloth, Capella & Alford, 2001; Jin & Kim, 2003; Osman, 1993) mutually agree that store

image is the consumer‟s perception of a store, based on a set of salient attributes. However, some

researchers argue that store image is more than the factual description of characteristics; it also describes

the interaction among characteristics (Dichter, 1985; Oxenfeldt, 1974-1975; Amirani & Gates, 1993). In a

broad sense, the store image is conceptualized as the set of brand associations linked to the store in the

consumer‟s memory (Huve – Nabes, 2002). These associations can refer both to perceptions of the store‟s

attributes and to the consumer‟s perceived benefits and attitudes.

In a broader perspective, Beristain and Zorrilla (2011) included social and strategic corporate

dimensions in measuring store image. Stores can also be perceived as firms, linking the store to aspects

such as the firm‟s interest in and commitment to society, creating social image (Turban and Greening,

1996; Brown and Dancing, 1997) or its global corporate strategy and its strategic approach, creating

strategic image (Fombrun and Shanley, 1990; Higgins and Bannister, 1992). Beristain and Zorrilla (2011)

reconceptualized store image as a set of brand associations of commercial, social and strategic nature linked

to store. Besides, based on the emotions the store produces on consumers, store personality is formed

(Floor, 2006; D‟Astous and Levesque, 2003). To conclude, from the new point of views of this study, store

image is defined as the complex of a consumer‟s perception of a store on four basic dimensions: Marketing,

social, strategic image and store personality.

Marketing image of store: Martineau (1958) indicated that store image consists of layout and

architecture, symbols and colour, advertising and sales personnel. Lindquist (1974-1975) reviewed 26

previous studies and surveyed the opinions of famous scholars and summarized some major constituents of

store images as follows: merchandise, service, clientele, physical facilities, convenience, promotion, store

atmosphere, institutional and post – transaction satisfaction. Visser et al. (2006) defined store image as a

complex, multi-dimensional construct based on the perception of tangible and intangible store attributes

associated with eight dimensions, namely Atmosphere, Convenience, Facilities, Institutional, Merchandise,

Promotion, Sales personnel and Service.


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Social image of store is described by CSR activities (Corporate social responsibility). According to

Carroll‟s CSR pyramid (1991), there are four types in order including economic, legal, ethical and

philanthropic responsibilities. However, the consumers‟ perception of social image is based on mainly ethical and philanthropic conduct (Garcia de los Salmones et al., 2005).

Strategic image of store is implicated by four factors: innovation, the firm‟s future, the organization‟s experience (as a sign of competence and safety) and the firm‟s adaptation to the local culture (Aaker, 1996).

Store personality: The store personality should not be seen as a substitute to conventional store image but rather as a complement. Store personality was firstly defined in the marketing literature by Pierre

Martineau (1958). He identified some personality factors: layout and architecture, symbols and colors, advertising, and sales personnel as potential sources of inference for the construction of a store personality.

With such a definition, the term store personality that was used in his article is actually centered on the concept of store image. Whereas store image is a mental representation that encompasses all dimensions

that are associated with a store (product selection, quality of service), store personality is restricted to those mental dimensions that correspond to human traits. For instance, although product variety is an attribute

that may be important in the construction of an overall store image, it is clearly not a personality trait, since it is not naturally attributed to a human being. Batra, Lehmann & Singh (1993) made a similar argument in

distinguishing between brand image and brand personality. Following their conception, Alain d‟Astous and Melanie Levesque (2003) defined store personality as the mental representation of a store on dimensions

that typically capture an individual‟s personality and identified five dimensions, termed sophistication,

solidity, genuineness, enthusiasm, and unpleasantness from brand personality model developed by Jennifer L. Aaker (1997).

2.2. Store loyalty and the relationship between store image and store loyalty

2.2.1. Store Loyalty

Customer loyalty is considered as an important key to organizational success and profitability. Loyalty has over the past decade become a crucial construct in marketing, and particularly in the burgeoning field

of customer relationship management (Ball et al., 2004; Soderlund, 2006). Customer loyalty can be classified into brand loyalty, vendor loyalty, service loyalty, and store loyalty (Dick and Basu, 1994).

Firstly, loyalty was researched on individual brand and understood as behavioral concept by Brown (1952-1953). Researchers focused on observing and measuring the continuation of purchases in the past.

Kuehn (1962) considered brand loyalty as a function of purchasing history of customers. Lipstein (1959) stated that brand loyalty was a function of probability of purchase of the same product or a function of time

for a specific brand. According to Jacoby and Chestnut (1978), loyalty is a biased behavioral reaction of consumers in the choice of one among many alternatives in a period of time and it can be represented as a

function of decision-making process. Jeuland (1979) defined brand loyalty as long-term probability of choice or purchase ratio of a specific brand among total product categories and such behavior was named

as inertia. In summary, behavioral definition of store loyalty is a tendency of consumers to purchase

repetitively in a period of time and it can be operationally defined and measured as purchase ratio as repetitive purchase behavior (Raj, 1982), purchase frequency. The definition enables us to measure

objectively and distinguish store loyalty with various stores. However, it also limits researchers from easily using subjective judgments and from explaining how the store loyalty is formed and why it changes.

However, another tendency of attitudinal definition argues that store loyalty is store preference or psychological commitment and more particularly, favorable attitude to the specified store and operationally

it can be measured future probability of purchase (Oh, 1995). By this definition, we can know the process of psychological formation of store loyalty but favorable attitude to specific store is not certainly converted

to real action to buy. Therefore, the marketing practitioners will have little practical value if they define store loyalty in attitudinal approach.


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Dick and Basu (1994) have developed a framework for customer loyalty that combines both

attitudinal and behavioral measures. Loyalty is determined by a combination of repeat purchase levels and

relative attitude. The framework illustrates the loyalty conditions in which, loyalty, with its high repeat

patronage and high relative attitude, would be obviously be an ultimate goal for marketers. This definition

is very desirable since either favorable attitude or repetitive purchase alone cannot be necessary and

sufficient conditions of index of store loyalty and both must be considered together in the light of

consumers.

2.2.2. The relationship between store image and store loyalty

Customers‟ patronage behavior towards a particular store is dependent on their image of that particular

store (Osman, 1993). The more favorable the store image, the higher the valence of the store to the

customer. The store image perception is directly related to store loyalty, but rather an indirect positive

effect on store loyalty through consumer satisfaction. (Store satisfaction acts as a mediator) (Bloemer and

De Ruyter, 1998). If retailers manage the perception of store image, they can isolate consumers from their

competitors by building store loyalty (Osman, 1993).

The relationship between store image and store loyalty has been studied through two directions. The

first view is that store image attributes directly influences store loyalty. The other is that store image itself

affects store loyalty. Matineau (1958) also argues that store image has an influence on store loyalty.

Marketing image and loyalty: The first direction was considered to examine the influence of

marketing/commercial image of store on loyalty, whereas the second can explore the relationship between

social, strategic image or store personality and loyalty. Singson (1975) focused on the store image attributes

and finds that price and quality are the most important store image attributes affecting store loyalty and

assortment following them, whereas Lessig (1973) finds that the store image measured by store atmosphere,

product, price and promotion is correlated with store loyalty.

Social image and loyalty: Jones et al. (2007) indicated that socially responsible behaviour could bring

considerable benefits for store to enhance the store‟s reputation. Most of researchers mutually agree that the

perception of socially responsible behaviour can play an important role in corporate outcomes, including

reputation, brand commitment, differentiation, purchase intent and customer identification with a company

(Brown and Dancing, 1997; Turban and Greening, 1996; Lichtenstein et al, 2004; Mohr and Webb, 2005).

These are key antecedent variables for loyalty. Furthermore, Brown and Vrioni (2001) cite survey work

from the USA which shows that when price and quality are perceived as equal, many customers tend to

favour socially responsible companies and products. The role of social responsibility in service market is

explicited more clearly than in tangible product market because consumers in service market approach

purchasing in a different way and establish stronger and more direct relationships with service providers

(Garcia de los Salmones et al, 2005).

Strategic image and loyalty: Keller and Aaker (1998) indicated that the associations linked to the

firm‟s capacity for innovation were positively related to perceived quality and the likelihood of purchasing

products. Page and Fearn (2005) shared the same ideas that a company‟s success and leadership

represented relevant brand associations, because the sense that the company you were buying from was

innovative and dynamic adds an implicit sense of security and cachet to the purchase.

Store personality and loyalty: By applying the brand personality scales built by Jennifer L. Aaker

(1997), J. Zentes et al. (2008) demonstrated that the dimensions of brand personality of retailers directly

influence on the store loyalty of consumers. Beyond, Malaika Brengman and Kim Willems (2009) found

that store environment and store design were important factors in determining the personality of store.

Other factors such as CSR, reputation, service level, salespeople, merchandise, price/quality perception and

consumers base determined the perception of “genuiness”, “solidity”, “sophistication”, “enthusiasm”, and

“unpleasantness” as suggested by Alain d‟Astous and Melanie Levesque (2003).


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2.3. Culture and its influence on store loyalty

2.3.1. Culture and personal cultural orientations

Culture is likely to play an increasingly important role in determining the success/failure of

international retailing ventures (Myer, 1995). Culture represents a set of shared knowledge and implicit

theories about the world including beliefs, values, attitudes and other constructs needed to interpret and

navigate various environments (Hong et al, 2000). Hofstede (p.5, 1991) defined culture as “collective

programming of the mind which distinguishes the members of one group or category of people from those

of another”. Many researchers assert that each culture has its own cultural traditions which are deeply

ingrained in their social norms and values and thus have a strong impact on their attitudes and behaviors.

Hofstede analyzed cultural characteristics that influented values, attitudes and behaviors and identified five

dimensions of national culture: individualism/collectivism; high/low uncertainty avoidance;

masculinity/femininity; high/low power distance and long/short term orientations. Among five cultural

dimensions, individualism-collectivism has been used by most researchers to explore difference in

consumer behaviour across several countries. (Mortenson, 2002; Straughan and Albers-Miller, 2001; Seock

and Chen Lin, 2011).

As mentioned above, Hofstede‟s nation-level cultural dimensions have been criticized for studies on

cross-cultural differences at individual level in consumer behavior. Because all the citizens of a country

may not share similar cultural characteristics (Bond, 2002; Oyserman et al. 2002a). For instance, European

Americans are not necessarily more individualistic than African Americans or Latin Americans, and not

less collectivistic than Japanese or Koreans (Oyserman et al. 2002a). According to Schwartz (1994), most

of societies have at least some representation of both individualistic and collectivistic worldviews, and they

deal with the individual and collective –oriented value choices separately. As a result, the human mind may

have adapted to think in both ways depending on the situational requirements (Oyserman et al. 2002a). The

present study analyzed two dimensions of personal cultural orientations developed by Piyush Sharma

(2010): independence/interdependence. These two negatively related constructs are considered to address a

major limitation of Hofstede‟s conceptualization of individualism and collectivism as the two ends of

continuum since both these tendencies may coexist in all individuals and all societies.

2.3.2. Individualism/Collectivism (independence/interdependence)

Individualism describes the degree to which individual decision making is tolerated by society.

Hofstede (1991, p.51) explained: “Individualism pertains to societies in which the ties between individuals

are loose; everyone is expected to look after himself or herself and his or her immediate family.

Collectivism as its opposite pertains to societies in which people from birth onwards are integrated into

strong, cohesive in groups, which throughout people‟s lifetime continue to protect them in exchange for

unquestioning loyalty”. Piyush Sharma (2010, p.790) defined “Independence as a personal cultural

orientation associated with acting independently, a strong self-concept, a sense of freedom, autonomy, and

personal achievement; and Interdependence as a personal cultural orientations associated with acting as a

part of one or more in-groups, a strong group identity, a sense of belongingness, reliance on others, giving

importance to group-goals over own individual goals and collective achievement”.

There are some inconsistent research findings and contradictory views regarding “Collectivism” and

“Individualism”. In the past, Chinese and Japanese peoples have been characterized in terms of

collectivism, and the British and Americans have been characterized by individualism (Hofstede, 1980;

Bond and Hwang, 1986; Tayeb, 1994). But there are changing patterns of individualism and collectivism in

some of these countries. For instance, social changes in the USA and Japan have changed the nature of the

individualism-collectivism dimension in the American and Japanese cultures (Matsumoto et al., 1996).

Ishii – Kuntz (1989) reported a trend toward more individualistic attitudes among the Japanese. Wu (2006)

reported that Americans tend to exhibit more collectivistic characteristics than before. The results of recent


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study (Seock and Chen Lin, 2011) also revealed that American consumers have significantly greater

collectivistic characteristics and Taiwanese.

2.3.3. Individualism/collectivism (independence/interdependence) and store loyalty

Marketing literature review indicates that there are several sources of store loyalty, including individual characteristics (Macintosh and Lockshin, 1997; Michell and Prince, 1993; Morgan and Dev, 1994), merchandise characteristics (Amresh Kumar et al, 2014; En-Chi Chang and Bo Luan, 2010), or interaction/service (Nguyen, 2006, Sirohi et al, 1998). Relatively few studies have considered cultural effects on store loyalty. Kaufman (1991) considered the effects of ethic sub-cultures within domestic markets. Moreover, Straughan and Albers-Miller (2001) revealed four variables affecting to store loyalty, namely individualism, uncertainty avoidance index, sex and import from cross-culture survey of USA, France, Australia and South Korea. In comparison, they concluded that American students had higher collectivism score and were more likely to follow group norms and the behaviors of their in-group members than Taiwanese students. Individuals with high collectivism scores tended to be loyal to specific brands or stores. More particularly, cultural individualism was negatively corrected with loyalty to domestic retailers and uncertainty avoidance was positively corrected with loyalty to domestic retailers and men exhibited greater loyalty to domestic retailers than women while age was not a significant predictor. Seock and Chen Lin (2011) shared the same results that individuals with high collectivistic characteristics tended to stick to the brands/stores they selected. Therefore, the collectivist notion of interdependence with the in-group would seem to encourage loyalty tendency. These are contradictory to the previous findings by Lam (2007) that individuals who scored high in individualism were more prone to brand loyalty than those scored low because they tended to stick to their adopted brands regardless of outside influence. The author also revealed that individuals with high collectivistic characteristics were more likely to switch brands frequently because they wanted to follow behavior of their in-group members.

2.4. The link between personal culture and store image

Although few studies investigated the relationship of these two variables, research results have been contradictory. Some studies stated the positive relationship between the perceived importance of store image and sub cultural groups based on population group (Janse van Noordwyk (2002), ethnicity (Kim and Han, 2000) or root culture (van de Velde, Pelton, Turnbull Caton & Byrne, 1996). However, Gehrt and Yan (2004) indicated that ethnicity did not influence the perceived importance of retail attributes. Furthermore, Shim and Kotsiopulos (1992) found that socio-cultural variables had an indirect relationship with store image perception mediated by shopping orientation.

Seock and Chen Lin (2011) stated that degree of individualism had significant influence on the evaluation of the perceived relative importance of customer care and convenience, whereas collectivism had significant influence on the evaluation of all aspect of retail store attributes. American evaluated customers care, service delivery, convenience and Taiwanese prefers product assortment features such as the quality and selection of products a store carries and the range of brands a store offers. Dawar and Parker (1994) also agreed that culture was a significant determinant of consumers‟ assessment of product quality.

Based on Janse Van Noordwyk (2002), the Theoretical model describing the relationship between store image and culture is proposed. In the model, consumers with different cultures/sub-cultures or personal culture will have different needs such as self-expressed, enjoying fantasies or family caring, practicality, economy. From various needs, consumers will expect various attributes for the store that they prefer to shop. For instance, economic need will entail price cut attributes. These attributes will be the background in formation of store image.

2.5. Model delineating inter-relationship among personal culture, store image and store loyalty

A tentative model is proposed in this study on the basis of existing literature review as shown in Figure 1. Firstly, store image in new perspective includes four dimensions: marketing image, social image,


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strategic image and store personality (Beristain and Zorrilla, 2011). The relationship between marketing image of store which is a multi-dimensional construct and loyalty has been confirmed by several researchers (J. Bloemer and K. Ruyter, 1998, Koo, 2003; Chang and Tu, 2005; Tho D. Nguyen et al, 2007; A. Kumar, S.L. Gupta and N. Kishore, 2014). Social image and strategic image of store are rather new but are also found to be related to the key antecedent variables for store loyalty (Jones et al., 2007; Lichtenstein et al, 2004; Mohr and Webb, 2005; Keller and Aaker, 1998; Page and Fearn, 2005). Additionally, store personality has effects on attitudinal loyalty as well as behavioral loyalty (Martineau, 1958; d‟Astous and Melanie Levesque, 2003). Secondly, culture, particularly personal cultural orientations (Independence/ Interdependence) also influences on loyalty (Lam, 2007; Straughan and Albers-Miller, 2001; Y Seock and C. Lin, 2011). Lastly, Y Seock and C. Lin (2011) demonstrated that independence had effect on marketing/commercial image (customer care and convenience), whereas interdependence influenced on all aspects of store.

Figure 1. Proposed Model Delineating Inter-relationship among Culture, Store Image, and Store Loyalty


3.1. Research Design

Two main tools in this research are In-depth interviews and Focus Groups. The questions used in this

research are Unstructured Questions including introductory questions, probing questions, direct questions,

and interpretive questions.

Store is defined as a place where a wide variety of product categories is displayed and self-service is

offered. There are several types of store formats including shopping centres, supermarkets, convenience

stores, specialty stores… in which supermarkets are the most popular nowadays. According to Decree No.


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1371 of Ministry of Commerce, supermarket is classified into two typical kinds: generalized and

specialized supermarket.

Thirty interviewees includes 8 managers of specialized supermarkets, 8 managers of generalized

supermarkets, 5 staffs working in retail marketing departments, 9 store supervisors as described in table 1.

These people have at least 5 years of experience in retailing sector. Two-third of interviews have been

taken place at the interviewees‟ offices and in working time. A third of interviews were done at coffee

shops on tea break, from 12:00 till 13:30.

Table 1. In-depth Interviewee Distribution and Coding

Respondents

General supermarkets

Code

Specialized supermarkets

Code Big C

Saigon

Coop

Lotte

Mart Aeon

Nguyen

Kim

Cho

Lon

Phan

Khang

Thien

Hoa

Marketing

Staffs 1 1

MS1-

MS2 1 1 1

MS3-

MS5

Supervisors 1 1 1 2 GS1-

GS5 2 1 1

SS1-

SS4

Managers 2 2 2 2 GM1-

GM8 2 2 3 1

SM1-

SM8

Total 15 15

The research also organized two full Focus Groups of 8 consumers (One group includes consumers

who have bought electronics products from specialized supermarkets within one month and another

consists of consumers who have just gone shopping at generalized supermarkets). Before each discussion,

the respondents were asked to answer a short list of multiple choice questionnaires about their

characteristics on the purpose of identifying relatively which personal cultural orientations

(independence/interdependence) they belonged to. Through this psychological test, two sub-groups were

divided for main discussion as shown in Table 2. The authors acted as a moderator/facilitator in group

discussions. Each focus group was held in the private room of coffee house and lasted for two hours.

During discussion, the respondents were stimulated to digger the topic and go to the right direction of

research objectives.

Table 2. Focus Group Respondent Description and Coding

Personal Culture Generalized supermarket

consumers Code

Specialized supermarket

consumers Code Total

Independence 4 GCI1-4 3 SCI1-3 7

Interdependence 4 GCD1-4 5 SCD1-5 9

Total 8 8 16

3.2. Research data Analysis

Different from the quantitative data which is related to figures, the qualitative data is correlative to its

significance. The nature of qualitative research is research subject exploring process to find out how they

think and feel. Therefore, qualitative data analysis is the process to figure out data insight (Auerback &

Silverstein, 2003). Furthermore, data collection and analysis are two inseparable steps and interact with

each other: the researcher discuss with research subjects to collect and analyze data, then continue

discussing and study its significance until saturation point.


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The authors have used manual analysis and document reviews to check the accuracy of qualitative

data by reading repeatedly and referring to previous study.

4. FINDINGS AND DISCUSSION

4.1. Store image and store loyalty

Marketing image and loyalty: Supermarket management is sticked with “Cheap price” policy as the

only consideration in buying decision to attract and retain customers. SM4 was confident to say that: “With

27 store chain, we often negotiate with our suppliers to purchase a big quantity of goods. As a result, our

store can offer the cheapest price in the market. Every day, we have at least 10 items to be sold without any

cents of benefit…” Although economic factor is always important for consumers, they do not believe that

with intense competition at present, there is any big difference in terms of pricing structure among various

supermarkets. In their opinion, price will go along with quality and each supermarket will have suitable

pricing policy to make their customers loyal toward its store. Generally, the findings stated that product

quality, price, promotion, convenience and service quality are determinants for store loyalty. Whereas

generalized supermarket consumers choose price, promotion and convenience, specialized supermarket

consumers consider product quality and service quality, especially after sales service as important factors

for their patronage.

Social image and loyalty: From the prism of supermarket management, most of respondents agreed

that CSR activities of supermarkets had stronger impact on consumers‟ favorable attitude towards store.

Nowadays, consumers are often interested in healthy living and healthy eating, organic products (VietGAP

products - Good Agriculture Practice, eco-friendly products), environmental issues, green consumption,

sustainability, employment policies, charitable donations and initiatives supporting the local community.

Therefore, supermarket management is always aware of the development of positive social image among

their customers. Particularly, GM3 has shared that: “Saigon Co.op is the pioneer to enhance its social image

with several programs such as “The Vietnamese supports Vietnamese products”, especially VietGAP

products or non chemical fertilized vegetable for the sake of Vietnamese farmers; Saigon coop is always

with the meals of the poor and care for its staff”. GM8 stated that: “Aeon Mall combines local community

activities with environmental protection by using air conditioner system minimizing CO2 emission”. SM1

announced that: “Nguyen Kim electronics shopping centres have just launched the “Clean water for you –

A hand for local community” program”.

From the prism of consumers, it is clearly stated that Vietnamese consumers are getting more

sophisticated recently, especially in urban regions. As a result, they are not only concerned about the price,

quality and service but also about CSR activities of supermarkets, especially ethical trading, food safety

and cleanness (for instance, food products free of additives such as preservatives, colours, flavourings or

sweeteners) and charity activities. Most of Vietnamese consumers are oriented to face consumption but a

part of them gradually become socially responsible consumers. They prefer to purchase products at the

supermarkets, which integrate social and environmental concerns in their business operation. These

consumers feel their purchase as the contribution for society and local community. Agreed with this

tendency, MS4 respondent has outlined that: “… at present, the strategic ideas for marketing planning have

been shifted from traditional advertising such as product explanation or fun theory to socially responsible

behaviour of a company such as Viet Food producer supporting program; charitable dominations, green

consumption and so on.”

Strategic image and loyalty: It is mutually agreed that local culture adaption and innovative products

are the most common elements when referring to the perception of consumers towards store/corporate

strategy. They are willing to repeat shopping journey if store displays several new technology goods and is

equipped with local cultural oriented services.


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Store personality and loyalty: Referring to store personality, a large number of respondents assumed

brand personality for store personality. For instance, Trung Nguyen Coffee is stand for creative people or

Vincom centres for classy people. Actually, there is two basic distinctions. Firstly, some factors such as

sales personnel are very important in the formation of store personality but are not in case of brand

personality. Secondly, brand personality is only considered at positive sides, whereas there are some

ambient, design and social components of shopping environments in stores that are negative and irritating

as well (d‟Astous, 2000).

The management stated that store personality may or may not determine store loyalty since store

environment is social place where everyone can meet. Store personality seems suitable only for specialty

stores such as coffee shops, restaurants, cosmetic shops, spa and health care clinics… where consumers

expect to explicit their personality and social position/level. However, consumers usually prefer to shop at

the store whose image is most congruent with the image they have of themselves (their status and lifestyles).

For instance, Co.opmart, Metro and Big C have been personalized as hard-working, family oriented,

practicality, friendliness, dependability, unselfishness since they emphasize on family atmosphere and

savings. Conversely, Giant, Lotte Mart and Aeon have been symbolized for modern women with elegance

and sophistication. These supermarkets create an emotion for shoppers to transform their shopping trip into

“exotic adventure”, to browse and enjoy their fantasies.

4.2. Personal culture and store loyalty

The national culture of Vietnam has been regarded as “high collectivism” or “low individualism” with

the characteristics of group orientation. However, as mentioned above, due to socio-economic change and

Western lifestyle‟s influence, a fact that Vietnam owns a large number of individuals with high

individualistic /independence characteristics is controversy with different perspectives. However, it is

mutually agreed that Vietnamese consumers usually look at their neighbors to make purchasing decisions.

Most of them want to purchase exactly the same models of products as their neighbors‟ due to usage

experience. Moreover, the opinions of peer groups also greatly influence on their shopping. Consequently,

consumers who have high independence characteristics are normally loyal to a store with positive social

image and strategic image or a store that can represent for their personality. On contrast, interdependence

consumers are easy to switch to another store whenever they are recommended by their neighbors, peers or

outside influence factors. This finding supports Lam‟s perspective (2007) but contradictory to Seock and

Chen Lin (2011).

4.3. Personal culture and store image

Group discussion indicated that different personal cultural groups have different psychological

outlooks on the world and different lifestyles. Consumers with independence characteristics would be more

interested in CSR activities or business strategy of a store. Thus, they have a more favorable attitude toward

and give priority to choose a store where more social cues in store environment are present. Their

perception of store image tends to centre on additional value or the goodness that a store brings for local

community. In their point of views, physical appearance and high personalized service are also significant

factors that draw their attention. Additionally, store personality also creates full emotion for these kinds of

consumers. A target customer-based strategy should be conducted for the independence segment. On the

other side, consumers with interdependence often pay attention to commercial aspects of a store such as a

wide range of products, reasonable price, convenience or service, especially promotion. Word of Mouth

marketing will be very effective for the segmentation since they are prone to group social norms. What‟s

more, the independent consumers often go shopping by themselves while interdependent consumers go

shopping with the whole family. Therefore, the family atmosphere is attractive to interdependent shoppers

but distasteful to independent shoppers and vice versa, symbolic elements will not suitable for

interdependent consumers.


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Yet some retailing management insisted that their stores were designed to serve all income groups, all

social classes, all ages and all types of shoppers with different personal cultural orientations. In spite of this,

regional cultural factors or sub-culture were repeatedly discussed by retailing managers. It is agreed that

one retailer can be very successful in one region but it does not mean that it will be successful in other

regions. GM4 has shared that: “We are very successful in the South and even in the Central areas but we

cannot entry to the Northern market due to cultural barriers. The needs of the consumers in the North for

store attributes are too different from those in the South for us to be adapted to”. There are no any

substantial difference between generalized supermarkets and specialized supermarkets. In short, a certain

store image which is so attractive to one personal cultural customer but is not for another and a store cannot

serve all types of customers but for a distinctive customer group.

4.4. Adjusted model delineating inter-relationships among personal culture, store image and

store loyalty

Based on the above qualitative analysis, the adjusted model is illustrated in Figure 2. Four dimensions

of store image are verified to be correlated to store loyalty despite there are contrast views between the

management and consumers. The role of socially responsible behaviours of stores is more and more

important in store choice/loyalty. The results also indicated that whereas independence is positively related

to loyalty, interdependence is negatively related to loyalty. Different from the theoretical model from

literature review, the adjusted model shows that consumers with strong independence score perceive social,

strategic aspects or store personality, whereas interdependent consumers are likely to

marketing/commercial image.

Figure 2. Adjusted Model Delineating Inter-relationship among Culture, Store Image, and Store Loyalty


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5. CONCLUSIONS AND FURTHER RESEARCH

The paper helps academicians and marketing practitioners to have a new look at the conception of

store image and the relationship among store image, culture and store loyalty in terms of the attitude and

perception of shoppers. The exploratory method identified: (i) some new dimensions beyond conventional

marketing image of store, i.e. social corporate responsibility, corporate strategy and store personality,

directly and indirectly influencing overall store image and loyalty; and (ii) the impact of personal cultural

variables, particularly independence (individualism) and interdependence (collectivism) on store loyalty

and consumers‟ perception of store image.

In the current turbulent market, the findings of this research provides a profound understanding of

consumer insight, which can help the management of supermarkets in Vietnam to build unique attributes

for their store images to attract more target customers, increase repeat patronage, create more

recommendations from loyalty customers and eventually enhance and optimize their business effectiveness.

In particular, the research will assist the management to: (1) optimize the company‟s marketing investment

mix; (2) reallocate resources in the target audience segment by using wide range of personal cultural

orientations; (3) adjust its communication strategy accordingly (especially use CSR messages to enhance

reputation and positive image of a store and develop closer links with customers and greater awareness of

their needs).

This also enable the management to re-position their store image, to set key business objectives by

developing an attractive loyalty program and loyalty customers‟ recommendations to avoid switching since

loyalty customers are active ambassadors for their business. More importantly, with the perception of the

variation of personal culture orientations, new entrants in retail market will avoid serious mistakes in their

business planning.

There are some limitations in this research. Firstly, to verify the significant relationship among main

constructs, it had better to conduct quantitative research to test the conceptual model in terms of validity,

reliability and cross-cultural measurement equivalent of the model. Secondly, with reference to the

formation of the conceptual framework, it would have been desirable to perform an even more complete

measurement of personal cultural orientations: risk aversion, tradition/prudence and so on and to add some

more antecedents of store image, i.e. shopping orientations. Finally, it would be of interest to extend the

research to other retail formats, product categories and consumers‟ demographic characteristics to study the

differences that might occur depending on the variables taken into consideration. Multi-group analysis

should therefore be performed to test the moderating effects of these variables.

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Psychological Capital and Entrepreneurial Intention

Tran Thi Hoang Dung

International School of Business, University of Economics HCM City

Nguyen Thi Mai Trang

University of Economics and Law, VNU-HCM

ABSTRACT

The purpose of is study is to investigate the impact of psychological capital (self-efficacy, optimism, hope and

resilience) on the entrepreneurial intention of undergraduate students. A sample of 327 undergraduate students in Ho

Chi Minh City was surveyed to test the model. The result indicate that three (self-efficacy, hope and resilience) out of

four components of psychological capital have significant impacts on entrepreneurial intention.

Keywords: Psychological capital, Entrepreneurial intention

1. INTRODUCTION

In today‟s world, the development of new businesses plays a vital role in stimulating the economy for

every nation. Furthermore, there has been a significant increase in the new generation of young

businessmen. Accordingly, entrepreneurship has become crucial to every country because the development

of new companies will not only help reduce unemployment rate, but also enhance the economic prosperity

as well. A great number of successful young companies are a major contribution to a country‟s total GDP

and economic growth. According to the National Business Registration Portal (2014), the number of newly

established companies in Vietnam has been increasing year after year. Many new enterprises were founded

in the year 2012 and 2013, the number of which was 69,800 and 76,900 respectively. Additionally, in

January 2014, there were 6,866 new enterprises in comparison to the number of newly established

enterprises increased by 15.6% in December, 2013. The number of new enterprises is increasing

substantially monthly, year by year; therefore, the study of entrepreneurship plays a vital role in economy

because of its huge contribution for the economy‟s development.

Entrepreneurship theory has substantially advanced during the past 30 years (Linan & Stantos, 2007).

A large number of studies have focused on personality traits of entrepreneurs (Krueger & Carsrud, 1993)

which differentiate both successful and non-successful entrepreneurs. Later studies have examined the

importance of different demographic factors such as age, gender, religion, education, family, socio-

economic status, and professional experience (Reynolds et al., 1994). Previous studies also investigate

human capital in the context of entrepreneurship (Krueger & Brazeal, 1994). Linan and Santos (2006) have

examined human capital and social capital in the model of entrepreneurial intentions. Research showed that

education could have influenced the attitudes and inspirations of youth, there is a need to understand how to

develop and nurture potential entrepreneurs while they are still students in universities (Turker & Selcuk,

2009). Few empirical studies have examined the entrepreneurial propensity of university students as a

source of future entrepreneurs (Wang & Wong, 2004).

Psychological capital is considered as key resources for managing other resources to achieve favorable

outcomes and research shows that psychological capital has enhanced several job factors such as job

performance and quality of working life (Luthans et al., 2015). However, little research has investigated the

relationship between psychological capital and entrepreneurship, especially in the context of emerging


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economies. For that reason, this study attempts to investigate the impact of psychological capital on

entrepreneurial intention.

2. LITERATURE REVIEW AND HYPOTHESES

A conceptual model is depicted in Figure 1 in this model, the components of psychological capital are

hypothesized to have positive impacts on entrepreneurial intention.

Self-

efficacy

Optimism

Hope

Resilience

Entrepreneurial

intention

H1

H2

H3

H4

Figure 1. A Theoretical Model

3. ENTREPRENEURSHIP

An entrepreneur is a person who undertakes the creation of an enterprise or business that has the

chance of profit (or success). Entrepreneurship is the art of turning ideas into a business (Barringer &

Ireland, 2010). Besides, entrepreneurs are also known as self-employed people. The theory of

entrepreneurship is developed together with issues like as defining opportunities, mobilizing resources and

organizing the institution (Shane & Venkataraman, 2000). Entrepreneurship is a scholarly field which seeks

to understand how opportunities can bring into the existence of „future‟ goods and services; how they are

discovered, created and exploited; by whom; and with what consequences.

Entrepreneurship is like a transportation mean that helps increase economic efficiencies. The

promotion of entrepreneurship is necessary for economic developments and new employment opportunities

(Henry et al., 2003). Economic benefits from entrepreneurship include the creation of new jobs,

productivity improvements and increased regional growth rates. Entrepreneurs are more likely to be alert to

opportunities and willing to take risks (Schneider et al., 2007).

Entrepreneurship allows for an understanding of the factors that affect entrepreneurial activity and

studies on the topic have grown significantly in the past decade (Turan & Kara, 2007). Entrepreneurship

can be seen as a result of a team of individuals that have a willingness to expand their organizational efforts

(Terjesen, 2008). Thus, entrepreneurship is particularly important for enhancing a healthy economy and it

is also a standard for measuring achievement or success.

4. ENTREPRENEURIAL INTENTION

Intention to act is believed as a central to understand the behaviors in which people engage. While

actual behavior may differ from original behavior, the intention to act toward something in a certain

manner is particularly planned behavior (Krueger, Reilly & Carsrud, 2000). Individual entrepreneurial

intent has proven to be an important and continuing construct in entrepreneurship theory and research (Carr


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& Sequeira, 2007). All new firms are set up by individuals, or groups outside the formal context of existing

firms, begin with some degree of planned behavior on the part of those individuals (Shook, Priem &

McGee, 2003).

Further, entrepreneurial intention is defined as willingness of individuals to perform entrepreneurial

behavior and bring out actions to set up a new business (Turker & Selcuk, 2009). An individual may have

potential to be entrepreneur but do not make any transition into entrepreneurship, unless they have such

intentions. Therefore, understanding intentions can help researchers and theoreticians understand all aspects

of anything relating to such phenomena. These include: the sources of ideas for a business venture, and

how the venture can become a reality. Previous research has investigated the different economic and

psychological capital of individual to lead self-employment (Douglas & Shepherd, 2002).

5. PSYCHOLOGICAL CAPITAL

Psychological capital can be defined as “an individual‟s positive psychological state of development

that is characterized by (1) having confidence (self-efficacy) to take on and put in the necessary effort to

succeed at challenging tasks; (2) making a positive attribution (optimism) about succeeding now and in the

future; (3) persevering toward goals and, when necessary, redirecting paths to goals (hope) in order to

succeed; and (4) when beset by problems and adversity, sustaining and bouncing back and even beyond

(resiliency) to attain success” (Luthans, et al., 2015, p. 2).

Self-efficacy

Self-efficacy is a component of psychological capital and refers to a positive belief; it could be and is

defined for the workplace as the employee's conviction about his or her abilities to mobilize the motivation,

cognitive resources or courses of action needed to successfully execute a specific task within a given

context. Bandura (2000) claims that efficacy beliefs affect self-motivation through goals and aspiration. For

example, Armstrong and his colleagues (2003, p. 34) state that "The world is full of people who are trying

to purchase self confidence, manufacture it, or simply posture it; but you cannot fake confidence, you have

to earn it, and they only way to do that is work".

Research has shown that self-efficacy influences emergent entrepreneurs who are trained and

developed for venture creation (Segal et al., 2005). For example, Markman et al. (2002) found that

inventors who started their own businesses have a vitally higher self-efficacy than other individuals. People

with a sense of entrepreneurial self-efficacy may be drawn to self-employment‟s desirable opportunities

and benefits, in comparison to the availability of these interests gained through working for others (Segal et

al., 2005). For this reason, individuals with higher self-efficacy are likely to be entrepreneurs because these

people can master their mind and control their jobs in the future.

Hypothesis 1: Self-efficacy is positively related to entrepreneurial intention.

Optimism

Optimism is another component of psychological capital. It is defined as positive outcome outlook and

thinking about events, including emotions and motivation and being realistic (Luthans, 2002). Optimists

view bad events as external (not their fault), unstable (temporary setback), and specific (a problem only in

context) attributions. On the other hand, pessimists access bad events in point of view of internal (their own

fault), stable (will last for a long time), and global (will undermine everything they do). Optimists tend to

remain positive about future events while the pessimists tend to internalize the negative aspects of their

lives (Seligman, 1998).

Optimism has been linked to a variety of workplace outcomes such as performance, job satisfaction,

work happiness, and organizational commitment (Luthans & Youssef, 2007). Furthermore, optimism is


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similar to self-efficacy and hope in the sense of orientation to pursue personally valuable goals but it

extends sources based on internalized self to external factors. Entrepreneurs tend to be optimistic

individuals, and their optimism has been related to venture outcomes (Hmieleski & Baron, 2009). For

example, optimistic entrepreneurs attract prospective investors by being willing to accept payment for

inventions contingent on the success of the invention (Dushnitsky, 2010). Cassar (2010) argues that people

are optimistic about their life expectancy are more likely to be an entrepreneur than to be in career

employment. Puri and Robinson‟s (2007) study shows that entrepreneurs are more optimistic than others

with similar demographic characteristics. Hence, optimism might be critical in providing the motivating

behavior to enable the individual entrepreneur to exist through opportunities, evaluation and particularly

progress of the new venture process (James & Gudmundsson, 2011). Therefore,

Hypothesis 2: Optimism is positively related to entrepreneurial intention.

Hope

Hope is defined as “a positive motivational state that is based on an interactively derived sense of successful (1) agency (goal-directed energy) and (2) pathways (planning to meet goals)” (Snyder et. al, 2002, p. 277). As a component of psychological capital, hope has positive characteristics that assist individuals in facing with realistic and unrealistic situations. Similar to self-efficacy, hope focuses on goal directed motivations and behaviors but differs in the set of mechanisms through which these goals are achieved (Luthans et al., 2015).

Avey, Patera, and West (2006) argue that people who attain higher levels of hope are highly motivated to not only implement the goals setting directly but also try their best to encounter with all difficult barriers ahead. Accordingly, one would be more successful if he or she has the energy to strive for the business‟ goals (will power) as well as the ability to identify the avenues for reaching them (way power; Luthans et al., 2015). Entrepreneurs believe they can make a new business happen (willpower) and pursue their belief by acting to achieve specific tasks (waypower). Thus,

Hypothesis 3: Hope is positively related to entrepreneurial intention.

Resilience

Resilience can be defined as “the capacity to rebound or bounce back from adversity, uncertainty, conflict, failure, or even positive events, progress, and increased responsibility” (Luthans, 2002, p.702). Resilient people may accept reality, keep stable values and develop skills to respond in unexpected situations effectively, which are often seen as opportunities for learning and growth (Luthans & Youssef, 2007). Resilience is an important entrepreneurial resource; it is a resource to bounce back from entrepreneurial failure, and founders can develop emotional, cognitive, social and financial resilience to failure (Dewald & Bowen, 2010). Furthermore, certainly the capacity to bounce back from adversity is critical to entrepreneurs, who need to persevere in the face of high risk and resource constrained conditions.

In addition, resilience is a common characteristic for all successful entrepreneurs because it enables entrepreneurs to learn many lessons from their mistakes (Timmons, 1999). Resilience is also an important characteristic of entrepreneurs that helps their determination and non-relentlessness when confronted with trouble (Hayek, 2012) Thus, individuals with higher resilience have higher realistic control belief. Thus,

Hypothesis 4: Resilience is positively related to entrepreneurial intention.

6. METHOD

Design and sample

Two stages of study were undertaken: a qualitative pilot study and a main survey. The pilot study was conducted employing in-depth interviews with twelve students at the University of Economics Ho Chi


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Minh City, University of Economics and Law, and International University in Ho Chi Minh City. The purpose of this study was to revise and reword the items measuring the constructs in the model.

The main survey was conducted by means of face-to-face interviews with a convenience sample of

327 students from three main universities in Ho Chi Minh City, including University of Economics Ho Chi

Minh City, University of Economics and Law, and International University. The purpose of this main

survey was to collect the data to validate the measures and to test the hypotheses. The sample included 147

(44.9%) students from University of Economics HCM City, 124 (37.9%) students from University of

Economics and Law, and 56(17.2%) students from International University. The sample included 218

(66.7%) female students and 109 (33.3%) male students.

Measurement

The measures of constructs used in this study were adopted from previous research. Self-efficacy was

measured by 4 items based on Parker (1998). Optimism was measured by 3 items borrowed from Carver

and Scheier (2002). Hope was measured by 3 items based on Snyder, Rand, and Sigmon (2002). Resilience

was measured by 3 items adapted from Block and Kremen (1996). Proactive coping was measured by 12

items based on Greenglass et al. (1999). Finally, entrepreneurial intention was measured by 4 items

borrowed from Linan & Chen (2006) (see Appendix 1). All items were measured by a seven-point Likert-

type scale, anchored by 1: strongly disagree, and 7: strongly agree. The questionnaires were prepared in

English and then translated into Vietnamese by an academic fluent in both languages.

7. DATA ANALYSIS AND RESULTS

Measure validation

Confirmatory factor analysis (CFA) was employed to validate the measures. The CFA model received

an acceptable fit to the data: Chi-square/df = 2.068, GFI = 0.865, TLI = 0.902, CFI = 0.915, and RMSEA =

0.057. Table 1 shows the correlations between constructs, composite reliability (CR), and average variance

extracted (AVE) of each measure.

Table 1. Construct Correlations, CR and AVE

Construct 1 2 3 4 5 AVE CR

1.Self-efficacy 1 .60 .85

2.Optimism .451 1 .56 .80

3.Resilience .576 .672 1 .34 .58

4.Hope .692 .588 .756 1 .54 .78

5.Entrepreneurial intention .498 .468 .582 .591 1 .63 .87

Structural equation modeling (SEM) was used to test the model and hypotheses. The SEM results

indicate that the model also received an acceptable fit to the data: Chi-square/df = 2.4, GFI= .914,

TLI= .923, CFI= .938, RMSEA= .066. Table 2 shows the regression weights of the impacts of

psychological capital components on entrepreneurial intention. The results (Table 2) also indicate that

hypotheses H1, H3, and H4 were supported. Hypothesis H2 however did not receive support from the data.


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Table 2. Regression Weights

Path Estimate Std error t-stat p-value

Self-efficacy → Entrepreneurial intention .168 .088 1.904 .057

Optimism → Entrepreneurial intention .087 .076 1.138 .255

Hope → Entrepreneurial intention .247 .134 1.840 .066

Resilience → Entrepreneurial intention .410 .179 2.292 .022

7. DISCUSSION AND IMPLICATIONS

Realizing the importance of psychological capital in entrepreneurship, this study investigates the role of the components of psychological capital in the entrepreneurial intention of business students. The findings indicate that three out of four components of psychological capital (self-efficacy, hope and resilience) are antecedents of entrepreneurial intention. The results of this study offer a number of implications for theory and practice. In terms of theory, this study further confirms the role of psychological capital in entrepreneurship in an emerging economy, Vietnam. In terms of practice, because psychological capital are state-like factors, which is more open to be developed and managed (Luthans et al., 2015), entrepreneurship educators can design programs that help students to develop their psychological capital together with their business training programs.

It is worth noting that this study was carried out with three public universities in Ho Chi Minh City which limit the generalization of the results to the whole country. Future research therefore, should extend the sample coverage to private universities as well as universities in other region of Vietnam to enhance the generalization of the results. In addition, the focus of the study is on psychological capital, other types of human resource capital should be investigated in future research to compare and contrast with the role of psychological capital in entrepreneurial intention.

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The Influence of Organizational Culture on Employee Commitment: A Study in Seafood Companies

in Ho Chi Minh City

Trinh Thuy Anh



ABSTRACT

The aim of this study is to examine the influence of organizational culture factors on employee commitment. In

this regard, the components of organizational culture as the independent variable consisted of five dimensions:

policies, leadership, values, environment, and artifacts. Research was conducted with a sample of 277 at 3 seafood

companies in Ho Chi Minh City. Linear regression test for collected data indicated that policies, artifacts, values,

leadership, and environment had positive impacts on employee commitment. Specifically, policies (including rewards

and training) were found to have strongest relationship with employee commitment because these companies created

plenty of chances for employees to be developed and recognized in their jobs. Some suggestions were recommended

for these companies to continue improving its strategies to make employees engage more in their jobs.

Keywords: Organizational culture, Employee commitment, Ho Chi Minh City (HCMC), Vietnam.

1. INTRODUCTION

Since the late 1970s, human resource is not only simple as labor force of business or production

process but also important values of organization. In HCMC, human resource market of frozen seafood field is high competition. Workforce in frozen seafood companies is changing frequently. Keeping highly

qualified workforce before the pull of other is also a challenge to seafood companies. Therefore, it is a need

to study how to improve employee commitment to stay at the company for a long time. There are many aspects of the company influencing the employee commitment such as: high salary and benefits, many

opportunities, career development, etc. However, a long term strategy that frozen seafood of enterprises should be conducted to create employee commiment is using organizational culture. Researchers

recognized the relation between organizational culture and employee commitment (Schein, 1992). Peter and Waterman (1982) also claimed that culture is the key to success of organization.

The study of the influence of organizational culture on employee commitment is significant for such rapidly developing country as Vietnam as there is great need to understand how organizational culture

influences employee attitude of commitment to the organization. This could lead to improvements in workplace to help employees become more committed to their jobs and their organizations. Theoretically,

it is imperative to enhance our understanding of how organizational culture affects employee commitment to the organizations of seafood industry in HCMC. By proper understanding the role of organizational

culture, managers in seafood companies can learn and create an environment and culture that employees are familiar with to reach a high standard of commitment. The stronger the culture, the more alignment of

employees to the organizations (Zain et al., 2009). Within the scope of this research, the author would study the factors of organizational culture which influence the employee commitment in seafood companies. The

main objectives of this study are:

To study the relationship between organizational culture and employee commitment to the organization


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To provide suggestions for organizational culture to enhance organizational commitment of

employees


2.1. Organizational culture

There are many different perceptions about definition of culture and organizational culture. According

to Schein (1992), organizational culture is defined as “A pattern of shared basic assumptions invented,

discovered, or developed by a given group as it learns to cope with its problems of external adaptation and

internal integration that have worked well enough to be considered valid and therefore, to be taught to new

members as the correct way to perceive, think and feel in relation to those problems”.

According to Hofstede (1991), Robbin and Sanghi (2007), organizational culture is the mindset of

people that distinguishes them from others, within the organization or outside the organization. This

includes values, beliefs, and behaviors of the employees which are different from that of other

organizations. Greenberg and Robert, B. (1995) consider organizational culture as a framework of values

and beliefs which consists of attitudes, norms, behaviors of employees, and their expectations which are

shared within the organization by its members. Schein (1990) also claimed that organizational culture is

common values and behaviors of the people that considered as a tool leads to the successful achievement of

organizational goals. Stewart (2010) also stated that organizational norms and values had strong effect on

all of those who are attached to the organization.

Therefore, organizational culture is a set of different values, norms, beliefs, and behaviors that make

one organization different from others. It is also a key factor leading to the success of organizations.

2.2. Employee commitment to organization

The issue of employee commitment to organization is very important for managers in every

organization (Tushman and O„Reilly, 1997). It is a feeling of dedication to an organization, consent to work

hard, and the aim of staying in the organization (Meyer & Allen, 1988). Employee commitment to

organization refers to an employee‟s belief in the organization‟s goals and values, his/her desire to remain a

member of the organization, and loyalty to the organization (Mowday et al., 1982; Hackett et al., 2001).

This definition, reflecting an individual‟s affective commitment, represents a major approach to the study

of organizational commitment, and appears to be the most desired form of commitment (Meyer et al.,

2002).

2.3. The relationship of organizational culture and employee commitment

There was a considerable correlation between organizational culture and employee commitment. Deal

and Kennedy (1982) argued that organizational culture affected the commitment of employees within the

organization and the strength of employee commitment was correlated with the strength of organizational

culture. Companies with job involvement culture had more committed workforce than those who lacked

such culture.

Scholars such as Ricardo and Jolly (2001) identified communication, training/development,

rewards/recognition, teamwork, effective decision making, risk taking for creativity and innovation,

proactive learning, fairness and consistency in most practice as dimensions of organizational culture.

However, communication, training/ development, rewards/ recognition, teamwork were the four

dimensions that had greatest effect on employee commitment according to Lau and Idis (2001). In a study

of Hong Kong and Australian managers, Lok and Crawford (2004) also found positive effect of

organizational culture on employee commitment. Boon and Arumugam (2006) examined the impact of


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organizational culture on employee commitment within Malaysian semi-conductor industry and found that

training and development, teamwork, reward and recognition, and communication were directly related to

employee commitment. Boon, Safa and Arumugam (2006) investigated the influence of the five features of

Total Quality Management (TQM) on employees‟ affective commitment within manufacturing companies

of Malaysia and concluded that teamwork, communication and organizational trust were directly related to

affective commitment. Ooi and Arumugam (2006) also found that training and development, reward and

recognition, teamwork and communication considerably affected organizational outcomes. However, this

study was restricted to a semi-conductor manufacturing industry. Zain, Ishak and Ghani (2009) examined

the relationship between the same four dimensions of organizational culture (training and development,

reward and recognition, teamwork and communication) and employee commitment. The outcomes of their

study showed that all four dimensions positively affected employee commitment. Zain et al. (2009)

examined the effect of four dimensions of organizational culture namely teamwork, communication,

reward and recognition, and training and development on organizational commitment and found that all the

four dimensions of organizational culture were important determinants of organizational commitment.

A recent study by Khan et al. (2011) explored that companies with job involvement culture have more committed workforce than those who lack such culture. Research results of a study by Ahmad et al. (2011) indicate that organizational culture is strongly and significantly related to employee commitment.

Leadership had been identified as an important subject in the field of organizational behavior. Lee and Chen (2009) explained that the excellent leader not only inspired subordinate‟s potential to enhance efficiency, to meet their requirements in the process of achieving organizational goals, but also increased the employee commitment towards organization. Fry et al. (2003) explained leadership as use of leading strategy to offer inspiring motive and to enhance the staff‟s potential for growth and staff loyalty.

Shared values which were an aspect of organizational culture enhanced employees‟ identification and attachment to the organization (Sathe, 1983). This clearly showed that employees committed to an organization whose values were shared (Bretz and Judge, 1994; Nazir, 2005). Similarly, Deal and Kennedy (1988) stated that symbols were important in achieving organizational commitment.

Artifacts were part of organizational symbolism, which were “those aspects of an organization that its members use to reveal or make comprehendible the unconscious feelings, images, and values that are inherent in organization” (Dandridge et al., 1980). The artifacts of organizational culture both expressed the underlying culture but also performed important individual and organizational functions, including the reinforcement of cultural elements. Rites and rituals were two of the important symbolic artifacts in organizational cultures. Organizational rites took several forms: rites of passage, rites of degradation, rites of renewal, rites of enhancement, rites of conflict reduction, and rites of integration (Trice & Beyer, 1984, 1985a; Trice & Beyer, 1985b). Rituals were similar to rites and served important individual and organizational purposes. Rituals were reflected by: repetition, acting, stylized behavior, order, evocative presentational style, and a collective dimension of shared meaning (Moore & Meyerhoff, 1977). Ritual was particularly important in transitions because of its ability to repair, soothe, and transform (Langer, 1951). Rites and rituals have important social functions in organizations, it increases job satisfaction and commitment among employee.

3. CONCEPTUAL FRAMEWORK AND METHODOLOGY

3.1. Conceptual framework

Upon literature review and considering expert point of view about organizational cultures employee commitment, five components of organizational culture including leadership, environment (teamwork, communication), policies (training and development, reward and recognition), values, and artifacts were chosen for testing the relationship between organizational culture and employee commitment in the context of seafood company. The conceptual framework of this research was proposed as Figure 1.


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Figure 1. Conceptual Framework

The hypotheses are given below:

H1: There is a positive relationship between Leadership and Employee commitment.

H2: There is a positive relationship between Environment and Employee commitment.

H3: There is a positive relationship between Policies and Employee commitment.

H4: There is a positive relationship between Value sand Employee commitment.

H5: There is a positive relationship between Artifacts and Employee commitment.

3.2. Methodology

Both quantitative and qualitative methodologies are used in this study. Purpose of qualitative research

is to explore, adjust, supplement the observed variables and measure research concepts. Quantitative

method is used as an approach to conduct study and gather information.

3.2.1. Qualitative analysis

The author interviewed deeply managers to adjust the questionnaire and found some problems for

recommendation, research‟s preliminary results would be based on for designing an official questionnaire.

By interviewing 5 managers at the three companies, initial measurements that were constructed basing

on previous studies were adjusted as 5 factors with 34 dimensions representing for organizational culture

and 7 dimensions representing for Employee commitment. Result is shown as Figure 2.

Figure 2. Result of Qualitative Analysis


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Leadership includes measure factors to ask for leadership competency such as the vision and thinking

skills, decision making skills, organizing competency, assessment competency, motivation competency,

and setting example leadership style. Environment includes measure factors about teamwork orientation

such as sharing and learning experience, knowledge and ideas, and communication in and out of

organization. Policies includes measure factors to check for reward and recognition; training and

development. Values includes measure factors of employee believe of mission, vision, core value of the

company, philosophy, etc. Artifact includes measure factors of activities, logo, symbol, uniform, decoration

and regulation of company.

Employee commitment was measured by the 7 factors including willingness to contribute the best, the

pride in the company, no searching for other jobs outside, satisfaction with working condition, value and

cultural fitness, deserving employee loyalty, working a whole life.

3.2.2 . Quantitative analysis

After the questionnaire was modified, supplemented, and completed, it was sent to surveyors. After

conducting the process by collecting data, SPSS software was applied to analyze the data for some statistics

and tests. Finally, the results and findings were debated to get the last mission as the final conclusions and

recommendations.

The larger sample size, the more reliable the research will be. Sample size depended on estimation

method used in specific study. In this study, a sample of 300 employees was collected from 3 seafood

companies: Minh Phu Seafood Corporation, Hung Vuong Seafood Company Limited, Saigon Food Join

Stock Company. These three companies are in the top 20 biggest seafood company in Vietnam. Moreover,

these companies were revealed from the qualitative survey as strong organizational culture as well as

dynamic environment among the seafood industry. After screening of data, 277 questionnaires was taken

for the research.

The 5-point Likert scale was applied to measure factors of both dependent and independent variables.

The participant were asked to rate the agreement with each statement among the 5 scale such as: (1)

“Strongly disagree”, (2) “Disagree”, (3) “Neither agree nor disagree”, (4) “Agree”, and (5) “Strongly

disagree”. Descriptive analysis, reliability analysis, exploratory factor analysis (EFA), correlation and

multiple regressions were employed for testing research model.

4. FINDINGS

4.1. Demographics of sample

There were 119 males and 158 male attending survey. The most striking feature was the group of

respondents whose age ranged from 25-35 years old, occupied 60.6% of the total. Respondents who were

less than 25 and over 45 years old constituted the least percentage (4.7% and 1.8%) with only 18 people out

of the total of 277. The respondents had significantly high level of education, in which most of the

respondents had bachelor degree corresponding to a rate of 40.4%, vocational levels were same number

(38%) compared to university level. In terms of income, the group of people who earned from 5 to 10

million VND per month constituted the biggest ratio, 93.1% representing for 258 in total of 277

participants. Next, the others ratios were approximately equal 3.2%, 2.5%, 1.1%. Most of respondents had

1-3 years working experience. These data shows that the interviewees are the one who care about

organizational culture and commitment towards organization, therefore, the data could present the total.

4.2. Reliability test

Cronbach‟s alpha was used to the test reliability of measurement. The results showed that all variables

had the value of Cronbach‟s alpha which equal to 0.6. Furthermore, there were no variable being removed


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from variable list because its “Cronbach‟s alpha if item deleted” was less than “the overall Cronbach‟s

alpha” and “corrected item - total correlation” was greater than 0.3. The results of reliability test is showed

in Table 1.

Table 1. Reliability Test

Variables Cronbach's alpha Testing

Leadership (LD) 0.616 Accepted

Environment (EN) 0.792 Accepted

Policies (PO) 0.852 Accepted

Values (VL) 0.721 Accepted

Artifacts (AR) 0.722 Accepted

Employee commitment (EC) 0.772 Accepted

4.3. Factor analysis

For independent variables, with hypothesis Ho posed in this analysis was that there was no correlation

among variables. KMO (Kaiser-Meyer-Olkin) and Bartlett's test of factor analysis in the second testing

showed that this hypothesis was rejected at the first result (sig = 0.000); KMO coefficient was 0.883 (> 0.5).

This result indicated that the observed variables had a relationship with each other and factor analysis

(EFA) was appropriate.

Extraction sums of squared loadings equaled to 58.071%, which was greater than 50% and hence, five

factors accounted for 58.071% of data variation. Principal components analysis revealed the presence of

five components with Eigenvalues exceeding 1, with the smallest one was 1.043, explaining 29.2%, 7.14%,

6.5%, 6.03%, 4.8% and 4.4% of the variance respectively. After eliminating unsuitable items for factor

analysis, the 25 remaining items were grouped into 6 new factors as Table 2.

Table 2. Factor Analysis-rotated Component Matrixa

Component

1 2 3 4 5

LD3 Leaders have good organizing competency 0.668

LD4 Leaders have assessed employee

performance correctly 0.652

LD5 Leaders try to raise belief and motivation

from employee 0.637

LD6 Leaders setting as an example for

employee to follow 0.601

EN1 Employee listen and respect to other‟s

ideas in their team 0.743

EN2 Employees and managers are encouraged

to share their experience to support others 0.741

EN5

Employee have opportunities to work with

others and this way bring more

effectiveness than doing alone

0.605


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EN4 Employee have opportunities to provide

new ideas and exchange ideas with others 0.595

EN5 The communication among employees was

continuously improved 0.718

EN6 Communication between leaders and

employees was continuously improved 0.707

PO1

Company‟s compensation system

encourages team and individual

contributions

0.775

PO4

Company has specific promotion for

employees who have considerable

contribution

0.656

PO2 There is a connection between employee

performance and their benefits 0.654

PO5 Employee always satisfied with the reward

policy of the company 0.638

PO3

Company has appropriate reward policies

for employee to accomplishment special

work

0.620

PO6 Specific work-skills training are given to

all employees for gaining the best results 0.576

PO7 Resources are available for employee‟s

education and training within the company 0.563

VL3 Employees believe in the core values of the

company 0.788

VL2 Employees believe in the company‟s vision 0.772

VL1 Employees believe in the company‟s

mission 0.660

VL4 The communication in company follows

the norms 0.550

AR4 Office decoration and layout are attractive

and convenient 0.737

AR2 Employee like the logo, symbols,

facilities.etc. of company 0.685

AR3 Employee like uniform of company 0.586

AR1 Activities are often established such as:

birthday, 8/3; vacations, camping trips, etc. 0.582

Extraction method: Principal component analysis

Rotation Method: Varimax with Kaiser

Rotation converged in 8 iterations.


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For dependent variables, measuring scale of the employee commitment to the organization consisted

of 7 observed variables. By EFA analysis methods with principal component and varimax rotation, the

variance was 57.684% (>50%), which was acceptable. Moreover, the coefficient of the loading factors was

quite high (0.424 to 0.747), so all variables were accepted in scale. The analytical result for dependent

variables - Employee commitment to the organization including 7 variables.

4.4. Identifying factors influencing employee commitment

Regression analysis would be conducted to test hypotheses formulated for a research. It helped us

determine the degree to which leadership, environment, policies, values and artifacts influenced the

employee commitment to the organization.

Adjusted R2 = 0.572 presented 57.2 % adequate level of analyzed data, meaning these independent

variables explained 57 % of dependent variables. The value of adjusted R2 of 0.572 was considered as a

respectable result and a highly suitable model.

Table 4. Hypotheses Testing

Model Standardized Coefficients (Beta) T Sig.

Leadership 0.250 5.213 0.001

Environment 0.201 4.248 0.000

Policy 0.341 6.324 0.000

Value 0.149 2.978 0.029

Artifact 0.257 5.375 0.000

Dependent variable: Employee Commitment

Table 4 shows that all five factors that had significant effects on employee commitment namely

policies, artifacts, values, leadership and environment (β > 0, t > 1.96 (5% significance) and sig < 0.05,

these five hypotheses were accepted at 5% levels of significance). In addition, policies had the largest beta

values so its effect on employee commitment was the strongest. Follows that is the effect of artifacts on

employee commitment, and then leadership, environment. The effect of value was not as strong as other

four factors due to its lowest beta. Conceptual framework was as shown in Figure 3.

Figure 3. Result of Regression Analysis


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The hypotheses H1, H2, H3, H4, H5 were accepted which meant that policies, artifacts, leadership,

environment, and values had positively impacted the Employee commitment to organization. The more

these factors increased, the higher level of employee commitment was.

5.DISCUSSION AND RECOMMENDATIONS

The study provided evidence that some aspects of organizational culture had positive impact on the

commitment of employees to the organization. This meant that these factors could be predicted to improve

the level of employee commitment. On that basis, the research could suggest that managers should build

and develop their organizational culture to promote the positive behavior of employees, improve labor

efficiency, create competitive advantages for businesses, contribute to maintain, and attract human

resources, especially talented employees. From the contributions of research results, a few suggestions for

organization in construction and development of corporate culture were presented in the following.

Firstly, the fairness and consistency of policy in terms of reward and training was the most important

factor for employees in the seafood company. When employees realized that the company was not fair in

policies related to benefits and welfare, they often felt inhibited and depressed; they even wanted to leave

the business. In fact, fairness and consistency were essential to create incentives and stimulation to motivate

employees. Employees always expected that the company would evaluate, reward their efforts and results

of their trying to work. If the reward policies in organization helped employees recognize that their effort,

hard-working and good performance was adequately compensated, they would try to work. Besides, this

trying might create the dynamism and creativity of employees. Furthermore, the fairness of the enterprise

would create positive sentiment, satisfaction with work and increase commitment of employee to the

organization. In contrast, if the staff noticed discrimination, bias and lack of consistency in the reward

policies and operations, it would create negative sentiment as well as passive jobs. It also leaded to reduce

the spirit of cooperation, support, dissatisfaction, and might react to quit.

Secondly, artifacts in seafood companies played an important factor for employee commitment with

major companies as well as other factors. Therefore, companies needed to create some outdoor activities

such as: camping trip, competing sports to the employees to understand each other better and to be much

closer to others. The message of artifacts should be widely disseminated to staffs to have good feelings at

work and to create more commitment.

Thirdly, leadership acted a role of specific impact of the seafood company employee commitment to

the company. Leader‟s personality was very important because it would set an example for employees to

follow. Leader by example was the most effective and fastest method if they wanted their employees to

work with their interest. Thus, the employees would actually be associated with the company in long term

just because of the boss. Conversely, employees might leave the company immediately if he had to work

for a bad boss who did not know how to lead staffs. Despite other good factors such as higher wages, kind

treatments, etc. the staff would consider going or staying while the management style was not convinced.

From this reason, companies should build a good management board and set an example for employees to

follow. The seafood company should have a leader‟s assessment survey for employees, which employees

could contribute their opinions to management board and increasing the employee commitment to the

companies.

Fourth, environment in terms of teamwork orientation in seafood companies also affect to employee

commitment. The companies needed to build functional team to deal with business activities, to support

cooperation in-side and out-side the team, to create open environment for exchange idea, knowledge and

experiences among people.

Last but not least, the seafood company should develop and improve their values or belief through

vision, mission, and core of value, norms, rules and regulations in organizations. This was really important

and necessary in the fiercely competitive environment today where values become a part of the survival of


206

enterprises. The values which are beneficial to the organization should be recognized and rewarded in

many different ways. Learned from practical lessons, Kaizen - improving step by step was the key to the

success of Japanese companies today.

6. CONCLUSION

The aim of this study was to examine the influence of organizational culture factors on employees

commitment. With sample size n = 277, the proposed model and the research hypotheses were tested

through Cronbach‟s alpha, exploratory factor analysis, correlation analysis and linear regression. Research

results found that the staffs appreciated the cultural factors including: policy, artifact, leadership,

environment, and values. Not only the findings in this study provided some understanding on the

importance of organizational culture on employee commitment, it also opened a direction for further

research in the field of management science in the future.

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Vietnamese Enterprise:

Application of Stochastic Frontier Production Function

Tu Van Binh

University of Economics Ho Chi Minh City

CFVG-European Excellence for Management Education

[email protected] or [email protected]

ABSTRACT

With an application of the stochastic frontier production function based on cross sectional panel data, the findings show evidence of technical progress; it plays a significant role of firm performance. In addition, although

returns to scale (RTS) of enterprises during 2000-2010 is the increasing RTS, this achievement is different in regions placed in Vietnam, which the Central Highlands, the Southeastern, and the Mekong River Delta are the scale of economics. It means that an increase in the scale of production gives a rise in certain benefits to the producers. While the Red River Delta, Northern Midland and Mountain, North Central and Central Coastal Areas are not the scale of

production, this shows a limit to the scale of production for these three regions, due to economics of scale are exhausted and diseconomies. Moreover, total factor productivity also confirmed that the Mekong River Delta, the Southeastern, and the Central Highlands are good, while others region are opposite. With what found and mentioned above, policies of the government toward enterprises should be clarified, because each region has different conditions of geography and natural resources. Such the Mekong River Delta, mostly products are agricultural, so a policy of the

government that once levels on all regions in nationwide is not really appropriate.

Key words: Production function, Vietnamese enterprises, Total factor productivity

1. INTRODUCTION

As argued by Page (1984), a difference in the size of firm causes changes in the quantity of output. Accordingly, total factor productivity (TFP) is also a case and makes a change in technology. Not only enterprises in Vietnam, but all the world, an enterprise can employ inputs, such labor, material, capital based on its capacity. Although Vietnam has a huge number of labor force, its contribution to technical efficiency for enterprises is still questioned, because of lack of skilled labor and lack of capital toward high technology. With a quick growth of Vietnam‟s economy, particularly during 2000 to 2008, the financial market had been busier, due to positive changes in economic policies of Vietnam. However, due to the global crisis, many enterprises in the world are negatively affected, in that Vietnam is not excluded. Consequently, a number of enterprises in Vietnam are bankruptcy because the financial market and real estate bubble-breaking led to the collapse of a series of business (Nha & Quan, 2014). In addition, reasons of small production scales of Vietnamese enterprises, poorness to mobilize and save capital, weak management skills low qualified workers, limited technology application are included, which make a low contribution to competition and not meet the demands of export markets.

Although there are many papers with arguments on Vietnamese enterprises, the analysis of technical progress, returns to scale (RTS) and TFP of enterprises among regions of Vietnam has not been done yet. This is a reason as a chance for this paper to take part and going to examine impacts of input factors, e.g. working capital, fixed asset and long investment, and total employment on sales output value of firm. However, due to the limited data by General Statistics Office (GSO), detailed information of those input factors are not described in the paper.




209

2. ENTERPRISE AND ITS CONTRIBUTION

Achievements of local enterprises are a positively representative signal to the country‟s economy,

because the local enterprise is a major source to generate employments, income enhancement, and the

national budget growth. Shifting from the rigidities of a centrally- planned economy to market-oriented

economy, Vietnamese enterprises are promoted and have more chances to address market needs for both

local and foreign markets. In terms of opened door policies, the market entrance of Vietnamese enterprises

is stimulated. Consequently, the labor market demand is increased, which the vast number of labor

accounting for 85% of total corporate workforce are employed in local enterprises (GSO). In addition,

annually, Vietnamese enterprises recruit around half of million labors, use 51% of social labor force, and

contribute to more than 40% to GDP.

There is an increase in amount of enterprises for recent years, in which the service sector accounts for

the highest share of 67,8% in total, next as the sector of construction and industry occupies 21.8%. Ho Chi

Minh City and Ha Noi capital account for the highest share of the total enterprises, due to two main

business centers of nationwide. Although the Mekong River Delta (MRD) is famous and popular for

agricultural sector, because of advantages of natural resources to serve agricultural development, it

accounts for a low share of amount.

In general, Vietnamese enterprises are in process to be restructured to response to the global recession.

However, still many enterprises are backward technology compared with regional countries, e.g. Thailand,

Indonesia, Singapore, so it causes a weak jump toward the competitive market although the government

currently pays more attention to local enterprises through the restructuring programs (mainly focused on

state owned enterprises), implications as achievements are still questionable. Additionally, programs of

improving dynamic finance system, human resource enhancement by advanced trainings, science and

technology transfer are taken into account. Unfortunately, thousands of enterprises do not maintain their

market place, this is a question that many economists as scientists are paying attention to classify.

Therefore, 43.000 enterprises have been broken in 2010, 53.000 enterprises in 2011, 54.000 enterprises in

20125. Innovative programs to enterprises with a low efficiency are extremely considered. However,

detailed actions are ambiguous. To contribute into positive development policies to Vietnamese enterprises,

this paper is going to find out how input factors impact on firm performance. Its findings are helpful and

will be a good reference for policy decision makers to think of appropriate recommendations. However, a

large limitation of this paper is data source of GSO, its statistics just provides economic indicators related to

capital, labor, and asset and liability of the firm. Information related to others factor are not offered, such as

business sector, export situation, market place, etc., so we cannot go further to find out what can affect

technical efficiency, for instance, or differences in RTS and TFP by sector.

3. EMPIRICAL MODEL

Recently, methodological and empirical work on the economic theory of production function offer

suitable framework of examining the enterprise‟s efficiency, RTS and TFP. Battese & Coelli (1988) used a

stochastic frontier production function based on development by Aigner & Lovell (1977). The model in

terms of using a time variable to capture the effect of technical progress across countries and regions is paid

more attention to. Evidently, Kokkinou (2010) and Tong (1999) employed stochastic frontier function with

exponential specification of time-varying effect to measure technical progress.

To estimate technical efficiency and technological progress of the firm, Mastromarco & Ghosh (2009)

and Liu & Li (2012) recruited stochastic production frontier function based on arguments of Battese &

Coelli (1995). Many arguments on efficient production show that producers can maximize their output

level with respect to a given inputs. In terms of finding out effects of inputs on the output growth of firms

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by panel data, Liu & Li (2012) used stochastic frontier production function, in which independent variables

are labor, human capital, and physical capital. In constructing physical capital, they use the real total fixed

assets as a proxy variable. The dependent variable of which is defined as the industrial sales output value,

measured as the total value of industrial products. Liu & Li found that labor has the largest share in

production, but its contribution to the input growth effect is the lowest.

Likely, Arazmuradov et al. (2014) also used stochastic frontier production function to check what the relationship between the output and inputs is. In terms of estimating, real GDP is the dependent variable representing a country‟s output level. The independent variables of countries‟ production function are physical capital and total employment employed. Similarly, Seo et al. (2010) also used stochastic frontier production function, with the number of employees as an independent variable, and found out TFP through stochastic frontier analysis with a time varying inefficiency model.

Applying frontier stochastic production function to find out technical efficiency of firms and how relationship between the output and inputs is widespread. Therefore, Charoenrat et al. (2013) used a stochastic frontier analysis on cross-sectional data and find the technical efficiency of the manufacturing small and medium size enterprises of Thai affected by firm size. They suggest that an increase in firm size can cause a good chance for those SMEs access to inputs, such as skilled labor, capital and technology.

With an extent application, three exploratory variables of this paper are recruited and applied in the stochastic frontier production function. The total annual capital of the firm is a proxy of working capital (K), total fixed asset and long term investment are a proxy of physical capital (P) (Liu & Li, 2012), the employees are a proxy of number of labors employed in the enterprise (Arazmuradov et al., 2014; Seo et al., 2010). This model is time-varying technical efficiency, so the time variable is also enclosed in the function as an exploratory variable to capture the effect of technical progress, namely representing technical efficiency of the firm across provinces in the years 2000-2010.

The common production frontier for provinces considered in the study is as below:

(1)

where i = 1, 2,…, N is as provinces and t = 1, 2,…, t is as variable proxy of time; Yit is average sales output value of the enterprise (Liu & Li, 2012) (measured in billion VND) for the i

th province at time t. K, P

and L are already defined above, in which K and P are working capital and physical capital respectively, measured by billion VND on average, and L is the number of employees measured in average. The

efficiency measure is , with 0 and captures the stochastic nature of the frontier.

With adoption through studies of Mastromarco (2008), Seo et al. (2010), and Arazmuradov et al. (2014), the model of stochastic frontier is considered in this paper as below:

itititLTitPTitKT

ititPLititKLititKP

TTititLLititPPititKK

TitLitAitKit

uvtLnLtLnPtLnK

LnLLnPLnLLnKLnPLnK

tLnLLnLLnPLnPLnKLnK

tLnLLnPLnKLnY

***

21

21

21

21 2

0

(2)

According to the equation (2), if the coefficients of the interaction and squared terms are equal to zero, the model of Cobb-Douglas specification is existed, due to the fact that the equation (2) plays stochastic frontier model of Translog production function. To test the appropriate model specification whether the model (2) is accepted or not, a generalized likelihood ratio test is deployed. The likelihood ratio LR test is twice differences in the log-likelihood value for unrestricted and restricted function, and defined as the following.

LR = - 2 (R – U)


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where R is restricted log of likelihood of Cobb-Douglas production function, U is unrestricted log of

likelihood of Translog production function. The LR has approximately2 distribution with degree of

freedom equal to the number of parameters assumed to be equal to zero in the null hypothesis. The critical

value of LR is drawn from Kode & Palm (1986).

With an application of the model (2), returns to scale are derived as below:

L) P, (K, factorsinput is X iWhere

LnX

LnYRTS

i

(3)

- RTS > 1: it means the increasing RTS, as an increase in the scale of production give rise to certain

benefits to the producers;

- RTS < 1: it means the decreasing RTS, as there is a limit to the scale of production due to the

economies of scale are exhausted and diseconomies;

- RTS = 1: it means the constant RTS, it occurs if a given percentage change in all inputs results in

an equal percentage in output.

Based on Battese & Coelli (1995) and Arazmuradov et al.( 2014), technical efficiency (TE) scores for

enterprises with respect to province i at time t as follows:

(4)

Then, a change between period t and period t-1 of technical efficiency (EC) can be expressed as

follows:

(5)

As pointed out by Coelli et al. (2005), technical change (TC) index as the geometric mean between

consecutive years of partial derivatives of the production function with respect to time. Once referring to

productivity, TFP is taken into account of measuring relevant factors of production. Productivity and

efficiency are used popularly and presented a variety of commentators (Coelli et al., 2005).

Therefore,

(6)

Where is the partial derivative of the translog production function with respect to time t, and is

the partial derivative of the translog production function with respect time t-1.

TFP is estimated to investigate empirically the role of technology transfer channels in explaining

countries‟ productive performances. As mentioned by Seo et al. (2010), technical efficiency (TE) change

and technological change (TC) are identified to address TFP.

(7)

4. DATA AND ITS DESCRIPTION

Data used are cross-sectional panel data with the period 2000-2010 of 63 provinces in Vietnam.

Economic indicators in each province are relevant to statistics from firm performance by GSO, in which


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sales output value on average (Y), annual average capital (W), fixed asset and long term investment (P) are

measured in billion VND, while labor is a total number of employees working in the enterprises (L).

According to GSO, 63 provinces of Vietnam are grouped into six regions: (1) Read River Delta; (2)

Northern midlands and mountain areas; (3) North central and central coastal areas; (4) Central highlands;

(5) Southeastern; (6) Mekong River Delta.

Provinces belong to Red River Delta (RRD) are Ha Noi, Ha Tay, Vinh Phuc, Bac Ninh, Quang Ninh,

Hai Duong, Hung Yen, Thai Binh, Nam Dinh, Ninh Binh. Advantages of the RRD are specialization in the

sector of industries, services, forest and agriculture. The region‟s economy contributes 22% to GDP of the

country. Recently, the local authority pays more attentions to transitioning from forest and agriculture to

industry and construction.

Provinces of Northern midlands and mountain areas include Ha Giang, Cao Bang, Bac Kan, Tuyen

Quang, Lao Cai, Yen Bai, Thai Nguyen, Lang Son, Bac Giang, Phu Tho, Lai Chau, Son La, Hoa Binh. The

region of Northern midlands and mountain is a low growth rate, because the condition of natural resource is

disadvantageous. Productive system is backward. Although the local authority considers economic

transitions, there is still a low implementation process. The main sector of the region is agriculture and

forestry.

Provinces belong to North Central and Central Coastal areas are Thanh Hoa, Nghe An, Ha Tinh,

Quang Binh, Quang Tri, Da Nang, Quang Nam, Quang Ngai. Binh Dinh, Phu Yen, Khanh Hoa, Ninh

Thuan, Binh Thuan. Because of the coastal area, the main sector of business is fishery. However, in recent

years, services and tourism are more developing. With dynamic policies of the local authority, starting-up

business of entrepreneurs is growing up, absorbing a large labor force to join the labor market.

Unlikely others region, Central Highlands are disadvantageous, due to uncomfortable natural

condition. Mostly the region‟s area is highlands, where population is the lowest dense compared to others.

A strong point of this region is agricultural production (e.g. cow), long term industry tree (cafe, rubber, etc.),

and forestry. Provinces located in Central highlands are Kon Tum, Gia Lai, Dak Lak, Dak Nong, Lam

Dong.

Provinces of Southeastern are Binh Phuoc, Tay Ninh, Dinh Duong, Dong Nai, Ba Ria - Vung Tau,

and Ho Chi Minh City. The region of Southeastern is a central business of Vietnam with the most crowded

population. It is a leading business to increase the balance trade, foreign direct investment and a large

contribution to GDP.

The Mekong River Delta (MRD) is the center of agricultural development leading in technology

transfer of the whole country. Its share accounts for more than 50% of GDP contribution. Most enterprises

located in this region very much consider export driven strategies and have generated employment for local

people. Provinces located in the MRD are Long An, Tien Giang, Ben Tre, Tra Vinh, Vinh Long, Dong

Thap, An Giang, Kien Giang, Can Tho, Hau Giang, Soc Trang, Bac Lieu, Ca Mau.

As depicted in Figure 1, 2, 3, 4, 5, 6, there is an increase in the value of economic indicators of

enterprises in six regions during 2000-2010. These achievements are derived by contributions of changes in

policies of Vietnam‟s economy in terms of considering more small and medium sized enterprises. With

comparison among six regions, Southeastern and RRD are the first leading and the second leading number

of enterprises in the period 2000-2010, respectively. This is not so surprised, because each of these two

regions has a big city as biggest business centers of nationwide, e.g. Ho Chi Minh City and Ha Noi. For the

MRD which is popular for agricultural and fishery production, its number of enterprises is 25,315 in 2010

and 23,220 in 2009, while that of North Central and Central Coastal areas is 40,987 enterprises in 2010 and

36,608 enterprises in 2009, and its number is higher than that of MRD.


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Source: GSO

Figure 1. Economic Indicators of Enterprises in the Red River Delta

Source: GSO

Figure 2. Economic Indicators of Enterprises in the Northern Midlands and Mountain Areas


214

Source: GSO

Figure 3. Economic Indicators of Enterprises in North Central and Central Coastal Areas

Source: GSO

Figure 4. Economic Indicators of Enterprises in Central Highlands


215

Source: GSO

Figure 5. Economic Indicators of Enterprises in Southeastern

Source: GSO

Figure 6. Economic Indicators of Enterprises in Mekong River Delta


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5. EMPIRICAL RESULTS

Estimated results of Translog and Cobb-Douglas models are depicted in table 1. As shown in the last row of table, the log-likehood is 94.195 and 151.399 of the Translog production frontier function and the Cobb-Douglas production frontier, respectively. The likelihood statistics for testing the null hypothesis that

the Cobb-Douglas is an adequate of data equal = -2(94.195 - 151.399) = 57.204. This value exceeds the critical value (upper 1% with two degrees of freedom) of 8.273 (Kode & Palm, 1986). As a result, the null hypothesis is rejected, meaning that the Translog frontier production function is preferred. Accordingly, technological progress, RTS, and TFP are estimated by stochastic frontier production function of Translog.

At depicted in table 1, the first-order coefficients of inputs, e.g. capital (K), physical capital (P) and labor (L) are significant at all, in which K and L are significant at 5% level, P is significant at 10%. Signs of the coefficient of these three inputs are consistent with the actual situation as the common theory. This means that an increase in the working capital and the labor force of the firm causes a raise in the sales output value of the enterprise. Because the production function in logarithms and variables normalized over their geometric mean (Arazmuradov et al., 2014), a first-order coefficient represents the input elasticity of output. Accordingly, a 1% increase in the working capital leads to 1.15% increase in the enterprises‟ sales output value. Similarly, the estimated coefficients of the labor is 0.96, this indicates a positive elasticity of labor. However, an increase in physical capital makes a decrease in the output sales value. A 1% increase in physical capital leads to about 0.82% decrease in the Vietnamese enterprise‟s output sales value. Although this result is not the same to Arazmuradov et al. (2014), this is not really surprised at all because the physical capital is a variable proxy of fixed asset and long term investment. This will be critical for wrong investments of Vietnamese enterprises for last few years. In addition, once the enterprises pay more attention to investing the fixed asset and long term investment, the budget for market activities, such as marketing, research and development can be shrunk. It can cause a decrease in the enterprise‟s market share at moment. This finding is one of the main reasons to explain why so many Vietnamese enterprises are bankrupt for recent years.

Table 1. Estimate Results of Stochastic Frontier Production Function

Translog frontier production Cobb-Douglas frontier production

Coefficient Estimate P-Value Estimate P-Value

Constant -0.820 0.340 0.866 0.000

LnK 1.148 0.036 0.328 0.000

LnP -0.823 0.090 0.095 0.025

LnL 0.960 0.031 0.365 0.000

t 0.070 0.203 0.057 0.000

LnKLnK -0.070 0.296

LnPLnP 0.172 0.262

LnLLnL -0.156 0.210

t2 0.008 0.002

LnKLnP -0.031 0.781

LnKLnL -0.002 0.986

LnPLnL 0.043 0.695

LnKt -0.081 0.000

LnPt 0.074 0.000

LnLt 0.003 0.850


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/mu 0.934 0.000 1.000 0.000

/lnsigma2 -1.517 0.000 -1.479 0.000

/ilgtgamma 2.034 0.000 1.875 0.000

sigma2 0.219 0.228

gamma 0.884 0.867

sigma_u2 0.194 0.198

sigma_v2 0.025 0.030

Observation 692 692

Log-Likelihood 151.399 94.195

For other variables, such the estimated coefficient for time (t) is not statistically significant, while its

second-order effect (t2) and its interaction with the working capital and labor are statistically significant. As

a result, observation shows evidence of technical progress and that such progress played a significant role

in the enterprise‟s performance during the period studied. Accordingly, a positive value of the interaction

coefficient is a presentation of positive impact of technical progress on productivity and that of a negative

value is a negative impact on productivity. Consequently, there is a significant and negative impact on

capacity productivity, and a significant and positive impact on physical productivity. According to

Morrison et al. (2000), output elasticity measures include second-order cross terms, e.g., of (2). They

are presentation of the impact of a variation in input K on the effect input L on the sales output value. The

sign of the second order cross terms provides an estimate of the substitutability or complementary of

inputs. As resulted in table, the coefficients of , are negative, there is the complementary between

K and P, as well as between K and L. While the coefficient is positive, two inputs of P and L are the

substitution. However, unluckily, these coefficients are not significant at all.

Applying the equation (3), RTS are estimated and summarized in Figure 7. In general, RTS of

Vietnamese enterprises during 2000-2010 are the increasing RTS, because its value is 1.166 larger than 1.

However, enterprises located in regions of the Central Highlands, the Southeastern, the Mekong River

Delta are the scale of economics. It means that an increase in the scale of production give rise to certain

benefits to the producers. Oppositely, the RRD, Northern Midland and Mountain and North Central and

Central Coastal Areas are not the scale of production, because their values of RTS are less than 1. As a

result, there is a limit to the scale of production for these three regions, since the economics of scale are

exhausted and diseconomies.

Figure 7. Returns to Scale of Enterprises by Regions


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Based on equations of (5), (6), (7), TFP is estimated. In general, Vietnamese enterprises are good in

productivity during 2000-2010 (figure 7), in which the MRD is the highest productivity with 1.682 (as

above 100%), next as the Southeastern with 1.352 and the Central Highlands with 1.095. However, the

RRD, the Northern Midlands and Mountain Areas and the North Central and Central Coastal Areas can be

seen as negative productivity growth, particularly Northern Midlands and Mountain Area with 0.716. As a

result, enterprises located in the south of Vietnam, they have mostly positive productivity growth. This can

be usually real improvements during their production and right investment for capital and labor and long

term.

Figure 8. Total Factor Productivity by Region

6. CONCLUSION

With application of the stochastic frontier production function based on cross sectional panel data in

the period 2000-2010 for 63 provinces in Vietnam, the stochastic frontier production function of Translog

is preferred after the test of Kode & Palm (1986) is confirmed.

Supported by the statistical model application on panel data sourced from GSO, the paper finds a

positive relationship between the working capital and the enterprise‟s performance. However, the

relationship between physical capital and the output sales value is negative and significant. This finding as

a warning for Vietnamese enterprises that they must consider on investing in a fixed asset and long term.

Although the finding is different from Arazmuradov et al. (2014) about a negative relationship between the

physical capital and the sales output value, this is not surprised completely. Many enterprises must be

bankrupted because the real estate market bubble in Vietnam is seriously broken, in which enterprises with

business diversification related to asset and long investment bears many damages. In addition, wrong

investments of Vietnamese enterprises for last few years should be argued. The finding also presents

evidence of technical progress, which plays a significant role to improve the enterprise‟s performance

during the period studied.

Although, in general, RTS of Vietnamese enterprises during 2000-2010 are the increasing RTS, this

achievement can be dependent on the region where the enterprise is located. This conclusion cannot be


219

convincing enough, because information related to natural source of the region is not used in the statistical

model, but at least this finding is a good reference for policy decision makers to think appropriate policies.

The Central Highlands, the Southeastern, the MRD are the scale of economics. It means that an increase in

the scale of production gives rise to certain benefits to the producers while the RRD, Northern Midland and

Mountain and North Central and Central Coastal Areas are not the scale of production. This shows a limit

to the scale of production for these three regions, since the economics of scale are exhausted and

diseconomies.

TFP also present that Vietnamese enterprises are generally good in productivity during 2000-2010.

Some regions are good, e.g. the MRD, the Southeastern, and the Central Highlands, whereas others are not

good, e.g. the RRD, the Northern Midlands and Mountain Areas, the North Central and Central Coastal

Areas, which have negative productivity growth. These findings are an important message to central and

local policy decision makers to think of necessary changes in future, particularly for the integration

economics.

7. IMPLICATION

Based on the above findings, the government and local authorities should think of building capacity of

labor forces, particularly that training programs must meet the demand of enterprises. Associations, such as

VCCI or local enterprise association, must give more advices to local enterprises of how to use capital

effectively, because most of Vietnam enterprises are SMEs, accounting for more than 90%.

Enterprises should be advised to take investment more focusing on main business. Because, as found,

the fixed asset and long term investment cause a negative influence on sales output of enterprises. In

addition, enterprises are also advised to invest more skilled labor, capital and technology once their RTS is

measured. In sum, to avoid risks of the enterprise‟s investment toward assets and long term investments,

the government needs good controls to macroeconomic stability, and considers more capacity building

program to improve skilled labors to meet technological development. In additions, market restructure must

be concentrated to facilitate local enterprises to stable development.

With what found and mentioned above, policies of the government toward enterprises should be

clarified, because each region has different conditions of geography and natural resources. Such the

Mekong River Delta, mostly products are agricultural, so a policy of the government that once level on all

regions in nationwide is not appropriate.

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fuction and panel data. Journal of Economics, 38, pp.387-99.

Battese, G.E. & Coelli, T.J., 1995. A model for technical inefficiency effects in a stochastic frontier production

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Kode, D.A. & Palm, F.C., 1986. Wald criterial for Jointly testing equality and inequality restrictions. Econometrica,

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frontier appproach. Journal of Asian Economics, 10, pp.415-30.


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Discovering the Relationships among Brand Experience, Brand Personality, and Customer Loyalty: A Study of Vietnam Luxury Hotel Market

Nguyen Tran Cam Linh


Vu Quoc Chinh

University Economics Ho Chi Minh City

ABSTRACTS

This study tries to explore the relationships among these concepts – brand experience, brand personality, and

customer loyalty in Vietnam luxury hotel market. Based on both two qualitative and quantitative approaches, the

researcher has done a focus group interview of practitioners and customers, together with a survey research of 287

qualified respondents who have used 4 to 5 stars hotel or resort services throughout the country. After running the

structural equation modeling, the main finding of this study states that customer loyalty is influenced directly by all

three factors: brand experience, brand personality. Among these three factors, brand experience contributes the least

portion to the influence, while two others have similar impact. Another important finding is brand experience strongly

affecting on brand personality, which means that customers can find out the characteristics of a brand thanks to the

experiences of sensing, acting, thinking activities related to that brand.

Keywords: Brand experience, Brand personality, Customer loyalty

1. INTRODUCTION

In recent years, there are many international hospitality brands such as Park Hyatt, Sofitel, Six Senses,

etc. set up their business, together with both mature and new domestic corporations like Muong Thanh,

Petrol Vietnam, Thien Minh, etc., which makes this market exciting. According to Association of Southeast

Asian Nations (ASEAN), Vietnam has one of the smallest numbers of international visitors per year in the

region. However, Vietnam hotel market has rich potential to develop in the future. Occupancy rate in 4 and

5 stars hotel has increased continuously in recent years. The performance is expected to be positive when

total supply of hotel rooms is also developed. Hotels are divided into categories by star-ranking, hotel size

(number of rooms) and hotel region (Grant Thornton, 2014). The trend for luxury hotels and resorts is

upward thanks to the rise of number of 4-star and 5-star hotel as well as the number of guests. The

distribution of hotels is not even in different regions. Thanks to the diversity of climate, geography, culture

and characteristics of every local region, Vietnam hotel and resort‟s characteristics also vary. Hotel brands,

therefore, do not only need to adjust according to specific local features but also try to keep their own

special ones. For example, luxurious hotels in crowded Ho Chi Minh City must be different from some

natural and traditional hotels in Mui Ne, Phan Thiet.

As mentioned above, Vietnam hotel industry is very potential and requires to be deeper explored so

that it can be further promoted. Moreover, because Vietnam hotels are diversified, the authors think it is

necessary to build a set of Vietnam hotel characteristics as well as customers‟ experience. Even though

branding is one of the most important keys to success in running business, Vietnam hotels do not

concentrate on this sector but transfer it to agencies, especially domestic firms. Vietnam academic research

of hotel industry contains variety of information and studies; however, is also lack of hotel brand


222

management involvement. Consequently, it would be a huge support for hotel industry in Vietnam,

especially from those domestic brands before they are dominated by foreign forces. There are many

researches measuring dimensions of customer loyalty and how it is affected in many context.

Understanding customer loyalty will help firms keep holding their customers and maintain a stable business

growth. Next, brand personality plays an important role in distinguishing and positioning a brand in its

market. Overall, brand experience, brand personality, and customer loyalty all have related interaction with

one another but still have not been put in one framework yet. The purpose of this study is to analyse these

relationship to see which aspects of brand experience, brand personality and service personal affect on

customer loyalty.


2.1. Brand experience

Marketing and brand management study have conducted variety concepts of brand image, brand

knowledge, brand association, and brand attribute. One related concept of these terms is brand experience,

which is considered as a fundamental concern in building and developing marketing strategies (Brakus et

al., 2009; Chang & Chieng, 2006). According to the book “The Dictionary of Brand” of Marty Neumeier,

brand experience is defined as “all the interactions people have with a product, service, or organization; the

raw material of a brand”. More specifically, brand experience is not just general judgment, emotion or

attitude of consumers toward a brand. Brand experience clearly states how customers feel and think about

their experience during and after the time they use goods or services of that brand. Brand experience also

arises from consumers who have not interacted with the brand but hold some of brand knowledge (Siv

Skard et al., 2011). A brand can generate into a lot of brand experience. Moreover, brand experience may

vary in strength and length in customers‟ minds. Some experience can be more positive than others, which

brings to the fact that some brands are more experiential than other brands (Brakus, 2009). In the analysis

of open-ended response from customers, Brakus et al. (2009) found out variety of strong experiential

brands. They are The Body Shop, Nike, Disney, HBO, etc. In contrast, some brands are considered as weak

experiential because they focus on other aspects such as low price (Wal-Mart); convenience and reliability

(Visa). It also proved that long-tasting experience will effect customers‟ satisfaction and loyalty (Oliver,

1997; Reicheld, 1996; Brakus et al., 2009).

Brand experience was originated from customers‟ experience, which is a powerful marketing source

since customers often make judgment on a product based on their experience rather than what marketers

say (Berry, 2000). Customer experience is consist of sensory dimensions (Carbone and Heackel, 1994);

emotional, physical, intellectual, spiritual (Pine and Gilmore, 1999); performance, learning, fun (Sundbo,

Hargerdon-Rasmusen, 2008). Having inheriting prior studies, together with exploiting the customer

experience in product, shopping, service and consumption; brand experience was highly constructed by

Brakus et al. (2009) including some customer‟s responses: sensations, feelings, cognitions and behaviours

arising from brand-related stimuli such as brand‟s design and identity, packaging, communications, and

environment.

The first dimension of brand experience is sensory. According to Carbone and Heackel (1994), the

clues of experience include “the visual, auditory, tactics, and taste signals emitted by products, services and

the environment that form a customer perception”. In other words, the customers must see, hear, smell, or

taste the products or service‟s contributes to create experiences. Customers may prefer their sensory

experience in some specific brands. Brakus et al. (2009) collected sensory experience of Starbuck as “smell

nice and is visually warm”. In addition, Richins (1997) established feeling experiences which include

variety of both positive and negative feelings and moods. Customers will have emotional connection to a

brand as well. That is why customers are willing to pay a higher price for clothing of Tommy Hilfiger,

Ralph and Lauren, Donna Karan, which makes them feel special (Pat Esgate, 2002). Generally, customers


223

may have good or bad feeling with a brand, or affective experience. The intellectual experience is also

important, including convergent/analytical and divergent/imaginative thinking connected to a brand

(Brakus, 2009) Disney have done an excellent job in creating good experiences in both heart and mind of

customers when giving them “pixie dust” in Magic Kingdom (Pat Esgate, 2002). By that, they can combine

their imagination and excited feeling to explore the Kingdom. Lastly, behavioural dimension relates to

actions, techniques, and usages of customers connecting to a brand (Richins, 1997; Brakus et al., 2009);

hence, behaviours are fundamental for brand interaction. Nike is successful to motivate customers inside of

active and energetic lifestyle, as well as Google dominates user with the techniques of a quick and smart

search engine (Brakus et al., 2009).

2.2. Brand personality

Another theory used in this study is brand personality, which is the way to differentiate a brand due to

giving human traits or characteristics to this brand. The reason to personify a brand is that human and brand

personality traits share similar conceptualization (Epstein, 1977). The brand personality can be created

directly and indirectly with the people who often associate with this brand, or brand users (Plummer, 1985).

Because of holding strong association with the brand; these brand users, such as CEO, brand endorsers,

will directly transfer their personality traits to the brand (MC. Cracken, 1989). By this, brand will have its

own characteristics, thanks to the creators. In an indirect way, brand reflects its personality traits from

product features, brand name, logo, advertisement, promotion and distribution (Batra, Lehmann, and Sihgn,

1993). Besides human personality, brand personality can be generated from demographic characteristics

such as gender, age, and social class (Levy, 1959).

Brand personality is one of the main factors impacting customers‟ choice and preference (Biel, 1993);

because customers tend to go for the brands that fit their personality, social characteristics, and life styles.

That is also the reason why marketers always try to express typical personality of their brands to the

customers. For example, Dove is described as femininity and mildness; or Apple‟s personality is stylish,

innovative, intuitive, easy-going, and friendly. In other words, brand personality can be an effective source

to advertise, position, and develop other brand management activities.

Brand personality has been analysed into five measurement scale, or “the set of human characteristics

associated with a brand” (Aaker, 1997); including:

Sincerity (domestic, honest, genuine, cheerful)

Excitement (daring, spirited, imaginative, up-to-date)

Competence (reliable, responsible, dependable, efficient)

Sophistication (glamorous, pretentious, charming, romantic)

Ruggedness (tough, strong, outdoorsy, rugged)

Sincerity, excitement and competence relate to three dimensions of “Big Five” human personality

(Briggs, 1992). More specifically, sincerity describes warm, caring and acceptant characteristics;

excitement has the same role as extroversion, which belongs to sociability, energy, and activity;

competence relates to conscientious, as responsibility, success, and security. On the other hand,

sh7ophistication captures human desires like being luxury, upper class, sexy; and ruggedness reflects

strengths, masculinity and Western styles (Aaker, 1997).

Finally, brand personality scales will not be stable in different cultures (Aaker, 1997), so further

researches should figure out which personality does not change across cultures and which personality does.

Moreover, marketers need to pick the right personality for a brand in a spectacular culture. For example,

culture having high collectivism will value corporation, conformity and similarity; while individualist

cultures prefer self-expression, independence and unique (Markus and Kitayama, 1991).


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2.3. Customer loyalty

Early from 1970s, customer loyalty has been illustrated as a rebuying action or repeat purchase circle

(Bass, 1974). Loyalty is also a bias repeat buying a typical brand overtime of a customer (Jacoby and

Kyner, 1973). Then, loyalty is understood as a relationship between a preference for an object and the

repeat commitment and support for that object (Baldinger and Rubinson, 1996; Dick and Basu, 1994).

Oliver (1997) clearly defined loyalty as “a deeply held commitment to rebuy or re-patronize a preferred

product/service consistently in the future, thereby causing repetitive same-brand or same brand-set

purchasing, despite situational influences and marketing efforts having the potential to cause switching

behaviour”.

Customer loyalty can contribute many benefits for both customers and organizations. For

organizations, once customer loyalty is met, there are definitely increases in revenue and profit, and

decreases in the cost of marketing and serving customer (Reichheld, 1993). The reasons for that include the

cost of maintaining the existing customers is lower than acquiring new ones (Clark and Payne, 1995), loyal

customers would continue to buy more products or service with less marketing effort (Bennett, et al., 2002).

In addition, loyal customers provide the firm with word-of-mouth advertising (Gremler and Brown, 1997),

which is effective, quick and free.

Customer loyalty has been measures by many components. It compounds attitudinal (Guest, 1944)

and behavioural approach (Cunningham, 1956) or both (Badinger and Rudinson, 1996). Oliver (1997) then

analysed four stages of loyalty process: cognitive, affective, conative and action. At the beginning stage of

loyalty, customers have good knowledge on product information of firm. After that, customers have good

attitude or preference toward the brand, and then want to rebuy the product or service at the third stage. At

the final stage, customers will take action by actually rebuy that product or service. Customer loyalty may

face some obstacles such as consumer idiosyncrasies, multi-brand loyalty, switching incentives and other

vulnerabilities. Based on both loyalty stages and loyalty obstacles, Oliver (1997) developed scales to

measure customer loyalty, which includes attraction elements, detraction elements and overall elements.

Relationships among brand experience, brand personality, and customer loyalty

Many of researches express the importance of brand personality toward customer loyalty. It was said

that brand personality had a strong effect on brand preference (Guo, 2003) and brand loyalty (Kumar et al.,

2006). Once brand is personified, customers will search for and create a connection with the brand that has

similar points with their personality (Aaker, 1996). If a firm want to strengthen their brand equity and

loyalty, marketing activities that help customers to understand their brand personality should not be

eliminated from marketing mix (Gover and Schoormans, 2005). Furthermore, Mengxia (2007) proved that

brand personality will influence on customer preference, affection, purchase intention and loyalty. The

relationship between brand personality and customer loyalty, also, will be tested in this research.

Brakus et al. (2009) had exploited the relationship between brand experience, brand personality and

customer satisfaction and loyalty of 30 famous worldwide brand names. The conclusion was interesting

that brand experience has a behavioural impact, it affects consumer satisfaction and loyalty directly and

indirectly though brand personality. More specifically, brand experience effects brand personality; and

both of them have an impact on customer satisfaction and loyalty.

The model of this study is mostly based on Brakus model of brand experience because of the

similarity in tested factors such as brand experience, brand personality, and customer loyalty. This model is

inherited and well-combined by majority of valuable prior researches. Brand experience, mentioned above,

was conceptualized by experience dimension of John Dewey (1922, 1925), Richin (1997), Schmitt (1999),

Dube and Lebel (2003); cognitive science of Fordor (1998), Pinker (1997); experience marketing of Pine

and Gilmore (1999). Brand personality factor is completely measured by five scales of Aaker (1997)


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sincerity, excitement, competence, sophistication, and ruggedness. The result of Brakus et al. (2009)

showed the influence of brand experience on customer satisfaction and loyalty, though brand personality.

Generally, this model was equipped with adequate up-to-date philosophies, theories, measurements and

scales as well as newly market practices, which can be basically applied to this study in a convenient way.

H1: Brand experience positively affects brand personality

H2: Brand personality positively affects customer loyalty

H3: Brand experience positively affects customer loyalty

Further researches had examined and developed Brakus model of brand experience. In the context of

product, Walter et al. (2013), Selda Uca Ozer et al. (2013) and Neetu Sighge borrowed the whole model to

test the relationship between brand experience, brand personality, customer satisfaction and loyalty in

industries of car, fast food, and lingerie respectively. Furthermore, Young Gin Choi et al. (2011) added

brand prestige and brand trust into this model to evaluate the relationship between these variables; whereas

Risitano et al. replaced brand personality by brand trust and customer satisfaction by brand-self connection.

In term of service context, Saleh Ardestani Abbas et al. (2014) applied the pure model in their study of

banking industry. Siv Skard et al. (2011) did the same thing but putting relational value in brand

experience; and Ching-Jui Keng et al. (2013) replaced the satisfaction and loyalty variables in Brakus

model by customer experience value. Overall, these studies all had the same results as their basic literature

framework – Brakus et al. (2009), which makes it more valuable, reasonable and reliable to be further

explored. Another reason to use this model as a basic theme is that it has not been conducted in Vietnam

market or gym and fitness industry yet. Therefore, the authors realize the need of establishing a Vietnamese

brand experience and brand personality in this context, based on the model of Brakus (2009).

Figure 1. Research Model

3. METHODOLOGY

Triangulation model established by Cooper and Schinder (2005), using both qualitative and

quantitative methods, helps to increase the quality and trust level of the study. In-deep interview is

conducted to get overall opinion from experts and frequent customers of hotel industry. After that,

quantitative will be implemented by distributing survey to customers who have used luxury hotels in

Vietnam. Because some of the concepts are quite new in Vietnam, qualitative approach – in-depth

interview method is necessary for getting the overall understanding first. This is one-to-one interview, each

interview lasts about 45-60 minutes regarding to the length of the contents provided by interviewees. The

questions for the interview are very open-ended but focus on brand experience, brand personality, and


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customer loyalty. Quantitative research method is used to quantify the problem by way of generating

numerical data or data can be transformed into useable statistic. This research will have a survey by

distributing questionnaire to collect the primary data.

Target respondents are customers who have used service of 4-star-hotel and above in Vietnam at least

once. Since time and budget resources are limited, convenient sampling is the most feasible method in

choosing respondents. The questionnaire will come to respondents thanks to Internet tools. Online survey is

convenient for the researcher because all the result will be compounded in one Excel file. Paper survey also

help to categorize respondents to age, occupation, hotel type by distributing to different places like hotel,

resort, companies, universities, household, etc.

350 questionnaires have been distributed to the respondents during collecting data period from both

online and paper methods. Thanks to the negative scales of brand experience, 18% unserious respondents

can be found out and their responses are also deleted. Finally there are still 278 cases used to analyze for

the further research

4. FINDINGS

4.1. Demographic analysis

Because of convenient sample, the hotel locations are spread out from the South to the North of

Vietnam and the number of hotel brand name is also plentiful. Hotels are divided into four types: 4-star

hotel, 5-star hotel and above, 4-star resort, 5-star resort and above. The reason for the highest proportion of

5-star hotel is that this type of hotels mostly fits the content and framework of the study, which impresses

on brand and service value theories. Table 1 showed that the age of respondents from this data, the young

people tend to use hotel service more than the old people. It is obvious that people have high income have

the tendency to use luxury hotel service more frequent

Exploratory factor analysis was first employed to preliminary check construct validity and 12

variables were eliminated, then confirmatory factor analysis (CFA) was conducted in AMOS (Arbuckle &

Wothke, 1999). The distributions of variables showed kurtosis values within -0.69 to +0.232 and skewness

values range from -0.742 to +0.35 which proved that it is appropriate for maximum likelihood (ML)

estimation to be applied (Kline, 1998). The CFA of the full measurement model with the remaining 16

items yielded the following measures: χ2 = 124.092; df = 89; p = 0.008; χ

2/df = 1.394; GFI = 0.95; TLI =

0.971; CFI = 0.978; RMSEA = 0.037. It is also noted there is no requirement being violated (Hair, 2006)

Table 1. Sample Characteristics

Frequency % Frequency %

Gender Marital status

Male 139 48.4 Single 103 35.9

Female 148 51.6 Married, no child 55 19.2

Married with child 129 44.9

Age Occupation

18 - 22 68 23.7 Student 58 20.2

23- 30 71 24.7 White collar worker 83 28.9

31- 40 72 25.1 Blue collar worker 33 11.5

41 - 50 57 19.9 Businessman or manager 56 19.5


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>50 19 6.6 Housewife or household

business 32 11.1

Other 25 8.7

Types of hotel Income

5-star hotel and above 87 30.3 < 5 millions 54 18.8

4-star hotel 80 27.9 5 – 10 millions 57 19.9

5-star resort and above 44 15.3 10 –< 15 millions 97 33.8

4-star resort 76 26.5 ≥ 15 millions 79 27.5

The results proved that all item loadings on brand personality, brand experience and customer loyalty

constructs spread from 0.64 to 0.97 indicating satisfactory convergent validity. Discriminant validity was

also satisfactory as the correlations between 15 pairs of constructs resulted in the range from 0.129 to 0.575

which are well below 1. The composite reliability of the constructs range from 0.708 and 0.829 and the

extracted variances ranged from 0.548 to 0.621, all exceed acceptable standards for exploratory research

(Kline, 1998)

4.2. Structural model estimation and hypothesis testing

Next, the structural equation model was estimated using ML method. The result showed the research

model fit the data satisfactorily: χ2 = 152.934; df = 96; p = 0.000; χ

2/df =1.593; GFI = 0.94; TLI = 0.956;

CFI = 0.965; RMSEA = 0.046. The results (Figure 2) indicated that brand personality has a strongest

significant standardized effect β = 0.27; p = 0.045), the next one is brand experience (β = 0.25; p = 0.028 on

customer loyalty. Brand experience in has a strongly significant standardized effect on brand personality (β

= 0.58; p = 0.002).

Figure 2. Result Model of Firm’s Operant Resources and Service Value


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5. DISCUSSION AND RECOMMENDATION

From the results, it can be seen that hotel customers experience the brand by sensing, acting, and

thinking, not by feeling. In detail, customers use their senses to evoke all the special image, sound, smell,

and flavour from the hotel brand. They also involve in activities hold by the brand. Finally, customers may

think about the brand if they find it interested. Three dimensions describing Vietnam hotel brand

personality are also fit the real work. To be more specifically, excitement reflects the speciality and

interesting points of the hotel brands thanks to its activities and atmosphere; sophistication dimension

describes the beauty of architecture, décor, and interior belonging to the hotel brand. Brand experience

positively affects on brand personality – fit with the reality, where customers will have some common

perspectives about brand‟s features if they experience that brand‟s stimulus. Hence, from this result, the

researcher concludes that customers can find out the own characteristics of a brand thanks to the

experiences of sensing, acting, thinking activities related to that brand. Brand experience positively affects

on customer loyalty, and brand personality positively affects on customer loyalty.

In market practice, especially for the domestic hotel brands, the first job belonging to hotel brand

managers is differentiating their brand due to brand experience and brand personality. Marketers and brand

managers should try their effort to make an experiential brand by positive brand stimulus like the image of

the hotel, the atmosphere, the activities, and underlying meaning of the brand to customers. By that way,

customers can even gain some main characteristics of the brand, or brand personality, in their minds.

Besides, the hotel brand should build their special personality, focusing on their target. As a result, these

brand personality can help to attract more customers. For future research, especially Vietnam research, the

author suggests to discover more brand theories, applying in hotel context.

6. CONCLUSION

In the purpose of discovering relationship among brand experience, brand personality, and customer

loyalty in Vietnam hotel industry, the research have been fulfilled and given valuable results. Following

two research approaches – quantitative and qualitative approach, the study achieved lots of information

about four main constructs from both academics in service marketing field and practitioners in hotel

industry. One important finding is that brand experience has an impact on brand personality, meaning that

customers can find out the characteristics of a brand thanks to the experiences of sensing, acting, and

thinking activities related to that brand. Furthermore, brand experience and brand personality can be able to

impact on customer loyalty if they are good and suitable for these customers. Regarding the final result, the

author has raised some suggestions for hotel market as well as further studies. In terms of Vietnam hotel

market, marketers should impress their hotel brand by making it more experiential or personalize the brand.

For further researchers, the author think new brand constructs such as brand personality and brand

experience should be given more concerns and exploration in Vietnam hotel market.

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The Impact of Agency Cost on Firm Value: A Comparison between Private and Privatized Corporations listed on

Ho Chi Minh Stock Exchange

Vo Thi Quy

International University

Vietnam National University, Ho Chi Minh

Mob: +84 908279931; Email: [email protected]

Le Hoang Yen Khanh

University of Economics Ho Chi Minh City

Mob: +84 902788243; Email: [email protected]

ABSTRACT

In Vietnam, there are many studies on agency cost, such as research of Than Thi Thu Thuy et al.

(2014), Nguyen Thi Minh et al. (2014) or that of Nham Phong Tuan and Nguyen Anh Tuan (2013) and many others. Although most these studies are based on quality research and confirm the existence of

agency cost in Vietnamese companies, they cannot estimate the agency cost. This study was carried out to determine the impact of agency cost (proxies are asset turnover ratio and general and

administrative expense ratio) on firm value (proxy is Tobin’s Q) of 100 companies listed in Ho Chi Minh Stock Exchange (HOSE) during the 9 year period from 2006 to 2014, and the difference of

agency cost between that of privatized corporations (currently dominated by state ownership) and

private corporations (only private ownership). The research is conducted by using the mixture of quantitative method, positivism philosophy and deductive approach. The research findings show that

agency cost and state ownership impact on firm value negatively and significantly, while growth opportunity has a positive impact on firm value significantly. The study also demonstrates that agency

cost of privatized corporations is higher and has more negative influence on firm value than that of private corporations.

Key words: Agency cost, Firm value, HOSE.

1. INTRODUCTION

In 1992, the privatization campaign of state-owned companies was embarked by Vietnam government in an effort to improve these companies‟ efficiency in comparison with enterprises in the

region and in the world. Over the past more than 20 years, this process has been continuously implemented with the original number of 12,000 state-owned enterprises in the 1990s of 20th century

and the figure now is 5,600 ones with around 800 companies having 100% state capital. The others have also undergone the same process but at different paces and levels. However, state-owned

companies in Vietnam still plays an important role and control the key industries/ aspects of the whole economy because they hold and manage the total asset of more than 3 million billion VND

[vietnamnews.vn].

The establishment of the two stock exchanges in Vietnam, fostering the privatization of not only state-owned companies (called as Privatized corporations with dominated state ownership) but also

private enterprise, partnership, one member limited liability and two or more member limited liability




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companies into corporations (referred to Private corporations with private ownership only and offer

shares of stock to a select group of people, such as investors and employees. Private corporations share

most of the benefits and drawbacks of their public counterparts, in addition to a number of unique pros and cons ([http://smallbusiness.chron.com/]) listed on stock market in order to mobilize capital from

both domestic and international resources. Both types of corporations (privatized and private)‟shares are traded on the stock market will improve the company image and reputation as well as draw public

attention on the company which will become a motivation for the Board of Directors to run the companies effectively.

Vietnam economy has already deeply integrated into the international markets through the

participation in well-known and reputable organizations in the region and the world. For that reason,

Vietnam economy now has experienced a higher development with the firm‟s size and complication

together with the transferring of ownership from the state or partnership to the public of shareholders,

making it difficult for the business owners to directly run the company feasibly and efficiently.

Leading companies of big size and complication requires the special skills and characteristics that not

all people can meet which result in the separation of ownership and control. Investors having available

capital will invest in company and become owners who will hire capable expert to run their business –

the CEO (Chief Executive Officer). The separation between ownership and control on one hand can

resolve the conflict of capital and running business, however, on the other hand, it can also lead to

inefficient operation and being harmful to investors because of the following reasons:

- The different objectives of owners and managers: In the relationship of investors – managers,

both parties want to maximize theirs benefits - Investors/owners like to witness the increasing firm

value while managers‟ interests always tie with income, perk and bonus.

- Managers and owners have different information on the company‟s asset value: Managers have

information that is impossible or very expensive for investors to acquire. For example, managers know

their own effort while investors have no information; managers directly control the business so they

have inside information that is unknown or not completely understandable for investors.

Agency cost arises when the managers‟ objectives are not in accordance with those of the owners.

Jensen and Meckling (1976) stated that in the public companies, it was popular for existence of the

contract relationship between shareholders and managers. The owners‟ target is to maximize all

shareholders‟ benefit through increasing firm value while the managers‟ welfare is associated with

their income and perquisite. Therefore, agency theory mentions the agency problem – the interest

conflict between the principal and agent. For that reason, agency cost is the cost to maintain the agent

relationship effectively.

Following Jensen and Meckling (1976) publication, there are many empirical studies in the world

on agency cost and determinants (such as Ang et al, 2000; Singh and Davidson, 2003; Qian 1996; Xu,

Zhu and Lin, 2002). In these studies, the authors concluded that the significant factor had dominant

effect on agency cost is state ownership in public companies. In their study, Xu, Zhu and Lin (2002)

argued that in companies with high government proportion tended to be passive in controlling their

investment, leading to investing in ineffective projects. In addition, the easy capital mobilization in

these companies also results in having less effectual control mechanism, in order words, increasing

agency cost. Similarly, Qian (1996)‟s research also concluded that state ownership would make the

agency problem more serious as the state ownership representatives usually pursuit the political

objectives rather than maximizing the firm value.

In Vietnam, state ownership is still dominant in equitized companies. In general, the government‟

participation in running and controlling the business has two sides of effect (positive and negative). On

one hand, the main objective of taking part in running the companies is to improve the business results

and create a transparent environment for investors. However, on the other hand, the government


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issuing policies such as privatization or transferring of ownership show signs of being ineffective. The

reason is that the state controlling and management in companies are based on objective and

bureaucratic point of views and in favour of personal relationship and political objectives. Thereby, it

can be concluded that state ownership can lead to high agency cost.

In Vietnam, there are many studies on agency cost, such as the research of Than Thi Thu Thuy et

al. (2014), Nguyen Thi Minh et al. (2014) or that of Nham PhongTuan and Nguyen Anh Tuan (2013) and many others. Although most these studies are based on quality research and confirm the existence

of agency cost in Vietnamese companies, they cannot quantify the agency cost. In the studies of Than Thi Thu Thuy et al. (2014), Nguyen Thi Minh et al. (2014), they used only one proxy - the asset

turnover ratio (how the asset is used effectively to create sales) to measure agency cost. However, in their study Than Thi Thu Thuy et al. cannot recognize relationship of state ownership leading to

higher agency cost in privatized corporations. Moreover, in the aforementioned studies, the OLS regression was used in which the typical characteristics of companies had not taken into consideration.

In addition, no study in Vietnam has done research on the agency cost of two groups of corporations (the privatized and private ones) to compare the how agency cost affects differently in these

corporations. Therefore, in order to solve these weak points, in this study the panel data of 100 listed companies from 2006 – 2014 on HOSE is used and categorized into two groups (private and privatized

ones) to compare the difference in agency cost of these two groups and their effect on firm value. The

most outstanding feature of this model in comparison with other traditional ones is that it can resolve the problem of shortage of unobservable variables (presenting the typical features of companies

provided that they are unchanged during the research period) such as management quality or corporate governance. Furthermore, in addition to the proxy of asset turnover ratio, the expense ratio is added in

this study to measure the efficiency in managing the expense in producing sales for the companies.

In this study, we examine whether there is the relationship between agency cost and firm value

and then come into further analysis and comparison the impact of agency cost on firm value of the two groups of corporations (the privatized and private ones). The structure of the rest of this research is:

Part 2 literature review; Part 3 research methodology; Part 4 research results and Part 5 conclusions and recommendations.


In the enterprise operation, there are two groups having the mutual relationship: the one supply

financial resources and the managing ones. Profit division and benefit guarantee between these two groups trigger the conflict of interest in the firms. The owners and investors are afraid of loss and

inefficient utilization of capital provided to the enterprises. Therefore, when investing in these companies, this group tends to gain the control of enterprises in all aspects. The managers are

constrained and inflexible in making managerial decision because of the strict control from financial

suppliers.

The conflict is also coming from the profit sharing within the enterprises. In general, the owners

and investors enjoy the major proportion. Therefore, the managing team will argue that except for the capital resources, no other contribution is devoted by the financial suppliers to the companies, whereas,

the managers with their capability and reputation, make effort to contribute to firms‟ operation and success. In contrast, investors believe that they have already taken big risks in investing in the

companies.

In listed companies, besides the shareholders are real owners, there are professional managers

acting as their agent. Shareholders will require managers to maximize firm value; however, the managers try to avoid these hard works but try to get the companies‟ asset to make his own. The

agency cost appears when the managers fail to maximize firm value and shareholders bear the monitoring cost to supervise BOD which affects their activities.


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Firm value is crucial because it is an indicator of how the market attributes value to a firm as a

whole. Furthermore, it can be used as a thermometer to analyze the company‟s financial health. The

higher value firms can create the better investment for potential investors. Companies with greater

value would eventually have better financial position and are more lucrative for prospective investors.

Enterprise value is a term made up by analysts to discuss the total value of a company as an enterprise

instead of only concentrating on its current market capitalization. Total value is not only the equity

value but also the market values of all other financial claims including debt, preferred stock, and

warrants (Michael C. Jensen, 2001). Tobin‟s Q can be used as a full proxy to reflect firm value in both

equity value and liability value of the company. To improve the firm value, people need to determine

which factors have great impact on it to foster these factors in the positive ways.

The agency theory originates from the economic theory developed by Alchian and Demsetz in

1972 and then further developed by Jensen and Meckling in 1976. According to agency theory,

corporate governance is defined as the relationship between the owners and agent – CEO or managers

(Mallin, 2004) in which the shareholders hire and delegate professional people to act as agent to run

the business. The theoretical shareholders expect the agents to make decision for their own interest,

while the agents are not necessary to act for the biggest benefit of shareholders (Padilla, 2000). The

agency problem between the owner and managers was first mentioned by Adam Smith (1776) as

follows: “The directors of such [joint-stock] companies, however, being the managers rather of other

people‟s money than of their own, it cannot well be expected, that they should watch over it with the

same anxious vigilance with which the partners in a private co-partnery frequently watch over their

own. Similar to the stewards of a rich man, they are liable to consider attention to small matters as not

for their master‟s honor, and very easily give themselves a dispensation from having it. Negligence

and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a

company”. After that, the theory was discovered by Ross in 1973 and then was further described by

Jensen and Meckling in 1976. The financial society pays special attention on their agency theory

contribution due to the divergence of the agent's and owner's interests. In addition, the arising problem

from the separation of ownership and controlling power in agency theory was already confirmed by

Davis, Schoorman and Donaldson in 1997.

Jensen and Meckling (1976) defined “An agency relationship as a contract under which one or

more persons (the principal(s)) engage another person (the agent) to perform some service on their

behalf which involves delegating some decision making authority to the agent. If both parties are

utility maximizers, there is reason to doubt that the agent will not always act in the best interests of the

principal”. Therefore, the authors point out that besides the daily operating cost, there is also a special

cost – the agency cost. This cost originates from the separation of ownership and control as the owners

are shareholders re-presented by BOD while the managers are usually elected by BOD to run the

business. The parties‟ objectives in this relationship are not in conformity with each other because the

managers always want to maximize their benefit instead of maximizing the firm value. Therefore, the

agency cost can be reckoned as “monitoring expenditures” paid to inspectors to alert the owners when

managers‟ actions are against the shareholders‟ interest. Furthermore, “bonding expenditure” is also

added to prevent the consequences from manager‟s fraudulence to bond them to perform in

accordance with the company‟s benefit. Last but not least, when the serious conflict happens, the

owners resort to fire the managers and bear the “residual loss” such as firing cost and contract

compensation. Jensen and Meckling define Agency costs as the sum of:

1. the monitoring expenditures by the principal,

2. the bonding expenditures by the agent,

3. the residual loss.

http://www.investopedia.com/terms/m/marketcapitalization.asp


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Xu, Zhu and Lin (2002) argued that companies with high state ownership were usually passive in

managing their investment, leading to “over-investment”. According to Jensen (1986), managers in

pursuit of the personal interest tended to expand the firm‟s size by even investing in negative NPV

projects, harming the shareholders seriously and causing higher agency cost in comparison with their

effort of investing in positive NPV projects. This leads to reduce asset turnover ratio (measuring the

efficiency in using the asset to create sales for the firm) which results in lower net income and

enterprise price and finally decreasing firm value.

2.1. From the above argument it can be hypothesized that asset turnover ratio has a positive

effect on firm value.

According to James S. Ang, Rebel A. Cole and James Wuh Lin (2000), the other proxy to

measure agency cost is the operating expense ratio (operating expense over sales) to evaluate the

capability of manager in controlling the company‟s operating expense and capturing excessive

expense including perk assumption, fringe benefits and bonus. As these expenses are higher, meaning

high agency cost will lead to lower profit and firm value.

2.2. From this argument, we can hypothesize that G&A Expense ratio has a negative effect on

firm value.

Agency cost of Privatized corporations versus that of Private ones

In China, similar to Vietnam, state management plays important role in Chinese companies. State

ownership in listed companies can lead to higher agency cost because the managers representing

government proportion have interest conflict with outside shareholders. It can be explained that these

managers lead the companies in pursuit of the political objectives. Xu, Zhu & Lin (2002) carried out

the survey on 40,246 privatized corporations from 1997 – 1998 and then choose 884 suitable

companies to run OLS regression to evaluate agency cost by using the asset turnover ratio. The results

show that, after reducing the government ownership, the agency cost decrease significantly.

Furthermore, Naughton (1998)‟s and other researches also prove the same results. These studies also

use the proxy of asset turnover ratio to measure agency cost. The ratio is to examine the efficiency in

using the asset to produce sales for the companies and is in negative relationship with agency cost. A

high ratio means low agency cost and vice versa which means managers carry out ineffective

investment or enjoy a lot of fringe benefit or perk and use the asset inefficiently.

Zou and Xiao (2006) carried out the study on listed companies in China and find that state

ownership had negative relationship with agency cost because of the following reasons: (1) These

companies with governmental guarantee can access the capital market to mobilize financial resources

much easier, leading to loose and less effective controlling mechanism; (2) the agency problem

between owners and managers is serious because of the separation of voting right and cash flow.

Although the real owners of these privatized companies are the public, the voting right on important

decision belongs to government and their representative – the managers whose salaries is not subject

to the firm performance. Therefore, they are under no pressure and have no incentives to make the

companies operate effectively, resulting in high agency cost.

Since 1992, the government has carried out the privatization of state-own companies into

corporations to be listed on the two stock exchanges. This movement is in an effort to put the public

assets into efficient operation because State-owned companies in Vietnam still manage the total asset

of more than 3 million billion VND and control the key industry/ aspects of the whole economy. In

this study, “privatized corporations” is referred to listed companies originating from the state-owned

companies that have already undergone privatization. The most outstanding characteristic of these

companies making them distinguished from their peers is that the government still holds high


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proportion in these companies (ranging from 5% - 65%) which is presented by the Board of Directors.

From the Board of Directors, one is selected to become the CEO of the company (usually assume the

CEO duality position) with very small or no percentage of personal ownership but representing very

big proportion of state ownership. Therefore, the agency cost problem in these companies is due to the

separation between the control right and cash flow rights in that the person who represents the state-

owned shares in fact does not actually own the shares. Thereby, they have no incentives to maximize

the firm value for all shareholders, leading to agency problems: (1) between the Agent with state

owners (in fact the public in general) (2) between the Agent with other shareholders in the companies.

In the contrary, in this study, the private corporations are attributed to firms with no state ownership, listed on stock exchange despite of their origin from private business, partnership, one member limited liability or 2 or more member limited liability companies. These firms usually have the origin of family company with small size at the beginning and offer shares of stock to a select group of people, such as investors and employees. Private corporations share most of the benefits and drawbacks of their public counterparts, in addition to a number of unique pros and cons ([http://smallbusiness.chron.com/]). The owner of the company is also the manager who directly runs, manages and supervises the firm operation – CEO duality position. As the owner – manager, they do not worry about “agency problem” because they work to maximize profit for their own company‟s benefit and also meaning their personal interest. When the companies undergo privatization and are listed on the stock market, in these corporations, unlike the privatized ones, there is one only interest conflict between the agent and other shareholders. Furthermore, in case hiring outside managers to run when the company expand in size, agency cost may be small because the owner can internalized all monitoring cost and has the right to hire and fire the manager. In contrast with private corporations, the monitoring cost suffered by the privatized ones should be implemented by outside organizations such as auditing companies, banks, financial institutions.

2.3. Basing on the above argument, the developed hypothesis is that agency cost in privatized corporations is higher and has more negative influence than that of private corporations.

In Vietnam, there are many studies on agency problem basing on the theory developed by Jensen and Meckling (1976) and other empirical researches around the world. In the study of Nham Phong Tuan and Nguyen Anh Tuan, they figure out that when companies fail to conform to corporate governance and information disclosure, agency problem will arise. They find out the fact that the sample size of 100 listed corporations during 2009-2011 has not yet fulfilled the obligation of transparent information disclosure. Other studies pay attention on quality research and end with concluding the existence of agency cost in Vietnamese companies but fail to quantify them. In the contrary, the study of Than Thi Thu Thuy et al. (2014) and Nguyen Thi Minh et al. (2014) use the proxy of asset turnover ratio to measure agency cost. However, these studies have not yet compared and figured out the differences in the agency cost of the privatized and private companies to highlight the negative impact of state ownership on firm value (because state ownership have the positive relationship with agency cost).

In conclusion, these studies have not clarified the impact of state ownership on the performance of privatized companies in comparison with private companies with no state ownership. Therefore, in this study, the comparison of agency cost between the two groups of corporations (privatized and private ones) will be highlighted because governmental ownership is still dominant in Vietnam listed companies. Furthermore, unlike other studies using the traditional OLS regression, this study will utilize the panel data to analyse the data with the dominated features of considering typical but immeasurable characteristics such as business field, geographic location, manager qualifications, etc.

How to measure the agency costs of firms

There are a lot of methods introduced by many empirical studies around the world to measure agency cost, however, it can be summarized as the following four main measurements: The first one


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used in research of James S. Ang, Rebel A. Cole and James Wuh Lin (2000) and Singh and Davisson (2003) is asset turnover ratio. This ratio is used to evaluate the efficiency of asset utilization over sales and has negative relationship with agency cost as the higher ratio means lower agency cost (higher firm value) and vice versa. The second ratio is also developed by James S. Ang, Rebel A. Cole and James Wuh Lin (2000) measuring the operating expense over sales and capturing excessive expenses including perk consumption. This ratio has positive relationship with agency cost but the negative one with firm value. The third one measuring the agency cost basing on the interaction between free cash flow and growth opportunity. Jensen‟s research (1986) shows that agency cost will be high when the company enjoys significant free cash flow with low growth opportunity because it associates with careless managerial decision. And the last one bases on the numbers of takeover. Murphy (1985) or Denis and McConnel (2003) argue that the takeover target is for the manager‟s interest rather than maximizing the benefit of owners because the managers will use cash to carry out the takeover instead of paying dividend to shareholders. Therefore, the authors conclude that takeover represent the agency cost of managers investing in negative NPV projects.

In this study, the two proxies of asset turnover ratio and expense ratio are used to measure agency cost as these ratios are widely used in studies of relationship between state ownership and agency cost carried out by Xu, Zhu and Lin (2002) and Sing and Davidson (2003).

3. METHODOLOGY

Economics models and description of variables

Table 1. Variable’s Definitions and Predicted Signs

Variables Definitions / Formula Predicted signs

Firm value (TobinQ) (MV of Equity + BV of Liabilities)/ (BV of

Equity + BV of Liabilities)

Asset turnover ratio (A.Turn) Sales / Total asset “+”

James S. Ang, Rebel A. Cole

and James Wuh Lin

General and Administrative

Expense ratio

(GA. Exp)

G&A Expense / Total sales “-“


and James Wuh Lin

State ownership

(Stateown)

Percentage of state-owned shares “-“

Mak and Li, Bos (1991)

Growth Opportunity

(Gro. Op)

Growth rate in sales “+”

(Murphy, 1985)

Investment Opportunity

(Invt. Op)

Growth rate in total asset “+”

Smith and Watts 1992; Rajan

and Zingales 1995

Firm age

(Firmage)

The number of years since the firm listed “+”

Hopenhayn (1992)

Capital structure

(Cap)

Total liabilities / Total asset “+”


and Zhang & Li (2008)

The independent variable (firm value - TobinQ) is measured by the ratio of market value of

equity and book value of liability over total asset (book value of equity and liability).


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To measure agency cost of a corporation, two efficiency ratios can be used:

- The first ratio is a measure of how effectively the firm‟s management controls general and

administrative costs, comprising of excessive perquisite consumption, compensation and other costs.

Precisely, this is the difference in the ratios of a firm with a certain ownership and management

structure and the average base case of sample size. The ratio is in positively connected with the agency

cost – the higher the ratio, the higher agency cost which negatively affects firm value

- The second ratio is a measure of how effectively the firm‟s management utilizes its assets. In

contrast to the expense ratio, agency costs are inversely related to the sales-to-asset ratio. A firm

whose sales-to-asset ratio is lower than the average base case has positive agency cost. These costs

arise because the manager: i) makes poor investment decisions; ii) implements insufficient effort,

resulting in lower revenues; iii) consumes executive compensation such as buying unproductive assets,

luxurious office, furniture, automobiles.

Other controlled variables added in the model including:

- State ownership in privatized corporations: This variable is supplemented to distinguish the two

groups of companies to examine whether state ownership causes agency cost and has negative

relationship with firm value.

- Growth opportunity of the corporations can be calculated in the growth in revenue of the current

year in comparison with the previous year. It is added to test the hypothesis whether the corporation

enjoy growth rate can offset the agency cost through compensation for managers to create more value.

- Investment opportunity of the companies can be calculated in the growth in total asset of the

current year in comparison with the previous year which shows that how well the companies can find

positive investment project to increase the total asset over the years. It is expected that this ratio has

positive relationship with firm value.

- Firm age is the numbers of years the company listed on stock exchange. As the firm gets older,

they can learn by doing or by investing in research and development; they can hire human capital and

train their employees; and they can learn from other corporations in the same and in other industries

and over time, companies should also discover what they are good at to build good reputation on the

market in order to manage their company well to reduce agency cost to increase firm value.

- Capital structure (liability/total asset): The proposed hypothesis for this research is when the

companies engage in making loan (mainly from the banking loan), banks generally require the

managers to report results honestly and to run the business efficiently with profit, bank monitoring

complements shareholder monitoring of managers, indirectly reducing owner-manager agency costs.

Therefore, the firm value will go up.

Equation:

TobinQ = β0 + β1*A. turn + β2*GA. Exp + β3*Stateown + β4*Gro. Op + β5*Invt. Op+

β6*Firmage + β7*Cap + ε

where:

β0: y-intercept

β1, β2, β3, β4, β5, β6, β7: slopes of the coefficients of independent variables

ε: error term


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The last term of ε in the model above needs to be included because any model that involves the error values that cannot be explained by the independent variables in the model. In fact, it is unlikely to exist the determination of a perfect linear relationship between dependent and explanatory variables in a model, thus there is a need to mention the error term in the regression model.

Scope and source of data

The scope of this study is restricted to listed companies in Vietnam. Currently, Vietnam has two official stock exchanges named Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX). By and large, HOSE is the first stock exchange in Vietnam, located in the financial center of the country. Furthermore, it has more than 300 listed companies with the total market capitalization of over 80% of the whole country. Moreover, it is claimed to be more accurate and unbiased estimates than HNX. The sample size in this study is drawn from 100 listed companies on HOSE between 2006 and 2014 from 08 industries, with the exception of banks, financial companies and institutions. The fact is that financial companies and institutions have to be removed by reason of excessive difference from other companies (both business characteristics and regulations). The information of audited financial statement of listed companies are collected from HOSE, cafef.vn and vcsc.com.vn (Vietcapital Securities Company)

According to the distribution of population from the latest census in Ho Chi Minh stock exchange during the 9-year-period of 2006-2014, the sample size of 900 observations from 100 companies in 9 years is allocated as follows:

Firm types Samples (Number of firms) Total observations over

9-year-period

Private firm 58 522

Privatized firm 42 378

TOTAL 100 900

4. RESEARCH RESULTS

4.1. Descriptive statistics

Table 2. Descriptive Statistics of Sample Size

Variable Obs Mean Std. Dev Min Max

Tobin‟s Q 900 0.710 0.568 -0.036 3.532

A.Turn 900 0.104 1.655 -3.89 11.413

G&A Exp 900 -0.009 0.136 -1.09 0.9

Gro-Op 900 0.412 0.861 -4 5.590

Invt-Op 900 0.373 2.632 -9.945 67

Firm age 900 3.11 3.5 -5 14

Cap 900 0.334 0.307 0.000024 0.99

Source: Author’s calculation based on Strata 12

The Tobin‟s Q of sample size has the mean of 0.7105 and a range of -0.0369 to 3.5324. The mean

of asset turnover ratio is 0.104 with minimum value of -3.89 and maximum value of 11.413 while

general and administrative expense ratio has a much smaller mean of -0.0098 and ranges from -1.09 to

0.9. Growth opportunity has the mean of 0.412 and a range of -4.0 to 5.59 whereas investment


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opportunity‟s mean is 0.37 but ranges from -9.94 to 67. The firm age is measured by the time

company listed on the Ho Chi Minh stock exchange and has the mean of 3.11 years with range from -5

year to 14 years. The capital structure has the mean of 0.33 and range from 0.000024 to 0.99.

4.2. Regression analysis

Hausman test is believed to reject random effects model if p-value is less than 0.05 if there exists

a correlation between covariates and unit effects. In the study, since p-value is 0.0000, it can be

concluded that random effects model can be rejected and fixed effect model should be used.

Table 3. Fixed Effect Model

Tobin’s Q Coef. p>|t|

A.Turn 0.073 0.000

G&A Exp -0.291 0.000

Gro-Op 0.300 0.000

Invt-Op 0.001 0.674

Firm age -0.0009 0.776

Cap 0.132 0.002

Cons 0.533 0.000


From the fixed effect model, we have the equation:

TobinQ= 0.53 + 0.073*A. turn - 0.29 * GA. Exp + 0.3*Gro.Op + 0.001*Invt. Op –

0.0009*Firmage + 0.132*Cap

The explanations for the results of fixed effect model are as follows:

There is strong positive relationship between asset turnover ratio and firm value (p-value = 0 <

0.05).

The higher asset turnover ratio, the more efficiently the BOD uses its asset to create turnover for

the company, contributing to reducing agency cost. For that reason, this will lead to higher firm value

reflecting of higher Tobin‟s Q ratio.

There is negative relationship between general and administrative expense ratio and firm value

(p-value = 0 < 0.05).

The BOD spend much money on G&A expense mirroring the inefficiency in expense

management to cut cost to increase profit for the whole company, increasing agency cost. From that

fact, it can be concluded that high G&A expense will reduce firm value.

There is positive relationship between growth opportunity and firm value (p-value = 0 < 0.05).

The company experienced growth rate in revenue which means that the BOD has strategic plan to

expand market, satisfy customers‟ need better… All of these things together will create more value for

stakeholders and increase firm value.

There is no relationship between investment opportunity and firm value (p-value = 0.674 >

0.05). According to Jensen and Mecking (1976) and Jensen (2001), the managers always have the

incentives to make investment to cause the firm grow beyond the optimal scale whether investing in

the negative or positive NPV projects, leading to over-investment. Especially, when the free cash flow


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is available, they even invest more than usual in inefficient projects instead of paying dividend to

shareholders. Therefore, the level of investment (over or under investment) will affect the firm value.

The motivation for making investment is compensation, bonus, under-the-counter benefits for mangers.

Thereby, the investment opportunity is not influenced by any internal or external factors except for the

managers‟ personal motives and will not affect firm value. For that reason, the possible reason for no

correlation between the two variables.

There is no relationship between firm age and firm value (p-value = 0.776 > 0.05).

The longer the firmed listed on Ho Chi Minh stock exchange cannot lead to more reputation and

higher position on the market to increase firm value so there is no relationship between firm age and

firm value.

There is positive relationship between capital structure and firm value (p-value = 0.002 <

0.05).

The higher leverage used will increase the possibility of bank/ financial institutions‟ monitoring

on the company performance. This will lead to BOD‟s commitment to run the company well to

increase firm value.

As for listed corporations, there are many conflicts, however, the conflict of interest between

shareholders and agents has drawn the significant attention from the public as it directly and seriously

affects the enterprises. According to the Enterprise Law 2005, CEO is the person who runs the daily

operation of enterprise, is under the supervision of Board of Directors and takes responsibility in face

of Government Law for the assigned right and obligation. The above definition indicates the role

“Agent” of CEO who represents shareholders – owners to manage the operation and is supervised by

Board of Directors – on behalf of shareholders. In Vietnam, the right of shareholders, managers and

BOD have not implemented effectively due to the loose regulation as well as the right violation of

shareholders. As the Vietnam stock market is still young in comparison with regional and international

market, therefore, the Law‟s application to resolve firm conflict is still limited.

4.3. The comparison of agency cost of two groups of corporations

Agency cost of privatized firm versus that of private corporations: From the literature review, the

hypothesis developed that agency cost of privatized corporations is higher than that of private ones.

The true data from 100 companies listed on HOSE is used to prove the hypothesis as follows:

Source: Author’s calculation

Figure 1. Asset Turnover Ratio of 02 Groups of Corporations


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Source: Author’s calculation

Figure 2. G&A Expense Ratio of 02 Groups of Corporations

From figure 1 & 2, it can be seen that private firms have the highest Asset turnover ratio in

comparison with sample size and privatized corporations. Furthermore, concerning G&A expense

ratio, they also has the lowest ratio. In conclusion, the agency cost of private corporations (measured

by asset turnover ratio and general and administrative expense ratio) is smaller than that of sample

size and privatized corporations.

The above conclusion can be explained that by the two major arguments in Vietnam context as

follows:

- The abuse of state shareholders in privatized corporations: In Vietnam, the giant listed

companies receiving the most privileges are privatized companies. Although these state-owned

companies have undergone privatization, the state shareholders usually overuse their power and

influence to control the BOD‟s decision. They abuse their authority and implement their right

incorrectly according to Law such as appointing their own representatives to become member of BOD,

directly making the decision of raising registered capital or using the company‟s asset for their own

interest or taking the advantage of big shareholders to win the right of buying shares with favorable

prices when the companies issue new shares.

- The culture and thought of Vietnamese people: The Vietnamese with the independent,

autonomous and self-governing tradition would like to open their own family business with small

scale in order to self-manage, run and supervise the company operation. As a manager – owner, they

do not need to take care of “agency problem” and “agency cost” because their effort is for the

company and themselves. The most important position, the right of making key decision and

supervising are assumed by the only owner or their family members. However, when these companies

evolve and get listed on the stock market, the outside agent will be hired to run executing activities

and the real owner of the private companies with only private ownership has the right to fire the

managers if their actions are against the real owner‟s interest.

Agency cost affects differently on firm value of two groups of companies

How agency cost affects differently on firm value of two groups of companies is examined in this

session.

From the regression of privatized corporations we have:


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Tobin’s Q =0.634 + 0.114*A.Turn - 0.57*GA. Exp + 0.26*Gro.Opp + 0.003*Invt. Opp +

0.006*Firmage – 0.032*Cap

From the regression of private corporations we have:

Tobin’s Q= 0.47 + 0.115*A.Turn – 0.328*GA. Exp +0.32 * Gro. Opp + 0.012*Invt.Opp –

0.003*Firmage +0.19*Cap

The regression estimates (coefficients) for the agency cost of privatized and private corporations

through the proxies of asset turnover ratio and GA expense ratio. The results seem to suggest that asset

turnover ratio is a stronger predictor of Tobin‟s Q for private corporations (0.115) than for the

privatized ones (0.114). The results also probably suggest that G&A is a weaker predictor of Tobin‟s

Q for private ones (-0.328) than for the privatized ones (-0.57). However, specific significance tests

should be conducted to test the difference among these regression coefficients.

We can compare the regression coefficients of asset turnover ratio between two firm types

(privatized corporation is coded “1” while private one is coded “0”) to test the null hypothesis:

Ho: β 11 = β10

where β 11 is the regression for the privatized corporation, β10 is the regression for the private one.

Table 4. Testing for Regression Coefficient of Asset Turnover Ratio of Two Groups of Corporations

F (1, 896) 9.04

Prob>F 0.0027


The null hypothesis can be rejected (F=9.04, p = 0.0027). This means that the regression

coefficients between asset turnover ratio and Tobin‟Q in fact significantly differ across the 2 groups of

companies.

Moreover, we can compare the regression coefficients of G&A expense ratio between two

enterprise types (privatized corporation is coded “1” while private one is coded “0”) to test the null

hypothesis:

Ho: β 21 = β20

where β 21 is the regression for the privatized corporation, β20 is the regression for the private one.

Table 5. Testing for Regression Coefficient of General and Administrative Expense Ratio of Two Groups of

Corporations

F (1, 896) 72.94

Prob>F 0.0000


The null hypothesis can be rejected (F=72.94, p = 0.0000) which means that the regression

coefficients between agency cost and Tobin‟Q in fact significantly differ across the 2 groups of

companies.

From the table 4.3&4.3, we can see that the agency cost in privatized corporations has more

negative influence on firm value than that of private corporations through the slopes of co-efficient in

the model.


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In conclusion, we can confirm that there is the relationship between agency cost and firm

value. Furthermore, the empirical study also illustrates that the agency cost in privatized

corporations is higher and has more negative influence than that of private ones.

5. CONCLUSION

This study was carried out to determine the impact of agency cost (proxies are asset turnover ratio

and general and administrative expense ratio) on firm value (proxy is Tobin‟s Q) of 100 companies

listed in Ho Chi Minh Stock Exchange (HOSE) during the 9 year period from 2006 to 2014, and the

difference of agency cost between privatized corporations (state-owned companies privatized and

currently dominated by state ownership) and private ones (only private ownership). The research

findings showed that agency cost and state ownership impact on firm value negatively and

significantly, while growth opportunity has a positive impact on firm value significantly and the

agency cost in privatized corporations is higher and has more negative influence than that of private

ones.

5.1. Limitations

Besides the achievements of research objectives, this study still obtains several limitations.

Firstly, the panel data is traditionally used in empirical studies of long time period of more than 10

years. However, because of the limitation of data resources available in Vietnam, only 9 year period

from 2006 to 2014 is conducted in this research for 100 listed companies on HOSE. Therefore, the

time period is not fully satisfied the requirement of panel data analysis and might lead to a bias in

choosing the sample (Zikmund, 2003).

The sample size is 100 listed companies on HOSE not from HNX or UPCOM market which

means that other unlisted companies or listed ones in other exchanges are not test in the model and 100

listed companies cannot present the whole picture of Vietnam stock market.

This study has not taken into consideration the possibility of having endogeneity, which needs

the remedy of the GMM model to solve the problem.

Finally, due to the limited of only two explanatory variables for agency cost, it is suggested

that further research explore more variables related to agency cost in order to reduce the error term in

the regression model as well as have a more accurate analysis of agency cost effect on firm value.

5.2. Recommendations

Basing on the above analysis, the following measures can be introduced to control and manage

agency cost in listed company:

As the capital structure has positive impact on the firm value so it is suggested that the

company can use the leverage to reduce agency cost. Jensen and Meckling had argued that increasing

the leverage will decrease the pressure of mobilized equity capital, leading to ease the conflict between

the agent and shareholders. Jensen also thinks that making a loan forces the companies put a side cash

to pay interest and principal in the future which means preventing the investment in negative NPV

project. Furthermore, a loan can increase the monitoring from other financial institutions and banks

which put the pressure on companies to perform efficiently to pay back the interest. Altogether, this

can reduce agency cost. However, making too much loan also increase the agency cost of debt. For

that reason, it depends on the skills applied by the companied to balance agency cost of debt and

agency cost of equity.


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In order to encourage the agent to work for the benefit of shareholders, the flexible salary

scheme should be applied instead of the fixed one. In practices, it is proved that the agent will avoid

works or work inefficiently if they received fixed salary. In contrast, the flexible scheme is paid

depending on the value added to the companies‟ profit. This will encourage the agent to devote more

energy to the companies.

Another way to control the agency cost is to make agent contracts with favorable provision

such as share offering, stock options,… to encourage the agent gain more proportion of the company,

gradually making him the bigger shareholders and working for the stake of his own companies.

However, the favorable contract can offer opportunity for agent to do fraudulence when the biding

provisions are loose. For example, the agent can take advantage to own large percentage of share and

then neglect the management or even resign from his work which is very harmful to the business.

The threat of M&A or takeover is also a mechanism to reduce the agency cost. Jensen and

Ruback (1983) argues that when the company runs the risk of being taken over or M&A, the manager

will try their best to make effective managerial decision to maintain their position in the company and

avoid the risks of being dismissed from the companies.

The company can control the agency cost by using its dividend policy. On one hand, paying

dividend can lead to the mobilization of new capital on the stock market. When new stocks are issued

resulting more monitoring parties such as investment banks, investment fund, regulators, auditing

companies and new shareholders, the agent will work effectively for the benefits of shareholders and

decrease agency cost. On the other hand, when companies declare no dividend but use the dividend to

reinvest in capital, decreasing the leverage and possibility of going bankrupt. This will reduce the

agency cost of debt.

Improving the financial and non-financial statement‟s quality is in urgent need now in

Vietnamese firms. The international financial statement standards (IFRS, IAS) should be introduced

into the Accounting Standard of Vietnam in order to elevate the quality and ensure the correlation of

Vietnam financial information with international standard.

Convertible bond can be used as an instrument to mobilize capital and then convert to share to solve the enterprise conflict. When the managers perform poorly and fail to pay debt, creditors can become shareholders and are entitle to participate, control the company‟s operation. In addition, convertible bond can use the loan contract with the provision of controlling operation in case bad business results.

Over the past few years, the Board of Supervision‟s role is blurred and ineffective in monitoring companies‟ operation. An internal audit should be established to take charge of the monitoring duty to make sure that the agent‟s decision is in accordance with the shareholders‟ benefit.

The operating mechanism of Vietnam stock market plays important role in encouraging listed companies to implement corporate governance, reduce the problem of asymmetric information, creating impartial and transparent environment to protect benefits of shareholders and reduce agency cost.

For privatized corporations: Corporate governance should be crucial issue in the public and listed companies. As government holds dominant proportion in privatized firms, so the government should be the pioneer in encouraging application of the best corporate governance widespread in Vietnamese firms in order to reduce the negative effect of state ownership in these privatized corporations. In other countries, corporate governance is playing an important role in agency cost reduction and balance scorecard is used to evaluate the operating efficiency of the companies. In the future, when Vietnam stock market expands, these issues should be applied widespread to make sure that Vietnam can keep pace with other countries.


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For private corporations: Leveraged buy outs is a trading in which joint stock companies can be acquired at constrained proportion by new investors, old managers, owners, bankers, financial institution. By that way, investors can increase their controlling power or get back the money previously invested in the company.

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Corporate Governance Framework & Family Ownership: An Empirical Evidence from Listed Firms in Vietnam

Kien Son Nguyen

The Vietnam-Netherlands Programme

University of Economics, Ho Chi Minh City, Vietnam

Duc Hong Vo

The Economic Regulation Authority, Australia

Open University of Ho Chi Minh City, Vietnam

ABSTRACT

A corporate governance framework is required for a successful operation of firms. This study is conducted to

examine the potential impact of family ownership, together with other characteristics from the framework, on firms’

performance in Vietnam. Each of the three different measurement dimensions is used as a proxy for firm’s

performance, including the market factor (Tobin’s Q); the accounting factor (ROA); and the risk of bankruptcy factor

(Z-Score). Using a multivariate regression model on the sample of 289 listed companies in the Ho Chi Minh City

Stock Exchange in 2013, the findings from this study confirm that the corporate governance framework has been

weakly implemented in Vietnam. In addition, family ownership in Vietnam’s listed firms acts as a constraint to firm’s

performance.

Key words: Corporate governance framework; Family ownership; Multivariate regression; Listed firms; Ho Chi

Minh City.

1. INTRODUCTION

The effect of family control on firm‟s performance has been studied for many years around the world.

In the western countries, family firms have been considered less effective and profitable than those without

family control. These family controlled firms may have the conflict of financial benefits between the

ownership that makes them temporarily forgot their desired purpose of maximizing profit (Anderson and

Reeb, 2003). These firms may have become too costly to run if there is the duality of the founder, being the

owner and the manager (Villalonga et al., 2006). Nonetheless, King and Santor (2008) found that the

freestanding family owned firms have a similar market performance with other firms. Also, Isakov and

Weisskopf (2014) presented that family firms can even be more profitable and these firms exhibit better

market value than non-family firms. For some emerging countries in Asia, several papers have been

attempted to verify this complex issue in recent years. Claessens et al. (2002) investigated public

companies in the Asian economies and found that firm value has risen by increasing the large shareholder

ownership, while Jaggi et al., (2009) showed the effective monitor of corporate governance to firm

performance if there is a family control in a firm.

In Vietnam, the relationship between firm‟s performance and various aspects of corporate governance

included in the corporate governance framework have been investigated in various studies. Phung and

Hoang (2013), Vo and Phan (2013) have presented the nonlinear relationship between board ownership and

firm‟s performance. In addition, Vo and Nguyen (2014) found the positive impact of accommodating the

board structure and the managerial ownership activity on firm‟s performance. Quang and Xin (2014)

explored the impact of ownership structure on firm‟s performance and concluded that the better financial


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performance is achieved with a presence of the State ownership. However, other studies argued that top

shareholder concentration and levels of State ownership provided no impact on firm‟s performance because

of the short history of the security market and the bad implementation of corporate governance (Dung To

Thi, 2011).

In short, corporate governance is the growing field in Vietnam‟s academic research community and new interests have emerged over the last 36 months or so. A dozen of publications have been found in a

public domain including publications in Vietnamese and international refereed journals and conferences presentation. This study is different with all other studies which were previously conducted in the three key

areas: (i) the issue of family ownership is strictly considered; (ii) various proxies for firms‟ performance are employed; and (iii) newly used econometric technique, the multivariate analysis, treatment effect model is

adopted together with the traditional OLS regressions.


2.1 .Ownership structure and firm’s performance

A number of theoretical literature and empirical research have noticed the impact of the ownership

structure on firm‟s performance for decades. These literatures also inferred the problem of the conflict between the owners‟ and the managers‟ interests which is generally considered as the agency problem

(Jensen and Meckling, 1976; Fama and Jensen, 1983). In addition, if the shareholders do not control

effectively, the widely known free-rider problem might well be incurred (Grossman and Hart, 1980; Holmstrom, 1982).

These problems can be reduced by an effective monitoring mechanism which is classified by two aspects (Agrawal and Knoeber, 1996; Shleifer and Vishny, 1997). First, it is the internal mechanism (the

corporate structure, the managerial structure, and the concentrated ownership) which focused on how internal entities of a company can control the problem itself. It means that shareholders are involved in the

management process using their voting right, so as the most suitable managers are selected. In this situation, a small number of large shareholders are efficiently involved in this process instead of a large number of

minority shareholders. They would possess a stronger incentive and a greater power to monitor management activities rather the small ones (Berle and Means, 1932). Second, in contrast, an external

corporate mechanism (legal framework, environmental economic, human resources, and capital markets) is required.

However, a serious issue may have emerged. There could be a situation in which a large concentrated ownership also gets a potential drawback. The large ownership narrows the probability of bidding others.

This results in a reduction in the value of firms (Bacrclay and Holderness, 1989). It is also argued that large shareholders could create the potential risk of remaining the active role although they are no longer

competent to execute or operate the company (Shleifer and Vishnny, 1997). In addition, these shareholders

have just paid attention to their interests, not the interests of the other shareholders or employees. They will use their control right to maximize their own utility that could come at the expense of other shareholders

and the company. Large shareholders would manipulate or sway the firm in the wrong direction and prone to expropriate the minority shareholder‟s interest (Faccio et al., 2001, Hamdi 2010).

2.2. Family effect

2.2.1. Why is family ownership different from other concentrated ownership?

Gomez-Mejia et al. (2011), and Berrone et al. (2012) have provided a clarification in relation to family ownership. Family ownership is promoted by the commitment of preservation of nonfinancial or socio-

emotional wealth. The characteristics of emotional connection, family involvement, the contribution of legacy, family control, and reputation are present in family ownership. In contrast, non-family ownership is


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usually attached to the professional managers who have more psychological, social network or benefit,

geographical distance with the company, or their relationship would be transitory, individual or utilitarian.

Family ownership is one of the types of block-holders. It also has an incentive to reduce the agency cost and the free-rider problem. Nevertheless, the influence of family ownership needs to be analyzed

carefully between family and non-family block holders. The incentives and motivation of this type of block-holders are different from others in the way of perceiving, manipulating or managing the company

(Isakov and Weisskopf, 2014). For that reason, in order to clarify the family effect, the potential cost and potential benefits of family ownership are carefully considered.

2.2.2. Potential benefits of family ownership

Family ownership is a special case of ownership structure. The family usually invests most of their

private asset in the company. Definitely, this wealth is not well diversified. Investors will concern mostly about their companies and constitute a long term strategies for the company that could create a strong

incentive for them to strictly control a management mechanism. (Demsetz and Lehn 1985, Andres 2008). Families usually care about their company since they have contributed the large part of their wealth in the

company. They then constituted the company from the beginning, or considered the company as their identity and patrimony (Arregle et al., 2007). Reputation, the perception of family in the society have

directly linked the company fortune to the family owners who provide a strong incentive to enhance company performance in the long term strategy, not a pure self-controlled (Miller and Le Breton Miller,

2005). As a result, the family ownership could explore less their benefit, focus on building up the company

and controlling efficiently the managers (Ward 2004, Corbetta and Salvato, 2004).

In addition, the descendants would build trust with employees, develop a long term relationship with

suppliers and external shareholders, if they could grow up closely with the firm, or reach the knowledge and experience within their families (Andres 2008). The nature of long term business is that the family

ownership creates the network or working environment which fosters trust and loyalty embedded with employees (Ward, 1988). Anderson et al. (2003) exhibited that family firms have incurred a lower cost of

debt in comparison with non-family firms. These findings are related to the long term survival that would be a promise for reducing the agency conflicts. Furthermore, the long-term contract among shareholders is

also necessary to promote investment plans. This is a basement for increasing firm‟s credibility to commit implicit contracts which are the desirable solution of gaining trust of the potential external shareholder in

the future (Williamson, 1979; Tagiuri and Davis, 1996). Since most families considering their asset in the companies should be passed from generation to generation rather than it is consumed at a time, their

investment decisions do not forgo the long-term interests due to the temporary earning at the present. This would lead to the efficient mechanism of investment that has contributed to the increase of firm‟ value

(Stein, 1988; Casson, 1999; Chami, 2001).

Anderson et al. (2003) considered that the founders often prefer to pass the firm to their descendants.

This preference leads to a potential influence on agency costs of debts between shareholders and

bondholders. Founding family ownership emerged as a solution for narrowing the agency conflicts between equity and debt owners, then decreased the cost of debt. This study suggested that the founding family

appeared to protect the interest of bondholders in a more efficient way. Based on the view of linking resources, strategic planning and innovative capacity to performance, Eddleston et al. (2008) found that

positive manner of kinship has benefited family firms. They examined that family relationship or the level of reciprocal altruism in the working environment can contribute to the better firm performance.

2.2.3. Potential costs of family ownership

Nevertheless, there are a number of situations that family ownership results in a reduction of firm

value. Theoretical research has confirmed that professional managers or outside directors will do more productively than the descendants or family members. It could be the case that the founder makes their


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benefit sticking with the fortune of the company while their family members just withdraw the interest

from the company, use for other purpose, not constitute it (Morck et al., 1988). There is a worse case as the

heirs are put into the executive position instead of outside or professional directors. Firm value and profitability would fall instantly because of the fragile knowledge of the family members (Perez-Gonzale,

2006). Family members tend to take over the executive position, then the labor pool is restricted to a very small group. Nonetheless, their entrepreneurial ability and expert characteristic are partly transferred from

the initial founders, and their talent is just at average that leads to the negative firm performance (Morck et al., 2000).

In addition, the assumption of outperforming performance of family ownership is not true. The results

depend on the characteristics of board structure, types of companies, or the country‟s culture. The main

driver of positive effects is just at the initial or founder stage (Isakov and Weisskopf, 2014).The family

ownership has created the impediment towards the third party when directors or managers are selected. It

would make the process of recruiting the skilled or talent human resources be damaged. This leads to

lower firm values in comparing to non-family firms (Gomez Mejia et al., 2001).

The family would also explore the firm‟s wealth by paying exceeding compensation, or receiving

special dividends (Anderson and Reeb, 2003). In particular, Schack (2001) showed that the increasing

voting rights of family members without any compensation has led to a widespread controversial at the

Ford Motor company. This received the criticism that the board has brought the benefits for the family at

the expense of others. DeAngelo and DeAngelo (2000) exhibited the family‟s desire of special dividend

can affect the firm‟s capital plans, leading to a poor performance.

Demsetz and Lehn (1985) argued the families get the non-pecuniary benefit by moving the firm‟s

strategy in the ways that support their own interest, not for maximizing profits. In addition, Andres (2008)

discussed that the family usually prefers less risky (in the sense of the probability of default) one. Because

they normally use less debt in financing capital structure, it means that the company will miss the

opportunity of the potential external funds for investment and the advantage of higher tax shield ratios.

Tsoutsoura (2014) investigated the impact of the succession tax on the investment decisions of family firms

and figured out that family ownership with a succession tax strategy would bear a slow sale growth, a

reduction of cash reserve or a depletion of investment.

2.3. Empirical evidences of family effect on firm’s performance

Investigating the impact of family ownership and management mechanism on firms‟ performance in

the Fortune 500 firms in the period of 1994-2000, Villalonga, B., & Amit (2006) confirmed that family

influences towards firm‟s performance when the founder also held the CEO position. They also verified

that minority shareholders would be able to be better in family firms. Discussing on firm‟s value and

operating activities, Barontini, R., & Caprio (2006) examined 675 public companies in 11 European

countries. Key finding is that firm‟s performance is higher when the founder held the CEO position while

their family members are present on boards. Studying listed companies in the French stock exchange

during the period from 1994 to 2000, Sraer and Thesmar (2007) provided empirical evidence of the

relationship between the performance and behavior of family firms. They concluded that family firms

outperformed widely held corporations in the situations when founders or their heir held the CEO positions.

Using cross-sectional and time series data of 275 listed companies in German, Andres (2008)

separated the family from general block-holders. This study found that family firms are more profitable

than widely held companies, or they outperformed the companies in comparison with other types of block-

holders. Craig et al. (2014) generated a national sample of 4,275 food processing industry firm in the US.

Findings from this study support the view that family has positive impact on the family culture; thereby

family culture promotes the ability of family on planning strategy. As such, this flexible planning affects

positively to firm innovation. As a result, firm‟s performance would improve. This study constitutes the


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understanding of intangible contribution of the family business that is difficult to find in the non-family

business.

Drawing on the notion of identity, Yoo et al. (2014) discussed that family firm performance would be

higher for descendants who inherited the firms. In addition, the effectiveness of board independence or

outside block holders are not a governance mechanism for predicting firm‟ performance, but instead

depending on the family members who inherited the firms. The descendants inheriting the firms would take

the advantage of the information exchange relationships and business opportunity since they interact with

independent outside board members.

However, other studies confirmed that there is no relationship between family ownership and firm‟s

performance. Using the data sample of the Fortune 1,000 firms, Miller et al. (2007) analyzed the family

relationship between owners, managers and founders. The authors found that the relatives of the owners or

managers do not outperform the market value of a firm, but the founders do by themselves. They also noted

that there are two cases of examining firm‟s performance. The first is the lone founders who have no family

relation in the board of management. The second is that the founders have family relationship with

executive managers.

3. ANALYTICAL FRAMEWORK

The following analytical framework has been adopted in this study.

3.1. Data and research methodology

Data sources

Data are collected at the firm level from Ho Chi Minh City Stock exchange (HOSE). However, there

is the fragment of this publicly available data set. It is necessary to use several other sources which are

publicly available such as firms‟ prospectus or annual reports, and the firms‟ information on the websites -

cafef.vn and vietstock.vn. The initial number of firms in HOSE is 341, then we narrow down to 289 firms.

The removed firms include 28 financial firms which have a different capital structure in comparison with

the others from the sample; 23 firms violated the security regulations, consecutive loss, merged by other

company or delisting; and 1 company (SFG) does not have enough information for this analysis.


253

3.2. Methodology

Multivariate analysis

In this study, three methods of analysis, being (i) multivariate analysis of variance, (ii) multivariate

regression model, and (iii) treatment effect model are used in comparison with the traditional ordinary least

square (OLS) in order to interpret the family effect toward three measurement of firm performance –

market approach, accounting approach, and risk approach.

The following model is considered in this empirical study:

(Tobin’s Q/ROA//Z-score) = β0 + β1 (family/family and founder) + β2 (control variable) + β3 (two digit SIC

code) +

Where:

- Tobin’s Q (market measurement): The ratio represents for the estimation of the connection

between the financial market and the market of goods and services. It is calculated based the market value

of the company in the market (market capitalization plus the total liability) divided by the replacement cost

of production capacity (total asset)

This ratio was developed by Brainard and Tobin (1968) and it has been widely used in the empirical

research on family impact such as Anderson and Reeb (2003); Barontini, and Caprio (2006); and Jameson

et al. (2014); Vo and Phan (2013); and Vo and Nguyen (2014).

- ROA (accounting measurement): the ratio represents for the interaction between the profitability and

the company‟s assets. It demonstrates the effectiveness of using assets or the amount of net income is

created by one unit of total assets.

ROA =

- Z-score (firm’ risk of bankruptcy): the ratio interprets the risk of bankruptcy. It is presented in the

research of Altman (1968), also used as the instrument for examining the company‟s health. The higher

ratio is, the better the companies are. This uses the weight for scoring firm performance as presented in the

following model:

Z-score = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.999X5

where:

X1: working capital divided by total assets;

X2: retained earnings divided by total assets;

X3: earnings before interest and taxes divided by total assets;

X4: market value equity divided by book value of total assets; and

X5: sales divided by total assets

3.3. The explanatory variables

- Family effect: the binary variables, presents for the impact of family ownership. It obtains the

fraction equity ownership (at least 5% shareholding) of family members or the presence of family members


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in the board of directors and mangers. The distant relatives such as the grandmother or grandfather, father

or mother, siblings or half-siblings, aunt or uncle, niece or nephew, cousins (first or second cousin)

daughter-in-law and son-in-law will be considered as a family relationship.

- Founder and family effect: expresses the simultaneous effect of family and founder. It equals 1 if a

relative founder takes part in the board of directors and mangers or the founder‟s family member hold at

least 5% of shares.

Other control variables

Corporate governance structure

- Board size: A number of directors on the board.

- Board independence: A number of outside directors classified as “independent directors” scaled by

board size.

- Board diversity: A number of female directors. It is scaled by board size.

- CEO duality: A binary variable. It indicates the chairman also hold the CEO position.

- Director over 60 years old: A number of directors over age 60. It is scaled by board size.

- Foreign ownership: The shareholding of foreign investors.

The financial situation

- Firm size: The natural log of the book value of total assets.

- Capital expenditure: The expenditure for the buying and upgrading “the physical asset.” It is divided

by the total asset.

- Growth opportunity: The growth in sales revenue. It is divides by total asset

- Debt in the capital structure: The long-term debt divides by total assets

- VSIC: The Vietnam standard industry codes. It is used for controlling the characteristics of industry.

Multivariate analysis of variance

Multivariate analysis of variance (MANOVA) forms several dependent variables related to one or

more explanatory variables (category or binary variables), explores how the dependent variables vary

across the groups of the independent variables, and accounts for the analysis of variance matrix. In addition,

it will be more complex compared to other separate analysis, by allowing the partition of each total sum of

squares into the model since the each dependent variable vary across the model (Mayers, 25 Apr 2013).

Measurement of variance. Rencher (2003) and Khattree and Naik (2000) have considered the model

of vectors as the following equations.

Yijr = ir + ijr. with i = 1,2, … , k; j = 1,2, … , n; rth variables: r = 1, 2,…, p

The mean vectors are compared to each other so as to test the significant differences (in the entire

sample – between, and in the sample – within) of the hypothesis: H0: µ1 = µ2 = … = µk, based on the

combination of dependent variables. In addition, the two terms of test should be considered:

(i) The hypothesis sum of squares and cross products: H = '

1

( )( )... .. .k

i i

i

n Y Y Y Y


255

(ii) The error sum of squares and cross products: E ='

1 1

( )( ). .

k n

ij i ij j

i j

Y Y Y Y

The test statistic of eigenvalue of a matrix is used to figure out the ratio between the hypotheses

(between) sum square from the error (within) sum square:

A = h

e

SS

SS or (A = HE

-1)

Applying this ideas, the author test the significant differences between two groups of company (family

and non-family; founder and family; and none founder and family) in reaction to the multiple outcome

variables (three aspects of firm performance).

Multivariate regression model

The analysis of multiple equation estimates simultaneously the expected value of response variables.

These models examine the simultaneous model as the linear function which take into account a set of

various dependent variables and an identical independent variables. This is called the multivariate linear

regression model which is the generalized form of a uni-variate linear regression model. Khattree and Naik

(2000) and Johnson and Wichern, (2008) considered a following multivariate linear model:

1 01 11 1 12 1 1 1

2 02 12 1 22 2 2 2

0 1 1 2 2

...

...

...

...

k k

k k

p p p p kp k p

y x x x

y x x x

y x x x

where:

rth is response variables: r = 1, 2,…, p; and

k is the explanatory variables: k = 1, 2,…, k.

The disturbances have the following properties: E(ɛi) = 0; var (ɛi) = ζ2; cov(ɛi, ɛk) = 0. In term of

vectors and matrix, this model can obtain the conditions of dependent variables y: E(y) = xβ; cov(y) = ζ

2I

Selection bias problem

The sample would tend to be not randomly selected due to the family‟s (founder‟s) decisions on what

firm to manage or control. It means that the proxy of family or lone founder may not represented for all the

observations (Miller et at., 2007; Prabhala 2008; and Jameson and Prevost 2014). Khandker et al. (2010),

and Guo and Fraser (2014) pointed out this issue explicitly by using the treatment effect technique that

includes two main parts: (1) a regression equation obtains the process of calculating the outcome model; (2)

a selection equation includes the selection bias variable which is considered as the outcome in the Probit

model:

yi = βxi + δw + ζi (1)

w* = γzi + ui, wi = 1; if w*>0, and wi = 0 otherwise (2)

Nevertheless, one notable issue is the identity of the zi factor. From the point of view of observing the

participants in the treatment condition, Prabhala (2005), Villalonga and Amit (2006), Saito (2008), Masulis

(2011), Isakov and Weisskopf (2014), Jameson and Prevost (2014) considered the set of exogenous

variables that includes at least a strict exogenous variable that is uncorrelated with the residual , but can

predict the event wi. In this case, the authors use the idiosyncratic risk (or unsystematic risk) and a group of


256

exogenous variables (duality, diversity, director over 60 years old, foreign ownership, and lag of ROA) that

contributed as the zi factors so that the adjusted value of family ownership can be used for estimating the

firm performance. Miller et al. (2002), Gomez et al. (2003), Florackis et al. (2009) discussed that the

idiosyncratic risk may not affect the firm performance since it‟s affected by the activities “diversification”

and “hedge” of the managers. Nevertheless, this risk can affect the probability of family ownership due to

the concentrated characteristic of family ownership. Applying this ideas, Villalonga and Admit (2006),

Miller et al. (2007), Saito (2008), Masulis et al. (2011), Isakov and Weisskopf (2014) has added this risk in

the selection model (2) for adjusting the selection bias of the family ownership. These researchers

considered the measurement of idiosyncratic risk based on the “capital asset pricing model” as following:

it = rit - αI - βirmt

The residual is drawn from the model is the idiosyncratic risk. It is captured by obtaining the standard

deviation of the residual from the regression in which firm‟s weekly stocks are regressed on the VN-Index

weekly return in the period of 2011-2013.

4. EMPIRICAL RESULTS

4.1. Descriptive statistics

From Table 1, families contribute 43.2 percent in the board from the firms‟ sample. This ratio is quite

similar with the Japanese companies (Saito (2008) 40%; Abdellatif et al. (2010) 42.68%), and the European

companies (Faccio (2002) 44.3%; Barontini (2006) 52.3%). It is small comparing to Hongkong companies

(Jaggi (2009) 52.4%) and the general level of eight East countries (Claessens (2006) 60%). Nevertheless, it

is quite large in comparing with the US companies (Anderson and Reeb (2003) 35%; Villalonga and Admit

(2006) 37%; King and Santor (2007) 32%; Miller (2011) 29%). As a result, this could be a good signal of

the structure of sample for analyzing the family effect in this paper. Besides that, the founder‟s relatives are

present at 31.1 percent of the sample. This number is also quite high in the context of Vietnam‟s corporate

governance. The board characteristics variables include the small percentage of outside director (15.2

percent); CEO duality (34.2 percent); Diversity (15.1 percent); and directors over 60 years old (10.4

percent). The voting power of foreign ownership has just recorded at 11.06 percent.

The long term debt ratio is 16.8 percent, while the sale growth is 22.1 percent. For the firm size, the

total asset is 2563.81 billion VND. The mean of Tobin‟s Q ratio (the market measurement of firm

performance) is 1.08; the ROA ratios (the accounting measurement of firm performance) are 5.2; and the

Z-score ratio (the risk of bankruptcy measurement) is 6.88.

Table 1. The sample is collected from the 289 listed companies in the Ho Chi Minh stock exchange

in the year of 2013.

Variables Obs. Mean Std. Dev. Min Max

Family effect:

Family 289 0.43 0.50 0.00 1.00

Founder & family 289 0.31 0.46 0.00 1.00

Board characteristics:

Board size 289 5.87 1.36 3.00 11.00

Duality 289 0.34 0.48 0.00 1.00

Diversity 289 0.15 0.17 0.00 0.80

Outside director 289 0.15 0.19 0.00 1.00


257

Direct over 60s 289 0.10 0.14 0.00 0.60

foreign ownership 284 11.06 14.34 0.00 72.48

Financial characteristics:

Total Asset 289 2563.81 6778.83 75.66 75772.60

Capital expenditure 289 0.05 0.09 0.00 0.88

Debt 289 0.17 0.62 0.00 10.29

Growth in Sale 289 0.22 1.26 -0.95 11.46

Lag of ROA 245 7.63 8.41 0.00 59.60

Idiosyncratic risk 276 0.13 0.15 0.03 2.08

Firm performance:

Tobin‟s Q 278 1.08 0.91 0.01 12.66

ROA 287 5.25 9.09 -19.98 74.26

Z-score 287 6.88 9.19 -18.35 75.43

Source: Authors’ analysis

4.2. Multivariate analysis

Multivariate analysis of variance (MANOVA)

Based on the analysis of variance matrix, this section examines the three-dimensional mean vector of

between groups of family ownership (family versus non-family ownership; founder and family versus non-

founder and family). It suggests that the groups mean vector of three measurements vary across the groups

of family ownership. The results consider four tests of eigenvalue of matrix covariance including (i) the

Wilks’ lambda, (ii) the Pillai’s trace, (iii) the Lawley-Hotteling trace, and (iv) the Roy’s largest root test. If

the value of model and independent variables are significant, it could be rejected the null hypothesis of

difference.

The results of the four tests are is all statistically significant at 1 per cent. It verified that there is a

significant difference between two of family ownership (family versus non-family; founder and family

versus non-founder and family) in all three measurements.

Table 2. Multivariate analysis of variance. It considers the difference of three dimension of firm

performance vary across the groups of family ownership (the family versus non-family; the founder and

family versus the non-founder and family). This model is also added by a number of covariate variable

(control variables) of the board of characteristic and financial characteristic in order to figure out the

significant different of hypothesis sum of square and error sum of square. The four tests are examined is the

Wilks’ lambda ration (W), the Pillai’s trace ratio (P), the Lawley-Hotteling trace ratio (L), and the Roy’s

largest root ratio(R). The ***, **, * mark for the 1-, 5-, 10-levels of significant.

Source Statistic Prob>F Statistic Prob>F

Model W 0.011*** 0.000 W 0.012*** 0.000

P 1.132*** 0.000 P 1.139*** 0.000

L 79.360*** 0.000 L 70.765*** 0.000

R 79.198*** 0.000 R 70.596*** 0.000


258

Family W 0.677*** 0.000

P 0.324*** 0.000

L 0.478*** 0.000

R 0.478*** 0.000

Founder and family W 0.752*** 0.000

P 0.248*** 0.000

L 0.330*** 0.000

R 0.330*** 0.000


Multivariate regression model – family effect

From Table 3, the results of two methods using the traditional OLS and the multivariate regression

model present the negative impact (significant at 1 per cent) of family ownership on firm‟s performance

when the accounting measurement (ROA) and risk of bankruptcy (Z-score) are used as a proxy for firm‟s

performance. However, when firm‟s performance is proxied as the measurement of market factor (Tobin‟s

Q), the result is not statistically significant. This result could be due to the biasness of sample selection

issue which will be further discussed later in the section of “treatment effect model”.

Most of the proxies for board characteristics are insignificant. This could be a signal for the weak

application of the management standard in Vietnam circumstance that is reported in the IFC (IFC and state

securities commission Vietnam 2006, 2010) and the analysis of Freeman and Nguyen (World Bank 2006).

Nevertheless, this is also several good signals for the estimation of firm‟s performance. In particular, firm‟s

performance will be improved since there is an increase in foreign ownership and the contribution of

director over 60 years old. It means that role of foreign investors and the experienced directors improve

firm‟s performance. However, it surprises that the role of outside directors is negatively correlated to

firm‟s performance.

In relation to financial characteristics, capital expenditure represents a positive effect on firm‟s

performance (significant at 1 percent). With the model of accounting measurement (ROA) and risk of

bankruptcy (Z-score), the firm performance will increase approximately 11 percent when capital

expenditure increases by 1 per cent.

Multivariate regression model – founder and family effect

In Table 4, the founder and family effect is negative toward firm performance. This result considers

the realistic that the family members abuse their power for their own interests. Consequently, the firm

performance is reduced. Similar with the table 3, these results is significant (at 1%) since the measurement

of accounting factor (ROA) and risk factor (Z-score). These will be checked in next section for the

selection bias. In this table, the proxy of board of characteristic is insignificant again. These results verify

the weak application of corporate governance in which the previous report has been considered (Cung

2008; Robert W Mc. Fee, Minh 2008). However, the role of foreign ownership can redeem this mess by

improve slight firm performance. This is the current solution that most of companies in Vietnam use for

planning strategy in the future (Vinamilk, Vinh Hoan corp, FPT.)

Treatment effect model

This section focuses on the examination of the sample selection bias based on the “treatment effect

model”. Family effect to firm‟s performance is considered in 3 different measurements, including (i)


259

market measurement (Tobin‟s Q), (ii) accounting measurement (ROA), and (iii) risk of bankruptcy (Z-

score). Each of these measurements will be analyzed after dealing with the selection bias. Models 1, 3, 5

analyze the impact of family ownership (in the board of directors and managers) – proxied by “family”

variable; whereas, models 2, 4, 6 considered the founder‟s relatives (in the board of directors and

managers) – “founder and family”.

From Table 5, the significance of the likelihood ratio test (at 1 per cent) confirms the existence of the

biasness of models (1) and (2) when the dependent variable of Tobin‟s Q is used. It means that the null

hypothesis is rejected, and the result of “treatment effect” is accepted. For the remaining 4 models (3), (4),

(5), and (6), the likelihood ratio is not statistically significant. This means that the null hypothesis is right,

and the previous estimations using both the OLS and the MVREG are accepted.

From models (1) and (2), family ownership (represented by the “family” and “founder and family”)

presents the negative impact on firm‟s performance. In addition, various factors provide the positive impact

to firm‟s performance such as foreign ownership, capital expenditure, duality and director over 60 year old.

It means that the role of the CEO duality, the foreign ownership, the experienced directors, or the

increasing of investment in “physical assets” can help improve firm‟s performance.


260

Tab

le 3

. M

ult

iva

riate

reg

ress

ion

mo

del

of

fam

ily

effe

ct.

This

table

analy

zes

the

impact

of

fam

ily

pre

sen

ce o

n f

irm

per

form

an

ce b

ase

d o

n t

wo

regre

ssio

n t

ech

niq

ue

(OL

S a

nd

MV

RE

G).

T

he

dep

enden

t va

riable

s in

clude

the

Tobin

’s (

mark

et m

easu

rem

ent)

; th

e R

OA

(a

ccou

nti

ng

mea

sure

men

t);

an

d t

he

Z-s

core

(th

e fi

rm r

isk

of

bankr

uptc

y).

The

resu

lt o

f O

LS r

egre

ssio

n m

odel

has

bee

n r

ob

ust

by

the

com

ma

nd

“vc

e

(ro

bust

)”.

***, **,

and *

mark

for

the

1-,

5-,

and 1

0-l

evel

of

signif

ica

nt.

So

urc

e:A

uth

ors

’ a

na

lysi

s


261

Tab

le 4

.Mult

ivari

ate

reg

ress

ion

mo

del

of

fou

nder

and f

am

ily

effe

ct.

This

table

analy

zes

the

impact

of

fam

ily

pre

sence

on f

irm

per

form

an

ce

base

d o

n t

wo r

egre

ssio

n t

ech

niq

ue

(OL

S a

nd M

VR

EG

).

The

dep

enden

t va

riable

s in

clude

the

Tobin

’s (

ma

rket

mea

sure

men

t);

the

RO

A

(acc

ounti

ng m

easu

rem

ent)

; a

nd

the

Z-s

core

(th

e fi

rm r

isk

of

bankr

uptc

y).

The

resu

lt o

f O

LS r

egre

ssio

n m

odel

ha

s b

een

ro

bust

by

the

com

ma

nd

“vc

e (r

ob

ust

)”. ***,

**,

and *

mark

for

the

1-,

5-,

and 1

0-l

evel

s of

sig

nif

ica

nt.

So

urc

e:A

uth

ors

’ a

na

lysi

s


262

So

urc

e:A

uth

ors

’ a

na

lysi

s

Tab

le 5

. T

reatm

ent

effe

ct m

od

el. T

his

ta

ble

consi

der

the

fam

ily

effe

ct t

ow

ard

fir

m p

erfo

rmance

aft

er b

ein

g a

dju

sted

fo

r th

e se

lect

ion

bia

s.


263

5. CONCLUDING REMARKS AND POLICY IMPLICATIONS

This study is conducted to consider the potential impact of family ownership on firm‟s performance

which is proxied in three different dimensions; being the market factor (Tobin‟s Q), the accounting factor

(ROA), and the risk of bankruptcy factor (Z-Score). Data are collected from the 289 listed companies in

the Ho Chi Minh stock exchange in the year of 2013.

Based on the OECD principles of corporate governance (OECD 2004) and the adoption of Vietnam

corporate governance framework (the report of IFC and state securities commission Vietnam 2006, 2010),

the findings from this empirical study provide evidence to confirm that the family ownership and their

participation in the board structure could hurt the company‟s activities, which lead to lower firm‟s market

value, firm‟s return, and higher risk of bankruptcy. We also considered the impact of a founder‟s relatives

in parallel with the family ownership. As extensive literature review indicates that family relationship

comes from the founder. As a result, this initial person has built up the company, brought their family

members into the company with an expectation of strengthening their powers. The family effects (“family”

and “founder and family”) toward firm performance (all three of measurement) has been verified.

Findings from this study also provide an empirical evidence for the positive effect of several factors of

board characteristic and financial characteristics to firm‟s performance: (i) The role of the CEO duality (in

Tobin‟s Q model), (ii) the experienced directors (in Tobin‟s Q model); and (iii) foreign investors (in the

three measurement of performance). This positive effect of foreign ownership has confirmed the Vietnam

corporate governance scorecard (2012)‟s view expressed in the report that the increasing quality of

corporate governance process would be significantly impacted by the role of foreign ownership factor. In

addition, the positive role of the duality and the experienced directors can provide further evidence to

provide a signal for the private companies for an improvement of the management.

In addition, the increasing of investment in “physical assets” has made an increase in the firm

performance. Nevertheless, this study fails to provide evidence to support the link between a number of

corporate governance characteristics and firm‟s performance for the listed firms in HOSE during the

research period. These findings are somehow consistent with the conclusions from the report of IFC (the

IFC and state securities commission Vietnam 2006, 2010) and the report of the World Bank (2006), in

relation to weak applications of the standard corporate governance framework in the Vietnam environment.

On the ground of these empirical findings, some policy implications are drawn. At the firms‟ level,

based on the serious consideration of the adoption of a corporate governance framework, the firms should

concern the following suggestion. First, companies should refer to the report on Vietnam corporate

governance scorecard (2012) to adjust a balanced level between increasing foreign ownership in the

ownership structure. Second, companies should consider the clarification and the definition of outside

director (between the role of “independent” and “non-executive” director) in the corporate governance

framework (applying the new regulation of the code of corporate governance 121/2012/TT-BTC). At that

time, this could enhance firms‟ performance and then firm‟ value. Fourth, it is also a time for founders of

firms to reconsider their influence on the firms which were established (by them) in the past and let these

firms go in its own right. Fifth, at a policy level, the Government of Vietnam and other relevant authorities

should act strongly and quickly to ensure that a standard corporate governance is well developed in the

context of Vietnam and to require listed firms to strictly follow the framework.

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Factors Affecting Green Purchasing Behavior

Ai Tran Huu, PhD.

VAN HIEN University – HCMC - VN

ABSTRACT

This study aims to identify the factors which influence consumers’ green purchasing behavior in order to get to

know environmental concerns and consumer attitudes towards the use of environmentally friendly products, as well as

to practice environmental behaviour. After reviewing literature using expert opinions, 5 factors of green purchasing

behavior were identified. A structured questionnaire was applied to survey 311 consumers. Then, a structural equation

model was used to analyze which dimension has green purchasing behavior. According to the results of the analysis,

environmental concern and attitude, perceived seriousness of environmental problems, perceived consumer

effectiveness and perceived environmental responsibility were positively effecting while perceived effectiveness of

environmental behavior were negatively effecting green purchasing behavior.

Keywords: Green marketing, Green purchasing behavior, Environmental, Consumers

1. INTRODUCTION

Although environmental issues influence all human activities, few academic disciplines have

integrated green issues into their literature. This is especially true to marketing. As society becomes more

concerned with natural environment, businesses have begun to modify their behavior in an attempt to

address society's "new" concerns. Green marketing notified that green marketing is well integrated within

the company‟s strategy. According to Awan, U. et al. (2010) green marketing as a holistic management

process responsible for identifying, anticipating and satisfying the requirements of customers and society in

a profitable and sustainable way (Macdonald, S, et al., 2006). It is pointed out that green marketing is a

process which includes all marketing activities that are developed to trigger and to sustain consumer‟s

“environmental attitudes and behaviors”.

For marketing, the challenge is twofold. In the short term, ecological and social issues have become

significant external influences on companies and the markets in which they operate. In the longer term, the

pursuit of sustainability will demand fundamental changes to the management paradigm which underpins

marketing and other business functions (Shrivastava, 1994).

One business area where environmental issues have received a great deal of discussion in the popular

and professional press is marketing. Terms like "green marketing" and "environmental marketing" appear

frequently in the popular press. Many governments around the world have become so concerned about

green marketing activities that they have attempted to regulate them (Polonsky, 1994a). One of the biggest

problems with the green marketing area is that there has been little attempt to academically examine

environmental or green marketing.

Previous study in Western cultures and Hong Kong had showed gender differences in environmental

perceptions, values, and actions. In Hong Kong, female adolescent consumers have higher score in

environmental attitude, environmental concern, perceived seriousness of environmental problems,

perceived environmental responsibility, peer influence, and green purchasing behavior (Lee, 2009).


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2.1. What is green marketing?

Green marketing incorporates a broad range of activities, including product modification, changes to the production process, packaging changes, as well as modifying advertising. However, to define green marketing is not a simple task. The terminology used in this area has varied; it includes green marketing, environmental marketing and ecological marketing (Akter, 2012).

Green marketing is integrating business practices and products that are not only friendly to environment but also meeting the needs of the consumers. According to the American Marketing Association, green marketing is the marketing of products that are presumed to be environmentally safe (Nupur, 2011). Green marketing is the marketing of eco-friendly sustainable products that continue to achieve steady sales even during adverse condition, especially among eco-aware customers. The proceedings of this workshop resulted in one of the first books on green marketing entitled "Ecological Marketing" (Henion and Kinnear, 1976a). Since that time, a number of other books on the topic have been published (Charter et al., 2001).

2.2. Societal marketing

Societal marketing refers to the use of commercial marketing concepts and tools to promote social ideas and causes. The main reason or motives of societal marketing is not profit, it‟s primarily for social changes. Some examples of societal marketing programs are: anti smoking, breast cancer prevention, safety driving, etc. (Idowu et al., 2009) Societal Marketing has been used as an umbrella term that encompasses many marketing types which involve social issues such as cause-related marketing, ethical marketing, and most importantly, green marketing (Idowu et al., 2009)

2.3. Green consumer

Green consumer is generally defined as the one who adopts environmentally-friendly behaviors and/or who purchases green products over the standard alternatives. Green consumers are more internally-controlled as they believe that an individual consumer can be effective in environmental protection. Thus, they feel that the job of environmental protection should not be left to the government, business, environmentalists, and scientists only; they as consumers can also play a part. They are also less dogmatic and more open-minded or tolerant toward new products and ideas. Their open-mindedness helps them to accept green products and behaviors, more readily (Shamdasani at al., 1993:491).

2.4. Green purchasing behavior

Many other literatures about environmental behavior mostly speaking about environmental behavior in general, a few have been addressed specifically about green purchasing behavior (Lee, 2009).Green purchasing behavior can be translated to the act of consuming products that are conservable, beneficial for the environment, and responding to environmental concern (Lee, 2009)

Respond in to environmental concern, one of the ways related to waste management system is by doing the 3R (Reduce, Reuse, and Recycle). To date, social influence has been found as the most important factors that affect green purchasing behavior of adolescents; however, there are several more factors which are: environmental attitude, environmental concern, perceived seriousness of environmental problems, perceived environmental responsibility, perceived effectiveness of environmental behavior, and concern of self-image in environmental protection (Lee, 2008).

2.5. Environmental concern and attitude (ECA)

Fundamental to environmental research is an individual‟s concern with the environment (Hines et al., 1987). Based on the pioneering research of Dunlap et al., (1978), environmental concern is defined as


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a global attitude with indirect effects on behavior through behavioral intention. Crosby et al., (1981) mentioned that environmental concern is a strong attitude towards preserving the environment. Attitudes are defined as the enduring positive or negative feeling about some persons, objects, or issues. In fact, it refers to the information a person has about a person, object, or issue (Newhouse, 1991). The social psychology literature on behavioral research has established attitudes as important predictors of behavior, behavioral intention, and explanatory factors of variants in individual behavior (Kotchen & Reiling, 2000).

Seguin et al., (1998) have argued that environmental concern can have a significant bearing on the degree to which individuals are motivated to change behavioral practices so as to attempt to alleviate the problem. In a number of studies, environmental concern has been found to be a major determinant of buying organic and green food e.g. (Grunert, 1993). From the above discussions the first hypothesis can be suggested:

H1: Environmental concern and attitude have a positive influence on green purchasing behavior

2.6. Perceived consumer effectiveness (PCE)

Perceived consumer effectiveness (PCE) refers to the extent to which individuals believe that their actions make a difference in solving a problem (Ellen et al., 1991). Accordingly, Kim et al. (2005) argued that individuals with a strong belief that their environmentally conscious behavior will result in a positive outcome, are more likely to engage in such behaviors in support of their concerns for the environment. Hence, self-efficacy beliefs may influence the likelihood of performing green purchase behavior. From the above discussions the second hypothesis can be suggested:

H2: Perceived consumer effectiveness has positive influence on green purchasing behavior.

2.7. Perceived seriousness of environmental problems (PSE)

According to Lee (2008), teenagers in Hong Kong perceived the seriousness of environmental problems as the least important factor in influencing green purchasing behavior. The reason behind this was known due to repetitive exposures which make them react negatively. However, it is found that Asian people rate environmental problems as more severe than those who live in western countries (Lee, 2009). From the above discussions, the third hypothesis can be suggested:

H3: Perceived seriousness of environmental problems has positive influence on green purchasing behavior.

2.8. Perceived environmental responsibility (PER)

Citizens of Hong Kong have a high awareness of environmental problems because they have attained more environmental knowledge but their perceived environmental responsibility is weak (Lee, 2008). Among adolescents of Hong Kong, perceived environmental responsibility is one of the important factors that affect their green purchasing behavior (Lee, 2008). From the above discussions, the fourth hypothesis can be suggested:

H4: Perceived environmental responsibility has positive influence on green purchasing behavior.

2.9. Perceived effectiveness of environmental behavior (PEE)

This is related to one‟s perception to contribute good things to the environment by involving him/her-self in pro-environmental behavior or movement. Perceived effectiveness of environmental behavior is the fifth predictor of green purchasing behavior among adolescents in Hong Kong (Lee, 2008). From the above discussions, the fifth hypothesis can be suggested:

H5: Perceived effectiveness of environmental behavior has positive influence on green purchasing behavior.


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Source: Research results by author

Figure 1. Theoretical Model


The main objective of this study is "measuring factors affecting green purchasing behavior". The

research model of the current research is established on the basis of the Chen & Chang (2012) study

as depicted in Figure 1. In this model, environmental concern and attitude, perceived consumer

effectiveness, perceived seriousness of environmental problems, perceived environmental responsibility

and perceived effectiveness of environmental behavior are independent variables; while green purchasing

behavior is a mediator variable and green purchasing behavior is a dependent variable.

Before the actual research, pre-test was performed to 30 consumers to test questions in order to get

feedbacks from respondents and also to see the reliability and validity of the questions itself. The

questionnaires were divided into two parts. First part was questions to represent the dimension of green

purchase behavior which consisted of 27 questions measured by 7 point Likert scale. The second part was

the general demographic questions such as gender, age, occupation, and monthly expenses. There were also

questions about green advertisements or activities regarding the media, products, and brands that

respondents know as well as those that they usually bought.

Reliability and validity

First, statistical analysis was used to calculate both the factor analysis and the scale reliability analysis;

before carrying out factor analyses, a reliability analysis for the scale was run through Cronbach‟s alpha.

The reliability of the questionnaire was 0.848, which is in the acceptable range. Therefore, scales of this

study have a rather high level of internal consistency and reliability. The concept scales of the study are

preliminarily assessed and screened by EFA method and Cronbach‟s alpha coefficients for each component.

Selection criteria are satisfied when concepts have correlation coefficients turn-total (item-total correlation)

>0.30, Cronbach‟s alpha coefficients > 0.60; system load factor (factor loading) >0.40; total variance

extracted for ≥ 50% (Hair & CTG, 1998).

Data screening and analysis

Quantitative research methods are used in this study. Theoretical models have five independent

concepts measured by 24 observed concepts and one dependent concept measured by 03 observed concept.

Scale concepts studied in theoretical models are multivariate scale. The observed concepts are measured on


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a 7-point Likert scale (from 1: strongly disagree to 7: strongly agree). To ensure that the questionnaire‟s

content and design would be unambiguously understood by the respondents, it was pre-tested by 7 experts

(four academic professors in the international business field, three consultants in economic and

international business) and revised in light of their comments. The questionnaire was then mailed to

customers

A sample of 325 customers was drawn, using the systematic sampling method. The respondents who

fully completed their questionnaires during the group administration process were taken as the sample.

Finally, there are 311 valid samples were analyzed. Several statistical validity tests and analysis were then

conducted such as reliability test and composite reliability tests; validity tests using confirmatory

factor analysis (CFA) for construct validity, discriminant validity, descriptive analysis, correlation, and

structural equation modeling analysis using AMOS 22.0 (SEM). The step in SEM analysis is CFA analysis,

measurement analysis, discriminant analysis, composite reliability analysis, and direct impact analysis,

testing the fit for the hypothesized structural model, revised model, (Sentosa et, al., 2012).

Demographic profile of the respondents

From the table 1 it is evident that out of the total 311 respondents, the proportions of men and women

have small differences, accounting for 56.64 % male and 43.36 % female, more than 26.05% are below 25

years of age group, maximum that is to say 38.91% are from age group of 26 years to 35 years. Nearly

19.94% are from the age group of over 35 years to 45 years and the rest of the 15.11% is from age group of

over 45 years and above.

Table 1. The Age of the Respondents

Age Frequency Percent

> 20-25 81 26.05

>25 -<35 121 38.91

>30<45 62 19.94

>45 41 15.11

Total 311 100.00

Source: Data analysis of research data by SPSS 22.0

Table 2. KMO, Measure and Bartlett’s Test

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.840

Bartlett's Test of Sphericity

Approx. Chi-Square 1993.707

df 153

Sig. 0.000


The results of the EFA, summarized in Table 5, shows 24 variations observed in 5 components of the

enterprise performance scale and retained 5 factors with 18 observed concepts. There are six items of

excluded observed concepts: perceived consumer effectiveness 5, environmental concern and attitude 5,

perceived environmental responsibility 4, perceived environmental responsibility 4, perceived effectiveness

of environmental behavior 4 and perceived effectiveness of environmental behavior 5.


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After excluding the six concepts, the EFA results 5 factors of enterprise scale. As KMO coefficient = 0.840, EFA matches the data and the statistical test Chi-square Bertlett 1993.707 P. 0.000 significance level. Thus, the observed concepts are correlated with each other considering the overall scope. The variance extracted by 71.942 shows that factors derived from 71.942% explained variance of the data, eigenvalues in the system by 1.201. Therefore, the scale draw is acceptable. The scales have observed concepts excluded by of EFA, Cronbach‟s alpha coefficients were recalculated and the results achieved reliability requirements.

Table 3. Construct, Factor Loadings, and Reliability (EFA)

Factors Component

1 2 3 4 5

Perceived consumer effectiveness4 .901



Perceived consumer effectiveness 1 .645

Environmental concern and attitude3 .895




Perceived seriousness of environmental problems1 .899




Perceived environmental responsibility1 .896



Perceived effectiveness of environmental behavior3 .981

Perceived effectiveness of environmental behavior2 .975

Perceived effectiveness of environmental behavior 1 .675


Table 4. The Table Summarizes the Results of Scale

Model Variables Cronbach’s alpha Variance (%) Value

PCE 4 0.758

71.941

Satisfactory

PEE 4 0.846

PER 4 0.847

PSE 3 0.794

ECA 3 0.834

GPB 3 0.788 70.563



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Confirming factor analysis (CFA)

The correlation coefficient between the components with accompanying standard deviation (Table 5)

shows us these coefficients less than 0.05 (with statistical significance). Therefore, the components:

perceived consumer effectiveness, perceived effectiveness of environmental behavior, perceived

environmental responsibility, perceived seriousness of environmental problems and environmental concern

and attitude are worth distinguishing.

Table 5. Results of Testing the Value of Distinguishing between the Components of the Scale.

Correlation R S.E. C.R. P-value

PSE <--> ECA 0.701 0.161 6.089 0.000

PSE <--> PCE 0.575 0.138 4.957 0.000

PSE <--> PER 0.435 0.139 4.397 0.000

PSE <--> PEE 0.252 0.112 2.953 0.003

ECA <--> PCE 0.433 0.119 4.251 0.000

ECA <--> PER 0.453 0.131 4.735 0.000

ECA <--> PEE 0.293 0.109 3.439 0.000

PCE <--> PER 0.344 0.118 3.414 0.000

PCE <--> PEE 0.327 0.102 3.508 0.000

PER <--> PEE 0.169 0.104 2.086 0.037


Regarding the relevance general, linear structural analysis shows this valuable model Chi-squared

statistic is 143.384 with 78 degrees of freedom and the value of P = 0.000. Chi-squared relative degrees of

freedom according Cmin / df was 1.838 (< 2). Other indicators such as TLI = 0.943 (> 0.9), CFI = 0.958 (>

0.9) and RMSEA = 0.065 (<0.08). Therefore, this model fit the data was collected. This also allows the

draw of individual judgements about the direction of the observed variables. About values converge, the

standardized weights of the scales are greater than 0.5 with statistical significance p <0.05, so the scale

achieved convergence value.


Figure 2. Results of the Scale CFA Green Purchasing Behavior (normalized)


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4. STRUCTURAL EQUATION MODEL RESULTS

Table shows the results of the goodness of fit test for the two constructs, namely, green environmental

behavior and green purchasing behavior and, the resultant structural models from the two data sets. Various

indices namely Absolute Fit Measures and Incremental Fit Measures were used to evaluate the model‟s

goodness-of-fit. As a commonly used statistic for model fit indexes, the Chi-square (X2) was employed in

this study to examine the existence of any relationship between the variables in the model (Hair et al.,

2006). From the AMOS output reflected in the table 6, it is clear that the model fitted the data well;

therefore, proposed model was adequate in explaining the relationship among the variables.

Table 6. Results of the AMOS Analyses of the Resultant Models.

Goodness of fit Measures

Model X2 Df p X2/df

(CMIN/DF) RMSEA NFI RFI IFI TLI CFI

Sample 133.67287 0.001 1.536 .052.922 .912 .971 .960 .971

Criteria P>.05 ≥0 - 2 to 3 <.08 >.90 >.90 >.90 >.90 >.90

(non-significant)

Note: X2

= hi-square test, df = Degrees of freedom, RMSEA = Root mean square error of

approximation, NFI = Normed Fit Index, RFI = Relative Fit Index, IFI = Incremental Fit Index, TLI =

Tucker-Lewis Index, CFI = Comparative Fit Index


Inspection of the relationship between the environmental factors and green purchasing behavior

Structural equation modeling (SEM) was performed to explore the relationship between the structure

of green environmental behavior and green purchasing behavior. Tests the basic relationship between the

elements (perceived consumer effectiveness, environmental concern and attitude, perceived environmental

responsibility, perceived effectiveness of environmental behavior and perceived seriousness of

environmental problems) and green purchasing behavior has been run.

The results showed that this model valuable Chi-squared statistic is 133.672 with 87 degrees of

freedom (p = 0.001). Chi-squared relative degrees of freedom according Cmin/df was 1.536 (< 2). Other

indicators such as TLI = 0.960 (> 0.9), CFI = 0.971 (> 0.9) and RMSEA = 0.052 (<0.08). Therefore, this

model achieved compatibility with data already collected. However, perceived effectiveness of

environmental behavior (PEE) were excluded from the model because of no statistical significance at the

95% confidence level for p = 0.078 value (> 0.05). The remaining factors include Perceived consumer

effectiveness (PCE) (ES = 0.479; p = 0.004); Perceived seriousness of environmental problems (PSE) (ES

= 0.283; p = 0.009), environmental concern and attitude (ECA) (ES = 0.252; p = 0.030) and perceived

environmental responsibility (PER) (ES = 0.193; p = 0.048) had p values <0.05 and the estimated values

are normalized so positive they have direct influence, positive full value).

Table 7.Results of Estimating Causal Relationships between these Factors Green Purchasing Behavior

Relations

Estimate S.E. C.R. p Label

GPB <--- PSE 0.283 0.108 2.618 0.009 accepted

GPB <--- ECA 0.252 0.117 2.166 0.030 accepted


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Relations


GPB <--- PCE 0.479 0.165 2.899 0.004 accepted

GPB <--- PER 0.193 0.097 1.981 0.048 accepted

GPB <--- PEE -0.105 0.060 -1.763 0.078 Not accepted

Source: Data analysis of research data by SPSS AMOS 22.0

Figure 3. Results of the Model Structure was SEM.

The results showed that the model last calibration value Chi-squared statistic is 104.719 with 65

degrees of freedom (P = 0.001). Chi-squared relative degrees of freedom according Cmin/df was 1.611

(<2). Other indicators such as GFI = 0.933 (> 0.9), TLI = 0.953 (> 0.9), CFI = 0.966 (> 0.9) and RMSEA =

0.055 (<0.08). Therefore, this model achieved compatibility with data already collected.


Figure 4. Results of the Model Structure was Last Calibrated SEM


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Table 8. Results of Estimating Causal Relationships between the Elements of Training Quality.

Relations


GPB <--- PSE 0.296 0.107 2.771 0.006 accepted

GPB <--- ECA 0.242 0.119 2.037 0.042 accepted

GPB <--- PCE 0.506 0.165 3.066 0.002 accepted

GPB <--- PER 0.199 0.097 2.051 0.040 accepted


Testing the reliability of estimates by Bootstrap

Bootstrap method used to test the model estimates the last model with the pattern repeat is N = 1000. The estimation results from 1000 samples are averaged together with the deviations are presented in Table

9, CR very small absolute value than 2, it can be said that the deviation is very small; while not statistically significant at the 95% confidence level. Thus, we can conclude that the model estimates can be trusted.

As a result of testing of hypotheses for green purchasing behavior, the hypothesis H1, H2, H3 and H4

of the green purchasing behavior that are same direction relationship with the green purchasing behavior and are accepted. There are four relationships are worth theoretically.

Table 9. Results Estimated by Bootstrap with N = 1000.

Estimate standard

Estimate Bootstrap with N=1000

Parameter Estimate SE SE-SE Mean Bias SE-Bias CR

GPB <--- PSE 0.296 0.14 0.003 0.311 0.005 0.004 1.250

GPB <--- ECA 0.242 0.142 0.003 0.246 0.004 0.005 0.800

GPB <--- PCE 0.506 0.197 0.004 0.506 0.001 0.006 0.167

GPB <--- PER 0.199 0.176 0.004 0.188 -0.001 0.006 -0.167


5. CONCLUSION

5.1. Results and Discussion

This study has inherited the previous studies (Chen & Chang, 2012) by analyzing and assessing the impact of social Influences (concern, attitude, perceived and protection environment) of green purchasing

behavior. The study used data from the customers of Vietnam, has inherited the previous studies, conducted mainly in the Western countries.

The results confirm the positive relationship between perceived consumer effectiveness with green

purchasing behavior (ES = 0.506, P = 0.002 <0.05). This result is consistent with most previous studies (Kim and Choi, 2005) whereas most previous studies conducted in the developed countries showed the

opposite.

The findings show positive effect of the perceived seriousness of environmental problems with green

purchasing behavior (ES = 0.296, P = 0.006 <0.05). This result is similar to those of most previous studies (Lee, 2008) importance of the perceived seriousness of environmental problems is the weakest (Lee, 2009),

this study confirms the perceived seriousness of environmental problems to be important predictor of green purchasing behavior).


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The present results also confirm a positive relationship between the environmental concern and attitude and green purchasing behavior (ES = 0.242, P = 0.042 < 0.05). This result is consistent with most previous studies (Kotchen & Railing, 2008). Although the environmental concern and attitude impact on green purchasing behavior is weaker than that of the perceived consumer effectiveness and perceived seriousness of environmental problems.

Finally, the results do not support a positive relationship between perceived effectiveness of environmental behavior and green purchasing behavior (ES = -0.105, P= 0.078 > 0.05). This result is inconsistent with most previous studies (Koksal, M.H. and Kettaneh, T., 2011). However, it is worth noticing that although the effect of the perceived effectiveness of environmental behavior with green purchasing behavior is not significant, the perceived effectiveness of environmental behavior correlates highly with other green purchasing behavior. Thus, its effect on green purchasing behavior may occur indirectly through other behaviors such as concern, attitude, perceived and protection environment.

The study observed the factors that influenced green purchasing behavior consumers in Vietnam. Overall, it could be concluded that even though all predictors variable influenced the Green purchasing behavior but independently, only 4 variables had the significant influence, they were:

1. Environmental concern and attitude

2. Perceived seriousness of environmental problems

3. Perceived environmental responsibility

4. Perceived consumer effectiveness

It has been found out that most of the respondents were aware of the environmental problems itself as they scored very high on the above variables, but they did not respond to it; they stayed at the level of knowing and concerning without really actualize their concern into actions, because they thought that their actions would not affect much to the environment, as seen by variable Perceived environmental responsibility which had the lowest significance of all. The factor which has the second lowest significance is Environmental concern and attitude. It concluded that customers in Vietnam did not discuss so much about environmental issues or environmentally friendly products with their friends. In addition, there were no significant gender differences between male and female with regards to environmental concern and attitude, perceived seriousness of environmental problems, perceived effectiveness of environmental behavior and perceived environmental responsibility

From this studies it can be concluded that demographic variables have a significant impact on the consumers‟ pro-environmental/green purchasing behavior and in accordance with the studies of these authors as Harris et.al (2000) notified that the environmental conscious consumers are female, professional, and younger. Kollmuss and Agyeman (2002) indicated the demographic factors to be one of the most influencing factors in pro-environmental behavior. Hustad and Pessemier (1973) found that women‟s education level has to be high to become consumerist/environmental conscious consumers. Webster (1975) also found that socially conscious consumers typically are female.

5.2. Implications for practical trading

The study has proposed findings that would be useful in the future and it was expected to be beneficial to those who were willing to participate in green marketing activities. The results indicated the high concern from the respondents with variables such as environmental concern and attitude, perceived seriousness of environmental problems, perceived environmental responsibility, and perceived consumer effectiveness

The government, knowing this situation, should taking into account that young people were aware of the environmental problems, and they already concerned about the environment, therefore government should concentrate more on inviting people to do some real acts for the environment.


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Looking into the demographic results, marketers; companies or government can improve their promotion activities. Most respondents were aware of green products or green movement‟s advertisements which they have encountered it via Radio, followed by TV and Internet. These facts can be guidelines or considerations for them on their promotions in the future.

To sum up, whether they were green marketers, companies, government, or educators, they had to be aware of these environmental concern, perceived seriousness of environmental problems, and perceived environmental responsibility factors, to enhance their effect by doing promotion through the channels that the respondents were most exposed to so that they can turn those factors into action by conveying messages.

5.3. Suggestions for Further Research

Further research should be conducted into the effect of green purchasing behavior using much larger sample in a different national setting to validate the findings of this study and to see if the measures developed here are statistically reliable and valid across different national settings. Future studies would benefit from exploring other behavior (e.g., environmental knowledge, informational or environmental, availability of product information, environmental awareness) that affect green purchasing behavior. Finally, this study has contributed to a more comprehensive understanding of the green purchasing behavior.

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Firm’s Internal Resources and Customer Perceived Performance in B2B Tax Consultant Services:

The Moderator Effect of Firm’s International Experience and Nature of Engaged Services

Nguyen Thi Ngoc Phưong

MSc, Transfer Pricing Manager, DFDL Vietnam Law Co., Ltd. – Legal & Tax Services, Vietnam

Vo Thi Ngoc Thuy

PhD, Lecturer, University of Economics and Law, Vietnam National University –

HCM City, Vietnam

ABSTRACT

This study aims to test a model of antecedents of client perceived performance in the context of professional tax

consultant services in a developing economies setting as Vietnam. Applying the concept of the model recommended by

La et al. (2009) for professional services in Malaysia and Thai markets, qualitative analysis was conducted to identify

the specific factors determined client perceived value in the context of professional tax services in Vietnam. Based on

the results of qualitative analysis, authors propose a model of three specific factors including firm internal resources.

Further, we examine the effects of key moderators (firm’s international experience and nature of engaged services) on

client perceived performance and firm internal resources. The results generally support the hypotheses that client-

perceived performance is significantly influenced by both people-related factor i.e. relationship with tax authorities

and firm-related factors i.e. reputation and service fee. Interestingly, the impacts of reputation and relationship with

tax authorities on perceived service are not different in terms of firm’s international experience and nature of engaged

services. The findings can guide practitioners as to the key drivers of client perceived performance, and under what

conditions this performance is maximized.

Keywords: People-related factors, Firm-related factors, Customer perceived performance, B2B, Tax consultant

services

1 INTRODUCTION

In Vietnam, professional tax consultant services have increased drastically both in quantity and

quality. The existence of both international and local tax consultant agency builds up a competitive market.

Despite this growth, research into the success and survival of the service exporting firms and/or reasons for

internationalization is poor. To gain a competitive advantage in an international environment, service firms

are required to deliver superior client value (Flint et al., 2002). Client value has link with customer

perceived performance. Once customer perceived performance increases, the client value is also

appreciated (La et al., 2009). There are many researches on identifying factors having significant impacts

on client perceived performance. Applying the concepts of previous researches, this paper then will only

focus on investigating the effects of intangible resources of firm on the client perceived performance in the

context of professional B2B tax services in Vietnam and the moderator effects of firm‟s international

experience and nature of engaged services on these relationships. The following research questions are

addressed:

What are the intangible resources of firm having significant impact on customer perceived

performance in professional B2B tax services in Vietnam?

http://www.palgrave-journals.com/jibs/journal/v40/n2/full/8400406a.html#bib47


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Do these factors influence customer perceived performance with the same impact under different

contingency conditions (i.e. nature of engaged services, high vs. low firm‟s international experience)?

The answer to these questions results in both managerial and theoretical contributions. Specifically,

managers will be suggested by which key drivers of perceived performance to focus as a means of creating competitive advantage in international environment. From a theoretical standpoint, this study is timely as it

contributes to the literature by addressing to the question from what are the key drivers of customer perceived performance (and how to manage them for the tax consultant agency in Vietnamese market).

In the following section, the theoretical framework leading to the development of a series of research hypotheses is examined. Next, the scope of the study is discussed, and then the research method is outlined,

followed by presentation of the results and findings. The last section concludes with a consideration of the theoretical and managerial implications of the findings, and provides an agenda for future research.

2. CONCEPTUAL FRAMEWORK AND QUALITATIVE STUDY

2.1. Firm-related factors and customer perceived performance

According to Oliver (2006), while quality is a judgment of performance excellence, performance itself is the perceived amount of product or service attribute outcomes received, usually reported on an objective

scale bounded by good and bad levels of performance. In the present of business-to-business professional

services especially current practice of tax professional firms, the core service refer to the capability of utilizing technical or intellectual know-how/ expertise to provide solutions to a client‟s issue. Moreover,

professional services are purchased in order to get competence and resources they do not have inside the organization (Czerniawska & Smith, 2010). It means that many clients do not have technical

knowledge/„know-how‟ to confidently evaluate the quality of the service they purchase.

As a result, clients often evaluate professional service quality and value through the performance of

service firms that they perceived (La et al., 2009).

La et al. (2009) suggest that there are two main components contributing to client perceived

performance: (i) people-related factors (tangible resources) composing the relationship between service provider‟s behavior (internal factor) and (ii) firm-related factors (intangible resources) as firm‟s

innovativeness, reputation.

In this study, we explore the intangible resources. The firm resources could be distinguished in two

groups: tangible versus intangible. The intangible resources (e.g. reputation, knowledge and skills, innovation) are considerably difficult to be perfectly imitated by others. They could be considered as the

key drivers of firm competitive advantages.

Drawing from theory and conceptual models of previous researches, this study focuses on exploring

the effects of intangible resources to customer perceived performance in the context of professional B2B

tax services in Vietnam. Especially, the study examines the moderator effects of firm‟s international experience and nature of engaged services on these relationships.

However, due to the differences in the context and the specific characteristics of professional tax services, qualitative analysis was conducted to further confirm and explore the specific factors of the

industry in the context of Vietnam. Then, the results of qualitative analysis were tested through quantitative analysis. Details of these two analyses are presented in the next section.

2.2. Qualitative study

In Vietnam, professional tax services are growing in both quality and quantity. Outsourcing is the

practice which has been recently applied in many Vietnam companies especially in tax services. Consequently, clients tend to evaluate a firm‟s performance through resource-based view of the firm.


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Moreover, most clients in this market are large corporations or foreign own companies whose transactions

are complicated, involved overseas parties and they pay much attention on how to have effective tax

system.

Hence, to understand deeply Vietnamese professional tax market as well as confirm/modify the

factors to client perceived performance and satisfaction in this industry, a qualitative study by using in-

depth interview (60% face-to-face and 40% via telephone) was conducted. The interviews were undertaken

with three senior managers of professional tax firms (two of Ernst & Young Co., Ltd. and one of Nexia

ACPA Auditing & Consulting Co., Ltd.) and two chief accountants as representative of clients. Each

interview took place in around half an hour. The information collected in such interviews was then

interpreted using sentence method – analyzing phrases in the answers to get the main points addressing the

questioned matters, draw conclusion and confirm with the interviewees.

Firstly, the results of the interviews confirmed reputation as one of the most significant factors to

client perceived performance in the context of Vietnam professional B2B tax services. The firm‟s general

reputation as well as its reputation in a specific functional area is top of choice criteria in business-to-

business professional services (Dawes et al., 1992). The concept of firm‟s reputation is defined as a set of

economic and non-economic attributes credited by a firm based on its past actions (Weigelt & Camerer,

1998). Professional tax services are mixed of business and legal consultant services. Based on that nature,

together with uncertainty during the selection process, clients rely on a firm‟s reputation through word-of-

mouth or track record (Lin and Wei, 1999). In other words, reputation helps the firm approach clients more

easily. In the circumstances in which clients lack of expertise in evaluating technical quality of professional

services (most of the case), the firm‟s reputation can help enhance the level of reliability of clients in

services they purchase; therefore, it has positive influence on client perceived performance. Interview‟s

results also confirmed the moderator role of the firm‟s international experience in the relationship of

reputation and perceived performance. This moderator effect was examined in La, Patterson and Style‟s

(2005) Conceptual Model with the argument that from the client‟s viewpoint, international experience may

increase the perception of reliability, capability and credibility.

Secondly, the results of these interviews introduced two factors having significant effect on client

perceived performance i.e. service fee and relationship with tax authorities. The concept of service fee

introduced here is not the same as what clients “give” concept. That is understood as a benchmark through

that client can estimate the service quality among other competitors of the firm and can form their

expectation of what they would receive or their perceived performance. This is supported by the thought

that higher service fee often represents higher service quality and thus what client would perceive from the

firm‟s performance would be higher. This term was used and tested in consumer services as reference price.

Expected service quality plays a key role in reference price formation due to the price to quality

relationship demonstrated by many authors (Ziethaml, 1988). Due to the intangible nature of services,

consumers use price as a cue that signals service quality or perceived performance. This is especially

important in the case of „pure‟ services where there are few physical signals for consumers to evaluate

potential service quality. (Dickinson, J.B. and Dickinson, C. D., 2012).Based on that, service fee is

considered firm-related factor.

The latter factor is relationship with tax authorities. Although professional tax services are based on

both tax regulations and practices, given tax regulations in Vietnam do not develop together with the rapid

growth of the economic transactions in quantity and complexness, most of the complicated cases, the

current practices are applied. In the lack of tax regulations in some special cases, sometime tax authorities

have their own interpretation of regulations and based on that, they examine the issue of a specific

company. In addition, majority of clients of professional tax services are companies having difficult tax

issue that there is no clear guidance in regulation. In that case, a good relationship with tax authorities will

contribute outstanding value to the service firm. This relationship helps the firm easily interact with the tax

authorities or tax officers who are in charge of its client and via that the firm can obtain the treatments/


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practice of those people/ authorities. In addition, it is agreeable that building relationship with authorities is

a practice in Vietnamese market for such a long time. Thus, acknowledge this relationship, clients tend to

appreciate the work of professional tax firm and perceive performance of the firm at a higher level. This

element can be assessed as firm-related resource from client‟s point of view. However, from the service

provider perspective, this is considered as people-related resource. It is more about personal relationship

rather than firm‟s relationship. Tax authorities have a tendency and feel more comfortable to work/ share

their practices/ interpretation with tax advisers personally rather than as representatives of a service firm.

Once this relationship is built, it is a competence of that tax advisers not an intangible asset of the firm.

Thus, eventually, relationship with tax authorities element is people-related factor.

However, the association between relationship with the tax authority and perceived performance

depends on the nature of engaged services. Professional tax services in nature can be divided into two

types: compliance services and advisory services. Compliance services are services provided in order to

assist clients in complying with tax regulations (required by regulations). Advisory services are services

provided for management purposes in order to plan for the company‟s future operations. Compliance

services do not require much interaction with tax authorities. In contrast, clients focus more on relationship

of the firm with relevant tax authorities when they have tax issue and need advices from tax experts.

Therefore, practical experiences of interviewees indicate that the association between relationship with tax

authorities and perceived performance is stronger in advisory services than in compliance services.

Table 1. Summary of Qualitative Study Results

Factor/ Moderator Results of qualitative

analysis

Factors to client perceived performance

Reputation Confirmed

Service fee Introduced

Relationship with tax authority Introduced

Moderators of relationship

Firm‟s international experience as a moderator in the relationship of reputation and

perceived performance Confirmed

Nature of professional tax services as a moderator in the association between

relationship with tax authorities and perceived performance Introduced

3. CONCEPTUAL MODEL AND HYPOTHESES

From the literature review, we propose 5 hypotheses:

H1: Relationship with tax authorities has significant effect to client perceived performance.

H2: Reputation has significant effect to client perceived performance.

H3: Service fee has significant effect to client perceived performance.

H4: The relationship between relationship with tax authority and perceived performance will be

stronger in advisory services than in compliance services (nature of engaged services);

Last, experts in domain also suggest that from the clients‟ viewpoint, international experience may

increase the perception of reliability, capability and credibility which are criteria based on how clients

assess the reputation of a service firm. Thus, firm‟s international experience is considered as a moderator in

relationship between firm‟s reputation and client perceived performance and hypothesized as follows:


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H5: The relationship between reputation and perceived performance will be stronger under high

(rather than low) level of firm‟s international experience.

Figure 1. Theoretical Model: The Impacts of Specific Firm Internal Resources to Customer Perceived

Service Performance in the Context of Professional B2B Tax Services

4. QUANTITATIVE SURVEY

The sampling frame for this study was clients of tax consultant firms in Ho Chi Minh City where most

of the largest tax consultant firms place their offices. Their clients can spread from Da Nang to Ca Mau and

are engaged in various industries. The adopted measurement scales of variables from previous research

(appendix A) was developed and pre-tested (in an interview approach) with various academic and

industrial experts to detecting ambiguous questions, check for face and content validity of the measurement

scales, and certify the wording of the items. The final questionnaire was then formatted in the online survey

form and sent to clients of professional tax firms in Ho Chi Minh City.

There were 227 questionnaires sent out and 132 were obtained in which 120 questionnaire were

considered as usable. The others were eliminated due to several reasons such as lots of unanswered

questions, insufficient information, etc. The sample size of 120 is considered appropriate pursuant to

Stevens (1996), who recommend that for social science research; about 15 subjects per predictor are needed

for a reliable equation. The research model of this paper has totally 4 predictors. Thus, 120 observations are

acceptable. All constructs were measured by multiple-item scales. All scales were in turn adopted from

study of La et al. (2009).

5. RESULTS ANALYSIS

5.1. Measurement scales testing

All scales were adapted from the literature. So we conduct only the exploratory tests to examine the

reliability of existing scales to sample of our study.


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Cronbach’s alpha

Table 2. The Cronbach’s Alpha Coefficients of Components

Component Cronbach's Alpha

Relationship with tax authorities .802

Reputation .821

Service fee .861

Perceived performance .874

The collected data was analyzed by SPSS software. Cronbach‟s alpha analysis indicated good

measures (Nunnally, 1978) when all Cronbach‟s Alpha coefficients for each of the scales are above 0.7 as

in Table 2 below. Based on the above analysis, Cronbach‟s alpha are all above 0.7. Thus, these scales are

considered appropriate to further analysis in next steps.

Exploratory factor analysis (EFA)

In order to test the convergence of items in measuring a variable and discriminant of variables in the

research model, EFA was conducts for all variables including all independent and independent variables.

KMO and Bartlett's test‟s results in the factor analysis showed that the coefficient of KMO is high (equal to

0.872 > 0.5) with significance level (Sig.) of 0.000 (<0.05). Eigenvalues is greater than 1. There are seven

(6) factors extracted and the extracted variance was 70.220% (greater than 50%), which met requirements

(appendix B). Reputation and service fee are convergent on one factor. It may be in the context of

professional tax consultant industry, reputation is also estimated through service fee as an indicator for the

firm‟s service quality and reputation. Higher service fee indicate its reputation in the industry. The result of

Cronbach‟s alpha of combined variable reputation and service fee is significant (.881). As a consequence,

hypotheses 2 and 3 were consolidated and re-stated as H2: “Reputation and services fee has significant

effect to client perceived performance”.

5.2. Model and hypothesis testing

Regression analysis for factors affecting perceived service performance

The obtained results presented that the model is significant (p = .05, FANOVA (5, 99) = 32.629, R2 =

60,3%, all VIF < 10). The effects of independents variables to perceived service performance are all

significant (p < 0.05). H1 and H2 are supported that indicates that relationship with tax authorities and

reputation have positive impacts on perceived service performance.

Table 3. Impact of Firm’s Internal Resources to Customer Perceived Service Performance

Explicative factors B Std. Error t Sig. Tolerance VIF

REL .189 .049 .286 3.838 .000 .963 1.039

REP .554 .074 .559 7.510 .000 .963 1.039

Moderator testing

Given F–value of firm‟s international experience and nature of engagement (i.e. 0.993 and 1.172,

respectively) are lower than Fcritical (2, 101) at p-value = 0.05 (i.e. 3.086), the null hypotheses are not rejected

or H3 and H4 are not supported. It means that firm‟s international experience (foreign firm group vs. local

firm group) does not moderate the relationship between reputation and perceived service and Nature of


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engaged services (advisory service group vs. compliance service group) does not moderate the relationship

between relationship with tax authorities to perceived service.

Table 4. Results of Moderator Testing

Moderator Sum of squares of residuals

Nature of engaged

services

Total sample

(N = 105)

Advisory service group

(N1 = 37)

Compliance service group

(N2 = 68)

39.109 16.963 21.260

Firm’s international

experience

Total sample

(N = 105)

Foreign firm group

(N1 = 55)

Local firm group

(N2 = 50)

28.820 18.040 10.225

Note: Significant relationship Insignificant relationship

Figure 2. The Impacts of Specific Firm Internal Resources to Customer Perceived Service Performance in

the Context of Professional B2B Tax Services

6. DISCUSSION AND GENERAL CONCLUSION

6.1. Results discussion

The results confirm the positive relationship between firm‟s relationship with tax authorities and

perceived services. Customers would perceive services at a higher level when they acknowledge the service

provider firm has a good relationship with tax authorities and the firm may already consult with relevant

tax authorities about their company‟s tax issues. This factor is the unique characteristics of professional tax

service in Vietnam and has been first empirical tested in this study. That is also considered as the

theoretical contribution given almost no research was conducted to confirm the significant effect of this

factor to perceived service in the context of professional tax service in Vietnam.


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Besides, concerning firm-related resources, the relationship between a firm‟s positive reputation and

perceived service were significant, because a firm‟s positive reputation would not be spread widely if its

services did not reflect its superiority. Especially in tax services, customers may feel more reliable when

choosing a firm having good reputation in the market.

Surprisingly, nature of engaged services and firm‟s international experience do not moderate the

relationship between perceived service and tax authorities and reputation and perceived service,

respectively. Clients may consider that given the tax laws are frequently updated and tax authorities‟

treatment are mainly based on practices, both compliance and advisory services need the frequent

interaction with tax authorities. Moreover, for the local project, it requires the service provider firm beside

technical skills and inter-personal skills must understand the local culture. As a consequence, most of

representative of clients (participants in the survey) do not have experience in appointing or working with

required-international experience engagement. Thus, it is obvious that they lack of information/ experience

or find it unnecessary to take into account of firm‟s international experience.

6.2. Managerial implication

The results from this paper lead to a number of important managerial implications. First, unlike other

people-related factors whose effect to client perceived performance were confirmed in professional services

by many scholars, relationship with tax authorities is a newly introduced and tested in this paper. It

indicates the fact that while tax regulations have not been well developed and tax authorities tend to apply

their own practices in treatment, clients would feel more reliable when engaging a tax firm having good

relationship/ interaction with the tax authorities. Although building relationship with authorities is a long-

established practice in Vietnamese market, it is still not widely accepted in many foreign companies. Thus,

up till now, most of relationships with authorities are built personally by tax advisers and become a specific

competence of tax advisers. The point is that in order to promote transparency, firms should have good

policies to manage activities in building relationship of staff to protect firm‟s reputation as well as maintain

clients‟ belief. This again affirms the pivotal role of human resources. Hiring practices, recruitment policies,

human resources maintenance and training are critical in the professional services, especially tax services.

In a lesser content, the firm-related resources (i.e. reputation and service fee) also play an important

role in increasing the level of client perceived service. This is an interesting note for managers regarding

customer that given service fee is used as a benchmarking to access service quality; it is considered as an

interpretation of reputation. Reputation in the consultant service in Vietnam also measures through

competitive service fee and its indication for service quality.

Especially, in total firm‟s related factors have the highest contribution to client perceived performance.

Again, findings of this study confirms the decisive importance of firm‟s people related factors to enhance

client perceived performance. This implies the priority in development of professional tax firm in order to

enhance level of client perceived value.

6.3. Limitation and further research directions

Due to limited resources, this study can only collect data from clients in the South of Vietnam. It may

not cover all representatives of the professional tax services in Vietnam. Moreover, this study has been

conducted in Vietnam with a sample of Vietnamese firms and this is expected to conduct a cross-cultural

study to investigate whether the tax professional services in other Asian countries would have the same

model given the similarity traditions and market situation. It would be more interesting to explore under

what conditions clients are willing to pay more to appoint a foreign professional tax service firm as

opposed to a local one.


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Sustainable Supply Chain Management: A Review on Applications

Do Thanh Luu

[email protected]

Ho Trung Thao

[email protected]

Duong Kim Thanh

[email protected]

Faculty of Economics and Commerce, Hoa Sen University, Vietnam

ABSTRACT

Sustainable development is one of the policies emphasized by Vietnamese government through world economy

forums as well as the on-going negotiation process to join the Trans-Pacific Partnership (TPP). To facilitate the

implementation of that policy, it is necessary to collect and analyze studies and practices about the field of sustainable

supply chain management (SSCM). If a firm follows the SSCM, it will try to operate its supply chain efficiently in all

three aspects of economic, social, and environmental. In this paper, we synthesize the results and experiences of the

application of the SSCM in five countries with the hope to gain suitable lessons for Vietnamese firms. The research

interests include the scope of SSCM, the related standards, the drivers for firms to adopt, good practices, and so forth.

Key words: Supply chain management, Sustainability, Corporate social responsibility, Life cycle analysis,

Performance measures.

1. INTRODUCTION

As a developing country, Vietnam highlights sustainable development in its economic growth policy.

It can be seen that firms, basic cells of economic system, are mostly the elements in a supply chain. Then it

is reasonable to make supply chain sustainable for building sustainable economics as a whole. The

development of supply chain has brought products and services with lowest prices to customers and highest

profits to firms. However, it also causes negative impacts to society and environment. The increasing

concern of customers, governments, and stakeholders on the negative impacts have forced firms to change

in their supply chain. Beside the prime driver, economic, firms now also need to care about environment

and society. Currently, sustainable supply chain management (SSCM) becomes an emerging topic with

various definitions and different approaches. Mollenkopf and Tate (2011) indicated that the success of

supply chain sustainability is related to the identification of alternatives, environmental friendly ways of

production. Krajewski et al. (2013) pointed out that sustainability is the combination of three

responsibilities, namely, financial, environmental, and social responsibility. Darnall et al. (2008) claimed

that firms approaching sustainability in environmental dimension aim at eliminating waste as well as

reducing environmental impacts in their supply chain. Firms can improve their environment performance

through recycling, reusing and reducing the amount of material used in the process named reverse logistics

(Carter and Ellram, 1998). Firms also can evaluate environmental impacts at every supply chain stage using

life cycle analysis (LCA). Sarkis et al., (2010) recognized that there are firms followed social sustainability

which is concerned with the management of social resources, relationship and social values.


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While firms know about the need of integrating economic, environmental, and social aspects in their

supply chain management, the guidance, model/framework and experience to approach SSCM are still

limited. The governments are also required to have its right policies in pressing and facilitating firms to

engage in SSCM. Hence, a study of SSCM practices across countries is useful to business firms as well as

to governments.

With regards to the methodology, as the aim is to investigate the application status of SSCM in

Vietnam, we use the comparative, then the case study method. The exploratory level of this approach is

suitable since with the collected information we believe that Vietnam is still in the early stage of SSCM

adoption.

The following section will cover the practices of the SSCM in some countries (one in America, two in

Europe, and two in Asia). Then, the initial inquiry result from Vietnamese enterprises will be analyzed.

Finally, conclusions about the above cases which can be useful to firms interested in approaching

sustainability and suggestions for disseminating SSCM in Vietnam will be presented.


2.1. Cases in Canada

Canada has played leading roles at the Organization for Economic Cooperation and Development

since its formation. To deploy its strategy in sustainable development, Canada has several institutions in

charge of this mission.

Morali and Searcy (2013) conducted their work with the aim to study how Canada corporations

integrate sustainability principles into their normal management activities. They reviewed reports of over

4500 pages from 100 companies about their sustainable related efforts and based on that they ran in-depth

interviews with 18 Canadian experts on SSCM.

The authors‟ findings have covered several aspects of SSCM implementation.

For the industrial types involved, three sectors of metals-mining, energy, and finance are accounting

for 62% of the corporations disclosing their corporate sustainability initiatives out of all the other industry

sectors combined. The environment impact is the main reason of the two first sectors for their attention of

sustainability. In the meantime, the financial institutions have to include sustainable requirements in

budgeting to their customers.

The major drivers for their sustainability pursue are to improve the triple-bottom-line result

(economical, environmental, and social) and to response to the stakeholder pressures. However, the

concentration on the social aspect is still not clear.

Although the need for collaboration among all supply chain partners is recognized, it is performed

mainly in upstream than downstream. The level of formality is also dispersive. There is limited number of

corporations having standards exerting on suppliers for SSCM. This may show that firms are accelerating

their introduction of sustainability to their supply chain partners. Moreover, it seems that is easier to play

pressure to suppliers than to customers.

One main barrier to apply accountability within supply chain is that SSCM governance practices are

still not in the same priority levels amongst corporations. This is obviously because firms are different in

their reputation, industrial sector, etc. especially their size.

To make SSCM more prevalent, two important issues should be addressed. First, knowledge about

SSCM must be available for supply chain partners including corporations, industry practitioners, customers,

and so forth. This is rooted from the fact that the level of awareness is still dispersed among corporations.

Second, three pillars of SSCM which are economic, environmental, and social should be built in more


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integrated form and performance measures for a holistic SSCM should be available, united, and

standardized. The reason for this mention is that many firms do not have a clear way to introduce

sustainability practices to their current operation.

2.2. Cases in Japan

Among manufacturers in the world, Japan is one of leading countries encouraging practices in

reduction, reusing, and recycling. Japan also belongs to the group of seven leading economies in the world

(“G7”).

Zhu, Geng, Fujita, and Hashimoto (2010) studied Japanese manufacturers in regards of their GSCM

(Green Supply Chain Management) drivers, implementation, and performance improvement. GSCM is one

part of SSCM that focuses to the environmental aspect only rather than three full ones. The authors

investigated nine large manufacturers that are considered as traditional polluting industries. Specifically,

they compose of four chemical, one petro-chemical, two electrical and mechanical appliance, one electrical,

and one food manufacturers. The authors developed two sets of questionnaire. The first one including 21

questions covers the topics such as internal environmental management, green purchasing, customer

cooperation with environmental concerns, eco-design, and investment recovery. The second one including

17 questions is about environmental, economic, and operational performance.

This study has provided us with various distinctive results.

These manufacturers carry out the internal environmental management practice very actively and

effectively. However, they implement quite moderately in four other practices of GSCM which are green

purchasing, customer cooperation with environmental considerations, eco-design, and investment recovery.

This may from the fact that related regulations in Japan are coercive.

The main drivers and mechanisms for the GSCM practices are Japanese laws and policies on reuse,

recycling, and recovery. One instance is the Law on Promoting Green Purchasing taken effect since 2002

which requires public organs to procure environmental-friendly products and encourages private sectors to

do so.

There is no significant extension or requirements of the environmental experiences from these leading

large manufacturers to their suppliers and customers. This is a surprise in comparison with other countries.

For a satisfied explanation to this phenomenon, we need more research. With the extension of our

knowledge, we think that environment awareness in Japan is covered largely. Furthermore, since Japanese

firms have the tradition of long-term cooperation with limited suppliers, then share values are built for a

long term also rather than in ad-hoc type.

GSCM experiences in these Japanese manufacturers can be adopted by manufacturers in developing

countries such as China. This helps them to raise their opportunities to export to developed countries as

well as provide their products to foreign firms in China. This idea is raised because China manufacturers

also want to share current markets of Japan manufacturers such as European Union which requires the high

standards of corporate social responsibilities.

2.3. Cases in UK

Walker and Jones (2012) investigated data from seven leading companies in UK to explore issues and

factors influencing their implementation of SSCM. The related sectors are aerospace, retail,

pharmaceuticals, and food and drink. Out of these seven companies, the minimum annual turnover is

£7.4bn, the minimum number of employees is 22,000. All of them have placed their CSR (Corporate

Social Responsibility)/sustainable/environmental policy available in their web site. These companies were

selected thanks to their merit in sustainable direction. They have obtained the related awards from the

bodies like the Chartered Institute of Purchasing and Supply (CIPS) or Business in the Community (BiTC).


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The authors have conducted fourteen semi-structured face-to-face interviews with at least one senior

manager in each organization based on its SSCM projects or initiatives. In addition, secondary data have

been exploited from reports and web sites, including annual reports, environmental/CSR policies, supplier

evaluation questionnaires and internal newsletters.

The authors summarized the enablers and barriers to the SSCM which are collected from previous research.

The enablers include:

Top management commitment.

A supportive culture.

The involvement of employees including middle management.

An adoption of an Environmental Management System.

Proactivity for better managing reputation and environmental risk which lead to stronger competitiveness.

The alignment between SSCM and corporate strategy.

Capability of the purchasing and supply function.

Good internal corporate social responsibility practices.

Influence of large customers to smaller suppliers.

Government policy and regulation.

Pressure from NGOs and investors.

The barriers include:

The reluctance of small firms in engaging in SSCM.

Lack of supportive corporate structure and processes.

Lack of management commitment.

A limited support from traditional accounting methods for facilitating triple bottom line reports.

A focus on cost reduction in short-term purpose.

Lack of training and understanding, and distracting from the sustainability factor in the purchasing and supply function.

Desire for low prices from consumer.

Competitive pressure.

Lack of commitment amongst suppliers.

Industry type.

Greenwashing (Contrariety between implementation and announcement of environmental initiatives).

When conducting the study, the authors found additional enablers and barriers.

The additional enablers include such items as academic involvement (e.g. in improving product packaging), media influence (increasing the reputation through media), using industry standards as


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foundation for SSCM work (adoption of an available framework), procurement‟s willingness to work with other functions (common goal in sustainability direction shared among different functional department in a firm).

The additional barriers include such items as resource limitation (in comparing to public companies),

reputation risk (for some strong brand reputation, better performance in SSCM do not assure an increase in

demand for its products), contrary performance targets (in interacting with current targets), and too wide

audits.

2.4. Cases in Germany

Wolf (2011) intended to know how firms integrate sustainability factor to their current supply chain

management. She analyzed four case firms renowned in supply chain integration and/or sustainability merit.

The firms belong to the manufacturing sector including car, pharmaceuticals, apparel, and food industries.

Two firms were selected thanks to their sustainability ranking. Two others were chosen based on their

merits on supply chain activities which were published in newspaper and business press articles. The

primary data is formed from the structured interviews and the secondary data is from such sources as

company reports and web sites, supplier codes of conduct where available, etc.

This work has resulted in several practical outputs.

A sustainable strategy should cover the diversity of external stakeholders‟ expectations. The firms

should balance the weights of different stakeholder in regards of their concern about sustainability.

For successful sustainability strategies, leadership support plays a vital role in terms of compensating

for a lack of clear sustainability goals and direction, stretching between firm‟s existing resources and its

aspirations, and defining suitable sustainability metrics to track achievements.

A perceived gap of experiences and knowledge of sustainability inhibits its implementation. Therefore,

training is essential.

Process thinking is necessary to get through the functional barriers. Each functional department should

know that products delivered to customers need undergoing through series of activities contributed from

those departments. Therefore, their collaboration is critical for perfect results.

Internal procedural integration needs supports from an efficient incentive and reward system. This is

reasonable because new efforts often need new recognition.

To ease the creation of new, more sustainable products and processes and to manage sustainability risk

better, the involved suppliers should include from tier-1 to tier-n, strategic and non-strategic, even

commodity suppliers. This assures that all supply partners are monitored although their impacts might be

not the same.

2.5. Cases in China

China has chosen in our study due to two reasons. Firstly, published works related to the sustainability

issue are available. Secondly, we think that the development gap in this issue between China and Vietnam

is not too broad, and therefore, we can share suitable experiences more directly.

Li (2011) investigated performance measurement for GSCM based on a database of over 128

manufacturing facilities in China. The study was conducted through three stages of pilot test, convenience

surveys, and random survey. The pilot test which aims to validate and refine survey questionnaire has

received suggestions from 28 respondents. The convenience surveys were conducted with the participation

of audiences in the workshops organized by the author‟s university. The random survey was conducted

within the Xi‟an province in China and received 300 responses. This data was then analyzed using SPSS


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10.0 for factor analysis and reliability testing, and identifying the critical factors for GSCM performance

management.

The author has withdrawn the conclusions that can be valuable for developing countries.

Environmental awareness is driven from all regulatory, competitive, and marketing factors. These

ones repeat the finding from previous researches.

An environmental-friendly image of Chinese enterprises will raise their opportunities in exporting or

supplying to foreign firms in China. This is importance because China has been recognized as “factory of

the world” and Chinese firms are main suppliers to the companies invested in China.

Although pursuing such standard as ISO 14001 certification is quite prevalent, GSCM practice

adoption is still not strong enough. The causes can be listed as the lack of necessary tools, management

skills, knowledge, and a reasonable economic justification. This fact reveals that getting accreditation

standards like ISO 14001 is just early steps to achieve fruitful results of implementation of GSCM or, more

general, the SSCM.

2.6. Cross-case analysis

To view the result of analysis in five different countries above in a more holistic way, we summary

these in the table below.

Country Canada Japan UK Germany China

Methodology Qualitative-

Case study

Qualitative-

Case study

Qualitative-

Case study

Qualitative-

Case study

Quantitative -

Survey

Sample size 100 reports;

18 interviews 9 companies 7 companies 4 companies 300 responses

Industrial

sector Numerous

Chemical,

Electrical,

Food

Retail,

Pharmaceutical,

Defense,

Aviation, Food

Food, Apparel,

Car,

Pharmaceutical

Numerous

Regulatory

driver Established Strong Established Established Encouraged

Market driver Yes Yes Yes Yes Yes

Internal

collaboration

barrier

Not mentioned Not mentioned Yes Yes Not mentioned

Training

needed Yes Not mentioned Yes Yes Yes

Supply partner

included

Not extend to

customers yet

Focus to firm

itself

Focus to

suppliers

As much as

possible Not mentioned

3. ANALYSIS OF AN INITIAL INQUIRY RESULT FROM VIETNAMESE ENTERPRISES

When we are conducting this research, the Asian Institute of Technology in Vietnam had carried out

their surveys and interviews to know the current status of Green Manufacturing Management in some

sample companies. This part aggregates the results of in-depth interviews with four enterprises in the fields

of manufacturing agricultural products and foodstuffs, and consumer goods such as electronics, mechanics

& equipment, and paper products.


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The survey research aims to provide enterprises with benefits of the green supply chain management

program, construct of the related vision with associated challenges and opportunities, identification key

supply partners. Through these systematic review, the enterprises are be able to enhance their capability

and competitive advantages.

Contents of in-depth interviews focuses on such issues like sustainable development strategy of

enterprises, activities of development, effective use of natural resources, and social obligations.

The surveys and interviews have shown interesting results.

Similar to the international cases in the literature review, the drivers for case firms to pursue Green

manufacturing also include customer demand, the value of the enterprise, enterprise image, business

opportunity creation, compliance with laws, competitive position improvement. They have also willingness

to build the standardized Environmental Management Systems such as ISO 14001, MAS, ISO 14064, ISO

16000, and proactively comply with environmental laws.

However, the case firms just focus on improving their internal environmental performance instead of

covering enhanced activities like eco-design, closed-loop control, etc. With this focus, their efforts include

diversified activities like energy saving, waste reduction, recycling, energy saving, water saving, use of

renewable energy.

Like some international cases, the biggest difficulties can be listed as complicated implementation

process, high cost, lack of experts, and unclear course of action.

One distinctive feature is related to the issue of economic sustainability. Some firms have combined

its activity of supplier development with the poverty reduction program of the government by offering

production opportunities to the poor and/or the households in the remote areas.

In summary, it seems that the development of green manufacturing in the sampled companies is still in

the early stage and there is a need to integrate the Green SCM as well as Sustainable SCM in a more

systematic way.

4. CONCLUSION

There are several interesting points we can withdraw from the cases across countries presented above.

Firstly, perhaps thanks to a long time of introduction, the awareness about sustainability of the firms joining

their supply chains is quite prevalent. Secondly, in terms of the activity diversity, they overcome the basic

in-house environmental solutions to develop the approaches more systematic like eco-design, Life Cycle

Analysis, reverse logistics, and so forth. Lastly, while there exist some common phenomenon such as the

influence from large companies to smaller suppliers in almost all cases, the distinction still occurs in the

Japan case where the firms place no request on their suppliers to implement SSCM.

The survey result from Vietnamese companies discloses both opportunities and challenges in raising

their capability of implementation of SSCM. The in-house environmental problem has been solved from

several different aspects. However, the solutions seem passive and not holistic. The scope of their activities

has not yet linked partners in the supply chains in such a multi-tier way. From the aspect of CSR, the efforts

of these companies for their employees have not yet been informed much like what they do for outside

stakeholders.

To improve the competitive capability of Vietnamese firms through the implementation of SSCM, we

think the following items should be addressed. First, the government should issue the related law, policy,

and regulations as soon as it could. Second, the media should update the progress of all business sectors and

promptly praise good cases publicly. A technical infrastructure for SSCM in Vietnam needs to be well

prepared. It includes knowledge, guideline, framework, performance measures, training and consultancy


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services, etc. Of course, to claim a liable, practical and effective resource to have, it is essential to gain the

participation from several partners, at least from governmental agencies, academics, industrial practitioners.

Acknowledgement The authors would like to thank the Asian Institute of Technology in Vietnam for

its support in data collection. They also appreciate Faculty of Economics and Commerce of Hoa Sen

University for its encouragement and time resource reservation for them to pursue this topic.

REFERENCES

Carter, C.R. and Ellram, L.M. (1998). Reverse logistics: a review of the literature and framework for future

investigation. Journal of Business Logistics, Vol. 19, pp. 85-102.

Darnall, N., Jolley, G.J. and Handfield, R.B. (2008). Environmental management systems and green supply chain

management: complements for sustainability?. Business Strategy and the Environment, Vol. 18, pp. 30-45.

Gold, S., Seuring, S. and Beske, P. (2009). Sustainable supply chain management and inter-organisational resources: a

literature review. Corporate Social Responsibility and Environmental Management, Vol. 17 No. 4, pp. 230-45.

Krajewski, L. J., Ritzman, L. P., Malhotra, M. K. (2013). Operations Management, 10th ed., Pearson, Boston, MA.

Li, Y. (2011). Research on the performance measurement of green supply chain management in China. Journal of

Sustainable Development, 4(3), 101-107.

Mollenkopf, D. A., Tate, W. L. (2011). Green and Lean Supply Chains. CSCMP Explores, Vol. 8, pp. 1-17.

Morali, O., Searcy, C. (2013). A review of sustainable supply chain management practices in Canada. Journal of

Business Ethics, 117, 635–658.

Sarkis, J., Helms, M.M. and Hervani, A.A. (2010). Reverse logistics and social sustainability. Corporate Social

Responsibility and Environmental Management, Vol. 17, pp. 337-54.

Walker, H., Jones, N. (2012). Sustainable supply chain management across the UK private sector. Supply Chain

Management: An International Journal, 17(1), 15–28.

Wolf, J. (2011). Sustainable supply chain management integration: a qualitative analysis of the German manufacturing

industry. Journal of Business Ethics, 102, 221–235.

Zhu, Q., Geng, Y., Fujita, T., Hashimoto, S. (2010). Green supply chain management in leading manufacturers: Case

studies in Japanese large companies. Management Research Review, 33(4), 380-392.

https://en.wikipedia.org/wiki/Trans-Pacific_Partnership

http://en.vietnamplus.vn/Home/Vietnam-moves-towards-a-green-economy/20144/49032.vnplus

https://en.wikipedia.org/wiki/Trans-Pacific_Partnership


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Do the SMEs Outperform Listed Firms in Vietnam? An Efficiency-based Approach

Truong Thinh Vu1, Duc Hong Vo

2

Ho Chi Minh Open University, Vietnam;1,2

Economic Regulation Authority, Australia2

ABSTRACT

Small medium-sized enterprises (SMEs) play an important role in the economic and social development

process of emerging countries. Vietnam is no exception. According to the Vietnam General Statistics Office,

while the SMEs have accounted for 97% of the total number of enterprises in Vietnam, their overall return on

equity on average was relatively low and decreasing during the period of 2006-2011. This study aims to

measure the performance of SMEs and listed firms based on technical efficiency approach. Stochastic frontier

analysis (SFA) and data envelopment analysis (DEA) were employed to measure and analyze on the dataset

including 3,759 observations extracted from three of the most recent biannual SME surveys and 699

observations of listed firms on the Vietnam stock exchanges in period of 2008-2012. The empirical results

indicated that SMEs’ efficiency ranged from 52% - 54% by SFA, while the average level of efficiency were more

than 80% for listed firms. Furthermore, DEA-based efficiency showed that even with the high-ranked SMEs,

they are still required to cut down approximately 42% of given inputs to achieve fully relative efficiency.

Overall, no evidence was found in this study to confirm that the average efficiency of SMEs was significantly

higher than listed firms for the compared period.

Keywords: Firm performance, SME, Listed firms, SFA, DEA, Vietnam.

1. INTRODUCTION

Small medium sized enterprises (SMEs) play an increasingly important role to the economic

development strategy of each country. As such, improving the operational performance of this sector has attracted more attention from policy makers and academic scholars for many years. (Batra & Tan,

2003; Charoenrat et al., 2013; Gill & Biger, 2012; Krasniqi, 2007; J-C. Yang, 2006). According to Asia-Pacific Economic Cooperation – APEC (September, 2013), SMEs has been accounted 95% of

total enterprises, contributed 30% – 40% to Gross domestic products (GDP), employed 40% - 80% of total number of labours and generated 35% of direct exporting value. In Vietnam, in term of labour

scale, SMEs accounted for 97% of total enterprises, employed over 5.06 million of employees

(General Statistics Office - GSO, 2014). Based on the advantage of firm size, the performance of these firms plays an important role to the economic growth. However, the average return on equity of SMEs

has been decreasing from 3.81% (in 2006) to 0.85% (in 2011) during period of 2006 – 2011 (General Statistics Office, 2014). Efficiency reflects the capacity of firm to unitize their resources to produce a

maximum quantity of output. Measuring firm‟s performance in term of technical efficiency was widely adopted in various studies (Debnath & Sebastian, 2014; Halkos & Tzeremes, 2012; Majumdar,

2010; Nguyễn Thắng et al., 2002; Setiawan et al., 2012; Wattana & Sharma, 2011; J.-C. Yang, 2006). In Vietnam, there are few related studies (Le & Harvie, 2010; Nguyễn Khắc Minh et al., 2007; Trần

Thị Bích et al., 2008; Võ Hồng Đức & Lê Hoàng Long, 2014) which have also adopted the approach. In addition, time horizon utilized in these studies is also limited, with the exception from a latest

research in this area conducted by Võ Hồng Đức & Lê Hoàng Long (2014) with a long time horizon from 2004 to 2010. However, this study only focuses on the productive efficiency of firms within

food-beverage industry. Additionally, a new research question has been raised is whether the SMEs with flexible mechanisms or large firms strengthened by finance and management capability will


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operate more efficiently. This purpose of the study is to measure technical efficiency of SMEs and to

verify the operational capacity of these enterprises in the context of Vietnam by comparing the

efficiency score with large firms represented by companies listed on the Vietnam stock exchanges.

2. THEORETICAL BACKGROUND

2.1. Technical efficiency

The terms of “productivity” and “efficiency” have been frequently used as synonym, both stated

the comparison of inputs and outputs involved in the production process. However, efficiency is

defined as the capacity of a firm that can produce maximum outputs with given inputs (Coelli et al.,

2005). Firms that meet the above requirement are considered as efficient ones. Efficiency is

categorized as technical efficiency and allocative efficiency. Technical efficiency, the focus of this

paper, index reflects the level of outputs generation with given inputs. Previous studies have

employed one of two dominant methods: Stochastic frontier analysis and data envelopment analysis

or both of them.

2.1.1. Stochastic frontier analysis (SFA)

Aigner et al., (1977) and (Meeusen & Van den Broeck, 1977) independently studied and

mutually proposed production stochastic frontier function as follows:

Ln(qi) = xiβ + vi – ui

where:

qi: output of ith firm

xi is a (k x 1) Vector contains logarithm of inputs

β is a vector of unknown parameters.

ui which is non-negative random error variables that are assumed to be accounted for

technical inefficiency of firms and are often to be iid;1

vi are random variables which are assumed to be idd as N(0,δ2vi).

It is assumed to produce output qi using input xi, Cobb-Douglas or Translog production

function is employed to estimate production frontier:

qi = exp(βo + β1Lnxi + vi – ui) (1)

or qi = exp(βo + β1Lnxi) + exp(vi) + exp(-ui)

where:

exp(βo + β1Lnxi): deterministic component;

exp(vi): noise;

and exp(-ui): inefficiency.

Kalirajan & Shand (1999) considered that technical efficiency (TE) for the ith firm can be defined

as: TE = Yi/Yi*. This means TE = exp(βo + β1Lnxi + vi – ui)/exp(βo + β1Lnxi + vi) = exp(-ui). This

1 This means that the errors are independently and identically distributed normal random variables with zero means and variance δ2.


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value varies within a range of 0 and 1, reflecting the ratio of the actual output and a maximum

possible output which is not observable and must be estimated.

Aigner et al., (1977) employed Maximum Likelihood Method under assumptions as follows:

vi: random variables which are assumed to be idd as N(0,δ2ui).

ui: non-negative random error variables that are assumed to be accounted for technical

inefficiency of firms and are often to be iid N+(0,δ2ui) . It is assumed to be half normal,

exponential and truncated from below at zero. However, under this assumption, expected

value E(ui) will reach zero which makes TE rather high.

A log-likehood function for this assumptions is so called half normal model in terms δ2 = δ

2ui + δ

2vi

và λ = δ2

ui/ δ2

vi ≥ 0. If λ = 0, there are no technical inefficiency effects and all deviations from the

frontier are due to noise. Using this parameterization, the log-likehood function is:

𝐿𝑛 𝐿(𝑦/𝛽, 𝛿, 𝜆) = 𝑐𝑜𝑛𝑠𝑡 − 𝐼𝑙𝑛𝛿 + 𝑙𝑛Φ(−𝛿𝑖𝛾

𝛾)

𝑖

−𝐼

2𝛿2 휀𝑖

2

𝑖

In which, y is a vector of log-outputs; εi = vi – ui is a composite error term; and Φ is the

cumulative distribution function of standard normal random variable evaluated at x.

2.1.2. Data envelopment analysis (DEA)

The data envelopment analysis was derived on the idea of Farrell (1957) which employed

production possibility frontier to assess relative technical efficiency of firms within industry.

Whereby, the efficiency value of each unit in observed sample is measured as a comparison of a real

efficiency of that unit with best practiced firms. Firms with highest efficiency will create production

frontier of a sample. These firms operating on the frontier are considered efficient, the others lie under

the PPF (production possibility frontier) are found to be less efficient. However, this idea did not

receive any supports at that time. After twenty years, Charnes et al. (1978) captured this idea and they

introduced the so-called “Data envelopment analysis” and proposed constant return to scale input-

oriented DEA model. This model is presented as follows:

min, ,

st

-qi + Q 0,

xi - X 0,

0,

where the value of obtained is the technical efficiency score of the ith firm and (0,1), is I x 1

vector of constants.

Q: Output matrix of M x I

X: Input matrix of K x I.

It is argued that constant return to scale (CRS) assumption is only appropriate for firms operated

at an optimal scale while factors as imperfect competition, government regulations, constrains on

finance etc. may cause a firm not to be operating at an optimal scale. Therefore, many researchers

(Afriat, 1972; Banker et al., 1984; Färe et al., 1983) suggested adjusting the CRS DEA model to

account for variable return to scale situations (VRS) by adding the convexity constraint: I1' = 1,


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means total weight equals to 1 or non-increasing return to scale model (NIRS) I1' I1' = 1,

means total weight equals to 1 or non-increasing return to scale model (NIRS) I1' (total

weight is less than 1).

2.2 Previous empirical evidence

2.2.1. Manufacturing small medium-sized enterprises in Vietnam

Depending on the development level of economy, SME classifications of each country, also, are

different (Bartlett & Bukvic, 2003; Charoenrat & et al., 2013; Enis Bulak & Turkyilmaz, 2014; Gill &

Biger, 2012; Lundvall & Battese, 2000). In Vietnam, SME was defined as “Small and medium-sized

enterprises are business establishments registered business under existing laws, is divided into three

levels: micro, small, medium depending on total capital (total equity equivalent to total assets which is

determined in the balance sheet) or the number of employees per year (total capital is the priority

criteria)” (Decree No.56/ 2009/ND-CP of the Prime Minister). In particular, firms operated in

manufacturing sector including Agriculture, Forestry, and Fishery, Processing and Construction

industry are classified as follows:

Table 1. Manufacturing SMEs Classifications

No. Criteria Unit Micro Small Medium

1 Labour Employee ≤ 10 From 10 - ≤ 200 Over 200 - ≤ 300

2 Capital Mil. Dong - ≤ 20 Over 20 - ≤ 100

Source: Decree No.56 / 2009 / ND-CP of the Prime Minister

Within the period of 2006 to 2011, based on capital criteria, the number of SMEs operated in

manufacture sector accounted for over 30% of enterprises in Vietnam, employed an average of 3

million employees (GSO, 2012). However, see below figure 2, business performance, assessed by

return on equity and return on net revenue respectively, has had downward trend. This is signal of

poor performance.

Table 2. Business Performance Indicators of Manufacturing SME, 2006-2011

Unit: Billion Dong.

Year Capital Earnings before tax Net revenue Return on Equity Return of net revenue

2006 351,417 4,019 328,655 1.14% 1.22%

2007 431,775 7,980 444,515 1.85% 1.80%

2008 560,661 2,916 580,713 0.52% 0.50%

2009 758,108 7,039 823,374 0.93% 0.85%

2010 963,665 8,726 866,084 0.91% 1.01%

2011 950,287 3,330 921,829 0.35% 0.36%

Source: General Statistics Office.

Above arguments are reinforced by information extracted from business environment report of SMEs

in Vietnam conducted in 2013 by Central Institute Of Economic Management – Ministry of Planning and

Investment, approximately 70% of enterprises questioned answered that economic crisis had negatively


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impacted on their business condition. Annual survival rate calculated within sample has been decreased

from 92.2% in period of 2009-2011 to 90.6% in period of 2011-2013 (2005-2007: 94%; 2009-2009:

91.6%). Labour productivity fell in 2013 compared to 2011. Faced with this situation, companies have

adopted different strategies to cope with a business environment increasingly difficult, in which 58%

reduced manufacturing cost, 49% sought new markets and 13% now have to change firm size (labour).

Overall, the impact of the economic crisis still persists, requiring policy makers to undertake the

appropriate solutions to recover this dynamic economic sector.

2.2.2. Empirical studies

A study conducted Nguyễn Khắc Minh et al., (2007) stated that, although SMEs accounted for 35% of employees in manufacturing sector, only generated from 9% to 17% of profit of industry.

According to these authors, until the time the research had been done, there have been no explicit answers for the above question. The study hypothesized that technical efficiency caused this problem

and employed two (02) methods to measure this index Stochastic frontier analysis (SFA) and Data

envelopment analysis and run on dataset included 1,492 enterprises extracted from enterprise census survey in the period of 2000 – 2003 conducted by GSO. SME operated in this period had quite low

efficiency, averaged at 39.9% (DEA) and 49.7% (SFA), respectively. The main reason caused inefficiency of firm derived from the difference sourced from region or location of enterprise and high

capital-labour ratio. Another notable point, that is, for SMEs, the ownership did not impact on technical efficiency with significance of 1% and 5%, respectively. Given that the context of economy

also affects to firm efficiency of manufacturing SMEs, Trần Thị Bích & et. al.,. (2008) studied technical efficiency of those private firms in transitional and developing economy. Data was obtained

from 1996 to 2001, collected by Institute of Labour Science and social affairs (ILSSA) – Ministry of Labour – Invalids and Social Affairs. This study assessed overall technical efficiency of sub-

industries in Vietnam classified as Food processing, Chemicals, manufactured goods classified chiefly by material, machinery and transportation and miscellaneous manufactured articles. Factors affected to

technical inefficiencies of these sub-industries included: Family labour, metropolitan effect, firm size, firm age, owner‟s experience, Government assistance and institutions supporting the market and

subcontracting. Results from regression analysis indicated that depending on sub-industries and annual data, those factors had positive or negative effects. Average of efficiency in this period remained high,

over 80%.

Continuing the efficiency topic of SMEs in Vietnam, a research conducted by Le &Harvie (2010), besides identified factors which had significantly positive relationship with technical

efficiency as: firm age, size, location, ownership, cooperation with foreign partner, subcontracting, product innovation, competition, and government assistance, also surprisingly raised some factors

reducing SMEs technical efficiency. Firstly, firm age had significantly positive relationship with technical inefficiency. This showed that there was no evidence of learning-by-doing for Vietnam

manufacturing SMEs. It was argued that younger firms enter the market with innovative idea, new technology and equipment and hence became more efficient. Secondly, economies of scale identified

caused inefficiency due to disappearance of flexibility. Next, cooperation with foreign partners did not generate benefits for SMEs development. Because, by entering into a sub-contracting or cooperation

arrangement, domestic firms had to follow the terms and conditions of the arrangement and led to limit flexibility and innovation. Finally, there was strong evidence showed that credit assistance from

Government reducing SMEs efficiency. This proved that these firms took advantage of government supports to secure land, credit and use them for other purposes. Technical efficiency obtained in this

study so high from 84.2% to 92.55%. Despite there have had government assistance, SMEs have not yet motivated to grow. Data was collected in year 2002, 2005 and 2007.

Lately, Võ Hồng Đức & Lê Hoàng Long (2014) analyzing on unbalanced dataset comprised of 1,757 observations extracted from SMEs survey from 2004 – 2010 for testing the nexus between


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business network and production performance of SMEs in food-beverage industry. Efficiency scores,

obtained from DEA, were relatively low at 48% under CRS assumption and 54.9% under VRS

assumption, respectively.

In the report of Vietnamese business environment characteristics, based on data collected from

biannual surveys of SMEs in Vietnam, (CIEM, 2007, 2010, 2014) conducted by Institute of Labour

Science and social affairs (ILSSA) – Ministry of Labour – Invalids and Social Affairs; Central

Institute for Economic Management and University of Copenhagen), technical efficiencies of SMEs

were estimated by SFA with mean scores reached at 0.68; 0.43/0.562; 0.40/0.41 for three years: 2005,

2009 and 2013, respectively. This report indicated that low efficiency firms survived because of two

possible explanations. First, most SMEs may be operating in market niches that were not attractive to

more advanced enterprises, allowing these firms to keep survival. The other possibility lied in rapid

growth of enterprises may induce them to continuously change technologies of production which may

not allow them to fully benefit from learning-by-doing in order to produce efficiently. Furthermore,

this report also employed Ordinary least square (OLS) regression to identify factors affected to

technical efficiency, included: firm age, size, location and ownership.

In summary, results from previous studies stated that technical efficiencies of SMEs are

decreasing annually. Factors influenced to technical efficiency of SMEs within manufacturing sector

were found, they are: location, capital-labour ratio, government assistance policy, firm age, family

labour, owner‟s experience, subcontracting, economies of scale and cooperation with foreign partner.

2.3. Methodology

2.3.1. Research hypothesis

SMEs or large firm is more efficient? This question related to the relationship between firm size

and technical efficiency. There have had many arguments about impact of firm size on technical

efficiency (Alvarez & Crespi, 2003; Schiersch, 2013; Taymaz, 2005; C.-H. Yang & Chen, 2009). One

side argued that large firms are more efficient in production due to multiple inputs utilization, return to

scale. (Taymaz, 2005; C.-H. Yang & Chen, 2009). While SMEs were often impeded from lack of

financing, limited managing skills, severe business environment, and tax policies (Gill & Biger, 2012).

The others emphasized on flexibility, simple organization structure and issues relevant to the nexus of

ownership and management. (Taymaz, 2005; C.-H. Yang & Chen, 2009). Scope of this study

considered technical efficiency of SMEs and large firms in context of economy crisis. Therefore, large

ones strengthened by strong financing and managerial skills maybe possibly perform better. So, the

hypothesis for research question, that is: In processing industry, listed companies are more technically

efficient than SMEs in context of economic crisis.

2.3.2. Measurement variables

The objective of this study is to compare technical efficiency level between SMEs and listed

companies. As such, the measurement variables should be consistent for both sectors (i.e. SMEs and

listed firms). Net revenue is used as a proxy for output in this study. In addition, inputs for the model

comprises of the following indicators: (i) the number of employees, (ii) net fixed assets, and (iii)

operating expenses. To compare results between years, these variables would be discounted by the

Producer‟s price index of industrial products (year 2005 = 100) of Processing industry from 2009 –

2012 (GSO, 2014).

2 SME survey reports prepared by CIEM in 2009 and 2013 employed two different measurements. Model 1 used net value added

as output, net fixed assets and labour as inputs. Model 2 used net revenue as output, labour, net fixed assets and intermediate cost

as inputs. Therefore, these models would generate different results.


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2.3.3. Data sources

This study constructed two datasets simultaneously. One data set was extracted from the SME

surveys in year 2009, 2011 and 2013 which were conducted by Institute of Labour Science and Social

Affairs (ILSSA) – Ministry of Labour – Invalids and Social Affairs; Central Institute for Economic

Management and University of Copenhagen (Denmark) (CIEM, 2008, 2010, 2012, 2014). The other

includes listed firms collected from two of Vietnam stock exchanges in Ha Noi (HNX) and Ho Chi

Minh (HSX) operated in processing industry. Measurement variables were obtained from annual

reports for the period of 2008 – 2012.

3. RESEARCH DESIGN

Step 1: Measuring SFA-based technical efficiency by sub-industries.

Employ production frontier model (translog model) proposed by Battese & Coelli (1992) for

panel data as follows:

LnYit = LnA + α1LnKit + α2LnLit + α3LnMit + β1LnLit*LnKit + β2LnKit*LnMit + β3LnLit*LnMit +

λ11LnL2

it + λ2 LnK2it + λ3 LnM

2it + vit - uit

where:

LnYit: the natural logarithm of net revenue in the ith firm per annum;

LnKit : the natural logarithm of net fixed assets in the ith firm per annum;

LnMit: the natural logarithm of operating expenses in the ith firm per annum.

vit : random variables which are assumed to be iid N(0, δ2

v) and independent of the (Uiexp(-

ƞ(t-T))), where the ui are non-negative random variables which are assumed to account for technical

inefficiency in production and are assumed to be iid as truncation at zero of the N(µ, δ2

u), ƞ is

parameter to be estimated.

Employing LR test for (i) production function testing (Cobb Douglas or Translog) with 5% of

significance level, Null hypothesis H0: Cobb Douglas production function and (ii) Hypothesis testing

whether the existing technical efficiency with H0: There have not been technical efficiency.

Estimating maximum likelihood function (MLE) for each sub-industries overtime.

Step 2: Measuring VRS DEA-based technical efficiency by sub-industries.

Step 3: Comparing technical efficiency (SFA) between listed firms and SMEs

Employing F-Test for testing equal variances of two independent samples with null

hypothesis: Variances of technical efficiency of listed firms and SMEs are equal at 5% of significance.

If the above null hypothesis was accepted, hereafter, t-test for two samples assuming equal

variances will have employed. Null hypothesis H0: Mean of technical efficiency of listed firms is

larger than SMEs with 5% of significance level.

Step 4: Scenario Analysis

In previous studies about SMEs‟ technical efficiency, using input and output variables was a little

different from the existing study (Batra & Tan, 2003; Le & Harvie, 2010; Nguyễn Khắc Minh & et.

al., 2007; Trần Thị Bích & et. al., 2008; Võ Hồng Đức & Lê Hoàng Long, 2014). Therefore, input and

output variables in original model were respectively replaced to see any changes of technical

efficiency with different scenarios. Accordingly, Operating expenses variable was replaced by

Material value variable, Net revenue was replaced by the gross output.


305

4. RESULTS AND DISCUSSION

4.1. Sample description

After a review of the two sets of data, due to the amount of data for both SMEs and listed

companies, this study decided to choose following sub-industries for analysis. (1) Food-beverage; (2)

Chemical-pharmaceutical manufacturing; (3) Products made of rubber, plastic and other non-metal

and (4) Machinery & equipment manufacturing

Table 3. Sample Descriptions

Year Observations Measured variables

Y K M L

A. SMEs

2008 735 5,088 3575 226 17,026

2009 755 5,029 8,572 335 14,887

2010 755 6,009 9,336 335 14,887

2011 755 6,486 8,368 452 15,656

2012 759 6,755 3,258 452 15,656

Total 3,759 29,367 33,109 1,800 78,112

B. Listed Firms

2008 98 92,646 33,951 8,108 110,298

2009 116 108,595 40,781 10,017 125,406

2010 151 162,090 65,581 14,578 177,411

2011 162 217,372 81,478 17,953 179,847

2012 172 243,953 92,048 22,284 184,862

Total 699 824,656 313,839 72,940 777,824

Source: Compiled by authors.

Notes: Y – Net revenue (Mil. VND); K – Net fixed assets (Mil. VND); M – Operating

expenses (Mil. VND) and L – Labour (The number of employee).

4.2. Technical efficiency

Table 4 below presents that SMEs‟ efficiency level was quite low, averaged 52% - 54%.

Meanwhile, listed firms in the same sub-industries had outperformed with this level of 80% on

average with the exception to Chemical- Pharmaceutical manufacturing industry.

Table 4. SFA-based Technical Efficiency

No Sub-industries Year

Average 2008 2009 2010 2011 2012

1 Food & Beverage

SMEs 0,5176 0,5160 0,5215 0,5284 0,5338 0,5235

Listed

firms 0,8944 0,8977 0,9022 0,9062 0,9098 0,9032


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2

Chemical -

Pharmaceutical

manufacturing

SMEs 0,5556 0,5360 0,5245 0,5327 0,5213 0,5335

Listed

firms 0,8249 0,7917 0,7824 0,7740 0,7677 0,7841

3

Products made of

rubber, plastic &

other non-metal

SMEs 0,4131 0,4840 0,5483 0,6064 0,6637 0,5423

Listed

firms 0,9087 0,8933 0,8786 0,8533 0,8224 0,8642

4

Machinery &

Equipment

manufacturing

SMEs 0,4170 0,4776 0,5353 0,5971 0,6500 0,5325

Listed

firms 0,9717 0,9522 0,9188 0,8668 0,7919 0,8778

Source: Authors’ estimates

In terms of trend, while Food - Beverage and Chemical - Pharmaceutical manufacturing

industries face stable, but declining in relation to their level of efficiency, the remaining two industries,

as presented in Table 4 above, exhibit an improving trend of the efficiency. In particular, for the two

industries Products made of rubber, plastic and non-metal and Machinery and Equipment

Manufacturing, technical efficiency of SMEs was improving across years while listed companies had

high level of efficiency, on average, but they then showed a downward trend. Remarkably, after four

years, listed firms in Machinery and Equipment Manufacturing increased its level of efficiency by an

approximate 19% of efficiency (2012/2008).

Table 5. DEA-based Technical Efficiency

No Sub-industries Year

Average 2008 2009 2010 2011 2012

1 Food &

Beverage

SMEs 0,341 0,397 0,396 0,345 0,366 0,37

Listed firms 0,599 0,614 0,438 0,442 0,499 0,50

2

Chemical -

Pharmaceutical

manufacturing

SMEs 0,566 0,500 0,477 0,656 0,648 0,58

Listed firms 0,844 0,732 0,744 0,715 0,727 0,74

3

Products made

of rubber,

plastic & other

non-metal

SMEs 0,181 0,220 0,209 0,306 0,308 0,24

Listed firms 0,851 0,839 0,722 0,725 0,771 0,77

4

Machinery &

Equipment

Manufacturing

SMEs 0,360 0,505 0,474 0,559 0,554 0,49

Listed firms 0,984 0,962 0,942 0,913 0,898 0,94

Source: Authors’ estimates

Under the VRS assumption, technical efficiency measured by DEA indicated that listed firms

managed cost better than SMEs. Although, efficiency of SME have been improving over time even

though they are still, in general, on a low ground, especially for Products made of rubber, plastic and

non-metal industry.

4.3. Research hypothesis testing

This study employs technical efficiency obtained from the SFA approach in order to test

hypothesis. Result derived from F-test, two independent samples showed that there was not statistical


307

evidence of variance difference at the 5% of significance in all sub-industries. Continuously, t-test

(one tail), two independent samples, assuming equal variance with statistical hypothesis as follows:

Hypothesis H01: Technical efficiency mean of listed firms is larger than SMEs in Food - Beverage.

Hypothesis H02: Technical efficiency mean of listed firms is larger than SMEs in Chemical,

Pharmaceutical manufacturing.

Hypothesis H03: Technical efficiency mean of listed firms is larger than SMEs in sub-industry of

products made of rubber, plastic and other non-metal.

Hypothesis H04: Technical efficiency mean of listed firms is larger than SMEs in sub-industry of

Machinery & Equipment manufacturing.

Table 6. t-Test

Food&Beverage Industry 2008 2009 2010 2011 2012

Listed firms SMEs Listed firms

SMEs Listed firms

SMEs Listed firms

SMEs Listed firms

SMEs

Mean 0.894 0.517 0.897 0.516 0.902 0.521 0.906 0.528 0.909 0.533

Variance 0.001 0.017 0.001 0.016 0.001 0.016 0.001 0.016 0.001 0.016

Obs 68 391 78 436 103 436 113 419 119 419

t Stat 23.27

26.01

30.03

31.09

32

t Critical one-tail -1.648

-1.647

-1.647

-1.647

-1.64

Decision Accepted H01 Accepted H01 Accepted H01 Accepted H01 Accepted H01

Chemical - Pharmaceutical manufacturing Industry

Mean 0.824 0.555 0.791 0.536 0.782 0.524 0.774 0.532 0.767 0.522

Variance 0.004 0.018 0.007 0.018 0.007 0.019 0.007 0.019 0.007 0.019

Obs 7 41 12 37 13 37 13 50 14 54

t Stat 5.05

6.12

6.31

6.05

6.37


-1.677

-1.677

-1.67

-1.668


Products made of rubber, plastic, other non-metal Industry

Mean 0.908 0.413 0.893 0.483 0.878 0.548 0.853 0.606 0.822 0.663

Variance 0.002 0.02 0.002 0.019 0.003 0.018 0.005 0.015 0.006 0.013

Obs 15 234 17 214 25 214 25 223 30 223

t Stat 13.26

11.86

12.21

9.77

7.52


-1.651

-1.651

-1.65

-1.65


Machinery & Equipment Manufacturing Industry

Mean 0.972 0.417 0.952 0.477 0.918 0.535 0.866 0.597 0.791 0.65

Variance 0 0.043 0 0.041 0 0.038 0 0.034 0.003 0.029

Obs 8 69 9 68 10 68 11 63 9 63

t Stat 7.54

6.95

6.16

4.81

2.48 7.54


-1.665

-1.665

-1.666

-1.666


Source: Authors’ estimates.

Notes: * - 5% of Statistical significance.


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So, with 5% of statistical significant level, in context of economic crisis, listed firms had good

performance compared to the smaller ones within sub-industries.

4.4. Scenario Analysis

The original efficiency model reflected firm‟s performance together with technical efficiency

approach. In this section, Net fixed assets, the number of employees remains unchanged whereas new

variables are added, including Material (to substitute for operating expenses) and Gross output (to

substitute for Net revenue). This model aims to assess production performance of SMEs which

showed the capacity in utilizing inputs to generate output value.

Table 7. SFA-based Productive Efficiency of SMEs

No. Sub-industries Year

2008 2009 2010 2011 2012

1 Food - Beverage 0.8203 0.8182 0.8168 0.8151 0.8136

2

Chemical -

Pharmaceutical

manufacturing

0.8038 0.8091 0.8145 0.8209 0.8261

3 Products made of rubber, plastic, other non-metal

0.7850 0.7947 0.8018 0.8074 0.8141

4 Machinery & Equipment Manufacturing

0.7858 0.8114 0.8336 0.8519 0.8699

Sources: Authors’ estimates.

Technical efficiency index of SMEs after substituting two new variables in the original model

resulted in a high performance (min score 0.78, max score 0.86) for all sub-industries. The difference

between original and adjustment model showed that SMEs faced difficulties in selling their goods or

services.

5. SOME CONCLUDING REMARKS AND IMPLICATIONS

This study is conducted in response to the need of understanding a difference in efficiency level

by the SMEs and listed firms in Vietnam for the last 10 years or so. Findings from this study confirm

that the relatively low technical efficiency level of SMEs was found in the four sub-industries of

processing industry, ranged from 52% to 54% (using the SFA approach). Meanwhile, listed firm

showed their outperformance at the relatively high efficiency level (80% on average). The results

measured by DEA under VSR assumption stated that among SMEs, firms in the Chemical and

Pharmaceutical Manufacturing industry were more efficient than the remaining small firms, reached

58.06% during the research period. The lowest efficiency level belongs to firms operating in the

Products made of rubber, plastic and non-metal sub-industry with the average of 24%. As a result,

the empirical findings from this study confirm that even with the highest efficient SME firms, they are

required to increase up to 41.94% their operations to achieve fully relative technical efficiency. For

listed firms, all sub-industries had average efficiency over 74%, except for firms operating in the

Food-Beverage industry (50%). Testing for difference of technical efficiency mean score (using the

SFA approach) between SMEs and listed companies found no statistical evidence to confirm that

SMEs performed better than listed ones within sub-industries at the 5 percent of significance.


309

However, using the two measurement methods (being the DEA and the SFA), findings from this study

confirm that technical efficiency of SMEs were improving albeit still at a very low level whereas

efficiency level of the listed companies was deteriorating over the research period.

Further analysis was conducted to construct an alternative efficiency model for SMEs in which

Materials; Net fixed assets; and Labour are added as inputs. Output was Gross output. Stochastic

frontier analysis (SFA) was employed to obtain production efficiency score of SMEs. Most sub-

industries achieved over 80% of efficiency level during research period. This finding is in contrast

with the findings obtained from original model in which SMEs are found to well manage their

producing operation, but business performance did not meet expectation. The findings from his study

are consistent those found from previous studies of Alvarez &Crespi (2003); C.-H. Yang &Chen

(2009) and Taymaz (2005) in relation to difference of the technical efficiency between large firms and

SMEs.

The implications from this study are that the SMEs in Vietnam was less efficient than listed firms

and that for better future of the sectors, SMEs need to promote sales and marketing activities and

manage costs efficiently to achieve a better performance outcome. In particular, SMEs should manage

well purchasing costs, reduce abundant expenses arisen within firms‟ operation process and try to

delay for payment. In the other hand, promoting sales and marketing programs such as sales-off or

high discount rate for pre-paid orders will help them improve business performance. Furthermore, the

firm owners need to search, get benefits from supportive policies for SMEs funded by the State or

local authorities for capital funding, technology, training programs and join local enterprise

associations to expand relationship, look for new opportunities or even learn managerial experiences

from the others.

State agencies should effectively implement supportive programs under Decree 56/2009/NĐ-CP

approved by Prime Minister for SMEs development, especially focusing on assessing to credit,

regularly organizing promotion events which help firms to promote their products and seek customers.

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Antecedents for the Sustainable Development of Vietnam Retail Market

Tran Tuan Anh

Faculty of Business Administration, HCHC Open University


ABSTRACT

In recent years, Vietnam retail market has significantly grown. The retail market size has been increasing continuously and modern retail formats have been developing widely, especially in urban areas. The potential development of the Vietnam retail market is still abundant. The objective of this study is to evaluate antecedents for the sustainable development of Vietnam retail market. Based on the theory of retail market development, particularly the environmental theory combined with data analysis of the retail market size in the period 1990 - 2014 and data on the private consumption of Vietnamese consumer in the period 2002 - 2012, the paper accesses the development conditions of Vietnam retail market. Research results show that the growth potential of retail market size and consumer spending are important prerequisites for the sustainable development of Vietnam retail market in the future.

Keywords: retail market, sustainable development.

1. INTRODUCTION

In parallel with the process of economic development in Vietnam, Vietnam's retail market grew rapidly and became one of the attractive markets in Asia Pacific. According to the Vietnam General Statistics Office, the average growth rate of total annual retail sales in the domestic market reached 16.3% in the period 2000 to 2010. Total retail sales of goods in 2010 was 1254.2 trillion VND compared with 183.8 trillion VND in 2000, which has increased about 6 times in 10 years. In the period 2010 to 2014, the average growth rate of the retail market in Vietnam was approximately 14.5%. By 2014, this value reached 2,216 trillion VND, grew by around 87% compared to 2010. Besides the high growth rate, the contribution rate of the total retail sales of goods in total national product is high for years, over 70% in the period 2010-2014. In 2013, this rate reached 72.2% and was estimated at 78.8% in 2014 (GSO, 2014). Compared with other countries in the ASEAN region, this ratio is also outstanding. In Singapore, the total retail sales were 55.9% of GDP. Meanwhile, this figure was 58.2% in Malaysia and Thailand was 67.7% (Kearney, 2011). Obviously, the Vietnam retail market proved to excel in two characteristics: high growth over a long period and the proportion of total retail sales of goods to GDP was also high when compared with countries in the region. According to experts in the retail sector, the growth rate of retail market size in Vietnam may reach an average of about 18-20% annually in the coming years (Association of Vietnam Retailers, 2014).

The growth in the size of the retail market in Vietnam has led to a qualitative change in the structure of the market. Thanks to the size of the retail market in constant growth for a long time, the modern retail forms have been formed and developed. Previously, goods distribution networks for businesses were primarily traditional retail channels, including wet markets, small shops. Recently, thanks to the formation and development of supermarket chains, commercial centers, convenience stores, merchandise businesses have been moving away from traditional distribution to the modern distribution network, especially in major cities like Hanoi, Ho Chi Minh City, Can Tho City, Da Nang City and the urban centers of the provinces and cities nationwide. By the end of 2013, according to the Vietnam Retailers Association, the retail network in the country had about 9,000 wet markets, 750 supermarkets and 130 shopping centers (Vietnam Retailers Association, 2014). According to the information center of the Ministry of Industry and Trade, retail sales through modern retail channel accounted for 18% of retail sales in the country (Ministry of Industry and Trade, 2012). With a population of about 90 million, the growth of the purchasing power of


313

consumers, and thanks to the stability of the economic environment, Vietnam retail market possesses the prerequisites for sustainable development.


According to the researchers from the schools of environmental theory, the development of retail

market of a country depends on environmental factors that retail markets are operating. In particular,

economic factors, population, lifestyles and the development of science and technology have a great

influence on the development of retail market (Davies, 1998).

The economic factors of retail environment are divided into 2 groups:

Macroeconomics factors: GDP growth, inflation, unemployment and integration with the world

economy.

Microeconomic factors: supply and demand of goods, competition in the market.

Demographic factors affect the development of the retail market through purchasing power impacts. A

country with a large population size as Vietnam possesses favorable conditions for the development of the

retail market. Besides population size, population structure also affects consumer spending on retail market.

A country with a young population structure has the advantage of providing workforce for the economy.

Young consumers with high spending are important resource for the development of the retail market. The

development of the retail market can be studied under the 2 sides: the supply side, i.e. the enterprises

engaged in the retail market and the demand side, i.e. spending by consumers for final consumption

purposes. The research on the demand side of the retail market makes assessing the development potential

of the market based on the growth potential of consumer spending of households.

3. DATA ANALYSIS AND DISCUSSION

The development of the retail market in Vietnam in the coming time depends on the growth potential

of the retail market size and consumer spending. Data on retail market size in the period 1990 - 2014 and

data on consumer spending in the period 2002 - 2012 are used for forecasting the potential of the retail

market by 2020.

3.1. Forecast of retail market size growth

Total retail sales of goods reflect the size of the retail market. On supply aspect, it is the total retail

turnover of enterprises engaging in retail networks. In terms of demand, it reflects the spending on final

consumption of the population, also known as residential consumers.

Unit: Trillion VND

Source: GSO

Figure 1. Vietnam retail market size in period of 2004 - 2014


314

The scale of Vietnam retail market in 2014 was 2,216 trillion. Retail market size increased 12.7% compared to 2013. Compared to 2004, the size of Vietnam retail market increased more than 7 times within 11 years. Thus, in the period 2004 - 2014, the average growth rate of retail market size of Vietnam was 18.6% per year. This is an impressive growth rate comparing with the less-than-2-figures retail market growth rate of other countries in the ASEAN region in the same period. For example, the growth of the retail market in Thailand in 2014 was 9.4%. In Malaysia, it was 4.5% in 2014.

ARIMA model (1,2,0) was used with the reliability of the forecast of 95% and 90%, we had a forecast result of Vietnam retail market size in 2015 - 2020 in Table 1.

Table 1. Forecast result of Vietnam retail market size growth in 2015 – 2020

Unit: Trillion VND

Year 2015 2016 2017 2018 2019 2020

Forecast point 2453.5 2696.9 2937.2 3179.2 3420.4 3661.9

Lo 95 2347.7 2507.6 2634.5 2752.2 2853.0 2942.8

Hi 95 2559.2 2886.2 3240.1 3606.3 3987.7 4381.1

Source: Data analysis with software R

Lo 95: The lower limit of the forecast reliability 95%.

Hi 95: The upper limit of the forecast reliability 95%.

Forecast results show that the size of retail market in Vietnam in 2020 will increase 65% comparing with 2014.

3.2. Growth forecast for consumer spending

Spending by consumers is an important indicator of the consumers buying power in the retail market. We can use the forecast growth of consumer spending to assess the development potential of the retail market under main categories of consumer goods. The categories forecasted in this section include:

Food

Foodstuff

Garments and footwear

Household appliances

Food

Food in Vietnam is mainly rice, instant noodles, and dried noodles. According to surveys of General Statistics Office on consumer expenditures for food, spending on food in 2002 – 2012 of the whole country was growing at an average rate of 11.6% per year. Monthly food spending per capita in 2012 was 131 thousand VND, increasing 27.2% comparing with 2010.

Table 2. Monthly food spending per capita in 2002-2012 nationwide

Unit: Thousand VND

Year 2002 2004 2006 2008 2010 2012

Food spending 40 46 54 90 103 131

Growth 15.0% 17.4% 66.7% 14.4% 27.2%

Source: Calculations from GSO data


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Spending on food in period 2002 - 2012 in urban areas grew at an average rate of 10.9% / year. The

monthly spending per capita in urban areas in 2012 was 125 thousand VND, increasing 26.3% compared to

2010.

To forecast the monthly food expenditure per capita, we use the linear trend function. Estimating by

using ordinary least squares method with minimal expenditure data string for food in the whole country, we

have the following forecast equation:

Y = 9.4571 t – 18903

The determination coefficient of estimate R2 = 0.9458. This ratio shows 94.58% data of time series

was explained by the trend function. This result shows that the estimate forecast equation is appropriate to

conduct the forecast of monthly food expenditure per capita in the whole country.

Unit: Thousand VND


Figure 2. Regression estimates of trend function for monthly food spending per capita

The results predicted by the method of linear trend function for monthly food spending per capita in

the whole country, including urban and rural areas from 2016 to 2020 are presented in Table 3:

Table 3. Forecast on monthly food spending per capita

Unit: Thousand VND

Year 2016 2018 2020

The whole country 163 181 200

Growth 13.2% 11.0% 10.5%

Source: Forecast result

3.3. Foodstuff

Foodstuff in Vietnam is mainly meat, shrimp, fish, eggs, sugar, and sauces. Surveys from Vietnam

General Statistic Office (GSO) showed that spending on foodstuff in 2002-2012 increased averagely 20.2%

per annum nationwide. Monthly spending on foodstuff per capita in 2012 was 441 thousand dong,

increasing 40.4% comparing with 2010.


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Table 4. Monthly spending on foodstuff per capita in 2002-2012 nationwide

Unit: Thousand VND

Year 2002 2004 2006 2008 2010 2012

Spending on foodstuff 77 99 129 193 314 441

Growth 28.6% 30.3% 49.6% 62.7% 40.4%


Spending on foodstuff in period 2002 - 2012 in urban areas grew at an average rate of 17.6% per year.

The monthly spending per capita in urban areas in 2012 was 582 thousand dong, increasing 33.5%

compared to 2010.

To forecast the monthly foodstuff expenditure per capita, we use exponential trend:

Estimating by using ordinary least squares method with minimal expenditure data string for foodstuff

in the whole country, we have the following forecast equation:

Y = 3E-155 e0,1799t


was explained by the trend function. This result shows that the estimate forecast equation is appropriate to

conduct the forecast of monthly food expenditure per capita in the whole country.

Unit: Thousand VND


Figure 3. Regression estimates of trend function for monthly foodstuff spending per capita

The results predicted by the method of exponential trend function for monthly foodstuff spending per

capita in the whole country, including urban and rural areas from 2016 to 2020 are presented in Table 5.


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Table 5. Forecast on monthly foodstuff spending per capita

Unit: Thousand VND

Year 2016 2018 2020


Growth 43.3%


3.4. Garments and footwear

According to surveys of GSO on consumer expenditures, spending on garments and footwear in 2002 – 2012 of the whole country was growing at an average rate of 16.0% per year. Monthly spending per capita in 2012 was 53 thousand VND, increasing 32.5% comparing with 2010.

Table 6. Monthly spending on garments and footwear per capita in 2002-2012 nationwide

Unit: Thousand VND

Year 2002 2004 2006 2008 2010 2012

Spending on garments and footwear 13 16 21 30 40 53

Growth 23.1% 31.3% 42.9% 33.3% 32.5%


To forecast the monthly garment and footwear expenditure per capita, we use the exponential trend function:

Estimating by using ordinary least squares method with minimal expenditure data string for garments and footwear in the whole country, we have the following forecast equation:

Y = 2E-125 e0,1447t


was explained by the trend function. This result shows that the estimate forecast equation is appropriate to conduct the forecast of monthly garment and footwear expenditure per capita in the whole country.

Unit: Thousand VND


Figure 4. Regression estimates of trend function for monthly garment and footwear spending per capita


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The results predicted by the method of exponential trend function for monthly garment and footwear spending per capita in the whole country, including urban and rural areas from 2016 to 2020 are presented in Table 7.

Table 7. Forecast on monthly garment and footwear spending per capita

Unit: Thousand VND

Year 2016 2018 2020


Growth 36.6%


3.5. Household appliances

Household appliances mainly include electric appliances, crockery, pots and pans, thermos. According to surveys of consumer expenditures of the General Statistics Office, spending on household appliances in period 2002 - 2012 of the whole country grew at an average rate of 15.2% per year. Monthly spending on household appliances per capita in 2012 was 97 thousand VND, increasing 9.0% compared to 2010.

Table 8. Monthly spending on household appliances per capita in 2002-2012 nationwide

Unit: Thousand VND

Year 2002 2004 2006 2008 2010 2012

Spending on household appliances 22 33 43 59 89 97

Growth 50.0% 30.3% 37.2% 50.8% 9.0%


To forecast the monthly household appliances expenditure per capita, we use the exponential trend function:

Estimating by using ordinary least squares method with minimal expenditure data string for household appliances in the whole country, we have the following forecast equation:

Y = 2E-132 e0,153t


was explained by the trend function. This result shows that the estimate forecast equation is appropriate to conduct the forecast of monthly household appliances expenditure per capita in the whole country.

Unit: Thousand VND


Figure 5. Regression estimates of trend function for monthly household appliances spending per capita


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The results predicted by the method of exponential trend function for monthly household appliances

spending per capita in the whole country, including urban and rural areas from 2016 to 2020 are presented

in Table 9:

Table 9. Forecast on monthly household appliances spending per capita

Unit: Thousand VND

Year 2016 2018 2020


Growth 35.8%


4. CONCLUSION

Results from research on the growth potential of the retail market in Vietnam and consumer spending

forecast showed positive preconditions for the growth of the retail market in Vietnam. The spending on

major items in the retail market such as food, foodstuff, garments, footwear and household appliances are

forecasted with high growth rates. The growth of consumer spending is an important prerequisite for the

development of the retail market. The macroeconomic factors in Vietnam are in the recovery phase after

the turmoil and gradually regain its growth momentum. Economic growth is enabling people to improve

incomes and thereby increase consumer spending. With a population of about 90 million people and a

young population structure, the retail market in Vietnam has strong and stable demands. These are

important prerequisites for the development of Vietnam retail market in the coming years.

REFERENCES

ADB, (2015), ASEAN Development Outlook 2015 Report. Philippines: Asian Development Bank.

Association of Vietnam Retailers. (2011). Overview: Vietnam retail distribution network. Hanoi: Association of

Vietnam Retailers.

Association of Vietnam Retailers. (2014). International experience of the retail distribution network. Hanoi:

Association of Vietnam Retailers

Center for Information of Industry and Commerce, Ministry of Industry and Trade. (2010). Domestic market -

potential still open. Hanoi: Industry and Trade publisher.

Center for Information of Industry and Commerce, Ministry of Industry and Trade. (2010). Promoting trade and

domestic demand, situation and solutions. Hanoi: Industry and Trade publisher.

Damodar, N. G., Dawn C. P. (2009), Basic Econometrics. NY: Mc Graw – Hill.

Davies K., (1998), Applying evolutionary models to the retail sector, The international review of retail, Distribution

and Consumer Research.

Euromonitor. (2013). Indonesia Retailers: Organizing the shelf, filling the shopping basket. Indonesia: Euromonitor.

General Statistics Office. (2013), Statistical Yearbook. Hanoi: Statistics publisher.

Goodness, C., Mehmet, B., Ragan, G., Anandamayee, M. (2013), Forecasting Aggregate Retail Sales: The Case of

South Africa, Department of Economics, University of Pretoria.

Goodness, C., Mehmet, B., Ragan, G., Anandamayee, M. (2013), Forecasting Aggregate Retail Sales: The Case of

South Africa, Department of Economics, University of Pretoria.

Kearney, A. T. (2011). Expanding opportunities for global retailers, Chicago: A.T. Kearney.


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Kohli, R. (2011), Organized Retailing in India: Issue and outlook, Columbia University, retrieved from

http://ssrn.com/abstract=2049901.

Ministry of Industry and Trade. (2012). Approval planning for network development of supermarkets, commercial

centers throughout the country until 2020 and vision for 2030. Decision No 6184/QĐ-BCT, date 19/10/2012.

Neilsen. (2011). The report on retail sales in Vietnam, Hanoi: The Neilsen company.

Nguyen Thi Dieu Chi. (2010), “Retail distribution system of Vietnam goods in the international economic integration

progress”. Journal of Information and Economic Forecast, No54.

Satyajit, R. (2010), “Foreign Direct Investment in Retial Market in Indian: Some Issues and Challenges”,

ResearchJournali’s Journal of Economics, ISSN 2347-8233.

Tran Tuan Anh. (2015), Assessing the Development Potential of Modern Retail in Vietnam, Journal of Science, ISSN

1859-3453.


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A Good Corporate Citizen & Its Expected Return: A Case Study of the ASEAN 5

Thach Ngoc Pham

The Vietnam-Netherlands Programme

University of Economics, Ho Chi Minh City, Vietnam

Duc Hong Vo

The Economic Regulation Authority, Australia

Open University of Ho Chi Minh City, Vietnam

ABSTRACT

In this integrated market, multination corporations have operated within the boundary of the so-called corporate

social responsibility to ensure that their operations are sustainable. Together with its ultimate objective of profit

maximization, a modern firm also portrays itself as a socially responsible entity. In such a constraint, a fair rate of

return serving as a mean and a destination for both multinational and local corporations has attracted attention from

both academia and practitioners.

This study was conducted to estimate the equity beta, a key input of the Sharpe-Lintner capital asset pricing

model, which then can be used to determine an expected return on equity. Five different samples for the ASEAN 5,

including Vietnam, Thailand, Philippines, Malaysia, and Singapore for the period of more than 9 years (from 2007 to

2015 inclusive) are used in this study. A new approach (a Quantile regression approach), together with the other two

traditional approaches (the OLS and the LAD), have been used to estimate the equity beta for these listed firms in this

study. Under all approaches, estimates of beta indicate that the appropriate value of the equity beta for companies

operating in the energy businesses in the ASEAN 5 is approximately 0.8, which is still below the market beta of the

entire market. This finding provides an evidence to confirm that a level of risk faced by a company in the energy sector

in the ASEAN 5 is below the average of the level of risk for the entire market.

Keywords: a good socially responsible corporate, equity beta, Sharpe-Lintner CAPM, quantile regression,

ASEAN 5.

1. INTRODUCTION

In this integrated market, multination corporations have operated within the boundary of the so-called

corporate social responsibility to ensure that their operations are sustainable. Together with its ultimate

objective of profit maximization, a modern firm also portrays itself as a socially responsible entity which

cares the local community, economy, and local environment in which it operates. Within these constraints,

making profits by all means is no longer a socially acceptable altitude which can be easily tolerated. In

such an environment, a fair rate of return serves as a mean and a destination for both multinational and

local corporations.

Vietnam, together with other ASEAN economies, are going to be the next young Tigers, except

Singapore who currently is, in the Asian region for the next decade or so. In achieving this dream,

privatization and/or equitisation of the government-owned businesses, particular in the capital intensive

energy industry including energy, water, electricity, and public transport, is considered unavoidable to

ensure that scarce resources are best utilized. The presence of the government ownership in these state-


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owned companies is very significant. This presence will limit the government‟s ability to meet its other

socio-economical objectives and/or to under-invest in these public utilities companies. However, selling

these assets to the private sector requires an appropriate pricing to ensure that these assets will raise fair

amount of money for the public. In a financial term, the government is required to determine its appropriate

expected return on equity for being present in these public utilities businesses in any offer of selling their

assets. This expected return on equity can be used to confirm whether or not current government owned

businesses in the same or similar industry are efficient in running their businesses and/or to determine a fair

price of the assets (the companies) should the Government decide to privatize and/or equitise these assets.

In addition, as a complement rather than a substitute with the above, some of the ASEAN countries

with government ownership are operating in a monopoly environment in which the market power can be

easily exercised by these monopolists to raise the price of goods and services provided at the expense of the

local people. In such an environment, independent regulators such as those in Australia including the

Economic Regulation Authority and the Australian Energy Regulatory are required to allow the

monopolists to earn a reasonable rate of return.

Estimating a return on equity is an extremely complicated task and there is no consensus so far among

academics and practitioners. One of the important elements to evaluate the efficiency of enterprises and to

provide evidence whether or not the government should privatize a particular enterprise within the public

utilities industry is the expected return which is generated by the company in the future.

Among all approaches, the first ever capital asset pricing model (CAPM), Sharpe-Lintner CAPM,

introduced by Sharpe (1964) and Lintner (1965), has still been widely used by policymakers including

regulators from countries around the world. In particular, according to Mckenzie and Partington (2014),

regulators in Australia, Germany, New Zealand, USA, Canada and UK are currently using this CAPM to

estimate an expected return adopted in their regulatory decisions (see Appendix 1 for details).

A key component of this CAPM is the equity beta. In order to estimate the equity beta, most of the

previous empirical studies have adopted the standard Ordinary Least Square (OLS) and Least Absolute

Deviation (LAD) to estimate the beta coefficient in the CAPM model. It has been argued for a long time

that estimating beta suffers instability of the estimates. In addition, extreme outliers in the sample have been

considered as a key issue for any empirical estimate of beta. In this context, this paper argues that Quantile

Regression approach may be useful in minimizing the effects of outliers in the sample. This paper aims to

provide the estimation of beta for individual company as well as the portfolio in the Utilities Industry in the

ASEAN 5 including Vietnam, Malaysia, Thailand, Philippines, and Singapore in the context of using a new

approach, the Quantile Regression approach.

The structure of the paper is as follows. Following this Introduction, Section 2 presents a brief

summary of literature relating to the CAPM and empirical studies on beta estimation. Data description is

presented in Section 3. Section 4 presents results and discussions. This paper is concluded by some main

conclusions and policy implications in Section 5.


2.1. The Capital Asset Pricing Model

The Capital Asset Pricing Model (CAPM), introduced by Sharpe (1964) and Lintner (1965) describes

the relationship between the expected return and risk. In this model, the expected return of a security (an

asset) is given by the following equation:


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Where E(ri) is the expected return of security i, rf is the risk free rate, rm is the expected return of the

market portfolio, [r , ]

[ ]

i mi

m

Cor r

Var r is the beta coefficient of security i. Moreover, is defined as the

profitability volatility measurement, and therefore it is considered as security‟s risk measurement.

The CAPM indicates that the expected return of security is positively correlated with its Beta coefficient. Assuming that the capital market is efficient and unsystematic risk can be reduced completely through diversification, the return of a security is only affected by its systematic risk. The higher the Beta coefficient is, the riskier the security is. Therefore, investors tend to require a higher return to compensate the higher risk (or high Beta).

2.2. Current approaches to estimate equity beta

The systematic risk, which cannot be managed through portfolio diversification, can be obtained from the following regression:

(1)

In which, the residual is

In 2009, Associate Professor Henry from the University of Melbourne, Australia established his work in estimating equity beta for the Australian Utilities regulation as an advice to the Australian Competition and Consumer Commission (Henry, 2009). Five years later, Henry and Street (2014) updated the estimates. In these two studies, the OLS and LAD approaches were utilized.

Vo, Mero, and Gellard (2014) re-examined the estimates of beta in the Australian regulatory context. In their study, a data set is updated in comparison with Henry‟s study in 2009. In addition, another key contribution from Vo et al. (2014) study is that two new approaches were added in their study: (i) the Maximum Likelihood robust theory (MM) and (ii) the Theil Sen methodology. For each of these new approaches, the authors argued that among the robust regression estimators currently available, the MM regression has the highest breakdown point (50 percent) and high statistical efficiency (95 percent) while the Theil Sen estimator is proposed by Fabozzi (2013) in response to the OLS estimator being acutely sensitive to outliers.

We acknowledge that the two new approaches adopted in Vo et al. (2014) study were a choice of different, arguably more advanced, econometric techniques. However, for the purpose of this paper, these two new approaches are not considered. Instead, we consider that it is even more appropriate to introduce a new approach, a Quantile Regression, which is best known for its capacity to limit the effects of outliers on the estimates. In addition, other two traditional approaches, the OLS and the LAD, are also in use in this study.

2.1.1. Ordinary Least Squares

The OLS method estimates the i and i in the equation (1) by minimizing the sum of squared residuals:

The coefficient from OLS indicates the average relationship between the regressor and the outcome variable based on the conditional mean function.


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2.1.2. Least Absolute Deviations

In the LAD approach, the absolute value of residuals is minimized to achieve the estimates from

equation (1) as follows:

Since the sum of the absolute value of residuals is minimized rather than minimizing the sum of

squares, the estimators obtained from the LAD method may alleviate the effect of outliers.

3. METHODOLOGY AND DATA

3.1. Data

All relevant data for all 5 ASEAN countries in this empirical study are collected from Bloomberg. A

number of companies classified as “Energy” varies from country to country. For example, as presented in

Table 1 below, Vietnam has 28 listed firms classified as Energy whereas Singapore has only 8 firms.

Research period also varies from country to country depending on an availability of the relevant data

required for this study. The sample of companies in each of the 5 countries, known as the ASEAN 5, is

summarized in the Appendix 2.

Table 1. Listed utilities companies in the sample

Country Number of company Market index From To

Vietnam 28 VNIndex 13/01/2006 31/07/2015

Malaysia 12 FBMKLCI Index 15/07/2005 31/07/2015

The Philippines 12 PCOMP Index 15/07/2005 31/07/2015

Singapore 8 FSSTI Index 15/07/2005 31/07/2015

Thailand 12 SET Index 15/07/2005 31/07/2015


The market return volatility for each of the above country in the ASEAN 5 is measured by its relevant

stock market index as presented in Table 1. For example, the stock market index for Vietnam is the

Vietnam Stock Index, the VN Index.

3.2. Methodology

3.2.1. Return and return period

Equation 1 can be run using the raw return of stocks or the excess return which is the difference

between the raw return of stock and the risk free rate of return. It is argued that the raw return of stock is

applied widely in the empirical studies. On the other hand, the excess return is also considered. Suppose the

risk free rate does not fluctuate significantly, the excess return may be obtained by transforming the data

Ri, t = ri,t – rf,t, Rm,t = rm,t – rf,t and equity beta is estimated from:

(2a)

Or


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(2b)

Subtracting rf,t from both sides of (2b) and rearranging yields (3):

(3)

In the circumstances when the variance of risk free rate is low as the intercept term, (1 - i)E(rf,t) = ,

the Beta yielded from equation (3) should be consistent with those estimated from equation (1) (Henry and

Street, 2014). Furthermore, no assumptions about possible variations in chosen risk free rate is required

when the raw returns instead of the excess returns are used. For these reasons, this paper employs the raw

returns for its simplicity.

The return period of stock or market is calculated at different frequency such as daily, weekly,

monthly, etc. Henry and Street (2014) argued that weekly frequency of return should be used to avoid both

the noisy nature in daily data and unreliable estimators from monthly data due to too few observations.

Therefore, data on the weekly return of stocks are used in this paper.

The weekly stock return is measured by the difference between a closing price on Fridays and an

opening price on Monday in a same week. Since stock trading does not happen on Saturdays and Sundays,

the closing price of Friday of the week before is used instead of an opening price on Monday. This weekly

return represents the change in stock price during a particular week. In general, the stock return in period t

can be calculated as follows:

Similarly, the weekly market return is computed using the VNI Index.

A new approach – Quantile Regression

In relation to a validity of a Quantile Regression approach, it has been argued that:

“On the average” has never been a satisfactory statement with which to conclude a study on

heterogeneous populations. Characterization of the conditional mean constitutes only a limited aspect of

possibly more extensive changes involving the entire distribution. Buchinsky (1994)

When all of the OLS assumptions are satisfied, the coefficient estimated from (1) is the best linear

unbiased estimator. It indicates the average relationship between the regressor and the outcome variable

based on the conditional mean function. Indeed, using OLS method leads to some attractive statistical

properties of estimators which are straightforward to interpret and easy to calculate (Hao and Naiman

(2007)).

However, the OLS estimator has some limitations as follows:

The strict assumptions cannot always be met in reality. In particular, the homoscedasticity

assumption is likely to fail in estimating the return on equity. Also, the heavy-tailed distributions

commonly occur in reality.

The conditional mean attracts the researchers‟ attention into the central location and steers them

away the whole distribution‟ properties as well as the noncentral locations. Koenker and Bassett Jr (1978)

presented that when the exogenous variables affect the dependent variable at different parameters in the

distribution from the mean, the analysis would be seriously weakened.


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The effect of existing outliers tends to be magnified due to square effect in the optimization function. Therefore, the validity of OLS estimators is concerned in the outlying conditions.

There are some possible approaches to deal with above problems. This paper applies the most common method, the Quantile Regression. With the Quantile Regression (QR) proposed by Koenker and Bassett Jr. (1978), the estimator can be found with following minimization function:

The QR method, considered as an ordered statistics-based estimation, might estimate coefficient vector which is not sensitive to the influences of outliers since the minimization function is a weighted sum of absolute deviations. Moreover, it loosens some of OLS assumptions such as normality, homoscedasticity, etc. (Johnston and DiNardo, 1997). Estimating simultaneously many different percentiles could provide a complete view of the relationship and extend the analysis to noncentral locations, which are the main interests of recent social science researches. For instance, studies in gender inequality and income gaps pay attentions in the poor (lower tail) and the rich (upper tail). Researchers in education may have intrinsic interests and need to fully understand in pre-established achievement levels.

The interpretations for the OLS and QR coefficients have different meanings. While the OLS estimators suggest the average marginal effect of regressor on dependent variable, the QR estimators examine the marginal effect under each conditional percentile. By using the QR, it is possible to investigate the relationship between returns and Beta at the lower and upper tail observations relative to the mean. Indeed, the LAD is a special case of QR at 0.5 percentile. In this paper, equity Beta is estimated at 0.05, 0.2, 0.4, 0.6, 0.8 and 0.95 percentile to investigate the consistency of the relationship. We agree that this choice is arbitrary but believe that a full coverage of percentiles will provide a more comprehensive result of the estimates.

With the above mentioned advantages compared with the OLS estimations, the QR method is applied widely recently in various areas of research after the approach was first introduced by Koenker and Bassett Jr (1978). Buchinsky (1998a) and Buchinsky (2002) applied this QR approach to analyze the female wage distribution in the US in relation to demographic characteristics. Then, Buchinsky (1998b) developed guidelines for empirical research using QR. Taylor (1999) found some good achievement by practicing QR in estimating the distribution of daily Value at Risk. Yu, Lu, and Stander (2003) concluded that researchers in survival analysis, pharmaceutical and many other scientific areas of research have also applied QR in their studies. Recently, various papers used QR as a new approach to their empirical studies (Atella, Pace, and Vuri (2008); Hung, Shang, and Wang (2010); Ramdani and Witteloostuijn (2010)).

3.2.2. Portfolio construction

After estimating beta for individual companies, some portfolios are constructed in order to provide a general view for those who are interested in more than 1 stock in the Utilities Industry. In this paper, Vietnam is used as an illustration as below. There are 2 set of portfolios used in this paper: (i) an equally-weighted portfolio and a value-weighted portfolio with the company‟s market capitalization being used as a weight. Furthermore, because companies in the sample were listed at different points in time, portfolios are updated every 6 months. For example, starting in January 2006, all companies listed within a period from January 2006 and June 2006 were used to form a portfolio. As a result, 20 portfolios are formed in this paper including 10 equally-weighted and 10 value-weighted portfolios (see Appendix 3 for the details of the companies in each portfolio).

For example, for Vietnam, the first portfolio, P1, includes VSH, KHP, SJD, HJS, PPC, SHP and TBC with the available data from 13th Jan 2006. The second portfolio adding CHP into P1 starts on the 11th Jan


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2008. P3 adds BTP to P2. It is estimated from the 11th Apr 2009. Adding BTW, CLW and MTG to the current P3 yields P4 with the sample period starting from 9thJan 2009. The fifth portfolio is considered from 9th Oct 2010 by including TMP, NBP, PGD, PGT and TIC to P4 and so on for the others five portfolios.

3.2.3. De-levered/Re-levered estimates of β

Estimating beta for a particular company will implicitly assume the gearing level of a company in the estimation. As such, the estimates of equity beta for a particular company may not reflect an overall level of risk faced by the utilities industry in the context of the Vietnamese economy. The Vietnamese Government (as a seller) and investors may need to know the overall level of risk faced by the entire industry for their investment decisions. Following the practice adopted in Henry and Street (2014) and Vo et al. (2014) studies, all equity betas are de-levered using the relevant company‟s gearing ratio (for a particular company) or a portfolio‟s average gearing ratio (for a portfolio‟s estimates) over the examined period and re-levered using the average leverage ratio for the whole industry. Supposing that the debt β equals to zero, the de-levering/re-levering equation is:

In which and are the asset β and equity β; E/V is the ratio between the market value of equity and the company‟s total asset. The gearing ratio is usually defined as the proportion of the book value of

debt in the value of the company which is measured by its total asset. Considering the gearing ratio, the book value of debt and E is the market value of equity, then:

Currently, for 28 companies in the Utilities industry in Vietnam, the average leverage ratio is approximately 31 percent. For the raw beta estimation, the following re-levering factor should be applied:

Assume that is independent of and is constant, the re-levered , has a mean of .

4. RESULT AND DISCUSSION

4.1. Individual companies’ Beta estimates

The stock return used in the CAPM regression in this paper is the raw returns of the stocks. The weekly frequency is chosen to take advantage of avoiding the noisy in daily data and obtaining the statistical accuracy from many observations. The weekly return is measured by the change of return within a week, from last week Friday (closing price) and this week Friday (closing price). Table 2 reports the equity Beta estimated from OLS, LAD, and different quantiles for individual companies for each of the countries in the ASEAN 5. Details of the estimates are presented in Appendix 4.

Table 2. Estimates of equity beta for individual companies, using the weekly return from Friday-to-Friday week closing prices

OLS LAD = 0.05 = 0.20 = 0.40 = 0.60 = 0.80 = 0.95

Vietnam

Average 0.745 0.675 0.679 0.696 0.698 0.670 0.748 0.966


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Median 0.764 0.710 0.766 0.735 0.715 0.727 0.838 0.914

Malaysia

Average 1.1220 0.8924 1.2326 0.9655 0.8738 0.9117 1.1230 1.5263

Median 0.9612 0.7111 1.1674 0.8978 0.7016 0.7746 1.0659 1.5751

Philippines

Average 0.7678 0.5731 0.8673 0.7653 0.5883 0.5640 0.5340 1.3949

Median 0.8501 0.5939 0.9108 0.7747 0.5937 0.6302 0.7089 1.3081

Singapore

Average 0.9790 0.6721 1.0234 0.9477 0.8226 0.7357 1.0488 1.0064

Median 0.8787 0.6763 1.1083 1.0330 0.7342 0.7266 1.0668 1.3401

Thailand

Average 0.6297 0.5915 0.6841 0.6331 0.6154 0.5666 0.5637 0.5256

Median 0.4394 0.4942 0.5691 0.5226 0.5046 0.5064 0.4534 0.5569


As presented in Appendix 4, most beta OLS estimates are statistically significant and lower than 1 –

the market beta. When the market return changes by 1 percent, these stock returns would change in the

same direction with a magnitude of less than 1 percent. These findings are consistent with our expectation:

Energy businesses are expected to face a relatively lower risk in comparison with the market as the whole.

It is interesting to note that, there is a divergent of the OLS beta estimates for the ASEAN 5. While

listed energy businesses in Malaysia and Singapore have high equity beta, approximately at the market

level, in particular for Malaysia, the OLS beta estimates for the other three countries including Vietnam,

Thailand, and Philippines, with the beta of appropriately 0.7, are lower than the market level. In relation to

the estimates of equity beta using quantile regression, the estimates appear to vary across different quantiles

in which 95 percent quantile consistently produces the relatively higher beta in comparison with all other

quantiles utilized in this study. This observation raises a practical question of an appropriate quantile to be

used to derive the final estimate of equity beta for energy businesses in reality.

4.2. Beta estimates of various portfolios

Two set of portfolios including (i) an equally-weighted portfolio and (ii) a value-weighted portfolio

are formed in order to provide a deeper analysis for more than 1 stock and to test the robustness of beta

estimates for individual companies. The OLS, LAD and QR at different percentile approaches are all

adopted with weekly return. Table 3 and 4 reports the equity Beta estimates for each portfolio:

Table 3. Estimates of equally-weighted portfolios equity beta

OLS LAD = 0.05 = 0.20 = 0.40 = 0.60 = 0.80 = 0.95

P1 0.7054*** 0.7020*** 0.7259*** 0.6801*** 0.6637*** 0.7085*** 0.7243*** 0.7683***

P2 0.6184*** 0.6195*** 0.6351*** 0.5624*** 0.5796*** 0.6222*** 0.6284*** 0.6237***

P3 0.5720*** 0.5541*** 0.6199*** 0.5250*** 0.5458*** 0.5578*** 0.5616*** 0.5077***

P4 0.5331*** 0.5290*** 0.5904*** 0.5015*** 0.5418*** 0.4842*** 0.5096*** 0.6001***

P5 0.5879*** 0.5304*** 0.6887*** 0.5311*** 0.5353*** 0.5089*** 0.5442*** 0.7256***

P6 0.5112*** 0.4030*** 0.6321*** 0.4426*** 0.3855*** 0.3962*** 0.4360*** 0.6563***


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P7 0.3593*** 0.3005*** 0.4677*** 0.3876*** 0.3067*** 0.3242*** 0.3581*** 0.4149

P8 0.3369*** 0.2639*** 0.3675*** 0.3676*** 0.3079*** 0.2943*** 0.3464*** 0.2719*

P9 0.3566*** 0.2708*** 0.3879*** 0.3372*** 0.2801*** 0.3262*** 0.3771*** 0.2787

P10 0.3599*** 0.2612*** 0.3651** 0.3111*** 0.2790*** 0.3360*** 0.3726*** 0.1845

Average 0.4941 0.4434 0.5480 0.4646 0.4425 0.4559 0.4858 0.5032

Median 0.5222 0.4660 0.6052 0.4721 0.4604 0.4402 0.4728 0.5539


Table 4. Estimates of value-weighted portfolios equity beta

OLS LAD = 0.05 = 0.20 = 0.40 = 0.60 = 0.80 = 0.95

P1 0.9445*** 0.9465*** 0.7895*** 0.8693*** 0.9207*** 0.9944*** 0.9814*** 1.1210***

P2 0.9120*** 0.9041*** 0.7831*** 0.8418*** 0.8957*** 0.9537*** 0.9698*** 1.0425***

P3 0.8782*** 0.8036*** 0.7473*** 0.7913*** 0.8156*** 0.8569*** 0.9351*** 1.0332***

P4 0.8383*** 0.7895*** 0.6071*** 0.7774*** 0.7908*** 0.8651*** 0.9136*** 1.0237***

P5 0.7904*** 0.7933*** 0.7508*** 0.7490*** 0.8094*** 0.8171*** 0.8713*** 0.8575***

P6 0.6639*** 0.6674*** 0.6345*** 0.6511*** 0.6329*** 0.6365*** 0.6739*** 1.0687**

P7 0.6206*** 0.6555*** 0.6781*** 0.6424*** 0.5835*** 0.6309*** 0.6403*** 0.6447*

P8 0.5982*** 0.5754*** 0.6824*** 0.5977*** 0.6154*** 0.6131*** 0.6634*** 0.5338*

P9 0.6768*** 0.6892*** 0.8057*** 0.7010*** 0.6237*** 0.6172*** 0.6588*** 1.0949**

P10 0.7796*** 0.7025*** 0.8645*** 0.8840*** 0.7820*** 0.6730*** 0.7269*** 1.2284*

Average 0.7703 0.7527 0.7343 0.7505 0.7470 0.7658 0.8035 0.9648

Median 0.7850 0.7460 0.7491 0.7632 0.7864 0.7451 0.7991 1.0379


For the equally-weight portfolio, the estimates of Beta using the OLS, LAD and QR at all percentile

except 95% fall within a range of 0.1845 to 0.7683. Moving from P1 to P10 by adding more companies to

the portfolios will decrease the estimates of beta. This change may be due to a limited data available for

P10. Moreover, the decreasing trend of the portfolios beta seems to satisfy the diversification rule. Adding

more companies into portfolio would reduce the fluctuation of the whole portfolio‟s return related to the

market return.

For the value-weighted portfolio, the results are quite similar. At 95% percentile regression, the

estimates of Beta of P1 and P10 are higher than 1. Other estimates of Beta face a declining trend from P1 to

P9 and increase in P10. Again, these changes could be a result of less and less available data in the sample

under P10.

4.3. De-levered/Re-levered estimates of β

The weekly returns measured by the change of stock prices from closing price of last Friday and this

Friday are also adopted in this analysis. The results of de-levered and re-levered beta estimates of

individual companies and portfolios are shown in Table 5 and Table 6.


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Table 5. De-levered/Re-levered estimates of β for weekly frequency:

Individual companies

Gearing

(%) OLS LAD =0.05 =0.20 =0.80 =0.95

Average 31.07 1.00 0.5718 0.4706 0.6706 0.5588 0.4891 0.8515

Median 29.32 1.03 0.5712 0.4703 0.6691 0.5562 0.4839 0.8568


The de-levered/re-levered estimates of individual companies‟ equity β for the OLS estimates are from

0.0614 to 1.1525 while the corresponding de-levered LAD β estimates range from 0.0304 to 1.2032 (See

Appendix 5 for details). The existence of outliers still affects seriously on the outcomes. For instance, at

95% percentile, the equity β of BTW, MTG, NTW, PCG, PGT and POV are much higher than those

obtained from OLS and LAD. Besides, the effect of lower tail observations can be seen at the 5% percentile

regression for DRL and NTW.

Similarly, the de-levered estimates are applied for portfolio betas. Both the equally-weighted

portfolios and the value-weighted portfolios results are quite stable with a magnitude of lower than 1 for all

estimates except at the 95% percentile regression for P10 (Details are in Appendix 6).

Table 6. De-levered/Re-levered estimates of β for weekly frequency: Portfolios

Gearing

(%) OLS LAD = 0.05 = 0.20 = 0.80 = 0.95

Equally-weighted portfolios

Average 33.14 0.97 0.4783 0.4288 0.5307 0.4497 0.4703 0.4870

Median 33.08 0.97 0.5050 0.4510 0.5771 0.4564 0.4575 0.5295

Value-weighted portfolios

Average 33.14 0.97 0.7465 0.7294 0.7127 0.7280 0.7785 0.9359

Median 33.08 0.97 0.7894 0.7256 0.7187 0.7473 0.7991 0.9932


5. CONCLUSION

A socially responsible corporate will aim to balance its profit maximization and its social

responsibility for a sustainable development in this modern and integrated world. As such, this paper

provides additional empirical evidence in the context of the ASEAN 5 including Vietnam, Thailand,

Philippines, Malaysia, and Singapore in relation to the estimate of a fair return on equity for energy

businesses.

Like other ASEAN governments, the Vietnamese Government‟s effort to a process of privatization

and equitization of key government owned assets has attracted attention from both Vietnamese and

international investors. This process is considered unavoidable to pave a way for the national economy to

fully integrate with the world economy. Privatization and/or equitization requires a sale of government

owned assets to the private investors. A question is how the government can determine a reasonable price

for these assets to ensure that the Vietnamese people will get the fair share.


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In response to this complicated question, this study is conducted to estimate a key input, the equity

beta, adopted in the Sharpe-Lintner CAPM, which then can be used to determine a rate of return on equity

for the owner of the assets (the Government). This expected return on equity can be used to confirm

whether or not current government owned businesses in the same or similar industry are efficient in

running their businesses and/or to determine a fair price of the assets (the companies) should the

Government decide to privatize and/or equitise these assets.

Using 5 different samples of the ASEAN 5 including listed companies operating in the energy

industry for the period of more than 9 years (from 2007 to 2015 inclusive), a new approach (a Quantile

Regression approach), together with the other two traditional approaches (the OLS and the LAD), have

been used to estimate the equity beta for these listed firms in this study. Estimates of beta were conducted

at the individual firms‟ level and at the portfolios‟ level. At the portfolios‟ level, two different types of

portfolios are formed: (i) the equally-weighted portfolio; and (ii) the value-weighted portfolio.

Under all approaches, estimates of beta indicate that the appropriate value of the equity beta for

companies operating in the energy industry in Vietnam and other ASEAN 5 countries is 0.8 – which is still

below the market beta of the entire market. It can be argued that energy businesses have higher equity beta

in comparison with its relevant market. However, as an overall level across time and methods, the findings

from this empirical evidence provides an evidence to conform that a level of risk faced by a company in the

energy industry is below the average of the level of risk for the entire market.

While it is well beyond the scope of this paper, an indicative quick estimate of an expected return on

equity for utilities in Vietnam is approximately 12.4 percent – an estimate using the Sharpe-Lintner CAPM

with equity beta of 0.8, the risk free rate of 6 percent and the market risk premium of 8 percent. It is

obvious to note that these estimates require an update to reflect the prevailing market conditions for funds

at different point in time. An estimate of 12.4 percent in this paper can be used to set a benchmark and to

compare with the realized return on equity of the Government owned businesses to confirm whether these

companies are operating efficiently and/or to determine a fair price for the government owned assets to be

sold to the private sector.

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Determinants of Technological Diffusion via FDI Enterprises in the Manufacturing Sector in Vietnam over 2005-2013

Ngo, Quang Thanh


Institute of Policy and Strategy for Agricultural and Rural Development

ABSTRACT

Continual interest in the comparative performance of domestic owned and foreign owned enterprises since policy makers have long believed that foreign direct investment (FDI) can be an important source of technology for developing economies. Many empirical researches follow this line of interesting field of study and most of them confirm that foreign enterprises are more efficient than domestic ones in the context of developing countries. However, while most studies support the hypothesis that foreign ownership participation increases performance of firms in terms of productivity and efficiency, some works find no differences, leading to a controversy on this issue.

This study was designed to investigate and examine technological diffusion via FDI enterprises in manufacturing sector in Vietnam over the period 2005-2013. The paper finds that in general, the investigation revealed that FDI firms have more technical efficiency than domestic firms in most of manufacturing sub-sectors in Vietnam over the period 2005-2013. Factors affecting technological diffusion between all kinds of FDI and domestic manufacturing enterprises in Vietnam within the framework of this investigation are: Firm’s past performance, Firms’ financial performance, The labour market conditions, Years of operation. Those factors have positive relationship to technical efficiency scores. Size of a firm in terms of labour and capital, Firms’ level of self-financing have negative relationship to technical efficiency scores. FDI creates reverse effects in terms of firms’ financial performance and firms’ characteristics

Keywords: Technological diffusion, Technical efficiency, FDI, Manufacturing sector, Vietnam

I. INTRODUCTION

Continual interest in the comparative performance of domestic owned and foreign owned enterprises since policy makers have long believed that FDI can be an important source of technology for developing economies (World Bank, 1993). They argue that foreign investment may generate some benefits for the host country. For example, by financing the expansion of business or the creation of new firms, it increases employment. It also lead to the transfer of knowledge or new technologies from foreign firms to domestic ones and it may provide critical know-how to enable domestic plants to enter export markets (Harrison, 1996). Much empirical research follows this line of interesting field of study and most of them confirm that foreign enterprises are more efficient than domestic ones in the context of developing countries (for example: Liu (2000), Aydin, Sayim, and Yalam (2007)). However, while most studies support the hypothesis that foreign ownership participation increases performance of firms in terms of productivity and efficiency, some works find no differences, leading to a controversy on this issue (for example: Rowland (2006), Basti and Akin (2008)).

Data available from Enterprise Censuses (EC) conducted by GSO of Vietnam give some thoughts on

the comparative performance between domestic and foreign enterprises in Vietnam. Ngo (2014) found that:

(1) among enterprises of many kinds, domestic state – owned enterprises prove to be more efficient in

terms of profit to capital ratio, profit to equity ratio, and labour productivity than foreign ones, (2) by

splitting foreign enterprises into three types, namely wholly foreign-owned, state-owned with foreign and

domestic private with foreign enterprises, state-owned enterprise turns out to be the most efficient ones in


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terms of labour productivity. However, state-owned enterprises still prove to be dominant in terms of both

profit to capital and profit to equity ratios, (3) among foreign capital enterprises, wholly foreign-owned

enterprise is seemingly less efficient in terms of labour productivity, profit to capital and profit to equity

ratios than domestic private with foreign partner, (4) sometimes, enterprises are more efficient in terms of

profit to capital ratio but less in terms of profit to equity ratio. Therefore, controversies raise the following

main research question: What are the factors affecting technological diffusion between all kinds of FDI and

domestic manufacturing enterprises in Vietnam?

We view that the influx of more advanced technology introduced by foreign firms alters the practice

of domestically owned firms and leads to improvements in their technical efficiency levels. In the present

study, the researcher attempts to measure FDI enterprises‟ impact on domestic firms‟ technical efficiency

and identify the presence of either positive technological spillovers caused by FDI enterprises‟ to domestic

firms, or reverse technological spillovers as these are defined by (Driffield & Love, 2003). In so doing, the

researcher uses the method of estimating technical efficiency from a stochastic frontier production function

as proposed by Battese and Coelli (1992) to estimate the technical efficiency scores for each firm (foreign

and domestic) operating in a sector and reports the evolution of the technical efficiency gap between the

two groups of firms. Nevertheless, to attribute the observed technical efficiency gap solely to FDI presence

will be misleading, since other firm specific variables may contribute to a firm‟s observed efficiency level

and the corresponding technical efficiency gap. Thus, the researcher attempts to identify the true potential

effect of FDI enterprises‟ presence by controlling other driving forces that affect the efficiency levels of the

operating firms. Technological diffusion is then defined as the evolution of the efficiency gap, between the

FDI enterprises and the domestic firms that operate in a country, which can be attributed purely to FDI with

the diffusion taking place when this efficiency gap is reduced over time.

The following section of this paper presents an overall evidence of technological diffusion in the

manufacturing sector. Section 3 is about regression analysis of determinants of technological diffusion via

FDI in the manufacturing sector. Conclusion and recommendations end this paper.

2. OVERALL EVIDENCE OF TECHNOLOGICAL DIFFUSION IN THE MANUFACTURING

SECTOR

Summary statistics of the technical efficiency scores by year and ownership type are presented in

Table 1.

Table 1. Statistics on Technical Efficiency between Domestic vs. FDI Firms, 2005-2013

Firm 2005 2006 2007 2008 2009 2010 2011 2012 2013

Dom. 0.41 0.40 0.43 0.41 0.44 0.33 0.29 0.33 0.33

FDI 0.41 0.39 0.43 0.39 0.41 0.35 0.32 0.33 0.34

Diff. of means 0.00 -0.01 -0.01 -0.02 -0.03 0.02 0.03 0.01 0.02

Z-Stat. 0.15 5.30*** 6.59*** 11.58*** 1.87** 5.98***

N 20,468 23,968 20,162 29,613 36,614 42,417 45,217 52,423 56,247

Sources: Authors’ calculation from EC 2005-2013.

Note: * p<0.1; ** p<0.05; *** p<0.01

From Table 1, we observe that before 2010 FDIs‟ technical efficiency levels were less than that of domestic firms‟ by 1-3 percent every year, with 2009 reaching at maximum at 3 percent. From 2010, FDIs‟


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technical efficiency levels exceeded that of domestic firms‟ by 1-3 percent every year, with 2011 reaching 3 percent. Table 1 also shows that the technical efficiency performance gap (MeanTEFDI - MeanTEDOM) remains statistically significant at 5 or 1 percent significance level during the period 2007-2013 in our sample. The gap is around 1-2 percent in recent years. In addition, before 2010, FDIs‟ technical efficiency levels display higher standard deviations, indicating that FDI firms are less homogeneous than domestic firms. However, from 2010, FDIs‟ technical efficiency levels display lower standard deviations, indicating that FDI firms are more homogeneous than domestic firms.

Closer look at FDI types gives summary statistics of the technical efficiency scores by year and ownership type between domestic firms and FDI ones in Table 2. In Table 2, we observe that before 2010, wholly foreign-owned firms‟ technical efficiency levels were less than that of domestic firms by 1-4 percent every year, with 2009 reaching at maximum at 4 percent. From 2010, wholly foreign-owned firms‟ technical efficiency levels exceeded that of domestic firms by 1-3 percent every year, with 2011 reaching 3 percent. Table 2 also shows that the technical efficiency performance gap (MeanTEFDI - MeanTEDOM) remains statistically significant at 1 percent significance level in our sample, except for year 2012. The gap is around 1 percent in recent years. In addition, before 2010, wholly foreign-owned firms‟ technical efficiency levels display higher standard deviations, indicating that FDI firms are less homogeneous than domestic firms. However, from 2010, wholly foreign-owned firms‟ technical efficiency levels display lower standard deviations, indicating that FDI firms are more homogeneous than domestic ones.

Table 2. Statistics on Technical Efficiency Scores between Domestic vs. Various Types of FDI Firms, 2005-2013

Firm 2005 2006 2007 2008 2009 2010 2011 2012 2013

Dom. 0.41 0.40 0.43 0.41 0.44 0.33 0.29 0.33 0.33

Wholly foreign-

owned 0.40 0.38 0.42 0.38 0.40 0.34 0.32 0.33 0.34

SOE with FDI 0.49 0.49 0.55 0.52 0.54 0.43 0.42 0.45 0.42

PTE with FDI 0.42 0.40 0.43 0.43 0.45 0.37 0.34 0.33 0.35

Domestic vs. wholly foreign-owned

Mean deff. -0.01 -0.02 -0.02 -0.03 -0.04 0.01 0.03 0.00 0.01

Z-Statistic 4.35*** 9.10*** 0.32 4.54***

N 20,034 23,533 19,732 29,177 36,175 41,963 44,747 51,924 55,773

Domestic vs. SOE with FDI

Mean deff. 0.08 0.09 0.11 0.11 0.10 0.11 0.13 0.12 0.09

Z-Stat. 7.42*** 7.94*** 10.09*** 8.78*** 7.32*** 7.85*** 9.46*** 8.32*** 6.39***

N 18,405 21,561 17,534 26,503 33,075 38,491 41,083 47,707 51,466

Domestic vs. PTE with FDI

Mean deff. 0.01 0.00 -0.01 0.02 0.00 0.04 0.05 0.01 0.03

Z-Stat. 0.74 0.01 1.82* 0.12 3.80*** 4.84*** 0.50 2.62***

N 18,327 21,526 17,532 26,531 33,138 38,581 41,213 47,886 51,658


Note: * p<0.1; ** p<0.05; *** p<0.01

In Table 2, we also observe that FDI with SOE firms‟ technical efficiency levels were always higher than that of domestic firms‟ by 8-13 percent every year in our sample, with 2011 reaching as maximum as 11 percent. Table 2 also shows that the technical efficiency performance gap (MeanTEFDI -


336

MeanTEDOM) remains statistically significant at 1 percent significance level in our sample. In addition, FDI with SOE firms‟ technical efficiency levels display higher standard deviations, indicating that FDI with SOE firms are less homogeneous than domestic firms.

In Table 2, we also find that FDI with PTE firms‟ technical efficiency levels were higher than that of domestic firms‟ by 1-5 percent in our sample (except for 2007), with 2011 reaching as maximum as 5 percent. Table 2 also shows that the technical efficiency performance gap (MeanTEFDI - MeanTEDOM) remains statistically significant at 1 percent significance level in recent years. In addition, FDI with PTE firms‟ technical efficiency levels display higher standard deviations, indicating that FDI with PTE firms are less homogeneous than domestic firms.

3. REGRESSION ANALYSIS OF DETERMINANT OF TECHNOLOGICAL DIFFUSION

3.1. Data Description

Description of the variables used in the estimations is presented in Table 3.

Table 3. Description of the Variables Used in the Technological Diffusion Model, 2005-2013

Source: Author’s compilation

3.2. Model Specification

The existence and the evolution of the efficiency gap between the domestic and foreign-owned firms in Section 2 might not always be due to the ownership type but to other relevant factors; if such factors exist then it would be misleading to interpret the efficiency gap solely due to the presence of FDI. Thus, it becomes imperative to take into account the impact of these relevant factors on the level of the production outcome and to distinguish between the part of the estimated efficiency attributed to the ownership type or to other factors. Additionally, it is required to study this impact on an annual basis in order to examine its effect diachronically on the efficiency scores and on the respective evolution of the efficiency gap. Thus, in the second stage of the analysis the basic model specification employed is:

TECH_DIFFit = δ0 +δ1 FIRMCit + δ2FIRMPit + δ3MARKETit +wit (1)

where TECH_DIFF is technological diffusion,

FIRMC is a vector of firm characteristics (including firm size, firm‟s age, level of self-financing),


337

FIRMP is a vector of firm performance (including indicators of profitability such as ROA or ROE),

MARKET is a vector of labour market conditions.

wt is error terms which are assumed to be independently and identically distributed followed by the truncation of the normal distribution with zero mean and unknown variance ζ

2w.

The inclusion of variable OWN in the above specification serves as a proxy to FDI presence and allows us to quantify its impact on technical efficiency after taking into account the respective effect of other control variables. Hence, the ownership type implies a difference (or lack in the case of a not statistically significant coefficient) in the efficiency level. Furthermore, it holds information whether the observed efficiency gap can be attributed to the presence of FDI or to other factors.

In the second stage of the present analysis reports the results of four different model specifications. The first specification (Model 1) contains the basic model described in equation (3), while the other three are its extensions with the inclusion of interaction terms between variable OWN and the other explanatory variables.

In Model 1, the author presents Model 1a (firm size proxied by labour, and firm performance proxied by ROA), Model 1b (firm size proxied by labour, and firm performance proxied by ROE), Model 1c (firm size proxied by capital, and firm performance proxied by ROA), and Model 1d (firm size proxied by capital, and firm performance proxied by ROE).

In Model 2 the author introduces the interaction variable OWN*ROA or OWN*ROE to isolate the effect of foreign ownership on the financial performance of a firm in terms of its ROA (or ROE) index. Model 2 is defined as follows:

TECH_DIFFit = δ0 +δ1 FIRMCit + δ2FIRMPit + δ3MARKETit + δ4OWNiROAit (ROEit)+ wit (2)

In Model 2, the author presents Model 2.1a (ownership categorized by two types namely domestic and FDI firms, firm size proxied by labor, and firm performance proxied by ROA), Model 2.1b (ownership categorized by two types namely domestic and FDI firms, firm size proxied by labour, and firm performance proxied by ROE), Model 2.1c (ownership categorized by two types namely domestic and FDI firms, firm size proxied by capital, and firm performance proxied by ROA), and Model 2.1d (ownership categorized by two types namely domestic and FDI firms, firm size proxied by capital, and firm performance proxied by ROE).

In Model 2, the author also presents Model 2.2a (ownership categorized by four types namely: domestic, wholly foreign-owned, SOE with FDI and PTE with FDI firms, firm size proxied by labour, and firm performance proxied by ROA), Model 2.2b (ownership categorized by four types namely: domestic, wholly foreign-owned, SOE with FDI and PTE with FDI firms, firm size proxied by labour, and firm performance proxied by ROE), Model 2.2c (ownership categorized by four types namely: domestic, wholly foreign-owned, SOE with FDI and PTE with FDI firms, firm size proxied by capital, and firm performance proxied by ROA), and Model 2.2d (ownership categorized by four types namely: domestic, wholly foreign-owned, SOE with FDI and PTE with FDI firms, firm size proxied by capital, and firm performance proxied by ROE).

Model 3 is the basic model with the inclusion of the interaction variable OWN*SF which addresses

the effect of foreign ownership on the degree of self-financing:

TECH_DIFFit = δ0 +δ1 FIRMCit + δ2FIRMPit + δ3MARKETit + δ4OWNiSFit + wit (3)

In Model 3, the author presents Model 3.1a (ownership categorized by two types namely domestic and

FDI firms, firm size proxied by labour, and firm performance proxied by ROA), Model 3.1b (ownership

categorized by two types namely domestic and FDI firms, firm size proxied by labour, and firm

performance proxied by ROE), Model 3.1c (ownership categorized by two types namely domestic and FDI


338

firms, firm size proxied by capital, and firm performance proxied by ROA), and Model 3.1d (ownership

categorized by two types namely domestic and FDI firms, firm size proxied by capital, and firm

performance proxied by ROE).

In Model 3, the author also presents Model 3.2a (ownership categorized by four types namely:

domestic, wholly foreign-owned, SOE with FDI and PTE with FDI firms, firm size proxied by labour, and

firm performance proxied by ROA), Model 3.2b (ownership categorized by four types namely: domestic,

wholly foreign-owned, SOE with FDI and PTE with FDI firms, firm size proxied by labour, and firm

performance proxied by ROE), Model 3.2c (ownership categorized by four types namely: domestic, wholly

foreign-owned, SOE with FDI and PTE with FDI firms, firm size proxied by capital, and firm performance

proxied by ROA), and Model 3.2d (ownership categorized by four types namely: domestic, wholly foreign-

owned, SOE with FDI and PTE with FDI firms, firm size proxied by capital, and firm performance proxied

by ROE).

Finally, Model 4 incorporates the impact of foreign ownership on firm size (either proxied by labour

or capital) by adding the interaction variable OWN*SIZE:

TECH_DIFFit = δ0 +δ1 FIRMCit+ δ2FIRMPit + δ3MARKETit + δ4OWNiSIZEit + wit (4)

In Model 4, the author presents Model 4.1a (ownership categorized by two types namely domestic and

FDI firms, firm size proxied by labour, and firm performance proxied by ROA), Model 4.1b (ownership

categorized by two types namely domestic and FDI firms, firm size proxied by labour, and firm

performance proxied by ROE), Model 4.1c (ownership categorized by two types namely domestic and FDI

firms, firm size proxied by capital, and firm performance proxied by ROA), and Model 4.1d (ownership

categorized by two types namely domestic and FDI firms, firm size proxied by capital, and firm

performance proxied by ROE).

In Model 4, the author also presents Model 4.2a (ownership categorized by four types namely:

domestic, wholly foreign-owned, SOE with FDI and PTE with FDI firms, firm size proxied by labour, and

firm performance proxied by ROA), Model 4.2b (ownership categorized by four types namely: domestic,

wholly foreign-owned, SOE with FDI and PTE with FDI firms, firm size proxied by labour, and firm

performance proxied by ROE), Model 4.2c (ownership categorized by four types namely: domestic, wholly

foreign-owned, SOE with FDI and PTE with FDI firms, firm size proxied by capital, and firm performance

proxied by ROA), and Model 4.2d (ownership categorized by four types namely: domestic, wholly foreign-

owned, SOE with FDI and PTE with FDI firms, firm size proxied by capital, and firm performance proxied

by ROE).

Before ending with the suitable form of model, since data are panel thus it needs to check which type

of estimation methods is the best between Fixed Effects Model and Random Effects Model. The Hausman

specification test show that the H0 that the RE estimator is consistent (due to non-zero covariance

between residuals and explanatory variables) is rejected. Therefore, we have to rely upon the FE

estimator.

3.3. Basic Model of Technological Diffusion

Table 4 presents the regression results of Model 1, which is regressed by method of fixed effects

model of panel data. Around 22-24 percent of a firm‟s efficiency score may be attributed to its past

performance indicating the strong impact of factors embedded in the firm‟s operating process.

The SIZE variable shows a statistically significant negative effect on the level of technical efficiency

scores for all basic model specifications. Acs et al. (1994) state that small firms create innovation by

exploiting the knowledge that was created by their larger counterparts whereas the large firms tend to get


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bogged down in developing those innovations in their own firms. In addition, OECD (1993) points out that

since small and medium firms have a limited ability of internal R&D, they depend more on external source

technology than the large firms. In terms of labour, around 0.03 percent of a firm‟s efficiency score

decreased may be attributed to its increase of 1 percent in employees, ceteris paribus. Similarly, in terms of

capital, around 0.02 percent of a firm‟s efficiency score decreased may be attributed to its increase of 1

percent in fixed assets, ceteris paribus.

The two financial performance variables, ROA and ROE, display a significant impact on TE, as well. Variable ROA, in all basic model specifications, exerts a positive and statistically significant impact (of about 2-3 percent) on technical efficiency scores, ceteris paribus, confirming that firms with higher profitability demonstrate better levels of technical efficiency scores as they are able to grow faster and adjust quicker to new technologies and changing economic environment. Similarly, variable ROE, in all basic model specifications, exerts a positive and statistically significant impact (of about 0.02 percent) on technical efficiency scores, ceteris paribus.

The level of self-financing (ETA) exerts a negative impact on technical efficiency scores ranging between -2.0 percent and -3.0 percent in all basic model specifications indicating that firms with increased levels of external financing display an aggressive and expanding behaviour which leads them to higher technical efficiency levels.

The data indicates that years of operation have a quadratic relationship with technical efficiency and are significant at 1 percent level, in all basic model specifications.

Table 4. Technological Diffusion Model in the Manufacturing Sector in Vietnam (Model 1), 2005-2013

Variable Model 1a Model 1b Model 1c Model 1d

L.tech_ 0.226*** 0.246*** 0.216*** 0.236***

log_ldong_ -0.034*** -0.032***

Age -0.015*** -0.012*** -0.010*** -0.007***

age2 -0.000** -0.000*** -0.000*** -0.001***

age3 0.000* 0.000*** 0.000*** 0.000***

equity_to_assets_ -0.022*** -0.016*** -0.025*** -0.0236***

roa_ 0.033*** 0.018***

wage_ 0.000*** 0.000*** 0.001*** 0.001***

roe_ 0.000*** 0.000***

log_von_ -0.023*** -0.024***

Constant 0.66*** 0.62*** 0.66*** 0.64***

Observations 10,852 9,762 10,852 9,762

R-squared 0.219 0.205 0.254 0.245

Number of id 1,392 1,392 1,392 1,392

F test that all u_i=0 3.46*** 3.02*** 3.83*** 3.41***


Note: Standard errors in parentheses; 0.000: less than 0.001; *** p<0.01, ** p<0.05, * p<0.1

3.4. Model of technological diffusion with the impact of ownership over firm performance

In Model 2.1 we introduce the interaction variable GROUPTWO*ROA or GROUPTWO*ROE to

isolate the effect of foreign ownership on the financial performance of a firm in terms of its ROA (or ROE)


340

index. The estimation results are in Table 5 in which ownership variable has two categories: 1 if domestic,

0 if FDI. The results from all specifications of Model 2.1 appear to be consistent and robust with those of

Model 1 with respect to variables such as lag of technical efficiency, labour, capital, ages at three forms,

equity to assets, and wage in terms of signs, magnitude of coefficients.

Variable ROA and ROE, in all specifications of Model 2.1, exerts a positive and statistically

significant impact on technical efficiency scores, confirming that firms with higher profitability

demonstrate better levels of technical efficiency scores as they are able to grow faster and adjust quicker to

new technologies and changing economic environment. However, the magnitudes are higher than that in

Model 1. For example, in Model 1, the coefficient of ROA is 0.0331, whereas in Model 2.1a, the

coefficient of ROA is 0.0614. The difference between them now lies at the coefficient of

GROUPTWO*ROA (equal to -0.0353). As mentioned, the interaction variable is to isolate the effect of

foreign ownership on the financial performance of a firm. The negative and statistically significant

coefficient of the interaction term GROUPTWO*ROA in Model 2.1a indicates that FDI creates reverse

effects on FDI firms‟ technical efficiency, which may be due to a generally favourable institutional

environment (low taxation, financial benefits, etc.).

The negative and statistically significant coefficient of the interaction term GROUPTWO*ROA

(ROE) in Model 2.1b, Model 2.1c, Model 2.1d at 1% level in Table 5 also indicates that FDI creates

reverse effects on FDI firms‟ technical efficiency.

In Model 2.2 we introduce the interaction variable GROUP*ROA or GROUP*ROE to isolate the

effect of foreign ownership on the financial performance of a firm in terms of its ROA (or ROE) index, but

ownership variable has four categories: 0 if domestic (group1), 1 if wholly foreign-owned (group2), 2 if

SOE with FDI (group2), and 3 if PTE with FDI (group4). The estimation results are in Table 5.


VARIABLES Model

2.1a

Model

2.1b

Model

2.1c

Model

2.1d

Model

2.2a

Model

2.2b

Model

2.2c

Model

2.2d

L.tech_ 0.225 *** 0.245 *** 0.215 *** 0.235 *** 0.225 *** 0.245 *** 0.215 *** 0.235 ***

log_ldong_ -0.034 *** -0.032 *** -0.034 *** -0.032 ***

age -0.015 *** -0.012 *** -0.010 *** -0.007 *** -0.015 *** -0.012 *** -0.010 *** -0.007 ***

age2 -0.000 *** -0.000 *** -0.000 *** -0.001 *** -0.000 *** -0.000 *** -0.000 *** -0.001 ***

age3 0.000 ** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 *** 0.000 ***

equity_to_assets_ -0.021 *** -0.016 *** -0.024 *** -0.024 *** -0.021 *** -0.016 *** -0.024 *** -0.024 ***

roa_ 0.061 *** 0.035 *** 0.061 *** 0.035 ***

wage_ 0.000 *** 0.000 *** 0.001 *** 0.001 *** 0.000 *** 0.000 *** 0.001 *** 0.001 ***

grouptwo_roa -0.035 *** -0.020*

roe_ 0.000*** 0.000*** 0.000*** 0.000***

grouptwo_roe -0.000** -0.000***

log_von_ -0.023 *** -0.024 *** -0.023 *** -0.024 ***

group1_roa -0.035 *** -0.020 *

group1_roe -0.000 ** -0.000 ***

Constant 0.67*** 0.62*** 0.66*** 0.64*** 0.67*** 0.62*** 0.66*** 0.64***

Observations 10,852 9,762 10,852 9,762 10,852 9,762 10,852 9,762

R-squared 0.22 0.21 0.25 0.25 0.22 0.21 0.25 0.25


341

Number of id 1,392 1,392 1,392 1,392 1,392 1,392 1,392 1,392

F test that all u_i=0 3.47*** 3.03*** 3.83*** 3.41*** 3.47*** 3.03*** 3.83*** 3.41***



The results from all specifications of Model 2.2 appear to be consistent and robust with those of


equity to assets, and wage in terms of signs, magnitude of coefficients, and with those of Model 2.1 with

respect to variables such as lag as technical efficiency, labour, capital, ages at three forms, equity to assets,

wage, ROA and ROE in terms of signs, magnitude of coefficients.

The negative and statistically significant coefficient of the interaction term GROUP1*ROA in Model

2.2a indicates that FDI creates reverse effects on FDI firms‟ technical efficiency, which may be due to a

generally favourable institutional environment (low taxation, financial benefits, etc.).

The negative and statistically significant coefficient of the interaction term GROUP1*ROA (ROE) in

Model 2.2b, Model 2.2c, Model 2.2d in Table 5 also indicates that FDI creates reverse effects on FDI

firms‟ technical efficiency.

3.5. Model of technological diffusion with the impact of ownership over firm characteristics

In Model 3.1 introduces the interaction variable GROUPTWO*ETA to isolate the effect of foreign

ownership on the financial performance of a firm in terms of its equity to assets. The estimation results are

in Table 6 which ownership variable has two categories: 1 if domestic, 0 if FDI.



equity to assets, and wage in terms of signs, magnitude of coefficients.

The level of self-financing (ETA) exerts a negative impact on technical efficiency scores, about 0,1

percent in all model specifications of Model 3.1 indicating that firms with increased levels of external

financing display an aggressive and expanding behaviour which leads them to higher technical efficiency

levels. The interaction term GROUPTWO*ETA displays a similar behavioural pattern with the negative

impact on technical efficiency scores, about 3-4 percent in all model specifications of Model 3.1, and

indicating that FDI creates reverse effects on FDI firms‟ technical efficiency, which may be due to a

generally favourable institutional environment (low taxation, financial benefits, etc.).

Model 3.2 introduces the interaction variable GROUP*ETA to isolate the effect of foreign ownership

on the financial performance of a firm in terms of its equity to assets, but ownership variable has four

categories: 0 if domestic (group1), 1 if wholly foreign-owned (group2), 2 if SOE with FDI (group2), and 3

if PTE with FDI (group4). The estimation results are in Table 6.


VARIABLES Model

3.1a

Model

3.1b

Model

3.1c

Model

3.1d

Model

3.2a

Model

3.2b

Model

3.2c

Model

3.2d

L.tech_ 0.227 *** 0.246 *** 0.216 *** 0.236 *** 0.227 *** 0.246 *** 0.217 *** 0.236 ***

log_ldong_ -0.034 *** -0.032 *** -0.034 *** -0.032 ***

age -0.015 *** -0.012 *** -0.010 *** -0.008 *** -0.015 *** -0.012 *** -0.010 *** -0.001 ***

age2 -0.000 ** -0.000 *** -0.000 *** -0.001 *** -0.000 ** -0.000 *** -0.000 *** -0.001 ***

age3 0.000 * 0.000 ** 0.000 *** 0.000 *** 0.000 * 0.000 ** 0.000 *** 0.000 ***


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equity_to_assets_ -0.001 -0.000 -0.001 -0.038 *** -0.028 *** -0.044 *** -0.045 ***

roa_ 0.036 *** 0.021 *** 0.036 *** 0.021 ***

wage_ 0.000 *** 0.000 *** 0.001 *** 0.001 *** 0.000 *** 0.000 *** 0.001 *** 0.001 ***

grouptwo_eta -0.037 *** -0.025 *** -0.043 *** -0.045 ***

roe_ 0.000 *** 0.000 *** 0.000 *** 0.000 ***

log_von_ -0.023 *** -0.024 *** -0.023 *** -0.024 ***

group2_eta 0.039*** 0.029*** 0.046*** 0.050***

Constant 0.67*** 0.63*** 0.66*** 0.65*** 0.67*** 0.63*** 0.67*** 0.66***

Observations 10,852 9,762 10,852 9,762 10,852 9,762 10,852 9,762

R-squared 0.22 0.21 0.26 0.25 0.22 0.21 0.26 0.25

Number of id 1,392 1,392 1,392 1,392 1,392 1,392 1,392 1,392

F test that all u_i=0 3.46*** 3.02*** 3.82*** 3.41*** 3.47** 3.03*** 3.84*** 3.42***





ROA, ROE, and wage in terms of signs, magnitude of coefficients, and with those of Model 3.1 with

respect to variables such as lag of technical efficiency, labour, capital, ages at three forms, wage, and ROA,

ROE in terms of signs, magnitude of coefficients.

Coefficients of equity to assets and the interaction term GROUP2*ETA in Model 3.2 provide an

interesting findings. The positive and statistically significant coefficient of the interaction term

GROUP2*ETA in Model 3.2 at 1 percent level indicates that only wholly foreign-owned firms creates

reverse effects on firms‟ technical efficiency, which may be due to a generally favourable institutional

environment (low taxation, financial benefits, etc.).

Model 4.1 presents the interaction variable GROUPTWO*LABOR (CAPITAL) to isolate the effect

of foreign ownership on the financial performance of a firm in terms of its labour (or capital). The

estimation results are in Table 7 in which ownership variable has two categories: 1 if domestic, 0 if FDI.



and equity to assets, ROA, ROE and wage in terms of signs, magnitude of coefficients.

Coefficients of equity to assets and the interaction term GROUPTWO*LABOR in model 4.1 provide

an interesting findings. The negative and statistically significant coefficient of the interaction term

GROUPTWO*LABOR at 1percent level in Model 4.1 indicates that domestic firms creates negative

effects on firms‟ technical efficiency. Note that the coefficients of the interaction term

GROUPTWO*CAPITAL in Model 4.1 are not significant at common levels.

Model 4.2 introduces the interaction variable GROUP*LABOR(CAPITAL) to isolate the effect of

foreign ownership on the financial performance of a firm in terms of its labour (capital), but ownership

variable has four categories: 0 if domestic, 1 if wholly foreign-owned, 2 if SOE with FDI, and 3 if PTE

with FDI. The estimation results are in Table 7.


Model 1 and Model 4.1 with respect to variables such as lag of technical efficiency, ages at three forms,


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ROA, ROE, equity to assets, and wage in terms of signs, magnitude of coefficients in terms of signs,

magnitude of coefficients.

Coefficients of equity to assets and the interaction term GROUP1*LABOR, GROUP2*LABOR in

Model 4.2 provide an interesting findings (Table 7). The negative and statistically significant coefficient of

the interaction term GROUP1*LABOR at 1 percent level in Model 4.2 indicates that domestic firms

creates negative effects on firms‟ technical efficiency. The positive and statistically significant coefficient

of the interaction term GROUP2*LABOR at 1percent level in Model 4.2 indicates that wholly foreign-

owned firms creates reverse effects on firms‟ technical efficiency.


VARIABLES Model 4.1a Model 4.1b Model 4.1c Model 4.1d Model 4.2a Model 4.2b Model 4.2c Model 4.2d

L.tech_ 0.227 *** 0.246 *** 0.216 *** 0.236 *** 0.227 *** 0.246 *** 0.216 *** 0.236 ***

log_ldong_ -0.025 *** -0.022 *** -0.029 *** -0.027 ***

age -0.016 *** -0.012 *** -0.010 *** -0.007 *** -0.016 *** -0.012 *** -0.001 *** -0.001 ***

age2 -0.000 ** -0.000 *** -0.000 *** -0.001 *** -0.000 ** -0.000 *** -0.000 *** -0.001 ***

age3 0.000 * 0.000 ** 0.000 *** 0.000 *** 0.000 * 0.000 ** 0.000 *** 0.000 ***

equity_to_assets_ -0.022 *** -0.016 *** -0.025 *** -0.024 *** -0.022 *** -0.016 *** -0.025 *** -0.024 ***

roa_ 0.033 *** 0.018 *** 0.033 *** 0.018 ***

wage_ 0.000 *** 0.000 *** 0.001 *** 0.001 *** 0.000 *** 0.000 *** 0.001 *** 0.001 ***

grouptwo_l -0.011 *** -0.011 ***

roe_ 0.000 *** 0.000 *** 0.000 *** 0.000 ***

log_von_ -0.023 *** -0.023 *** -0.023 *** -0.024 ***

grouptwo_k 0.000 -0.000

group1_l -0.010* -0.008*

group2_l 0.00827** 0.010**

Constant 0.66*** 0.62*** 0.66*** 0.64*** 0.66*** 0.62*** 0.66*** 0.64***

Observations 10,852 9,762 10,852 9,762 10,852 9,762 10,852 9,762

R-squared 0.22 0.21 0.25 0.25 0.22 0.21 0.25 0.25

Number of id 1,392 1,392 1,392 1,392 1,392 1,392 1,392 1,392

F test that all u_i=0 3.47*** 3.03*** 3.83*** 3.40*** 3.46*** 3.02*** 3.83*** 3.40***



4. CONCLUSION AND RECOMMENDATIONS

4.1. Conclusion

Factors affecting technological diffusion between all kinds of FDI and domestic manufacturing

enterprises in Vietnam within the framework of this investigation are named as follows:

(1) Firm‟s past performance: positive relationship between firms‟ past performance and technical

efficiency score,

(2) Size of a firm in terms of labour and capital: negative relationship between the size of a firm in terms of labour, capital and technical efficiency scores,


344

(3) Firms‟ financial performance: positive relationship between firms‟ financial performance and

technical efficiency scores,

(4) Firms‟ level of self-financing: negative relationship between firms‟ level of self-financing and technical efficiency scores,

(5) The labour market conditions: positive relationship between the labour market conditions and technical efficiency scores,

(6) Years of operation: a quadratic relationship between years of operation and technical efficiency scores,

(7) FDI creates reverse effects in terms of firms‟ financial performance in terms of ROA, ROE on FDI firms‟ technical efficiency,

(8) FDI creates reverse effects in terms of firms‟ characteristics (equity to assets ratio, capital, and labour) on FDI firms‟ technical efficiency. Wholly foreign-owned firms also create reverse effects in terms

of equity to assets ratio on firms‟ technical efficiency. Moreover, wholly foreign-owned firms also create reverse effects in terms of labour on firms‟ technical efficiency.

4.2. Recommendations

4.2.1. To policy makers

According to the general conclusions of the existence of technological diffusion in manufacturing sector in Vietnam, it is suggested that the government should continue providing the incentives, as it has in

the past, to encourage FDI within the manufacturing industry. It would be wise, however, to enact this

policy with a certain degree of selective support. The reason for this is that, as the study has shown, the presence of FDI firms, will impact domestic firms differently depending upon the different attributes of

domestic firms, namely: firm performance (ROA, ROE), firm characteristics (size, self-financing level, years of operation), market conditions (wages).

One of the foremost determinants as to whether a positive technological spillover or a negative spillover occurs will play out according to the size of the firm. The focus for this policy of FDI

encouragement should be on small domestic firms. This is the group of domestic firms that benefit the most from FDI. In concern with the encouragement of FDI at this level, the government should leverage the

opportunity that this provides and work to create specific programs that will support and help the small firms learn from foreigners. In addition, any program that helps strengthen the linkage and connection

between small and medium-sized domestic firms and the foreign firms should be implemented due to the mentoring effect that this will promote.

Policy implications for each manufacturing sub-sectors with regard to current industry technology levels are also different. The promotion of FDI should focus: (1) on the low-technology industries such as

food products, beverages, and tobacco products; textiles, wearing apparel, leather and related products; wood and of products of wood and cork, except furniture, articles of straw and plaiting materials; paper and

paper products; and furniture; or (2) on the medium-technology industries such as Coke and refined

petroleum products, chemicals and chemical products, basic pharmaceutical products and pharmaceutical preparations; and other non-metallic mineral products; or (3) on the high-technology industries such as

motor vehicles, trailers and semi-trailers, other transport equipment; and computer, electronic and optical products, electrical equipment, machinery and equipment.

4.2.2. To administrators at various levels in Vietnam

The competition for FDI is becoming tougher in a globalization context. Meanwhile, Vietnam‟s

investment environment is currently less competitive than other countries in the region. Therefore,


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improving the investment environment is critical. As the primary goal of foreign investors is to exploit

profits, lowering business and investment costs and making the environment more favourable will promote

further FDI inflows. To the host country, employment, technology transfer and long term investment from foreign investors are also the objectives for improving investment environment.

Thus, policies should focus on these issues:

To improve the markets for factors of productions, particularly markets for capital, labour, and real

estate. This will provide the foreign investors with easier access to and more flexible use of factors of

production regarding price, space and time. Otherwise, the underdevelopment of those markets in Vietnam

become a severe weakness as it increases the production costs and hinder the ability to capture business

opportunities of foreign investors.

To improve and expedite the administrative reform, together with the decentralization of State

management in general and investment management in particular to local government. In addition, the

responsibility of each individual should be clearly determined and evaluated on the basis of benefits to the

whole society. That is, decentralization should enable governments of each level to actively make decisions

within their jurisdiction, as well as to evaluate the actual consequences of such decisions, regarding

employment creation, increase in production values and added values to local area, etc. after the projects

commence. The local policy to quickly improve the capacity of the staff is also required.

The government should support local provinces in promoting investment, training human

resources to meet the demand for skilled workers and managerial labours. Building infrastructure facilities,

therefore, may give some potential local provinces more priority to establish a belt surrounding large cities

so that the FDI enterprises may expand their activities with respect to geographical location.

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International Research Journal of Finance and Economics.

Basti, E., & Akin, A. (2008). The comparative productivity of the foreign-owned companies in Turkey: a Malmquist

productivity index approach. International Research Journal of Finance and Economic, 1-3.

Battese, G. E., & Coelli, T. J. (1992). Frontier Production Functions, Technical Efficiency and Panel Data: With

Application to Paddy Farmers in India. Journal of Productivity Analysis, 3, 153-169.

Liu, Z. (2008). Foreign direct investment and technology spillovers: Theory and evidence. Journal of Development

Economics, 85, 176-193

Ngo, Q. T. (2014). Do FDI Enterprises Work More Efficiency than Domestic Ones in Vietnam? Evidence from Panel

Data Analysis. Review of Management Innovation & Creativity (RMIC), Vol. 7, Iss. 21.

Rowland, P. (2006). Foreign and domestic firms in Colombia: How do they differ? Borradores de Economia. Banco

de la Republia de Colombia

Tang, H. (2008). Spillovers from Foreign Direct Investment in China: The Role of Ownership. MIT Working Paper

2789.

World Bank. (1993). Foreign Direct Investment-Benefits Beyond Insurance, Development Brief (Vol. 14). Washington,

DC.


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A Study on Customer Acceptance of Dragon Fruit Wine Product

Doan Thi Thanh Thuy

Faculty of Business Administration, HCMC Open University


Lai Thanh Tu


ABSTRACT

The birth of dragon fruit wine is a big step in new product development for Vietnamese dragon fruit.

Currently, this product has not yet been widely known to the consumer. With the aim of studying the

consumer buying decision of dragon fruit wine product in Ho Chi Minh City, this paper use quantitative

analysis with Binary Logistic regression. It is found that there are five groups of factors with positive

statistical significance influencing on customer acceptance of this product including: country of origin,

taste, sale location, demographic and promotion. From these findings, the paper proposes a number of

solutions to improve purchasing power for dragon fruit wine product.

The birth of dragon fruit wine creates high value-added to ordinary dragon fruits. This really means a

lot not only for sustainable agriculture development but also for economic development and to social

security.

Keywords: acceptance, buying decision, dragon fruit wine, Ho Chi Minh City.

1. INTRODUCTION

In today‟s social development, human is more and more interested in natural products which are good

for health. The increase in demand market led to the birth of different kinds of products with ingredients

derived from nature and one of these products is dragon fruit wine. Wine is an alcoholic beverage

fermented from grape juice or other fruits (e.g. apple, grape, apricot, pineapple, etc). The majority of

nutrients of fruit pulp is not lost during wine production process so that wine is safe and nutritious.

According to scientists of Harvard University, drinking a sufficient amount of wine on a daily basis is

very good for health, the remarkable benefit is to minimize the risk of downturn in brain function and resist

aging for human body.

In recent years, the consumption growth rate of Vietnamese wine market increases continuously.

According to statistical data of Vietnam Beer Alcohol Beverage Association from 2004 to 2013, imported

wine increases about 25% per year. Currently, there are more than 15 wine manufacturers and bottling

companies with production capacity of 12-13 million of litres per year, per capita consumption of wine in

Vietnam is around 250 ml/person/year, this means that there are still a lot of potential consumers in this

market. Wine is a quite popular product which is sold everywhere in Vietnam such as grocery stores,

supermarkets, hotels, bars, etc. Some companies diversify their product range to enhance market access and

that of wine production from fresh dragon fruit is an example.


347

In recent years, department of agriculture and rural development in many provinces organized many workshops to introduce pilot models of dragon fruit wine production processes to farmers. By the end of 2014, Vietnamese dragon fruit white wine is officially launched in domestic market as well as exporting to other countries. Dragon fruit wine has transparent ivory white and light fragrance, alcohol level 12%, no preservative and zero input during production process. The development of this new product is to encourage agriculture growth, processing and application of post-harvest technology. There are many benefits of this process, which are: promoting agriculture development, creating more jobs for local people, increasing value to dragon fruit, forming a typical product for Vietnam, supporting post-harvest technology (many products are discarded due to not being promptly processed), preserving post-harvest agriculture product, reducing post-harvest losses and improving quality and value of agriculture products for farmers.

Located at the key economic zone in Southern area, Ho Chi Minh City is one of the largest consumption markets with the population of over eight million people which is seen as a potential market for dragon fruit wine. In fact, number of customer buying and using this product is still very low. This paper is to study on the factors that affect consumer buying decision and then propose measures to improve purchasing power for dragon fruit wine in Ho Chi Minh City.

THEORETICAL BACKGROUND

From 1940s until now, there are many theoretical models developed in order to analysis consumer buying decision. Decision making of consumer is defined as “consumer behavior pattern” which depends on decision making process in order to meet consumption demands of product or service (Du Plessis et al., 1991).

Research on consumption behavior of customer is utmost important stage which greatly influences on marketing strategy decision of the company. Characteristics and process of decision making of consumer led to different buying decision. In fact, there are many factors that affect the decision making of human concerning product purchase (Kotler, 2004).

Marketing

Stimuli Other Stimuli

Buyer

characteristics

Buyer decision

making process

Buyer responses

Product

Price

Place

Promotion

Economic

Technological

Political

Social

Cultural

Social

Personal

Psychological

Problem recognition

Information search

Evaluation

Decision

Post-purchase behavior

Product choice

Brand choice

Dealer choice

Purchase timing

Purchase amount

Figure 1. Stimulus-response model of buyer behavior (Kotler, 2004)

Many studies have been conducted to examine buying decision of consumers concerning wine. Angelo Riviezzo, Alessandro De Nisco and Antonella Garofano (2014) studied on wine purchase and consumption behavior by sampling 630 consumers in Campania, an area locating in the South of Italy. In this study, the author focused on analyzing the factors that influence on each stage of buying decision. The results show that price (30.6%), quality (28.7%) and origin (15%) are main factors that influence on buying decision at product purchase decision stage. When considering on frequent buyers, other factors play a more important role such as: presence of quality certification (IGT, DOC, DOCG), brand recognition, marketing and recommendation of family and friends; all of these indirect factors support the choice of consumer who do not have perceptual knowledge of the product.

Vershofen (1959) researched on expected value of a wine bottle. Wine is a special product because its quality cannot be identified until the bottle is opened and tasted. Therefore, the evaluation of the quality of


348

wine must be based on other attributes of the product. According to this study, the expected value of wine is influenced by fundamental values and additional values. In case of the underlying value of wine is flavor, other factors such as source of material, country of origin and packaging contribute additional value to wine. If consumer cannot taste the wine before making decision, only one basic expectation value (taste) is determined. The remaining additional values and level of product knowledge affects the fundamental values of wine.

Szolnoki (2007) researched on the difference between preliminary decisions and point of sale (POS)

decisions and the results show that if the consumers do not make purchase decision randomly, time and

price will be considered. These two decisions impact on store choice (supermarket, specialized wine store

or wine processing plant) and wine price.

Keown & Casey (1995), after surveyed 210 wine stores in Northern Ireland, found that the country of

origin is the most important factor affecting wine purchase decision, the following affected factors are

brand and type of grapes used to produce wine.

Chaney (2000) surveyed 107 adults in England and Scotland. The results show that sales location,

brand and the communication activities are important sources of information dissemination influencing on

customer buying decisions.

Compared with previous researches, this paper works as the first application of scientific research on

acceptance of dragon fruit product in Vietnam. Because the product of this research is a commodity, origin

factor is primary concern. Taste is the next factor to be considered concerning wine product in general.

Factors coming next are ones that affect buying behavior as factors influencing on perception of buyer

(product, price, distribution channel and promotion) and other factors concerning buyer characteristics

(demographic, gender). Based on the theoretical basis of buying behavior and factors that influence the

purchasing decision of buyer, this paper considers factors that affect the buying decision of dragon fruit

wine as follows:

Country of Origin: Customer buying decision is influenced a lot by psychological factor

“experienced satisfaction” (Baba Shiv - Stanford Graduate School of Business). Experiences are

accumulated over time and stored through oral communication and experience sharing. That is why the

country of origin factor of dragon fruit wine greatly influences on buying decision and customer acceptance

of dragon fruit wine as well. Country of origin includes brand name and material source.

Taste: When asking customers the reason why they choose a certain wine product, Koewn and Casey

(1995) discovered that the taste of the wine was a dominating factor for wine consumer. Thompson and

Vourvachis (1995) found that taste was the most highly correlated attribute relating to wine choice. The

taste of the wine represents one of the major perceived risks presented by Mitchell and Greatorex (1988),

since they found that the taste of the wine was the risk that concerned consumers most.

In a survey of factors influencing buying decision of wine product at 69 restaurants in New York

(Trent Preszler and Todd M. Schmit, 2009), the results show that there is 90% of respondents said that taste

was the most important factor affecting their buying decision. Group of taste factors includes: color, clarity,

dilution, flavor and taste.

Packaging: Packaging and label design of food in general and wine in particular play an important

role in influencing the perception and subsequent acceptance (Imram, 1999). External packaging attribute

provides consumers real value and aesthetic, while strongly influence sensory perception (Gianluca,

Donato & Cavicchi, 2006). Extrinsic attribute of label provides practical and aesthetics value which

strongly influence on sensory perception (Gianluca, Donato & Cavicchi, 2006).

Other studies found that strong consumer impressions are evoked by wine packaging design elements

(Boudreaux & Palmer, 2007; Orth & Malkewitz, 2006) and that during in depth focus groups, consumers


349

reveal that they consider packaging design features when making purchase decisions (Rocchi & Stefani,

2005; Szolnoki, 2007).

Price: Hilke Plassmann and John O'Doherty (2007) of California Institute of Technology, along with

Baba Shiv and Antonio Rangel of Stanford Graduate School of Business, used method of magnetic

resonance imaging MRI for scanning brains of human subjects while they tested wine, which contrary to

reality, they believed to be different and sold at different prices. The results show that increasing the price

of a wine increases subjective reports of pleasantness. In other words, price information can affect the brain

area that is responsible for accumulating experienced pleasantness of a product. In particular, the

researchers poured out two different wines with prices of 90 USD and 10 USD. With the appearance of the

price cue, most of subjects experienced pleasantness of wine with price of 90 USD. However, when

different wines with different price are administered (5, 10, 35, 45 and 90 USD) without any information of

prices, the majority of subjects did not choose the highest price wine. Plassmann said that: the wine with

high price revealed before trial taste will make it appreciated more.

Demographic: According to the information from SMEI Vietnam (Sales and Marketing Executive

International Inc.), group of personal factors affects buying decision of customer includes: age, occupation

and economic condition.

Sale location: According to a study conducted in China relating to wine consumer behavior show that

most of wine buyer (65%) indicated that dining in a restaurant with their families or friends would be their

main opportunity to consume wine; 20% of respondents said that they often drink wine in retail stores at

leisure centers; and 15% of respondents drink wine when they stay at hotels (Leeva Li, Xiaoling Hu and

Zhuo Jun, 2005). Customers often buy wine at security and convenient places.

Promotion: Promotion is seen as a communication way between company and consumer. There are

five tools often used in promotion including: advertising, PR, sales promotion, direct marketing and

personal selling. After having an intensive interview with 8 consumers regarding dragon wine product, it is

found that consumers are interested in three main tools: advertising, sales promotion and personal selling.

2. RESEARCH MODEL

Research model is as follows:

3. RESEARCH METHOD AND PROCESS

Scope of this research encompasses consumers in Ho Chi Minh City.


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Qualitative research was conducted by using desk-based and in-depth interview. Subjects of this

research are factors that impact on consumer‟s buying decision and are presented in domestic and

international prestigious scientific research journals regarding wine. Subjects of the survey are regular

customers of wine stores who used to drink dragon fruit wine at least 3 times.

Preliminary research is conducted by a survey of 30 consumers at wine stores and Co.op Mart Nguyen Kiem in Ho Chi Minh City in order to create a formal standardized questionnaire. Official research is conducted by using statistical method and Binary Logistic regression to input suitable factors for proposed research model. The authors have interviewed 320 consumers using non-probability sampling method (of which 250 consumers used to try the product) at some wine stores and Co.op Mart in Ho Chi Minh City. For subjects who have never used dragon fruit wine in the past, they are administered to taste the product.

4. RESULTS

The research tested the relevance of mentioned model based on -2LL value; using Wald Chi-Square test to test statistical significance of regression coefficients; using Chi-Square test to test hypothesis H0 in Binary Logistic regression. Accordingly, -2LL = 195.671

a, pretty much lower than 0.01, therefore the model fit in

logistic regression. However, there are 17 variables are removed because they are not statistically significant in the model including: (1) price, (2) packaging, (3) dilution, (4) personal selling, (5) from 18 to 25, (6) from 26 to 35, (7) from 36 to 45, (8) from 46 to 55, (9) over 55, (10) student, (11) worker, (12) staff, (13) teacher, doctor, lawyer, (14) officer, leader, (15) home-maker, (16) pensioner, (17) advertising. These variables belong to groups of Price, Promotion, Demographic. The model is reset as follows:

promotionplacelsixtotenmi

ilfourtosixmiltwotofourmlbelowtwomigendertasteflavour

claritycoloureamaterialarbrandname

i

ii

XXX

XXXXXX

XXXXP

PL

131211

1098765

432101

ln

Table 1. Analysis results of statistically significant variables in Binary Logistic regression model

B S.E. Wald Df Sig. Exp(B)

brand_name 1.545 .412 14.036 1 .000 4.686

material_area 1.049 .424 6.136 1 .013 2.855

place 1.782 .429 17.291 1 .000 5.943

colour .973 .431 5.089 1 .024 2.646

clarity 1.332 .430 9.570 1 .002 3.787

flavour 1.536 .429 12.815 1 .000 4.647

taste 1.643 .458 12.891 1 .000 5.170

promotion 1.824 .425 18.425 1 .000 6.199

gender -.999 .412 5.883 1 .015 .368

belowtwomil 4.766 2.095 5.174 1 .023 117.490

twotofourmil 2.912 1.191 5.978 1 .014 18.393

fourtosixmil 1.481 .757 3.829 1 .050 4.396

sixtotenmil overtenmil

1.562 -.626

.644

.291 5.880 4.627

1 1

.015

.031 4.770 .535

Constant -7.096 1.656 18.368 1 .000 .001

Source: survey data in 2015


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Table 2. Test the accuracy of predictive model

Classification Table

Observed

Predicted

acceptance Percentage Correct

No Yes

Step 1 acceptance No 80 27 74.8

Yes 19 174 90.2

Overall Percentage 84.7

The cut value is .500

Source: survey data in 2015

Results from the table reveal the accuracy of predictive model, the model predict correctly the outcome of 80 trials

amongst 107 trials of consumers who said no to buying dragon fruit wine, accuracy percentage of prediction is 74.8%.

Amongst 193 trials of customers who agreed to buy dragon fruit wine, the model predict correctly the outcome of 174

trials, accuracy of prediction is 90.2%. The overall probability of correct prediction is 84.7%.

Table 3. Result of relevance test of predictive model

Step -2 Log likelihood Cox & Snell R Square Nagelkerke R Square

1 195.671a .478 .657

a. Estimation terminated at iteration number 7 because parameter estimates changed by less than .001.

Value -2LL = 195.671a of the model is not high, the goodness of fit of the model shows that this is a

well-fitting regression model. Coefficients of Cox & Snell = 0.478 and Nagelker = 0.657 show that 65.7%

acceptance of buying dragon fruit wine are explained by independent variables of regression model.

5. FINDINGS AND DISCUSSION

Brand name variable having positive coefficient and statistical significance of 1% means that it has a

linear relationship in the same direction with buying decision of the customer. Given condition that other

factors are constant, brand name factor shows that the more customers concern about the quality of wine,

the more customers choose to buy dragon fruit wine. The results of the study are consistent with the theory

of Baba Shiv, according to the research finding of wine selection, most customers prefer brand name

originating from renowned production area.

Country of origin variable: having positive coefficient and statistical significance of 1% means that

it has a linear relationship in the same direction with buying decision of the customer. Given condition that

other factors are constant, brand name factor shows that the more customer concern about country of origin,

the more customer choose to buy dragon fruit wine. The results of the study are consistent with the theory

of Frederic Brochet and Denis Dubourdieu achieved from a survey conducted in 2001. According to that

research, most of customers prefer bottle wine with prestigious production region than the other bottles

criticized “wine defect”.

Colour, clarity, flavour and taste variables which all belong to taste group with statistical

significance of 0.024, 0.002, 0.00 and 0.00 respectively and regression coefficients of 0.973, 1.332, 1.536

and 1.643, respectively, which have positive sign as research expectation. This means that independent


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variables of colour, clarity, flavor and taste are correlated with dependent acceptance variable. The results

of the study are consistent with the theory presented by Koewn and Casey (1995), who found that taste of

wine is overriding criterion of buyer choice.

Sale location variable has statistical significance of 0.00, regression coefficient of 1.782 that has positive sign as expectation. Given condition that other factors are constant, sale location factor shows that

the more customer satisfy of security and convenience of sale location, the more customer choose to buy dragon fruit wine. The results of the study are consistent with the theory of Leeva Li, Xiaoling Hu and

Zhuo Jun (2005), as most of wine buyers often choose to buy wine at supermarket or restaurant because of its quality assurance and high convenience.

Promotion variable has positive coefficient and statistical significance of 1% that presents a linear relationship in the same direction with buying decision of the customer, as of research expectation. Given

condition that other factors are constant, promotion factor shows that the more customer is interested in promotion, the more customer choose to buy dragon fruit wine.

Gender variable has statistical significance of 0.00, regression coefficient of -0.999, which has a

negative sign that are contrary to research expectation. This means that independent gender variable has a negative correlation with dependent acceptance variable. It can be explained that not only man but also

women are interested in dragon fruit wine, gender factor do not affect buying decision of dragon fruit wine.

Dummy variables including: belowtwomil, twotofourmil, fourtosixmil, sixtotenmiland

overtenmil that belong to income group have statistical significance of 1%. This means that customers having income of below 10 million VND are likely to accept this product, but customers having income of

over 10 million VND are not likely to do so. It can be explained that customers with income of over ten million per month often use luxury products in general and long standing wine in particular. Currently,

dragon fruit wine do not resonate in this market; therefore, these target customers are not interested in this wine.

6. APPROACHES

Based on factors affecting buying decision of dragon fruit wine combined with the needs of regular

wine drinkers, the paper provides some solutions to increase the purchasing power of dragon fruit wine market as follows:

Brand name and country of origin are two elements received high interest of consumers. Dragon fruit wine producing and trading companies need to develop an image of companies‟ products with

reputation and good brand in the minds of consumers so that they will often mention businesses as top

priorities when deciding to buy wine in general and dragon fruit wine in particular. Beside promoting and protecting brand name, companies need to pay attention to material input to production. If fresh fruit has

large amount of residue of plant protection product or is contaminated, the wine production will not be successful. When the prestige of the brand and raw material quality are assured, it is more likely that

consumers will choose to buy dragon fruit wine products.

Taste: According to customer responses, sour and bitter are the two characteristics that consumers like.

Therefore, dragon fruit wine producers need to pay attention to these characteristics.

Sale location: Consumers concern very much about the credibility and convenience of sale locations.

Companies should select distribution channels that meet two criteria above in order to make it easier for customers to buy dragon fruit wine. Supermarket is considered a distribution channel that is preferred by

many customers for wine purchase.

Promotion: Currently, there is a few companies advertising about wine products. Wine is a very

special product so that consumers do not appreciate the information they receive from advertising. In regard of dragon fruit wine products, consumers very much enjoy promotions while advertising and direct


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sales do not receive much attention. Companies should give incentives as promotional gifts to customers

that buy the product because 41.7% of consumers prefer this type of promotion, according to a research

implemented in the past. In addition, fair trade, ceremony or product launch seminars are effective channels that companies can utilize to promote their products. Many companies have succeeded in this type of

promotion.

In addition, in tourism area where international and domestic visitors learned about dragon fruit, if

they can purchase dragon fruit wine on-site, it is truly an exciting felling for customers. Therefore,

companies can cooperate with tourism companies to set up tours of visiting production processes and

product marketing.

7. CONCLUSION

For any product, the assessment of consumer acceptance is very important in determining the

existence and development of products. The results showed that consumer acceptance of dragon fruit wine

product is affected by five groups of factors: country of origin, taste, sale location, demographic and

promotion.

From this result and findings of needs from customers who often use wine, the paper proposes

approaches focusing on these factors to increase purchasing power for dragon fruit wine market. The

proposed solutions will be the basis for dragon fruit wine producing and trading companies to set up short

term and long term strategy development plan. By understanding consumer expectation of the product,

dragon fruit wine producers will find out a way to develop targeted products that meet the highest demands.

In the long term, the development of dragon fruit wine sector can help tackle unstable prices of dragon

fruit and give farmers peace of mind when they do farming on their land. Moreover, if dragon fruit wine are

produced on larger scale, it will solve related problems regarding unemployment and contribute to

improving livelihood and social security for local people.

The problems of post-harvest technology remained unsolved for a long time, fresh fruits and

vegetables that may not be consumed for a significant length of time following harvest and difficulties of

preservation process have led to great post-harvest losses for the local agriculture regions in the whole

country. The development of wine product made from dragon fruit not only supports for agriculture and

production industry development but also contribute to develop post-harvest processes. Dragon fruit wine

is supposed to become not only a brand name with specific country of origin but also contributes greatly to

sustainable economic development.

REFERENCES

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consumption behavior: A market segmentation proposal”, International Journal of Sales and Marketing

Management (IJSMM), Vol. 3(1), pp.11-24.

Baba Shiv, Hilke Plassmann, John O‟Doherty (2008). How a Wine’s price tag affect its taste.

Boudreaux, C. A., & Palmer, S. (2007). A charming little Cabernet: Effects of wine label design on purchase intent

and brand personality. International Journal of Wine Business Research, 19(3), 170-186.

Chaney, I. M. (2000). External search effort for wine. International Journal of Wine Marketing, 12(2), 5-21.

Du Plessis, P. J., Rousseau, G.G., and Blem, N.H. Consumer behavior. A South African perspective. Pretoria, Sigma,

1991.

Imram, N. (1999).The role of visual cues in consumer perception and acceptance of a food product. Nutrition and

Food Science, 99(5).


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Gianluca, S., Donato, R., & Cavicchi, A. (2006). Consumer expectations, liking and willingness to pay for specialty

foods: Do sensory characteristics tell the whole story? Food Quality and Preference, 17(1-2), 53-62.

Koewn, C., and Casey, M., (1995), “Purchasing Behaviour in the Northern Ireland Wine Market”, British Food

Journal, vol. 97 (1), 17-23, (11), pp.17-20.

Kotler et al. (2004) Chapter 7, pp. 242-244, 'Consumer behaviour' and 'A model of consumer behaviour'.

Mitchell, V. W., & Greatorex, M., (1988), Consumer risk perception in the UK wine market, European Journal of

Marketing, vol. 22 (9), pp. 5-15.

Mitchell, V. W., & Greatorex, M., (1989), Risk reducing strategies used in the purchase of wine in the UK, European

Journal of Marketing, vol. 23 (9), pp. 31-46.

Leeva, Xiaoling Hu and Zhuo Jun, 2005, Do Chinese consumer prefer to buy imported wine? The effect of country - of

- origin.

Rocchi, B., & Stefani, G. (2005). Consumers‟ perception of wine packaging: a case study. International Journal of

Wine Marketing, 18(1), 33-44.

Szolnoki, G. (2007). Die Messung des Einflusses der aeusseren Produktgestaltung auf die Kaufbereitschaft:

dargestellt am Beispiel Weisswein (Measurement of the influence of extrinsic product design on purchase

intent for white wine). Dissertation (PhD thesis). Justus-Liebig-Universitaet Giesen, Geisenheimer Berichte Bd.

61, Geisenheim.

Thompson, K. E., and Vourvachis, A., (1995), Social and attitudinal influences on the intention to drink wine,

International Journal of Wine Marketing, vol. 7 (2), pp. 35- 45.

Trent Preszler and Todd M. Schmit, (2009), Factors Affecting Presence of New York Wines in Upscale New York

City Restaurants, Journal of Food Distribution Research, vol.40 (3), pp. 19.

Vershofen, W. (1959): Die Marktentnahme als Kernstück der Wirtschaftsforschung. Berlinu. A.: Heymanns.


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Antecedents of Attitudes toward Sustainable Business Practices - A Study among Vietnamese Business Students

Nguyen Phuong Hoang Cuc, Bui Quang Thong,

Nguyen Do Thuy Nhi, Nguyen Trung Hung3

Department of Business Administration, School of Business, International University -

Vietnam National University, Ho Chi Minh City


ABSTRACT

This research investigates the antecedents of attitudes toward sustainable business practices (SBP).

Using psychological concepts such as human values, cultural orientations, leadership styles and lower-

order attitude toward money, we construct a model depicting the formation of attitudes toward SBP. We

propose that people being high in social and moral values, collectivism, transformational leadership style

will be likely to have more positive attitudes toward SBP whereas people high in personal, competent

values, individualism, transactional leadership style, and money obsession will be likely to have less

positive attitudes toward SBP. Moreover, we also posit that contextual elements and education experience

in business ethics will positively affect attitude toward SBP. Business students, who will be future business

leaders, are used as our sampling. This study contributes to the body of literature in the field by exploring

the role of money attitude, contextual elements and related education experience to the formation of

attitudes. Relevant implications for educationists and practitioners are also provided.

Keywords: attitudes, sustainable business practices, human values, individualism, collectivism,

leadership, money attitude, contextual elements.

1. INTRODUCTION

In recent years, the term “social responsibility” has become more and more popular and familiar with

everyone, especially people in business-related sectors. Since the interest in the environment and corporate

social responsibility has been blooming and rapidly turning into a big concern for entrepreneurs, they need

to have an insightful knowledge to timely respond to those. However, most researches in this topic are from

developed Western countries (Bradbury, 2003; Egri and Rogers, 2003; Springett, 2005) while empirical

researches in a non-Western context, especially in Vietnam, are still relatively sparse even though

Vietnam‟s consumer ranks third on the level of concerning about corporate social responsibility (Nielsen

Vietnam, 2014). Many even check the product package to judge the brand‟s environmental commitment.

According to Nielsen global survey of corporate social responsibility, nearly three-quarters of respondents

in Vietnam (73%) are willing to pay more for products and services from companies that have committed

to the environmental and social development. "Trend in selecting brands with high corporate social

3 Bui Quang Thong (PhD) is a full-time lecturer at School of Business, International University, Vietnam National University, Ho

Chi Minh City. 2 Nguyen Phuong Hoang Cuc is an MBA student at School of Business, International University, Vietnam National University,

Ho Chi Minh City. 3 Nguyen Do Thuy Nhi is an undergraduate student at School of Business, International University, Vietnam National University,

Ho Chi Minh City. 4 Nguyen Trung Hung is an undergraduate student at School of Business, International University, Vietnam National University,

Ho Chi Minh City.




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responsibility is popular in many countries in Southeast Asia, especially in developing countries like

Vietnam, because consumers here often struggle with natural disasters and poverty" – said Vishal Bali,

Managing Director of Nielsen's Consumer Insights business in Southeast Asia, North Asia and Pacific.

Therefore, this study‟s result aims not only to fill the gap in empirical work in Vietnam but also to help

entrepreneurs gain better insights about the issue.

In addition, most of the papers about corporate social responsibility only focused on stakeholder management and the triple bottom-line (Elkington, 1997; Guerrette, 1985; Kahn, 2007), whereas

individual-level factors affecting leaders‟ behavior toward environmental and social development have not been investigated deeply enough. Therefore, this research will examine those by extending the model of Ng

and Burke (2010) with some more individual-level factors: individual‟s money attitudes and educational support - the lack of educational support for SBP should be an issue to concern about. Money attitudes are

studied in little, if any, to research about SBP even though it is indicated that money may motivate individual‟s behaviors in variety ways (Lindgren, 1980; Gurney, 1988) and money attitudes are also found

to affect other attitudinal measures (Yamanchi and Templer, 1982). Hence, this study will examine money attitude as an antecedent of attitudes toward SBP to see how people with different attitudes toward money

think about sustainable development. Moreover, a country has its unique context, and the context affects people‟s attitudes and beliefs in the country, especially toward SBP. Therefore, the favorable contextual

elements are added into the model to test the relationship between them as well as how favorable the context in Vietnam is in supporting SBP.

Furthermore, Cragg (1997) suggested that when individuals reach college age, their character development has been completed and their beliefs about ethic cannot be taught anymore. They have a

particular level of knowledge and their own attitudes toward SBP. Because business students today are the

tomorrow business leaders, what affects their leadership styles and attitudes toward SBP may change the whole world later. Therefore, this study focuses on business students – who will be corporate executives

and managers in the future.

In general, the objective of this research is to investigate what factors affect respondents‟ attitudes

toward sustainable business practices. The results are expected not only to contribute to the body of theoretical work which is still not well developed in Vietnam but also to fill the missing in the literature of

this topic. Moreover, the findings of this study may help entrepreneurs to understand more about SBP and take part in the long process of changing attitudes among business students – future leaders.

2. THEORETICAL BACKGROUND AND PROPOSED HYPOTHESES

2.1. Sustainable business practices

Throughout the history, sustainable business practice (SBP) has been defined by many analysts, from the results yielded from investments in capital contribution to the development of sustainable business

practice (Moser, 2001, p.293). Business practices can be considered sustainable if the net result in capitals‟ changes at the end of combining process is positive (Munasinghe, 1993). That SBP‟s definition is not only

applicable in business situation but also unifiable with the motto of the United Nations (2002) in developing the Sustainable Development. In other words, SBP can be integrated into Sustainable

Development, which was once defined as the interaction between human and environment but now

extended to all aspects related to individuals‟ social well-being.

Environmental concern is the factor that appears thoroughly and predominantly in previous

approaches. Hence, this study concentrates on environmental sustainability as the typical indicator for SBP.

In fact, people and enterprises concern more about environment issues nowadays. According to Aigner et

al. (2003), firms which are more responsible to the environment will achieve better market performance,

especially in agricultural industry. However, in some industries, such as tourism, business owners haven‟t

yet concerned about environmental sustainability while a large number of their customers make purchase


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decision based on how the firm affects the environment (Dewhurst and Thomas, 2003). Some of them

perceive environmental concerns as the way to deduce operation costs of their business to maximize their

stakeholders‟ return. Nevertheless, new business perspectives indicate that business still can maximize their

stakeholder‟s return while following the strategies that promote environmental sustainability.

2.2. Human values

Values, in origin, were defined as the human mind‟s abstract related to righteous behavior or morality (Perry, 1926). The definition of values changed together with the development of human being as values

turned to be the constant set of priority activities that human perceived in their mind (Allport et al., 1951). The evolution of value‟s definition of Rokeach (1973) brings value to the broader context, which is

human‟s long-lasting perception about preferable behaviors or moral standards as compared to the contrary ones. Values and behaviors interact in a reciprocal way, through which a behavior can be shaped based on

many values and one value can shape many behaviors (Ng and Burke, 2010). The interaction between values and attitudes lies mainly in the influence of values on attitudes, which is perceived as the continuous

process: from values to attitudes, from attitudes to behaviors (Ajzen, 1991; Ajzen and Fishbein, 1980). In other words, people shape attitudes from feelings and perceptions generated when they compare their

observation about objects or activities with their values, then form behaviors by combining values and related attitudes. Therefore, measuring values is a critical manner to predict attitudes.

Realizing the importance of values in shaping attitudes, many researchers have developed methods to

measure values. For example, Lindzay's Study of Values (SV), England's Personal Value Questionnaire (PVQ), Rokeach's Value Survey (RVS), and Rest's Defining Issues Test (DIT). No matter what method is

chosen, there are only two purposes: measuring the effects of a single value except of the effects of other values or measuring the effect of the interaction between each person‟s set of values on attitudes. In this

study, Rockeach‟s Values are used because they can point out the rank order of value in people‟s mind (Meglino and Ravlin, 1998). This value set is also considered as an effective way in communicating the

ideas because the survey‟s design can arouse their feelings and thoughts (Posner and Munson, 1979).

Rokeach Value Survey categorizes values into two general groups: “instrumental” and “terminal”.

Instrumental values refer to the current preferences while terminal values reach the state of permanent conception (Rokeach, 1973). Developing the basic of Rokeach‟s categorization of values, Hood (2003)

divided terminal values as well as instrumental values into two sub-groups. Terminal values are grouped into “social values” and “personal values” while instrumental values are grouped into “moral values” and

“competent values”. The links between individuals‟ values and ethical orientations were examined in several studies. Brief et al. (1996) reported that there was a positive relationship between personal value

(i.e., “a comfortable life”, “pleasure”) and the tendency to engage in fraudulent financial reporting. In study of Wright et al. (1997), a negative correlation was found between moral value and moral intensity. It is also

implied that ones who regard other had a bigger concern for social responsibility (Agle et al., 1999). Other

studies also indicated that altruistic people preferred ethical behaviors while self-enhancement people did not (Fritzsche and Oz, 2007).

Based on the above reasoning, hypothesis 1 is posited as follows:

H1a: Social and moral values positively associate with attitudes supportive of sustainable business

practices.

H1b: Personal and competent values negatively associate with or are unrelated to attitudes supportive

of sustainable business practices.

2.3. Cultural orientations

The meaning of culture is often associated with “nationality” (Hofstede, 1983). Nationality holds an important role in defining people‟s position in the society, which, in turn, helps people satisfy the need of


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belonging. People often appreciate these kinds of relationships; hence, they behave in the ways that solidify

them. As a result, the perception of other people living in the same environment often affects individuals.

Hofstede (1983) generalizes this phenomenon by defining it as “culture”, which means the way of behavior or perception that people living in the same environment share in common. By using factor analysis to

examine people in 40 countries, Hofstede summarized the nature of culture into four dimensions: Individualism – Collectivism, Power distance, Uncertainty avoidance, and Masculinity – Femininity. This

study only focuses on Individualism - Collectivism as the critical factors that affects environmental sustainability.

People possess their own unique values, which orient their behaviors. However, their unique values

are not the only factors that guide their behaviors. When facing a situation, people often compare their

unique values with the preferable values of other people living in the same society. If they perceive their

unique values to be more important than the common values, they pursue “individualism”. Otherwise, their

characteristics lean toward “collectivism” (Triandis, 1995). In individualism culture, people attach much

importance to the right of freedom to do anything they values. Their first concerns are the benefits for

themselves instead of the emotions of other people. On the contrary, the connection between people with

collectivism is tight as they tend to make decision to ensure the satisfaction of other fellow individuals.

Their concerns spread over a larger extent of relationship from the closet relatives to social relations. The

differences in the nature of individualism - collectivism leads to the differences in their view towards

environment sustainability. Collectivists are reported to have greater concerns about pro-environmental

practices (Laroche et al., 2002; Mourali et al., 2005), and to give more attention to recycling activities than

those who prefer individualism culture (McCarty and Shrum, 2001).

Based on the above, hypothesis 2 is posited as follows:

H2a: Collectivism positively associates with attitudes supportive of sustainable business practices.

H2b: Individualism negatively associates with or is unrelated to attitudes supportive of sustainable

business practices.

2.4. Leadership styles

Undoubtedly, companies cannot pursue sustainable business practices without harmonious

coordination between staffs and leaders, which depend a lot on the operation manner of the leader.

Moreover, the nature of sustainable business practices is reflected in firm‟s development strategies, which

is in turn created on the base of the thoughts of the leaders. As a result, leaders play a very important role in

heading companies‟ strategies to sustainable business practices. In fact, it is indicated that there is a

relationship between leadership and ethical orientation (Bass and Steidlmeier, 1999) because leaders often

enhance their personal values to the social values of the company, which, in turn, become the solid standard

values for the firm despite any changes in the environmental context (Hood, 2003). Kanungo (2001) also

suggested that leaders should concern about social or environment context when they perform ethical

actions because the actions‟ consequences are judged to be ethical or not partly based on the situation that

stimulates the action. Thus, in order to measure sustainable business practices, in general, and pro-

environmental attitudes, in particular, researcher should take leadership style into consideration.

Leadership style is classified into two types: transactional leadership and transformational leadership

(Burn, 1978). The power that transactional leaders apply on their staffs bases on their legitimate position in

the company, which allows them to reinforce their staffs by rewards or punishments. The coordination

between the leaders and their staffs is considered as a two-way relationship: the staffs effectuate the

leaders‟ plans exactly, and then they will get back the rewards, which are either implicit or explicit.

Transactional leadership consists of the following steps: assigning tasks or responsibilities to staffs,

appraising the results and reinforcing based on appraisal. While transactional leaders monitor their staffs

primarily by task management, transformational leaders motivate their staffs by inspiration (Bass, 1990).


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Transformational leaders concentrate their leadership on respect for human dignity, justice and all essential

needs of people (Burns, 1978).

In 2002, Turner et al. studied the interaction between transformational leadership and moral development, in which, transformational leaders work with high moral reasoning. Furthermore, Egri and Herman (2002) discovered the similarities in the characteristics of transformational leaders and environmental leaders, who have the capability to guide the vision and attitudes of people toward environmental development. It is suggested that there is a relationship between transformational leaders‟ characteristic such as prestigious, provident… and their contribution to environmental sustainability (Egri and Herman, 2000). Transformational leaders train their followers to put their moral standards instead of economic profits on the top priority, which refers to “deontological ethics” – the type of ethics that associates with transformational leaders. In contrast, transactional leaders consider “teleological ethics” as the magnetic needle to follow. Therefore, they tend to use economic outcomes or rewards as the motivation to control their followers, which is opposite to the way transformational leaders inspire and persuade their followers to truly take care of environmental issues (Ng and Burke, 2010).

Based on the above elaboration, hypothesis 3 is suggested as follows:

H3a: Transformational leadership style positively associates with attitudes supportive of sustainable business practices.

H3b: Transactional leadership style negatively associates with or is unrelated to attitudes supportive of sustainable business practices.

2.5. Money attitudes

Money is a very important part in our modern society and is considered as a powerful motivator of individuals‟ behavior (Goldberg and Lewis, 1978). These authors suggested that four main dimensions of money attitudes are security, power, love and freedom. “Security represents the ability to cope or to stave off problems; power is the ability to buy importance; freedom is the ability to buy time and to pursue personal interests; and love assumes the buying and selling of affection” (Goldberg and Lewis, 1978, cited in Hanley, 1992). Money is initially only a means of exchange but as time flies, a symbolic meaning has been attached to money. Wernimont and Fitzpatrick (1972) found that people tend to apply many other meanings to money such as social acceptability. As a result, individuals‟ attitudes and feelings about money have many influences on life. Yamanchi and Templer (1982), and Furnham (1984) are the first to develop a measurement based on Goldberg and Lewis‟s conceptualization. The scale had been widely used and adapted in quite a few studies (Bailey & Gustafson, 1986; Bailey & Lown, 1993; Hanley & Wilhelm, 1992; Hayhoe & Wilhelm, 1998; Wilhelm &Varcoe, 1991). Previous research indicated that money may motivate individual‟s behaviors in variety ways (Lindgren, 1980; Gurney, 1988). Money attitudes are also found to have association with other attitudinal measure such as status concern, anxiety, machiavellianism (Yamanchi and Templer, 1982). Based on these above, we argue that money attitudes may also have certain association with the attitudes supportive of SBP.

Since not all lower order dimensions of money attitudes are relevant in this context, we decided to use only its two sub-dimensions, which are Obsession and Power. Obsession – “referring to individuals‟ preoccupation with thoughts of money” (Lim, 2003) - is measured by some items such as “Money is the most important goal in my life” or “I feel that money is the only thing that I can really count on”. We hypothesized that people obsessed with money will have low tendency for SBP.

In contrast, Power dimension refers to “the extent that people feel that money is a source of power” (Lim, 2003). Power dimension is measured with such item as “Money means power”, “Money gives you autonomy or freedom”, “Money will help you express your competence and abilities”. To certain extent, these perceived attitudes can be considered positive, in a sense that people who are strong on this dimension are more likely to consider money as a means in life, rather than an end, as in obsession dimension.


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Based on the above arguments, hypothesis 4 is posited as follows:

H4a: Money Obsession negatively associates with or is unrelated to attitudes supportive of sustainable

business practices.

H4b: Money Power positively associates with or is unrelated to attitudes supportive of sustainable

business practices.

2.6. Educational support

Educational support is considered as an efficient way for students to obtain necessary knowledge

about business (Wang and Wong, 2004; Gatewood, 2002) as well as values and opinions (Glen, 1992;

Webr and Glyptis, 2000).The attitudes of tomorrow‟s business people toward business ethics are created

during their time in school (Pučėtaitė and Lämsä, 2008). Many researches have focused on intervention that

changes attitudes toward business ethics and sustainable business practices (Rest, 1986; Glen, 1992). One

of the typical interventions is the introduction of business ethic course into business school which was

shown to enhance ability of students to recognize ethical issues (Gautschi and Jones, 1998; Herndon, 1996).

In this study, we chose having studied business ethic course as a proxy for educational support for attitudes

toward SBP. Therefore, we would suggest hypothesis 5 as follows:

H5: Educational support positively associates with attitudes supportive of sustainable business

practices.

2.7. Favorable contextual elements

Figure 1. Research model


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Though contextual elements may not be required for decisions or evaluations to be decided, they still

have huge influences on the process of making them (Huddleston, 2010). According to Rychetnik et al.

(2002), the action or process of intervening is complex and has to depend on its context. Previous studies

also pointed out that the intervention processing and its context cannot be easily separated (Hawe, Shiell, &

Riley, 2009). Correspondingly, in this study, attitudes toward sustainable business practices must be

considered together with the context. Public opinions about sustainability, legislative environments and law

adoption context may change individuals‟ attitudes and feelings. It is found out that the negative stereo

types surrounding individuals may be a cause for lacking support for SBP (Springett and Kearins, 2001;

Thomas, 2005). In other words, attitudes supportive of sustainable business practices may be influenced by

the context within they are. Thus, hypothesis 6 is posited as follows:

H6: Favorable contextual elements positively associates with attitudes supportive of sustainable

business practices.

3. METHODOLOGY

3.1. Sampling

Target population of the study was Vietnamese students who are studying business. However, with the

limitations of time and budget, convenience sampling method was used. This method was based on the

ease to approach the objects. Questionnaires were delivered to students in School of Business, International

University – Vietnam National University, Ho Chi Minh City. 275 questionnaires were collected but only

250 responses were inputted into data analysis since about 25 of them were invalid because of missing

information.

The details of demographic information were shown in Table 1. Most of respondents were female

(69%) in the age between 21 and 25 (53%) and are undergraduate. Most did not have student loan (91%)

and got GPA over 70 (78%). Finally, most of them were still studying and did not have a job or in

internship (52%).

3.2. Measures

3.2.1. Attitudes toward sustainable business practices

Attitudes toward sustainable business practices were measured by five items developed by Thomas

(2005). Among these five items, three of them indicated the value of sustainability considerations in

business (e.g., “I believe that this will help the organization achieve its goals or obtain benefits.”) and two

of them addressed benefits when environmental sustainability concepts and strategies were introduced to

business students (e.g., “A business student‟s overall perceived legitimacy of sustainability will increase

when sustainability concepts and strategies are introduced.”). The survey asked the students to rate their

level of agreement on a Likert scale with 1 = totally disagree and 5 = totally agree. After reliability test, two

items were kept to measure the sustainability considerations in business (α=0.663) and the other two items

were remained (α=0.731). From the results of the reliability test, both measures had acceptable Cronbach‟s

alpha value. However, in factor analysis, there was only one component extracted; moreover, both

measures were correlated (r = 0.422**). Therefore, both of them were grouped into one measurement for

attitudes toward sustainable business practices (α=0.723).

3.2.2. Human values

The measurement scale of Human values developed by Rokeach (1973) includes 36 items. Students

were asked to rate the importance of each value item on a 5-point Likert scale with 1 = not at all important

and 5 = highly important. Based on the results of factor analysis, the factor was divided into four groups:


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(1) Social value (α=0.751) with five items such as World at Peace, Equality, and Freedom; (2) Personal

value (α=0.701) with five items such as Pleasure and Inner harmony; (3) Moral value (α=0.700) with three

items such as Polite and Responsible; and (4) Competence value (α=0.742) with five items such as Capable

and Courageous.

3.2.3. Cultural orientations

Cultural orientations consisted of two groups of items that were Individualism and Collectivism. The

measurement scale was created by Triandis and Gelfand in 1998. The agreement with each item was

claimed by students on a 5-point Likert scale of 1 = totally disagree and 5 = totally agree. After factor

analysis, five items were grouped into Individualism (α=0.718), one of them being “I would rather depend

on myself than on others”; and eight items were grouped into Collectivism (α=0.796), one being “It is my

duty to take care of my family, even when I have to sacrifice what I want”.

3.2.4. Leadership styles

Leadership styles were measured by two variables, including Transformational and Transactional

leaderships, based on the measurement scale of Waldman et al. (2001). 5-point Likert scale was also used

to determine the level of students‟ agreement with each item. The results of factor analysis showed that

Transformational leadership (α=0.725) included four items such as “I transmit a sense of mission” and

Transactional leadership (α=0.740) consisted of five items such as “I point out what people will receive if

they do what needs to be done.”

3.2.5. Money attitudes

The measurement scale of lower order money attitudes, which were Obsession and Power was

borrowed from Lim and Teo (2003). Students again were asked to indicate their agreement with each item

on a 5-point Likert scale. From the results of factor analysis, Obsession (α=0.847) contained six items such

as “Money is the most important goal in my life” and Power (α=0.750) included four items such as “Money

will help you express your competence and abilities”.

3.2.6. Educational support

In this study, having studied a course in business ethics was chosen as a proxy for measurement of

educational support for SBP. Students were asked if they attended the Business Ethics course in the past.

3.2.7. Contextual elements

The measurement scale of Contextual elements was adapted from a survey of the implementation of

the ecological approach in tobacco programs in Canadian public health organizations (Richard, Potvin, et

al., 2002) which was updated again in 2004. Contextual elements (∝ = 0.718) consisted of two items that

were “Public opinion in favor of sustainable business practices” and “A legislative environment and a law

adoption context favoring sustainable business practices”. Students also had to rate their agreement with

each item on a 5-point Likert scale.

3.2.8. Personal demographics

A list of single items was shown in the questionnaire to collect respondents‟ demographic information

(Table 1).


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Table 1. Demographic information

N %

Gender

Male 78 31

Female 172 69

Age

20 or less 102 41 21 – 25 133 53 25 or older 15 6

Study level Undergraduate 198 79 MBA 52 21

Student loan Yes 23 9 No 227 91

GPA > 80 51 20 70 - 80 145 58 60 - 69 38 15 < 60 16 7

Work status Full-time 47 19 Part-time 72 19 Not working 131 52

3.3. Common method bias

Common method bias is one of the main problems which can cause measurement error; threatening validity of a study's finding (Bagozzi & Yi, 1991; Nunnally, 1978; Spector, 1987). The estimate bias can happen when the independent and dependent variables are obtained from the same respondent (Podsakoff et al., 2003), some others can result from the measurement items, the context of the items in the measurement scale, or the measuring environment. Therefore, researchers must know how to manage the measurement error through two fundamental ways for controlling common method bias: designing the study procedure carefully and applying statistical remedies after collecting the data (Bagozzi, 1984; Baumgartner and Steenkamp, 2001; Podsakoff et al., 2003; Podsakoff, Mackenzie, and Podsakoff, 2012; Williams, Hartman, and Cavazotte, 2010). In this study, we mainly follow the procedural remedies by grouping items measuring the same construct together, allowing the respondent to be anonymous and acknowledging them that there are no right or wrong answers.

4. RESULTS

4.1. Pearson’s Correlation Analysis

Table 2 below showed the Pearson correlations among variables in this study. All four Rokeach groups of personal values were significantly and positively correlated to each other. Individualism was significantly and positively related to Collectivism (r = 0.109*, p < 0.05). As expected, Transformational leadership and Transactional leadership were significantly and positively correlated (r = 0.515**, p < 0.01). Two lower order Money attitudes were also related significantly and positively to each other (r = 0.417**, p <0.01). Finally, all the antecedences were significantly and positively correlated with the Attitudes toward sustainable business practices, ranging from 0.114 (Personal value to Attitudes toward sustainable business practices) to 0.564 (Transactional leadership to Attitudes toward sustainable business practices),


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except Money obsession which was negatively related to Attitudes toward SBP (r = -0.045) and was not significant with p > 0.05.

Table 2. Pearson correlations

1 2 3 4 5 6 7 8 9 10 11 12

1. Sustainability attitudes 1.00

2. Competence value .153* 1.00

3. Moral value .148* .354** 1.00

4. Personal value .114* .370* .271** 1.00

5. Social value .222** .364** .380** .380** 1.00

6. Individualism .300** .083 -.032 -.052 .092 1.00

7. Collectivism .452** .194** .263** .198** .255** .109* 1.00

8. Transactional

leadership .468** .225** .143* .136* .249** .370** .390** 1.00

9. Transformational

leadership .564** .180** .130* .096 .279** .448** .473** .515** 1.00

10. Money obsession -.045 -.093 -.069 .007 .015 .062 .129* -.045 .054 1.00

11. Money power .264** .093 .158* .068 .077 .124* .311** .223** .383** .417** 1.00

12. Contextual elements .375** .140* .102 .066 .203** .195** .280** .304** .364** .059 .279** 1

*p < 0.05, **p < 0.01.

4.2. T-test

Students who attended Business Ethics course and who did not were compared on all studied factors

using T-test. There were few differences gained. However, the fact was that students who learned Business

Ethics scored higher on most of variables but students who did not learn Business Ethics scored higher on

Personal value.

4.3. Regression analysis

The aim of Multiple Regression Model was to examine the regression relationship between one

dependent variable and more than one independent variable. In this case, to conduct hypothesis testing

which reflects the linear relationship between six independent variables of sustainable business practices

(Human value, Cultural orientations, Leadership styles, Money attitudes, Educational support, and

Contextual elements) and dependent variable Attitudes toward sustainable business practices, regression

analysis was recommended. Six different tests were implemented for six independent variables and one test

for all six of them together.

Table 3. Regression analysis

R p

Attitudes toward SBP

(N = 250)

Human values

Social value (β= 0.173)

0.240 0.058 0.042 0.006


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(N = 250)

Cultural orientations

Collectivism (β= 0.424)

0.517 0.268 0.262 0.000


(N = 250)

Leadership styles

Transformational leadership (β= 0.440)

0.601 0.361 0.356 0.000


(N = 250)

Money attitudes

Money power (β= 0.343)

0.315 0.099 0.092 0.000


(N = 250)

Educational support

0.123 0.015 0.11 n.s


(N = 250)

Favorable contextual elements (

0.375 0.141 0.138 0.000


(N = 250)

All predictors

Transformational leadership (β = 0.301)

0.654 0.471 0.401 0.000

According to the results from Table 3, it is obvious that most of the predictor variables were highly

significant in all of the seven analyses. In details, following conclusions were made:

(1) Social value scored higher than the other values. This meant students who gained better scores in

social value are more likely to have favorable attitudes toward sustainable business practices (β = 0.173, p

<0.01), which partially supported Hypothesis 1a (moral value was not significant). The other values were

considered indirectly supported with non-significant results.

(2) Collectivism had a higher score than individualism (β = 0.424, p < 0.001), which meant

collectivism had a positive impact on sustainability attitudes, thus, Hypothesis 2a was supported. Although

individualism scored much lower than collectivism, its score was still positive and significant, so

Hypothesis 2b was rejected.

(3) Students who gained higher scores on transformational leadership also appreciated sustainability

practices (β = 0.440, p < 0.001), which supported Hypothesis 3a. Although transactional leadership scored

much lower than transformational leadership, its score was still positive and significant, so Hypothesis 3b

was rejected.

(4) Money obsession gained a significantly negative score (β = -0.118, p < 0.001), which supported Hypothesis 4a. Conversely, money power was claimed to have a positive impact on sustainability attitudes

(β = 0.343, p < 0.001), which supported Hypothesis 4b.

(5) Educational support was indicated not significant and had a negative score, which rejected

Hypothesis 5.

(6) Favorable contextual elements had a positive effect on attitudes toward sustainable business

practices (β=0.375), which supported Hypothesis 6.


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Finally, when all predictors were tested together, transformational leadership scored highest (β =

0.301, p < 0.001), which meant students following this leadership style had more positive attitudes toward

sustainable business practices.

5. DISCUSSION

This research proposed a theoretical model with three add-in factors (Lower order Money attitudes,

Educational support, and Contextual elements) to the study of Ng and Burke (2010). This study confirms

that Social value, Collectivism, Transformational leadership are positively related with attitudes supportive

of sustainable business practices. The result also indicates the negative impact of Money obsession and the

positive impact of Money power and Contextual elements on attitudes toward SBP.

(1) Theoretical contribution

In general, this study extends the model of Ng and Burke (2010) by proposing two new factors –

lower order Money attitudes and Contextual elements – as the predictors of attitudes supportive of

sustainable business practices. In other words, this study has proposed and empirically tested a newly

adapted model in predicting sustainability attitudes, thus contributing to the body of literature of the area.

(2) Practical contribution

From this study, people with higher score in social value (“world at peace”, “equality”, “family

security”) tend to care much about others and the world around them. Therefore, students who see social

value as a very important factor are more likely to have positive attitudes toward sustainable business

practices. Thus, in order to enhance sustainable business practices among future business leaders, business

students and business people should be educated with social values. From the perspectives of customers,

this may suggest that customers who highly involved in social value will demand more for sustainability

and prefer eco-friendly products. Companies may improve their images by changing their advertising

campaigns or their packages to emphasize their goodwill to environment and to society. Nowadays, the

trend of using green products is blooming rapidly. For example, in cosmetics industry, many products are

labeled “No alcohol”, “No chemicals”; or “Non-toxic”, “100% natural”, “Certified organic” products in

food industry.

Collectivism is indicated to have a positive effect on attitudes toward SBP. It is obvious that one prefer

collectivist culture is more likely to take care of others. This explained why students who rated high

importance on collectivism also supported sustainable practices. To have more business people who care

for SBP, an environment supporting collectivism should be nurtured.

This study also implied that transformational leadership style has a positive impact on sustainable

attitudes. More important, it is also the most related factor to attitudes toward sustainable business

practices. This is not surprising because transformational leaders are described as the ones who “alter

moods, evoke symbolic images, create expectations, show determination, and inspire followers to support

their vision” (Ng and Burke, 2010). The sustainable practices of a business may be from marketing,

advertising, product packages, etc. However, real changes needed to remodel corporations in order to meet

consumer expectations about sustainability must come from the inside of the companies. Leader with

transformational characteristic may not only support sustainability himself but also inspire the employees to

appreciate sustainable practices and spread ethics in business.

It is reported that the obsession with money will negatively affect attitudes toward sustainable business

practices. In other words, people who are obsessed with money are more likely to disregard sustainable

practices. In business, benefits and ethics are two things that bring many entrepreneurs headaches. They are

like two sides of a scale: if one side is more weighted, the other will be considered lightly. Therefore, when

one always thinks about money, he hardly cares about sustainable practices. Of course, no one runs a


367

business without benefits. But how to balance between benefits and ethics is a hard problem. When a

company manages to be balanced, it will not only bring the sustainability to society and natural

environment but also make sure the sustainability for its own future. In contrary, money power is suggested

to be positively associated with sustainable attitudes. In other words, people who rated high importance on

money power consider money a means in life, rather than an end, as in obsession dimension. Money is

basically a means to exchange things, it holds little value itself. Therefore, people who can see money as it

really is may have enough rational capability to think and act ethically than ones who see money as an end

in life. The implication for educationists is that curriculum in business school should educate students a

right attitude toward money. For companies, a right attitude toward money should be a requirement in

management hiring and promotion

Finally, contextual element is a factor that cannot be ignored. This study found that favorable

contextual elements have a positive effect on sustainable attitudes. Like a tree that can only grow in an

appropriate condition, attitudes toward SBP also need a favorable context to survive. This context does not

only come from within the company but from the society it is in. A favorable public opinion, legislative

environment and law context can enhance the attitudes of business leaders toward SBP in every

organization.

6. LIMITATIONS AND FUTURE RESEARCH

Sampling is the major limitation of this study. The respondents in this study are mostly from

International University – Vietnam National University, Ho Chi Minh City. Because each university has its

own culture as well as its curriculum, the result of this study cannot be generalized to the whole population

of Vietnamese business students.

Further researches could be conducted with random and more representative sampling. Target

population of real business people is also a good choice. Future research can also extend the model to

include more internal factors such as social influence, social identity of the firm, etc., or external factors

such as competitive condition, etc. into the model.

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The Effectiveness of Guilt and Shame Appeals on Health Communications: The Role of Self-construal,

Regulatory Focus and Culture

Nguyen Hoang Sinh


ABSTRACT

This study builds a theoretical model for understanding the processes by which guilt and shame

appeals may lead to better compliance with health messages. Drawing on the theoretical frameworks of

cognition, emotion, motivation and research focusing on pro-social and charitable donation messages and

compliance, this study will build a theoretical model that incorporates a number of influential

variables. These include the significant mediating variable of the coping response to emotion, the

moderating variables of self-referencing, the sources of evaluation and self-construal, regulatory focus,

and culture.

The study makes several contributions to the literature of health communications and emotions by

extending certain aspects in relation to guilt and shame appeals. First, this research investigates the effects

of the coping response to emotion and how it influences health message compliance, a mediating factor

which to date has had little attention. Second, when examining the role of the moderating factors of self-

referencing and the sources of evaluation and self-construal, the study looks at the interactive rather than

main effects to better predict their influence. Third, the study examines the effects of the additional

moderating factors of message receivers’ regulatory focus and culture, which also have been under-

researched in the guilt and shame emotions field. Fourth, the guilt versus shame appeals effects in the

context of health communications will also be differentiated. Finally, the study will have practical

implications for developing effective health communications and social marketing campaigns by adding to

the knowledge of how these variables can be used to predict the effectiveness of guilt and shame appeals in

promoting healthy and pro-social behaviour.

Keywords: guilt, shame, emotional appeal, self-referencing, evaluation source, self-construal,

regulatory focus, culture, health communications.

1. INTRODUCTION

Social marketing is established as a discipline that can effectively promote socially beneficial

behavioral change. In the context of public health, social marketing attempts to increase healthy behaviors

in a population by using proven commercial marketing techniques. Typically, social marketing in public

health exclusively involves the persuasive use of health messages and media (Hill, 2001), therefore social

marketing in this context mainly focuses on health communications.

Message appeals (rational and emotional) are important factors in how messages are attended to and

interpreted by a receiver (Flora & Maibach, 1990; Parrott, 1995). Emotion-based appeals are common (de

Hoog, Stroebe, & de Wit, 2005; Dickinson & Holmes, 2008; Pechmann, Zhao, Goldberg, & Reibling,

2003; Schoenbachler & Whittler, 1996). Negative emotional appeals are most frequently used (Agrawal &

Duhachek, 2010; Keller & Lehmann, 2008; Keller, Lipkus, & Rimer, 2003) because they can create an

emotional discomfort that can be remedied by engaging in the featured behavior. Along with fear, guilt and


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shame appeals may be used in social marketing messages owing to their presumed ability to motivate

socially desirable behaviors (Brennan & Binney, 2010). Although the effectiveness of fear appeals in social

marketing has been substantially explored, guilt and shame appeals remain relatively unexplored by

comparison.

Health messages can challenge individuals‟ views of themselves as “adaptively and morally adequate”

(Leary & Baumeister, 2000, p. 262), leaving them with feelings attributed to guilt and shame. In this regard,

therefore, guilt and shame can feasibly be used directly as appeals in health messages to motivate positive

behavior because of a threat posed to personal notions of self-integrity. However, there is little

understanding of how and when guilt and shame appeals in health messages are most effective

and, conversely, how and when these same messages may be counterproductive. Therefore, this proposed

research will focus on the effectiveness of guilt and shame appeals on health communications by

examining the difference between guilt and shame appeals, the coping response to the arousal of guilt and

shame, as well as the key moderators.

To date, there is little understanding of how and when guilt and shame appeals in health

communications can encourage a desired pro-health or pro-social behavior. In this regard, this

proposed study builds and tests a theoretical model for understanding the processes by which guilt and

shame appeals may lead to better compliance with health messages. The present lack of understanding

regarding guilt and shame appeals is partly due to a lack of research on the distinction between the two

types of appeals, the differing of emotional and psychological responses to them, and the main

moderators to the effectiveness of guilt and shame appeals in motivating positive behavior. Drawing

on the existing literature‟s focus on pro-social and charitable donation messages and compliance, this

proposed study builds a theoretical model incorporating a number of variables that to date have

generated little attention in previous research in this field.

The current research the current research will contribute to literature in the domain of health

communications and emotions by answering the following research questions:

1. What are the roles of self-construal, regulatory focus and culture in the relative effectiveness of guilt

and shame appeals towards health message compliance?

2. What are the roles of coping responses to guilt and shame appeals in health message compliance?


2.1. Guilt versus Shame

Guilt is a negative emotion that occurs when a person believes his/her behavior has violated personal

or social standards. Guilt appeals have been shown to influence on attitudes and intentions, but there is a

debate regarding when they are most effective. Early studies have found that highly intense guilt appeals

often cause anger and are less persuasive (referred to as an inverted-U relationship; Coulter & Pinto, 1995),

while moderately intense guilt appeals can elicit guilty feelings, thereby motivating people to change

attitudes about a given product/offer (Coulter, Cotte, & Moore, 1999; Coulter & Pinto, 1995; O'Keefe,

2002; Pinto & Priest, 1991; Pinto & Worobetz, 1992). However, recent studies testing guilt appeals in both

the pro-social and commercial realm attest to the effectiveness of intense guilt appeals (Cotte, Coulter, &

Moore, 2005; Lindsey, 2005; Turner & Underhill, 2012) so that they did not support the inverse-U effect

but rather supported a linear effect. This claim, further supported by Boudewyns, Turner, and Paquin

(2013), proposed that guilt is not correlated with anger, but rather that shame is associated with anger.

Shame differs from guilt, although people are often confused by these concepts. Shame is a painful

emotion aroused when the self is perceived to be defective, unworthy, and disgraceful. Shame is associated

with anger and even aggression, which has been empirically supported by several social psychology studies


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(e.g., Bennett, Sullivan, & Lewis, 2005; Ferguson, Stegge, Miller, & Olsen, 1999; Stuewig, Tangney,

Heigel, Harty, & McCloskey, 2010; Tangney, 1999; Tangney & Dearing, 2002). For instance, Tangney

and Dearing (2002) found that while anger has been positively associated with shame-proneness, it has

been negatively associated with guilt-proneness. However, studies in communications have not only

supported the claim but also raised the issue of confusion between guilt and shame appeals (Bennett, 1998;

Boudewyns et al., 2013). Most importantly, Bennett (1998) suggested that messages designed to elicit

highly intense levels of guilt may actually evoke shame feelings unintentionally. Similarly, Boudewyns et

al. (2013) claimed that the highly intense guilt appeals that lead to anger actually evoked a combination of

shame and guilt, or shame only. Some guilt appeals are actually shame appeals and this may provide a

reason why intense guilt appeals are ineffective. Therefore, more research is needed to more fully

understand the effects of guilt and shame separately.

In addition, guilt and shame are distinct because they may have differential effects in encouraging

compliance. Guilt tends to create more favorable behavioral responses, but shame is more likely to trigger

negative behaviors (Abe, 2004; Lindsay-Hartz, 1984). In social psychology, shame is a potent experience

that plays an important role in normal development of both adaptive and maladaptive behaviors.

Adaptively, shame essentially helps to motivate socially favorable behavior and efforts towards self-

improvement (Lazarus, 1991a). However, when shame becomes a dominant emotion, it can lead to

maladaptive outcomes (Gilbert, 1998; Kaufman, 1996; Lewis, 1995; Mills, 2005; Schore, 1998). In fact,

shame has been found to have a strong relationship with many psychopathological symptoms. These

include eating disorders, social anxiety, depression, and post-traumatic stress disorder symptoms (Averill,

Diefenbach, Stanley, Breckenridge, & Lusby, 2002; Gilbert, Allan, & Goss, 1996; Tangney & Dearing,

2002). Remarkably, the damaging aspects of shame are recognized consistently in psychology, but

evidence-based interventions for health communications are noticeably absent (Boudewyns et al., 2013).

While a significant number of studies supporting development of guilt theory in the literature exists

(Brennan & Binney, 2010; Leshner, Bolls, & Thomas, 2009), the theory of shame, especially in health

communications, is underdeveloped.

2.2. An Extant Model of the Effectiveness of Guilt Appeals

A large number of research studies have examined the effects of guilt appeals in pro-social and

charitable donation behavior. Previous key findings in charity donations outlined that an advertisement‟s

credibility (Cotte et al., 2005) and a moderate level of induced guilt (Coulter & Pinto, 1995) are

prerequisites for guilt appeals‟ effectiveness, and that empathy and self-efficacy are factors defining

whether guilt or defensive reactions result (Basil, Ridgway, & Basil, 2008). Among the mediators

examined are: persuasion knowledge, including ad credibility, perception of manipulative intent (Coulter et

al., 1999; Hibbert, Smith, Davies, & Ireland, 2007; Lwin & Phau, 2010), and anger (Coulter & Pinto,

1995); agent knowledge, including beliefs about the characteristics, competencies, and goals of the

persuasion agent (e.g., the charity, Hibbert et al., 2007); perceived threats to unknown others, response-

efficacy and self-efficacy (Lindsey, 2005); and responsibility (Basil, Ridgway, & Basil, 2001, 2006).

Research on the effects of guilt appeals has also examined possible moderators such as an ad

credibility and perceived manipulative intent (Cotte et al., 2005), guilt characteristics such as types of guilt

and levels of intensity (Giner-Sorolla, 2001; LaBarge & Godek, 2006; Renner, Lindenmeier, Tscheulin, &

Drevs, 2013). Significantly, the moderating role of message tactics in motivating pro-social behavior has

also been examined, including message framing (loss versus gain) (Agrawal & Duhachek, 2010; Duhachek,

Agrawal, & Han, 2012), and message sidedness (two-sided versus one-sided) (Renner et al., 2013).

There is a differential effect in the emotional intensity between two types of anticipatory and reactive

guilt. For example, Giner-Sorolla (2001) found that, in the case of a delayed-cost dilemma activity (e.g.,

short-term positive but long-term negative consequence), anticipatory guilt is felt less intensely and less

negatively than the reactive guilt that is experienced after people have committed the guilt-inducing action.


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The chance to avoid the transgression may cause reactive guilt, and also creates feelings of self-efficacy

and self-control in anticipatory guilt. However, the failure to resist the temptation adversely increases the

feelings of powerlessness and helplessness, and these overall contribute to negative effect. Furthermore,

research also shows that anticipatory guilt is perceived as the most adaptive among the three types

(LaBarge & Godek, 2006), because it is about the future and the potential that an individual can seek to

avoid a negative emotion. In contrast, reactive guilt is viewed as more negative, because it involves past

actions and transgressions that trigger action towards reducing that negative emotion.

Earlier research has demonstrated that the levels of induced guilt have different effects. That is,

moderately intensive guilt appeals are most effective, whereas highly intensive guilt appeals tend to evoke

anger, resentment and annoyance, leading consumers to respond negatively towards the message (Coulter

& Pinto, 1995; Moore & Harris, 1996). This is consistent with the inverted-U relationship between an ad‟s

intensity and its effectiveness derived from research in fear appeals (Bennett, 1996). Cotte et al. (2005)

have also concluded that guilt appeals will have an adaptive effect on attitudes towards the brand if

consumers do not believe the message to be manipulative.

For the above-discussed mediating and moderating factors influencing the effectiveness of guilt

appeals, an extant model is summarized (see Figure 1).

Figure 1. Extant Model of the Effectiveness of Guilt Appeals

2.3. A Proposed Model of Guilt and Shame Appeals on Health Communications

The extant model specifies the relationships between guilt appeals and the arousal of guilt mediated

and moderated by several message characteristics factors. However, the model has largely neglected the

role of significant individual difference factors and, more importantly, coping responses to the arousal of

guilt that underlie behavioral intentions and are influential in predicting the effectiveness of such appeals.

Furthermore, the pro-social or charitable donations context differs from the health communications context

so that at the individual level, the former involves motivating people for the benefit of others while the

latter involves stimulating people for the benefit of themselves. As a result, in the health communications


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context, guilt or shame appeals may behave differently due mainly to the interaction between the self-

conscious type of such emotions and the personal significance in the context. In light of these gaps, this

study will propose a better model of the guilt and shame appeals‟ effectiveness for health communications

by investigating the role of significant mediating and moderating factors.

2.3.1. Mediating factor

The emotion of guilt or shame is an aversive experience, and it motivates an individual to try to ignore

or avoid it (e.g., Czub, 2013). There are the two adaptive and maladaptive coping responses to these

emotions (Lazarus, 1991a, 1991b; Schoenbachler & Whittler, 1996). In the literature, such a distinction has

been overlooked by researchers; however, the specific variables through which emotions impact these

distinct coping responses have been not investigated. Specifically, there has been no detailed discussion

regarding how the evoking of guilt and shame affect the coping responses. It is argued that the intensity of

emotional arousals elicited from guilt or shame appeals may have an impact on the coping responses

(Agrawal & Duhachek, 2010; Agrawal, Menon, & Aaker, 2007; Dickinson & Holmes, 2008). Indeed,

Agrawal and Duhachek (2010) found that a compatible message (e.g., a message that evokes the same

emotion) is less effective in influencing behavior and intentions due to it results in an emotional overload

that drives people to shut down and avoid processing the message (Agrawal et al., 2007).

2.3.2. Moderating factors

Although a number of studies have examined the effectiveness of guilt and/or shame appeals, they

have ignored some influential moderators. There is strong evidence that individual and cultural

characteristics may influence message compliance in response to guilt and shame appeals. For example, an

increasing body of literature suggests that the valuation, eliciting, and behavioral consequences of self-

conscious emotions differ across cultures because of the type of self-construal that is promoted in one‟s

cultural context (Lee & Paek, 2014; Wong & Tsai, 2007). That is, in contexts that promote an independent

self (e.g., individualist cultures), guilt and shame are both devalued emotions. However, in contexts that

promote an interdependent view (e.g., collectivist cultures), guilt and shame are perceived more positively.

Specifically, in a collectivist culture, shame can lead to adaptive outcomes (Bagozzi, Verbeke, & Gavino,

2003; Scollon, Koh, & Au, 2011; Silfver, 2007; Wong & Tsai, 2007). For instance, Bagozzi et al. (2003)

found shame improved customer relationship-building as a result of adaptive resource used by Filipino

salespersons, such as being flexible and adaptive in their interactions with clients. Thus, shame is self-

regulated differently across cultures, and leads to differential effects on behavioral responses.

Consequently, the role of culture is important in guilt and shame appeals, but this role is under-studied.

Most studies of guilt and shame have been proposed and tested based mostly on Anglo-American values,

norms, and samples (Scollon et al., 2011). It is argued that in the case of coping responses to guilt and

shame emotions, a one-size-fits-all approach may not apply. Thus, further advances in this area require

exploring under which culture people up-regulate or down-regulate these two self-conscious emotions.

There may be other individual difference characteristics that affect levels of guilt and shame arousal

intensity (LaBarge & Godek, 2006). Particularly, regulatory focus theory (Higgins, 1997, 1998) has been

suggested as a possible variable of note. A growing literature has demonstrated that a promotion versus

prevention focus powerfully predicts cognition and affect (Aaker & Lee, 2001). Regulatory focus can be

conceptualized as the message or viewers‟ regulatory focus. The message‟s regulatory focus has received

much attention, but the viewers‟ regulatory focus has been the subject of few studies, and its potential role

in the self-conscious emotional appeals effects is not clearly understood. Indeed, many studies focus on the

message‟s regulatory focus, such as message framing (e.g., gain/approach versus loss/avoidance)

(Duhachek et al., 2012; Kees, Burton, & Tangari, 2010; Lee & Aaker, 2002; Zhao & Pechmann, 2007), but

relatively few studies examine regulatory focus as an individual difference variable (e.g., viewers‟

regulatory focus) (LaBarge & Godek, 2006; Zhao & Pechmann, 2007). More importantly, no studies on


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viewers‟ regulatory focus have examined the effects of the persuasive message regarding its antecedent

influential components, such as the amount of affect (e.g., emotional arousal intensity level). This research

will investigate viewers‟ regulatory focus (prevention-focused versus promotion-focused) in influencing

levels of emotional arousal intensity elicited from guilt and shame appeals.

Self-construal is defined as “a constellation of thoughts, feelings, and actions concerning the

relationship of the self to others, and the self as distinct from others” (Singelis & Sharkey, 1995, p. 624).

Studies on self-construal of independence versus interdependence have indicated that this has an impact on

emotional message processing. More specifically, self-construal has the interactive effect with self-

referencing on self-conscious emotional appeals processing (Aaker, 2000; Aaker & Williams, 1998;

Murray-Johnson et al., 2001; Williams & Aaker, 2002). For example, Block‟s (2005) study on the

persuasiveness of fear and guilt appeals suggested that for individuals with interdependent self-construals,

self-referenced versus other-referenced appeals are equally persuasive. For people with independent

construals, the self-reference compared to other-reference effect is either advantageous or disadvantageous

depending upon the types of emotional arousals (e.g., fear versus guilt). Notably, the self-construals in

these studies are measured by ethnicity (American versus Asian). Given the cultural focus of much research

regarding self-construals, many researchers have argued that the self-construals are dynamic individual

characteristics rather than stable cultural characteristics (Levinson, Langer, & Rodebaugh, 2011; Martin,

Lee, Weeks, & Kaya, 2013). Therefore, the current research will examine self-construal as an individual

level variable and its impact on levels of emotional arousal intensity.

Furthermore, guilt and shame appeals could be differently evaluated by referencing the consequences

of non-adherence on the target (e.g., „other-referenced‟) or those close to the target (e.g., „self-referenced‟)

(Burnkrant & Unnava, 1995; Symons & Johnson, 1997), and by the evaluation sources from the target‟s

perspective (e.g., internal) or from others‟ perspectives (e.g., external) (Goss & Allan, 2009; Grabhorn,

Stenner, Stangier, & Kaufhold, 2006; Lee, Scragg, & Turner, 2001; Proeve & Howells, 2002). The impact

of guilt and shame appeals may be contingent on viewers‟ self-construal, and on the message‟s referencing

or the sources of evaluation functioning synergistically. Little is known about the interactive effects

between such message tactics and the individual characteristics of guilt and shame appeals on message

compliance. This study, therefore, considers the interactive rather than main effects of such message

characteristics and the individual characteristics of guilt and shame appeals in health communications.

From the aforementioned discussions, a model for health communications of the effectiveness of guilt

and shame appeals is proposed (see Figure 2).

Figure 2. Proposed Model of the Effectiveness of Guilt and Shame Appeals on Health Communications


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3. RESEARCH HYPOTHESES

3.1. Guilt and Shame Arousals

3.1.1. Guilt arousal intensity

Self-referencing interacting with self-construal

Research notes that the relative intensity of guilt may vary depending on determined conceptions of the self (Block, 2005; Lee & Paek, 2014). For example, Lee and Paek (2014) found that Korean smokers felt more guilty than U.S. smokers regardless of the types of descriptive, injunctive, and subjective norm messages, and the impact of guilt on behavioral intentions appeared stronger among Korean smokers than U.S. smokers. Furthermore, individuals who view a self-referenced guilt appeal involving an unpleasant, negative health-related event, and are told that they are responsible for its occurrence, will experience guilt more intensively compared to an other-referenced appeal involving others‟ responsibility (Block, 2005). It is, therefore, proposed to do not only self-referenced guilt which appeals arouse guilt more intensively than other-referenced guilt appeals, but this effect is also influenced by independent or interdependent self-construal.

For people with independent self-concepts, Block (2005) suggested that the self-reference effect is either advantageous or disadvantageous depending upon the centrality of the self in the emotion that is elicited from a health message. Attributions of causality to the self versus the other in the independents create different levels of perceived guilt. At least, one study reported that people who have independent self-concepts felt guilty when they recognized they had violated their own personal standards, while people who have dependent self-concepts felt guilty when they recognized that their wrong doings hurt others (Stipek, Weiner, & Li, 1989). Thus, it is argued that, for independents who perceive the self as a separate and distinct entity, the self-reference effect should be more prominent in perceived guilt than for people with interdependent self-concepts. The self-reference effect will accordingly be obtained when independents process the guilt appeals. Specifically, the self-referenced guilt appeals lead to more intense guilt than do the other-referenced appeals. Therefore, it can be hypothesized that:

H1: For independent self-construals, levels of emotional arousal elicited from a guilt appeal are impacted by self-referencing. Specifically, they will exhibit (a) more guilt arousal for a self-referenced appeal; (b) less guilt arousal for an other-referenced appeal.

However, for people with interdependent self-concepts, self-referenced versus other-referenced appeals are equally persuasive regardless of self-conscious emotional types (Block, 2005). This means that self-referencing has no effect for those interdependent people. Meanwhile, there are strong cultural differences in self-conscious emotions that reflect on the individual‟s own doing (Eid & Diener, 2001; Tangney & Fischer, 1995). Accordingly, self-conscious emotions implying that personal goals are successfully approached would be more important and expected for those with the independent self-construals, who focus more on success (e.g., promotion-focused). Hence, the self-conscious emotions that arise from the success of one‟s own efforts (e.g., pride) are highly valued in individualist cultures. However, the self-conscious emotions indicating that the one‟s controllable actions are wrong or incomplete (e.g., guilt) would be more important and expected for interdependent self-construals, who focus more on threat (e.g., prevention-focused, see more in section 3.1.3 Regulatory focus below). As a result, feelings of guilt that are caused by a breach of social norms and obligations are likely to be highly appreciated in collectivist cultures.

Indeed, many researches found that the interdependents felt more guilty in responding to a guilt appeal than independents (e.g., Block, 2005; Lee & Paek, 2014). For example, Block (2005), examining the role of self-construal in self-referenced fear and guilt appeals, found that interdependent participants felt more guilty, more fearful, and more vulnerable, and felt that the message was more relevant than did their independent peers. It is assumed that in a guilt appeal, one‟s personal responsibility or accountability


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towards others is the salient feature. Since interdependents feel a greater sense of connection to others, a guilt appeal making their own personal responsibility/accountability more salient will create an elevated response, compared to independents. As a result, it can be postulated that:

H1 (c): For interdependent self-construals, levels of emotional arousal elicited from a guilt appeal are

not impacted by self-referencing. Specifically, they will exhibit more guilt arousal than their independent counterparts (regardless of self-referencing).

Evaluation source interacting with self-construal

Research indicates that the impact of internal and external sources of evaluation for experienced guilt

and shame on message processing is moderated by self-construal (Kim & Johnson, 2013; Wong & Tsai, 2007). According to Wong and Tsai (2007), an assumption of prevailing models of guilt and shame states

that internal orientation (e.g., oriented to one‟s own standards/view) is more powerful and genuine than external orientation (e.g., oriented to others‟ standards/view) in the case of the self that is distinct, separate

from others, and defined by stable personal characteristics, which is referred to as an independent self-construal. For independents, the internal source of evaluation should be more pronounced in perceived guilt

and shame than the external one. For guilt, the internal source of evaluation will be more powerful when independent self-construals process the appeals. That is, the internal guilt appeals lead to more intense guilt

than do the external guilt appeals. Thus:

H2: For independent self-construals, levels of emotional arousal elicited from a guilt appeal are impacted by the evaluation source. Specifically, they will exhibit (a) more guilt arousal for an internal guilt

appeal; (b) less guilt arousal for an external guilt appeal.

However, for interdependents, internal versus external sources of evaluation for guilt appeals are

equally persuasive, meaning that the source of evaluation has no effect for those people. Because individuals with interdependent conceptions of the self view themselves in terms of their connections with

others, external influences (e.g., other people‟s thoughts and feelings) are as important and meaningful as internal ones (e.g., one‟s own thoughts and feelings) (Wong & Tsai, 2007). As previously mentioned with

respect to self-referencing, regardless of the evaluation source, interdependent self-construals will exhibit more guilt than their independent counterparts. Therefore, it can be hypothesized that:

H2 (c): For interdependent self-construals, levels of emotional arousal elicited from a guilt appeal are

not impacted by the evaluation source. Specifically, they will exhibit more guilt arousal than their

independent counterparts (regardless of the evaluation source).

3.1.2. Shame arousal intensity

Self-referencing interacting with self-construal

In the literature of self-referencing, both imagining oneself and receiving aversive information

diminishes the likelihood of the self-reference effect (Lord, 1980; Sedikides & Green, 2000). Since a shame

appeal in health messages relies on the social sanction of an imagined negative consequence to the self, the

mentioned reversed self-reference effect has suggested that self-referenced shame appeals would be less

influential than other-referenced for people with independent self-construals.

As Lord (1980) reported, the self (independent self-construal, in this case) could not have superior

memory advantages for imagined representations of the self (other-image) as compared to propositional

representations of the self (self-image). In this case of anticipated shame, the other-image is more effective

in memory for the self than the self-image because of perceptual salience. Besides, the negative valence of

shame appeals also reduces the effect of self-reference. Taken together, the self-reference effect could be

reversed when people with a primarily independent view of self process an anticipated shame appeal. Thus,

it could be argued that, for independent self-construals, the other-referenced shame appeals lead to more

intense shame than do the self-referenced. As a result, the following hypothesis is suggested:


380

H3: For independent self-construals, levels of emotional arousal elicited from a shame appeal are

reversely impacted by self-referencing. Specifically, they will exhibit (a) more shame arousal for an other-

referenced appeal; (b) less shame arousal for a self-referenced appeal.

For people with interdependent self-construals, self-referenced versus other-referenced shame appeals

are equally persuasive regardless of self-conscious emotional types (Block, 2005). This means that self-

referencing has no effect for those people. Yet, previous researchers argued that cultural values may have a

different influence on the reported experiences and behavioral expression of shame (Lee & Paek, 2014;

Wong & Tsai, 2007). They claim that these negative views might be associated with cultural beliefs, such

as matters for saving face and family honor that could otherwise induce strong feelings of shame (Gilbert,

Gilbert, & Sanghera, 2004; Lam, Tsang, Chan, & Corrigan, 2006; Lam et al., 2010). Further, the frequency

of occurrence and even the valence of shame emotion vary across cultures (Menon & Shweder, 1994;

Tracy & Robins, 2007; Wong & Tsai, 2007). For instance, shame is perceived to be a less negative emotion

in collectivist societies than in individualist ones, because it reaffirms the individual‟s place and sense of

belonging in one‟s own social group (Menon & Shweder, 1994; Wong & Tsai, 2007). Likewise, Mesquita

and Karasawa (2004) note that while shame is one of the most aversive emotions in individualist culture,

shame in a collectivist culture creates social harmony. Experiencing shame, the transgressor implicitly

acknowledges his/her inferiority and embarrassment against the important social rules and expectations,

and thus commits to improving their behavior in the future.

Individually, independent self-construals are expected to attempt to be unique, to promote their own

personal goals, to feel self-confident, and to compare themselves with others so as to surpass or achieve

better performance. When being shamed, they become aware that their actions or performances are

negatively evaluated and come to feel that their self has been degraded and ridiculed (Bagozzi et al., 2003).

Thus, it can be expected that as an independent entity, shamed independent self-construals will experience

the emotion more intensively. In contrast, interdependent self-construals are expected to be concerned with

ongoing relationships, to maintain interdependence, to perform their part of group actions on the job, to

adjust to and fit into their groups and relationships, and in general to promote group welfare. When being

shamed, they, unlike their independent counterparts, become aware that the threat is not so much to the self

as a dependent entity. It would be argued that as a blurred self, shamed interdependent self-construals might

not experience shame more intensively. The following hypothesis is therefore generated:

H3 (c): For interdependent self-construals, levels of emotional arousal elicited from a shame appeal

are not impacted by self-referencing. Specifically, they will exhibit less shame arousal than their

independent counterparts (regardless of self-referencing).

3.1.3. Evaluation source interacting with self-construal

Similarly with guilt, the effect of internal and external sources of evaluation for experienced shame on

message processing is affected by self-construal (Kim & Johnson, 2013; Wong & Tsai, 2007).

Accordingly, the self with independent views evaluates the internal source of shame as more powerful and

genuine than the external one. For independents, who are predisposed to viewing the self as a separate and

distinct entity, the internal source of evaluation should be more pronounced in perceived shame than the

external one. For shame, the internal source of evaluation will thus be more powerful when independent

self-construals process the appeals. That is, the internal shame appeals lead to more intense shame than do

the external shame appeals. As a result, it can be proposed that:

H4: For independent self-construals, levels of emotional arousal elicited from a shame appeal are

impacted by the evaluation source. Specifically, they will exhibit (a) more shame arousal for an internal

shame appeal; (b) less shame arousal for an external shame appeal.

However, as noted earlier, for individuals with interdependent conceptions of the self viewing themselves in terms of their connections with others, external influences are as important and meaningful


381

as internal ones (Wong & Tsai, 2007). This means that for those people, internal versus external shame appeals are equally persuasive. In other words, the source of evaluation has no effect for those interdependent people. As previously mentioned with respect to self-referencing, regardless of the evaluation source, interdependent self-construals will exhibit less shame than their independent counterparts. Therefore:

H4 (c): For interdependent self-construals, levels of emotional arousal elicited from a shame appeal are not impacted by the evaluation source. Specifically, they will exhibit less shame arousal than their

independent counterparts (regardless of the evaluation source).

3.1.4. Regulatory focus with varying guilt and shame arousal intensity

It is argued that promotion-focused individuals are motivated by achievements and are sensitized to opportunities for advancement, while prevention-focused individuals are motivated to avoid threats to

security and safety and are sensitized to occasions of threat (Aaker & Lee, 2001). For negative emotional appeals, it could therefore be expected that individuals with a prevention focus will respond more

intensively to guilt and shame appeals than individuals with a promotion focus, as both appeals focus on the painful feelings aroused. Thus it is hypothesized that:

H5: Levels of emotional arousal elicited from a guilt or shame appeal are impacted by individuals’ regulatory focus. Specifically, prevention-focused individuals will exhibit more guilt or shame arousal than

their promotion-focused counterparts.

3.2. Coping Responses to Guilt and Shame Arousals

3.2.1. Levels of guilt arousal intensity

Past studies in message persuasiveness have indicated that moderate level guilt appeals are most

effective (Cotte et al., 2005; Coulter, Cotte, & Moore, 1997; LaBarge & Godek, 2006; Turner & Underhill,

2012). Additionally, intense guilt appeals are likely to evoke anger, irritation and annoyance, and hence consumers respond towards the message negatively, whereas mild guilt appeals are likely to create little

emotional response. As noted, this research examines the impact of levels of guilt arousal on coping responses rather than levels of guilt appeal on message persuasiveness. As guilt is a negative self-referential

emotional state on which people are highly motivated to make amends (Agrawal & Duhachek, 2010), it is thus assumed that moderate intensity guilt arousals are not likely to lead to defensive processing. As such, it

is expected that moderate intensity guilt arousals will lead people to be more likely to respond to the health message adaptively. Intense guilt arousals, on the other hand, are expected to lead people to be more likely

to respond to the message maladaptively. Low intensity guilt arousals are expected to stimulate little emotional response and not result in coping responses (neither adaptive coping nor maladaptive coping).

3.2.2. Levels of shame arousal intensity

Similar to guilt arousal, whether individuals cope with the arousal of shame maladaptively or

adaptively may depend on the intensity of shame arousal. In fact, in a psychological setting, intense experiences of shame (whether internal or external) give rise to typical behavioral patterns of submission

such as a desire to escape, hiding and concealment (Gilbert, 2000), labeled by Clark and Wells (1995) as “safety behaviors” (p. 73). In health communications, supported by an emotional overload account, it is

argued that higher levels of shame intensity will generate defensive processing and consequently will be

less adaptive than lower levels of shame intensity (Agrawal & Duhachek, 2010; Agrawal et al., 2007). Because shame, like guilt, is a negative self-referential emotion on which people are highly stimulated to

make amends, it is thus hypothesized that a moderate intensity of shame arousal is not likely to lead to defensive processing. Specifically, a moderate intensity of shame arousal leads people to be more likely to

respond to the health message adaptively, while high intensities lead people to be more likely to respond to


382

the message maladaptively, and low intensities tend to stimulate little emotional response and do not result

in coping responses (neither adaptive coping nor maladaptive coping).

On the preceding discussions, the following hypothesis is proposed for both guilt and shame arousals:

H6: Levels of emotional intensity of guilt or shame arousal have an impact on coping responses.

Specifically; (a) a high intensity of guilt or shame arousal is likely to lead to maladaptive coping; (b) a

moderate intensity of guilt or shame arousal is likely to lead to adaptive coping; and (c) a low intensity of

guilt or shame arousal is unlikely to lead to message compliance (no significant association).

3.3. Coping Responses Underlying Message Compliance

In health contexts, adaptive coping responses are those responses that relate to the intention of

improving an individual‟s health (e.g., problem-focused coping: health danger removal) (Schoenbachler &

Whittler, 1996). When they occur, an individual has a positive attitude towards the messages so s/he will

accept the advice/suggestions given in heath messages (Arthur & Quester, 2004; Schoenbachler & Whittler,

1996). In contrast, when an individual finds ways to avoid the notion of danger (e.g., emotion-focused

coping: control of one‟s own failure generated by the danger), this is referred to as a maladaptive coping

response (Schoenbachler & Whittler, 1996). Individuals who engage in maladaptive coping responses are

unlikely to accept health messages (Belch, Belch, & Jones, 1995; Pechmann, 2001; Schoenbachler &

Whittler, 1996).

It is evident that there is a strong association between coping responses (e.g., adaptive versus

maladaptive) and health message compliance. More specifically, adaptive coping responses elicited from a

guilt or shame appeal are likely to result in message compliance, whereas maladaptive coping responses are

unlikely to result in message compliance. This leads to the following hypothesis:

H7: Coping responses have an impact on message compliance; specifically, adaptive coping

responses will lead to message compliance, whereas maladaptive coping responses will lead to message

non-compliance.

3.4. Under Which Culture Are Guilt or Shame Appeals Most Effective?

The influence of shame on coping responses and behavioral intentions depends on the values and

beliefs associated with the given culture (Czub, 2013; Silfver, 2007). Kitayama, Markus, and Matsumoto

(1995) suggested that the link between shame and defensive reactions, such as anger, is distinctive of

individualist cultures where the sense of the independent self is highly appreciated, and where shame can

thus be perceived as a sign of weakness. From this perspective, hiding shame with anger is reasonable in

individualist cultures, but unreasonable in collectivist cultures. That is because in collectivist cultures where

interdependence is highly valued, defending the self against shame in this way would likely be seen as

useless. Demonstrating shame to others is seen as better, because it helps to maintain relationships and

social cohesion. In fact, Bagozzi et al. (2003), comparing Dutch and Filipino salespeople‟s experiences of

shame as a result of customer actions, found that they have similar experiences of shame but the behavioral

consequences of emotion are different. For Filipino salespeople, shame improved customer relationship-

building, whereas for Dutch salespeople, shame diminished it. In other words, behavioral intentions with

the shame arousal appear to be highly related to cultural orientation.

For a guilt experience, empirical studies found that there is not clear cultural differences (Wallbott &

Scherer, 1995). Given that guilt is considered as a more desirable emotion in collectivist cultures (resulting

in a higher emotional arousal) than in individualistic cultures (resulting in a lower emotional arousal) (Eid

& Diener, 2001), it is possible that coping with guilt is not related to cultural contexts, regardless of

emotional arousal intensity.


383

Meanwhile, in the dominant models of shame and guilt, regardless of culture, guilt leads to reparative

action while shame does not (Wong & Tsai, 2007). For example, empirical findings in U.S. contexts

suggest that experiencing guilt leads to higher self-esteem and increases in empathy and perspective taking

(Tangney, 1998). Taken together, feelings of guilt are likely to lead to message compliance for both

individualist and collectivist people.

From the above-mentioned discussions, the following hypotheses are developed:

H8: The impact of guilt arousal on message compliance is not moderated by culture; specifically,

individuals experiencing guilt are more likely to comply with the message (regardless of either individualist

or collectivist orientations).

H9: The impact of shame arousal on message compliance is moderated by culture; specifically,

collectivist individuals experiencing shame are more likely to comply with the message, whereas

individualist individuals experiencing shame are less likely to do so.

4. CONTRIBUTIONS AND IMPLICATIONS

The study offers several theoretical and practical contributions to the field.

Regarding theoretical contributions, the current research attempts to build a model of the effectiveness

of guilt versus shame appeals on health communications. This research will have several focal points.

Firstly, it will consider the effects of coping responses to emotions, a mediating factor which is under-

studied and underlies health message compliance. Secondly, it will examine the interactive rather than main

effects of moderating factors, e.g., self-referencing, and the sources of evaluation with self-construal.

Thirdly, it will consider the effects of additional moderating factors, e.g., viewers‟ regulatory focus and

culture, which also have been under-researched in the field of guilt and shame emotions. Fourthly, it will

examine the differential effects of guilt versus shame appeals in the health communications context. Taken

together, these focal points could better predict the effectiveness of guilt and shame appeals on health

communications.

Regarding practical contributions, guilt and shame as self-conscious emotions frequently involve

perceptions of the self, and are thus particularly persuasive tools for health communicators in addressing a

wide range of unhealthy behaviors, such as smoking, underage and binge drinking, and drinking and

driving. Besides highlighting guilt and shame as they relate to harmful behaviors (e.g., binge drinking),

health messages can center on the role of the sources/consequences of a person‟s actions with respect to

others (e.g., self-referenced versus other-referenced, internal versus external source of evaluation). The use

of such message tactics will enhance the effectiveness of guilt and shame appeals in practice. Also, while

the message characteristics are under marketers‟ control, it is possible to target specific audiences (e.g.,

self-construal, regulatory focus, culture) through the choice of media programs/channels as communication

vehicles. Globally, health campaigners should consider the role of culture in the effectiveness of guilt and

shame appeals, because people from collectivist cultures may be helped when shame is evoked, while

others from individualist cultures may actually be harmed.

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A Study on Current Circumstances of Workers in Thu Duc District, Ho Chi Minh City

Le Van Lang and Bui Thi Tuy Phuong

Nong Lam University (NLU) HCMC

ABSTRACT

Recent accesses to Corporate Social Responsibility (CSR) are usually based on assessment from companies and

factories. This study attempts to assess some aspects of labor issue based on the eyes of workers working in different

companies to have an integrating picture of their working and living conditions.

The objectives of this study are to: (i) describe the characteristics of workers from different provinces working in

studied site; (ii) clarify income and expenditure of the workers, their income saving as well as their living and working

conditions; (iii) determine factors that effect on their home back decision; and (iv) give implications for companies

and government on CSR performing and policy-making.

A survey of 120-sample size was conducted; interviewees are workers from different companies in the Thu Duc

district, where many factories in various industries such as electronics, garments and textiles, shoes… are located.

Based on data of the survey, some salient issues that related to the workers were founded:

+ Living standards of the workers are low due to relatively below average income in HCMC region.

+ Overtime working and lack of entertainment facilities are reasons of poor leisure activities of the workers.

Moreover, inconvenient housing conditions and bad health care are also problems that workers have to overcome.

+ Increase of salary rate, overtime working reduction, and lunch quality improvement are priorities of the

workers that need to be considered recently.

More than 95% of the workers from various provinces throughout the country are intended to home back due to

many causes. New coming workers for replacing skilled labors need an expensive cost for training. Moreover,

economic growth of provinces providing labors for Ho Chi Minh City will lead to worker’s deficit in the future.

Keywords: workers, CSR, labor practices, working and living conditions

1. RATIONALE AND OBJECTIVES OF THE STUDY

Recent accesses to Corporate Social Responsibility (CSR) are usually based on assessment from

companies and factories. Although there are 7 issues of CSR, labor issue is the most important and decisive

factor. Therefore, this study attempts to assess some aspects of labor issue based on the eyes of workers

working in different companies to have an integrating picture of their working and living conditions.

Ho Chi Minh City is a largest and dynamic economy in Viet Nam where labor resource depends

partly on number of workers migrating from other provinces. Therefore, home back decisions of these

workers will affect labor force for labor-intensive industries such as electronics, textiles and garments,

shoes… in the future.

In recent years, there are some activities relating to improve living and working conditions of workers

like increasing of basic wage rate, reducing overtime working, encouraging of social apartments

construction and other facilities in living areas (kindergartens, minimarts, amusement parks, libraries…).

These activities present attempts of local government and firms on improving life of workers. Nevertheless,

it is still far to meet the demands of workers.


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This study aims to describe the general conditions of workers in a district of HCMC so that policy-

makers and corporate managers could use its data and information to adjust their activities and policies to

meet the needs of labors. Thus, specific objectives of the study are:

i. to describe the characteristics of workers from different provinces working in studied site;

ii. to clarify income and expenditure of the workers, their income saving as well as their living and

working conditions;

iii. to determine factors that effect on their home back decision;

iv. to give implications for companies and government on CSR performing and policy-making.

2. METHODOLOGY

Today, CSR is a common concept for businesses and a base for ISO 26000 of The International

Organization for Standardization. Definition of social responsibilities of an organization can be stated as

responsibility of an organization for the impacts of its decisions and activities on society and the

environment through transparent and ethical behaviors that is consistent with sustainable development and

the welfare of society, taking into account the expectations of stakeholders. This is in compliance with the

applicable laws and consistence with global norms behavior and integrated throughout the organization and

in its relationships.

Fundamental subjects of CSR following ISO 2600 are including 7 core issues: (1) organizational

governance; (2) human rights; (3) labor practices; (4) the environment; (5) fair operating practices (FOP);

(6) consumer issues; and (7) community involvement and development.

Labor is an important issue of implementing CSR as well as a main factor of economic development

of the country. In fact, there are many aspects relating to labor practices of businesses such as employment

and employment relationships, conditions at work and social protection, social dialogue, health and safety

at work, and human (resource) development. UNIDO is a leading organization to disseminate knowledge

and tools for CSR implementation in Viet Nam, whereas REAP26 is one of UNIDO documents providing

tools for CSR analysis and application.

As the largest economic region of the country, Ho Chi Minh city attracts people to settle, then labor

issues directly relate to working conditions (working time, working environment, safety…), living

conditions (income, housing, child education, leisure…) , and their saving and future expectations. In

reality, most of migrate workers in large cities coming from rural areas where income sources mainly based

on agricultural activities; therefore, income saving for their families and relatives at home villages is one of

the most important factors to keep them continue working in the cities. Thus, all three above factors will

affect home back decisions of the workers. Recently, labor deficit for labor-intensive factories in HCMC

significantly indicated that employers should have more consideration to maintain stable worker numbers.

Cost and time for training of new workers is considerable for employers and society. Moreover, worker

decisions to coming back home may lead to indirect impacts to other CSR issues such as fair operating

practices (FOP), community involvement… Thus, frame work of the study can be illustrated as shown in

Figure 1.


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Figure 1. Study framework

2.1. Study Site and Survey

Thu Duc District is located in Northeast area of HCMC, where concentrates a chain of industrial areas

such as Linh Trung export processing zone (Epzone), Song Than, VSIP… in Thu Duc and Di An of Binh

Duong province. High demand for workers in Thu Duc attracts number of young people from the whole

country. Therefore, worker density in the district is relatively high in HCM City. This study is based on the

data and information of a survey which was conducted in interviews of workers in different manufacturers

from various industries that can be described as table 1. Workers were randomly selected to be interviewed

for the survey.

Table 1. Statistic groups interviewed by place of work

Company Number (%)

Nissei Electric Vietnam 28 23,3

Samsung Vina Electronics 30 25

Jye Shing Industrial Co., Ltd 10 8,3

Sungshin Vina Co.,Ltd 11 9,2

Upgain (Viet Nam) Manufacturing Co.Ltd 10 8,3

Pungkook Sai Gon Two Corporation 5 4,2

Mondial Pte. Export Garment Co., Ltd 26 21,7

Total 120 100


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2.2. Main Findings

Characteristics of Workers

There are some reasons that caused people from the Central region of the country moved to HCMC to

work. Relatively less-developing industry and relevant culture could be main reasons to attract people in

Central part to start their adventure in HCMC to earn income and saving for themselves and their families.

Figure 2. Hometown Origins of Workers by Regions

With 120-sample size, the survey found some characteristics of workers in studied site. In term of

gender, 65% of total workers are men assigning hard works such as operating machinery, heavy lifting,...

while women are assigned to work in the field of apparel, footwear, electronics assembly. The data also

indicates that the majority of interviewees in the ages of 18 – 33 years is due to strict punishment of child

labor use by law.

The success of education of the country can be seen through a significant number of workers

(66.33%) have academic level from high school. Especially, 21% of them have graduated in colleges and

universities.

Income and Expenditure

Average income of workers is 3.8 million VND (approximately $200) per month when highest rate is

double higher (8 million VND) of workers in foreign investment companies.

According to the officials of HCMC People Committee, 2014‟s income per capita in the city reached

$5,131. This means that the average monthly income in 2014 is about 9,00 million/person (21,000 đ/$ of

exchange rate, approximately), then it could be said that the workers in the industries are relatively low

income people. Income is a main factor of living conditions and saving for the future. In fact, to gain that

income level, workers have to work hard, especially when they have been usually working over time.

About 85.5 percent of interviewees have to work for 10 to 12 hours per day to get extra income or to meet

requirements of the companies.


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Figure 3. Monthly Income of Workers

In addition, working conditions of workers is a considerable issue of managers of the companies. In

fact, 26,6% of workers think that they are working with risk in working places and not good and safe

quality of lunch providing by the companies.

Figure 4 illustrates that a large amount of workers income is using for covering foods and housing

expenses (more than 60% of income). Although all of them have health care insurance, they have to pay

around 5% of income for health care due to current policy. It should be emphasized that a small percentage

of income is paid for entertainment and education. In fact, because of long-time and hard working every

day, most of workers spent their leisure time for sleeping. Entertainment and cultural activities with

relatively high cost are unavailable for them.

Figure 4. Expenditure Structure of Workers


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Expenditure structure with low income levels indirectly shows how living conditions of workers.

Despite the high spending rate of income for housing, living conditions of workers are not comfortable and

unsafe. Most of them are living in private dormitories owned by local people with limited facilities.

Even though with relatively low income, most of workers have saving to send home. Saving amount

is calculated by subtracting income and expenditure. Average savings differs from 500 thousand to 1,2

million accounting for 13,15 % to 31,56 % of average income. In fact, most of workers have no satisfaction

with this saving amount compared with their wishing.

Home Back Decisions

There are many factors that effected on home back decisions of workers who left their hometowns to

seek more income for their families and themselves. In general, more than 90% of the workers from the

survey are intended to return home due to many causes. However, most of workers agree four main reasons

that illustrate in Table 2. Most of people from rural areas have closed relationship with their family at

hometown and 96% of them say that they plan to go home to live with their family (parents, spouse,

children). So that living with family seems to be an important factor of home back decisions. Low income

is the second reason to go home (85%) since main purpose to work in HCMC is to get more money than

working in their country sides. In fact, many problems relate to environment such as air pollution, high

population density, bad livelihood… is also a factor leading them to return home. Hard working and over-

working time make people come from rural areas have to face the stress and 73% of them could not adjust

with these pressures and decide to go home.

Table 2. Factors Affected on Home Back Decisions

% of total

Living with family 96

Bad living environment 68

Hard working 73

Low income 85

3. CONCLUSIONS AND IMPLICATIONS

To have a general picture of workers situation needs deeper accesses. This study aims to describe and

measure some aspects of concerning and due to its limitations, some conclusions could be stated as below:

Living standards of the workers are low due to relatively below average income in HCMC region.

Hard and overtime working and lack of entertainment facilities are reasons of poor leisure activities of the

workers. Furthermore, inconvenient housing conditions and bad health care are also problems that workers

have to overcome. Salary rate increase, overtime working reduction, and lunch services improvement are

priorities of the workers that need to be considered recently.

The study also indicates that a large number of workers will return home due to factors of working and

living conditions as well as future prospects. Labor resources for industries in HCMC in the future partly

depend on amount of labor supply from other provinces and number of home back workers. In addition,

new coming workers for replacing skilled labors require expensive cost and time for training. Moreover,

economic growth of provinces providing labors for Ho Chi Minh City will also lead to higher pressure of

worker‟s deficit in the future. Thus, managers of manufacturers should have consideration on this issue for

labor planning and vision.

Moreover, ASEAN Economic Community (AEC) will be established at the end of the year 2015.

Economic integration will open a new labor market so that workers could find jobs outside the country.

This, in turn, causes challenges for domestic businesses. Therefore, labor law and relating legal documents


395

should revise (if needed) to adjust with the new conditions. Policy-makers should consider negotiating with

labor users to legislate and enforce least salary rate and maximal daily time working to protect labors.

Recently, better health care and social residential apartment programs in the city received strong supports

of workers but more attempts of the society and local government are needed to meet the demand.

An important task of mass media and local government is to be more active in educating managers

and labor users to understand advantages and disadvantages when Vietnam becomes a member of AEC

and Trans Pacific Partnership (TPP)… Thus, there‟s a need to improve social responsibilities of

organizations in issues of labor practices.

REFERENCES

Báo Tuổi Trẻ Online. Thành phố Hồ Chí Minh: Thu nhập bình quân đầu người.

http://tuoitre.vn/tin/kinh-te/. Oct. 28, 2015.

International Organization for Standardization (ISO). ISO2600 Social responsibilities.

http://www.iso.org/iso/home/standards/iso26000.htm

UN Industrial Development Organization (UNDO). Responsible Entrepreneurs Achievement Programme (REAP).

REAP 26. http://www.unido.org/reap.html

http://tuoitre.vn/tin/kinh-te/

http://www.unido.org/reap.html


396

Business Engagement to Enhance Young People's Skills

Siep Littooij

Manager International Project desk, Saxion University of Applied Sciences, the Netherlands; project co-director Profession Oriented Higher Education, 2

nd phase (POHE2) in Vietnam

1. THE CHALLENGE OF WIDESPREAD SOCIAL DISSATISFACTION WITH

EDUCATION OUTCOMES

Globally, and not less in the Netherlands and in Vietnam, business is dissatisfied with the skills of

young people arriving on the labour market. In fact, employers around the world (Sharma, 2013), in

Europe (McKinsey, 2014) and not less in the Asian region are vocal and united, sharing their inability

to find suitable candidates for all kinds of jobs, including the professions. Their view on those

graduating from universities is that they lack the skills needed to succeed at the job. The World Bank

(2008) concludes in their extensive reporting on „Higher Education in East Asia – Skills‟ that “Skills

that employers require are communication, critical and creative thinking skills, teamwork abilities,

command of foreign languages, and ICT skills”. The report then continues by stating that “Higher

education has a critical function in supplying employees who have higher–level academic and technical

skills, as well behavioral ones. Its inability to supply graduates with these skills may, therefore, have

dramatic consequences on economic growth.” The Vietnam Development Report 2014 (World Bank,

2013) stresses strongly the same skills gap that employers experience. Not only in national level reports

but also real companies in Vietnam appear in the media to share their difficulties on the labour market

as Ngoc Chau Anh (2015) reports, illustrating that the labour market challenge, the skills gap challenge,

is quite present in Vietnam. The POHE project, of which the author is the international co-director,

contributes to the development and delivery of curricula that respond to labour market demands and

building skills training capacities in universities by creating educational formats allowing mobility of

students between business and university.

Having the right skills improves employment opportunities and transforms lives. The OECD

attributes education with the capacity to enable people, from young age to old age, to perform better in

the labour market, and contributes to improve overall health, promote active citizenship and contain

violence. Specific skills may contribute to specific societal goals such as sustainable development,

health or ethics. A society with education young people has opportunities for development, as they

obtain skills for work and life.

Then, as society and business stands so critical of the current skills level of young people as they

enter the job market, is business well placed to do anything to improve the skills levels? Business

certainly will need to invest in additional training for recruits entering their labour force, possibly

retraining to make to employ under-skilled youngsters. The route to contribute to their education while

the youngsters are not yet on the labour market but in school, college or university is certainly attractive

from a social responsibility perspective.

The current paper highlights experience of business contributing to skills training of young people

in the Netherlands and in Vietnam. This paper describes the efforts of Netherlands business in

comparison with Vietnamese business. The two countries experience a major difference in the distance

between the two sectors business and education. When working towards the improved skills of young

people at the point of entry into the job market, the distance between the two sectors necessarily must

be minimized.


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The paper discusses only the post-secondary education, such as vocational, professional and

higher education. It assesses the motivation and arrangements that business can deploy to work with

education providers in providing education that does deliver appropriately trained youngsters on the

labour market. Education monitoring data and survey data, among that a survey conduct with POHE2

project funding, do illustrate the scale of the challenge. Noting emerging policy directions in

Vietnamese education, a few possibilities are identified in which business may contribute to improved

skills levels in young people.

2. BUSINESS & EDUCATION AS INTER-SECTORAL COLLABORATION

A business providing training for young people offers them a chance to learn 'the business way of

doing the job', immediately mixing practical experience with the school based theories. Exposure to a

business working culture can open minds and stimulate a learning attitude in youngsters, generating

some loyalty to the business. A business may benefit with the preview on youngsters within daily view,

and in case of recruitment gives business a good selection instrument. Learning in business

environment, or workplace learning, is known to deliver practical skills much faster than in a school

environment. As a business typically involves its staff in training, the exposure to young people creates

learning opportunities also, not least in articulating the knowledge base of the business, in refining the

systems and processes. Finally, having staff trained, business can integrate young people into the

workforce more easily, which increase business's efficiency and productivity.

The fear that young people „walk out the door‟ after business has invested in training is noted

everywhere. While the immediate business benefit may in that sense be termed risky, that is exactly

where the business may take up its social responsibility. If all business would participate in training

young people, benefits accrue to all stakeholders, whether that is the actual business and the young

people, all together that is what society is made up from.

Netherlands business and education institutions do have a definite and very-desired obligatory

relationship together. For all levels of education, as young people progress during their education

pathways a host of educational formats is developed through which business is involved in training

young people. The most well-known and formalized formats are dual learning arrangements and

internships (workplace learning), though a multitude of formats exists, which can vary between

economic sectors and educational levels.

The Netherlands has a long history of businesses starting their own training programmes, their

own schools at vocational, professional and higher education levels. Larger businesses with specialized

needs started their own schools and sectoral organisations representing smaller, maybe medium sized

companies. A representative of many such schools, the Rotterdam School of Management is proud of

the business involvement (School History, 2015). Government at national and local started schools in

order to support the development of industry, selecting regions and defining subjects to teach (de Boer

& Drukker, 2011), a prime example being the University of Twente. Policies in the 80‟s and 90‟s of the

previous century harmonized and uniformed the structure and ownership of education institutes,

removing concrete business ties. Saxion University of Applied Sciences, through a process of mergers,

now incorporates several of these historically business-linked schools. Business did not handover their

influence on education and has succeeded in regulatory obligations on business participation in

governance, curriculum development, delivery and supervision and quality control, among others. The

approximately 40 regional education centres (ROC colleges, 2015), providing vocational education,

have a similar history of a leading role of business in education, followed by mergers and a similar

multi-disciplinary mix.

Business interests have a definite voice in education policies at national level as well as the

institutional level. National business associations, representing large employers or small and medium


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size business, articulate their voice. National organization arranges school and curriculum level

collaboration at the vocational level. Sector committees, domain committees, thematic platforms,

(temporary) committees and regional consultations provide a dense coverage of business concerns over

education. While many of the mentioned foras are staffed by paid personnel, business representatives

are in control and fund their expenses.

The Netherlands strongly stimulates structured collaboration arrangements between business and

education institutions to diversify the educational formats and to enhance the innovation outputs. The

Ministry of Education Culture & Science provides funds to fund innovation projects, aiming to develop

more and up-to-date educational formats that develop skills desired by business.

3. THE SCOPE OF BUSINESS CONTRIBUTIONS IN ENHANCING STUDENT SKILLS

When drawing a picture of business engagement with young people, the statistics are hard to

collect from business entities in any uniform way. Netherlands has registered a total of this compares to

a total number of 844,444 registered business entities, of all sizes and sectors (CBS). The national

authority recognizing business as a „learning company‟, known as Cooperation Organisation for

Vocational Education, Training and the Labour Market (SBB) has a database comprising

approximately 235,000 „recognized learning companies‟ (SBB, 2015). That means that approximately

28% of all business in the Netherlands is involved in educating young people in vocational training.

18% of these businesses are recognized for multiple economic sectors. As higher education institutions

do not require a business to be formally recognized as a learning company, the number of business

hosting formal student learning is certainly larger.

The proxy for the number of students trained in business equals the number of students that must

have completed a business provided training obligation in formal degree requirements. All students at

vocational level have the obligation to train within business, regardless of the different training

pathways. Students registered in Universities of Applied Sciences must also fulfill a traineeship with

business at least once during their four year study. From the registration statistics in the table below, we

see the number of students engaged with business in any given year is 590,819. The number of students

per recognized learning company is only known for vocational degree students, which arrives at

approximately 2 students per business entity in any given year.

Type of educational format Degree

level

Registered

students

Annual traineeship

demand

Dual learning Vocational 102,000* 102,000*

School based learning with traineeship Vocational 377,194* 377,194*

School based learning with traineeship Bachelor 446,500# 111,625

Total 925,694 590,819

* (SBB, 2015); # (Hogescholen, 2015)

The number of students in Vietnam may be adequately known from annual education sector

statistics. There are businesses involved in certain aspects of training and education young people

(T&C, 2013). As there are no obligatory educational formats including business training the number of

such involved business, is impossible to calculate from any source of national statistics. A quantitative

analysis for Vietnam and comparison with the Dutch situation is therefore lacking.


399

4. UNIVERSITY BUSINESS COLLABORATION AS THE OVERALL CONTEXT OF

SKILLS TRAINING

Beyond national statistics, an approximation and qualitative observation of business engagement

towards skills training for young people is studied through surveys. In recent years, two identically

structured studies were conducted in both the Netherlands (Davey, Muros, & van de Sijde, The state of

University Business cooperation in the Netherlands, 2013) and in Vietnam (Davey, Muros, & van de

Sijde, 2015), on the collaboration between university and business. The study collected perceptions of

university managers and academics in 33 countries about universities work together with business,

including the training of the higher education student segment of young people. The studies are

founded on the analytical model of University Business Collaboration (UBC), which was developed,

applied and verified through a Europe wide study on university business collaboration. (Davey, Baaken,

Muros, & Meerman, 2011). The UBC model is a operationalization instrument able to describe causal

effects of factors of importance within the Triple helix model of innovation systems (Etkowitz, 2008).

It has uses as a policy tool1.

Figure 11. University Business Collaboration Policy Model

Centre point attention in the model is the actual UBC (3), which the model distinguishes into eight

different Results. Each such result describes a different way in which a university and a business

cooperate:

1. Collaboration in research and development (R&D),

2. Mobility of academics between business and university,

3. Mobility of students between business and university,

4. Commercialisation of R&D Findings,

5. Curriculum development and delivery,

1 The UBC model and its application in the report „State of UBC in the Netherlands‟ (Davey, Muros, & van de Sijde, The

state of University Business collaboration in the Netherlands, 2013) has inspired Saxion UAS in its support towards the

Vietnamese Ministry of Education and Training and 8 pilot universities in the profession Oriented Higher Education project

2nd phase (POHE2).


400

6. Lifelong learning (LLL),

7. Entrepreneurship,

8. Governance

5. UBC IN VIETNAM FROM STAKEHOLDER PERSPECTIVES

UBC in Vietnam becomes interesting for those Results where young people are involved, beneficiary or instrumental, which is most visible in the mobility of students between business and university and with curriculum development and delivery. Two unique and rarely seen electronic and interview based surveys conducted on the request by POHE2 project, gave a representative voice to respondents from business and academia, both concur that these two aspects of UBC are most prevalent and most important.

Vietnamese academics and university managers state2

that collaboration in curriculum development and delivery is prevalent. Mobility however is hardly mentioned. As main beneficiary of collaboration efforts it respondents rate students the highest, with as outcome the employability enhancement UBC does bring. Academics and teachers are motivated by the success of students, while noting little benefits being available for themselves. They note the lack of proper insights into what business wants from education. The barrier most often quoted is related to the moment of initial contacts, especially for teachers. There seems to be very few internal or external support possibilities available for academics and teachers to either find, contact or relate to business. Unfortunately, a discrepancy seems to exist between more positive managerial perceptions and more pessimistic academic and teacher perceptions about available incentives or support. Taking the perspective of a student as a young person preparing to enter the labour market with relevant skills, all respondents agree that universities do not prepare them well enough and that universities have real challenges in innovations that improve such preparation for the labour market.

Business leaders and HR managers interviewed through a separate survey utilizing the same analytical UBC model display complementary perspectives

3. UBC is recognized, of which business

only engages with young people while in university to harvest new recruits, although the working method also includes internships. Beyond that, enterprises do believe that engagement with universities does much to improving students‟ practical skills and developing the society. More than half of enterprises claim that they take the leading roles in UBC initiation, both at student level, relationship management as well as in setting up more strategic collaboration. The biggest barrier of UBC in Vietnam is the lack of information from both enterprises and universities. In addition to scoring this barrier the most relevant, most business also state that they do not assign focal points for UBC in their firms. A business with a longer track record reports more and more types of UBC. And business with more UBC report higher intention to maintain and develop UBC.

6. RESPONSIBILITY FOR SOCIETAL CHALLENGE

These unique recent studies on Vietnamese university business collaboration at the level of students show great agreement that internships and workplace learning as well as contributions to curriculum development do contribute to skill development in young people. Engaging through such educational formats is seen as beneficial to these young people as well as to the greater society.

2 This section summarizes relevant conclusions from the report „State of UBC in Vietnam‟ (Davey, Muros, & van de Sijde,

2015) The number of respondents is 352, of which 284 Individual academics and teachers and 68 HEI managers and HEI

professionals working with higher education, responding on behalf of their HEI.

3 This section is based on the report 'University Business cooperation from the perspective of business' (T&C, 2013) in which

10 enterprises in geographically different areas of Vietnam were interviewed. A total of 169 valid survey questionnaire

responses, covering different regions, sectors and UBC experience levels were the foundation for representative

conclusions.


401

Internships and workplace learning, or indeed collaboration of any kind, in volume terms may be a frontier of collaboration, moving from a virtually unknown concept towards more common practice. And both older business as well as a wider and broader scope of UBC reinvigorates UBC, which bodes well for the future

Benefits of forms of cooperation in

education accumulate, according to both

business and universities, to students. Both

universities and business agree that they have

very little information about the requirements of

each other. External and university-internal

intermediaries that facilitates the initial stages of

contact are reported useful but missing. Both

stakeholders agree that it is prior relations to that

count in establishing relations in education.

However, while business appears able to initiate

contacts, the academics and teachers find it

difficult.

Improving the practical skills of students is

an important contribution of business to society.

As in the Netherlands around a quarter of

business contributes to education by opening

their door for practice learning, it is time for

Vietnamese business to reflect on their abilities

to open their doors too.

Universities may acknowledge the circular

07/20154, which reflects policy changes under

the law on Higher Education which develops

the concept of Universities of Applied Sciences.

Article 6 clearly specifies the important role that

business plays in setting and verifying learning

objectives of curricula. Not predefined

nationally, but with the realm of responsibility

of each university. Referencing the UBC model,

cooperation with business on curriculum

development has become incorporated in the

regulatory framework. The model spots more

opportunities to generate more collaboration

that benefits students and young people to

engage with business, there is more room to

improve.

Vietnamese business reports problems with

recruitment of young recruits, is suffering most

4 Full reference: 07/2015 / TT-BGDĐT Hanoi; May 16 2015; Regulations on minimum quantity of knowledge, abilities

required for student achievements that after graduation for each level of training of higher education and process of building

and evaluation committee of chapter education university level, master, doctorate

Circular 07/2015 / TT-BGDĐT Hanoi, May 16 2015

Article 6. Procedures and organizations build

programs

1. The process of developing training programs

a) Step 1: Surveys, identify staffing needs by level and

sector / specialized training; surveying the needs of

employers for graduates / professional training

requirements associated with the volume of minimum

knowledge and capability requirements for learners

achieve after graduation provisions in Article 4 and

Article 5 of this Regulation;

b) Step 2: Develop goals, objectives and outcomes of

training programs;

c) Step 3: Determine the structure and volume of the

necessary knowledge of the training program, build

training programs ensure training objectives and

outcomes;

d) Step 4: To compare, compare with training

programs and qualifications, and industry /

professional of the other training institutions in the

country and abroad to complete training programs;

e) Step 5: Design syllabi modules training program

defined;

e) Step 6: Organize workshops opinions of faculty,

staff and external managers in training institutions,

scientists, representatives of employers unit concerned

and graduate (if any) of training programs;

g) Step 7: Finalize draft training programs on the basis

of absorbing the feedback of the stakeholders and the

Scientific Council's training and education institutions

consider conducting the evaluation procedure and

applied;

h) Step 8: Review and regularly update the curriculum

content and teaching methods based on the new

progress of the specialized field and the requirements

of the employers.


402

from the widely reported lack of practical skills in young people. Society rightly sees this as an urgent

problem.

All stakeholders in society now have a chance to step up its engagement with education

institutions and to engage with young people to improve their skills acquisition.

Vietnam can learn from Dutch experience that business is both respected as important stakeholder

in priority and policy setting for universities as well as an important provider of workplace learning.

The fact that around a quarter of Dutch business does take up their role, motivated by their business

interest as well as their responsibility to society in general and young people in particular, is promising

for Vietnam. Obvious from the two surveys done in Vietnam is that business is in the best position to

initiate contacts with universities. Whether this is at the senior level to set education priorities or work

floor level to engage in workplace learning with students, there is room for so much improvement.

Business may contribute to education that universities do not manage by themselves. In fact, if business

does not initiate contact, universities by themselves are losing themselves in theories. So it really is up

to business stakeholders to resolve the practical skills deficiency in Vietnam.

As in the very near future the eight universities participating in POHE2 start to deliver another 40

more curricula in which Business is strongly invited to collaborate, young people will have better

chances for skills training at the level of higher education. They will therefore have better

employability futures, thanks to engagement and collaboration in education, starting from the business

side. More research may be necessary to identify best practices and obstacles, which upon their

resolution will enhance the benefits for students and business.

REFERENCES

Anh, N. C. (2015, April 28). Tỷ lệ sinh viên thất nghiệp tăng: Do cái tôi quá lớn . Opgeroepen op June 27, 2015,

van Zing.vn: http://news.zing.vn/Ty-le-sinh-vien-that-nghiep-tang-Do-cai-toi-qua-lon-post534523.html

CBS. (sd). CBS Statline. Opgeroepen op 8 7, 2015, van http://statline.cbs.nl

Davey, T., Baaken, T., Muros, V., & Meerman, A. (2011). The state of European University-Business

Cooperation. Munster, Germany: Science-to-business marketing research centre.

Davey, T., Muros, G., & van de Sijde, P. (2013). The state of University Business collaboration in the

Netherlands. Munster: Science to Business Marketing centre, Munster UAS.

Davey, T., Muros, G., & van de Sijde, P. (2015). The state of University Business collaboration in Vietnam.

Munster: Science to Business Marketing centre, Munster UAS.

de Boer, J., & Drukker, J. (2011). A concise history of University of Twente. Opgeroepen op 9 25, 2015, van

http://issuu.com/utwente/docs/geschiedenis-ut

Etkowitz, H. (2008). The Triple Helix, University-Industry-Government Innovation in action. New york:

Routledge.

Hogescholen, V. (2015). Feiten en cijfers. Opgeroepen op 8 7, 2015, van Vereniging Hogescholen:

http://cijfers.hbo-raad.nl/

Littooij, S. (2015). University Business Collaboration to enhance graduate employability. Quality in Higher

Education, Global perspectives and Best Practices (pp. 147-159). Ho Chi Minh city: SEAMEO Retrac.

McKinsey. (2014, January). Education to employment: Getting Europe’s youth into work. Retrieved June 14,

2015, from McKinsey & Company Insights & Publications:

http://www.mckinsey.com/insights/social_sector/converting_education_to_employment_in_europe

ROC colleges. (2015). Opgeroepen op 9 25, 2015, van MBO raad:

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barometer/barometer-juni-2015

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cijfers/doelmatigheid

School History . (2015). Opgeroepen op 9 20, 2015, van Rotterdam School of Management, Erasmus University :

http://www.rsm.nl/about-rsm/facts-figures/school-history/

Sharma, Y. (2013, January 6). A focus on skills increasingly links higher education with employment. Opgeroepen

op June 14, 2015, van University World News:

http://www.universityworldnews.com/article.php?story=20130103154436919

T&C. (2013). University – Business Cooperation From the Perspective of Enterprises. Accessed april 2015,

POHE project website http://pohevn.grou.ps

WorldBank. (2008). Higher Education and Skills for Growth. Retrieved June 14, 2015, from World Bank

programme on Higher Education in East Asia - Skills: http://go.worldbank.org/FF185GEZI0

WorldBank. (2013). Skilling Up Vietnam, Preparing the workforce for a modern market economy. Hanoi: World

Bank.


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Promoting Business Networks for Sustainable Development of Agricultural Exports

To Thi Kim Hong

HCMC Open University


Nguyen Minh Duc

Van Hien University

ABSTRACT

Vietnamese agricultural exports are growing but not sustainable. The rapid growth of agricultural production by

land expansion and intensification in last three decades has caused environmental problems. By increasing the

quantity to compete in the global market, agricultural exports seem not to be economic effective, leading social

problems negatively affecting primary producers. When Vietnam joins in the global integration, business firms play an

important role in making agricultural exports more sustainable with more involvement into global commodity chains.

Promoting business networks is not only in domestic but also in international value chains. Agri-business enterprises

in Vietnam may improve supply chains in agricultural exports toward standardization and modernization, enable the

exports more sustainable.

Keywords: agri-business, trade, exports, sustainable, commodity chain, globalization.

1. INTRODUCTION

Enterprises play a particularly important role in the economy as a key component generated total

domestic product (GDP). In recent years, the operation of the business has developed dynamically to

mobilize domestic resources and promote economic development, export growths and contribute to solve

macroeconomic problems such as employment and poverty alleviation. In the trend of global economic

integration, business firms have increased investment in technology innovation. Not only promote domestic

consumption but business firms have also contributed to boost exports, especially in agricultural sectors.

However, the increase of Vietnamese agricultural exports seems not sustainable. A sustainable

development in exports should create all of three aspects: economic effectiveness, environmental

conservation and social improvement.

After figuring out the growth of agricultural exports and development of business firms in Vietnam,

this paper discusses on the role of business networks in enforcing agricultural exports grow toward a more

sustainable development in agricultural supply chains.

2. LITERATURE REVIEWS

2.1. Sustainable Exports

Chu Van Cap and Nguyen Duc Ha (2013) stated that sustainable exports is ensuring harmony between

increasing export growth and solving social issues alongside with environmental protection. The natural

resource protection in sustainable development of agricultural exports was also confirmed by New Zealand

Ministry of Foreign Affair and Trade (2015) as the organization emphasized that the developing sustainable

exports includes working with key industries to measure, manage and reduce their environmental


405

(including greenhouse gas or carbon) „footprint‟, as well as leveraging opportunities in international

markets.

2.2. Business networks

A network form of organization is any collection of actors that pursue repeated, enduring exchange relations with one another and, at the same time, lack a legitimate organizational authority to arbitrate and

resolve disputes which may arise during the exchange (Podolny and Page, 1998). This definition of a network form of organization includes a wide array of joint ventures, strategic alliances, business groups,

franchises, research consortia, relational contracts, and outsourcing agreements. Feenstra et al. (1999) mentioned a business group is one example of a network structure between firms. According to the author,

the advantages to being within a network potentially include information flows between firms and

customers, information flows on production techniques between firms and suppliers, financial insurance provided by a bank within a group or improved access to intermediate inputs sold by member firms.

According to Rauch (2001), business and social networks that operate across national borders can help to overcome kinds of informal trade barriers. The role of business networks in economic development,

especially in East Asian, has been discussed in previous studies of Gerlach (1992), Futatsugi (1986), Hamilton and Biggart (1988), Orru et al. (1991), Hamilton (1991). Rauch (2001) has also diagrammed the

role of business networks in international trade when enterprises joined in the global commodity chains to develop global value chains. For the global chains, Rauch (2001) classified business into two groups:

Supplier-driven and Buyer-Driven Commodity Chains. The first one focuses on industrial goods/services and the second includes labor-intensive products such as textiles, food and agricultural products.

Source: James E. Rauch, 2001

Figure 1. The Organization of Producer-driven and Buyer-driven Global Commodity Chains

Notes: Solid arrows are primary relationships; dashed arrows are secondary relationships. Retailers, branded marketers

and traders require full-package supply from overseas factories. Branded manufacturers ship parts for overseas

assembly and then exports to the manufacturer‟s home market.


406

2.3. Research methods

This paper uses secondary data from Vietnamese Custom, Government Statistical Office, Ministry of

Industry and Trade, and Ministry of Agriculture and Rural Development to figure out the growth of

agricultural exports and development of business firms and business groups in Vietnam. Previous articles

and reports have been also documented for analysis and discussion in this paper.

2.4. Results and discussion

The growth of agricultural exports

Before joining into World Trade Organization, the list of exported agricultural products is still limited

around ten groups of products. After Vietnam becomes a member of WTO, with the enthusiasm of

Vietnamese business firms, more agricultural products are included in the list of Vietnamese exports such

as fruits, vegetables, sugar, cassava and cassava products. Traditional agricultural products including rice,

coffee, tea, cashew and aquatic products are remaining in growth. During the period of 10 years (2004-

2013), the exported quantity and values of the traditional products had an increasing trend (Table 1),

exhibiting efforts of agri-business firms in spread out markets for Vietnamese agricultural products. For

aquatic products, export value in 2013 reached USD 6.7 billion, increased 2.8 times compared to 2004. In

terms of quantity, rubber exports increased twice (comparing 2013 with 2004), these values contribute

greatly to Vietnam's GDP in recent years.

Table 1. Increasing exports of some major products of Vietnamese agricultural

Products 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Pepper

(thousand tonnes) 110,5 109,9 114,8 83,0 90,3 134,0 117,0 124,0 116,8 132,6

Coffee

(thousand tonnes) 976,2 912,7 980,9 1.232,1 1.060,9 1.183,0 1.218,0 1.260,0 1.735,5 1.300,1

Rubber

(thousand tonnes) 513,4 554,1 703,6 715,6 658,7 731,0 779,0 817,5 1.023,5 1.074,0

Rice

(thousand tonnes) 4.063,1 5.254,8 4.642,0 4.580,0 4.744,9 5.969,0 6.893,0 7.116,3 8.017,1 6.587,1

Sugar

(USD million) 0,5 0,3 2,3 4,7 5,0 1,5 0,8 173,8 47,1 -

Tea

(thousand tonnes) 104,3 91,7 105,4 115,7 104,7 135,0 137,0 135,0 146,9 141,2

Aquatic products

(USD million) 2.408,1 2.732,5 3.358,0 3.763,4 4.510,1 4.255,3 5.016,9 6.112,4 6.088,5 6.712,2

Source: www.gso.gov.vn and www.argoviet.gov.vn, 2014

However, the increase of Vietnamese agricultural exports seems not sustainable. A sustainable

development in exports should create all of three aspects: economic effectiveness, environmental

conservation and social improvement.

In Vietnamese exports structure, agricultural products only occupied 27-28% of national export value.

In economic aspects, the increase of Vietnamese agricultural exports is mostly based on quantity focus. For

instance, rice is the most important goods in Vietnamese agricultural exports. A research of To Thi Kim

Hong (2015) has suggested that an increase of exports includes price effect and quantity effect. To calculate

http://www.gso.gov.vn/

http://www.argoviet.gov.vn/


407

and compare price and quantity effects between major rice exporting countries, it can be found that in some

years Vietnam got benefits from price effect but during 2000-2011, Vietnamese rice exports are mostly

based on quantity effect while Thai rice exports based on price effect. The research findings exhibit lower

economic effectiveness of Vietnamese rice exports which are relative to other rice exporters in the global

market (Table 2).

Table 2. Price and quantity effect of major rice exporting countries in the global market during 2000-2011

Country Price effect (%) Quantity effect (%) Total effect (%)

Thailand 142.98 -38.28 -4.70

Vietnam 46.37 75.69 -22.06

India 48.73 128.73 -77.46

USA 106.69 17.63 -24.32

Pakistan 61.42 48.00 -7.21

China -532.63 470.89 161.75

Uruguay 74.57 42.38 -16.96

Italy 86.71 20.37 -7.09

Brazil -1.05 72.31 28.74

Australia 263.52 270.37 -433.89

Belgium 17.15 87.36 -4.51

Argentina 121.80 209.31 -231.12

Spain 189.99 11.33 -101.32

Netherland 76.49 77.15 -53.64

Source: To Thi Kim Hong, 2015

Another example for quantity based growth in agricultural exports is Vietnamese Pangasius catfish.

Beside shrimp, Pangasius catfish is another most important product in fisheries exports. Despite an increase

in export value, a decrease in export price of Vietnamese catfish can be observed during 2008-2013 (Figure

2), leading to a decline in real price of farmed fish and lower economic gain of fish farmers in Mekong

Delta.

The above examples justify that agricultural exports seem not to be sustainable in economic aspects.

Furthermore, agricultural exports comprises mostly raw materials and located in lower positions in

products‟ value chains, so Vietnam only gets little adding value from production chains.


408

Source: To Thi Kim Hong, 2015

Figure 2. Export price of Pangasius catfish in the US market 2008-2013 (VND thousand/kg)

Vietnamese agricultural exports are also not sustainable in environmental aspects. Due to the

advantage in export quantity in the global market, the increase in agricultural exports is from production

expansion. Previous strategies in agricultural production development mostly based on land expansion and

intensification to raise productivity of land. According to the statistics of the Ministry of Agriculture and

Rural Development, previous investment in agricultural sector just focused on irrigation systems and rural

infrastructure.

Figure 3. Vietnamese import trend of agricultural inputs

In last two decades, it is observed an increase in investment for intensification in agricultural sectors

with more imported fertilizer, seeds, pesticides and chemicals (Figure 3) toward to the objectives of

quantity growth in agricultural exports year by year.


409

The land expansion is reaching to limitation while intensification in agricultural production seems to

make environment pollution more serious, harm ecological diversify, negatively affect human health

(Nguyen Minh Duc, 2013). That makes Vietnamese exports less sustainable in environmental aspects and

also in social consideration. Worse living conditions due to environmental degradation, less economic

gains are causes of recent social problems such as increasing criminals in youth, untreated diseases and low

education level of rural residents.

2.5. The development of business firms in Vietnam

The number of business firms is increasing more and more in Vietnam as percentages of business

growth exhibited by the lines in Figure 4. Although the quantity of agri-business is only one fourth relative

to the one in hospitality sector, the number of 3600 business firms in agricultural sector in 2013 is twice

than the one in financial sector (Figure 5).

Source: MOIT, 2015

Figure 4. The growth of business firms in Vietnam

Alongside with the increase in agricultural firms, entrepreneurs have also been in growth. This also led

to labor force in this sector are not small. There are higher numbers of young businessmen who were well-

educated, enthusiast, innovated and better adapted with changes in national and global economies.

According to data from GSO, if the business firms in 1995 only generated VND 103.7 trillion, accounting

for 45.3% of GDP (the remaining areas include administrative block, career, individual occupies 54.7%),

then in 2001 this area has generated VND 255.7 trillion, accounting for 53.2% of total GDP, 2.5 times in

1995; in which 30.6% of GDP from state enterprises, 8.8% from foreign-owned, and 13.8% from FDI

enterprises.


410

Figure 5. The growth in business firms in Vietnam during 2009-2013

The companies have attracted a considerable amount of financial investment, contributed more to

GDP, state budget. Business firms have also contributed to the restructure process of Vietnamese economy.

With the global financial crises and economic recession occurred in 2008-2010, although not being in rapid

growth, business firms have gone with the Vietnamese government to protect the economy out of recession

(Cheung, 2012). In the trend of global economic integration with more and more free trade agreements

signed by Vietnam and other countries and economies, business firms have increased investment in

technology innovation. Not only promote domestic consumption but business firms have also contributed

to boost exports, especially in agricultural sectors.

According to the data from Ministry of Industry and Trade (MOIT), there are more than 400

associations and groups of business in Vietnam, the business networks in agriculture is still weak since the

number of association and groups just limited at 80. Despite various and continuous recommendation

raised for agriculture production development, the linkages to set up networks in agri-business are still

limited and ineffective (Thu Giang, 2015).

2.6. Promoting agri-business networks to raise sustainability of Vietnamese agricultural exports

With business and marketing experiences in the global market, business firms are expected to improve

position of Vietnamese agricultural products in global value chains by implementing vertical integration

with farmers and primary producers to establish and furnish domestic supply chains before joining in the

global linkage chains.

Agricultural production in Vietnam is recently a shortage not only of seed and genetic technology but

also of harvest, reservation and processing leading to big loss and inequality in product quality. Business

firms should rapidly spend more investment to develop their own advanced technologies and then transfer

popularly throughout national agricultural practices. By creating and developing networks with groups of

farmers, the production scale of agri-businesses would expand to meet the requirements for technology

adoption and transferring. In the world, more and more advanced technologies from industrial sectors

would be spread out to agricultural production. Bio-technology in genetic and seed breedings may be

applied to select indigenous species and develop them to national products which have higher competitive

capacity in the global market as past successes with Pangasius catfish. Bio-tech, chemo-tech and/or nano

technology may be used to protect agricultural environment and disease treatment following international

standards. Mechanic and automatic technology can be applied to improve labor productivity, help


411

producers improve their livelihoods toward a more sustainable development of their life as well as a

sustainable development in supply chains of agricultural exports.

With enhanced networks and accumulated experiences and higher education, business may also

contribute to improve human resources in agricultural production by training and transferring management

knowledge and business skills to primary producers in their supplier networks, enable farmers to involve

actively and effectively into global commodity chains toward a sustainable development of their

livelihoods and rural society. Once farmers‟ livelihoods and education improved, the agricultural exports

become more sustainable.

In recent years, especially after Vietnam joined in WTO, with great potential of its agriculture

development and agri-business, Vietnam is attracting more financial investment from multinational

corporations and international funds. Many financial investors consider Vietnam a safe and effective

destination for their money. More business firms can absorb direct and indirect foreign financial sources to

contribute more in order to restructure the process of Vietnamese agriculture. With adoption of financial

investment, Vietnamese business firms would join in the global supply chains of agri-products.

Vietnam has just signed an agreement with other 11 countries for a Trans-Pacific Partnership (TPP).

The agreement benefits participants favors from import tariff waive or remarkable reduction. Among TPP

members, the USA and Japan are two countries raise their FDI flows into Vietnam to explore advantages of

Vietnamese agriculture in order to produce and then export farmed and wild products, such as vegetables,

flowers, tuna and shrimp, to other TPP members or even export back to their domestic markets without

import tariff.

With foreign investment, Vietnamese business firms can help to improve competition capacity of

Vietnamese agricultural products in the global market through adopting advanced production technology

and management skills toward standardization and modernization of agricultural production and exports for

an enhancement of agricultural products quality and raise position of the products in global value chains.

Mostly affected by consumer-drive global commodity chain, advanced technology not only helps to utilize

natural resources more effectively but also support to diversify value-added products, improve product

quality, which will enable Vietnamese agricultural products to meet international standards and build up

brands for the products.

Recently, under the rapid changes of market and global economic environment, agricultural farmers

need updated information on consumers demand and market prices, as well as more strictly requirements

on international standards and on international trade institutions. Business firms may develop and transfer

information technology applied in agricultural production and food processing. Information technology

would help to create closer linkages between business firms and farmers, or to spread out their networks.

This can also help to store better data on market and production, support more effective marketing research

to forecast price fluctuation, predict risks from calamity and actively suggest solution or strategies improve

adaption capacity in front of unprejudiced changes from markets and nature, as well as enable agricultural

export to be more sustainable.

3. CONCLUSION

An increase in business firms in Vietnam helps to boost a growth in agricultural exports. However,

Vietnamese agricultural exports seem to be growing unsustainable. The rapid growth of agricultural

production by land expansion and intensification has caused environmental problems. Besides that, to

compete in the global market, agricultural exports were based on quantity increase, not to be economic

effective, leading social problems and negatively affecting primary producers. If business networks were

developed more effectively in Vietnam not only in domestic but also beyond of national frontiers to

actively join into global commodity chains, agri-businesses could improve supply chains in agricultural

exports toward standardization and modernization to enable Vietnamese agricultural exports more


412

sustainable through development and application of advanced technology in production and management,

then transfer them to farmers and primary producers.

REFERENCES

Chu Van Cap and Nguyen Duc Ha (2013). Sustainable commodity exports: Economic measures to promote Vietnam

rapid and sustainable development. Journal of Development and Integration, volume 12, 2013, page 22.

Feenstra, R.C., Yangb, T.H., Hamilton, G.G., 1999. Business groups and product variety in trade: evidence from South

Korea, Taiwan and Japan. Journal of International Economics, volume 48 (1999), page 71–100.

Futatsugi, Y., 1986. Japanese enterprise groups. Kobe University, School of Business, Kobe.

Gerlach, M., 1992. Alliance Capitalism: The Strategic Organization of Japanese Business. University of California

Press , Berkeley.

Hamilton, G.G. (Ed.), 1991. Business Networks and Economics Development in East and Southeast Asia. Center of

Asian Studies, Hong Kong.

Hamilton, G.G., Biggart, N.W., 1988. Market, culture, and authority: a comparative analysis of management and

organization in the far east. American Journal of Sociology, Special Issue on Economic Sociology 94, S52–S94.

Kwa, A. and Bassoume, S., 2007. Exploring the Linkages between Agricultural Exports and Sustainable Development.

EcoFair Trade Discussion Papers, number 8, 2007.

NASS (1999). Sustainable Agricultural Export.

New Zealand Ministry of Foreign Affair and Trade, 2015. Sustainable Exports. Report of year 2015 in New Zealand.

Nguyen Minh Duc, 2013. Modernization and standardization in agriculture to adapt better with climate changes.

Proceedings of Workshop" Enforce and develop policies in agriculture to adapt with climate change and global

integration”. Hue University 22-24/8/2013.

Orru, M., Hamilton, G.G., Suzuki, M., 1990. Patterns of inter-firm control in Japanese business. Organizational

Studies 10 (4), 549–574.

Podolny, J.M. and Page, K.L., 1998. Network forms of Organization. Annual Review of Sociology, volume 24, page

57-76.

Rauch, J.E., 2001. Business and Social Networks in International Trade. Journal of Economic Literature. Vol. XXXIX

pp. 1177–1203.

Thu Giang (2015). Development linkage chain model for aquacultural enterprises. Journal of Finance 22/06/2015.

To Thi Kim Hong, 2015. Technological innovation for Vietnamese agricultural products to overcome international

trade barriers. Science and Technology Development journal. University of Economics and Laws.


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Firm-level Determinants of Export Performance: The Research Case of Textile Manufacturing Firms

in Dong Nai Province

Nguyên Thanh Hoa Binh*, Nguyễn Thanh Liêm

Lac Hong University, Vietnam


ABSTRACT

Textile industry is the key exporting and plays an important role while Vietnam has strongly embraced the world

economic integration since 2007. Research on export performance is of vital interest to three major groups: policy

makers, managers and researchers in the world. However, in the emerging market as Vietnam, it has still received

little attention. This paper attempts to explore the firm level antecedents affecting the export performance of textile

enterprises drawing on resource-based view and dynamic capabilities approach. Data collected through

questionnaire surveys with 119 manufacturing firms in Dong Nai Province and then analyzed by applying EFA and

linear regression using SPSS 20.0 in testing the hypotheses. The research reveals that: (a) there are five main firm -

level determinants of export performance: process innovation, export experience, product developing, informational

and relational capabilities; (b) the most influencing factor is process innovation capability; (c) some suggestions for

managers regarding process innovation such as Lean manufacturing implementation and along with further research

direction.

Keywords: export performance, capability, textile and garment, lean.

1. INTRODUCTION

Exporting is the first and popular way for many firms (particularly those of small-to-medium size) to

enter international markets, due to the fact that it involves fewer resources, lower risks, and less costs

compared to other entry modes. Successful exporting is critical to both organizational and national

prosperity. The topic of export performance and the factors related to firms‟ export success is therefore of

vital interest to three major groups: policy makers, business managers and researchers in the world,

establishing it as an interesting academic inquiry within the international business and marketing discipline

(Katsikeas, Leonidou, & Morgan, 2000; Cavusgil & Zou, 1994; Leonidou, Katsikeas, & Piercy, 1998)

A review of the export performance literature shows determinant of export performance commonly

explored in the context of two major theoretical approaches namely, the structure-conduct-and-

performance (SCP) paradigm and the resource-based view (RBV) of the firm (Morgan, Kaleka, &

Katsikeas, 2004; Kahiya & Dean, 2014).

Historically, studies on export performance have been dominated by the structure-conduct-

performance (SCP) framework. As can be seen in the framework of SCP, industry structure determined the

behavior or conduct of firms, whose joint conduct then determined the collective performance of the firms

in the marketplace. In export context, a firm‟s export strategy, characteristics and external (i.e. industry and

market) factors are the main determinants of export performance (Aaby & Slater, 1989; Cavusgil & Zou,

1994; Zou & Stan, 1998). The environment shapes the context of business and a firm‟s export competitive

advantage stems mainly from the external analysis of competition in the target export marketplace. This

approach focuses on the strategy-environment co-alignment, emphasizes the role of the external




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environment and downplays the importance of factors idiosyncratic to the firm in accounting for export

performance (Spyropoulou, Skarmeas, & Katsikeas, 2011).

More recently, the RBV of the firm considers firm-specific resources and capabilities central to

superior performance. (e.g. Barney, 2001; Peteraf, 1993). Recently, the importance of resources and

capabilities has received much research attention. Developing rare, valuable, and inimitable capabilities is a

challenging process.

This study is to answer which capabilities affect to the export performance of manufacturing firms,

particularly those involved in textile and garment industry. The capability- performance approach has been

therefore adopted in this study.

We develop a conceptual model that examines the resources and capabilities – export performance

relationships and empirically test this relationship in the main export textile industry in Dong nai province.

We present our conceptual model in Fig. 1.

2. THEORY AND HYPOTHESIS DEVELOPMENT

2.1. Theory

According to RBV approach, resources are central to understanding firm performance (Peteraf, 1993).

The RBV‟s genesis comes from the work of Penrose, who described a firm as “a collection of productive

resources the disposal of which between different uses and over time is determined by administrative

decision” (Penrose, 1959). Appreciating the significance of Penrose‟s theory, Wernerfelt (1984, p. 171)

coined and introduced the term “RBV” (Morgan et al., 2004)

In the export context, resources are the firm- controlled asset stocks that constitute the raw materials

available to the firm‟s export activities (Peteraf, 1993). Barney (1991) defines firm resources as all assets,

capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a firm

that enable the firm to conceive of and implement strategies.

In this domain, recent theoretical contributions regarding dynamic capabilities distinguish between

capabilities and other types of resources available to the firm (Teece, Pisano, & Shuen, 1997; Helfat et al.,

2007). According to Helfat et al., (2007), the “resource base” of an organization includes tangible,

intangible, and human assets as well as capabilities which the organization owns, controls, or has access to

on a preferential basis.

Capabilities are the organizational processes by which available resources are developed, combined,

and transformed into value offerings for the export market, as “the subset of the competence/capabilities

which allow the firm to create new products and processes” (Day, 1992). It is simply argued that dynamic

capabilities enable the firm to respond to changing market circumstances that contribute to the firm‟s

export market success (Teece, Pisano, & Shuen, 1997; Fuchs, 2009;)

Several studies results support that firm-specific resources and capabilities are important in

determining inter-firm performance variations even more than industry or market characteristics (R.P.

Rumelt & Mcgahan, 1991; Richard P. Rumelt, 1991).

We therefore follow the RBV and dynamic capability approach to derive hypotheses H1-H6, using the

physical, financial, experiential resources and the informational, product developing, process innovation,

relationship building capabilities as predictors for firm export performance.


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Figure 1. Conceptual model

3. CONCEPTS

3.1. Export performance

Export performance is defined as the extent to which a firm‟s objectives, both strategic and financial,

with respect to exporting a product to a market, are achieved (Lages, Jap, & Griffith, 2008). Measurement

and operationalization of the export performance construct remains controversy. The literature considers

both objective (financial) and subjective (non-financial) measures of export performance. Indicators that

are based mainly on absolute values such as export intensity, export sales volume, and export market share,

among others, are called objective measures. Meanwhile, indicators that measure the perceptual or

attitudinal performance such as perceived export success and satisfaction with export sales are considered

to be subjective measures of performance (Sousa, 2004). The use of subjective measures has been

suggested in cases where managers may be unwilling or unable to provide objective financial data and we

employ this approach in the research. Specifically, we consider export performance on the dimensions of

perceived export achievement (i.e., the extent to which firms achieve their export objectives in terms of

sales, profitability, and market share, the number of new export markets, new export products).

3.2. Export experience

Experiential resources, such as market and process knowledge are gained from the firm‟s and

managers‟ overseas market operations experience (Morgan et al., 2004).

Export experience has been considered by scholars as a key driver of export performance. Firms that

have experience are likely to do better than firms that are just starting (Aaby and Slater 1989; Cavusgil and


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Zou, 1994; Allouani & Berbou, 2012). We measured Export experience using three items: “degree of

training in international business, e.g. export courses and seminars”, “degree of overseas experience live

and work abroad” and “ability to follow-up on trade deals in the main export market”, following the

construct of Lages et al. (2008).

H1: Export experience has a positive impact on export performance.

Financial and physical resources

Financial availability and physical resources, such as modern equipment, access to valuable supply

sources that facilitate process efficiency and product effectiveness, can also be important sources of

advantage in export markets (Leonidou et al., 1998).

H2: Financial and physical resources have a positive impact on export performance.

3.3. Informational capability

The capabilities, which pertain to the acquisition and use of information about customers,

competitors, channels, and the broader export market environment, help reduce uncertainty in export

marketing (Morgan et al., 2004; Supitchayangkool,2005).

H3: Informational capabilities have a positive impact on export performance.

3.4. Product development capability

According to Brown & Eisenhardt (1995), the product development process is an important dynamic

capability that has been extensively researched. The process includes existing product modification and

new product development, contributing to deliver superior value to the target market (Morgan et al., 2004).

H4: Product development capability has a positive impact on export performance.

3.5. Process Innovation

Innovation encompasses a firm‟s commitment to create and introduce products and production

processes. Innovative companies, creating and introducing new products and technologies, can generate

extraordinary economic performance. Proactive companies can create first-mover advantages by adopting

best practices in the industry and targeting premium market segments (Bierwerth, Schwens, Isidor, & Kabst,

2015).

Being an element of entrepreneurial orientation, Process Innovation can explain, in part, the

managerial processes that allow some firms to be ahead of the competition because it facilitates firm action

based upon early signals from its internal and external environments. This resulted in improved

international performance (Jantunen et al., 2005; Bierwerth et al., 2015).

H5: Process Innovation has a positive impact on export performance.

3.6. Relationship-building capability

Freeman and Cavusgil (2007) highlighted that one important factor contributing to the success of a

fast expansion to international markets is establishing appropriate relations with the buyers, which also

helps to decrease the financial and distributions costs

Moreover, relationship-building capabilities with suppliers and other channel members will enable

better understanding of and response to the export market requirements (Morgan et al., 2004).

H6: Relationship-building capability has a positive impact on export performance.


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4. METHOD

4.1. Research context

With its rapid economic growth and transition to a market-based economy, Vietnam‟s garment and

textile industry has become a world‟s leading garment and textile exporter besides China, India, Turkey and

Bangladesh. Vietnam is one of the largest trading partners for the major economies in the world, including

the US and EU. Vietnam is also the biggest garment exporter to penetrate US market among TPP

members.

Dong Nai - an industrial province in Southern Key economic Region - has contributed to 15%

garment export and 29% textile manufacturing respectively of the whole Vietnam export and

manufacturing since the year of 2010.

Table 1. Garment and textile export of Dong Nai

Unit: USD thousand

2007 2008 2009 2010 2011 2012 2013 2014

Garment 665 801 773 978 1.234 1.295 1.519 1.681

Fiber 257 355 555 801 1.152 1.054 1.057 1.154

Total Export 924 1158 1.330 1.781 2.388 2.351 2.578 2.835

Growth rate (%) 125% 115% 134% 134% 98% 110% 110%

Source: Authors' calculations from Dong Nai Customs data

Given its significant role in world trade and in the context of coming TPP and EVFTA, Dong Nai

textile provides a good and convenient research context to study the capabilities – export performance

relationship.

4.2. Measures of construct and sampling

We use survey as the method of data collection in this study. We collected data from firms in textile

industry in Dong Nai province.

To develop measures for the selected concepts, we synthesized scales from the literature, previous

studies and group discussion. We first delivered pilot questionnaires to five experts (garment export

managers and international business senior lecturers) for their consultation and made further improvement

for final construct measurement. As a result, the selected measurements and their origins are shown in

Table 2.

We used the single key informant approach. Respondents were executives of the firms, who are both

capable of providing the information required and willing to do so. We based this sample size on the rule of

at least five observations per one estimated variable (Joseph F. Hair, Black, Babin, & Anderson, 2014).

There are 22 variables altogether, the minimum sample size, therefore, should be 110. To obtain this

sample size, we distributed 200 questionnaires to firms directly through the support of the Customs

branches in Dong Nai where these firms made customs declaration and collected 149 returned surveys.

Among these completed questionnaires, 30 were invalid (e.g., respondents were not executives related


418

directly to textile and garment business activities). Consequently, the remaining 119 valid questionnaires

constituted the sample for this research.

Table 2. Constructs and Measurement Items

Measurement Coding Origin

Export experience

Degree of overseas live/work and exporting experience

Degree of training in formal export business courses and seminars

Ability to follow-up on trade deals in the main export market

EXP1

EXP2

EXP3

Lages et al. (2008)

Financial and physical resources

Availability of financial resources devoted to export activities

Use of modern technology and equipment

Preferential access to valuable sources of supply

Production capacity availability

RES1

RES2

RES3

RES4

Modified from

Morgan et al. (2004)

Informational Capability

Identification of prospective customers

Capturing important market information

Acquiring export market-related information

Making contacts in the export market

Monitoring competitive products in the export market (*)

INF1

INF2

INF3

INF4

INF5

Morgan et al., (2004);

Supitchayangkool (2005)

Product Development Capability

Development of new products for export customers

Building of the product to designated or revised specifications

Adoption of new methods and ideas in the manufacturing process

PROD1

PROD2

PROD3

Nigel F. Piercy, Anna Kaleka,

& Katsikeas (1998);


Process Innovation

We are among the first ones to implement progressive and innovative

production processes and practices

We actively observe, search for and adopt the best practices in our sector

We recognize early on such technological changes that may have an effect

on our business

We allocate our resources continuously to new promising operation areas

PROC1

PROC2

PROC3

PROC4

Modified from Jantunen et al.

(2005)

Relationship Building Capability

Understanding overseas customer requirements

Establishing and maintaining close supplier relationships

Establishing and maintaining close overseas distributor relationships

REL1

REL2

REL3


Export Performance? (1 = very unsatisfied, 5 = very satisfied)

Export profitability as expected

Export sales revenue growth as expected

Market share in the main importing market as expected

Developing new export market as expected

Developing new export products as expected

EP1

EP2

EP3

EP4

EP5

Lages et al. (2008);

Jantunen et al. (2005)

Nguyễn Đình Thọ, (2009)


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We measured all independent variables using a 5-point Likert scale, ranging from 1 as “strongly

disagree” to 5 being “strongly agree”.

Export performance was assessed in a subjective manner. The respondents were asked to indicate their

level of satisfaction with their export activities during the previous three years on five different dimensions

of performance. The average of these five items was also used as an overall indicator.

5. ANALYSIS AND RESULTS

5.1. Reliability and validity

Specifically, the Cronbach‟s Alpha values of the seven constructs are all greater than 0.7, indicating

that the items have strongly high internal consistency; and, their values in column “Corrected item-total

correlation” are also greater than 0.3; hence, we can conclude that these seven factors are all reliable for

further analysis.

The reliability assessment resulted in the deletion of item INF5 because of its low item–total

correlations (< 0.30).

5.2. Estimation and results

In order to determine the structure of export determinant construct, EFA (Exploratory Factor Analysis)

was conducted. Due to sample size constrain, two EFA were run, one for 21 independent variables and the

other for dependent variable – export performance.

The factor analysis adopts the Principal Component Analysis (PCA) technique and applies the

Varimax with Kaiser Normalization approach.

As for EFA on antecedents of export performance, The KMO index is 0,759, greater than the

normally suggested minimum value of 0.60 with a statistically significant Bartlett's test of sphericity (p =

0.00), which indicates that sufficient correlations exist among the variables to proceed a factor analysis

(Joseph F. Hair et al., 2014).

The factor analysis of 21 measurement items found six components with Eigenvalues above 1 (1.078),

explaining 67.9% of the variance in firm export performance. This analysis also produces a rotated

component matrix which demonstrates how each measurement item is loaded on each of the factor.

As a result of rotation, the analysis did not reveal any purely new factor, but some minor changes in

two constructs. Factor 1, 2, 4, 5 kept unchanged while one item in “Resources” measurement (Production

capacity availability) ran into the “Process Innovation” and therefore factor 3 and 6 were changed.

Table 2 shows the six factors as follows:

- Factor 1 consists of four items namely INF (emphasizing on Informational capability);

- Factor 2 consists of three items namely EXP (related to Export managerial experience);

- Factor 34 consists of five items namely PROC (focusing on Process innovation);

- Factor 4 consists of three items namely PROD (emphasizing on capability of developing new

products);

- Factor 5 consists of three items namely REL (focusing on capability of building relationship with

suppliers, customers and relevant partners);

- Factor 6 consists of three items namely RES (emphasizing on tangible resources).


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Table 3. Exploratory Factor Analysis with Varimax rotation results

Measurement Items Component

1 2 3 4 5 6

INF2 .735

INF4 .723

INF1 .722

INF3 .596

EXP2

.863

EXP3

.833

EXP1

.805

PROC3

.852

PROC4

.639

PROC2

.584

RES4

.581

PROC1

.531

PROD2

.903

PROD1

.767

PROD3

.584

REL2

.797

REL3

.760

REL1

.564

RES1

.736

RES3

.716

RES2

.543

Eigenvalue 6.353 2.247 1.843 1.538 1.200 1.078

Variance explained (%) 13.223 12.255 11.711 10.997 10.059 9.658

Cumulative variance (%) 13.223 25.478 37.189 48.186 58.245 67.903

Extraction Method: Principal Component Analysis

As for EFA on export performance, the KMO index is 0,824, greater than the normally suggested

minimum value of 0.60 with a statistically significant Bartlett's test of sphericity (p = 0.00). The factor

analysis of 5 items found one components with Eigenvalues above 1 (1.072), explaining 62.3% of the

variance in firm export performance.

The new factors was rechecked with Cronbach‟s Alpha and Table 3 briefly illustrates the numerical

results in the reliability analysis of the scale measuring perceptions of antecedents of export performance.

The item-total correlation analysis of all six factors is greater than 0.3. And Chronbach‟s alpha value of the

constructs is higher than 0.7, except for two factors resources and relational capabilities, the construct is

rather low 0,613 and 0.659 respectively, which is considered as “acceptable”.

Regression analysis was applied to test the hypotheses in this study at 95% confidence level with

export performance as the dependent variable and the extracted six factors of the model as predictors. The

first regression show that five factors met the entry requirements to be included in the regression equation,

namely, export managerial experience, process innovation, product developing, Informational and

relational capability, while resource did not meet the entry requirement. The result of the second analysis is

summarized in Table 4 & 5.


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Table 4. Scale reliability of factors extracted from EFA

Scale Mean if

Item Deleted

Scale

Variance if

Item Deleted

Corrected Item-

Total Correlation

Cronbach's Alpha

if Item Deleted Cronbach's Alpha

EXP1 7.82 2.135 .630 .807

EXP2 7.92 1.773 .711 .725 .824

EXP3 7.75 1.783 .706 .730

RES1 7.79 1.218 .437 .499

RES2 8.11 1.081 .417 .523 .613

RES3 8.20 1.095 .417 .521

INF1 11.27 2.876 .591 .752

INF2 10.96 2.990 .664 .719 .795

INF3 11.34 2.954 .573 .761

INF4 11.11 2.946 .603 .745

PROD1 7.68 1.812 .675 .694

PROD2 7.78 2.037 .678 .693 .799

PROD3 7.71 2.155 .585 .785

REL1 7.88 1.613 .394 .658

REL2 8.03 1.287 .471 .570 .659

REL3 7.73 1.402 .560 .448

RES4 15.26 5.059 .596 .747

PROC1 15.72 4.795 .521 .764

PROC2 15.54 4.505 .567 .750 .789

PROC3 15.61 4.290 .641 .724

PROC4 15.75 4.580 .536 .760

EP1 14.92 4.969 .653 .817

EP2 15.08 5.010 .653 .817

EP3 15.22 5.071 .616 .826 .847

EP4 14.95 4.862 .729 .797

EP5 15.12 4.901 .631 .823

Table 5. ANOVAa &

Model Summary

a

Model R R

Square

Adjusted

R Square

Std. Error of

the Estimate

Durbin-

Watson

Anovab

F Sig.

1 .761b .579 .561 .36221 1.742 31.139 .000

b

a. Dependent Variable: EX.PER

b. Predictors: (Constant), REL, EXP, PRODUCT, PROCESS, INF


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The multiple R (R = 0.761) shows that there is a substantial correlation between export performance

and five predictors mentioned, with statistical significance (p = .000). And these five predictor explained

for about 58% of the variance in Export performance (R2 = 0.579).

All five factors have positive influence on export performance; particularly, process innovation has the

greatest positive influence (ß = .350) followed by export managerial experience (ß = .234), product

developing capability (ß = .190), informational capability (ß = .174) and relational capability (ß = .153).

Table 6. Regression Coefficients

Model

Unstandardized

Coefficients

Standardized

Coefficients t Sig. Collinearity Statistics

B Std. Error Beta Tolerance VIF

1

(Constant) -.245 .328

-.746 .457

EXP .194 .054 .234 3.577 .001 .873 1.146

INF .172 .080 .174 2.142 .034 .560 1.786

PRODUCT .154 .058 .190 2.640 .009 .715 1.398

PROCESS .365 .078 .350 4.650 .000 .669 1.495

REL .151 .069 .153 2.203 .030 .774 1.292

Moreover, the coefficients of these factors are all positive, meaning that the hypotheses H1, H3, H4

and H5 are supported; H2 is rejected as the model in Figure 2.

Figure 2. Modified Model


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6. DISCUSSION AND IMPLICATIONS

Our study concludes that there are five main firm- level determinants of export performance: process

innovation, export experience, informational, product developing and relational capability.

6.1. Managerial Implication

While both product and process innovation is found important to the firm export performance, the

most influencing factor in this study is process innovation. This is explained due to the fact that the

majority of Dong Nai textile enterprises work on CMT model and some combine with FOB level 1.

Company working on these business models has to compete on price and service quality offered. Process

innovations can create competitive advantages through gains in process efficiencies, while product

innovations can lead to a competitive advantage in customer value via the development of greater

differentiation in product characteristics (Ruzzier, Hojnik, & Lipnik, 2013).

Vietnamese firms in general and those in garment export business particularly have competed mainly

on cheap labor cost advantage. While this advantage becomes weaken due to the emergence of Bangladesh,

Cambodia countries, etc... It is strongly recommended that leaders and senior managers should focus on the

process efficiencies, i.e. searching for and following best practices, adopting new technology for production.

In practice, there are lots of claims that Lean practice in garment industry has increased productivity,

reduced defect rates, and shortened lead times as well as the introduction of new products.

Adopting lean manufacturing is gaining more interest and managers can learn experiences from

successfully Lean implemented companies not only in textile but also in footwear industry. Nike started its

efficiency efforts and implemented Lean at a footwear factory in Vietnam in the early 2000s. As a result,

output, quality and on-time delivery all improved.

Product developing capability means the matured process of product modification and new product

development according to customer's specifications and adoption of new methods and ideas in the

manufacturing flow. This important capability is of great help for company‟s taking of orders beforehand.

In long-term planning, managers should foster and upgrade innovative capabilities for R&D staff in

product development, not only by following customers‟ sketches but also generating diversified designs to

enable customers with more varieties of choices, leading to a competitive advantage in customer value and

thus adding more value to businesses.

There is a strong relation between Informational capability and export performance, this capability

requires to build the information management system to identify potential and prospective customers and

update knowledge about export markets related to the macro environment, the government policy to adjust

strategies, to create a “fit” link between strategy and turbulent market. In the context that Vietnam has

engaged more international integration to conclude the bilateral and multilateral FTAs, the tariff barriers

among FTA members are reduced sharply. However, the non-tariff barriers have been erected even

increasingly, the managers should plan personnel responsible for capturing information to utilize

integration benefits and overcome obstacles

Finally, Relational capability is found having influence on export performance. Building good

relationship with suppliers, dealers, distributors will help enhance the efficiency in short time and the

reputation and brand of the business in the long term.

6.2. Implication for the Association

The study emphasizes the importance of available capabilities in strengthening export performance. It

is obvious that policymakers should seek to assist firms in acquiring and enhancing relevant capabilities.

The Association should aid the development of stronger informational capability rather than just respond to


424

specific export market information requests. As most export companies are small and medium with limited

export experience, more training for managers in export market should be provided.

The Association should also organize more conferences and scheduled meetings to share the best

practices in the industry like the successful cases of Lean implemented companies, etc.

6.3. Limitation and direction for further research

Our study has a number of limitations to be acknowledged. Firstly, the sample was limited. Secondly,

the hypothesis of resources - performance was rejected. This may be explained either the construct was not

good enough or the firms working mainly on CMT basis had the resources rendered by outsourcing

partners.

Nevertheless, this research lays the foundation for enhanced knowledge on the capabilities export

performance relationship. Further research could be done in the following: 1) repeated study with different

research method and larger sample size to increase the generalization of results; 2) further studies on the

ability to successfully apply Lean garment enterprises; 3) testing the relationship resources - capabilities -

export performance.

7. ACKNOWLEDGEMENT

We are grateful to the Staff of Dong Nai Customs for the help of getting data. Our special thanks to all

those firms who have engaged in the research, in particular, Lac Hong University, Dong Tien JSC, Son Ha

and Great Super Company.

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THE INTERNATIONAL CONFERENCE

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