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RECENT - TREND : Network Marketing
Network marketing is an industry rich in history with a long, albeit controversial,
past-one that is deeply rooted in the traditions of face-to-face salesmanship, an
occupation honored in many societies but frequently disparaged in our own.
By the 1990s, the industry had achieved a level of acceptance and
legitimacy it never knew before. Today its impact on the economy and society
extends well beyond its still relatively small claim on total consumer sales or the
workforce, attracting a broad array of individual participants for diverse reasons. It
is clearly positioned as an attractive alternative professional lifestyle for workers
and an effective alternative distribution channel for consumer product and servicecompanies struggling to be heard in a fragmented, Internet-driven market place.
Why ? How did it come to pass that an industry that traces it roots to the
door-to-door Fuller brush salesman, the Avon lady, the Tupperware party hostess,
and the flat-waving Amway distributor become such a potent channel of
distribution for a growing number of top product and service companies ? What
has made network marketing such an attractive avenue of entrepreneurship for so
many skilled and seasoned professionals ?
Industry standards in product development, marketing, management,
financial systems, technology, and business ethics have risen substantially in
recent years, giving network marketing a "new face" based in reality and not the
customary and expected industry hype.
Network marketing has become a business that is international in scope,
powered by new technology, rich with innovative, proprietary products - and that
is thoroughly compatible with the New Professional's renewed focus on family,
lifestyle, retirement planning, and time freedom.
We will outline seven major trends that are quickly coming to define the
new face of network marketing, trends that will fuel its growth as well as its
economic and social impact for years to come. But to understand these trends
fully, it is first necessary to clear up some of the misperceptions about the industry,
perpetuated by some of the people in it, that tend to exaggerate its
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accomplishments to date. From the outset, we promised a clear-eyed view of
industry achievements and potential so that aspiring New Professionals can
thoughtfully evaluate both their interest and prospects in network marketing. This
industry has been subjected a great deal of criticism, stereotyping. and even undue
harassment by competitors and regulators over the years, but some of these attacks
have been brought on by network marketers themselves.
The "Lies" of Network Marketing
The early history of network marketing was written by strong sales personalities
with powerful communications skills. These "Type A" individuals transformed the
prospecting and product sales approach from the traditional "pitch and patter" of
door-to-door selling into a fervent, emotionally laden hard sell. This hard sell
promised not only a decent product and a good income but also an opportunity to
change lives, overcome addictions, repair failing marriages, revitalize America and
change the world !
The "sales story" had to be charismatic, captivating, and compelling to
close the sale and to keep recruits motivated. Ex-aggeration and hyperbole were
the tone of the day.
Income Claims and Emphasis on Money
Network marketing has been criticized for its preoccupation and overemphasis on
"making money." Critics argue there is too much focus on "getting rich quickly,
with no work."
The fact is, however, that the network marketing industry contains many
examples of people who, from relatively modest beginnings, have developed
substantial fortunes. For example, Dexter Yeager, arguably one of the wealthiest
practitioners of the network marketing distributor culture, began as an Amway
distributor, building the most powerful down-line organisation in Amway, and then
expanded into the "tool" business, producing sales aids and ultimately building a
diversified family financial empire. Mark Yarnell, a minister launched his network
marketing career with Nu Skin in the mid 1980s and achieved a multimillion-
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dollar annual income by the mid-1990s with a worldwide distributor organization
estimated at over 250,000 people. Building on that success, Mark has become a
best-selling author, educator, and industry speaker.
Jeff Roberti, the leading income earner in National Safety Associates
(NSA) in the 1990s; the late Ken Pontious, the top distributor in Enrich; Todd
Smith and Randy Schroeder at Rexall Showcase; Brain Bumpas with Mannat-ech;
Craig Byrson, Dave Johnson, Richard Kall, Laura Kall, Russ Karlan, and Craig
Tillitson from Nu Skin-and the list goes on and on- have all achieved multimillion-
dollar annual income status.
However, 68 percent of all network marketing distributors become involved
in the field for a wide range of different reasons beyond "making money." A lower
commitment to "business building" is evident, as the Direct Selling Association
(DSA) reported in its distributor profile that only 5 percent of the distributor
population works full-time or forty hours or more per week in network marketing;
52 percent work nine hours or less per week.
The Myth of Saturation
Critics of network marketing - some mathematical economists and theoretical
statisticians, many regulators, and lay people naive about the network marketing
process-pro-claim the myth of saturation in the network marketing industry's
growth. The saturation theme is as follows: If network marketing continues to
grow, everyone in the world will ultimately be recruited into some network
marketing company. Within the industry, enthusiastic but uninformed recruiters
promote, "Here's your chance to get in on a ground-floor business opportunity,
before the market gets saturated."
The Reality of Attrition
Attrition expressed as dropout or turnover is predictably high in the direct selling
profession. The direct selling practitioner operates in a highly competitive
environment. The network marketing, "business builder" also faces the challenges
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of entrepreneurship. The risk of failure is a reality. The rewards for success in
terms of wealth and professional development, however, can be extraordinary.
The causes of attrition are numerous and complex. Frequently, distributors
enter the network marketing arena with inadequate understanding of what is
involved in the process, without a clear business model and work plan, and with
unrealistic expectations, performance milestones, and time horizons. The new
distributors do not get adequate training work because the upline individual may
be an inexperienced new recruit with limited knowledge; a weak and
reinforcement. The "upline teaching downline" process often doesn't trainer,
communicator, and coach; or too busy to support the new distributor adequately.
Many distributors experiment with network marketing and never have any
long-term commitment or perseverance. Others achieve their short-term goals
(e.g., finance a vacation, pay off a long, buy a big screen television) and retire.
Some lack the energy level or work ethic, get fatigued, and quite. Many people are
victims of organizational "fallout" : They join an organization and participate for a
while, then lose interest and retire; or they maintain their enthusiasm, work
through various achievement/ pin levels in the group lose momentum, withdraw
from the action, and disappear into the "black hole" in network marketing space.
SEVEN MAJOR TRENDS IN NETWORK MARKETING
Now let's look at the seven major industry trends that are defining the new face of
network marketing. These trends are positioning the industry for substantial
growth in both product sales and the number of participants in this unique form of
entrepreneurship.
Trend 1 : Powerful Distribution Channel
Network marketing has developed a powerful distribution channel uniquely
adaptive to the Internet era. Product and services companies ignore it at their
peril.. Traditional corporations are now jumping on the network marketing band-
wagon, which is bringing welcome change to both business strategies.
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Traditional Corporate America Diversifies into Network Marketing
There has also been a distinct movement of traditional corporate America buying
network marketing divisions, establishing start-up network marketing
organizations, or developing strategic alliances/joint ventures with network
marketing companies as a planned strategy of diversification into this lucrative
distribution arena. Some examples :
In 1973, Gillette acquired Jafra Cosmetics, a network marketing company, as a
corporate diversification. Gillette owned Jafra for seventeen years,
experiencing a compound growth rate of 18.5 percent and reaching $ 229.5
million sales in 1997, when it was sold to a financial buyer.
In 1977, Colgate Palmolive acquired Princess House, a crystal and housewares
marketer.
In the early 1980s, MCI and Amway developed a joint venture to feature MCI
long-distance services in the Amway Personal Shopper Catalog.
In 1982, Pre-Paid Legal Services, which had been marketing its products
through traditional commission-based direct sales, added a network marketing
sales force to focus on individual sales, while its in-house team concentrates on
larger group sales.
Whatever it takes to unearth new customers ! This also explains why the
network marketing community has become a "living breathing" target market in its
own right. A growing number of traditional consumer product manufacturers and
marketers are selling their products through network marketing channels to the
network marketing distributors.
Trend 2 : The New Professionalism
Network marketing companies are dramatically increasing their investments in
professional management, information systems, technologies and strategic
planning and bringing a more businesslike demeanor to their organizations.
Business meetings are replacing pep rallies; business suits now outnumber peoplein shorts, blue jeans, and funny hats.
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One of the most impressive developments in the network marketing culture
has been the dramatic increase in professionalism across the industry, starting in
the 1990s. Companies are adopting a more professional management style in their
operations. Leading firms are investing in management tools, strategic planning
processes, competitive market positioning analyses, corporate benchmarking,
"best business practices" analysis, and data-based management software long
associated with the Fortune 100 corporate culture.
Charles King, in his role as educator, researcher, industry consultant and
expert witness in litigation cases, has had the opportunity to see confidential and
sometimes very sensitive competitive information across many large and small
network marketing firms. He reports that the leading network marketing
companies are investing in increasingly sophisticated strategic planning activities,
management processes, information technologies, and marketing research
programs. The smaller firms are also upgrading their management tools within
their financial resources.
Amway Corporation, for example, has an extensive, ongoing strategic
planning and competitive monitoring program to help Amway in its global market
expansion. Thee corporation maintains an extensive marketing research capability
to track consumer buying behavior, explore new product concepts and consumer
reactions, measure distributor motivations, and profile distributor segments at
different achievement levels.
Meanwhile, Blake Roney, chairman, and Steve Lund, CEO, Nu Skin
International galvanized into a formidable management duo in shaping the destiny
of Nu Skin during the past fifteen years. Nu Skin creatively applied sophisticated
market segmentation analyses to identify lucrative target markets, thus founding
the Nu Skin strategy of divisional diversification. Scott Schwerdt, vice president
of distributor services, vice president of strategic planning, and chief operating
officer at Big planet, and the team of operating managers that executed the Roney-
Lund charge typify the caliber and approach of the executive talent that has
developed at many network marketing companies.
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Mary Kay Cosmetics, as reported by Richard Bartlett in his book The
Direct Option, has historically had an ongoing marketing research program.
Bartlett conducted extensive marketing research probing why women join direct
selling organizations and psychologically profiling different distributor groups
based on their direct selling income success. Of key interest, the research found
"successful (direct and network marketing) sales people have a communication
style or social style that encourages the building of relationships with their
customers .......... The most successful sales leaders have a combination of
relationship and task orientation" (in their communication styles).
Network marketing firms are integrating sophisticated information
technologies into their management information systems. Entire employee groups
are communicating via digital cell phones. Most companies have comprehensive,
satellite-based, voice mail and other corporate-distributor communication
programs. E-mail and a wide range of electronic communications connections are
now being used for order entry, inventory tracking, order expediting, and shipping.
Three-way telephone conference calling, fax on demand, and Internet, on-line
product presentations and distributor training are common place.
Clearly this atmosphere marks a departure from the one normally
associated with network marketing. Both authors frequently attend meetings of
salespeople for companies such as Amway, Big Planer, Cell Tech, Excel
Communications Kaire Nutraceuticals, Mannatech, Nu Skin, Nutriation for Life,
Pharmenix, Prepaid Legal Services, and others that are similar in one and
demeanor. As the industry moves more into the mainstream, this style will likely
become the model for the future.
Motivation, excitement, and even fun are all critical components to building
a successful team, be it made up of employees in a traditional company or
independent distributors in a network marketing concern. Yet increasingly, new
entrants, particularly those from the professional world, are saying, like Sergeant
Joe Friday used to do on Dragnet, "Just the facts, ma'am."
As it seeks to build its distributor force beyond today's population, network
marketing's challenge is to retain its professional, upscale, serious demeanor while
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opening itself to potential recruits from other walks of life. Indeed, while the
Rexall Showcase Las Vegas attendees appeared evenly split along gender lines
with a broad cross-section of ages, little ethnic or income diversity was readily
apparent - at least at this meeting. The children and babies seen disrupting other
network marketing conferences with their cries and antics were nowhere to be
seen here.
Still, the maturing process underway among network marketing sales forces
will likely pay off for the industry in the long run, even if in the short run greater
numbers of less serious recruits could be signed up faster using the more
inspirational, take-it-on-faith approaches of the past.
Network marketing's growing professionalism is happening overseas as
well. The annals of network marketing's move into Asia and Latin America,
particularly in developing countries, are filled with dramatic stories of thousands
of poor but hopeful recruits standing in the rain and beating down door s to sign up
for a small silver of the American dream. But now a more cool-headed approach
is taking hold. Dave Schofield, of Rexall Showcase, reports, for example, that
during a meeting with new and potential Hong Kong distributors last year, they
prepared him with detailed questions about Rexall Showcase's market
capitalization and future business strategies.
Making the transition to a more businesslike approach should also pay
dividends as network marketing companies confront government regulators in the
United States and abroad. Unfair as it may be, a company whose management and
finances are hidden from public scrutiny, which operates under a veil of secrecy
while at the same time whipping thousands of citizens into a frenzy over its
business opportunity, is likely to trigger the suspicious and paranoia of many
governments, ranging from state attorney's general here and the more authoritarian
regimes abroad.
Trend 3 : Global Expansion
Network marketing companies and participants alike will look overseas for their
greatest sales and recruiting opportunities, building exciting and lucrative
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multinational business from their corporate headquarters and home offices.
Opportunities for foreign travel, exposure to different cultures, and sophisticated
international commercial transactions will further enrich the network marketing
experience for New Professionals.
Ninety-four percent of the world's population does not live in the United
States. Obviously, then, most of the markets, consumers, and distributors of the
future exist outside U.S. borders.
Industries across the board have been recognizing this new global economic
reality. Exports now account for nearly one-third of the entire U.S. economy, a
dramatic increase over the past twenty years. These international opportunities are
not simply confined to the largest corporations. More medium-and smaller-sized
businesses are getting into the act- and statistics show that, on the whole, firms
that are engaged in international business pay higher wages, are more profitable,
and are less likely to go out of business than those who do not participate.
For network marketers - who take pride in a business ethic whereby you
build your prosperity by helping others build theirs - the opportunities to apply
that ethic on a global scale, particularly in developing nations, are tremendous.
Today more than 33 million people participate in direct selling business all around
the world. Direct Selling Association president Neil Offen estimates that number
could soar as high as two hundred million over the next ten years.
Many network marketing firms have already extended their each around the
globe. It is of no small significance that a company like Amway, whose name was
derived from that of its incubator company (which was called the American Way),
operates in fifty-three markets worldwide and makes some 70 percent of its sales
outside the United States !
Amway is not alone. Nu Skin operates in thirty countries. Mary Kay is in
twenty-eight. Enrich sells its products in fourteen nations, and Forever Living can
be found in sixty-three.
Reigniting the Asian Miracle Let's look again at Asia, which is a principal focus
of network marketing's aggressive international expansion strategy. Even in the
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face of its recent economic crisis, Asia's potential for many industries, and
especially for network marketing, is enormous.
In his recent book Megatrends Asia, futurist John Naisbitt wrote, "The
Asian continent now accounts for half the world's population. Within five years or
less, more than half of these Asian households will be able to buy an array of
consumer goods - refrigerators, television sets, washing machines, computers, and
cosmetics. And as many as a half billion people will be what the West understands
as middle class.
Trend 4: Network Marketing and the Internet
While the explosion of e-commerce will threaten many businesses, network
marketing will empower and be empowered by it. Advances in on-line
communications technologies will bring out the more distasteful, labor-intensive,
administrative aspects of network marketing from the sales and recruiting process,
allowing networkers to concentrate more fully on building home-based,
international businesses.
The Internet, the explosion of e-commerce, and the rapid development of
affordable information and communications technology are revolutionizing
network marketing in several ways.
First, it is making the execution of the business more efficient and user-
friendly and thus more desirable for New professionals. Transactions that used to
take hours of painstaking, time-consuming work and often physical labor are now
accomplished with the push of a button or the click of a mouse.
Old-timers in the industry remember the days when they communicated
with customers and prospects on a totally face-to-face basis. This approach clearly
retains its marketing power and will always be a strong feature and selling point of
direct sales approaches. Yet it consumes tremendous blocks of time and thus
severely limits the business-building capabilities of busy people-particularly
professionals who want to start as part-timers.
Ordering products and filling out applications used to be done by hand and
then mailed or phoned in to the company headquarters. Products were often picked
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that prospect directly to the sponsor's personal or company web site, while
protecting the prospect from exposure to competing network marketing programs.
What has empowered today's entrepreneurs and puts so much business
potential within their grasp is the speed at which new communications
technologies are made available and accessible to the average person. While
technology is becoming ever more complex in what it can do, it is at the same time
becoming simpler to use and cheaper to buy.
Consider that the capacity of the microprocessor is doubling every fifteen
to eighteen months and will continue to do so for the foreseeable future. That IBM
executive illustrates the impact of this development by recalling that just ten years
ago she attempted to perform a particularly complex function on the largest
mainframe computer her company had to offer-the kind of computer that used to
fill an entire room-and "brought it to its knees." Today, she does the same function
with ease on a laptop computer at her desk.
Success magazine has summed up the marriage of network marketing and
entrepreneurship and technology this way: "[Multilevel marketing] is creating a
whole new marketplace outside the box of TV advertising, storefronts, inventory,
and middlemen, and has the power to render the conventional retail world
obsolete. That power arises from the union of modern technology-computerized
record keeping and telecommunications-with the ancient art of schmoozing."
Trend 5 : Network Marketing Gets Respect
Long considered a kind of "lunatic fringe" of business, network marketing is being
increasingly accepted as a legitimate and promising part of the economic
mainstream, as evidenced by its growing recognition in the media, academia, and
professional arenas.
When Charles King began his research on network marketing in 1990-
1991, the first step was to do the classic academic "literature search" of the
business press. Several conclusions quickly emerged.
First, there was virtually no descriptive, analytical content about the
channel. In the Business Periodicals Index, the major library reference to the
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business-related periodical literature, there was essentially no coverage of the
direct selling category. There were no key words dealing with direct selling,
multilevel-marketing, MLM, network marketing, network distribution, or referral
marketing.
Second, in the leading college marketing textbooks, passing reference was
made to selling, salesmanship, and the selling process. In the textbook topic
indexes, there were no references at all related to the field of multilevel marketing
or network marketing. Among specialized business library collections related to
selling, very limited information was available about the MLM or network
marketing industry, it size measured in sales volume or number of distributors, the
primary products distributed, or the major individual companies.
Third, the intraindustry trade news was largely commercial advertising
focusing on distributor recruiting, company products specifications and claims,
personal development, and training and sales aids. Editorial content in the trade
press revolved around industry personalities and trade folklore. Hard factual
content about the industry was very limited.
Academia Recognizes Network Marketing
In addition to the media and publishing worlds, the academic community is also
becoming increasingly aware of the economic power of network marketing as a
distribution channel and as a potential part-time or full-time professional career
path.
In 1994, Charles King, Professor of marketing, University of Illinois at
Chicago (UIC), and Mark and Rene Reid Yarnell founded the UIC certificate
seminar in network marketing, coordinated by Sandra King. The program was the
first certificate seminar in network marketing ever officered by a major institution
of higher education. The program is titled "Network Marketing : Planning,
Building and Managing a Distributor Organization" and centers on applying
proven skills of entrepreneurial management taught in colleges of business
administration to the network marketing practitioner. The program, moving into its
sixth successful year in 2000, has been conducted twelve times in the United
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States, Korea, and Australia, with over twelve hundred participants earning
certification.
A NEW BUSINESS AND WORK MODEL FOR THE TWENTY-FIRST
CENTURY.
As these seven trends gain momentum, network marketing's greatest contribution
to society in the United States and around the world will be to spur the creation of
a new business and professional model that will change the culture of commerce
and work in companies and organizations both in and out of the industry. Whether
you choose to join a network marketing company or not, you will benefit from this
new business model and the cultural changes network marketing is promoting.
Despite the condescension that remains in the attitudes of many so-called
business experts, network marketing today is having a profound impact on the
entire business world. The most successful marketing companies in the future will
be those that employ a blend of the best features of both the network marketing
and more traditional marketing approaches.
As much as they have disparaged direct selling in the past, consumer
product and services companies are realizing they can no longer afford to ignore
the potency of face-to-face (or phone-to-phone and computer) selling. They crave
the customer loyalty that is increasingly hard to come by with traditional
advertising and marketing approaches. Changing demographics are causing an
overall shortage of workers. Regulations are driving up the cost of maintaining
those workers they do find.
Again, these companies look with envy to the successful network
marketing companies where a dedicated sales force works with no guarantee of
income and no traditional employee overhead.
With mass media multiplying and with consumers becoming increasingly
segmented, how do companies reach them ? How do they cut through all the
noise? How do they cut through all the noise ? How do they appeal to a public that
is spending less and less time watching videos, and channel-surfing around one
hundred to five hundred different channels ? During those times when the nation
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does come together, such as on Super Bowl Sunday, how many firms can afford
the price of admission to a rarely unified market - $1 to $2 million for a single
thirty-second commercial ?
The smart companies have come to understand that network marketing is
an important part of the answer. Inc. magazine has observed.
From the top of Inc.'s 500 companies to the bottom are product and service
companies that have adopted multi-level marketing to control overhead, create
means of distribution, and build a national sales force on a budger. All of these
companies have tapped into a growing contingent of displace workers,
professionals worried about their future, at-home moms and couples - all looking
to get into business for themselves.
As for network marketing companies, what do they need from the more
traditional companies ? Answering that question requires some understanding of
the environment in which these companies operate today.
It is a highly competitive environment. With full employment and relative
prosperity in the United States, the pool of eager participants in these business
in limited, and the distributor forces that do sign up turn over continually.
The regulatory environment is becoming more complex, particularly in the
international arena that some companies are counting on for a significant share
of their future growth. Despite vast improvements in business ethics, these
companies are viewed with suspicion in many countries. In 1998, for example,
China overreacted to abuses by fraudulent domestic operators by shutting
down for a time the entire direct selling industry. Other countries require
network marketing concerns to invest heavily in local manufacturing and other
facilities before allowing them to sell products and recruit distributors.
The development of unique products and services to be sold through network
marketing is becoming increasingly expensive. To be competitive, you need
capital. To keep on top of the competition, you need experienced executive
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(3) Marketing Research can solve all marketing problem
It is also assumed that marketing research can solve all the problems relating to
marketing of goods. These problems may be related to the launch of product,
product profile change introduction of a new brand of product and changes in
marketing package. Though it is true to some extents and sound decision can be
taken on the basis of marketing research provided the quality of the marketing
research must be sound. In other words, how useful or effective the marketing
research will be in the above matters depends on the quality of the research. It is
regretting that the outcome of the marketing research is not fully utilised. The
major reasons are in interest in the subject declined or ceased between initiation
of the research idea and the conclusion of research and result being available (ii)
lack of faith in result, (iii) the sponsor has changed job or responsibility and the
successor's perception were different, (iv) sometimes the result does not suggest
or recommend, a sufficient practical activity for the marketing department. Hence
it is clear that marketing research can not alone solve all the problems. It is not a
replacement for decision or judgements. It may be aid to the decision process and
it is the marketing decision which creates solves or stops marketing problems.
(4) Buyers will find their own supplier :-
It is also assumed that the buyers will find their own supplier. It is true
that buyers always seek low price goods along with high quality and they always
search for this. But this has always problem due to the product information gap.
The producers talk to have ignorance gap between them and their clients. If they
are not thorough with customer segments and behaviour, how do they expect
customers to find them.
Nowadays the buyer, seller equation is changing. The seller has to reach
the buyer with his sales package. Then only the buyer may find him. This is the
reality to day; otherwise the concept will be a myth.
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(5) Product sophistication means more customer satisfaction
It is also a myth that product sophistication means more customer
satisfaction. It is true that the customers always look for best and latest things.
They need things of unproved technology. But improvement in technology can not
increase customer satisfaction. Customers always need something different. Hence
the customer does not accept a thing only because it is sophisticated.
According to Airbrey Welson " customers react to a product based on its
utility or suitability to their application not on the basis how sophisticated or
technically & superior it is"4. Hence product sophistication alone s not enough
customer's satisfaction as regards to the product is also important and this should
be taken into consideration as well.
4. Aubrey Wison "New Direction in marketing" __ Excel books, New Delhi 1995
Page 210
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EMERGING GLOBAL SCENARIO IN MANAGEMENT
The work is shrinking. It has become one economy in its expectations and its
responses. It has indeed become "a global shopping centre".
Science and Technology profoundly dominate and decisively determine the
life style, living standard and economy of people with far reaching material and
spiritual import. The wave triggered by the invention of the microchip leading to
electronic and information revolutions, has caused the net-working of nations
which has brought the distant corners of the globe within easy reach of very
human being.
The increasing interaction with the changing world shapes the thoughts and
actions process. The pace of the world grows ever swifter and now we seem to be
perfecting artificial intelligence and making advances in bio-technology, whereby
it may be possible to create human brain, plants, animals and even human beings.
The change is visible all over the world and the last decade has seen the
collapse of communism, the transformation of China into a market driven
economy, the disintegration of the erstwhile Soviet Union into numerous
independent States, the elimination of iron curtain, the liberation of Eastern
Europe, the end of the cold war, the rise of Japan as a credible economic rival to
the United States and emergence of India as a potentially great economic power
after the introduction of economic reforms, with liberalisation and globalisation of
industry and trade.
The days of isolation, protectionism, administered prices, industrial
licensing are gone. Today the technology flows are universal and coupled with
globalised marketing and brand names. The world of finance has been globalised
and funds are raised internationally. The revolution in communication and
informatics makes instant communication possible and hence the market trends all
over the world can be known at any time.
Under the situation, global competition is inevitable. Every country would
aspire to be competitive. One who offers something extra in the way of product
and service wings the race, reaslising the importance of customer satisfaction. One
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has indeed to move forward, 'from customer satisfaction to customer delight and
from customer delight to customer surprise'.
"To do business in the world today, even within one's own national
boundaries one requires 'thinking globally' and any business that operates beyond
its own national boundaries will have to make one radical change: it will have to
build a transnational top management in which people of different nationalities,
with different background and different experiences, work together as a team.
There area already a few examples. One is Nestle, the Switzerland-based
processed foods company. In its top management, half a dozen different
nationalities are represented."
"There is Coca-Cola (and other food processors)j in the US, and there is
Citibank in the financial field. These, so far, are the exceptions. To build such a
management is clearly a major task, and it is difficult. How difficult is shown by
the troubled relationships between the large Japanese consumer electronics
companies, like Sony and Matsushita, and their American 'software' subsidiaries,
the movie and programme products in Hollywood. Even where there are no
cultural differences at all; to build transnational management has not been proven
easy for anybody."
"There is one company today that has a truly European management. It is
the European management. It is the European subsidiary of the (American) Ford
Motors Company. Americans, Englishmen, Germans, Italians, and Frenchmen
work together there in a common top-management team. But it took the Ford
Motors Company twenty years of very hard work to develop this team." ---- Peter
Drucker.
While science and technology have been making swift strides, the human
society has also been rapidly changing. The dynamic social political and cultural
situations have serious conditioning effect on the management of human resource
which is at the heart of all development processes. The inter dependence of
economics and culture, social discipline and fast development of rural and
unorganised sector, educational and research facilities and infrastructure in general
have been increasing faster than ever before. People all over the world are
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becoming more and more conscious of social justice, democratisation and
transparency in business.
The social responsibility of business is another factor which has assumed
far greater importance and rightly so. Social vision is integral for the success of
the business mission and no business can operate in isolation from society. Living
in harmony and not at odds with the society is, therefore, important. An
organisation demonstrates its commitment to social responsibility by being a good
'corporate citizen' in a holistic manner which means : (a) contributing to
improving the quality of people's life through its modest service and values, (b)
participating actively in the community by stimulating the local and national
economy, hiring and providing people in a fair and non-discriminating manner,
eco-friendly approach and in general considering country's interests while making
business decisions.
Corporate citizens are talking of corporate initiatives in social development.
Corporate citizenship entails building a partnership with the community and
authorities for meeting the aspirations of the people and is becoming one of the
key attributes of Corporations operating in a global market place. Genuine
involvement in areas such as health care, poverty alleviation, sponsoring higher
education, science, culture, arts and sports and protection of environment can
make a difference to society.
Enlightened industrialists are talking of corporate initiatives in social
development. The social responsibility of companies extends far beyond the gates
of their plants. In the U.S. several owners have come up with major plants.
Corporate contributions have promoted universities. The Delware university at
Wellington owes its existence to Du Pont. Scandenavian countries contribute 10%
of their income to the welfare of the poor developing countries. There is a gradual
realisation that it is the responsibility of the corporate to head to the physical,
mental and spiritual enhancement of its people. The quality management
recognises the aspect of social responsibility as an important element of corporate
behaviour.
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Customers show preference for eco-friendly processes of production and
environment - conscious, socially driven organisations. More and more qualified
professionals show preference for working with such corporate citizens and it has
to be clearly understood that social responsibility does not mean "cheque book
philanthropy", it has to be born of conviction and has to be purposeful and
measurable.
In the prevalent competitive situation, corporate creativity and innovation
provide tremendous power to win. The implication of the adge "innovate or
perish" has much greater realisation. Innovation is the key to the development of
societies and organisations. Great nations are those which have focussed on the
application of science and development of technology to produce quality goods
and services which are globally competitive and thereby create wealth for the
nation.
SHIFT IN ECONOMIC POWER
There has been gradual shift in the centre of the economic power of the world. In
the 9th century England was the centre of world economic power. Sterling was the
most important currency. In the early 20th century United States emerged as the
great industrial power. The centre of the world economy then moved to East Asia
and Yen rose up as the most powerful currency before the recent crisis. Sleeping
giants like China and India seem to be waking up. The size of the potential market
in Asia is great and a good deal of marketing strategies of industrialized nations
relate to this emerging reality.
Another phenomenon which is strikingly noticeable is that while towards
the end of the last century economists believed that capital was the most important
determinant of the wealth of a nation, today what is of consequence is the
productivity of the capital i.e. the capital - output ratio and this productivity comes
out of effective use of technology and management of human resources. Similarly
while at one time cheap labour was considered to be an important asset, today it is
skilled and efficient labour, committed and innovative labour, not merely cheap
labour.
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In the last century the size of the territory under the command of a nation
was a measure of its power. European countries such as England, Germany,
France, Soviet Union went on adding colonies. It is not longer so. It is proper use
of technology which makes a nation powerful. Japan is smaller in territory than
most of the developed and developing nations, yet it is emerging as a powerful
entity.
In this context, it is worth noting that the concept of power itself has
undergone a radical change. In the past, harnessing of energy gave muscle and
money power but with the invention of artificial intelligence and replacement of
brain power by information power, the whole concept of power is at the threshold
of drastic changes. The sophisticated of human intelligence and the human
ingenuity to process information will determine the nature of power, not the size
of the army or the number of war-heads.
ENTERPRENEURAL MANAGER
A recent development is the entrepreneural style of management where the
professional manager is supposed to be bold and aggressive with ambitious
outlook like an entrepreneur. The characteristics of such an entrepreneural
manager consist of result orientation, assertiveness and pragmatism in taking
decisions and solving problems while foreseeing opportunities and threats. He has
flexible approach and is not necessarily bound with structured working
environment. His determination is to accomplish extra-ordinary results.
The entrepreneural manager receives compensation which includes profits
sharing. It is not merely linking remuneration to profitability but receiving a share
of total profit, without sharing loss, if it occurs. Thereby corporates attract the best
talents and motivate them. The system also encourages risk taking. It is not merely
linking remuneration to productivity.
Another interesting development is worth noting. There is more money to
be made from light industries like information technology, finance and media and
less from heavy smoke stacks and manufacturing. Bill Gates, a software maker, is
the richest man now. Next comes Warren Biffet, a financier, followed by
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Information Technology giants Paul Allen, Larry Ellison and Gordon Moore. The
nature of control has changed. Today IT, finance, media, genetics and other
knowledge intensive sectors create more wealth than manufacturing sectors.
PROTECTING BUSINESS SECRETS
Healthy competition never hurt any business. But a little spying does. Today all
types of business are targets of espionage because of fierce competition. Cases of
intellectual property loss are sharply increasing. Theft of research and
development, customer lists, pricing information, sales data, etc. has been rising.
Spices take advantage of vulnerabilities stemming from modern technology
like the internet and cellular phones and in most of the cases information theft
results from human negligence. Business managers and owners lack in appropriate
steps to defend themselves against espionage. To be guardful, it is necessary to -
a) know what is valuable and must be guarded.
b) keep employees informed of security concerns;
c) be watchful of rival firms and their spies who can snoop through desk's
go through computer files, make copies of valuable documents; and
d) destroy garbage and waste papers as they can contain copies of
confidential papers.
THE INDIAN SCENARIO OF BUSINESS MANAGEMENT
The Indian industry and trade is faced with a dramatically different business
environment today. This has been triggered by fundamental and far-reaching
changes initiated by the Government policy through the process of economic
liberalisation and globalisation in the past few years. After considerable
deliberations, India has charted a course which promises to take the country from
controlled economy to a market driven economy, opening door to vast
opportunities for maximisation of wealth and thereby improving the living
standard.
For long, industries in India had been operating under a system of controls.
Such a regimented structure caused both human and capital productivity to be
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among the lowest in the world. Technology remained outdated and innovation was
neglected. Excessive stress on capital intensive heavy industry, putting most of the
investment in state owned enterprises weakened by political unionism and
throwing away the opportunity to prosper through world trade caused serious loss
of GNP growth for about 40 years.
State ownership of enterprises slowed down both domestic and export
growth. There were poor overall return on investment in public enterprises, and
gross under utilisation of equipment, executive talent and worker skills. It also
resulted in poor infrastructure in power, telecommunication, banking roads, ports,
etc. Maladies such as serious lack of entrepreneurship, poor quality of goods and
services, over manning of industries, industrial unrest and growing industrial
sickness afflicted the nation. The economic progress was abysmal. Therefore, the
change in the economic policy with its congenial impact on trade and industry is
an eminently welcome phenomenon. Now the public sector undertaking phrases
like "public commitment", 'social responsibility', 'self sufficiency', 'development of
the core sector of economy', 'balanced regional growth', 'employment generation',
etc. will change beyond recognition.
The terms such as 'competitiveness', 'market forces', 'global market', 'export
thrust', innovation, 'creativity', 'core competence', 'TQM' (Total Quality
Management), B.P.R. ('Business Process Reengineering'), 'smartizing', ' managing
teams', 'caring for customers' and 'People, Products and Profit' will come to the
fore-front. Delicensing, decontrol of prices, liberalised imports, entry of
multinational companies, convertibility of rupees, withdrawal of budgetary
support to public sector organisations, revitalisation of government enterprises,
partly through privatisation, entry of private sector into infra-structural sector, new
EXIM policy, etc. will have far reaching effect of Indian industry, the Indian
economy and the Indian managers. The process of change is irreversible and the
pace of change will continue to remain accelerated.
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SOME STRENGTHS AND WEAKNESSES OF INDIAN MANAGEMENT
India had a great past. The richness of its culture and traditions is well known. It
has produced thinkers, philosophers and religious of great eminence whose ideas
have been respected all over the world.
In the recent past after its independence, India has made notable progress in
different areas of activities. Its food grain production has more than doubled from
70 million tonnes to nearly 200 million tonnes today. Some 18% of the world's
irrigated land is in India. It has created the world's third largest pool of scientific
and technical manpower. Infrastructure, such as energy, transportation,
communication, financing, research and development has been developed to a
great extent. The manufacturing capabilities have been built to cover almost the
entire range of factory products.
Democracy has taken firm roots. There has been political stability. Almost
90% of development expenditure is generated internally and India has the world's
highest saving rate at 22%. Natural resources, scientific and technological
institutions and willing work force provide India an ideal setting for a high growth
economy and great society.
Domestic market is large. The middle class consumer market consists of
nearly 200 million persons which can foster internal rivalry, an essential ingredient
for global competition.
But we have certain great weaknesses. The galloping growth of population
at about 2.2%, one of the lowest productivity of capital and labour and poor
quality of goods and services produce serious handicap. The poor standard of
maintenance of plant and equipment, sluggish development of technology and
application of science or scientific researchers have produced damaging effect on
the economy.
The investment has been mostly in the public sector undertakings, which
have suffered from poor return on investment, extremely low productivity, inflated
manpower, uncontrolled costs and lack of care for quality, innovation and
technology - the main stay of progress have been victims of neglect. Indian
industrialists have not faced the external competition and hence could not produce
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world class quality and therefore generation of foreign exchange earning remained
too meagre.
The human resource development has not taken place to meet the needs of
modern society. Although we have a large scientific manpower, they can hardly be
counted upon as motivated and committed. The management in the Government
itself has a great deal of weakness. Bureaucratic hurdles, red tapism and
preponderance of political considerations for business matters, politicalisation of
economic issues are road-blocks to progress.
Steps taken so far have begun to bear fruits. It is evident from the
remarkable improvement in foreign exchange reserve, export, investment of
foreign capital, rising trend of industrial growth and control of inflation, to name a
few. It appears the "sleeping tiger" is waking up. Talents of the Corporate giants
and technical experts are making increasing impact on the global scenario and the
contemporary situation as a whole is pregnant with great possibilities and
immeasurable rewards. Both in the private and public sectors, business managers
are taking advantage of new concepts. Acquisitions, mergers, collaborations and
disinvestments are some of the ways being frequently adopted to improve
competitiveness.
The practice of Business Process Reengineering (BPR) has yielded positive
benefits to companies such as, Hindustan Motors, Siemens India, Union Carbide.
Mukund Iron & Steel, Aseas Brown Bevri, Indian Aluminium (INDAL) and many
others have gone for total quality management with excellent results. Smartizing
(doing away with unviable and unproductive activities and adjusting manpower)
has been adopted by Indian Companies with highly encouraging results. Notable
among such companies with highly encouraging results. Notable among such
companies are ICI, RPG Enterprises, Asian Paints, Indian Oxygen, Glaxo India,
Ciba-Geigy, etc. Team based system on the shop floor (also known as Quality
Circles) is becoming a craze for Indian industries. The team consists of workers,
supervisors and managers with complimentary skills committed to a common
purpose. The members of the team hold themselves accountable and are self-
directed. An internal co-ordinator is chosen for smooth functioning. The effort of
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the team results in cost reduction, improvement in quality, fostering innovation
and improving worker-manager relations. Companies which have adopted the
method with great benefit are : Philips India, Modi Xerox, Cadbury India and
others. Similarly, caring for customer which means not merely satisfying but
"charming" them is now widely being accepted as a good management practice.
Some shining examples are Hindustan Lever, Videocon, Cadbury India, Britannia
Industries and the like.
Public sector undertaking are not lagging behind. Reforms are afoot in
these undertakings. They are being gradually armed to operate on business line,
rather than as Government departments. Quite a great deal, yet, however, remains
to be done. The greatest problem lies in the PSU having the character of a State
under Article 12 of the Constitution of India. Due to this status PSU's have to be
subjected to the same tests as the Government are and hence appointments,
terminations, promotions are all subject to the tests of Article 12.
The PSU has to struggle with multiple handicaps for which no credit is
given. The action of an executive in a PSU is subject to judicial scrutiny which
builds up a "play safe" psychology. Safety and security are preferred to speed and
strategy.
There is a great deal of talk of disinvestment of PSUs. This is likely to yield
good results. The present pattern of disinvement has failed primarily because
Government have been reluctant to allow representation to non-Government
shareholders on the Board of Directors of the PSUs.
Nine PSUs were recently given fall financial and operational freedom. The
ones who made the grade include the top-notches - Bharat Heavy Electrical Ltd.
(BHEL), Bharat Petroleum (BPL), Indian Oil Corporation (IOC), National
Thermal Power Corporation (NTPC), Oil and Natural Gas Commission (ONGC),
Indian Petro-Chemical Corporation Limited (IPCL), Steel Authority of India
Limited (SAIL) and Videsh Sanchar Nigam Limited (VSNL). They have been
given authority to raise resources, incur capital expenditure, enter into joint
ventures and execute financial tie-ups up to Rs. 200 crore. Non-government
shareholders are also to be taken on the Board. The problem, however, lies with
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the fact that these nine Corporations (Navratna) will still be under the clutches of
the C.A.G., the C.B.I. and the Vigilance which do not normally bother the private
industries. Besides, the ministry and the Minister will still continue to be in the
position of back-seat driving.
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