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ISSN – 2277 3789

JOURNAL OF GLOBAL MANAGEMENT OUTLOOK

Volume-I Issue-XI Bi-Annual January – June 2017

DEPARTMENT OF BUSINESS MANAGEMENT

TELANGANA UNIVERSITY ACCREDITED BY

NAAC B+ GRADE

DICHPALLY, NIZAMABAD – 503 322

( TELANGANA STATE )

All correspondence concerning contribution, book review, advertisements, orders and other information regarding the journal should be addressed to Executive Editor. The Journal does not undertake to return manuscripts unless accompanied by stamped and self-addressed envelope. The responsibility ‘for statements of facts, quotations given and opinions expressed in the articles and book reviews published in the journal’ is borne entirely by the respective authors.

Printed at:

AK Art Printers

Subash Nagar

Karimnagar.

Editor-in-Chief

Prof. T.SATYANARAYANA CHARY

Dean, Faculty of Business Management

Executive Editor

Dr. KHYSER MOHD Principal, Univesity College of Commerce & Business Management,

Head, Department of Business Management

Telangana University, Dichpally, Nizamabad – 503 322

Executive Committee Members

Dr. V. RAJESWARI

Department of Business Management

Dr. ANJANEYULU


Dr. K. APARNA


Dr. G. VANI


EDITORIAL BOARD MEMEBERS

Dr. SHAKEEL AHMED

Deputy Secretary, UGC

New Delhi

Prof. K. SUDDARSHAN Indian Institute of Management, Kozikode

Dr. SELVARANI SHANKAR, Dean, Department of Management, Osmania University,

Prof. RAMESH BHATT,

Research Fellow, (Harward) (Former Chairman Finance area IIM, Ahmedabad)

Govt. of India

Prof. G.P. SHITOLE,

Head and Director, Department of Commerce and Business Management

Prof. GOPU VENKATASWAMY,

Ph.D (ACTM), Netherlands Advisor-

MTC-Global

Sndt Women’s University, Mumbai

Prof. RAJAN BAL, Dean and Head,

Prof. JAIN HSIN CHOV (Ph.D Professor), Department of Risk Management and Insurance

National Kaosiung First University of Science and Technology

Department of Management, University of Orissa

Prof. N.M. PANDAY,

NEHU, Shillong

Dr. HASAN BULENT KANTARCI,

Kocaili University,

Kocaeli,

Turkey

AIM OF JOURNAL

The Journal of Global Management Outlook is a biannual journal brought out by the

Department of Business Management, Telangana University, Nizamabad, Telangana State.

The journal aims to encourage Research Scholars, Academicians and Practicing Managers to

publish applied research in all functional areas of management.

REVIEW PROCESS

The Journal of Global Management Outlook invites manuscripts that provide managerial

insight in any of the core business functions. The findings should be supported by either

empirical data or a well-justified theoretical model and well written. All papers submitted to

the Journal of Global Management Outlook goes through a preliminary review at the editorial

desk and those considered appropriate are been published. In some cases the manuscript may

be returned without review if it is judged to be inappropriate for publication.

Contents

Sl.No. Title Page No.

1 ROLE OF ISLAMIC FINANCEIN GLOBAL INCLUSIVE GROWTH

* Abdul Samad M ** Safiuddin SK 01

2

PRODUCTIVITY BARGAINING PRACTICES AT SINGARENI COLLERIES

COMPANY LIMITED

* Dr.V.Rajeshwari ** G. Usha Sree

08

3

HR OUTSOURCING SERVICES AND JOB SATISFACTION

– AN EMPIRICAL STUDY ON SELECT INDUSTRIES

*Sreekanth.Putha

17

4

THE SUCCESSFUL CASE STUDIES OF SELECT YOUNG ENTREPRENEURS

IN INDIA

*P. Meghashyamala

33

5

CAPITAL MAREKT FINANCING FOR SMEs - A STUDY

(With specific reference to SME Platform of BSE)

*Pardhasaradhi Madasu

40

6 IMPACT OF MOBILE ADVERTISING ON CONSUMER BUYING INTENTIONS

*Dr. I.Anand Pawar 53

7

ETHICAL ISSUES IN THE ORGANIZATION AND ROLE OF EMPLOYEES AS

STAKEHOLDERS

*Dr. P. Lakshmi Prasanna

62

8 THE AUDIT PRACTICES OF AN AUTOMOBILE FRANCHISE- A CASE STUDY

*Dr. K. Bhavana Raj 70

9 EFFECTIVE LEADERSHIP- A PATHWAY FOR ORGANIZATIONAL SUCCESS

*Dr. Srinivas Kolachina 76

10

CUSTOMER SERVICE AS A FORCE MULTIPLIER IN MANUFACTURING

COMPANIES

*Ch Srinivas Rao

85

11

IMPORTANCE OF CONSUMER BEHAVIOUR – ACASE STUDY OF MAGGI

NOODLE, NESTLE INDIA

*Dr. EnnalaDeepa

89

From the Editor-in-Chief

Dear Readers,

I am very glad to present the Eleventh Issue to you. The Journal is being moved ahead

with improved quality, fruitful contributions and passing the light through current trends in

the domain of Management.

The present issue is all about various aspects of Management that helps a lot the

scholars cum teachers and practitioners in analyzing methodically the ins & outs of

managerial practices. It is beyond doubt that India’s growth is marginalized unless it is geared

up by various alternative strategies. The Industrial growth and its impact on Economic growth

will not move ahead as expected. So there is a need to move on the development of

competencies which is application of knowledge as a skill with a right attitude because

competency can transform the deficiency into efficiency. At the end I hope that India Inc. can

move from pillar to post in marching towards Excellency.

I hope the Journal like a drop in the water of the sea will contribute a lot in such

Development process in a swift manner and in a gigantic way.

Date: 08.12.2017 ( Prof. T.Satyanarayana Chary )

From the Editorial

Dear Readers,

The Journal of Global Management aims to encourage the scholars and academicians

for their priceless contributions in the research world. As we know that the global market is

marching towards excellence in management theory and practices. Still the lacunas in the

implementations pave the way for paradigm shift with new strategies, techniques, tools and

methods. Research is the buzz word today, as the market driven economy demands the

industrial sector to think globally and act locally whereas technology driven markets demands

the researchers to think and act globally with a view integrate the global market with local

market. Current Issue focused on the following:

1. The authors, Abdul Samad M and Safiuddin SK in their research paper entitled ‘ROLEOF ISLAMIC

FINANCEIN GLOBALINCLUSIVE GROWTH’ have analyzed the Inclusive Growth and Role of Islamic

Finance in it for the sustainable development.

2. In the research paper entitled ‘PRODUCTIVITY BARGAINING PRACTICES AT SINGARENI

COLLERIES COMPANY LIMITED’, the authors, Dr.V.Rajeshwari and G. Usha Sree evaluated the

Practices of Productivity Bargaining at Singareni Colleries Company Limited and suggested the improvements

in that.

3. Sreekanth.Putha, in his paper entitled ‘HR OUTSOURCING SERVICES AND JOB SATISFACTION –

AN EMPIRICAL STUDY ON SELECT INDUSTRIES’ focused his research study to identify the

implications of HR Outsourcing Services on Job Satisfaction of Employees in select sectors.

4. P. Meghashyamala, in her article ‘THE SUCCESSFUL CASE STUDIES OF SELECT YOUNG

ENTREPRENEURS IN INDIA’ focused on strategies implemented in entreprises by the young

Entrepreneurs as a Benchmark to the followers.

5. Pardhasaradhi Madasu, in his paper entitled, ‘CAPITAL MAREKT FINANCING FOR SMEs - A STUDY

(With specific reference to SME Platform of BSE)’ examined the Small and Medium Enterprises and the

method of capital market financing for them thoroughly.

6. The author, Dr. I.Anand Pawar in his paper entitled, ‘IMPACT OF MOBILE ADVERTISING ON

CONSUMER BUYING INTENTIONS’ studied the importance of Consumer Behaviour and Impact of

Mobile Advertising on it.

7. In the research paper entitled, ‘ETHICAL ISSUES IN THE ORGANIZATION AND ROLE OF

EMPLOYEES AS STAKEHOLDERS’, the author Dr. P. Lakshmi Prasanna focused his study on the

relationship between Ethics and Role of employees as Stakeholders.

8. Dr. K. Bhavana Raj, in her article entitled ‘THE AUDIT PRACTICES OF AN AUTOMOBILE

FRANCHISE- A CASE STUDY’ critically reviewed the scenario of Hypothetical Company and Audit

Practices of an Automobile Franchise in detail.

9. Dr. Srinivas Kolachina, in his research article entitled,‘EFFECTIVE LEADERSHIP- A PATHWAY FOR

ORGANIZATIONAL SUCCESS’ attempted to study the performance and the role of an Effective Leader as

direct contribution towards organizational success.

10. The author, Ch Srinivas Rao in his article entitled ‘CUSTOMER SERVICE AS A FORCE MULTIPLIER

IN MANUFACTURING COMPANIES’ studied the performance of manufacturing companies and the

impact of customer services on that.

11. In the paper entitled, ‘IMPORTANCE OF CONSUMER BEHAVIOUR – ACASE STUDY OF MAGGI

NOODLE, NESTLE INDIA’, the author Dr. Ennala Deepa studied the significance of Consumer Behaviour

by a Case of Study of Maggi Noddles.

DATE: 11.12.2017

Dr.KHYSER MOHD.

1

----------------JGMO / Volume – I / Issue –XI / January – June, 2017 / ISSN 2277 3789----------------

ROLE OF ISLAMIC FINANCE IN GLOBAL INCLUSIVE GROWTH

Abdul Samad M Prof. (Finance Area) AUC, Director IIEFS, Hyderabad, TS, [email protected].

Safiuddin SK

Asst Prof, DBM, MANUU, Hyderabad

Abstract

Inclusive growth of a nation means that on a wider spectrum the development issues

related to abject poverty (BPL), inequality in distribution of a nation’s wealth are resolved

properly. All sections of society being able to enjoy the fruits of the development of the country

and the needs like health and education are all taken care off. The conventional finance the main

tool for financing development activities has miserably failed in achieving in its goals. The

present day financial system is plagued with financial crime and fraud, therefore needs a total

cleansing of the whole financial system. The scrutiny the financial services industry has never

been as intense as the way we see it today. With increased aggressive action against banks,

insurers and funds market and now even going to the extent of individual level. The key

challenge to Islamic Finance (IF) has been to get a foothold in the mainstream financial world,

due to its uniqueness and unfamiliarity to the common masses. But things have changed a lot IF

industry is on upward trajectory growing from mere US$ 700 billion in 2005 to an expected

figure of US$ 3 trillion in 2020 with a promised inclusive growth. The most commonly faced

hassle for IF is to how mobilize the resources and to optimally implement them to get fruitful

outcomes and benefits from the exercise. IF can play a very critical role in the present scenario of

headwinds of financial and economic crises, as it has become all the more important to explore

alternative and complimentary innovative financing mechanism which is based on ethics.

Keywords: Inclusive Growth, Financing Development, Innovative Financing Mechanism,

Conventional Finance

Introduction

A financial model should be developed that balances between the free market liberty with

greed motivation of individuals. There should be a mechanism that fine tunes the risk and reward

factor along with reliable fairness and transparency in the working financial structure. IF relates

to financial transition that seeks real life economic wellbeing instead of new financial products

with virtual accomplishments. IF in practical terms helps in stimulating economic and financial

mailto:[email protected]

2


activity and entrepreneurship towards solving inclusive growth problems and ensure economic

stability leading to social harmony. The conceptual development and breeding of IF products is

such that they lead to comprehensive human development and a fair deal to all stakeholders. IF

services industry may not be envogue in India due to political unwillingness in launching the IF

products or due to ignorance of it being a boon rather than a topic to divide the people.

Islamic Finance in India

Increased Islamic conscious among Muslim masses along with crusade of Islamic

scholar’s towards conventional financial products has forced corporates to offer Muslim oriented

financial products. One can imagine the mental framework of the Muslim community from the

past IF experiences, in the name of IF the investors from the cities of Mumbai, Hyderabad states

of UP, Karnataka and others have lost upto the tune of Rs. 7,000 crores1 till recent times starting

from Al Falah and Charminar Cooperative Bank and so many other firms who were big

fraudsters in the name of Islamic Finance in India. Islamic Finance in India needs quiet some

time to gain the trust in the community and also to have the Islamic scholars and other stake

holders to come on to one platform to support the cause of Islamic Finance. The problem is that

Muslim community in India has been literarily molested in the name of Islamic Finance by so

many fake and rogue companies. The attitude towards such company’s can be summarized in the

saying that comes true in present scenario ‘once bitten 100 times shy’.

Islamic Finance is of interest to the top corporates, to name a few like TATA AIG,

Reliance Capital, Bajaj Allianz, Taurus Ethical Ethical Fund, BenchMark ETF and Secura and

endless list of other interested entities like Tokio Marine, Shri Ram Life Insurance, Basix Micro

Finance and so on. Well all these corporates may have thought that by using the name

Islamic/Islamic Finance it would be a cake walk for them to get business, but things are not so as

expected. One of the biggest problems of Indian corporates has been the half hearted approach of

the corporates by not involving the Islamic scholars fully from the idea inception stage to finally

selling the product to the customer. The corporates were very keen and in hurry to get the Islamic

certification without totally and fully developing proposed Islamic based products. But surely

sales will start trickling in for Islamic Finance products after some duration and not from the day

one.

____________________

1 As per statistics given by Regional Head of Bombay Mercantile Bank, Hyderabad Branch.

3


Suggestions by Indian Bank Customers2:

Charter of Customer Rights need to be implemented within strict timeframe - (i) Right to

Fair Treatment; (ii) Right to Transparency; Fair and Honest Dealing; (iii) Right to

Suitability; (iv) Right to Privacy; and (v) Right to Grievance Redress and Compensation,

Digital Payments – adoption of the best practices to protect consumers.

Bank Account Number Portability - portability of bank accounts (like number portability

in telecom sector) is a good anti-dote to several restrictive practices followed by banks.

Unfair agreements - one-sided terms and conditions by banks like in their loans

agreements with details buried in the fine print are bleeding customers.

Charges - new charges introduce like billing customers through stealth opt-out clauses

that are not noticeable should be stopped immediately (new charges for use of ATMs).

Faulty Systems - wrong emails being tagged by faulty algorithms of banks that are

leading to emails sent to customers who have no borrowing leading to harassment of

“Cusht-Se-Mar”.

Master Circular Changes - changes made by RBI require other banks to make changes in

their core banking systems leading to high IT costs, that are ultimately passed on to

consumers.

Islamic Finance to Indian Corporates

India is a country wherein people would like to see the evidence of the services before

purchasing the same. Let it be a purchasing of bus ticket, people would like to see whether the

bus service has established itself in providing the services. If this is the case for tangible services,

then the expectations for the intangible products like financial products will be far higher. Hence,

if an Islamic Financial Advisor explains the need for the Islamic financial product to the Muslim

customer, the first question that crop’s up the mind of the Muslim customer will be the reliability

and image of the company.

Muslims head count would be around 175 million with majority being less than 25 years

which is mostly urban based. Assuming switch over and India’s growth in insurance sector, the

Islamic Insurance (Takaful) potential could be 13% of conventional insurance i.e. US$ 6.6

billion while having a growth rate of 20% from 2010 to 2015 that could reach to about US$ 15.9

__________________________

2 Sucheta Dalal , Trustee Moneylife Foundation.

4


billion. But 26% of urban population lies below poverty line in India of which Muslims

constitute 38%. In the years to come India needs approximately US$ 700 billion to fund its

growth story and is seriously considering all possible avenues for the funds. The Middle East is

the only place in the world to have surplus money to the tune of US$ 800 billion according one

estimate, in spite of turbulence in global oil prices. And if this money were to be channelled into

Indian projects then that would be big advantage for the development of the country. According

to RBI research Muslims control huge amount of assets forecasted to be in tune of few hundred

crores and with a growth rate of 15% in India that goes totally untapped in suspended bank

accounts due to lack of Islamic Finance avenues for Muslims to invest.

It is very pathetic that a model for Islamic (Interest Free) banking that was developed in

India way back in 1930 by Mr. Anwar Iqbal Qureshi and further taken forward by Dr. Nejatullah

Siddique has not been in contemporary. And with all big names at IDB Jeddah being from India,

still a breakthrough has not been achieved in India for launch of Islamic Financial products due

to lack of political will and seriousness on the part of Government of India, regulators and the

bureaucracy.

Financial exclusion of Muslims - the agony is that half of the Muslim population is

clueless about opportunities and services of the financial sector. While in countries like Malaysia

Islamic Finance has been thriving at breakneck speed which includes many non Muslims also, a

story which can be replicated in India. There are already many efforts that are being carried out

by the non-governmental organizations in India, like the SIES Education Assistance Trust that

provides Interest free education loan up to 90% of the cost of studying the degree course. There

are so many NGOs offering help to needy on interest free basis, some IF opportunities are listed

below:

1. Optimum use of estimated charity funds of Rs 20,000 crores that finds its way into

Mosque Trusts, Awqaf and Zakah institutions as charity.

2. Islamic Leasing can be good option to start off for corporates.

3. According to research 30% of Islamic complaint companies in Bombay Stock Exchange

(BSE) have 68% of the market capital3 which speaks of performance of Islamic

complaint companies and opportunity to invest in India’s Islamic finance market.

4. First 200 companies out of the 500 plus Islamic companies have 70% of market capital.

5. Indian Islamic funds have mopped about Rs 525 crores by March 2010 in 3-4 years4.

6. In India yearly Rs 637 crores5 are lost by the Muslim community due to non participation

in the conventional financial sector.

5


7. Just 1%, i.e., 10- 15 million of total population of India’s population deals with the stock

market, meaning high level of potential exists.

8. Around 175 million Muslims in India offer good uncharted territory for Islamic Finance.

9. The Average credit deposit ratio in India is 74% where as for the Muslim community it is

37%5, while the projected lost to the banking industry is Rs 117 billion due non

availability of Islamic Banking provision in India.

10. Average Indian willing to deposit is 67% in the urban areas, while same for Muslim

community it is just 20%.

11. A mere 13% Muslims are aware of full Banking facilities while 57% are totally unaware

of any banking facility, while the rest (30%) are partially aware of banking activity.

12. Wakf Properties worth Rs, 4,00,000 crore are there in India out of which Rs 2,00,000

crore are encroached and the rest are highly underdeveloped.

13. HNIs have grown by 51% in 2009 in India with GDP growth rate of 7% and the possible

growth rate in 2010 is estimated around 8.1% and in 2011 it would be 8.5%, but these

a. cannot be the criteria’s for total financial inclusion for all Indians which is the

ultimate goal of IF in India.

14. Global Muslim population of 1.6 billion approximately is a huge market for Indian

corporates.

15. The IF industry has demonstrated consistent annual growth between 15%-20% inspite of

global financial meltdown.

Islamic Finance Suggestions

1. Sharp focus on Islamic requirements.

2. Independent and Transparent Islamic body to lead the way.

3. Offering of Islamic Finance products in comparison with conventional products

depending upon Islamic compliancy.

4. Encourage philanthropy and financial inclusion among all sections of society.

5. Design the product on basis of Islamic rather than Economic/Legal viability.

6. Focussing advertising and promotion activities in Muslim catchment area.

7. Rather than asking the Islamic scholars to look for a way out for compliancy bottle

necks, the companies should try to change the product design.

Islamic Finance Promotional Activities

1. Local Ulema certification is a must for promotion of the Islamic product.

2. Advertising activities to be initiated.

_______________________ 3Econmic Times, March 13, 2010. 4MI, Issue April 2011. Hyderabad. 5Keyur Shah, KPMG, Mumbai

6


3. Latest copy of Fatwa, product performance details and other details need to be made

easily available on net.

4. Hoarding and newspaper advertisements campaigned to be carried out strongly.

5. Distributors and other middle men need to be encouraged and motivated on long-term

benefits as the commission on Islamic products is less comparatively.

6. Company should directly carry out is promotion activities rather waiting for the Muslim

distributors or professional bodies to help in activities.

7. Actively participating in community seminars, conferences, gatherings or any other

platforms is a must and the benefits will be long term and virtually realistic.

Conclusion

The global Islamic finance industry has sustained impressive double-digit growth in 2013

despite challenging global economic conditions. Islamic Finance is against the ‘Great Divide’

that has been created by the conventional financial system which can be fragrantly seen in the

America’s unequal society. If we diagnose the reasons for inequality, it is the choice and

cumulative result of unjust policies and misguided priorities. The world economy pays a very

heavy price for the irresponsible policies, deregulations, tax cuts, and tax breaks for the elite

which is leaving many people’s dreams farther and farther beyond and turning the total financial

inclusion dream into an ever more unachievable myth. IF has a formidable and a accessible

economic insight, that includes to embrace real solutions, by increasing taxes on corporations

and the wealthy; offering more help to the children of the poor; investing in education, science,

and infrastructure; helping out homeowners instead of banks; and, most importantly, doing more

to restore the economy to full employment. IF argues against the tide of unnecessary, destructive

austerity that is sweeping across the globe and IF offers choice between growth and fairness.

With the right policies of IF we can have both, and confront world’s economic inequality as the

political and moral issue and reinvest the capital in the people and pursue the other policies that

can live up to the shared dream of a more prosperous, more equal inclusive global society.

The global ethical finance industry has reached a significant market size, growing by

11.9% CAGR. In the UK, it is projected to add economic value of approximately worth USD 17

billion by 2020. The Islamic assets are set to grow at a rate of 19.7% by 2018 as per a study by

EY. The increasing demand for responsible financial services is largely driven by changing

public perception and prompted by the effects of the past financial crisis. Such increased interest

7


presents new opportunities for the industry and in order to capitalize on these opportunities, there

is a growing need for convergence and collaboration among the various subsets of ethical

finance. A Global Shift towards Responsible Finance The Global Financial Crisis dramatically

shifted attitudes about the role of the financial sector and set in motion dramatic changes in the

popular perception of responsible finance. Sectors (Anexxure1) of the financial industry which

were previously niche sectors (Islamic finance and socially responsible investing) became the

foundation for a rethinking of how the financial sector should relate to people, the natural world

and the real economy.

References

1. Abdul-Majid, Mariani, David S. Saal, and G. Battisti, 2010, Efficiency in Islamic and conventional banking: An

international comparison, Journal of Productivity Analysis 34, 25-43.

2. Aggarwal, Rajesh K. , and Tarik. Yousef, 2000, Islamic banks and investment financing, Journal of Money,

Credit and Banking 32, 93-120.

3. Beck, Thorsten, Asli Demirgüç-Kunt, and Ouarda Merrouche, 2010, Islamic vs. Conventional banking business

model, efficiency and stability, (The World Bank, Washington DC).

4. Beck, Thorsten, Asli Demirgüç-Kunt, and Ouarda Merrouche, 2013, Islamic vs. Conventional banking: Business model, efficiency and stability, Journal of Banking and Finance 37, 433-447.

5. Chapra, Mohammad Umer, 2008, The global financial crisis: Can Islamic finance help minimize the severity

and frequency of such a crisis in the future? IDB (Jeddah).

6. Chong, Beng Soon, and Ming-Hua Liu, 2009, Islamic banking: Interest-free or interest-based?, Pacific-Basin

Finance Journal 17, 125–144.

7. El-Gamal, Mahmoud A., 2000, An economic explication of the prohibition of Riba in classical Islamic

jurisprudence, 3rd Harvard University Forum on Islamic Finance.

8. Hasan, Maher, and Jemma Dridi, 2010, The effects of the global crisis on Islamic and conventional banks: A

comparative study (International Monetary Fund, Washington DC).

9. Imam, Patrick, and Kangni Kpodar, 2010, Islamic banking: How has it diffused?, (International Monetary Fund,

Washington DC).

10. Siddiqi, Mohammad Nejatullah, 2006, Islamic banking and finance in theory and practice: A survey of state of the art, Islamic Economic Studies.

11. Sundararajan, Vasudevan, and Errico, 2002, Islamic financial institutions and products in global financial

system: Key issues in risk management and challenges ahead, IMF Working Paper.

12. Zaher, Tarek S., and M. Kabir Hassan, 2001. A comparative literature survey of Islamic finance and Banking

(Blackwell Publishers, MA, USA).

Anexxure-1

8


PRODUCTIVITY BARGAINING PRACTICES AT SINGARENI COLLERIES

COMPANY LIMITED

Dr.V.Rajeshwari Associate Professor, Telangana University, Nizamabad

G. Usha Sree

Research Scholar, Kakatiya University, Warangal Abstract

The public sector has emerged as an important level of economic growth in India. It has

changed the industrial face of the country and has been instrumental in bringing socio-economic

revolution. But the performance and profitability of most public companies is not that

satisfactory. The actual result is much behind the target and they are operating much below the

installed capacity. Productivity bargaining through collective bargaining is one of the very

important parameter to improve the Productivity of the organization particularly in SCCL.

Employees being the main source of production, the success or failure of an organization

depends to a considerable extent on its employees. Productivity bargaining practices acquires

special meaning in coal industry due to variety of factors. This article presents the Productivity

bargaining practices in company specially concentrating on performance, promotion, training

methods and identification of employee, welfare measures, medical facilities, compensation and

union involvement in the organization on the practice.

Keywords: Organization, Employees, Productivity Bargaining Practices, Welfare Measures,

Productivity.

Introduction

Productivity bargaining through collective bargaining is one of the very important

parameter to improve the Productivity of the organization particularly in SCCL. Collective

Bargaining in terms of i) Negotiations about working conditions & terms of Employment

between an employer, a group of employers or one or more Employers or one or more

Employers organizations on the one hand & one or more representative workers organizations on

the other with a view to reaching agreement. ii) The term bargaining refers to evolving an

agreement using methods, like negotiations, discussions, exchange of facts and ideas rather than

confrontation. iii) The negotiations are between the Employers and the Employee without a third

party intervention.

Productivity bargaining through collective bargaining where one group representing the

employers and the other representing employees sit together to negotiate terms of Employment.

9


Both the management and the Union groups go through several intra-organizational bargaining

to improve the productivity.

The management will have to settle a set internal policy issues, relating to the

concessions they would make, the wages they would pay and the changes that they would like to

affect as obviously. There should be the balance between viability of the firm, in terms of profits

& labor costs need to be reconciled.

To lessen the cost of factors of Production, obviously to improve the productivity, the

various groups/categories, such as skilled, semiskilled and unskilled workers has to work

dedicatedly with determination. Formulation of policies, selected norms and processes also

includes in productivity bargaining to encourage the employee towards the work with zeal. The

firms' capacity to pay and its constraints. The Union demanding wage increases to meet the

increased cost of living of expectations of workers in the changed socioeconomic context as well

as the increases agreed to by the other firms. A method of wage fixation also improves

productivity.

Productivity usually refers to output in physical units per man hour of work. It is a

measure of the relationship between the volume of goods produced and one factor of input-

labour time.

To get productivity bargaining practices come through more efficient utilization of fuel,

more economical material, technical improvements in machines, in organization processes, the

skill and effort of the workforce , the efficiency of management and increased ability to pay and

therefore industries with high or increasing productivity are generally able to pay high wages.To

improve the productivity not only to concentrate on wage matters, collective agreements cover a

wide range of aspects of employment from recruitment to retirement.

Productivity bargaining through collective bargaining agreements covers issues like bonus ,

overtime, paid holidays, paid sick leave, safety wear, production norms, hours of work,

performance appraisal, workers participation in management , hiring, fixing of job evaluation

norms and modernization. Productivity bargaining through plant-level bargaining is the common

practice in manufacturing and commercial establishments whereas industry wise bargaining

occurs in SCCL.

In a competitive business environment growth of any business organization would

entirely depend upon employees' appreciation and loyalty, it can command. These can be

10


ensured, only by offering products and services of high quality on a durable basis. Therefore,

continuous enhancement of quality on a sustaining basis has become essential for the prosperity

of any business organization at present and in future as well as.

Productivity bargaining is important both for manufacturing and service organizations.

For most business organization today, superior quality is at the core of their business strategy.

Attaining near-perfect quality of products/services is seen as a principal means of capturing

market share and profitability in global competition. Achieving superior product or service

quality with in a business requires a long term process of changing the fundamental culture of the

organization. Today, managers and staff may manufacture and service organizations have

overhauled the structure of their organization, changed their organization climates and redirected

their product/service programmes towards becoming global quality leaders through an effort that

is known as productivity bargaining.

At the heart of productivity bargaining, this means that every organizations activity

should be evaluated and analyzed to determine if it contributes to meeting employees' needs and

expectation. Productivity increases through employees' involvement, improvement in team, and

other group efforts are used to ensure that an employee's understand the importance of

productivity bargaining practices.

Review of literature

1. Kaaru Ishikawa developed the quality circle, which are used to trace back employees and

customers complaints are all responsible for production operation problems.

2. John.R.Dew stated seven basis steps to strategic planning. The process state with

principle of employees' satisfaction and customer satisfaction are the center of origin

future.

3. Kerth Dawis identified three models organization behavior autocratic, custodial,

supportive etc.

4. Likert mentioned the pattern and study of manager for three decades.

5. R.Karlgard stated a philosophy of Management that is driven by the constant attainment

of employee satisfaction through the continuous improvement of all organization process.

Objectives of the study

1. To examine the Productivity bargaining practices and its effectiveness in SCCL with

the help of certain identified variables.

2. To examine existing working conditions in SCCL.

3. To examine worker's participation in management in SCCL.

11


4. To offer suggestions to improve the productivity through Productivity bargaining

practices in SCCL, Kothagudem Area.

Scope of the Study

The scope of the present study is confined to the productivity bargaining practices in

SCCL in relation to selected criteria. A dedicated discussion on each criterion has been given to

the extent disclosed by the undertaking. The present study covers the entire corporation in

overall manner. However for the purpose of detailed examination unit level practices are task

from Kothagudem Area. Huge investment, vast-man power, product and the productivity

bargaining practices of the organization have influenced to select the zone.

Methodology

The methodology adopted in the present study regarding selection of sample period of

study, data sources analysis and interpretation of data, Primary data is collected through

questionnaires personal discussions with officials, executives and nonexecutives of the SCCL.

Secondary data is collected from the annual reports of the SCCL, other official records and

documents relating to Productivity bargaining practices, books and related journals.

Sample selection

In order to evaluate the Productivity bargaining practices implementation in SCCL,

Kothagudem Area has been chosen. SCCL is leading coal Sector Company as state owned

corporation with 108 coal generating units. The sample of employees is tentatively fixed as 200

which include all departments' executives and all cards of employees in every level of

management.

Tools of Analysis

While analyzing the Primary and Secondary data using various statistical techniques like

Mean, co-relation t-test, and chi-square test have been computed and used.

Hypothesis

Unconformities with objectives of the study, certain hypothesis have been formulated

after careful and in depth – examination of the existing literature relating to the implementation

of Productivity bargaining practices.

The following broad hypothesis are formulated and tested:

12


1) There is not only lack of employee participation and active involvement in the continuous

improvement of employees, products and process but also absence of team work among

the employee to generate productivity bargaining practices consciousness in SCCL.

2) There are no well-defined Productivity bargaining practices in SCCL to indicate the

Employee Satisfaction Measurement which improves productivity.

Limitations of the Study

1. Secondary data was sometimes gathered from more than one source, which in turn lacks

uniformity, consistency and regularity information taken from internal records suffers

from limitation (non-availability).

2. The questionnaire used for the purpose of collecting the Primary data from the

respondents also due to different level of perception interpretation and behavior of

sample respondents.

3. Employees' perception also not gathered since they are widely spread over. Hence, the

study reflects the views of selected category of organization members only.

Variables contributing to PBP Implementation and Effectiveness

Identification of variables contributing to PBP implementation is done in the following

methodology. In order to measure the implementation of PBP, they are seven variables, thirty

five statements have been designed in such a way which ever all required and relevant aspects

about PBP implementation, Twenty Eight out of thirty-five statements are designed in positive

sense to reflect the implementation of PBP as more effective. Remaining Seven Statements have

been formed in negative sense to reflect the implementation of PBP as less effective.

TABLE-1

DATA VARIABLE STATEMENTS SL.NO Date of Variable Statements No. of Positive

Response

No. of Negative

Response

Total No.

Statements

1. Working Conditions 4 1 5

2. Industrial Relation 4 1 5

3. Pay Structure 4 1 5

4. Welfare Facilities 4 1 5

5. Personal Growth 4 1 5

6. Employee Training and

Development

4 1 5

7. Workers Participation in

Management

4 1 5

TOTAL 28 7 35

An analysis made from the table -1, it is observed that form the thirty five statements have been

designed in such a way, which covers all required and relevant aspects about PBP

implementation. Twenty Eight out Thirty Five Statements are designed in posit ive sense to

13


reflect the PBP implementation as more effective, remaining seven statements have been framed

in negative sense to reflect the PBP implementation as less effective.

TABLE-2

DISTRIBUTION OF EXECUTIVE AND NONEXECUTIVE ACCORDING

EFFECTIVENESS OF PBP IMPLEMENTATION

Respondents Level of Effectiveness Total

Effective Ineffective

Executives 30 (15)

106 (56)

136 (68)

Non-Executives 16

(8)

48

(24)

64

(32)

Total 46

(23)

154

(17)

200

(100)

Source: primary data

It is clear from the Table :2, that the perceived PBP implementation and it's effectiveness differs

significantly between executives and non-executives of SCCL. A relatively high percentage of

executives perceived the implementation of PBP as more effective, in case of non-executives the

percentage of those who feel PBP implementation as more effective is less than those who

perceived it as less effective.

TABLE-3

CONTRIBUTION OF WORKING CONDITIONS VARIABLE TO THE PBP IMPLEMENTATION AND

ITS EFFECTIVENESS

Contribution Factors Level of Effectiveness Total


Working

Conditions

(Executives)

96

(48)

44

(22)

140

(70)

Non-Executives 24

(12)

36

(18)

60

(30)

Total 120

(60)

80

(40)

200

(100)

Source: primary data

Note: Numbers in parentheses in indicates percentage.

Observed Value =7.14

Degree of Freedom =(2-1)(2-1)=1

Expected Value at 1% level=6.635

Expected Value at 5% level=3.48%

14


It is perceived from the table 3 that a majority of respondents 60 percent perceived PBP

implementation as effective. Among these 80 percent of respondents perceived that working

conditions variables, contributes to effectiveness and 20 percent perceived that working

condition contributes to PBP implementation is effectiveness. The percentage of respondents

those who perceived it as ineffective is 40 percent, among these 55 percent felt that in spite of

working conditions contribution it is in-effective and 45 percent perceived that working

condition does not contribute hence it is in-effective. It can be concluded that majority 80

percentage of respondents perceived that leadership variable contributes to TQM implementation

is effectiveness. Further, it is tested with the chi-square. Since, the observed value greater than

the expected value at both the levels the hypothesis rejected. Hence, it can be concluded that

majority of the respondents felt that the TQM implementation is effectiveness in due to working

conditions contribution. This is inconformity with the conclusion drawn earlier.

Welfare facility vis-via PBP implementaitn and its effectiveness:

To examine the relationship between the level of effectiveness of PBP implementation and

contribution of Welfare Facilities variable, the distribution of respondent over the ‘effective' and

‘in-effective' category is shown in the Table 4.9

TABLE -4

CONTRIBUTION OF WELFARE FACILITIES VARIABLE TO THE PBP IMPLEMENTATION AND ITS

EFFECTIVENSS

Contribution Factors Level of Effectiveness Total


Welfare Facilities

(Executives )

56

(28)

48

(23)

102

(56)

Non- Executives 18

(9)

80

(40)

98

(49)

Total 74

(37)

126

(63)

200

(100)

Source : Compiled from the Questionnaire data


Observed Value =15.913

It is obvious from the table that majority of respondents i.e. 63 percent are from the category of

in-effective and only 37 percent of respondents are from effective category. Among the in-

effective category 64 percent perceived that the in-effectiveness in due to non contribution of

15


Welfare Facilities variable and 36 percent perceived that in spite of variable contribution it is in-

effective. Among the effective category 75 percent respondent perceived that the variable

contributes to effectiveness and only 25 percent perceived that is does not contribute to PBP

implementation and effectiveness.

TABLE 5

CONTRIBUTION OF WORKERS PARTICIPATION IN MANAGEMENT VARIABLE TO PBP

IMPLEMENTATION AND ITS EFFECTIVENESS

Contribution Factors Level of Effectiveness

Total

Workers Participation

in Management


Executives 72

(36)

64

(24)

136

(68)

Non-Executives 50

(25)

14

(7)

64

(32)

Total 122 (66)

78 (39)

200 (100)

Source: Compiled from the Questionnaire data


Observed Value = 7.135

An observation of Table 5 indicates that there is marginal difference between percentages of

respondents who perceived PBP implementation as effective and ineffective with regard to

contribution of Workers Participation in Management Among 61 percent who perceived that

effective category 36 percent perceived that a WPM result contributes to effectiveness and 25

percent perceived that the variable does not contributes. Among those who perceived it as in-

effective 32 percent perceived that WPM contribute to PBP implementation and only 7 percent

perceived that the variable does not contributes. To test statistically, chi-square test is applicable

the calculated value of X2 (7.135) is more than the table value. Hence, the hypothesis is rejected

thus, if can be concluded that there is relation between the level of effectiveness of PBP

implementation and Workers participation in Management.

Conclusion

Spearmen rank correlation has been calculated to know the extent relationship between

the ranks of average scores of perception of executives and non-executives with regard to various

16


contributes to PBP implementation. According to the calculation of Spearmen rank correlation, it

is understood that hypothesis is rejected.

Therefore it can be stated that in SCCL workers are participating in management

activities, there is smooth relationship between workers and management. There is well-defined

productivity bargaining practices in SCCL.

It is clear that the perceived PBP implementation and its effectiveness differ significantly

between executives and non-executives of SCCL. A relatively high percentage of executives

perceived the implementation of PBP as more effective, in case of non-executives the percentage

of those who feel PBP implementation as more effective is less than those who perceived it as

less effective.

Sugesstions

1. There is necessary to strengthen the effectiveness of executive cadre, in workers

participation in management.

2. There is necessity to strengthen the effectiveness to develop Non-executive Cadre.

3. There is necessity to strengthen Productivity bargaining practices in order to contribute

more effectively for main industrial Relations.

References

1. Lee M.Ozely and Judith S.Ball, Quality of Work Life, “Initiating successful efforts in labour management

organization”. The personal administrator. Vol 27, No.5 May, 1982, P.27.

2. “Quality of Work Life, Cataching”. Business Weak, Sept 21, 1981,P.80

3. Edward Lawler III, “The New Plant Revolution”, Organizational Dynamic, Vol.6, No.3 Winter 1978 P.3

4. David W.Eiving,”What Business thinks about Employees Rights,' Harvard Business Review, Vol55.

No.5Sept.Oct. 1977, P.84.

5. Mahoney, Francisx: “Team Development, Part4: work Meeting”, Personnel, Vol.59, No.2, March-April, 1982,

PP.45-55.

6. Mitcheel Lee marks et al, “Employee Participation in a Quality Circle Program, impact on Quality of Work Life

Productivity and Absenteeism,” Journal of Applied psychology, Feb, 1986, P.P.61-69. A discussion of options for various levels of participation is in C.Philip Alexander, “Voluntary Participation”, Quality Digest, Oct,

1994,P.P40-52

7. Copper Lylews “Profit Sharing” Encylopedia of social science Vol XII, the Mach Million Co., New Yord,

1934,P.387

8. Scott Clother and Spriegal, Personnel Management P.173.

9. Key ton and Spring Ston, “Redefining Cohesiveness is groups, “Small group research, May 1990, P.234-259.

10. Invancecis Jon Mand Michal T.Matteson, (1989) Stress at Work, Fore Man Glenview PP.59.

17


HR OUTSOURCING SERVICES AND JOB SATISFACTION

– AN EMPIRICAL STUDY ON SELECT INDUSTRIES

Sreekanth.Putha

Ph.D Research Scholar, Royalaseema University, Kurnool. email id:[email protected], Program

Manager Lead, Microsoft, Hyderabad – 32.

Abstract

This paper investigates the implications of HR outsourcing services on the employee job

satisfaction in the select IT companies as well as Pharmacy Companies in Hyderabad. The world

of human resource management is changing more rapidly than we can imagine. Recognizing

these challenges of the select industries, it has opened the space for the assessing the employee’s

satisfaction and willingness towards outsourcing of facilities, services, and amenities to meet

their job related needs. The tools applied in the study are; SRT, KMO Bartlett Test, t test. This

paper also suggests certain possible solution to the above said problem where the employees

resist to outsourcing. Overall, a positive overview was observed in the following areas of typical

HR outsourcing practices; welfare activities, cost factors, impact on HR function, human capital,

SPs, individual efficiency, service quality, reduction of overheads, improvement in vendor

relationship.

Key words: Administrative burdens, Cronbach's Alpha, Employee satisfaction and engagement,

Implications of HR Outsourcing, KMO and Bartlett's Test, service quality, and technical

expertise.

Introduction

Human Resource Departments are primarily concerned with the management of people

within organizations, focusing on policies and systems. They handle multiple areas related to

recruitment, training and development, performance management, rewards, compensation

benefits etc. HR today has come a long way from the personnel management and industrial

relations days when there was more focus to balancing of organizational practices with

requirements arising from collective bargaining and governmental laws to understanding the

needs of employees and delivering programs accordingly to enhance employee satisfaction and

engagement.

As the scope of HR widened, organizations are choosing to outsource practices like

recruitment, payroll, benefits administration, training etc., to companies who hold a core

competence in it. It also proves to be cost effective. At the same time the companies have to


https://en.wikipedia.org/wiki/Policy

https://en.wikipedia.org/wiki/System

https://en.wikipedia.org/wiki/Recruitment

https://en.wikipedia.org/wiki/Training_and_development

https://en.wikipedia.org/wiki/Performance_appraisal

https://en.wikipedia.org/wiki/Industrial_relations

https://en.wikipedia.org/wiki/Industrial_relations

18


assess the implications of outsourcing on the employee’s satisfaction. Unless understanding the

overview of select industries in terms of business growth and development apart from HR

concepts, it is difficult to assess the implications of HR outsourcing services in employee’s

satisfaction perspective.

The Pharmaceutical industry and the IT industry are two fast pace growing industries,

Pan India, hence the reason to be chosen for the study.

Pharmacy Industry: The Indian pharmaceuticals market is the third largest in terms of volume

and thirteenth largest in terms of value, as per a report by Equity Master. It enjoys an important

position in the global pharmaceuticals sector. The country also has a large pool of scientists and

engineers who have the potential to steer the industry ahead to an even higher level. And its

market is expected to grow over 15 per cent per annum between 2015 and 2020. The interesting

point is that the global pharmacy industry growth rate (which is 5%) is less than Indian

Pharmacy industry growth rate.

IT Industry: India is the world's largest sourcing destination for the information technology (IT)

industry, accounting for approximately 67 per cent of the US$ 124-130 billion market. The industry

employs about 10 million workforces. More importantly, the industry has led the economic

transformation of the country and altered the perception of India in the global economy. Indian IT

companies are providing IT services with cost effectiveness and which is approximately 3-4 times

cheaper than the US. However, India is also gaining prominence in terms of intellectual capital with

several global IT firms setting up their innovation centers in India. The Indian IT sector is expected to

grow at a rate of 12-14 per cent for FY2016-17 in constant currency terms. The sector is also expected

triple its current annual revenue to reach US$ 350 billion by FY 2025.

Concepts of the Study

1. What is HR Outsourcing? Human Resource Outsourcing (HRO) is a sustainable and

competitive method to manage costs and allow a company's core resources to focus on

strategic initiatives rather than managing transactional activities in HR operations.

2. What HR functions typically outsourced? Payroll, benefits administration, recruitment

and tasks related to risk management sit on the top of the list of HR functions commonly

outsourced.

3. What are HR Practices? ‘Any practice that deals with enhancing competencies,

commitment and culture building can be considered an HR practice. The practice can

19


take the form of a system, a process, an activity, a norm, a rule, an accepted or expected

habit.

4. What is employee’s satisfaction? In this study the employee’s Satisfaction factors were

clubbed as: welfare facilities, happiness and engage at work. For an individual, job

satisfaction would mean that something within him reacts favorably to the job and its

environment. We can also say that it is a sense of personal growth most often measured

by the extent of new challenges and learning situations experienced.

Review of Literature

The following recent studies in HR practices have been reviewed in Indian Context

Ramesh T (2005) studied the changes occurring in the field of human resource management in

today’s era. In his study, he observed that HR functions are concerned with a variety of activities

that significantly influence almost all areas of an organization. The success of an organization

depends to a large extent on the existence of a favorable HRD climate a combination of various

factors such as openness, team spirit, trust, autonomy, cooperation, integrity, recognition,

participation, fair compensation, counseling, problem solving, valuing the assets, and respect for

the individual. It is the human intellect, human energy and human inventiveness, which

accomplish excellence for the firm. If a company wishes to make purposeful trade–off, it must

create radical decentralization and give autonomy to the employees. A good HR leader can

always turn the worst to the best because he/she can really get the employees to work and

motivate them to perform better.

Emmah Nyarangi (2017) The study’s findings revealed that outsourcing temporary staff is more

economical than handling them in house. Outsourcing did give time for the human resource

department to concentrate on their core activities and improved overall organizational

performance.

Baltes, B. B., Zhdanova, L. S., & Parker, C. P. (2009). Their study advances our understanding

of the psychological climate construct by addressing a generally ignored issue of frame of

reference through measuring psychological climate with an organizational referent (PCo) and an

individual referent (PCi). PCo reflects employee perceptions of their organizational environment

in general; whereas, PCi reflects employee perceptions of their own experiences within an

organization. This study found that a) there are mean level differences between the two types of

psychological climate, b) the two types of psychological climate uniquely predict job

20


satisfaction, and c) a discrepancy between the two types of psychological climate is found to

relate to job satisfaction.

Ferrer, J. (2005). They outlined the territory of employee engagement and explore the

relationship between employee engagement and concepts of employee commitment.

Objectives

1. To understand the issues related to HR outsourcing in the select industries i.e. Pharmacy

and IT.

2. To identify implications of Typical HR Outsourcing services that are against the

employee’s satisfaction at work in select industries

3. To explore overall impact on the employees satisfaction.

4. To give suggestions and recommendations for the improvement of employees satisfaction

of the select industries.

Limitations of the Study

This study confined to Pharmacy and IT industry in around the Hyderabad city only. The

respondents include different grades of employees of Pharmacy and IT companies.

Methodology

A study was conducted for exploring the implications of typical HR out sourcing services

on employee satisfaction in Pharmacy and IT companies in and around Hyderabad area. It has

been focused on the Pharmacy and IT companies of Hyderabad area in Southern India.

Sample design and sample method: The sampling method used in the study is convenience

sampling technique. Sixteen Pharmaceutical units were selected from Hyderabad area. These

units include: Novartis, Raje Retail Pvt. Ltd, Bayer Pharmaceutical Pvt. Ltd , Abbott Healthcare,

Inogeat Laboratories Pvt. Ltd, Dr Reddy’s, DIVIS Laboratories Pvt. Ltd, Hetro Drugs, Therdose

Pharmaceutical Pvt. Ltd, Shanthabiotech Pvt. Ltd, Arobindo Pharmaceutical Pvt. Ltd, Natco

Pharmaceuticals, Arch Pharmaceutical Laboratories, Vasudha Pharmaceutical Pvt. Ltd, Neoland

Laboratories Pvt. Ltd and Synthous. Twenty three IT units were selected which include; CA

Technologies Ltd, Oasis Ltd, Live Apps Solutions, Verizon Data Services, Infosys, Subhasni

Software Solutions, Bally, CSE, Vamainfo, Pegasystems, Serco Pvt. Ltd, Sri Technologies, IBM,

Amazon Developers, Accenture, Deloitte, Beam, Dell Computers, TCS, CTS, Capgemini

Technology, Microsoft, JP Morgan Chase and Mc Graw Hill Financial.

21


Sample size: This is a qualitative research study which provides an empirical evidence to

approve and disprove the hypothesis formulated. The population (IT and Pharmacy employees)

of the study is finite. The area of the study is Hyderabad city. The sample units include; different

grades of employees. The sample size of respondents for Pharmacy and IT companies are 150

and 170 respectively. The sample size for the study was determined using the following formula

developed by Yamane (1967).

n= 𝑁

1+𝑁(𝑒)2

n denotes sample size, N indicates the population size and e is the level of

precision. For this study, level of precision is presumed as 0.056. According to

https://www.quora.com, the total workforce of Software companies is about 200000 employees

and the workforce of Pharmacy is about 100000 in Hyderabad. Therefore the population size for

the study is 300000 employees. By substituting these values in the above equation; the required

sample size becomes approximately 320.

Data Collection: The scaling technique used for the sample variables is Likert scale ranging

from 1 to 5 points. Period of study is 2015-2016. For the purpose of this research, both primary

and secondary data has been collected to present a comprehensive overview of the employee’s

satisfaction in both Pharmaceutical and IT industry in the select region. Primary data through

questionnaire and secondary data through published sources. The statistical techniques and tool

used in the study are mean, standard deviation, mean deviation, independent t-test, scale

reliability test (SRT), KMO and Bartlett's Test. The internal consistency of the set of variables is

measured with Cronbach's Alpha. It is also called scale reliability test (SRT). It is expressed as a

number between 0 and 1.

Table 1

Reliability Statistics

Cronbach's Alpha N of Items

.832 15

Source: Author calculation through SPSS20v.

Reliability estimates the amount of measurement error either in scale or in a test. It can be

interpreted as the correlation of test with itself. Squaring this correlation and subtracting from

22


1.00 produces the index of measurement error. In accordance with Nunnally (1978), the

Cronbach’s α value of any item should be at least 0.70 for being selected. Notwithstanding this

fact, any item having Cronbach’s α value more than 0.60 will be acceptable (Malhotra, 1993).

The range of alpha for internal consistency is between 0.70 to 90. If it is above 0.90 may suggest

redundancies and show that the test length should be shorten. From the table, the reliability of the

test is 0.832. The random error in the scale is 0.307 (0.832×0.832 = 0.693; 1.00 – 0.693 = 0.307).

As the estimate of reliability increases, the fraction of a test score that is attributable to error will

de-crease.

Table 2

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. .804

Bartlett's Test of Sphericity

Approx. Chi-Square 2439.637

df 136

Sig. .000

Source: Author calculation through SPSS20v.

From the table 2, it is found that KMO value is more than 0.60. Therefore the given sample will

support the validity of the interpretations derived from sample data analysis.

Analysis and Discussion

Welfare activities: Employee welfare activities offered by the HR outsourcing provider includes

various facilities, services and amenities provided to workers for improving their health,

efficiency, and social status. Welfare activities include everything that is offered for the comfort

and improvement of employees. Welfare helps in keeping the morale and motivation of the

employees high so as to achieve productivity. Employee welfare includes monitoring of working

conditions, health benefits and insurance against accident for the workers and their families. The

collected data pertaining to the additional employee welfare activities offered by the HR

outsourcing provider was processed and furnished the information in the table 3.

Table 3

Showing the statistical results of employees satisfaction regarding welfare activities

Between it and pharmacy industry

t-test for Equality of Means

t df p-value MD

Employee welfare

activities Equal variances

assumed -7.249 318 0 -0.68784

Source: Questionnaire using IBMSPSS 20v.

23


H0: Employee’s satisfaction pertaining to activities between IT and Pharmacy industries is same

H1: Employee’s satisfaction pertaining to activities between IT and Pharmacy industries is

significantly differentiated.

From the table 3, it has been observed that the given t value and p-value are; -7.249 and 0.000

which is less than 0.05 which means that the null hypotheses has been rejected and alternate

hypotheses is accepted. Therefore, it can be inferred that there is a significant difference in the

satisfaction level of the employees with respect to welfare activities between two select

industries.

Gaining technical expertise of the vendor company: Organizations sometimes might be

lacking the technical expertise to perform the functions. Acquiring the infrastructure for in-house

technical expertise may be a budgetary constraint for the organization. In this case, organizations

outsource HR Functions to the service provider. The collected data pertaining to the gaining the

technical expertise of the vendor company of both Pharmacy and IT companies was processed

and furnished in the table 4.

Table 4

Showing the statistical results of gaining technical expertise between IT and Pharmacy industry


t df p-

value

MD

Gaining technical expertise of the

vendor company Equal variances assumed -0.96 318 0.339 -0.1357


H0: Both industries are equally gaining the technical knowledge from their respective vendor

company.

H1: Both industries are not equally gaining the technical knowledge from their respective vendor

company.

From the table 4, it has been observed that the given t value and p-value at 318 degrees of

freedom with mean difference of 0.1357 are;-0.96 and 0.339. The calculated ‘p’ value is more

than the critical value (0.05) which means that the null hypotheses has been accepted and

alternate hypotheses is rejected. Therefore, it can be inferred that there is no significant

difference company between two select industries in gaining the amount technical expertise from

their respective vendors.

24


Reduction of cost factors: Reduction in cost factor is considered as one of the important and

prime factor in HR outsourcing. By outsourcing HR Functions the organization would be saving

costs. Data is collected related to reasons for HR outsourcing from pharmacy and IT

Organizations. The collected data pertaining to the gaining the reduction of cost factors was

processed and furnished in the table 5.

Table 5

Showing Reduction of cost factors between IT and Pharmacy industry


t df p-value MD

Reduction of cost Equal variances assumed 0.608 318 0.544 0.08118


H0: There is no significant difference in reduction of cost factors of the vendor company

between IT and Pharmacy industries

H1: There is a significant difference in reduction of cost factors of the vendor company between

IT and Pharmacy industries

From the table 5, it has been observed that the given t value and p-value are0.608 and 0.544

which is more than 0.05 which means that the null hypotheses has been accepted and alternate

hypotheses is rejected. Therefore, it can be concluded that there is no significant difference in

the reduction of cost factors between two select industries.

Table 6

Correlations between cost and technical knowledge

Cost

reduction

Gaining technical

expertise

‘p’ value

Reduction of cost Pearson Correlation 1 .654**

0.00 Gaining technical

expertise Pearson Correlation .654** 1

**. Correlation is significant at the 0.01 level (2-tailed).


From the table 6, it has been noticed that the person correlation between cost and technical

knowledge is 0.654 and ‘p’ value is 0.00 at 1 percent level of significance. In other words the

employee’s opinion with respect to cost reduction and technical knowledge is moderately

correlated.

Minimizing risk factors: Handling HR functions is associated with risk .Employees issues

have to handle with great diligence. If the organizations are concentrating on these issues they

lose track of the main core competencies and business objective. Pharmacy and IT organizations

25


are outsourcing certain HR Functions which are associated with risk factors as they are dealt

effectively by the specialists, so that they can be relieved of tension related to risk and

concentrate on their main business objective. The collected data pertaining to the minimizing risk

factors have been processed and furnished in the table 7

Table 7

Showing Minimizing Risk factors between IT and Pharmacy industry


t df p-value MD

Minimizing risk

factors Equal variances assumed .962 318 .337 .13647

Source: Questionnaire using IBMSPSS 20

H0: There is no significant difference of opinion in terms of minimizing the risk factors between

IT and Pharmacy industries

H1: There is a significant difference of opinion in terms of minimizing the risk factors between

IT and Pharmacy industries.

From the table 7, it has been observed that the given t value and p-value are .962 and .337 which

is more than 0.05 which means that the null hypotheses has been accepted and alternate

hypotheses is rejected. Therefore, it can be concluded that there is no significant difference of

opinion in terms of minimizing the cost factors between two select industries.

1.12 Eliminating Administrative Burden: HR functions are routine and repetitive. They incur

lot of time and effort. If the organizations can outsource these repetitive and routine functions to

a specialist HR service provider, they can be relieved of the administrative burden and they can

be assured of guaranteed service. Data is collected from the IT and Pharmacy companies was

processed and the following results were shown in the table 8.

Table-8

Eliminating Administrative Burden t-test for Equality of Means

t df p-value MD

Eliminating

Administrative

Burden Equal variances assumed 1.265 318 .207 .13647


H0: There is no significant difference of opinion in terms of eliminating administrative burden


26


H1: There is a significant difference of opinion in terms of eliminating administrative burden


From the table 8, it has been observed that the given t value and p-value are 1.265 and .207

which is more than 0.05 which means that the null hypotheses has been accepted and alternate


opinion in terms eliminating administrative burden of between two select industries.

1.13 Employee Productivity: When routine and repetitive HR functions are outsourced in an

organization, employees are relieved and can concentrate on the core competency and contribute

to the productivity to the organization. Data is collected from IT and Pharmacy companies and it

is processed and the results were shown in the table 9.

Table-9

Showing Increase in Employee Productivity


t df p-value MD

Increase in Employee

productivity Equal variances assumed .688 318 .492 .11451


H0: There is no significant increase in Employee productivity by HR outsourcing functions


H1: There is a significant increase in Employee productivity by HR outsourcing functions


From the table 9, it has been observed that the given t value and p-value are .688 and .492 which

is more than 0.05 which means that the null hypotheses has been accepted and alternate


opinion in terms of employee productivity between two select industries.

Overall Satisfactions of HR Outsourcing Activities: By outsourcing HR functions, there was

overall satisfaction related to organization perspective, Employees perspective, policy

perspective. Different dimensions for overall satisfaction of various parameters have been

studied in Pharmacy and IT companies. The collected data pertaining to the overall satisfaction

of various parameters was processed and results were shown in the table 10.

27


Table-10

Showing Overall Satisfaction of Various Parameters of Employees About HR Outsourcing Between IT and

Pharmacy Variables t-test for Equality of Means Decision

t df p-value MD

Impact of outsourcing on HR

Function

Equal variances

assumed -3.2 318 0.002 -0.3357

Rejected

Impact on Human capital

Equal variances

assumed -2.45 318 0.015 -0.2722

Rejected

Impact on Standardized practices

Equal variances

assumed -3.45 318 0.001 -0.3788

Rejected

Improvement in Individual

efficiency & effectiveness

Equal variances

assumed -2.26 318 0.024 -0.2769

Rejected

Improvement in Service Quality

Equal variances

assumed -2.82 318 0.005 -0.331

Rejected

Reduction in direct costs

Equal variances

assumed -1.72 318 0.087 -0.2

Accepted

Reduction in Indirect costs

Equal variances

assumed -2.39 318 0.017 -0.2604

Rejected

Ability to manage effective vendor

relationship

Equal variances

assumed -4.12 318 0 -0.4392

Rejected

Overall impact on the Organization

Equal variances

assumed -0.11 318 0.916 -0.0149

Accepted


The research hypotheses of overall satisfaction of employees in various perspectives have been

tested with independent t-test and the results of the same were furnished in the table 10.

H0: There is no significant difference in the overall satisfaction of employees in terms of

reduction in direct costs and overall impact on the organization between IT and Pharmacy

industries

H1: There is a significant difference in the overall satisfaction of employees in terms of

reduction in direct costs and overall impact on the organization between IT and Pharmacy

industries

From the table 10, it has been observed that the given t value and p-value for reduction in direct

costs and overall impact on the organization are; -1.72 and 0.087, -0.11 and 0.916 which is

more than 0.05 which means that the null hypotheses has been accepted and alternate

hypotheses is rejected. Therefore, it can be concluded that there is no significant difference in

the overall satisfaction of employees in terms of reduction in direct costs and overall impact on

the organization between two select industries.

H0: There is no significant difference in the overall satisfaction of employees in terms of Impact

of outsourcing on HR Function, Impact on Human capital, Impact on standardized practices,

Improvement in Individual efficiency & effectiveness, Improvement in Service Quality,

Reduction in Indirect costs, Ability to manage effective vendor relationship between IT and

Pharmacy industries

28


H1: There is a significant difference in the overall satisfaction of employees in terms of Impact

of outsourcing on HR function, impact on human capital, impact on standardized practices,

improvement in Individual efficiency & effectiveness, improvement in service quality, reduction

in indirect costs, ability to manage effective vendor relationship between IT and Pharmacy

industries

From the table 10, it has been observed that the given t value and p-value for Impact of

outsourcing on HR Function, impact on human capital, impact on standardized practices,

improvement in individual efficiency & effectiveness, improvement in service quality, Reduction

in indirect costs, ability to manage effective vendor relationship are; -3.2 and 0.002 , -2.45 and

0.015, -3.45 and 0.001, -2.26 and 0.024, -2.82 and 0.005, -2.39 and 0.017, -2.39 and 0.019, -4.12

and 0.000 which is less than 0.05 which means that the null hypotheses has been rejected and

alternate hypotheses is accepted. Therefore, it can be concluded that there is a significant

difference in the overall satisfaction of employees in terms of Impact of outsourcing on HR

function, impact on human capital, impact on standardized practices, improvement in individual

efficiency and effectiveness, improvement in service quality, reduction in indirect costs, ability

to manage effective vendor relationship between two select industries.

Level of Freedom You Have With Your HR Outsourcing Vendor: Freedom here refers to the

comfort levels of the employees in disclosing the information to the HR outsourcing service

provider. When the employees are asked to give the details of their experience, achievements and

accomplishments and other particulars for career decisions like promotions, transfers, increments

and other fringe benefits. The data is collected from the respondents of Pharma and IT

companies pertaining to the level of comfort they have with the HR outsourcing provider. The

collected data pertaining to the level of freedom of employees with HR outsourcing vendor has

been processed and furnished in the table 11.

Table-11

Showing Mean value with respect to level of freedom of employees with HR outsourcing vendor between IT

and Pharmacy

Variable

Company N Mean Std.

Deviation

Level of freedom for sharing personal & workplace issues Pharmacy 150 2.7733 1.05644

IT 170 3.3294 1.17557


29


From the table 11, it has been observed that the given mean value and SD for level of freedom of

employees with HR outsourcing vendor in the pharmacy industry is 2.7733 and 1.05644 at 5%

level of significance where as in IT industry it is 3.3294 and 1.17557 which means that there is a

good range of freedom for employees with HR outsourcing provider in IT industry when

compare to Pharmacy industry.

Table-12

Showing t and p values with respect to level of freedom of employees with HR outsourcing vendor between IT

and Pharmacy


t df p-value MD

Level of freedom for sharing personal &

workplace issues Equal variances assumed -4.43 318 0 -0.5561


H0: There is no significant difference in the level of freedom of employees with HR outsourcing

vendor between IT and Pharmacy industries.

H1: There is a significant difference in the level of freedom of employees with HR outsourcing

vendor between IT and Pharmacy industries.

From the table 12, it has been observed that the given t value and p-value for level of freedom of

employees with HR outsourcing vendor are; -4.43 and 0.000 which is less than 0.05 which

means that the null hypotheses has been rejected and alternate hypotheses is accepted.

Therefore, it can be concluded that there is a significant difference in the level of freedom of

employees with HR outsourcing vendor between two select industries.

Level of involvement in the HR Outsourcing Function: Level of involvement refers to the

extent to which the HR outsourcing service provider permits the employees of the organization

to be a part of the HR outsourcing process. The HR outsourcing process can be a participative

process or Tell and sell process. Participative process refers to the situation where the HR service

provider and the employee are equally involved in the process. Tell and sell process refers to the

situation where the HR service provider just communicates the decision already taken by him

and the employee has no role in the outsourcing process.

The collected data pertaining to the level of freedom of employees with HR outsourcing vendor

has been processed and furnished in the table 13.

30


From the table 13, it has been observed that the given mean value and SD for level of

involvement of employees with HR outsourcing vendor in the pharmacy industry is 2.48 and

1.21909 at 5% level of significance where as in IT industry it is 3.3059 and 1.07718. Which

means that there is a greater involvement for employees with HR outsourcing provider in IT

industry when compare to Pharmacy industry.

Table-13

Showing Mean value with respect to level of involvement of employees with HR outsourcing vendor between

IT and Pharmacy

Variable

Company N Mean

Std.

Deviation

Level of involvement In Hr Outsourcing Functions Pharmacy 150 2.48 1.21909

IT 170 3.3059 1.07718


Table-14

Showing t and p values with respect to level of involvement of employees with HR outsourcing vendor

between IT and Pharmacy


t df p-value MD

Level of involvement In Hr Outsourcing

Functions Equal variances assumed -6.43 318 0 -0.8259


H0: There is no significant difference in the level of involvement of employees with HR

outsourcing vendor between IT and Pharmacy industries.

H1: There is a significant difference in the level of involvement of employees with HR

outsourcing vendor between IT and Pharmacy industries.

From the table 14, it has been observed that the given t value and p-value for level of

involvement of employees with HR outsourcing vendor are; -6.43 and 0.000 which is less than

0.05 which means that the null hypotheses has been rejected and alternate hypotheses is

accepted. Therefore, it can be concluded that there is a significant difference in the level of

involvement of employees with HR outsourcing vendor between two select industries.

Conclusion

The focus of this research work is to understand the implications of HR outsourcing

services on employee’s satisfaction in selected pharmacy and IT companies. The analysis reveals

that there is significant difference in the satisfaction level of employee’s with respect to HR

outsourcing services; welfare activities, cost factors, HR function, human capital, standardized

31


procedures, individual efficiency, service quality, reduction of overheads, and improvement in

vendor relationship between select industries. The satisfaction level of software employees is

more in the outsourcing of welfare activities, level of freedom with vendor and level of

involvement in the outsourcing functions, is excelled over the employees of pharmacy

companies which was evidenced from their respective ‘t’, ‘p’ and ‘MD’ values. The satisfaction

level of pharmacy companies employees is more in the outsourcing areas of cost factors, HR

function, human capital, standardized procedures, individual efficiency, service quality,

reduction of overheads, improvement in vendor relationship over the employees of IT companies

which was evidenced from their respective ‘t’ , ‘p’ and ‘MD’ values.

Recommendations for improving HR outsourcing practices in pharmacy and it companies

understudy

1. There was a deep observation regarding the welfare activities which were outsourced by

the sixteen pharmacy companies under study, it was analyzed that the welfare activities

are not conducted as per statutory requirements mentioned in The Factories Act 1948,

The Industrial Disputes Act 1947 and some other relevant acts. Hence, Pharmacy

companies must insist the vendors about the 100 % compliance of welfare activities.

2. The IT companies must insist the vendors to take care of HR functions, human capital,

standardized procedures, individual efficiencies, service quality, and vendor

relationships.

3. The IT companies must conduct familiarization sessions to build healthy relations

between its employees and vendors.

4. For the Training and Development of the employees, HR managers must plan out specific

Management Development Programs (MDPs) and workshops to make them as human

capital for the IT companies.

5. The HR functions of IT companies which include pay rolls, benefits are not encouraging

neither pool up the skillful candidates nor broaden the talent pool to increase diversity.

Hence, the IT companies insist the vendors to take care of the employee’s satisfaction

with regards to HR functions.

Scope for further Research

This study explores the implications of the HR outsourcing on the employees’ satisfaction of two

specific sectors viz Pharmacy and IT in around the Hyderabad. It did not consider the other

sectors where the HR outsourcing happening significantly. Through this research work areas can

be identified for further research.

1. The present study evaluates the implications of HR outsourcing services on employees

satisfaction in one state. A comparative study including more states may be undertaken.

32


2. Further the impact of these HR outsourcing services may be studied on the employee

motivation level.

3. In order to gain a competitive advantage in the pharmacy and IT industry in the post

economic reform scenario these HR outsourcing services can be further, independently

studied in the global context to understand their individual impact on employee’s

Satisfaction.

References

1. Arbaugh, J.B. (2003), “Outsourcing Intensity, Strategy, and Growth in Entrepreneurial Firms” , Journal of

Enterprising Culture, Volume.11, No.2. 2. Baltes, B. B., Zhdanova, L. S., & Parker, C. P. (2009), Psychological climate: A comparison of organizational

and individual level referents, Volume: 62, issue: 5, pp. 669-700.

3. Boninelli, I., & Meyer, T. (2004), Building Human Capital: South African Perspectives. Knowledge Resources.

4. Cook, M. & Gildner, S (2006) Outsourcing Human Resource Functions: How, why, when and not to contract

for HR services; Society of Human Resource Management.

5. CR Kotari, (2008) ‘Research Methodology’, New Age International Publishers, New Delhi.

6. Emmah Nyarangi (2017), ‘Assessment of Role of HR Outsourcing on Employees’ Satisfaction on

Organizational Performance in Multinational Companies’, Journal of Human Resource and Leadership, Vol.1

No. 4.

7. Ferrer, Justine (2005) Employee Engagement: Is it Organizational Commitment Renamed? Working Paper.

Victoria University, Melbourne, Australia. 8. Kodwani, A.D. (2007), Human Resource Outsourcing: Issues and Challenges. The Journal of Nepalese

Business Studies. Vol. 4, Issue No. 1.

9. Mohsen Tavakol, Reg Dennick.” Making sense of Cronbach’s alpha” International Journal of Medical

Education. 2011.pp. 52-55.

10. Ramesh T. and Kumar Sanjay I. (2005), “Human Resource Management In The New Era”, Human Resource

Management, SEDME Vol. 32, No. 2, June, pp 31 -36.

11. Ruchi Goyal (2012) “A Study of HRPractices and Their Impact on Employees Job Satisfaction and

Organizational Commitment in Pharmaceuticals Industries” International Journal of Business Trends and

Technology, Volume.2, No.3,pp.23.

12. https://www.quora.com/How-many-software-employees-are-currently-in-Hyderabad.

https://www.quora.com/How-many-software-employees-are-currently-in-Hyderabad

33


THE SUCCESSFUL CASE STUDIES OF SELECT YOUNG ENTREPRENEURS

IN INDIA

P. Meghashyamala

Teacher, Mathrusri High School,Parkal

Abstract

No doubt, entrepreneur creates the employment and the sky is not the limit for

entrepreneurs. In this era, entrepreneurs are like backbone of the nation’s development. In a

recent research that India is about to reach its peak of 64 per cent by the year 2021with most of

the citizens lying in the age group of 25-30 years. Our country is now the third largest nation in

terms of startup to reach the top rank. There are bundle of opportunities to become an entrepreneur

to meet the society needs and simultaneously the organizational objectives. Therefore, in this

study many young entrepreneurs have been encouraged by Government of India and among

them I selected on five (5) successful case studies of young entrepreneurs.

Key words: Young Entrepreneurs, Opportunities, Organizational Objectives.

Introduction

With definition of entrepreneurship there are often linked topics like self-employment, small

business management, stages of development models and family business issues (Davidsson, 2005).

Usually when we hear a term “entrepreneurship”, in the first moment it leads us to term

“entrepreneur”, who is not only the creator and main actor of business ideas but usually also honored

with the greatest hopes of the development and future of the business. Term “entrepreneur” is derived

from the French verb "entreprendre" which means to undertake, to attempt, to try in hand, to contract

for; or, to adventure (Girard, 1962). To understand entrepreneurs, who should look at three areas:

namely how entrepreneurs act (i.e., what it is they do); what happens when entrepreneurs act (i.e.,

what are the outcomes of their actions); and why people choose to be entrepreneurs (i.e., what

motivates them to be entrepreneurs) (Douglas and Shepherd, 2002).

Review of literature

It provides new jobs to compensate for employment problems created by corporate

restructuring and downsizing; and to enhance economic flexibility and growth as said by Mueller

and Thomas, (2000).Considerable amount of literature is present where attempts have been made

to understand the critical factors responsible for entrepreneurial success. Studies on the

relationship between such factors and entrepreneurial success have been clearly explained in

many current researches of Makhbul and Hasun, 2011; Pun (2011); Rusu et al. (2012).

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----------------JGMO / Volume – I / Issue – XI / January – June, 2017 / ISSN 2277 3789----------------

According to Casson, (2003); Fisher et al. (2014) entrepreneurial success is a construct that is not

defined properly, although there is a conformity that the society benefits from successful

entrepreneurship phenomenon, and hence it is important to understand the concept.

Entrepreneurs have been given a number of definitions by various authors due to their

research focus, such as the research aims, motivation, and stage of enterprise development

(Misra & Kumar, 2009; Nasution et al., 2011; Rusu et al., 2012). There are various reason why

entrepreneurs exist including economic freedom, personal development, family requirements,

and environmental pressures (Langevang et al., 2012; Perri & Chu, 2012), while age and the

sizes of firm are important factors (Coombs et al., 2009).

The development of the Slovak economy as well as countries that belong to Central and

Eastern Europe or even the entire European Union is below a tempo to ensure the desired growth

of living standards. The slow rate of economic growth is additionally accompanied by relatively

high unemployment rate, especially among young people (Eurostat, 2015). On this subject, there

has been prepared many scientific studies and a variety of solutions have been proposed. The

most important solution is the preparation young people for their future careers.

One possibility how to face the economic challenges in the European Union is to support

talented students, young entrepreneurs and start-ups. This support will help to create new jobs,

more competition in the market, the emergence of innovative products and solutions to a greater

growth. In addition to these macroeconomic benefits it can help young people to develop their

skills and personal qualities and abilities that will be useful for them throughout their lives.

Greater support for young entrepreneurs is promoted by the European Commission, whether it is

an internship for young entrepreneurs in the foreign company through Erasmus program or

COSME – support program for SMEs, or program for promoting science and innovation,

Horizon 2020 or the Enterprise Europe Network, which can help in finding finance, business

partners or acquire new technologies (Chrenek, 2014). There are projects and initiatives to help

young people like Youth Guarantee as new approach to tackling youth unemployment which

ensures that all young people under 25, whether registered with employment services or not, get

a good-quality, concrete offer within 4 months of them leaving formal education or becoming

unemployed. Or project I SEE YOU (Initiative to Foster Social Entrepreneurship Experience of

Youth) offers the opportunity for young unemployed people from seven European countries (also

35


Slovakia) to get an insight into the creation of their own business, developing a social enterprise

and then apply this knowledge in their own community (European Commission, 2015).

Need of the study

India is the second largest population country in the world and there is a huge possibility to

meet tremendous various demands to satisfy the consumer needs because of their increased

income levels on a continuous basis.

Objectives

To study the opportunities for young entrepreneurs

To know the successful young entrepreneurs

Scope of the study

“No entrepreneur no development" entrepreneurship activity is an important to develop the

nation’s economy. An entrepreneur plays an important role, making the country to move from

creeping state to walking stage towards the development state. This entrepreneurship activity

fulfils the needs and desires of society simultaneously to meet their organizational objective.

Methodology

The present study is a case method over selected five entrepreneurs’ cases. As the study

largely depends on secondary data, the required data was collected from Websites, Text books,

Journals, etc.

Entrepreneurship: An Opportunity

Entrepreneurship gives young people an opportunity to work on their own skills and

interests and in the process, creating their own employment. Encouraging entrepreneurship in

young people is an important way of harnessing their enthusiasm, energy and ambition to

contribute to economic development. It is generally accepted that entrepreneurs “create jobs,

increase innovation, raise competition and are responsive to changing economic opportunities

and trends. Young entrepreneurs can also act as role models for their peers and, encourage

others.

According to the World Bank’s World Development Report 2013, around 600 million new

jobs will be required in the next 15 years to support a growing workforce. It is important to note

that in most emerging economies, 9 out of 10 jobs are created by the private sector, which is the

foundation of any thriving economy. In the coming years, developing countries must rebalance

36


their economies towards greater domestic consumption, import demand and higher value

business activity and hence, entrepreneurship is vital to the future of developing countries.

Government of India must help the entrepreneurs to achieve their full potential as they

hold the key to solving our youth unemployment problem. Their key concern areas are, “they

need training, need help with access to funding and need innovative funding, and need their

contribution to be recognized, need society to tolerate failure, need a streamlined tax and

regulatory system”. They also need a supportive culture in which their contribution is properly

recognized and their success is celebrated. Even if there are failures, it should be considered as a

valuable source of knowledge and learning.

We need a culture which is more inclusive, opening the door for everyone to come,

explore, and contribute. Of the young entrepreneurs surveyed in the EY G20 Entrepreneurship

Barometer, 84% believed that raising awareness of their role as job creators improves public

attitudes, and it can encourage others, from all walks of life.

In order to engage young people to choose entrepreneurship as a safe career choice, the

perception of entrepreneurs in the media is very important especially in the digital media. Media

should display high-profile programs showcasing entrepreneurs’ success stories more frequently

to motivate these youngsters as they are the driving force for any nation to grow. We need

flexible policy environments and funding to stimulate and build the framework of an

entrepreneurial ecosystem and more importantly, a ‘culture’ of interaction and collaboration.

Government can play a major role in bringing together stakeholders to create an ecosystem

which gives boost to entrepreneurship at the national, regional and local levels.

As per reports shared by Accenture, Young entrepreneurs are the driving force behind job

creation in the G20 countries like India, Australia, China, Indonesia, Japan, Saudi Arabia, United

Kingdom, and United States amongst others. Indeed, new Accenture research concludes that 10

million more youth jobs could be created in G20 countries if existing barriers to entrepreneurship

were lifted.

Entrepreneurship: an Innovation

In today’s competitive environment, Innovation is of utmost important to the long-term

success and survival of any business. In the absence of new ideas, an enterprise finds it difficult

to grow and eventually they do a persistent struggle to sustain in the business.

37


There are several reasons why innovation is critical to business success. Innovation helps to

discover what opportunities exist now or will appear in future. It will help you stay ahead of

your competitors. Innovation is not only about designing a new product or service but can also

be implemented on existing business practices to improve efficiency, cut down on waste and

increase profits. If a company doesn’t adapt to its changing environment by constant reinvention

of its products & processes, it will soon be surpassed by its competitors.

Innovation beyond being an engine of profitable growth for companies, it plays a pivotal

role in increasing the vitality of an industry and society by creating jobs and raising the standard

of living. Indeed, in Accenture’s survey of entrepreneurs across G20 countries, 83% said

innovation is vital to grow their business and create jobs.

Government Initiatives

Indian government recently launched “Startup-India” campaign with a scooping amount

of INR 2000 crores allotted to the same. Under the leadership of our honorable Prime Minister

Mr. Narendra Modi, the Indian government also plans to render the budding entrepreneurs

different benefits such as rendering legal advice for filling patents, low cost for filling patents fee

etc. All these have been provided to encourage the entrepreneurship spirit in India.

With government supporting startups at this scale, idea makers of India should really grab

this opportunity to mark their presence in this yet to be discovered sea of innovation and passion.

Just imagine if our government is so supportive and is encouraging startups and entrepreneurship

at this scale, how many more successful startups can emerge in the coming five years or so. Sky

is the limit.

Successful Case studies

Case 1: Name: King Siddharta , Age:22

Popular As: An Entrepreneur, Artist, Designer and Public Speaker.

The Journey: King Siddharta was creative since childhood. At an early age of 11, he used to

organize events at his locality. He identified with entrepreneurship and the passion kept growing.

During his 10th standard, he came up with the idea of an online magazine – Friends that brought

together like-minded people at one place. In no time, he developed interest in film making, and

he pursued this hobby by shooting videos along with his friends. By the time he reached the 11th

standard, he got well-acquainted with development and designing of websites. Presently, is an

author, speaker and a magazine publisher, and organizes ‘Createens’ – a conference that aims at

38


teaching young students about entrepreneurship and blogging. His e-magazine, Friends is

extremely popular among teens. Also, he has written a book, ‘Bhagvad Gita and The Law of

attraction’ that explains the connection between science and spirituality. In the year 2010, he was

listed among World’s Top 25 Young Entrepreneurs.

Case 2: Name: Ritesh Agarwal, Age: 21

Popular As: Founder and CEO of OYO Rooms

The Journey: Ritesh is known to be one of the youngest CEO in the Indian hotel industry,

besides; he is also the first resident Indian to be awarded with Thiel Fellowship. His dream of

getting into the entrepreneurial world started at the tender age of 17. After his 12th standard, he

enrolled in Indian School of Business and Finance, Delhi, but after a little while, he dropped out

of the college to start his own venture. He formed Oravel Stays at the age of 18, which

eventually led to the creation of OYO Rooms, the largest network of Indian branded hotels.

Today, his business operates in more than 100 Indian cities and for the same; he has been

presented numerous awards, one out of which is the ‘Business World Young Entrepreneur

Award’. He is often seen attending various institutes and entrepreneurial conferences as a guest

speaker.

Case: 3 Name: Arjun Rai, Age: 22

Popular As: COO of Odyssey Ads

The Journey: When kids’ lives center on toys and mischief at 7, this boy started showcasing his

entrepreneur skills. He started his garage sale, and started selling the gears that he found around

his house. Later, he set up his shop where he sold wedding leftover wildflower necklaces. By

2010, he became the COO of an online advertising company, and later he set up his own venture,

odyssey Ads.

Case: 4 Name: Farrhad Acidwalla, Age: 21

Popular As: CEO of Rockstah Media

The Journey: At an early age of 16 years, he borrowed $10 from his father and bought an

internet domain name. Using this, he built a web community dedicated to aero-modeling and

aviation. Once it became successful, he sold the community for higher returns. Today, he is the

CEO of Rockstah Media, an advertising, branding and marketing company. Also, he has been

listed as ‘The Most promising young Indian entrepreneurs of 2012′ by India TV.

39


Case: 5 Name: Sabirul Islam, Age: 25

Popular As: Entrepreneur, motivational speaker, author

The Journey: He spent his early years in a crime-ridden borough of London. His cousin let him

knew what entrepreneurship was all about, when at an early age of 13, he offered him a job. Few

weeks later, Sabirul’s cousin was fired, and this was when he decided to run the operations all by

himself. When he was all of 14, he along with 6 of his friends, started a website design company

– Veyron Technology, and earned around $1000 within the first 2 weeks of the company’s

inception. By the time he was 17, he published his first book, ‘The World at Your Feet’, which

got sold out at a rapid pace. Next, he launched ‘Teen-Trepreneur’, a board game, started his own

publishing company and now attends a number of events as an eminent guest speaker.

For some people a 9-to-5 job is satisfying, while some realize that the only way they can

become happy is by being their own boss. However, true potential cannot be bound by age, and

these young entrepreneurs have certainly proved the same.

Conclusion

Entrepreneurship is an activity. It is through entrepreneurship we can put new business

ideas into practice. In doing so, it creates jobs that facilitate personal development and economic

growth. It’s a worthy pursuit to consider pass it to the next generation. Innovation ecosystem

plays a key role as it supports and helps entrepreneurs to translate their ideas into marketable

products and services fostered by business-friendly government policies which bring these

innovators profit and success. Moreover, it is the responsibility of entrepreneurs to sustain the

atmosphere to future generation also while producing the product and rendering the services.

References

1. Entrepreneurship Development, Prof. A. Shankaraiah, Rudra saibaba and ponagati, Kalyan publishers.

2. Entrepreneurship; Robart, Michael and Dean A shepherd, 6th edition; Mc Graw Hill.

3. https://in.thehackerstreet.com/india-needs-successful-entrepreneurs

4. https://www.researchgate.net/publication/265397271_Entrepreneurship_and_entrepreneur_A_review_of_li

terature_concepts

5. http://ac.els-cdn.com/S2212567115016627/1-s2.0-S2212567115016627-main.pdf?_tid=6c917f92-9b52-

11e7-8dfa-00000aab0f27&acdnat=1505616577_3f1bc5bbb3f256114fc31f74a2694851

6. http://www.youngindians.net/entrepreneurship_n_innovation.php

http://www.biz2credit.in/blog/2015/09/18/are-you-a-good-boss-to-yourself-time-to-figure-it-out/

https://in.thehackerstreet.com/india-needs-successful-entrepreneurs

https://www.researchgate.net/publication/265397271_Entrepreneurship_and_entrepreneur_A_review_of_literature_concepts

https://www.researchgate.net/publication/265397271_Entrepreneurship_and_entrepreneur_A_review_of_literature_concepts

http://ac.els-cdn.com/S2212567115016627/1-s2.0-S2212567115016627-main.pdf?_tid=6c917f92-9b52-11e7-8dfa-00000aab0f27&acdnat=1505616577_3f1bc5bbb3f256114fc31f74a2694851

http://ac.els-cdn.com/S2212567115016627/1-s2.0-S2212567115016627-main.pdf?_tid=6c917f92-9b52-11e7-8dfa-00000aab0f27&acdnat=1505616577_3f1bc5bbb3f256114fc31f74a2694851

40


CAPITAL MAREKT FINANCING FOR SMEs - A STUDY

(With specific reference to SME Platform of BSE)

Pardhasaradhi Madasu

Associate Professor (Finance Area), Siva Sivani Institute of Management – Kompally, Hyderabad Email – [email protected]

Abstract

The global financial crisis of 2008 has unpacked both strengths and weaknesses of the

financial markets all over the world. In a way, the capital market financing route for SMEs got

most awaited focus only after the said global crisis. Lack of access to capital market financing is

considered as one of the major impediment for growth of SMEs. Near to 30 economies are

actively promoting separate platforms/boards/exchanges for SMEs. In 2012, India has also taken

a major step of promoting SME platforms at both the leading stock markets i.e. BSE and NSE.

As of now BSE, is the clear market leader with respect to attracting SMEs for both listing and

trading. The stock markets of advanced economies such as Canada (TSX Venture) could be

considered as World’s leading exchange for growth stage/SME companies because 2,183

companies have been listed on this exchange.BSE Emerge is performing well and would be soon

reaching (by end of 2017) the milestone of 200 listings on its board. In this backdrop the present

paper assesses the progress of SME platforms in India.

Key Words: SMEs, Capital Market Financing, BSE, NSE and Emerge Platform

Introduction

The role of SMEs1 is no doubt very crucial to the well-being of the nation as a whole.

From a very long period the SMEs are providing much needed support by providing employment

to much needed masses as well as by contributing to growth Gross Domestic Product (GDP) of

the nation2. SMEs or MSMEs have become the integral part of the manufacturing sector in both

developed and emerging economies.Even when looked from the framework of fostering

entrepreneurship, the said sector has provided favorable results. SMEs account for nine out of ten

businesses globally. They provide more than 60% of overall employment world-wide and

1There is no single definition of SMEs that can be applied globally. In general countries categorize companies based

on a combination of factors, such as the number of employees, their turnover and/or the size of their balance sheet.

The thresholds to define each category are highly dependent on the size of the economy and thus vary greatly from

country to country. 2 It is an acknowledged fact that the MSME sector can help realize the target of the proposed National Manufacturing Policy of raising the share of the manufacturing sector in GDP from 16% at present to 25% by the

end of 2022 (CII - PWC, 2013).

41


roughly 80% of jobs in the developed world. SMEs contribute approximately 50% of global

Gross Value Added (GVA), and an even larger percentage in developed countries (Calvey,

Peterhoff, & Romeo, 2014).In this backdrop, policy makers all around the World are involved in

encouraging SMEs/MSMEs. The recently launched ‘Make in India’ initiative is one classic

instance where the Government of an emerging economy wants to promote SMEs in general and

manufacturing sector in specific.

Even though the need and importance of SMEs is realized by all the stakeholders, a lot is

still pending to be done with respect to the obstacles that are hindering the growth of SME. The

SMEs face multi-facet problems such as lack of required technology, non-availability of skilled

manpower and above all an organized channel for procuring funds throughout the growth stage

of SMEs. Access to finance is widely recognized as one of the main impediments for growth and

development of the small and medium enterprises (Sestanovic, 2015). The financial needs and

the financial options available to SMEs changes depending on the lifecycle. The level and the

type of demand for financing throughout an SME´s life cycle depends on its stage of growth, as

each stage requires a different financing strategy(OICU - IOSCO, 2015).

The SMEs are now-a-days getting more capital from alternative sources rather than

purely depending on promoter’s contribution and bank lending. The change in the sources of

capital formation for SMEs can be one-way attributed to the Global Financial Crisis of 2008

which made banks cautious with respect to lending to SMEs. The crisis of 2008 has double

shock for SMEs and Entrepreneurs: the first one being the drastic drop in demand for goods and

services and the second shock being the tightening credit terms which have affected cash flows

of SMEs and Entrepreneurs. Governments are responding generally by three types of measures

aimed at: i) supporting sales and preventing depletion of SMEs’ working capital; ii) enhancing

SME’s access to liquidity; iii) helping SMEs to maintain their investment level. The present

report brings to the attention of governments recommendations to tackle the long-standing

deficiencies in the SME financial environment, as well as to prepare SMEs and entrepreneurs for

a phase of innovation-led growth (OECD, 2009).

The role SMEs play in the economic development of any nation makes it a relevant

subject for conducting focused examination from all the stakeholders especially the

academicians for gaining more insights. Keeping the saidessence in mind, the present paper is

conceptualized to appraise the progress that Indian financial markets has made with respect to

42


the capital market financing solutions available to SMEs. To be more specific, the study focuses

on the evolution of capital market route for listing and trading of SME stocks at BSE.

Review of Literature

The SMEs would not prosper only on bank financing but require an alternative financing.

While bank financing will continue to be crucial for the SME sector, there is a broad concern that

credit constraints will simply become “the new normal” for SMEs and entrepreneurs. It is

therefore necessary to broaden the range of financing instruments available to SMEs and

entrepreneurs, in order to enable them to continue to play their role in investment, growth,

innovation and employment (OECD, 2015). Recent years have seen the emergence of numerous

SMEs exchanges or listing programs, and they are playing an increasingly significant role in

investment markets, not only in North America and Western Europe but also in many developing

economies of the world. More than 50 SME alternative markets, stock exchanges, boards of

trade, lower tier exchanges are thriving across the world (MCX-SX, 2006).

The importance of SME platform or exchange was felt in Indian context also and many

initiatives were taken in this regard. In a bid to address the issue of alternative funding for SMEs,

the Prime Minister’s Task Force recommended the establishment of a dedicated Stock Exchange/

Platform for SMEs in January 2010. The Bombay Stock Exchange (BSE) and the National Stock

Exchange (NSE) launched their SME trading platform in March 2012. To be eligible for listing,

an SME must have paid up capital of Rs. 10 crore. Its paid up capital post issue must not exceed

Rs. 25 crore. If it goes beyond the Rs 25 crore limits, there will be a compulsory transfer of the

SME to the main exchange (Bang, 2012). By the time BSE and NSE has launched dedicated

exchanges for SMEs, India has experimented with the launch of OTCEI in 1992.

Research Gap

Raising finance is a critical and complex job both for large companies as well as small

and medium sized companies. Relatively SMEs face lot of hardship when trying to get funds

during the growth stage of their life-cycle. Due to the studies conducted by many financial

market regulators, it was well documented fact that providing access to the capital market route

of financing would solve the fund raising problems of SMEs. All that was wanted by the

governments and regulators was that the SMEs should be able to contribute more to the GDP and

employment of any nation. Some emerged economies have started creating separate platforms

for small and medium firms from the mid-1990s itself. However, the stimulus for a well-

43


regulated SME exchanges or platforms has come from the beginning of year 2000. In India, from

2005 onwards the idea has gained attention of the policy makers and by 2012 the idea has

materialized. Even after roughly five years of full-fledged operations, the SME platforms did not

get the required research attention as it deserves. Lot of academic research is being still focused

on the main boards of the stock exchanges. For giving a real push to the SME sector as well as

the ‘Make in India’ initiative it would be worthwhile to indulge in engrossed exploration of the

performance of these SME platforms. The present paper is an attempt towards this aim.

Methodology

The paper is by nature a descriptive study and tries to describe the existing status of the

performance of SME platforms in India. The study draws the data from the secondary sources

such as the official website of SEBI, BSE and NSE. For the purpose of the study the data has

been collected for the period of March 2012 to May 2017. The reason for choosing this time

frame is self-explanatory i.e. the SME platforms started functioning in India from March 2012

onwards. The data collected includes variables such as BSESME IPO Index values, No. of

Listings (year-wise), No. of Companies that have migrated to main-board etc... Simple statistical

tools such as averages, growth-rates and percentages have been used to analyze the data and get

some meaningful interpretations.

Importance of Capital Market Financing for SMEs

Small and medium enterprises (SMEs) have a major role in contributing towards long-

term economic growth and employment. However, SMEs often face limited access to financing

due in part to the relatively higher risks associated with investing in them. Therefore, it has

become crucial to examine possible alternative financing channels for SMEs. Raising funds by

way of an organized, transparent, orderly functioning and reliable capital market could provide

an important alternative source of finance for SMEs.(OICU - IOSCO, 2015). SMEs have been

forced to alter their funding mix as the cost of finance has risen while economic conditions have

remained poor. SMEs predominantly use short-term funding options including overdrafts, lines

of credit and bank loans. Such sources can be valuable in the start-up stage but they do not

provide the long-term financing required as companies mature or seek growth. Capital markets

are the obvious alternative to bank lending (Calvey, Peterhoff, & Romeo, 2014).

44


Relatively, SMEs in emerging market economies (EMEs) 3 when compared to Advance

Economies (AEs) face further problem in assessing finance from capital markets. Many reports

and surveys have examined the situation and stated that the traditional funding sources such as

bank lending are not sufficient to fuel the growth of SMEs4 . The usage of capital market

instruments was recommended for funding the growth of SMEs. It was felt that providing SMEs

the access to capital market platforms would also attract institutional investors towards funding

of SMEs5. As it is common to see that institutional investors are not only interested in higher

returns, lower risk but are also interested in liquidity of their investments. Capital market

instruments provide the desired liquidity to the investors. It was found that there are two

potential ways in which capital markets can help SME financing: (i) by providing SMEs access

to capital via issuances in the market, and (ii) by providing a refinancing facility to SME lenders.

Both banks and capital markets have a fundamental role to play in providing access to finance

and supporting growth(WBG, IMF and OECD, 2015).

The ever increasing funding gap for SMEs have made many financial regulators around

the world put their best foot forward to examine the challenges the SMEs are facing while

obtaining finance from organized channels6. In the process, the concept of capital market funding

for SMEs gained lot of prominence because of various factors such as transparency and

distribution of investment risk over large investors etc. Recognizing the crucial role of capital

markets in this regard, the then Emerging Markets Committee, (known as the Growth and

Emerging Markets (GEM) Committee since 2013) of the International Organization of Securities

Commissions (IOSCO)7 established a Task Force in 2013 to examine SMEs’ access to capital

3 Here EMEs include both emerging and developed economies. 4 Despite showing a robust growth rate of over 10% over the last 5 years, the MSME sector is beset with

operational problems due to size and nature of business. In 2010, the Prime Minister of India appointed a

task force set up under the chairmanship of the Principal Secretary, to consider various issues raised by MSME associations, discuss with the stakeholders and chalk out an action agenda. The key issues were

identified by the task force, and subsequently taken up by the Planning Commission in the 12th plan (CII

- PWC, 2013). 5 Institutional investors: pension funds, insurance companies, and collective investment schemes (CIS). 6 OECD Working Party on SMEs (WPSMEE) has always been one of the leading international bodies in

conducting research with respect to issues related to SMEs and Entrepreneurship. In June 2004, the theme

of the research was Financing Innovative SMEs in a Global Economy and in March 2006, the theme was Better Financing for Entrepreneurship and SME Growth. The WPSMEE has been pursuing research in

this area and carried out the work in 2007 -2008 on Financing Innovative and High Growth SMEs. 7The International Organization of Securities Commissions (IOSCO) is the international body that brings together the world's securities regulators and is recognized as the global standard setter for the securities

45


markets, and explore possible measures to develop and enhance regulations to improve their

access to capital market-based financing (OICU - IOSCO, 2015).

SME Exchanges and Platforms

In simple terms, the SME exchanges or SME platforms give access to the SMEs to obtain

funds through ‘Equity’ route. In a way, this equity route helps the SMEs to reduce their huge

dependency on the debt and the related financial risk. The other side of the story viz. for the

investors, the SME exchanges or platforms provides a route to invest in highly potential small

companies which have high probability for growth. If separate exchanges and platforms are

provided to the SMEs, the investors would also find it safer to invest due to the liquidity that is

available due to the trading facility available.

Capital markets solutions available to SMEs could be divided into three broad categories

such as a) SME Equity Platforms, b) SME Debt Platforms and c) Alternative Listing Venues

(Without trading). SME-focused equity platforms have been established across the globe,

offering an alternative to main listing boards on national stock exchanges. Equity platforms

provide SMEs with the opportunity to go in for IPO once they have become well-established.

SME equity platforms are best suited to the largest SMEs (i.e. the medium segment) given the

initial cost and ongoing listing requirements most platforms demand. Apart from the equity

platforms, the debt platforms for the SMEs are also gaining importance and are suited for larger

or medium SMEs. Further, alternative listing venues have emerged that allow non-banks to lend

directly to corporates and individuals. Such venues are suitable for SMEs in their early

development stage and most support the smaller SMEs8. The growth and stable functioning of

SME exchanges and platforms would be helping other fund suppliers (such as VCs) to find an

exit route for their investments.

Exchanges can do more for SMEs than providing a venue for the trading of their

securities. They can also connect SMEs to different types of investors (such as angel investors,

VC and private equity) and help them gain access to ancillary professional services. These

services could include stakeholder coordination and management, due diligence and prospectus

sector. IOSCO develops implements and promotes adherence to internationally recognized standards for

securities regulation. It works intensively with the G20 and the Financial Stability Board (FSB) on the global regulatory reform agenda. 8 Examples of these Alternative Listing Venues are Peer-to-Peer (P2P), Peer-to-Business (P2B), Business-

to-Peer (B2P) and Business-to-Business (B2B) lending.

46


writing, investment case development, IPO roadshow support and financial PR and marketing

services. The exchange can also connect companies to professional services such as accountants

and legal advisors. This would prove valuable not only to the SMEs but, by increasing the

quality of their financial reporting, would be valuable to investors considering SMEs (Calvey,

Peterhoff, & Romeo, 2014).

Global Scenario

The trading platforms or venues around the world are referred by various names such as:

Alternate Investment Markets (AIMs) or Growth Enterprises Market (GEMs) or SME Boards.

Stock exchanges in many economies have preferred to create separate platforms for SME stocks

instead of creating dedicated stock markets for SME stock listing and trading.The well-known

markets for SMEs are AIM (Alternate Investment Market) in UK, NSX Alternative Exchange of

Australia, TSX Ventures in Canada, GEM (Growth Enterprise Market) in Hong

Kong, MOTHERS (Market of the high-growth and emerging stocks) in Japan, Catalist in

Singapore and the latest initiative in China is ChiNext.

The list of top 10 SME markets is presented in Table 1.For appreciating the difference

between dedicated SME exchanges versus platforms it would be resourceful if operations of

AIM or MOTHERS are compared to GEM. Unlike AIM or MOTHERS, GEM is a separate

dedicated stock exchange for SMEs. GEM functions on the philosophy of ‘buyers beware’ and

‘let the market decide’ based on a strong disclosure regime. The rules and requirements are

designed to foster a culture of self-compliance by the listed issuers in the discharge of their

responsibilities (Jain, Shukla, & Singh, 2013)

The SME markets or platforms vary greatly in terms of size of operations, number of

listed companies and market capitalization. Globally more than 40 exchanges provide dedicated

equity market offerings with differentiated admission requirements. These markets range in size

from just one listed company to over 2,000 listed companies with an average market

capitalization from as low as US$4 million to over US$1.5 billion. The number of companies

listed on these dedicated markets has grown from less than 5,000 in 2002 to nearly 9,000 in 2015

representing a 91.5% increase in 12 years. Over the same period, the number of companies listed

on main boards or exchanges without dedicated SME markets grew by 13.5% (WFE, 2016). The

vast difference in parameters relating to the SME platforms or exchanges could be due to the

non-existence of a universally accepted definition of SMEs. SMEs in EMEs are generally

47


smaller than those in advanced countries and not all alternative markets necessarily have the

same objectives. It also highlights the fact that most exchanges do not prevent a company from

listing on a dedicated SME market even if they meet the main board listings requirements, nor in

most instances do they compel or (or even allow) ‘graduation’ to the main board. Thus, in some

jurisdictions, companies of significant size are listed on the SME Exchange(WFE, 2015).

Table I: Top 10 Global SME Stock Markets (As at end of 2015)

Rank Exchange Name of the Stock

Market Country

*Listed

Companies

**Domestic

Market Cap.

1 TMX Group Inc. TSX Venture Canada 2183 16896

2 Korea Exchange Kosdaq Korea 1152 171891

3 LSE Group AIM London 1044 108342

4 Japan Exch. Group,

Inc. JASDAQ Japan 792 69172

5 Shenzhen Stock Exch. SME Board China 776 1601998

6 Shenzhen Stock

Exchange ChiNext China 492 861735

7 Intercontinental Exch.

Inc. | NYSE NYSE MKT USA 262 23639

8 Hong Kong Exchanges

and Clearing

Growth Enterprise

Market Hong Kong 222 33312

9 Japan Exchange

Group, Inc. Mothers Japan 221 27139

10 Nasdaq Nordic

Exchange First North Europe 216 9796

* Number of Listed Companies includes Domestic and Foreign Companies.

** Market Cap. Is in USD Millions.

Source: WFE Annual Statistics for Alternative & SME Markets 2016.

SME Platforms in India

The need for having a separate exchange / platform for SMEs was also discussed during

the 32nd Annual Conference of IOSCO held in April 2007 in Mumbai and it was felt that the

same would be necessary for the focused development of the SME sector. In fact, the need for an

alternative stock exchange for SMEs has been so acutely felt in the countries that the

International Organization of Securities Commissions (IOSCO) has identified promotion of such

exchanges as one of the areas for mutual cooperation. In this backdrop the NSE has conducted a

48


study during 2012 and came out with positive response for starting dedicated platforms for SMEs

in India.

The big leap towards the SME platforms occurred in the year 2012 when both BSE

(BSESME) and NSE (EMERGE) have started their operations of listing and trading SME stocks.

It was considered a landmark decision for boosting the SME sector. Both the platforms were

launched after many small and medium firms have shown lot of interest for capital market route

of funding. The progress of BSE-SME as at end of September 2017 is depicted in Table 1.

Table II: Status of Listing and Trading at BSE-SME as at 30th September 2017

Particulars Number

No. of Companies Listed on SME 197

Mkt Cap of Cos. Listed on SME (Rs.Cr.) 17,403.34

Total Amount of Money Raised (Rs. Cr.) 1,545.75

No. of Companies Migrated to Main Board 33

No. of Companies Listed 164

No. of Companies Suspended 4

No. of Companies Eligible for Trading 160

No. of Companies Traded 69 Mkt Cap of BSE SME Listed Cos. (Rs.Cr.) 10,594.42#

# Crossed 10,000 mark on 12th December 2014 (82 listed and 28 Actively Traded)

Source: BSE-SME Database

The point that requires specific mention is that, the initiative of starting separate platforms for

SMEs at BSE and NSE may be historical in its own way but few unsuccessful attempts were

already made before March 2012. Efforts in the form of OTC Exchange of India (OTCEI) which

was set up in 19909 and the IndoNext platform of BSE which was launched in 2005 are two good

examples in this regard10. The launch of separate platforms at BSE and NSE has drawn lot from

experiments of OTCEI and IndoNext. The main reason for the not-so-successful attempt in the

form of OTCEI was lack of liquidity and trading volumes11. Both BSE and NSE have from the

beginning wanted to tackle the major issue of low liquidity and lack of trading volumes. To

9 OTCEI was incorporated as Public Limited Company under section 25 of Companies Act, 1956 and was recognized as a stock exchange under the provisions of section 4 of the Securities Contracts (Regulation)

Act, 1956. 10IndoNext was an alternate national platform for SMEs jointly promoted by BSE and Federation of

Indian Stock Exchanges (FISE). The platform was meant for raising equity and debt by old and new SMEs. The SMEs listed at Regional Stock Exchanges (RSEs) were allowed to raise fresh capital along

with new SMEs. IndoNext was supported by 20 RSEs. Lot of thought process went into framing

eligibility norms for trading under IndoNext, however, the platform was not able to pick-up. 11 OTCEI got approval from SEBI to exit from operations on 10th December 2015.

http://www.bsesme.com/markets/SME_streamer.aspx

http://www.bsesme.com/markets/SME_streamer.aspx

http://www.bsesme.com/markets/MarketGnerLser.aspx?flag=T

49


achieve this end of creating more liquidity in the SME platforms, market-making concept was

well deliberated12.

Data Analysis and Findings

Capital Market financing being on of the most favored route for long-term financing of

SMEs has got a big boost from EMERGE platforms both at BSE & NSE. Table 3 details te

progress made by BSE-SME platform from the inception. The table clearly reveals that the

number of listings and the amount raised have seen considerable increase from 2012 to 2017

(CAGR of 30% in listed companies and CAGR of 35% in amount raised). The average issue

price and the issue size have moved in opposite direction. As the premiums on the issues are

moving northward, the issue sizes have moved southward 13 . The main reason for higher

premiums for SME-IPOs is that many institutional investors of national repute have started to

look at SME-IPOs as high return earners and the SMEs are treated as ‘Growth Companies.’

Many of the SME-IPOs have been oversubscribed.

Table II reveals that 33 companies have migrated from SME Board to Main Board of BSE.

Majority of the companies that have migrated to main board are performing well. Many of these

migrated companies have given better returns of 3-200% to the investors as compared to 1-131%

while listed on SME platform. The major reason for better performance of migrated companies

on main board is the increase in retail participation14.The interest of Banks and Mutual Funds

also has been positive towards the SME-IPOs15.

The performance of SME platform at BSE could also be assessed by comparative analysis of

SME-IPO index with board market IPO index of BSE. Companies that are listed at BSE-SME

board represent 15 states and 20 major sectors with a total MCap. ofRs. 17,268 Crores.

12 Market-makers provide liquidity to the stocks traded at SME platforms. It is a known fact that investors do not intend to invest in those stocks which have thin trading volumes and this is where the role of

market-maker gains importance. SEBI has compulsorily mandated market making for all scripts listed and

traded on the SME exchange to provide liquidity to the Scripts. Market-makers are the registered

member’s brokers of the stock exchange. 13 Average SME IPO size has gone up to INR 11 Crores in 2017 when compared to INR 6 Crores in 2016. 14 Business Standard newspaper dated 22nd August 2016, article titled “SME stock performance improved

after migration to main board.” 15 Reliance MF is the first MF that started to invest in SME-IPOs from October 2016 onwards.

50


Table – III: Year-Wise Data on Public Issues at BSE-Emerge

Year No. of

SME

IPOs

Total

Capital

Raised*

Average

Capital

Raised*

Average

Issue

Size**

Average

Issue Price

Average

Premium

Max.

Premium

2012 12 833 69.40 36.94 20.36 20.36 30

2013 14 1320 94.28 36.57 26.86 16.86 30

2014 38 2603 68.49 31.25 28.87 18.87 115

2015 37 2285 61.76 22.20 28.58 18.58 110

2016 43 3754 87.30 22.83 43.58 33.58 210

2017 44 3695 83.98 21.51 47.00 36.80 350

CAGR 30% 35% NA NA NA NA NA

* Millions of Rupees: ** Lakhs of Shares issued

Source:Compiled from SME IPO Data of BSE Emerge

The S&P BSE SME IPO Index was launched in August 2012 with a base of 100, is today at a

close of 1,490, an astounding return of 1,390 per cent and it has outperformed the Benchmark

S&P BSE Sensex more than 13 times in the period of 2012 – 2017. BSE-SEM-IPO index

comprises of 45 stocks with a mean market capitalization is Rs41.75 crore while the largest

market capitalization is Rs184.89 crore. Table IV depicts the comparative analysis of IPO

indices of BSE. Table IV has been split into three segments.

Table IV (a) gives board details of the market capitalization of both BSE main board IPO index

and SME board index. Table IV (b) depicts the returns generated by both the IPO indices and in

majority of cases BSE-SME IPO index has performed better than its counterpart. Over a five

year period the SME IPO index as generated three times of the returns when compared to its

counterpart. Table IV(c) reveals the details of the market ratios for the two IPO indices.

Generally, a low P/E ratio indicates under-valuation of the indices or stocks. A close observation

of the market ratio indicate that as of now the SME-IPO index is undervalued but shows

potential to grow.

51


Table IV: Comparative Analysis of IPO Indices at BSE

Data as at end of October, 2017

Particulars S&P BSE-SME IPO S&P BSE IPO

Launch Date 14-Dec-12 29-Aug-09

Number of Constituents 45 28

IV (a)- Constituent Mkt. Cap. (INR Crore)

Mean Total Market Cap. 37.42 10713.36

Largest Total Market Cap. 175.63 67251.29

Smallest Total Market Cap. 3.00 495.78

Median Total Market Cap. 27.58 4302.86

Weight Largest Constituent (%) 10.10 17.20

Weight Top 10 Constituents (%) 51.80 79.70

Index Level 1475.52 4619.26

IV (b) - Returns (%) - Part B

1 Month -3.05 -2.72

3 Month 5.33 1.64

YTD - Year-to-Date 37.79 38.06

I Year (Annualized) 48.36 33.10

3 Year (Annualized) 18.00 20.91

5 Year (Annualized) 70.24 23.23

IV (c)- Market Ratios - Part C

P/E (Trailing) 28.78 42.86

Price-to-Book 2.99 5.98

Price-to-Sales 0.63 3.27

Price-to-Cash flow 12.36 -44.41

Dividend Yield 0.19% 0.62%

Source: Asia India Private Limited

Chart of Co-Movement of BSE-IPO indices (along with linear trend lines) show a positive

growth in both the IPO indices. In last one year the in SME index was 52% when compared main

board IPO index which was 42%. When compared to main board IPO index, the SME-IPO index

reveals consistency during the study period. The higher R2for both indices indicates that the past

trend is very strong for projecting the future trends.

52


Conclusion

The present paper is aimed analyzing the progress of SME platform of BSE. The study

has been initiated to understand the progress of SMEs with respect to equity financing through

sme platforms. Both BSE and NSE has introduced the SME equity trading at the same time but

the BSE is the clear leader in this segment of capital market. The progress till-date and the

expected future growth of capital market route of financing SMEs is very strong in Indian

context. Many SMEs have got benefited from the SME platforms of NSE and BSE, the proof of

SMEs getting benefited could be found from the SMEs migration to main-board. The topic of

this nature would require future focused research both from academic point of view and also

from practicing manager’s point of view. The present paper is preliminary analysis of the current

state of progress of SME platforms.

References

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Services.

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4. Jain, R. k., Shukla, A. K., & Singh, K. (2013). SME Financing Through IPOs - An Overview. RBI. Reserve Bank of India.

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Entrepreneurship, SMEs and Local Development - OECD.

6. OECD. (2015). New Approaches to SME and Entrepreneurship Financing: Broadening the Range of Instruments .

7. OICU - IOSCO. (2015). SME Financing Through Capital Markets. International Organization of Securities Commissions.

8. Sarthi Capital Advisors Private Limited. (August, 2014). SME Exchanges Worldwide. SME - Capital Market Watch.

9. SEBI. (2013). Listing of Small and Medicum Enterprises (SMEs) and Start-Up Companies on SME Platform witout making an IPO.

10. Sestanovic, A. (2015). SME Stock Exchanges - Should They Have a Greater Role? Zagreb, Croatia: EFFECTUS - College of Finance and

Law.

11. SME_MCX-SX_White_Paper. (n.d.). Financial and Risk Management Challenges of SMEs. MCX -SX.

12. Thankur, V. S. (2016). BSE SME EXCHANGE and NSE EMERGE Exchange Platforms in India and a Comparisonn Between Them.

IJLTEMAS.

13. WBG, IMF and OECD. (2015). Capital Market Instrumetns to Mobilize Institutional Investors to Infrastructure and SME Financing in

Emrging Market Economies. WBG, IMF and OECD.

14. WFE. (2015). WFE Report on SME Exchangfes. WFE - In Collaboration with World Bank Group's Finance and Markets Global Practice.

15. WFE. (2016). SME Financing and Equity Markets. World Federation of Exchanges.

16. World Bank Group. (2015). SME Exchanges in Emerging Market Economies - A Stocktaking of Development Practices. Finance and

Markets Global Practice Group.

y = 0.6386x - 26094R² = 0.8081

y = 1.699x - 68804R² = 0.8819

0

5000

10000

16-Aug-12 16-Aug-13 16-Aug-14 16-Aug-15 16-Aug-16 16-Aug-17

Chart - Co-Movement of SME IPO Indices

BSE SME IPO INDEX BSE IPO

Linear (BSE SME IPO INDEX ) Linear (BSE IPO )

53


IMPACT OF MOBILE ADVERTISING ON CONSUMER BUYING INTENTIONS

Dr. I.Anand Pawar

Associate Professor & Head

Dept. of Commerce, Dr.B.R.Ambedkar Open University, Hyderabad-500033 (TS)

Email: [email protected] Mob: 9885848800

Abstract

Consumer buying intentions are changing very fast and marketing companies also

catching with the direct marketing. With the trend toward direct, one‐to‐one marketing, more

attention is being paid to the use of the mobile channel as a means of effectively reaching

(advertising) to consumers. Indian mobile market is one of the fastest growing markets due to the

increase in the number of middle-income consumers. Marketing organizations are trying to reach

millions of users with low cost. Thus, research on mobile advertising would impact greatly on

the way business is done. This study examines the impact of mobile advertising on consumer

buying intentions in Hyderabad city. Mobile advertising applications which have been

introduced or about to be launched in the near future when companies understand the importance

of mobile advertising and invest more in developing and adopting mobile marketing

applications. To make it more precise, this study aims to explore the relationship between the

mobile advertising and attributes of customers who use mobile phone and their behavioural

intentions. Also find out the customer reactions towards mobile advertisements A sample of 109

valid responses was analyzed from the mobile users in Hyderabad city. The results revealed that

there exists a positive relationship between the attributes of customers using mobile phones and

their behavioural intentions i.e., there is an impact of mobile advertising on consumer buying

intentions. Ultimately, earning attention is the key to mobile advertising success.

Keywords: Attributes of mobile customers, behavioural intention, mobile advertising.

Introduction

Mobile marketing has been considered to be a modern form of marketing and provided

new opportunities for companies to do businesses. Marketing activities conducted via mobile

devices enable advertisers to directly communicate with potential customers in a fast speed and

regardless the geographical location. Mobile advertising has been recently referred as one of the

best means to cut through the clutter and interact directly with the consumer. Hence, with the

trend toward direct, one to one marketing, more attention is being paid to the use of the mobile

channel as a means of effectively advertising to consumers. Indian mobile market is one of the

fastest growing markets due to the increase in the number of middle-income consumers, and is


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forecasted to reach millions of users in the next decade (Barnes & Scornavacca, 2004). In this

regard, marketers should take into consideration of consumers’ needs for security and privacy

when designing a marketing plan. The marketers should maintain a balance between engaging

consumers in their marketing mix and achieving the objectives of their marketing plan. In order

to achieve this objective, the marketers must understand the factors, such as incentives and

consumer attitudes, which affect consumer acceptance of advertisements via mobile phone

(Barnes, 2002).

Carter (2008) defined mobile marketing in a different way, i.e. “the systematic planning,

implementing and control of a mix of business activities intended to bring together buyers and

sellers for the mutually advantageous exchange of products”. Here, the key contact point with the

intended consumers is their mobile phones. Balasubramanian, Peterson and Jarvenpaa (2002)

described that m-commerce is a form of communication which involves “either one-way or

interactive, between two or more humans, between a human (or humans) and one or more

inanimate objects or between two or more inanimate objects (e.g., between devices)”. Mobile

advertising is more flexible and convenient for a customer to get information about a product or

a service, and to make a purchase of such product or service via his/her mobile, provided that the

seller does provide such mobile applications phone (Balasubramanian et al., 2002; Altuna and

Konuk, 2009). Although some marketing activities are not available via mobile technologies,

space and time are considered constraints to consumers living in a world without mobile

technologies. It is because of growth trends in mobile usage.

Altuna and Konuk (2009), Plavini and Durgesh (2011), described the mobile marketing

as the use of wireless technology to provide an integrated content regarding a product or a

service to the intended customers in a direct manner. Apart from reducing the gap caused by

time, distance, convenience, costless transportation and interactive channel of communication,

customized information is another special feature which makes mobile marketing (m-marketing)

emerge as an important and innovative marketing tool (Friedrich et al. 2009). A study by Robert

Turner (2008), many advertisers are ready to invest in m-marketing. This survey has been

conducted among 50 international brands, and the findings revealed that the number of brands

looking to spend a greater proportion of their marketing budget on mobile campaigns in the

future has been increased. About 71% of respondents would spend up to 10% of their budget on

m-marketing. Research has shown that m-marketing can be integrated with traditional marketing

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instruments to promote products and services of brands, and thus such combination of marketing

tools will be able to improve the effectiveness and efficiency of the total marketing plan. Mobile

devices have been considered one of the optimal options for communicating marketing

information for the following reason. Apart from being cost effective and providing easy access

to the target segmentation of consumers most of customers carry their mobile phones nearly 24

hours per day (Robert Turner, 2008; Altuna and Konuk, 2009).

New media in the digital economy has created potentially powerful tools for direct and

interactive marketing. Traditional marketing communication strategies have been based on the

interruption logic (Godin, 1999). Permission marketing was introduced as a new managerial

approach in marketing communication. It has been argued that firms benefit from getting

consumers’ permission to be contacted (Marinova, Murphy and Massey, 2002). Permission from

the consumer would resolve the difficulties to get access to the consumer.

Growth of Mobile Usage

According to Telecom Regulatory Authority of India, there were 858,370, 000 mobile

subscribers in India as of July 2011, and the mobile penetration rate is around 71% (Palvini &

Durgesh, 2011). The estimated value of E-commerce in India in 2011 was around US$10 billion.

Of which nearly 67% of the revenue came from mobile devices alone. If we examine the latest

data, the number of Indians mobile users has been registering 1.16 billion in February, 2017 and

sharing a monthly growth rate 1.17% and it is a growth of 1.36% over the previous quarter. This

reflects year-on-year (Y-O-Y) growth of 5.05% over the same quarter of last year. If we see the

mobile connectivity in urban India with 692.15 million, growth rate was 1.16% whereas rural

connectivity was slower at 0.56% according to TRAI data. This growth indicates that the more

than 80% Indian population using mobile phones and it highest in the number when compared to

any other media such print or electronic in reaching the large number of customers by the

corporate companies for promoting their offers . These details show that the revenue generated

from mobile phone sales and usage is huge, and hence it is important for mobile companies to

conduct research on consumer’s usage on mobile phones and consumer attitudes towards mobile

advertising. This study examines the attitudes of consumers in Hyderabad city (India) toward

mobile advertising applications which have been introduced or about to be launched in the near

future when companies understand the importance of mobile advertising and invest more in

developing and adopting mobile marketing applications.

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In order to safeguard consumers’ interest, the Telecom Regulatory Authority of India

(TRAI) has made the Telecom Consumers’ Protection and Redressal of Grievances Regulations,

2007, covering all service providers, including BSNL and MTNL. Also, there is the National Do

Not Call/ Disturb Registry (www. ndncregistry.com), which ensures that a consumer needs to

register with the respective telecom service provider to stop all unsolicited communication. It is

illegal for a telemarketer to call anybody who is in the Do Not Call list. TRAI has proposed a

‘Scrubbing Module’ which will filter consumers’ numbers from the telemarketers’ database

(Shalini & Masood, 2008).

Mobile Advertising

As competition in the market has become more intensive given new tools of marketing,

getting a bigger market share and retain existing customers as well as attracting new customers

have always been a vital issue to the survival of brands. Buyer bargaining power has become

stronger over the time as options and substitutes of similar products/services in the market have

been significantly increased. Companies have been searching for new techniques and tools to

create their core competencies in order to differentiate themselves from competitors. Channels of

communication with customers have also increased in number. Thus, choosing the right time and

the right tool to send the right message to customers certainly helps brands to gain competitive

advantage. In this case, customized advertisements are more noteworthy and becoming a

powerful marketing tool in this mobile era (Altuna and Konuk, 2009). According to Ayanwale,

Alimi and Ayanbimipe (2005), and Chowdhury et al. (2006), mobile advertising has been

recognised as one of the most common tools of mobile marketing. Traditional advertising is

usually produced for the mass, i.e. it is non-personal and applicable only via mass media, such as

on the newspapers, radio, television, etc. On the contrary, mobile advertising is more interactive

and convey a more personal touched message when informing and persuading potential

customers to buy a product or a service (Hanley and Becker, 2008).

Mobile Advertising and Consumer Buying Attitudes

Attitudes towards an advertisement are defined as “a learned predisposition to respond in

a consistently favourable or unfavourable manner toward advertising in general” (Mehta and

Purvis, 1996). In this case, it is essential to note that attitudes towards advertising via mobile

devices refer to consumers’ attitudes towards this mode of advertising in general. It does not

refer to consumers’ attitudes towards a particular advertisement. Generally, attitudes are mental

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states used by individual consumers to shape the way they perceive the external environment,

and such mentality guides the way they respond to it (Aaker, Kumar and Day, 1995). Bauer and

Greyser (1968) and Altuna and Konuk (2009) observed that there was a strong correlation

between customers’ general attitudes towards mobile advertising and customers’ responses to

specific advertisements.

Significance of the Study

The popularity of mobile advertisements is growing in India, and it is therefore relevant

for marketers to consider this new form of marketing. This is a current concern of market

research of many companies. Although many research studies have been conducted world-wide

to examine consumer attitudes towards a product or service, there has been insufficient research

on customer attitudes towards mobile advertising, especially in India. This research study aims at

exploring the behavioural intentions of consumers towards mobile advertisements in the city of

Hyderabad, India. This is significant as there has not many similar studies on this field of

marketing. The findings provide better insights to companies on how to use mobile phones as

one of the powerful tools to market their products. Since mobile marketing is able to reach

individual consumers in a more personal and interactive manner than other traditional marketing

forms, many companies have been invested in developing mobile marketing applications. Such

applications, namely mobile marketing platforms and international wireless systems, allow

companies to interact with consumers faster with more personalized and customized

advertisements (Altuna and Konuk, 2009).

Objectives of the Study

The objectives of this research paper are: (i) to study the impact of mobile advertising on

the consumer buying intentions in Hyderabad City in terms of (i) consumer attitudes; (ii)

customer reactions towards mobile advertisements and (iii) buying intentions which determine

the purchase decision of the consumer.

Methodology

The research design chosen for the study (cross-sectional descriptive design) is

conclusive. A survey instrument was developed based on previous studies on consumer

perceptions of mobile advertising. The research is basically focused on the understanding of the

consumer attitudes among mobile ads and their behavioural intentions. For this study both

primary and secondary data has been used, a quantitative research has been conducted with the

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help of a structured questionnaire, and it was tested and verified statistically. Convenient

sampling approach has been used to select the samples, based on accessibility and availability of

the respondents. A total of 109 valid responses have been analyzed which include male and

female customers have been selected to avoid gender imbalance but, those holding a mobile

phone and reside in the area of Hyderabad city. The mode of data collecting from the sample

respondents was via electronic media (through Face book) and in person. Thus, this study

focused on the antecedents of consumer attitudes towards advertising via mobile devices In

general. In this study, customer attitudes towards advertising via mobile devices have been

measured using various dimensions. It indicates the various components of the framework for

further discussion, with “attitude toward advertising via mobile devices” as the dependent

variable. They include: (i) informative; (ii) credibility; (iii) enjoyment; and (iv) irritation.

Results and Discussion

In order to gain an insight into consumer reactions towards mobile advertising, the study

was aimed at reveal not only about consumer attitudes about mobile ads but also about their

behavioural intentions. The result of the study reveals that there is a significant positive

relationship between consumer attitudes and behavioural intentions. It means the more the

consumers’ attitudes are positive toward the mobile advertisements, the more affirmative are

their behavioural intentions.

Table- 1

Mobile Advertising and Consumer Buying Attitudes

Factors Positive Neutral Negative Total

Consumer attitude towards mobile

advertisements

69 (63) 10 (09) 30 (28) 109 (100)

Consumer buying intention towards

mobile advertisements

72 (66) 15 (14) 22 (20) 109 (100)

Relationship between enjoyment and informative content

58 (53) 12 (11) 39 (36) 109 (100)

Relationship between credibility and

irritation

45 (41) 13 (12) 51 (47) 109 (100)

Relationship between consumer

attitudes and behavioural intentions

77 (71) 13 (12) 19 (17) 109 (100)

Average 64 13 32

Source: Field data Note: Figures in parentheses are percentages.

Customer Reactions towards Mobile Advertisements: In order to examine the customer

reactions towards mobile advertisements, it was found that irritation (22%), followed by

indifference (18%) and then confusion (17%), were the three most important reactions. Hence,

we can safely assume that respondents (having a paucity of time) reacted with irritation and

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indifference towards mobile advertising. Also, the respondents apparently got confused, on being

bombarded with a plethora of advertisements from various sources. It can thus be inferred that

mobile advertising in its current format is unacceptable to customers and requires inclusion of

certain attributes so that the relevance and utility value of such marketing messages, increases

their overall acceptance by consumers.

Table-2

Customer Reactions towards Mobile Advertisements

Reactions Percentage (%)

Usefulness 14

confusion 17

Awareness 16

satisfaction 13

Indifference 18

Irritation 22

Source: Field data

Table- 3

Summary of Results

Factors Results

Consumer attitude towards mobile advertisements Positive

Consumer buying intention towards mobile advertisements Positive

Relationship between enjoyment and informative content Positive

Relationship between credibility and irritation Negative

Relationship between consumer attitudes and behavioural intentions Positive

The findings of the study are as follows:

1. The study found that the customer attributes tend to be positive for all the eight factors

and the consumer attitudes towards mobile advertisements are positive.

2. Customer behaviour intentions tend to be positive and it is interpreted that the behaviour

intention of people towards mobile advertisements is positive, i.e. more the respondents

get the advertisements, the more their behaviour intention tends to be positive.

3. There exists a mixed response among the customer attributes towards different mobile

advertisements. There exists a positive correlation among the enjoyment and

informative content.

4. In case, the relationship between credibility and irritation found negative correlation

among credibility and irritation.

5. Regarding the relationship between customer attitudes and behaviour intentions, there is

a positive correlation among attributes on mobile advertisements on consumer attitudes

and their behavioural intentions. The more the attributes tend to be positive, the more

the behaviour intentions of the respondents tend to be positive.

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6. It can thus be inferred that mobile advertising in its current format is unacceptable to

customers and requires inclusion of certain attributes so that the relevance and utility

value of such marketing messages, increases their overall acceptance by consumers.

Suggestions

1. The overall attitudes of the respondents in Hyderabad city are positive towards mobile

advertisements. They considered informativeness to be the most significant factor when

receiving mobile advertisements. Therefore, companies should invest in developing

applications which can help them advertise their products and services in better way

through mobile to reach the consumers beyond the study area.

2. Since informativeness is the most significant determinants of a mobile advertisement,

advertisers should provide or highlight the information aspect of their advertisement in

order to be successful in their marketing campaign.

3. The behaviour intent seems to be on the positive side, companies have to make sure that

their mobile advertisements do not divert customers’ intention.

4. The mobile advertisers should make sure that current and potential customers do not get

irritated due to receiving so many mobile advertisements, and they should ensure that the

advertisement is designed in an informative way. As expected before conducting the

research, there is a direct co-relation between customer attitudes and their behavioural

intentions regarding mobile advertisements.

5. This positive relationship may provide a novel means to build core competencies and

achieve a competitive advantage for those companies which invest in mobile applications

to enhance the positive attitudes of customers towards mobile advertisements. This can

be done via sending innovative, informative and entertaining content to intended

customers.

6. At the same time, companies should find a way to reduce the level of disruption and

irritation due to the frequency and the content of mobile advertisements.

7. In order to increases their overall acceptance by consumers, the respondents should not

get confused, on being bombarded with a plethora of advertisements from various

sources.

Limitations

1. The main issue in this study is that this research only focused on the attitudes towards

mobile advertisements in general and it confined to Hyderabad city only. It did not

include specific product categories as one of the variables which may affect the attitudes

of customers towards such products and mobile advertisements.

2. The data was collected on the basis of convenience sampling so the result can be

optimized by including more sample from the city. If the scale for measuring the attitudes

i.e., exclusively developed for analyzing the attitudes towards mobile advertisements in

the near future and the results may be generalized to the whole population in the city.

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Conclusion

This study reveals that the consumer attitudes towards mobile advertisements are

positive. In formativeness has been found to be the most significant factor in mobile advertising

and other variables can be considered as some key indicators of the marketing mix plans. M-

marketing and mobile advertisements can also be considered as most effective marketing mix

components. This finding has significant implications for companies in terms of marketing their

offers. Since Hyderabad city is developing as a global city, the rate of technology usage is high,

and so is the acceptance of new technological applications. Thus, this city would seem to be a

promising market regarding mobile applications to many companies. However, the results show

that the respondents’ attitudes are not only correlated with the technological infrastructure but

also with other cultural variables. However, “Good advertising does not just circulate

information. It penetrates the public mind with desires and belief”. — Leo Burnett.

References

1. Aaker, D. A., Kumar, U & Day, G.S. (1995). Marketing Research (5th ed.). New York: John Wiley. 2. Altuna, O. K & Konuk, F. A. (2009). Understanding Consumer Attitudes Toward Mobile Advertising And Its Impact On

Consumers' Behavioral Intentions: A Cross-Market Comparison of USA And Turkish Consumers. International Journal of

Mobile Marketing, Vol. 4(2), pp. 43-51. 3. Ayanwale, A.B., Alimi, T., Ayanbimipe, M.A (2005). The Influence of Advertising on Consumer Brand Preference: Journal

of Social Sciences, Vol. 10 (1), pp. 9-16. 4. Balasubramanian, S., Peterson, R.A. & Jarvenpaa, S. L (2002). Exploring the Implications of M-commerce for Markets and

Marketing: Journal of Academy of Marketing Science, Vol. 30 (4), pp. 348-362. 5. Barnes, S J (2002). “Wireless Digital Advertising: Nature and Implications,” International Journal of Advertising, Vol.

21(3), pp. 399-419. 6. Barnes, S J and Scornavacca, E (2004). “Mobile Marketing: The Role of Permission and Acceptance,” International Journal

of Mobile Communications, Vol. 2(2), pp. 128-139.

7. Bauer, R. A., & Greyser, S. A (1968). Advertising in America: The Consumer View, Boston, MA: Harvard University, Graduate School of Business Administration.

8. Carter, E (2008). Mobile Marketing & Generation Y African-American Mobile Consumers: The issue & opportunities. International Journal of Mobile Marketing. Vol. 3(1), pp. 62-66.

9. Chowdhury, H. K. Parvin, N. Weitenberner, C. & Becker, M. (2006). Consumer Attitude toward Mobile Advertising in an Emerging Market: An Empirical Study, International Journal of Mobile Marketing, Vol.1 (2), pp. 33-42.

10. Friedrich, R., Grone, F., Holbling, K. & Peterson, M. (2009). The March of Mobile Marketing: New Chances for Consumer Companies, New Opportunities for Mobile Operators. Journal of Advertising Research, Vol. 49(1), pp. 54-61.

11. Godin, Seth (1999). Permission Marketing: Turning Strangers into Friends, and Friends into Customers, New York: Simon & Schuster.

12. Hanley, M & Becker, M. (2008). Cell Phone Usage and Advertising Acceptance Among College Students: An Analysis. International Journal of Mobile Marketing, Vol. 3(1), pp. 67-80. 9.

13. Marinova, A; Murphy, J and Massey, B L (2002). “Permission E-mail Marketing and Targeted Promotion,” Cornell Hotel and Restaurant Administration Quarterly, Vol. 43(1), pp. 61-69.

14. Plavini, P. and Durgesh, P. (2011). Attitude towards Mobile Advertising: A Study of Indian Consumers. Paper presented at the International Conference on Management, Economics and Social Sciences (ICMESS'2011) Bangkok.

15. Robert Turner (2008). Effective mobile advertising. European Outdoor Advertising. Issue.499, pp.46-48. 16. Shalini N Tripathi and Masood H Siddiqui (2008). Effectiveness of Mobile Advertising: The Indian Scenario. Vikalpa, Vol.

33 (4) October – December, 2008, pp.47-59.

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ETHICAL ISSUES IN THE ORGANIZATION AND ROLE OF EMPLOYEES AS

STAKEHOLDERS

Dr. P. Lakshmi Prasanna Associate Professor (Department of Business Management)

K L University – e-mail id: [email protected]

Abstract

In the context of business, “ethics” may be defined as the study of good and bad, right and wrong

or just and unjust action of the business men and the corporations.Business ethics is the study of

business situations, activities, and decisions where issues of right and wrong are addressed. It is

believed that the best way of promoting high standards of business practices is through self

regulation. Business should be conducted in a manner that earns the goodwill of all concerned

through quality, efficiency, transparency, and good values. The paper addresses the ethical issues

in the organization considering employees as the main stakeholder .Every business endeavor has

to be characterized by objectivity and commitment of its practitioners. Business must understand

and respect the needs, concerns and welfare of the employees. It should use knowledge and

experience for up gradation of the quality of life of its internal stakeholders. Business therefore,

has to maintain the highest standards of behavior so that its actions and decisions result in overall

benefit to industry, employees and society in general. The author enlightens in detail the ethical

issues in the firm and role of employee as stakeholders, ethical problems between rights and

duties, discrimination, employee privacy, due process and layoffs, associations, working

conditions, fair wages, right to work, employing people worldwide and the ethical challenges of

globalization, considering national culture and moral values, some yardsticks for ethical

decision making and how world is moving towards sustainable employment-Re-humanized work

places, and work-life balance.

Key words: Ethical issues, Employees, Firm, Stakeholders, Discrimination.

Introduction

Dealing with employees is probably the area where all of us at some stage are most likely

to encounter ethical issues and dilemmas. Whether it a question of fair wages and conditions,

sexual harassment in the workplace, or simply taking advantage of company resources such as

phone or internet for personal use, employee related ethical problems are unavoidable for most

managers. Such problems can run from the most everyday questions of how to treat disabled

workers appropriately to fundamental questions of human rights.

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Like shareholders, employees take on a particular role among stakeholders as they are

closely integrated into the firm. Whereas shareholders basically own all material and immaterial

asserts of the firm, employees, in many cases even physically, ‘constitute’ the corporation. They

are perhaps the most important production factor or ‘resource’ of the corporation, they represent

the company towards most other stakeholders, and act in the name of the corporation towards

them. This essential contribution, as well as the fact that employees benefit from the existence of

their employers, and are quite clearly affected by the success or otherwise of their company, are

widely regarded as giving employees some kind of definite stake in the organization.

Objectives of the study

1. To discuss the specific role of the employees among the various stakeholder groups and

identify issues of concern for corporations.

2. To identify the core ethical topics of employees rights and duties.

3. To outline the ethical issues and problems faced in human resource management, by

focusing particularly on the different rights of employees.

4. To study the duties of the employees and the company’s involvement in enabling

employees to live up to their duties.

5. To examine basic issues and problems of managing employees in the different cultural

and national contexts necessitated by globalization.

6. To discuss the implications of sustainability for workplaces and for precise working

conditions.

Methodology

The present article is explorative and conceptual in nature.

1. The explorative part makes the journey towards the progression of examining the ethical

issues of employees across the globe. Broadly speaking, the ethical practices, which are

in vogue at different points in time has been examined in this study.

2. From conceptual viewpoint, the study has examined in detail, the purpose of employees

as stakeholders, their core principles, the cornerstones of employee philosophy and the

factors influencing the quality of ethics. It also spelt out in detail, the structures and

processes of ethical issues of employees generally envisaged for implementation as a

concept.

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Role of employee as stakeholders

They are one of the most important factors of production (resource),Consequently,

employees are subject to a strict managerial rationale of minimising costs and maximising the

efficiency of the ‘resource’, they represent the company towards most other stakeholders and

they benefit and get benefitted by the growth of the corporation.

Management of human ‘resources’: an ethical problem between rights and duties.

Legally there exists a contract that stipulates their rights and duties- sometimes subject

labour rules and government regulations. Ethical issues arise, when they are viewed as only

‘means of production’ or commodity. Not treated with dignity & when there lies a gap with

Rhetoric and Reality.

Rhetoric and reality in HRM

Rhetoric Reality

New Working Partners Part-time instead of full-time jobs

Flexibility Management can do what it wants

Empowerment Making someone else take the risk and responsibility

Training and development Manipulation

Recognizing the contribution of the individual Undermining the trade union and collective

bargaining

Team working Reducing the individuals discretion.

Now let’s take into consideration the Rights of employees as stakeholders of the firm.

Employee rights Issues involved

Right to freedom from discrimination Equal opportunities, affirmative action, reverse

discrimination, sexual and racial harassment.

Right to privacy Health and drug testing, work-life balance,

presenteesim, electronic privacy and data protection.

Right to due processes Promotion, firing, disciplinary proceedings

Right to participation and association Organization of workers in woks councils and trade

unions, participation in the company decisions.

Right to healthy and safe working conditions Working conditions, occupational health and safety.

Right to fair wages Pay, industrial action, new forms of work.

Right to freedom of conscience and speech Whistle blowing

Right to work Fair treatment in the interview, non-discriminatory rules for recruitment.

Now let’s observe duties of employees as stakeholders of the firm and the issues involved in a

nutshell.

Employee duties Issues involved

Duty to comply with the labour contract Acceptable level of performance , work quality and

loyalty to the firm.

Duty to comply with the law Bribery

Duty to respect the employers property Working time, un-authorised use of company

resources for private purposes, fraud, theft and

embezzlement.

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Discrimination- ethical issues

Discrimination in the business context occurs when employees receive preferential (or

less preferential) treatment on grounds that are not directly related to their qualifications and

performance in the job, example- race, gender, nationality, marital status, appearance etc. So

employers should be able to manage diversity which is a prominent feature of contemporary

business.

Sexual and racial harassment

Issues of diversity might be exploited to inflict physical, verbal, or emotional harassment.

Regulation reluctant could be: Blurred line between harassment on one hand and ‘joking’ on the

other and influenced by contextual factors such as character, personality, and national culture,

however companies across the globe have increasingly introduced codes of practice and diversity

programmes.

Equal opportunities and affirmative action

Currently the question to be discussed is how should organizations respond to problems

of discrimination? It can be addressed under two heads, namely, Equal opportunity programme:

Generally targeted at ensuring procedural justice is promoted. Affirmative action (AA)

programmes: deliberately attempt to target those who might be currently under-represented in the

workforce- may be racial minorities, disabled persons etc through: Recruitment policies,

example, job ads in media seen by under-represented groups, Fair job criteria- flexible work

hours for disabled, Training programmes for discriminated minorities and Promotion to senior

positions.

Reverse discrimination

Reverse discrimination is term referring to discrimination against members of a dominant

or majority group, including the city or state, or in favor of members of a minority or historically

disadvantaged group. Groups may be defined in terms of race, gender or other factors. This

discrimination may seek to redress social inequalities where minority groups have been denied

access to the same privileges of the majority group. It is intended to remove discrimination that

minority groups may already face. Reverse discrimination may also be used to highlight the

discrimination inherent in affirmative programs. Justification for reverse discrimination is,

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Retributive justice: past injustices have to be ‘paid for’. Distributive justice: rewards such as job

and pay should be allocated fairly among all groups. Further stronger forms of reverse

discrimination tend to be illegal in many European countries.

Employee privacy- ethical issues

Four different types of privacy we may want to protect namely, Physical privacy-

monitoring employee private activities, Social privacy- employees not allowed to bring disrepute

by indulging in immoral things outside office, Informational privacy- employers hiring private

security firms to make investigations against employees without reason and Psychological

privacy- controlling emotional and cognitive inputs and outputs, example, compelling employees

to smile and appear happy before the customers.

Further examining each one of the above mentioned point’s gives clarity of ethical issues.

1. Employee privacy is affected by: Health and drug testing, Two main ethical issues of drug

testing viz., Potential to do harm- particularly when drug test does not require for job

specification, Causes of employee’s performance- when employers seek details of causes of

underperformance. Despite these criticisms, such tests have increasingly come common in the

US.

2. Electronic privacy and data protection: Increasingly relevant as technology advances and

electronic ‘life’ becomes more important. Computer as a work tool enables new forms of

surveillance i.e., Time and pace of work, Usage of employee time for private reasons, E-mail

and internet, Issue of privacy in situations where data is saved and processed electronically &

Data protection.

3. Due process and lay-offs: Ethical considerations in the process of downsizing, right to know

well ahead of the actual point of the redundancy that their job is on the line, compensation

packages- packages employees receive when they are laid off, early retirement options etc. 4.

Employee participation and association: Recognition that employees might be more than just

human ‘resources’ but should also have a certain degree of influence on their tasks, job

environments, and company goals – right to participation, financial participation – allows

employee share in the ownership or income of the corporation, operational participation- can

include a number of dimensions: Delegation- for job enlargement or job enrichment, information

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– about performance of the corporation, consultation- allows to express views on decisions taken

by employer and co-determination- common approach for decision making.

Working conditions- ethical issues

Right to healthy and safe working conditions- one of the very first ethical concerns for

employees. There are dense network of health, safety and environmental (HSE) regulations

implemented by many countries, however main issue is enforcement and implementation which

is not proper. Newly emergent HSE issues relate to changing patterns of work. Ethical issues in

the context are: Excessive working hours and presenteeism, flexible working patterns and work-

life balance distortion.

Excessive working hours and presenteeism

Excessive work hours thought to impact the employee’s overall state of physical and

mental health. ‘Presenteeism’ is phenomenon of being at work when you should be at home due

to illness or even just for rest and recreation.

Fair wages- ethical issues

The basis for determining fair wages is commonly the expectations placed on the

employee and their performance towards goals. Note discussion about excessive compensation

for executives after the stock market collapse of 2008. Problems of performance-related pay

(PRP) are: Risk- salaries and benefits become less secure, Representation - individualized

bargaining.

Freedom of conscience and freedom of speech in the workplace- ethical issues

Freedom of conscience and freedom of speech in the workplace is normally guaranteed

by governments. Situations in business where freedom of speech might face certain restrictions

such as: speaking about ‘confidential’ matters related to the firm’s R&D, marketing or

accounting plans, usually unproblematic, since most rational employees would find it in their

own best interests to comply with company policy. Some cases where those restrictions could be

regarded as a restriction of employee’s rights, example is when the employer asks the employee

to do ‘creative accounting’. The employee cannot seek outside help nor can violate the rules of

the firm. Whistle blowing – can involve considerable risk.

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Employing people worldwide-The ethical challenges of globalization

Different cultures will view employee rights and responsibilities differently, this means

that managers dealing with employees overseas need to first understand the cultural basis of

morality in that country. Raises the question of whether it is fair to treat people differently on the

basis of where they live. Relativism vs. Absolutism. Absolutism means ethical principle must be

applicable everywhere & Relativism means view of ethics must always be relative to the

historical, social and cultural context.

The ‘race to the bottom’ approach

Many critics argue that MNCs should play a role in changing standards in countries.

Globalisation allows corporations to have broad range of choice of location, developing

countries compete to attract foreign investment, and large investors tend to choose country with

most ‘preferable’ conditions, lowest level of regulation and social provision for employee, leads

to ‘race to the bottom’ in environmental and social standards, ethical argument is that MNCs

have a duty to promote minimally just social & political institutions where they operate if these

do not exist, because of duty to avoid harm.

Migrant labour and illegal immigration- ethical issues

Growing mobility of workers is a recent phenomenon of globalization. Workers can also

be attracted to particular industries in areas where there is no local labour (e.g. mining).

Numerous ethical issues are involved here. Examples: Migrant labour often leads to questionable

social phenomena (e.g. drug use, prostitution, pressure on social infrastructure), Migrants are

often from poor countries; willing to accept pay & working conditions normally unacceptable in

host country and Migrant workers are often enter in a country illegally and employing them is

against law (but a record of employment may later be the basis for legal residency).

Towards sustainable employment-Re-humanized workplaces

Sustainable employment is possible if the employees are gainfully employed, feel

respected as human beings, feel that their voice is heard for long-term sustainability of the

organization, companies support employees to maintain meaningful social relationships with

their families, neighbors and friends. Alienation’ of the individual work in the era of

industrialised mass production due to technology and division of labour .Brought tremendous

efficiencies and material wealth, but have also created the prospect of a dehumanised and

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deskilled workplace. Attempts to re-humanize the workplace through: ‘empowering’ the

employees through, ‘job enlargement’- giving wide range of tasks, ‘job enrichment’- giving

employees a large scope for deciding how to organize the work and human-centred technology

as far as possible.

Towards sustainable employment-Wider employment

Large numbers of unemployed people becomes the norm in many countries due to

mechanisation. This threatens: Right to work, social fabric of particular communities and new

technologies herald the ‘end of work’? From sustainability perspective: Ensure that what work

exists is shared out more equitably, and reduce working time for individual worker by employing

more workers.

Towards sustainable employment - Green jobs

‘Green jobs’ are those that are available in industries making environmentally-friendly

products (example, cars on solar panels), workplaces & organizations where the job itself can be

organized environmental friendly like car-pooling, paperless office, video-conferencing rather

than business travel, home-based tele-working. Potential benefits are social, economic and

ecologic. Gained attention in late 2000s is part of broader debate on restructuring economies to

be more sustainable.

Conclusion

The article discussed the specific stake that employees hold in their organizations, and

suggested that although this stake is partially regulated by the employment contract, employees

are also exposed to further moral hazards as a result of the employee- employer relationship. The

article also discovers how deep the involvement of corporations with employee’s rights can be.

Nearly the entire spectrum of human rights is touched upon by the modern corporation, including

issues of discrimination, privacy, fair wages, working conditions, participation, association, due

process, and freedom of speech.

References

1. Andrew Crane & Dirk Matten, Third edition, - Business Ethics, Oxford University Press.

2. http://www.ethicalcorp.com

3. Environmental Justice Foundation. 2005. White gold: the true cost of cotton. London: Environmental

Justice Foundation.

http://www.ethicalcorp.com/

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THE AUDIT PRACTICES OF AN AUTOMOBILE FRANCHISE- A CASE STUDY

Dr. K. Bhavana Raj

Assistant Professor – Finance & Banking, Department of Management Studies, KL University Hyderabad (KLUH),

RVS Nagar, Aziz Nagar (PO), Moinabad Road, Hyderabad, R.R. Dist. – 500 075, Telangana, India. Ph: +91-

9959509996, E-mail: [email protected] , [email protected]

Abstract

One of the most important factors in a successful audit is a well-designed audit plan. The

audit plan is a comprehensive process determining how the audit will be executed. One of the

significant products of the audit plan is the audit program. It describes in detail the control and

substantive tests the auditors will perform during the course of the audit. Audit programs are

often designed by selecting specific steps from a standardized audit program that address the risk

tolerance for the audit of the current client. When that is not plausible, audit programs have to be

developed that address the unique accounting systems of the client. This case study uses

automobile dealerships, an industry with which almost everyone is familiar, to provide examples

of accounting systems that require unique methods to perform an efficient and effective audit.

Keywords: Audit, Automobile, Franchise, Risk Tolerance, Client, Dealership

JEL Classification: L00, L10, L20, L50, L60, L70, L80, L90

Introduction

Automobile dealerships have five distinct business functions – new vehicle sales, used

vehicle sales, finance, service, and parts. Some may have a sixth function, an auto body shop.

This case study provides the background for any unique features of the financial accounts used to

record the operation of these functions and then asks the students how they would plan to audit

each of those accounts. It is designed to broaden the student’s understanding of the audit process

and to provide a method for them to apply the audit methodologies they have learned to unique

situations.

The unique features of an automobile dealership’s financial accounts are focused on the

revenue, inventory, and payment cycles. This case study focuses on the portions of those cycles

that are unique. Those unique features provide the opportunity for a lively discussion among the

students as to how they should be addressed in an audit environment.

Objectives

The main objective of the case study is to understand the audit concept of working capital

management of the selected organization.



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Methodology

This is a hypothetical study based on one of the leading organization in the Indian industry.

The Revenue Cycle

Most businesses that extend credit to their customers have one account receivable which

is quite similar in characteristics to most other business’ accounts receivable. The primary

function of the audit tests of accounts receivable is to determine existence and collectability.

Automobile dealers have multiple accounts receivable whose characteristics associated with their

existence and collectability vary significantly. Below, each type of account and their origin and

characteristics are identified. The auditor can fully expect to get no response from any

automobile manufacturer for requests for confirmation details or the gross amount of any

account balances.

1. Vehicle Accounts Receivable

Once the documents for the sale of a vehicle are signed by the customer, the transaction

is recorded in the financial accounts of the dealership. Since there is generally a time lag between

the signing of the agreement and the delivery of the vehicle, the amount the customer will pay in

cash is recorded in the vehicle accounts receivable. Good internal control procedures at a

dealership would require that the receivable is collected prior to the actual delivery of the

vehicle.

2. Contracts in Transit

Although most customers obtain any required financing of the vehicle they purchased

through the dealership, very few dealerships actually finance the vehicles. Instead, they sell the

finance contract to the financing arm of their manufacturer or other financial institutions

(collectively financial institutions). Payment for the sale of the finance contract is generally

received within a few days.

3. Finance Receivables( Net)

When a dealership sells a finance contract to financial institutions they receive a

commission on the sale of the contract. The commission is determined by the value of the

difference between the interest rate charged to the customer and the interest rate charged by the

financial institution over the life of the finance contract. Payment of the commission is made

within a few days. If the customer pays off the finance contract in advance, a chargeback for the

finance income received and not earned is charged against the dealership account.

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4. Rebates Receivable

There are two kinds of manufacturer rebates paid to the dealer for vehicles. The first is a

customer rebate. The customer is eligible to receive the rebate in cash but customer rebates are

almost exclusively used to reduce the cost of the vehicle. The second is a dealer rebate. This is an

amount given to the dealer as a sales incentive for a particular type of vehicle or model year. If

the dealer complies with the terms of the rebate, a payment will be made in the next monthly

dealer statement. Valid rebates are 100 percent collectible.

5. Holdback

For all domestic and many foreign vehicle manufacturers, included in the invoice price of

a new vehicle is the cost of the vehicle and a holdback amount. Usually, the holdback amount is

three percent of the invoice price. Holdback is recorded when the vehicle is placed in inventory.

Quarterly, the dealership is reimbursed for the amount of the holdback for all vehicles shipped

during that quarter. (This practice may seem strange, but it is believed that the reason for this

practice was to provide the dealership with money to pay their quarterly income tax installment).

The timing of when holdback is paid is not consistent across manufacturers or even

different dealers of the same manufacturer. For this case, assume that holdback is paid on March

10th, a date after the audit firm’s fieldwork, for vehicles shipped in December of the year under

audit and January and February of the subsequent year. The balance at December 31st consists of

the holdback for eighty-five vehicles that were received in December of the year under audit and

six that were received in the following January.

6. Service and Parts Receivables

These receivables generally result from providing service on fleet vehicles or other

commercial accounts or from the sale of parts to other repair shops. Rarely do dealerships offer

credit to individuals, their transactions are paid for in cash or with a credit card. Thus these

receivables have the characteristics of a typical wholesale establishment.

G. Warranty Receivables

Payments for service provided under the manufacturer’s warranty are reimbursed to the

dealership at rates established by the manufacturer. If the dealership complies with the

procedures established by the manufacturer for the reimbursement for service covered by the

manufacturer’s warranty, payment will be received in the next dealership statement. (Note that

existence requires that the warranty claim was made properly and the service for which the

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dealership is requesting reimbursement is covered by the manufacturer’s warranty. If this is the

case the amount is 100 percent collectible.)

It is required to determine for each account the control or substantive tests which could

be used to determine the existence and collectability of the accounts receivable. Include in your

answer the impact of receivables older than their normal collection cycle.

II. Revenue Recognition

1. Recognition of Revenue, Vehicle Sales

The typical vehicle purchasing process at an automobile dealership is the customer is met

by a salesman, a vehicle is identified, the customer takes a test drive, the customer and the

salesman came to an agreement on a price, and the deal is signed by the customer. Based on

contract law, the offer and acceptance have been completed. Subsequent to that point, typically

financing arrangements must be finalized, the actual sales agreement is drafted, and final

preparation of the vehicle occurs.

It is required to determine whether to recognize revenue upon offer and acceptance or in

dealer speaks, when the vehicle crosses the curb, i.e. The customer drives the vehicle off the

dealer’s lot.

2. Amount of Revenue Recognized, Vehicle Sales

The majority of vehicle sales involve a trade-in, the customer’s current vehicle is

surrendered to the dealer and the value of that vehicle is used to offset a portion of the purchase

price of the vehicle the customer is buying. Typically, any discount the dealer offers on the cost

of the vehicle the customer is purchasing is included in the trade-in value of the vehicle being

surrendered. This is good for the customer for they feel they are getting top dollar for their trade-

in. It has no impact on the dealer for they are merely re-characterizing the sales price. It is bad

for the auditor, for any difference between the stated trade-in value for the vehicle being

surrendered in the sale and the actual value of that vehicle results in excess revenue on the

vehicle being sold and an overstatement of the inventory value of the trade-in. The dealer may

adjust the value of the trade-in to its proper value when the transaction is recorded or they may

not.

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It is required to know how would the auditor determine whether excess revenue is being

recognized on vehicle sales where part of the purchase price is paid with a trade-in.

3. Recognition of Revenue, Finance Income

Finance income results from the sale of a finance contract to a financial institution. The

amount of the income is the difference between the amount of interest expected to be received by

the financial institution based on the interest rate in the finance contract and the amount of

interest based on the interest rate implicit in the sale of the contract.

Since the finance contract is for a loan of many years and the amount is not certain, it is

required to focus whether the dealership recognize all of the income at the time of the sale of the

contract or over the life of the contract. If one believes the revenue should be recognized over

the life of the contract and the dealership recognizes it immediately, it is to be focused how to

convince the dealer your accounting method is preferable.

III. Inventory Cycle

The primary function of the audit tests of the inventory cycle is to determine existence

and valuation. Automobile dealerships generally have three types of inventory, new vehicles,

used vehicles, and parts. They may also have small amounts of work in process in the auto repair

and body shops. Since vehicles can be identified by the vehicle identification number (VIN), for

new and used vehicles, the specific identification method is used for costing these inventories.

Parts are generally used replacement cost for inventory valuation. Work in process is recorded at

cost.

1. New Vehicles

All vehicles have vehicle identification numbers assigned by the manufacturer. These

numbers are engraved on the dashboard and the engine block. However, most dealerships

identify vehicles by a dealer assigned a number which is not derived from the vehicle

identification number. Valuation is based on invoice price plus the cost of any dealer installed

options.

2. Used Vehicles

Vehicle identification is the same as for new vehicles. Valuation is based on the price

paid for the vehicle. If the vehicle was purchased at auction or from a wholesale dealer, an

invoice will indicate the price paid. If the vehicle was obtained from a trade-in on the purchase of

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another vehicle, valuation is more difficult. As described under revenue recognition above,

alternative methods for determining the true value of the used vehicle may be required.

3. Parts

Identification of a part can be determined by a part number contained either in the

packaging or as a label. Dealers maintain their parts inventory at replacement cost rather than

cost because the sales price for parts is determined by a standard markup on current replacement

cost. Updated replacement costs are provided to the dealership by the manufacturer on a regular

basis. The total impact of the difference between carrying cost and replacement cost is recorded

in a cost of goods sold account as a credit balance.

It is required, based on the characteristics of each class of inventory, identify the audit

procedures that should be used to determine existence and valuation of inventory.

IV. Payment Cycle

1. Line of Credit, Floor plan

Almost all automobile dealerships finance their new vehicle inventory and some also

finance their used vehicle inventory using a line of credit known as the floor plan. Each vehicle

financed is treated as an individual note. The collateral for the note is the vehicle itself. A

dealership can finance as many vehicles using these notes until they reach their credit limit under

the line of credit. Upon the sale of a vehicle, the amount of the note for that vehicle must be paid

to the lender. The lender provides monthly statements of all vehicle notes where each vehicle

financed is identified by their vehicle identification number. Dealer inventory listings include all

vehicles, their recorded cost, their vehicle identification number, and the amount of the floor plan

note for each vehicle.

It is required to identify the audit procedures that should be used to determine the

completeness and accuracy of the dealership’s floor plan debt.

.

REFERENCES

1. Wikipedia

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EFFECTIVE LEADERSHIP- A PATHWAY FOR ORGANIZATIONAL SUCCESS

Dr. Srinivas Kolachina

Associate Professor-HR and Banking, Department of MBA, K L University, Hyderabad, 9949155244,

[email protected]

Abstract

The article aims to explore the role of effective leadership in the success of any business

organization. Emphasizing on the significance of leadership across, the article also provides

needful inputs like leadership styles, factors effecting leadership and latest trends with a brief

glance of the eminent leaders who have succeeded to be effective leaders.

The article aims at providing considerable insights for any business organization in need

of effective leadership. The author also examines how an effective leader can be instrumental in

the success of a business organization and equally elevates the organization’s goodwill. The

concept of positive leadership is and its fruitful contribution towards the operational and

administrative efficiency of any business organization in the present dynamic and competitive

environment is also discussed.

Key Words: Leadership, Organization, Strategy, Challenge, Success.

Introduction

When Michael Wellin was writing his book on management of a personal contract, he

found almost twenty-eight thousand books titled on leadership. This is just a tip of the iceberg

wherein a numerous titled have been launched evidencing the considerable and potential

significance of the concept of leadership and its impact on the future of any business

organization. Here arises a question as to why leadership is so important?

Donnelly, Gibson and I Vacevich (1992, p. 407) explained “leadership is the ability to

persuade others to seek defined objectives enthusiastically”. Subsequently another question crops

up as to why do organizations treat leadership to be so significant that it can make or break the

fate of any business organization over a period of time of its operational journey.

Today many business organizations are unable to have the luxury of stability owing to the

continuous challenges arising from the periodic change in markets, customer preferences and

technology. They need to accept, adopt and implement changes in compatibility to their business

model according to changing trends. Further, we cannot neglect the constant threat of newcomers

to the core business of the organization who are having a different business paradigm. Hence the

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organization cannot afford to depend upon a small team of senior executives to meet this

challenge.

To face the challenge the organizations are exploring for a potential intellectual source

with an optimum blend of innovation, skills, attitude, technical and managerial expertise and

enthusiasm towards achieving the success as a team. Of late a new concept and practice of

leadership has evolved, where a few line managers have taken over the leadership role along

with the top executive team with their small team of senior executives. The objective of the idea

is to make the line managers explore and enhance the inherent leadership skills that they have

within and be a prosperous and exemplary leader across.

Objective

The objective of the article is to bring out the significance of effective leadership in the success

of any business organization. We intend to emphasize on different approaches or styles of

leadership, factors effecting leadership, focus on latest trends with a brief discussion the success

stories of some exemplary and successful leaders.

Leadership being a strategic and potential skill for which corporates are eagerly waiting

for and even have been exploring across, it becomes imperative for everyone to have a

considerable awareness on the same. Hence the article deals with all the resourceful aspects to

attain the skill of effective leadership.

Methodology

The article is conceptual in nature. The framework focuses on providing some vital inputs

like significance of leadership in determining the success of a business organization, Leadership

styles and competencies, Challenges that can be encountered across with a motivational touch of

two success stories of dynamic corporate leaders who have been successful in leading corporate

giants.

Leadership: A vital determinant of organizational success

Leadership is one of the vital determinants of an organization success. It is an art of

influencing people to perform assigned tasks with increased willingness, efficiency and

competence. A line manager may not be an effective organizational resource if he/she is unable

to lead a team effectively and prove their efficiency across, thus transforming the potential into

reality. The vibes of a good leadership can be felt being spread across an organization vide the

structural clarity and transparency in communication.

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A good leader never forces but contributes to the development of an organizational

culture that can be accepted by all. Communication is effective and open which helps everyone

to understand the vision and goals of the organization, and everyone can have their respective

contributions towards the improvement of the same. When people feel that they are being cared

and valued, the output will be the best of its quality accelerating the performance of the

organization. Such an organization can always enjoy a sustained success across.

Challenges in Leadership

Leadership is one of the significant attribute of any individual. When it comes to leading

an organization, a set of challenges may be encountered. Let us have a glance of three general

challenges that can be faced by the leadership team of any organization. The first challenge is to

provide a vivid picture of the vision and mission of the organization. Setting of objectives to

convert the strategic vision and directional course into specific performance outcomes for each

key area deemed important for success can be the second challenge. The third challenge is to

generate and develop a strategy that focuses on accomplishment of the set objectives. Strategic

direction is an imperative identification of a systematic intervention that provides a set of aspects

that the organization can be leveraged upon, as an organization cannot focus on everything

always.

A continuous search for good leaders has always been a crucial issue for every

organization. This is why the armed forces, for instance, put lot of efforts to train their officers

and why premier academic players other providers of executive development have thrived to

produce best of the best.

The team at Deloitte argues that “21st-century leadership is different”. Canwell and his

colleagues say: “Companies face new leadership challenges, including developing Millennials

and multiple generations of leaders, meeting the demand for leaders with global fluency and

flexibility, building the ability to innovate and inspire others to perform, and acquiring new

levels of understanding of rapidly changing technologies and new disciplines and fields.”

Inevitably, the problem is almost acute today. This can be a result of strengthening of the global

recovery, the desire on the part of the companies to explore new markets to expand their business

and increased number of older leaders choosing to retire.

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Leadership Styles

A leadership style is can be a unique approach adopted by a leader for providing

direction, implementing plans, and motivating people. There are numerous styles proposed by

different authors as exhibited by leaders in the political, business or other fields. Let us look at

some leadership styles that can prove to be strategically and operationally viable for many

business organizations.

The Authoritative Leader

•Always give direction, take a step back and watch the shaping success as employees put their own spin on producing their work

•Possess strong entrepreneurial spirit and inspires the employees to have an urge and eagerness towards success.

•True experts in their field, molding their employees into high-performers wherein employees feel confident of their growing abilities.

•Confidence and faith in leadership will be constant and a success-culture is developed in teh organization.

The Coaching Leader

•Find the greatest success in creative companies where employees can thrive under the right guidance.

•Coaching Leaders are often highly effective “big picture” people

•Lift employees up by providing them tools for success. and there will always be a constant flow of learning and doing, trying and growing.

•Appreciation and respect are traits all employees share for one another and a creative culture sustains across the organization.

The Coercive Leader

• In contrast to the an Authoritative Leader, the Coercive Leader gives concise direction to their employees.

•Entirely focused on compliance and productivity over everything else. With less flexibility allowed, employees yield to this executive who dictates plans and processes

•A natural problem solver, and knows very well how to keep employees in line and extinguish dilemmas whenever they arise.

•Can work well in a corporate structure only as support within one or more other models as may moderately lack the ability to bring out the innovative, critical thinking abilities of the employees.

The Group-Think Model

• One of the progressive types of leadership models and flips the traditional corporate hierarchy around.

• Employees are empowered to make decisions and the leadership team takes their cues from what the employees indicate is needed

• Well aware of negotiations orday-to-day problems that significantly affect operations to ensure the workplace functions properly.

• The employees feel responsible and tend toi be serious on their jobs

• Communication is the key and the listening capabilities of everyone are strongand thus there exists a shared-success culture at work.

The Democratic Leader

• Perhaps the most beloved leader with a blend of Authentic, Authoritative and Group-Think leaders .

• Focusses on feedback and promotes participation as a means to drive company unity around.

• Expertise in bringing a consensus among teams through constant communication and inspiring gestures.

• May not be the first choice in times of crisis as they focus on making decisions as a team which does not fit well in high-pressure situations

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The dynamics of the changing world views have facilitated a huge variety and different

styles of leadership models in the business world. You can typically find these leadership styles

in companies led by innovative intellects.

Modeling the leadership after one (or two) specific types can help to design a specific

culture for any organization. Company’s goals, employee’s capabilities and desired workplace

culture can determine the leadership model to be adapted.

Competencies

WJM Associates, a recognized leader in providing impactful and practical solutions to

companies seeking to achieve measureable and lasting improvement in the performance of their

executives.

WJM was founded in 1996 by William J. Morin, an internationally renowned authority in

executive development and the former CEO of Drake Beam Morin, Inc., one of the world's

largest organizational consulting and career management firms.

A research work carried out work supporting senior executives in multiple industries

across multiple jobs, coupled with recent research around key leadership behaviors for the 21st

century has revealed that effective leadership requires competence in four main areas explained

by a model called WJM’s Executive Leadership Behavior Model as illustrated below

Leading Self

Self Management: To be composed under pressure, manage emotions and reactions besides

constructive and productive in facing challenges.

Self Awareness: To have accurate awareness of own strengths and weaknesses and their impact

on others.

Developing Self: To demonstrate commitment to personal development. An agile and

continuous learner approaching the situations with openness and intellectual curiosity.

Authenticity: Constant adherence to company’s stated values and vision across situations and

be a role model for personal integrity by keeping own word and promoting transparency.

Leading Self Leading Others

Leading Change Leading for Results

Leadership Effectiveness

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Leading Others

Connecting With Others: Building positive and effective relationships with stakeholders

at all levels.

Building Teams: Understanding the competencies required to succeed in key positions. Set high

standards for selection of team members and stay committed to their ongoing development.

Inspiring: Create strong morale and spirit in the team and shares success stories. Build trust,

commitment and alignment the team to organizational goals.

Developing & Communicating Strategic Vision: Clearly define and communicate the company’s

future in an optimistic tone of words and relevant nonverbal cues.

Leading Results

Global Perspective: Possess sophisticated knowledge of markets, customers and competitors

globally besides understanding the local context. Encourage cross-cultural learning opportunities

and provide a broader view of issues and challenges.

Decisiveness & Discernment: Make timely, strong and defensible decisions in a timely fashion,

especially in situations of crisis and uncertainty. Have a complete balance on bias for action with

thoughtful analysis and seasoned judgment.

Strategic & Systems Orientation: Maintain long-term and systemic perspective and go beyond

analyzing events, to look for patterns, underlying interrelationships and root causes.

Leading Change

Fostering Innovation: Create an encouraging environment that facilitates innovation and

creativity.

Adaptability & Resilience: Demonstrate personal flexibility in challenging or ambiguous

scenarios and comfortably shift gears in line with emerging priorities.

Courage: Identify and acts upon appropriate and calculated risks and accordingly encourage and

support others in managing such risks.

The above behavioral attributes may help companies to have a clear idea on the selection

criteria for senior executives and/or create strategic development plans for further expansion of

roles and job performance. Great leaders are hard to find and even harder to retain.

Exemplary and Successful Leaders

Ratan Tata: A Visionary Corporate Leader

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Ratan Tata is the most prominent Indian leader whose values and actions demonstrate an evolved

higher level of responsible leadership.

With the launch Tata Nano, Ratan Tata and his group have held their bigger purpose of

Nation building and employment close to their heart besides driving operational efficiency and

profitability. The purpose statement of Tata says “At the Tata group we are committed to

improving the quality of life of the communities we serve”. The meaning of this purpose

statement can very well be understood by everyone who visits Jamshedpur and it would be a

great learning to observe how well this statement is expressed and executed there.

Evidently India needs more Ratan Tatas and Indian companies that follow the Tata’s footsteps

for social responsibility and conscious capitalism. All the seasoned corporate leaders of this

country have to align businesses with long term sustainable practices and social contribution.

Ratan Tata’s retirement from active business role should lead to his spending more time on

helping organizations to articulate and operate for a higher purpose always.

Mr. Kishor Chaukar, Managing Director of Tata Industries says “Ratan Tata was a 'terrific

combination' of the four necessary leadership characteristics -- character, commitment,

competence and courage.

He further said: "Additionally, he is an amazing indefatigable individual. I have never seen him

say, "I am tired, we'll do this tomorrow. Be it with technical stuff, finance, business matters or

anything else, he is able to bring tremendous energy levels to the job. He has this immense

persistence in always moving closer to his goal, even if this goal keeps shifting,"

Finally he adds “The courage bit is partly yours and substantially that of the organization you are

with. If it had not been for Ratan Tata, I don't know whether I, as an individual, would have had

that courage”.

Indra Nooyi-A Woman entrepreneur with inherent internal values.

Indra Nooyi has been at Pepsi Co, currently the biggest food and Beverage Company in

North America for 17 years. She holds the reins as CEO managing a corporate family of over

300,000 employees which makes her a valued and influential leader in the business world.

She explains that she has held to her 5 C’s Model of Leadership throughout her career.

Her five C’s of leadership are competency, courage, confidence, communication skills and

compass (Blog Her 11 Event Interview). She also occupies a respectable slot in Top 10 on

Fortune’s 50 Most Powerful Women in Business list.

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There are three consistently noticeable qualities in her leadership that have enabled her to

grow as a leader and succeed across and the qualities under discussion are

Communication

In Indra’s words “You cannot over-invest in communication skills.” In addition to listing

communication as a key skill for leadership she maintains a blog at Pepsi where she talks to her

employees via posts every other week (Blog Her 11 Event Interview).

Relationship Building

Regards to relationships, Indra says “If you only want people to help you when you need

them and not have an ongoing relationship with them, they don’t know you, they don’t know

where you come from, and they are doubtful whether you really are interested in the issue, or are

you just trying to skate over a current problem?” (CNN). Relationship building has been one of

her strengths that made her to be in-tune with consumers needs for healthier snack and drink

options and even brought about a transformation in Pepsi’s product line.

A Moral Compass

Indra values and lives by moral codes. She emphasizes that every corporation owes

society care. Indra points out that many companies are bigger than small countries.

Organizations need to help society reach goals and solve problems. She has turned to her moral

compass and exercised strong emotional intelligence in making leadership decisions in many

instances.

Indra Nooyi, PepsiCo’s CEO recently published a note on LinkedIn which is going for

viral for its meaningful message. Nooyi, one of the Forbes World's 100 most powerful women

has a very important advice for students who could be the future leaders of the world.Her seven

point lessons show how you can hone your leadership skills and excel at your career.

1) Everyone needs a vision

2) Think long term

3) Importance of persuasion

4) Always listen more and talk less

5) Keep learning

6) The team and its people are everything

7) You’re A CEO in the office, but not at home

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Conclusion

Indra herself had confessed that leadership is not easy. She says “Leadership is hard to

define and good leadership even harder. But if you can get people to follow you to the ends of

the earth, you are a great leader”.

A worthy struggle can certainly yield a return of building a better world. Leaders who

explore and analyze methods of leadership and build communication skills will always be on a

track for success.

There are three characteristics that can be noticed in leaders that make them conscious,

responsible and effective

1. Leader has a bigger, higher purpose for you and your organization that expresses

responsiveness to community.

2. Leader uses creative tendencies than reactive tendencies to get results.

3. Leaders operate from higher order values.

4. Robert Kegan, a professor at Harvard Graduate School proposed a range of “orders” of

the mind and of the need for leaders to scale their abilities to the higher orders so they can

solve complex problems and create personal transformation.

Richard Barret, author and expert on values talks about seven levels of consciousness–a

model he developed as an extension of Abraham Maslow’s hierarchy of human needs. While

survival, selfish wealth creation, power, greed, status, being liked can be considered as lower

order values; self actualization, service, trust, honesty and Integrity can be considered as higher

end values.

Most leadership theories focus on three outer aspects of leaders such as powerful Vision,

Alignment of every stakeholder around the vision and Execution excellence. Such leaders with

an optimum mix of the said attributes can potentially contribute towards the organizational

success of any business enterprise.

References

1. https://alistemarketing.com/blog/types-of-leadership-models/

2. https://www.wjmassoc.com/insight/leadership-model/

3. http://www.centerforworklife.com/leadership-qualities-indra-nooyi/

4. https://www.indiatimes.com/culture/who-we-are/7-great-leadership-lessons-from-pepsico-s-ceo-indra-nooyi-

327387.html

5. Blog Her 11 Event Interview, Indra Nooyi.

6. http://www.dnaindia.com/money/report-ratan-tata-responsible-leadership-conscious-capitalism-1782230

7. Rediff.com » Business » The qualities that make Ratan Tata a born leader

8. https://in.finance.yahoo.com/news/why-ratan-tata-is-a-role-model-for-india-inc-101918923.html

85


CUSTOMER SERVICE AS A FORCE MULTIPLIER IN MANUFACTURING

COMPANIES

Ch SrinivasRao

Research Scholar, Bharatiar University, Coimbatore. E Mail: [email protected]

Abstract

This paper discusses the importance of the customer service in manufacturing companies.

The paper discusses about the fast changing market place for manufactured products, the need

for differentiation of the brand and the traditional perception of customer service. Subsequently,

the paper discusses about the changing role of customer service and its application as a force

multiplier to retain existing customer base and also expand the customer base. The paper also

discusses about the factors which are driving the customer service in manufacturing and

concludes that customer service, both pre sales and post sales, are emerging as a competitive tool

in the armoury of manufacturing companies.

Keywords: Customer Service, Manufacturing, Perception, Force Multiplier, Customer Base

Introduction

In a highly competitive world, a company can survive only if it is able to beat

competition with its products and practices. With new products and new players hitting the

market at a fast pace, it is a marketing nightmare to keep the customers happy and continue to

sell products.

The manufacturing segment is no exception to this development. Manufacturers are

becoming more concerned about client retention and also have realized that introduction of new

technology or new products alone is not going to solve their marketing challenges. There is a

need to go beyond new products and technology.

Hence successful manufacturing companies have also shifted their strategies from pure

product offerings to products and service. This in marketing parlance is known as product

experience at the customers end.

Product Vs Commodity

It is important to understand what differentiates one brand with respect to its competitors.

This is especially true in the case of products which have become commodities like Cement,

Steel, Asbestos etc. In most of these commoditized products, the specifications, design , features

and other product parameters are almost the same thus making it difficult to compete in product

terms.

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One way to differentiate is to offer a lower price to the customer to gain market share.

Lower selling price of the product has implications on the profitability and long term viability of

the company. Lower profitability in turn implies lower investments, lower incentives and lower

promotional activities which ultimately leads to the decline of the company. Lower price also

sends a signal that the products are unreliable products or of lower quality.

Another way of differentiating a manufactured product from its competitors is to offer

high quality customer service.

Objectives

Generally the manufacturing sector considers maintaining the quality of the product of

utmost importance for success. Due to several developments in the manufacturing sector, there

are other factors which are becoming important for success in the market place. The objective of

this paper is to analyze the importance of customer service in manufacturing sector.

Methodology

The paper is an empirical study based on study of literature and observed market

practices. The data sources are several journals and company practices. The study covers several

sectors of manufacturing like Cement, Fertilizers, electrical and electronic products.

Customer Service in Manufacturing

In a highly competitive manufacturing industry, customers will have to be given more

than the product and that is the customer service.

Customer service encompasses two areas – pre sales and post sales.

Pre sales customer services revolves around enlightening the customer with the product,

its uses, its limitations and how to best use the product to get maximum mileage. In short Pre

sales customer service offers advice on the suitability and use of the product.

Post sales customer service revolves around resolving customer issues like usage, testing,

technical advice, trouble shooting etc.

Customer service in manufacturing not only means dealing with the end customer but

also with intermediaries like distributors / dealers. Any dissatisfaction at the dealer/distributor

level means loss of several customers ,since the dealer / distributor is generally the first point of

advise for the customer.

Reasons for Customer Service in Manufacturing companies

Some of the drivers of the customer service in manufacturing are:

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Better informed customers: In the past, customers were mostly ignorant of information about

the product and whatever the intermediary or salesmen told were taken as gospel. But today,

with the explosion of social media and also other digital channels, sharing of information is

becoming easy. Customers can easily comment on their satisfaction levels or otherwise and post

it for viewing by millions of people, who could be potential customers.

Expectations: With increasing awareness of their rights and also product regulations, the

expectations of the customers have soared high. It would be impossible for most of the

manufacturers to meet the product expectations of the customer. Customer service in such times

would greatly help by educating the customers about the suitability of the product for their

requirements.

Competitive Environment: Competition has gone global and intensified with many

manufacturers from different countries competing in terms of product features, product quality,

pricing etc. One area that is focused by major manufacturers is the customer service. It allows

companies to tightly integrate with the customer requirements and drive profitability.

With customer loyalty at a premium, it is imperative for manufacturing companies to

provide customer service in order to retain their customers. It is common knowledge in business

circles that it costs about 7 times to acquire a new customer than to retain an existing customer.

Changing Role of Customer Service: There was a time when customer service was considered

a cost centre and budgets allocated accordingly. Manufacturing companies considered customer

service as an complementary activity due to issues in quality control.

Today, the roles have changed for the customer service. The ‘2016 Connected

Manufacturing Service Report’ has shown that about 63% of the executives in manufacturing

companies believe that their customer service department plays a key role in their strategies and

that 66% of the executives believe that customer service departments are turning into revenue

generators than cost centers.

Part of Sales Force: In these changing times, Customer service department has become a part of

the sales force. Not only do customer service provide leads the sales force while educating the

customer on the suitability and use of the product, it also provides feedback of the customer to

the sales team to better equip the sales team in converting enquiries to closed deals.

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Conclusion

The above discussion leads to the conclusion that customer service can be used as a force

multiplier alongwith the marketing team to improve the marketing efforts of the company.

References

1. ‘2016 Connected Manufacturing Service Report’,https://www.salesforce.com/assets/pdf/industries/2016-

connected-services.pdf

2. Karnstedts Anders, Winter, Julia,’ Defining and measuring service quality in a manufacturing company’,

http://publications.lib.chalmers.se/records/fulltext/218424/218424.pdf

3. Onyeaghala, Obioma, (2016), ‘Servqual Model as performance evaluation Instrument for Small and Medium Sized Enterprises: Evidence from Customers in Nigeria’, European Scientific Journal, Vol 12, No.28, pp520-

540.

4. Murali.S, Pughazhendi.S, Muralidharan.C,(2015), Evaluation of performance of after sales service – A

comparative study involving home appliances manufacturing firms’, ARPN Journal of Engineering and Applied

Sciences, Vol.10, No.13,pp5614-5619.

http://publications.lib.chalmers.se/records/fulltext/218424/218424.pdf

89


IMPORTANCE OF CONSUMER BEHAVIOUR – ACASE STUDY OF MAGGI

NOODLE, NESTLE INDIA

Dr. EnnalaDeepa

Assistant Professor, Affiliated Address: R.V.S Nagar, Moinabad Road, Near AP Police Academy, Aziz Nagar,

Hyderabad, Telangana 500075, email address: [email protected] Abstrct

Consumer buyer behaviour is considered to be an inseparable part of marketing and

Kotler and Keller (2011) state that consumer buying behaviour is the study of the ways of buying

and disposing of goods, services, ideas or experiences by the individuals, groups and

organizations in order to satisfy their needs and wants. In today’s world, consumers’ product and

service preferences are constantly changing. Marketing managers must understand these desires

in order to create a proper marketing mix for a well-defined market. Understanding the customer

behaviour is very essential to design marketing strategies which influences the customer buying

behaviour. This paper focuses on the various factors to consider in order understanding the

customer behaviour. The importance of having loyal customers and building the same is shown

by taking Maggi as a case study. Based on the case study conclusion has been made of what are

the points to be considered

Keyword: Customer Connect, Customer Loyalty, Marketing Mix, Monopoly.

Objective

Marketing is identifying the customer needs, wants and meeting them. But in today’s

marketing world Customer behaviour plays an important role in defining the marketing

strategies. Hence this paper talks in-depth about the importance of customer behaviour analysis

for running a successful business by taking case study of maggi how post ban the product

survived based on customer loyalty.

Introduction

Present marketers strategies are built around the words customer connect, customer

loyalty, changing trends, society responsibilities etc., customer behaviour towards products and

services are changing, this change is due to various reasons break of social barriers, awareness of

other competitor products, no compromise and intolerance attitude, This era is of “new trends”

marketers have to continuously cope up with the changes. Hence now customer’s habits and

attitude matter more.


90


Methodology

In the present paper will be focusing on customer behaviour which plays the crucial role

in designing marketing strategies. We will understand the factors that influence the customer

behaviour. In-depth analysis of the same will be done by taking into consideration of live

example. With the help of the example we can understand customer behaviour on introduction of

the product and customer behaviour of different level of product cycle.

Analysis

Firstly let’s understand what factors influence the behaviour of the customer. Culture

factors exert a broad and deep influence. Culture is the most basic cause of person’s wants and

behaviour. A person’s likes, dislikes, wants, desires etc., are built on his/her family. Next the

social class Upper, Middle, Working and Lower class. Social class is not determined by a single

factor, such as income, but is measured as combination of occupation, income, education, wealth

and other variables. Social Factors, word of mouth influence, the impact of the personal words

and recommendations of trusted friends, associates and other consumers on buying behaviour.

Marketers of brands subjected to strong influence must figure out how to reach opinion leaders.

Personal factors age, occupation, Economic situation, Lifestyle etc., a person buying choice can

be further influenced by Psychological factors motivation, perception, learning and beliefs and

attitudes.

Customer behavior enables companies to take appropriate marketing decision on

Marketing Mix the 6P’s Product, Price, Promotion, Packing, Positioning and Place of

Distribution.

Maggi instant noodles. Maggi 2minutes an instant food product, was introduced in 1982.

Maggi noddle’s is the leading brand of instant noodles in India enjoying market share of 79.3%.

In this product the marketers have created a want. In that time the Indian customers were very

conservative and did not expose themselves to any changes. Hence to get there product accepted

as a major challenge. The main marketing point was “instant noodles” this is first kind of food

category introduced in India. Based on its USP the working women were targeted but the

91


approach failed. To understand the cause of the failure Maggi conducted a study which revealed

that the Maggi taste was liked by children. Hence the targeted customers were children through

mothers.

Maggi was a Monopoly and later had competitors but to create the brand it followed the

STPD analysis. Segmentation: Maggi brand have segmented the market on the basis of lifestyle

and habits of Urban Families. Target: they targeted the kids, office going, and working woman.

Positioning: Maggi has positioned itself in the SNACKS category since Indians did not consider

noodles as proper food the Maggi have developed itself in instant food product with positioning

statements such as “2 minutes noodles” and “Easy to cook” “ good to eat”. POD: post of

differentiations, the brand differentiated they brand from its competitors in terms of taste flavors

and packing.

By introducing product like Maggi the need was created not identified. Smart companies

like Maggi try to understand the customer behaviour decision process. "The Buyer Decision

Process”

Let’s understand the customer behaviour. When evaluating the potential alternatives,

consumer used two types of information the first is the list of brands from which they plan to

make their selection and the secondcriteria from which they plan to make their decision. Beliefs

and attitude are acquired by experience and learning, Maggi has always provided its consumers

with something new time to time which has developed a good belief has helped them to choose

them from their alternatives. Customer behaviour depends on experience with the product, if

performance falls short of expectation the consumer is disappointed and if it meets the

expectation of the consumer is satisfied.

Following is the purchase based on age category:

1990 1995 2000 2005 2010 2015

Children 2-9yrs 169999 181521 187940 189211 184457 184376

Teenagers 10-14yrs 89781 100560 109302 114583 117137 114226

Teenagers 13-19yrs 120293 127645 142432 153781 160728 162495

Studying Age 18-22 80812 85918 92074 103179 110642 115126

Young Adult 15-29 230839 249149 270576 294103 319267 336193

Middle Age 30-59 243295 277343 316065 358164 398405 440655

Baby Boomers 40-59 134212 151646 174986 202754 232801 261349

Pensioners 60+ 57029 65643 75712 86585 99728 117168

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Findings

By understanding the Maggi product we can say they have following strengths:

1. Family based advertising, high advertising share

2. Emotional relationship with the consumer

3. A strong distribution channel

The main point to focus on “Emotional relationship with the consumer” Customers are so used to

the product that it is identified by the following:

1. Yellow Packing

2. Tasty Snack

3. Sunday Breakfast

4. Fun in having

They created a Family Brand by providing taste and preference of consumers, they

closely watched consumers preferences they introduced Chicken maggi, wheat flour maggi.

They exceeded the expectation.

July 2015 Maggi was banned By (FSSAI) Food Safety and Standards Authority of India

calling it unsafe and hazardous for consumption. On June 8 post 3days after the ban the Maggi

share price went down to 5,539.8 lowest during that year

Consumption Before Ban

Age Everyday Thrice a week

Twice a week

Once a week

Once a month Never Total

15-25 1 5 8 6 4 1 25

25-35 0 4 5 4 4 0 17

35-45 0 2 2 3 1 0 8

Total 1 11 15 13 9 1 50

Consumption After Ban

Age Everyday Twice a week Once a week Once a month Never Total

15-25 1 2 5 14 3 25

25-35 0 1 3 10 3 17

35-45 1 1 3 1 2 8

Total 2 4 11 25 8 50

Maggi has maintained trust and confidence even after post ban period. A product’s

success/failure is the evaluation of consumer response to a particular marketing strategy. It also

indicates if the organization has been successful in fulfilling their wants and needs and their

93


impact on the society. To sum up all the arguments stated above, it is clear that better

understanding the consumer buying behaviour through studying and identifying their needs leads

to huge long term benefits to the businesses.

Conclusion

The points to be considered by marketers while designing the marketing strategies are the

psychology of how customer thinks and feels the brand product. What are his /her thought

process, behavior while purchase of the product in the market. Customer knowledge on the

product. Product importance for the consumer or ranking. How consumers are influenced by

their environment, culture, media. Limitations in consumer knowledge or information processing

abilities influence decisions and marketing outcome.

References

1. Mr Rahul .M.Mhabde , MrsRajeshri Son2 Analytical study on Consumer behavior towards “Maggi Instant noodle” in Mumbai –A post ban, Vol-3 Issue-1 2017 IJARIIE-ISSN(O)-2395-4396

2. https://www.slideshare.net/UtkarshVerma12/brand-loyalty-and-consumer-buying-behaviour-towards-maggi

3. https://www.slideshare.net/PraneshSharma/43379925-magginoodlesmarketingplan

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