management and research practices in emerging markets · celebrating 40 years of nurturing...

Management and Research Practices in

Emerging Markets

Celebrating

Nurturing Management Education

Late Dr. Bihari Kanaiyalal

Founder, B. K. School of Business Management

Celebrating 40 years of Nurturing Management Education......

Management and Research Practices in

Emerging Markets

Editors

Neelima Ruparel * Vasudev Modi

B. K. School of Business Management

Gujarat University, Ahmedabad, Gujarat

Management and Research Practices in Emerging Markets

ISBN: 978-93-80867-85-4

© Neelima Ruparel and Vasudev Modi

No part of this book may be reproduced or transmitted in any form by any means,

electronic or mechanical, including photocopying, recording, or any information storage

and retrieval system, without permission in writing from the copyright owners.

Disclaimer

The authors are solely responsible for the contents of the papers contained in this book.

The publishers or editors are not responsible for the same in any manner.

First Published in 2016 by Technical Support by

B. K. School of Business Management, Books India Publication

Gujarat University,

Ahmedabad – 380 009

Gujarat, India

Tel: 079-26304811

Web: www.bkschool.org.in

Preface

Management practices in the last decade have evolved significantly and have impacted

businesses, markets, societies, public policies, and international alliances in business and

trade, in a large way. These changes are all the more evident in developing countries like

India that serve as emerging markets for a wide range of goods and services.

India for long has been a land of contrasts, with huge variations in natural resources,

business environments and cultures. Characterized by a young population and a growing

middle class, like other emerging economies of Brazil, China, Mexico and others, India

too as an emerging market has been experiencing rapid economic growth,

industrialization and modernization.

Since the economic liberalization policies in the 1990s, emerging market India has

prospered to a great extent. Globalization, rapid advancements in Infrastructure and

Technology, increase in international trade, increasing efficiency in logistics and supply-

chain capabilities, development of medical facilities and increase in foreign investments

have further fueled the growth of the Indian market. Government has also taken many

positive steps to boost the emerging Indian market and there has been a significant

development in the agricultural, service and industrial sectors in the country.

Further, digitalization, modernization of communication technologies and the Internet

have also brought about a revolutionary change in trade and business practices as

compared to the past. Moreover, the development of e-commerce has transformed the

Internet from merely a source of information of products and services to a platform for

buying and selling them. Being the front-runner amongst the fastest emerging economies

in the world with magnanimous opportunities available due to positive demographics,

majority of primary, secondary and tertiary sectors in India are witnessing buoyancy. It

would be stimulating to know the changes in management and research practices in all

these different sectors of the economy. However this book focuses on five vibrant sectors

viz, Banking and Financial Services, Tourism, Retail, Pharma and Healthcare and

Maritime sectors of our economy.

It is our pleasure to present this book containing selected astute papers and perspectives

of experts, academicians, practicing managers and scholars in the above sectors. This

book is an humble endeavor to facilitate sharing of research findings and successful

business practices in developing markets among a varied group of experts.

On the occasion of celebration of 40 years of B. K. School of Business Management in

Nurturing Management Education, we hope and are confident that this publication will

act as a medium of exchange of experiences that would lead to further deliberations and

research to bring about desirable changes and cope up with future challenges.

Dr. Neelima Ruparel & Dr. Vasudev Modi

v

Acknowledgement

This book is a collection of selected research papers contributed by academicians,

scholars and noted practitioners for the National Conference on ‘Management and

Research practices in emerging markets’ with a specific focus on Tourism, Pharma and

Healthcare, Banking and Financial Services, Retail and Maritime sectors.

On the occasion of the launch of this humble effort, we take this opportunity to express

our earnest gratitude to Honourable Shri Bhupendrasinh Chudasama, Minister of

Education, Government of Gujarat for sparing his valuable time and blessing us with his

inspiring presence. We would also like to express our sincere gratefulness to Dr. M. N.

Patel, Honourable Vice Chancellor of Gujarat University for his kind support and

encouragement. We are extremely thankful to Shri H. C. Patel, Registrar, Gujarat

University for endorsing approval for the programme and for his kind cooperation in all

aspects. We would also like to express our special thanks to Ms. Vaishali Padhiar,

Development Officer, Gujarat University for providing us with needed support.

We have been able to bring forward this humble effort with the cooperation of various

noted practicing managers, academicians, entrepreneurs and scholars who have

contributed papers on various issues related to the conference for this publication. We are

thankful to these paper contributors as well as to all participants and presenters for

participating in the conference.

We would express our heartfelt thanks to Mr. Pranav Sheth and Ms. Ankita Kathiriya,

our research scholars who helped us during the entire process of planning, coordination

and execution of the event. We are also thankful to Ms. Ruchi Mewada for her

continuous administrative support and Satyam Printers, Ahmedabad for efficient print job

execution and timely publication of this book.

Special thanks to our families for understanding and cooperating, during long stints of

overnight efforts to ensure timely completion of this book and execution of the event.

vi

Contents

Preface v

Acknowledgement vi

Section 1: Banking and Financial Services Sector

1 Practitioner’s Perspective

Financial Inclusion: A Global Comparative Study

Jasmine Gupta

1

2 Green Banking initiatives by NSE 50 Banks in Ahmedabad City: An

analysis of the perceptions of e-customers in context of their Demographics

Rajesh P Ganatra

17

3 Pre & Post-Merger Financial and sock return analysis of Indian Banking

Sector

Ritesh Patel & Ankita Kathiriya

25

4 A study of Job Involvement among the employees of selected Private

Banks of Gujarat

Tushar Panchal & Jayanti Ravi

36

5 Indian Banking Sector: Challenges and Opportunities

Pranav H. Sheth & Priyanka Pathak

42

6 A Study on the extent of financial inclusion in the North Gujarat Region

NC Raghavi Chakravarthy

49

7 Do Shariah-compliant stock indices perform better than

Conventional stock indices?

Ashish Siddiqui & Nilam Panchal

57

8 Microfinance delivery models followed by Microfinance Institutions in

Gujarat

Bhoomi Parekh

65

Section 2: Pharma and Healthcare Sector


Management of Intellectual Property Rights (IPR) in Drugs &

Pharmaceutical Industry

Padmin Buch

74

10 Involving Patients in improving Healthcare Safety- A Participative Way of

Healthcare Risk Management

Sanjaykumar Dalsania & Mahesh Patel

84

11 Pharmacoeconomics research through clinical trials: overview

Neeraj Rathod & Rashmi Pant

89

12 Sales promotion to doctors’: The societal perspective

Reshmi Menon & Neelima Ruparel

97

13 Indian Pharmaceutical Companies and ANDA filings, the driver of the off

patent (generic) drug revolution-Myth or reality

Rashmi Pant

110

14 Classifying healthcare offerings to gain strategic marketing insights

Ashwini Vora

122

Section 3: Maritime Sector

15 Adoption of 3PL Practices in Kutch: Impact and influence of Key success

Factors on Revenue Growth

Rucha Vyas

126

16 The importance of Information & Communication Technology (ICT) in

various Port Operations

Vasudev Modi & Nehal Shah

140

17 Bottlenecks to the Chemical Industry due to inadequate Port & Logistics

Infrastructure in Gujarat State

Gopal Desai & Manish Gupta

150

18 Maritime Industries: Operations & Service Marketing Opportunities &

Challenges

Bijoyen Das

158

Section 4: Retail Sector


The Journey of a Retail Entrepreneur

Nadeem Jafri

167

20 Study of Effect of Role Ambiguity on Job Satisfaction of Employees in

Apparel Retail

Anjali Gokhru & Nidhi Desai

174

21 Implications of Technology on Retail

Jasleen Sardar & Himani Sardar

194

22 Raymond Women’s Apparel

Pranav Sheth & Vasudev Modi

203

23 Study of Consumer Behaviour in Purchase of Real Jewelry with special

reference to Ahmedabad City

Mehal Pandya

213

24 A study on customer’s opinion about influence of brand equity dimensions

for cell phones - A pilot Study

Anupama Dave & Mamta Brahmbhatt

226

Section 5:Tourism Sector

25 Medical Tourism Development in Gujarat: Progress and Prospects

Maulik C. Prajapati & Ashish K. Makwana

239

26 Election tourism in India

Vilas Kulkarni & Suhag Modi

244

27 Emerging Tourism Areas: A Case Study of Gujarat State

Digesh Kanaiyalal Patel

248

28 Realistic study of tourism scenario with special reference to Gujarat

Milind Vora

258

29 Tourism Indicators: Tool for Sustainable Development

Rahul Singh Shekhawat

267

Section 6: Others

30 Trend and Investment Preference Scenario of Commercial Real Estate

Devendra Lodha & Narayan Baser

276

31 Dimensions of Digital Divide: Study of Gujarat

Kamal Kapoor

288

32 Emerging market perspectives with neighboring countries: Awaiting

Development of North - East states of India

Satinder Singh

300

33 Application of Artificial Intelligence for Forecasting of Industrial Sickness

Jay Desai & Nisarg Joshi

315

1


Ms. Jasmine Gupta

Associate Vice President, Kotak Mahindra Bank Ltd., Mumbai

Abstract

_____________________________________________________________ Financial inclusion is the delivery of financial services at affordable costs to disadvantaged and low

income segments of society. At the global level, 2.5 billion people – about 40% of adult population –

remain without a bank account, according to the 2014 World Bank Global Financial Inclusion (Global

Findex) database. A comparative study has been initiated here to study and analyse country-specific

financial inclusion initiatives across some common parameters in the form of case studies. Countries such

as Kenya, Brazil and Mexico - that have shown remarkable progress in the common key parameters have

been selected for the purpose of comparative study with India. The objective of this study is to learn what

best practices can be borrowed from these nations to boost financial inclusion in India. The five common

comparison parameters are Access to Financial Services, Adoption of Financial Services, and Access to

Digital Financial Services, Adoption of Digital Financial Services, and Regulations, Policies and

Strategies.

Based on the case-studies, India can get lessons of Correspondent banking and its Regulations from

Brazil, Mobile Money and Digital Banking initiatives from Kenya and Government transfer Model from

Mexico. Keeping a tab on what is happening in similar economies, mistakes and challenges faced by

them and their success stories, will only add to India’s initiatives getting a boost for faster and smoother

implementation of financial inclusion.

Key words: Financial inclusion, global financial inclusion, financial inclusion access and adoption,

digital banking and financial services, country specific regulations for financial inclusion

______________________________________________________________________________________


Introduction

Financial inclusion is the delivery of financial services at affordable costs to disadvantaged and

low income segments of society. At the global level, 2.5 billion people – about 40% of adult

population – remain without a bank account, according to the 2014 World Bank Global Financial

Inclusion (Global Findex) database. Access to financial services varies widely by a country’s

level of development as well as individual’s income, education and gender. For example in high-

income economies 94% adults are financially included, as compared to 54% in developing

economies. There are also enormous disparities among developing regions, where account

penetration ranges from 14 percent in the Middle East to 69 percent in East Asia and the Pacific.

Issues related to financial inclusion are one of the major challenges on the agendas of

international institutions, policymakers, central banks, financial institutions and governments.

The World Bank’s declared objective of achieving universal financial access by 2020 is another

example of financial inclusion being recognized as fundamental for economic growth and poverty

alleviation. Thus financial inclusion is not an end in itself, but a means to an end. Studies show

that when people participate in the financial system, they are better able to start and expand

businesses, invest in education, manage risk and absorb financial shocks. Access to accounts and

to savings and payment mechanisms increases savings, empowers women, and boosts productive

investment and consumption. Access to credit also has positive effects on consumption—as well

2

as on employment status and income and on some aspects of mental health and outlook. The

benefits go beyond individuals. Greater access to financial services for both individuals and firms

may help reduce income inequality and accelerate economic growth.

In recent years, many developing countries have taken many initiatives to expand financial

services for the poor. Some country strategies have given successful results which can be lessons

and learnings for other countries to emulate and expand financial inclusion. With this purpose in

mind, a comparative study has been initiated to study and analyze country-specific financial

inclusion initiatives across some common parameters in the form of case studies. Countries that

have shown remarkable progress in the common key parameters have been selected for the

purpose of comparative study with India. The selected ones are Kenya, Brazil and Mexico. The

objective of this research work is to learn what best practices can be borrowed from these nations

to boost financial inclusion in India.

Comparison Parameters

The Four countries – Brazil, Kenya, Mexico and India have been analyzed on basis of five

common comparison parameters as under:

1. Access to Financial Services

2. Adoption of Financial Services

3. Access to Digital Financial Services

4. Adoption of Digital Financial Services

5. Regulations, Policies and Strategies

Access to Financial Services

This parameter deals with the supply or access to financial services in the country. This is usually

measured by the extent of reach of banking and financial services to the poor. The key

comparison points are no. of ATMs per 1 lac population, no of branches per 1 lac population,

ATMs per 1000 sq km, branches per 1000 sq km, etc.

Adoption of Financial Services

This parameter measures the extent to which the financial services have been adopted or used by

people. The key comparison points are account penetration, borrowing from a financial

institution, saving at a financial institution, debit card use, credit card use, etc.

Access to Digital Financial Services

This parameter measures the extent to which people have access to mobile money and other

digital financial services. The key comparison points are no. of unique mobile subscribers, 3G

mobile network coverage, no. of mobile money service deployments, availability of person-to-

person domestic transfers, bill payment and international remittances via mobile money services,

mobile money platform interoperability, digital innovation, government payment systems, etc.

Adoption of Digital Financial Services

This parameter measures the extent to which people are using digital financial services. The key

comparison points are no. of people using online bill payment and purchases, mobile money

account penetration, mobile phone used to receive salary or wages, mobile phone used to make

utility payments, transfers and remittances, etc.

3

Regulations, Policies and Strategies

Central Bank Regulations, Government policies and strategies for financial inclusion play the

most important part in enhancing financial inclusion. Regulations and policies surrounding

traditional and digital financial services vary widely across countries and are critical factors in

determining the success of financial service provision. The key comparison points are agent

banking, non-bank led mobile financial service deployments (with a focus on the role of mobile

network operators, or MNOs), e-money regulations, mobile money platform interoperability,

proportionate know-your-customer processes, and cash-in/cash-out capability at agent locations.

Country-Wise Case Studies

The case-studies have been designed as per the specified comparison parameters to enable ease in

drawing comparisons and extracting the desired lessons for India.

1. CASE STUDY OF BRAZIL Brazil is one of the biggest economies of Latin America. Its adult population stands at 152

million and GDP of $2246 billion as of 2014. Brazil also has very high – about 90% literacy rates

and a young population, with about 40% of the population under age 25 as of 2014. The country

also possesses high level of urban concentration with 85% of the population comprising of urban

dwellers. Brazil has one of the most advanced correspondent banking models and it is one of the

largest mobile markets in Lain America and the world. The Brazilian Government has taken some

strong regulatory steps to expand financial inclusion.


A 2012 report by Brazil’s National Partnership for Financial Inclusion stated that “all of Brazil’s

5,565 municipalities have at least one access point,” and “the proportion of municipalities with

more than five access points per 10,000 adults rose from just 18% in 2000 to 94% in 2010.” As of

2013, the number of commercial bank branches per 100,000 adults was fairly high, at around 48;

the number of bank branches per 1,000 sq km was about eight.

Brazil has the most well developed BC – Banking Correspondent – Model with more than four

lac correspondents nationwide as of December 2013. The correspondents can reach and impact

the traditionally underserved segment comprising of poorer, less educated, informal sector

workers and women the most.

Government-to-person payment programs are also present in Brazil where 20% of adults have

been given government transfers via a bank account as of 2014. An example is of the Bolsa

Familia cash transfer program which as per 2014 World bank report provides payments to nearly

14 million families. The transfer is conducted through a variety of mechanisms. A 2012 report

found that about 1 percent of Bolsa Família recipients were paid in cash, 15 percent received

funds through a mainstream Caixa Facil bank account, and 84 percent used a “Social Card.” With

the Social Card, recipients must withdraw their funds within 60 days, and recipients may not

deposit additional funds onto the card. While programs such as Bolsa Familia provide support to

low-income families, one concern is that virtual accounts that do not permit deposits or extended

storage of funds limit functionality and possible financial benefits for users. However, Caixa has

been applauded for promoting awareness of broader financial services among Bolsa Família

recipients, and a 2012 report noted that “40% of Bolsa Família clients use at least one other

product of the bank.”


About 68 percent of adults in Brazil had an account at a formal financial institution as of 2014.

About 65 percent of women in Brazil had an account at a formal financial institution as of 2014.

4

About 12 percent of adults had borrowed money within the previous 12 months from a bank or

other type of formal financial institution, and around 12 percent saved money within that period

at a formal financial institution. About 59 percent of adults use debit cards. Out of the total

account holders, 75 percent use ATMs as the primary mode of cash withdrawal. 42 percent use

Debit cards and 28 percent use Credit cards to make payments.

BCs are more popular for bill pay services. About 67% of Brazilian households paid atleast one

bill at a BC and 79% of “unbanked” households in Brazil paid atleast one bill at a BC in 2013.

However since banks decide which correspondents can open new accounts for customers and

which can merely transmit applications for new accounts to banks, in 2013 only about 19 percent

of BCs nationally were authorised to open new accounts for customers. Hence the 2013 survey

indicated that only 4% people with bank accounts had opened their bank account at a BC.


Brazil’s mobile telecommunications sector is very competitive. The market shares are split

among multiple network operators, and several mobile financial service solutions are available.

As of May 2015, four active mobile money deployments were operating in Brazil. The number of

mobile cellular subscriptions is also high. In 2014, there were about 139 subscriptions per 100

people.


The rate of mobile financial services use is very low in Brazil. Less than 1 percent of Brazilians

used a mobile phone to pay bills, receive money, or send money, according to 2014 estimates.

With regards to other digital payment platforms, only 9% Brazilians use internet to pay bills or

make purchases. This is one area which is untapped and has potential to change the financial

inclusion scene of Brazil if given the right impetus.


Brazil launched the National Partnership for Financial Inclusion in November 2011. The Central

Bank of Brazil (BCB) is responsible for the growth and stability of the Brazilian financial system.

The emergence of correspondent banking in Brazil can be traced back several decades. Earlier the

BCs were restricted to bill payment services and social payments distribution. However in 2003,

Resolutions 3.110/03 and 3.156/03 modified regulations for BCs in order to be less restrictive -

consequently, nearly any retailer can become a BC, and authorization for each BC/bank

relationship by the BCB is no longer mandatory. Further to that under the 2011 Central Bank

Resolution 3954, correspondents are allowed to receive and forward deposit account opening

applications, execute payment orders, receive and forward loan and leasing requests, receive and

forward credit card applications, and other such services.

Correspondents are paid a commission per transaction, and the initial investment and staffing is

provided by the contracting financial institution. BCs are often open longer than traditional bank

branches, as they are subject to commercial rather than central bank regulations in this respect,

and the contracting financial institution bears the risks of transactions. The widespread success of

Brazil’s correspondent banking program may be attributed in part to regulators gradually

loosening restrictions, and to the legal framework placing the burden on regulated institutions to

train and be accountable for their correspondents.

Moreover, when a private bank won the right to use post offices as BCs, it may have provided an

impetus for other private banks to develop their BC networks. Other drivers of BC growth

include: “The need to distribute social transfer payments to millions of poor families, many of

5

whom live in remote areas”; regulatory measures conducive to branchless banking; economic

growth; and the “boleto” payment system, which permits bills to be paid at nearly any shop.

Non-banks in Brazil were initially not permitted to issue e-money or other stored-value

instruments (e.g., electronic accounts stored in mobile phones). However, recent legislation has

opened up the financial services playing field to a more diverse array of entities, and Brazil is

considered a leader in the field of non-bank e-money provision in Latin America. In May 2013, a

legal framework on payment arrangements, including mobile payments, was developed in Brazil.

In October 2013, Brazil passed a law that instituted a “category of electronic payment institutions

regulated by the Central Bank” that specified “the principles of non-exclusion and

interoperability.”

The BCB introduced regulations in November 2013 that could further facilitate mobile money

uptake, as one of the changes from the original regulations is that non-banks may issue e-money

as “payment institutions.” 75 76 Resolutions 4282 and 4283 of November 2013 established

requirements for companies to become payments institutions that could operate as a card issuer,

owner of a payment scheme, or card processer. Circular 3680, issued in November 2013, and

Circulars 3704 and 3705 (amending Circulars 3681, 3682, and 3683), issued in May 2014,

provided additional guidance regarding capital requirements and interoperability. Funds entering

the system are “held on account at the central bank and do not form part of the deposit base of the

banks,” meaning that they cannot be loaned.

As of 2014, interoperability was recognized by the government of Brazil as a long-term goal for

mobile money license holders. To encourage the engagement of a variety of entities within the

financial services market, until January 2017, institutions that manage payment schemes and are

below specific thresholds (e.g., about $190 million for transaction amounts and 25 million

transactions) will be exempted from applying for a license from the central bank and integrating

the Central Bank Payments System; after January 2017, these thresholds are expected to be

reduced by 10 percent. The new payments system also includes “purpose-free payment schemes,”

which means that customers can engage in deposits, withdrawals, transfers, and payments without

being tied to one particular financial institution; the purpose-free payment schemes will be

overseen by the central bank. These developments are expected to contribute to financial

inclusion in Brazil moving forward.

2. CASE STUDY OF KENYA Kenya has the highest level of financial inclusion amongst all African countries. The credit goes

to the country’s vibrant mobile money eco-system. Kenya has GDP of $55 billion and adult

population of 26 million. The rise of the country’s highly successful mobile money deployment

M-Pesa (a product of Kenya’s largest mobile network operator, Safaricom) serves as a unique

model for leveraging market expertise and existing infrastructure to scale up mobile money

services and advance financial inclusion. However concerns regarding insufficient market

competition in the area of mobile financial services remain.


The percentage of population in Kenya living within 3 km of a financial access point was about

59 percent, significantly higher than other countries in the region, as per 2013 Financial Access

Survey. Data available from FSP Maps as of May 2015 noted that about 63 percent of Kenya’s

population was within 3 km radius of financial service points. The International Monetary Fund’s

2014 Financial Access Survey found that in 2013 there were about two commercial bank

branches per 1,000 sq km in Kenya and about six commercial bank branches per 100,000 adults.

6


By 2014, according to the Global Findex about 55 percent of adults had an account at a formal

financial institution, with about 36 percent of those in the bottom 40 percent of income levels

holding an account. About 52 percent of women had an account with a formal financial

institution. Approximately 30 percent of adults saved at a financial institution, while about 15

percent of adults borrowed from a financial institution.


As of 2014, there were about 74 mobile cellular subscriptions per 100 people in Kenya. The 2013

FinAccess National Survey highlighted demographic disparities in mobile phone ownership.

About 62 percent of rural adults owned a mobile phone in 2013, for example, compared with

about 84 percent of urban adults. According to a 2013 InterMedia survey, “51 percent of Kenyan

adults use basic phones, while 36 percent use feature phones, and only 6 percent have

smartphones.”

The proliferation of mobile money agents has increased the accessibility and cost-effectiveness of

financial services for consumers in Kenya, particularly among those in rural areas. The 2013

FinAccess survey found that for approximately 76 percent of the rural population, the nearest

financial service provider was a mobile money agent. Similarly, 75 percent of urban respondents

cited mobile money agents as the closest financial service provider. The 2014 Financial Access

Survey found that in 2013 there were about 455 active agent outlets per 100,000 adults and about

199 active agent outlets per 1,000 sq km in Kenya. A Microfinance Information Exchange (MIX)

financial inclusion map accessed in April 2015 indicated that there were more than 45,000 mobile

money agents in Kenya, compared with about 7,000 bank agents. The prevalence of M-Pesa

agents in particular highlights the potential of agents to increase points of access to financial

services for underserved populations. A 2010 paper by Ignacio Mas and Dan Radcliffe noted that

there were already nearly five times as many M-Pesa outlets as the total number of Postbank

branches, post offices, bank branches, and ATMs in the country. In terms of reaching scale, Mas

and Radcliffe stated that using existing retail stores as M-Pesa cash-in/cash-out outlets reduced

deployment costs, lowered the cost of access to users, and increased convenience to consumers.


According to the 2014 Global Findex, about 58 percent of the adult population in Kenya used a

mobile money account within the previous 12 months, with about 56 percent of rural adults, 53

percent of low-income adults (among the bottom 40 percent of the income scale), and 55 percent

of women using mobile money accounts. About 25 percent of those who received salary or wages

within the previous year did so through a mobile phone, and about 55 percent of those who paid

utility bills within the previous year did so through a mobile phone.

While Kenya had several active mobile money deployments as of May 2015, the M-Pesa service

has experienced the greatest takeup. Of active mobile money account holders in the 2014

InterMedia survey, 99 percent used M-Pesa, while about 9 percent used Airtel Money (active

mobile money account holders can have accounts with more than one provider).

M-Pesa was launched commercially by Safaricom in March 2007. Safaricom’s high market

shares (about 80 percent at the time of M-Pesa’s launch in 2007) ensured broad awareness of the

brand, a sizable network of airtime resellers that could be converted into cash-in/cash-out agents,

and a significant budget for development of the product. Moreover, bank branch networks such as

Equity Bank and the presence of many MFIs ensured a reasonable number of liquidity points. M-

Pesa signed up banks as agents, allowing any M-Pesa customer to walk into a variety of bank

7

branches to conduct cash-in/cash-out transactions. In 2008, M-Pesa partnered with PesaPoint, one

of the largest ATM service providers in Kenya, further increasing the service’s accessibility.

Like other mobile money services, M-Pesa allows customers to deposit and withdraw cash by

exchanging cash for electronic value through a network of agents (often people who own retail

stores) who are paid a transaction fee by Safaricom. Customers can also pay bills, purchase

airtime, and transfer funds to other M-Pesa users and even to non-registered users. Registration

can be done at any M-Pesa retail outlet for free. The customer’s name, ID number (found on a

variety of identity documents, including a Kenyan national ID, passport, military ID, diplomatic

ID or alien ID), date of birth, occupation, and mobile phone number need to be entered into a

registration form. If the customer’s SIM card does not contain the M-Pesa application, the clerk

provides a SIM compatible with the M-Pesa application. There is no fee to deposit money

through M-Pesa and no minimum balance, although there is a minimum transaction amount of

Ksh 10 (about $0.10).

The experience of Kenya highlights how mobile money services can evolve and provide new

financial service offerings, although it may take time for customers to fully utilize the new

services. In November 2012, Safaricom and the Commercial Bank of Africa partnered to launch

M-Shwari, a mobile savings and credit service. The 2013 InterMedia survey found that only 30

percent of survey respondents who used M-Shwari actually took out a loan, and even fewer (14

percent) reported that they saved money with it for a future purchase or payment. Instead,

customers primarily used the product to deposit and withdraw money. In March 2015, Safaricom

and KCB (Kenya Commercial Bank) launched the KCB M-Pesa account, a mobile phone-based

savings and loan product similar to M-Shwari but with some differences, including a longer

repayment term and higher loan limits.


In 2009, the Finance Act introduced modifications to the Banking Act to permit agent banking,

and in 2010, the CBK (Central Bank of Kenya) released agent banking guidelines. These

guidelines allowed banks to appoint third parties as agents, but “banks faced difficulties in

building effective agent networks due to the higher compliance requirements for bank agents than

mobile money agents. The agent banking guidelines allowed post offices, supermarkets,

pharmacies, gas stations, and various other entities to conduct specific financial activities

(including cash-in and cash-out services) on behalf of a licensed commercial bank.

Other recent regulations include prudential guidelines on consumer protection, which were

launched in January 2013. Further, the National Payment Systems Act and Regulations were

passed and issued in 2011 and 2014, respectively. The legislation requires all electronic money

issuers in the country to have open back-end systems able to be interoperable both domestically

and internationally, which could increase competition from other mobile network operators

(MNOs) and services. The 2014 National Payment Systems Regulations do not permit agents to

be required to serve one provider exclusively. These regulations codified that banks and non-

banks (including MNOs) can apply to the CBK to be authorized as a mobile payment service

provider. Customer funds from mobile money transactions through such services as M-Pesa have

been required to be kept in a prudentially regulated financial institution; in turn, CBK has allowed

entities such as Safaricom to operate mobile money services as payment products under the

National Payment Systems legislation, outside the provisions of traditional banking law.

Customers are not paid interest on the balance in their accounts, as the electronic value stored in

the account is not considered a deposit — any interest earned on deposited balances is sent to a

not-for-profit trust, and limits on transaction amounts are in place to address anti-money

laundering concerns.

8

With respect to facilitating competition, in April 2014 the Kenyan government approved mobile

virtual network operator (MVNO) licenses under existing legislation (MVNOs supply their SIM

cards and mobile money services over existing mobile networks).The entry of banks and MVNOs

into the mobile money market is hoped to spur competitive pricing and generate innovative

services. Another factor that may stimulate greater competition is the ruling by the Competition

Authority of Kenya (CAK) in July 2014 that Safaricom was required to end its agent exclusivity

agreement in order to allow Safaricom M-Pesa agents to transact business for other mobile

operators. As noted, the 2014 National Payment Systems Regulations required that “[a] contract

for the provision of retail cash services entered into between a payment service provider and an

agent or a cash merchant shall not be exclusive.” The regulations and ruling may facilitate greater

opportunities for non-Safaricom customers to transact at financial access points, since as of 2014

about 90 percent of agents in Kenya were exclusive to Safaricom, with about 4 percent non-

exclusive.

Kenya’s government has recently focused on promoting digital transactions in the area of public

sector payments; for example, the government has banned cash for public transport payments

(e.g., bus and matatu fares). In 2014, the government of Kenya also launched a Government

Digital Payments program to encourage payments to the government to be made through digital

channels such as mobile money and credit cards. By accessing the www.ecitizen.go.ke web

portal, individuals can make digital payments for services such as passport and driving license

applications and renewals.

3. CASE STUDY OF MEXICO As an upper middle income developing economy in Latin America, Mexico possesses a fairly

developed telecommunications and banking sector. The country also has a relatively young

population (about 86 percent of the population was 54 years old or under in 2014) and strong

literacy rates (about 94 percent for adults age 15 and older as of 2012). Its GDP is $1261 billion

and adult population is 87 million. Mexico has been lauded for having the best Government

Payments system.


As of 2013 approximately 73 percent of municipalities in Mexico had access to financial services

through a banking agent, branch, ATM, or point-of-sale terminal. As of 2012 about 96 percent of

Mexico’s population lived in a municipality with at least one access point. However, in 2012

about 87 percent of banking agents (commercial third parties contracted by banks) were located

in areas with more than 50,000 inhabitants — only about 18 percent were located in rural or semi-

urban environments.

In “corresponsales” arrangements, existing banks extend basic financial services through retailers,

pharmacies, convenience stores, and other businesses so as to reach a larger customer base.


According to Mexico’s National Survey for Financial Inclusion (ENIF), 56 percent of the adult

population used one or more formal financial services in 2012. The ENIF also noted that in 2012,

35.5 percent of the adult population had a deposit or savings account with a formal financial

institution. By 2014, about 39 percent of adults age 15 and older had an account with a bank or

other formal financial institution.

9


Mobile penetration in Mexico reached around 83 subscriptions per 100 people in 2014.

Registered banks and non-banks are the only entities permitted to offer mobile financial services

— and the role of mobile network operators (MNOS) in that context is limited. Non-banks are

permitted to become authorized as “payment banks,” which are niche banks subject to lower

capitalization requirements, in order to issue electronic payments.

The Mexican government’s shift toward electronic government-to-person (G2P) payments over

the course of several political administrations was accelerated after a 2010 budget decree that

certain government departments shift to centralized electronic payments. Electronic G2P

programs are often cited as a first step in building the infrastructure and public-private

partnerships crucial to advancing financial inclusion.

The case of Mexico shows that the real benefits come when electronic payments are combined

with treasury centralization: centralization definitively reduced costs to government through

reducing the float otherwise held at multiple banks, and by using the central bank’s payment

system at zero marginal cost to effect the payment, rather than paying a fee per transaction to

banks. In addition, centralization allowed for better controls (97% of savings in salaries and 98%

in pensions came from reducing leakage), budgeting and vigilance by MoF over all federal

expenditure. For workers or recipients, centralization also widened their choice of banks: instead

of being limited to the payroll bank or banks with which his or her agency contracts, the recipient

can choose an account at any bank. This is likely to improve competition and service levels at

banks compared to the captive situation common before. Lastly, centralization seems to make the

process of digitizing payments difficult to reverse, relative to the case where electronic payments

are left to each agency to manage.

The recent example of shifting all high school teachers in Mexico City to centralized payments

suggests that a well-planned process which minimizes confusion or inconvenience to the recipient

goes a long way to overcome resistance. In addition, the pension agency IMSS designed key

incentives for pensioners to adopt electronic payments, such as expediting loan approvals on

electronic payments and accelerating the date of payment to the first possible day instead of up to

11 working days later.

Reports suggest that the Mexican government may now be saving MXN $17 billion per year, or

3.3% of its total expenditure on wages, pensions and social transfers because of its shift toward

electronic government-to-person (G2P) payments.


As of the third quarter of 2014, Mexico’s smartphone adoption rate was about 18 percent; this

rate is projected to increase to about 62 percent by the end of 2020. As of 2014, about 3 percent

of adults in Mexico had used a mobile money account within the previous 12 months; of those

who regularly received a salary or wages, about 4 percent received them via a mobile phone,

while among respondents who regularly made utility bill payments, the percentage who did so

through a mobile phone was about 3 percent. Thus mobile phone-based financial service solutions

have not been widely adopted in Mexico, and developing a viable business model for banking

entities in rural areas has proven challenging.


Mexico’s efforts to create an enabling regulatory environment through mechanisms such as

payment banks have yielded positive trends. Between 2007 and 2012, 14 commercial banks and

almost 4,000 bank branches were created. Some experts have suggested that the emergence of an

10

emphasis on financial sector development in Mexico occurred in the mid-to-late 2000s, when

authorities issued banking licenses linked to various entities that included retailers and new

financial players catering to low-income individuals.

In 2009, banking agents got introduced in Mexico through the Ley de Corresponsales Bancarios.

The General Dispositions for Credit Institutions Law was amended to address “safeguards for the

use of the new banking agent channels and using mobile phones for payments and transactions”

and also allowed for tiered accounts that could be linked to a mobile device. As contracted third

parties, banking agents can offer cash deposits and withdrawals, credit and utilities payments,

check cashing, balance inquiries, and opening of low risk accounts. Mobile money agents fulfill

more limited roles — primarily cash-in/cash-out services for person-to-person transfers. Mobile

phones can also be used to purchase some goods and services. In 2010, MNOs were permitted to

set up agent networks and manage mobile money accounts on behalf of banks. All banks can link

customers’ accounts to mobile phones, and banks must allow interbank electronic transfers

regardless of the mobile carrier of the beneficiary. As noted by the 2014 Economist Intelligence

Unit’s “Global Microscope” study, Mexico has not yet developed any regulations surrounding

electronic money. Doing so could provide greater regulatory clarity for non-banks to engage in

mobile financial services provision.

4. CASE STUDY OF INDIA

India has 21 percent of the world’s unbanked adult population and 67 percent of South Asia’s

unbanked adult population. Its GDP is $1875 billion and its adult population stands at 888

million. It thus has the biggest and most urgent need to expand financial inclusion. In 2014,

Government of India announced an ambitious Financial Inclusion Program called the PMJDY –

The Pradhan Mantri Jan Dhan Yojana. PMJDY is a National Mission on Financial Inclusion

encompassing an integrated approach to bring about comprehensive financial inclusion of all the

households in the country. The plan envisages universal access to banking facilities with at least

one basic banking account for every household, financial literacy, access to credit, insurance and

pension facility. The Government’s efforts have been recognized by the Guinness World Records

for opening over 1.8 crore (10 million) bank accounts in a single week. The overall JAM

framework (Jan Dhan-Yojana, Aadhaar and Mobile numbers) is expected to facilitate a more

enabling environment for digital financial services by allowing a multiplicity of providers to offer

innovative financial services to underserved populations.


According to International Monetary Fund’s Financial Access Survey, there are about 12 bank

branches per 100000 people in India in 2013. 30000 rural bank branches got opened between

1970 to 1990, due to regulations that for opening one new urban branch, banks had to open four

rural branches.


By 2014, about 53 percent of adults had an account at a bank or other financial institution. The

2014 Global Financial Inclusion (Global Findex) database report notes that by January 2015 (less

than six months after the Pradhan Mantri Jan-Dhan Yojana initiative was launched), about 125

million new bank accounts had been opened; however, about 72 percent of the accounts did not

show a balance. One positive trend is that between January 2014 and December 2014, the highest

rate of increase in bank account ownership was among women, particularly those below the

poverty line. Payments services in India are still primarily cashdriven: According to the

InterMedia survey, about 82 percent of adults in India said they saved money. However, about 64

percent saved cash at home, while about 43 percent saved through a bank.

11


India has the second highest number (after China) of mobile phone subscriptions in the worls. It

has over 900 million cell-phone subscriptions in 2014. As of 2014 the mobile penetration rate in

India was about 74%. However significant demographic disparities exist, with only 34% women

owning a mobile phone as compared to 70% men. According to GSMA Mobile Money for the

Unbanked Deployment Tracker, as of May 2015 there were over a dozen active mobile money

deployments in India. Recent Central bank regulations in August 2015, giving licences to some

mobile firms to set up payment banks will augment financial inclusion by offering transfer and

remittance facilities digitally.


Mobile Money adoption in India is very less. According to Intermedia survey, only 5% adults use

smartphones as of January 2014. Only 2.4% adults have a mobile money account as per World

Bank Report 2014. Only 1.2% use internet to pay bills or make purchases.


The Reserve Bank of India RBI and Government of India are the primary institutions involved in

the push for financial inclusion. RBI has issued many guidelines related to banking

correspondents in last 10 years permitting them to disburse small amounts of credit, collect

interest and deposits, sell micro insurance and other third party products, and receive and send

small remittances. However the BC model faced significant challenges which led to high attrition

rates.

The recent Jan Dhan Yojana together with Aadhar card biometric technology has given impetus

to the Government’s Direct Benefit Transfer Program. The Government has disbursed LPG

subsidy of about $2 billion to around 130 million beneficiaries as of May 2015. The Government

can save $22 billion a year by paying further more subsidies for services like health care and

education directly.

India continues to develop its mobile payments infrastructure. Its Immediate Payment Service

(IMPS), developed by the National Payments Corporation of India (NPCI), enables bank account

holders to instantly transfer funds from one account to another via mobile phone. In 2012, the

Telecom Regulatory Authority of India issued mobile banking regulations “requiring service

providers to facilitate banks to use SMS, USSD and interactive voice response (IVR) to provide

banking services to customers.”83 The National Unified USSD Platform, operated by the NPCI,

allows customers to input a USSD code “on any handset on any mobile network to launch a basic

mobile banking menu to check balances and transfer funds.” The platform connects all

telecommunications companies with banks’ mobile banking system, which permits customers to

access mobile banking services regardless of their telecommunications service provider. Mobile

wallets, which have been regulated under the category of prepaid payments instruments, allow

customers to transfer funds from mobile to mobile within same operator network, top off pre-paid

airtime, and pay utility bills. Agent interoperability for branchless banking is permitted.

In the Jan Dhan Yojana apart from basic account each accountholder will receive a debit card

(RuPay card) and a 1lakh (100,000 rupees) in accident insurance coverage alongwith overdraft

facility. Additional plans for Insurance and Pension have also been launched. In Aug 2015, RBI

gave approval to 11 entities to set up payment banks in India. These stripped-down banks can

raise deposits upto 1 lac per customer and pay interest as in savings account and issue debit cards,

but cannot offer credit cards or loans. The main purpose is to offer transfer and remittance service

digitally to customers. In Sept. 2015, RBI gave 10 licences for forming small banks in the

12

country. Again this is RBI’s initiative towards reinforcing financial inclusion. These small banks

have to make 75% of lending to priority sector. 50% of its loans need to be below ticket size of

25 lacs. The idea is to fund small businesses, small and marginal farmers, micro and small

industries and other entities in the unorganised sector.

Comparative Analysis: Lessons for India The comparative analysis between developing countries ensures that we are comparing apples to

apples. These are economies who face challenges and issues which are very similar in nature.

Thus this kind of comparative analysis has the potential to draw maximum learnings from each

other. As mentioned earlier the focus of our study is to extract useful lessons that can help boost

financial inclusion for India. The figures mentioned here are latest as per the 2015 ‘Little Data

Book on Financial Inclusion’ by World Bank Group.

Comparison of Percentage of Adult Account holders:

Brazil Kenya Mexico India

68.10% 74.70% 39.10% 53.10%

Kenya has the highest percentage of account holders, followed by Brazil and India. Kenya and

Brazil have taken some unique measures to enhance financial inclusion in last few years. Kenya

has achieved higher inclusion through its mobile money drive and while Brazil’s strong

regulations on Banking Correspondents (BCs) have ensured a higher financial inclusion. The

comparison of Percentage of accountholders in rural areas further exemplifies the results.

Comparison of Percentage of Accountholders in rural areas


63% 73% 28.70% 50.10%

With 63% and 73% adoption rate in rural areas, both Brazil and Kenya have proved that BC

Model and Mobile Money/ Digital Finance Services are the only two tried and tested successful

ways of penetrating into deeper underserved segments of the country.

0.00%

50.00%

100.00%


Percentage of Adult Account holders (% Age 15+)

Percentage of AdultAccountholders (% Age 15+)

0%

20%

40%

60%

80%


Percentage of Account holders in rural areas

Percentage of Accountholdersin rural areas

13

While India struggled with its BC Model due to high attrition rates, poor administration and

management issues, Brazil thrived on its banking correspondents with more than 400000

correspondents nationwide. The correspondent model for extending access to financial services

has been credited with improving financial inclusion among the traditionally underserved; those

using agents are poorer, less educated, more likely to work in the informal sector and women.

79% of unbanked households in Brazil paid at least one bill at a BC. The regulatory provisions

for BCs which were made less restrictive in 2003 led to its tremendous growth. Every retailer

could become a BC and authorization for each BC/bank relationship by Central Bank was no

longer mandatory. The scope of activities that BCs could undertake also increased -

correspondents were allowed to receive and forward deposit account opening applications,

execute payment orders, receive and forward loan and leasing requests, receive and forward

credit card applications, and other such services.

Correspondents are paid a commission per transaction, and the initial investment and staffing is

provided by the contracting financial institution. BCs are often open longer than traditional bank

branches, as they are subject to commercial rather than central bank regulations in this respect,

and the contracting financial institution bears the risks of transactions. The widespread success of

Brazil’s correspondent banking program may be attributed in part to regulators gradually

loosening restrictions, and to the legal framework placing the burden on regulated institutions to

train and be accountable for their correspondents – lessons worth emulating for India. While the

RBI has modified regulations over time to expand the types of entities that can be considered

BCs, including NBFCs, the BC Model in India is still struggling in spite of it having the potential

to make maximum difference in rural India. The smart-card technology had its own drawbacks

like it could not be used to operate account from a physical bank branch or ATM, and could not

be used with a correspondent from any other bank. However the micro ATM Model is envisioned

to be a game changer with every BC equipped with a micro ATM device. A person would not

need any physical card, only his Aadhar number along with his eyes and fingers will be enough to

identify him and carryout the transaction. The interoperability feature will ensure that any person

can do business with any business correspondent from any bank.

Comparison of Percentage of Mobile Account holders


0.90% 58.40% 3.40% 2.40%

Kenya has the highest number of adults 58.4% using mobile money services. M-pesa has been the

biggest disrupter in Kenyan market and one that has helped Kenya achieve highest and fastest

financial inclusion amongst all developing countries. M-Pesa was launched commercially by

0.00%

20.00%

40.00%

60.00%

80.00%


Percentage of Mobile Account holders

Percentage of MobileAccountholders

14

Safaricom in March 2007. M-Pesa signed up banks as agents, allowing any M-Pesa customer to

walk into a variety of bank branches to conduct cash-in/cash-out transactions. In 2008, M-Pesa

partnered with PesaPoint, one of the largest ATM service providers in Kenya, further increasing

the service’s accessibility.

Like other mobile money services, M-Pesa allows customers to deposit and withdraw cash by

exchanging cash for electronic value through a network of agents (often people who own retail

stores) who are paid a transaction fee by Safaricom. Customers can also pay bills, purchase

airtime, and transfer funds to other M-Pesa users and even to non-registered users. In November

2012, Safaricom and the Commercial Bank of Africa partnered to launch M-Shwari, a mobile

savings and credit service. In March 2015, Safaricom and KCB (Kenya Commercial Bank)

launched the KCB M-Pesa account, a mobile phone-based savings and loan product similar to M-

Shwari but with some differences, including a longer repayment term and higher loan limits.

Innovations in mobile money services are important lessons for India, which needs to find cost-

effective solutions to penetrate the underserved population.

One another important lesson for India is to not make the mistake made by Kenya – allowing

one player to capture the entire market thus resulting in a monopoly situation. Fostering

Competition and interoperability is of utmost importance for consumer protection and lowering

the cost of financial services. Of all active mobile money account holders in the 2014 InterMedia

survey, 99 percent used M-Pesa, while about 9 percent used Airtel Money (active mobile money

account holders can have accounts with more than one provider). The Kenyan Government has

now taken steps to instil competition by approving mobile virtual network operator (MVNO)

licenses under existing legislation (MVNOs supply their SIM cards and mobile money services

over existing mobile networks) and ending agent exclusivity.

Another lesson that India can take away from the Kenyan case-study is the way Government of

Kenya encourages digital payments. For example, the Kenyan government has banned cash

for public transport payments. (e.g., bus and matatu fares) Citizens are also encouraged to

make payments digitally for services such as passport and driving licence applications

and renewals. In India with the number of smartphone users expected to go over 500

million by 2015 and the launch of smartphones with iris readers, it will now be possible

to use Aadhaar as an authentication factor for online transactions.

Comparison of Percentage of adults who use an account to receive Government

transfers


13.20% 6.40% 10.50% 3.60%

0.00%

5.00%

10.00%

15.00%


Percentage of adults who used account to receive Government Transfers

Percentage of adults who usedaccount to receive GovernmentTransfers

15

Though both Brazil and Mexico have a higher percentage of Government transfers

through an account, the method of transfers is completely different in both the countries.

Brazil’s Government transfer is largely - around 85% - through Social Cards under the

Bolsa Familia conditional cash transfer program. With the Social Card, recipients must

withdraw their funds within 60 days and cannot deposit additional funds onto the card.

While programs such as Bolsa Familia provide support to low-income families, one

concern is that virtual accounts that do not permit deposits or extended storage of funds

limit functionality and possible financial benefits for users.

Mexico on the other hand initiated electronic Government-to-Person payments combined

with treasury centralisation thus reducing costs to government. Reports suggest that the

Mexican government may now be saving MXN $17 billion per year, or 3.3% of its total

expenditure on wages, pensions and social transfers because of its shift toward electronic

government-to-person (G2P) payments. In addition, centralization allowed for better

controls (97% of savings in salaries and 98% in pensions came from reducing leakage),

budgeting and vigilance by MoF over all federal expenditure. For workers or recipients,

centralization also widened their choice of banks: instead of being limited to the payroll

bank or banks with which his or her agency contracts, the recipient can choose an account

at any bank. This is likely to improve competition and service levels at banks compared

to the captive situation common before. Lastly, centralization seems to make the process

of digitizing payments difficult to reverse, relative to the case where electronic payments

are left to each agency to manage.

Thus the Mexican Model outsmarts the Brazilian Model of Government transfers

and India can look forward to adopting features of Mexican Model. In India too, the

recent Jan Dhan Yojana together with Aadhar card biometric technology has given

impetus to the Government’s Direct Benefit Transfer Program. The Government has

disbursed LPG subsidy of about $2 billion to around 130 million beneficiaries as of May

2015. The Government can save $22 billion a year by paying further more subsidies for

services like health care and education directly.

Conclusion

With the JAM Framework – Jan Dhan Yojana, Aadhar biometric card and Mobile wallets

and payment systems, India has taken a big stride towards financial inclusion. Keeping a

tab on what is happening in similar economies, mistakes and challenges faced by them

and their success stories, will only add to India’s initiatives getting a boost for faster and

smoother implementation of financial inclusion. Aadhar registration is already at 900

million and is increasing at the rate of 2 million per month. It is expected to register a

billion people by Mar 2016. Once this is achieved, biometric authentication will become

possible and banks will be able to open accounts on real time basis using e-KYC. The

Aadhar when linked to the mobile set with IRIS authentication on will change the

financial inclusion scenario in the country. It is only a matter of time when India will

overtake Kenya and Brazil to become the country of the largest financially included

population.

16

References

1. Babatz Guillermo, 2013, ‘Sustained Effort, Saving Billions: Lessons from the Mexican

Government’s Shift to Electronic Payments’ retrieved from www.betterthancash.org

2. Bergh Paul, 2012, ‘Overview of International and National initiatives to promote

financial inclusion and its measurement’, Presentation at the IFC Workshop on

Financial Inclusion Indicators, Kuala Lumpur, November 2012

3. Bilodeau et al., 2011, ‘The Mobile Financial Services Development Report 2011’,

World Economic Forum, New York, US

4. Bourreau Marc and Valletti Tommas, 2015, ‘Enabling Digital Financial Inclusion

through Improvements in Competition and Interoperability: What Works and What

Doesn’t?’, CGD Policy Paper 065.

5. Cámara Noelia and Tuesta David, 2014, ‘Measuring Financial Inclusion: A

Multidimensional Index’, A Working paper retrieved from www.bbvaresearch.com

6. Cull, Robert, Tilman Ehrbeck, and Nina Holle, 2014, ‘Financial Inclusion and

Development: Recent Impact Evidence’, Focus Note 92. Washington, D.C.: CGAP

retrieved from www.cgap.org

7. EIU (Economist Intelligence Unit), 2014, ‘Global Microscope 2014: The enabling

environment for financial inclusion’, Sponsored by MIF/IDB, CAF, ACCION and

Citi. EIU, New York, NY.

8. GPFI (Global Partnership for Financial Inclusion) Report, 2014, ‘G20 2014 Financial

Inclusion Action Plan’.

9. GSMA Intelligence Report (2015), ‘The Mobile Economy 2015’ retrieved from

www.gsmaintelligence.com

10. GSMA Intelligence Report (2015), ‘The Mobile Economy Asia Pacific 2015’

retrieved from www.gsmaintelligence.com

11. Huefner Felix and Bykere Arpitha, 2015, ‘Financial Inclusion: A Financial Industry

Perspective’, Institute of International Finance, retrieved from www.iif.com

12. Keeler Rachel, 2012, ‘Financial Deepening and M4P: Lessons from Kenya and

Rwanda, Development in Practice’, IDAS, Impact Paper 9, retrieved from

www.kpmg.com

13. M’Amanja Daniel, 2015, ‘Financial Inclusion, Regulation and Stability: Kenyan

Experience and Stability’, Presentation at the Multi-Year Expert meeting on Trade,

Services and Development, UNCTAD, Geneva, May 2015.

14. Villassenor John et al., 2015, ‘Measuring Progress on Financial Access and Usage’,

The 2015 Brookings Financial and Digital Inclusion project report, Centre for

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DC: World Bank, DOI: 10.1596/978-1-4648-0552-3. License: Creative Commons

Attribution CC BY 3.0 IGO.

17

Green Banking initiatives by NSE 50 Banks in Ahmedabad City: An

analysis of the perceptions of e-customers in context of their

Demographics

Dr. Rajesh P Ganatra

Associate Professor, St. Kabir Institute of Professional Studies, Ahmedabad

Abstract

_____________________________________________________________________ Green banking can benefit the environment either by reducing the carbon footprint of consumers or banks.

Either a bank or a consumer can conserve paper and benefit the environment. Ideally, a green banking

initiative will involve both. Online banking is an example of this. When a bank’s customer goes online, the

environmental benefits work both ways. Green banking means combining operational improvements and

technology, and changing client habits. The researcher tries find out whether there is significant difference

in the perceptions of the e-customers relative to their age group, education level, income level and

occupation with respect to their perceptions about Green Banking. The hypothesis is tested with one way

Anova analysis for the same.

Keywords: Demographics, E-customers, Green Banking, Perceptions, NSE 50 banks.

_____________________________________________________________________

1. Introduction Banks are responsible corporate citizens. Banks believe that every small ‘GREEN’ step taken

today would go a long way in building a greener future and that each one of them can work

towards to better global environment. ‘Go Green’ is an organization wide initiative that moving

banks, their processes and their customers to cost efficient automated channels to build awareness

and consciousness of environment, nation and society. Green Banking can give following

benefits.

Basically Ethical banking avoids as much as paper work, you get go green credit cards,

go green mortgages and also all the transactions done through online Banking.

Creating awareness to business people about environmental and social responsibility

enabling them to do an environmental friendly business practice.

They follow environmental standards for lending, which is really a good idea and it will

make business owners to change their business to environmental friendly which is good

for our future generations.

2. Literature Review Sharma, Gopal et al. (2014) attempts to study the level of consumer awareness of Green Banking

initiative in India with special reference to Mumbai. From the primary survey they conducted,

they find that surprising, even those people who are using online facilities provided by their banks

nearly three fourth of them are unaware of the term Green Banking. They find that among those

who are aware of Green Banking term consider it mainly related to online bill payment and cash

deposit system. Other Green Banking aspects like Green CDs, solar powered ATM, bonds for

environment protection are among few of which consumers are not aware of. They also attempt to

analyze the gender based difference in awareness of green initiatives by bank specially E-

Statements, Net Banking and Green loan. Using Chi-Square test for hypothesis testing they arrive

at a result that both males and females have the same level of awareness with respect to Green

Banking. The researcher’s state that the major obstacle in Green Banking is the technical issues

involved followed by lack of education.

18

Jaggi (2014) studies the initiative by SBI and ICICI on Green Banking. SBI has introduced a

Green Channel Counter, no queue banking, enhanced commitment towards achieving carbon

neutrality, online money transfer, wind farms. Green Products and Services initiative of ICICI

Bank include insta banking (anytime, anywhere), vehicle finance and home finance. Moreover,

these banks have taken other steps for energy conservation like duplexing (two side printing),

recycling, CFLs, carpool etc. Nath, Nayak et al. (2014) attempt to study the green rating standard

given by RBI, the World Bank’s environmental and social norms and the initiative taken by bank

in adopting green practices. They also list strategies for adopting Green Banking. Green Rating

Standard is known as Green Coin Rating. Under this bank are evaluated on the basis of carbon

emissions and the amount of recycling activities. World Bank has formed environmental and

social norms for financial institutions. These norms provide ways to reduce environmental

impact. Banks are required to do an Environmental Impact Assessment, Annual Reporting and

adopt sustainable technology. The researchers study and list the initiative taken in respect of

environment by different banks in India. If the Indian banks want to achieve some position in

global economy, then they have to act as good corporate citizens.

Sudhalakshmi and Chinnadorai (2014) presents the status of Indian Banks in respect of Green

Banking and state that though goes green mantra is essential for emerging economies like India

but significant efforts have not been taken. Banks are required to include their green aspect in the

lending principle. Every step taken today will mean a better global environment in the future. So

a policy measure to promote Green Banking is needed in India. Indian banks are running behind

time in adoption of this green phenomenon. Serious steps are required to be taken in this regard.

Jha and Bhome (2013) conducted a similar survey as stated above to check and thereby create

consumer awareness on Green Banking. Conducting interviews and using specially structured

questionnaires for the survey they state certain steps needed in Green Banking. Online Banking,

Green Checking Accounts (ATM, Special Touch Screens), Green loans (low rate to those who

wish to buy solar equipments) for supporting environment friendly residential projects, power

saving equipments, Green Credit Cards, Paper Saving Mobile Banking are among few steps

suggested by them. Green Banking will ensure the organization’s move towards sustainability.

Rajput, Kaur et al. (2013) aims to understand how Indian banks respond to environmental

changes and the action taken in respect of Green Banking. They find that there is a small group of

banks in India that lead in environmental aspect. Response of Indian banks towards international

initiative for the environment is sluggish. The United Nation Environment Programme Finance

Initiative there is no single Indian signatory. Using factor analysis they conclude that risk of

failure of business to peers and lack of RBI mandates are the obstacles to moving towards

sustainability. The gaps in India are the awareness and consciousness on the environmental

issues. Carbon Disclosure Projects- India requires public disclosure of emissions. This disclosure

project is active in India. But the response is very less as only 8 signatories are there. The

researchers feel that the current management system needs to be integrated with the

environmental and sustainable issues.

Yadav and Pathak (2013) study the Green Banking approaches opted by private and public bank

for environmental sustainability. Using a case study approach they find that Indian banks have

understood the relevance of taking positive steps towards the environment. Moreover, the results

of the study conducted reveals that public sector banks have taken more initiatives as compared

private sector with the exception of ICICI bank. In private sector only ICICI bank’s approach is a

sustainable approach.

19

Bahl (2012) highlights the means of creating awareness about Green Banking to ensure

sustainable growth. Garrettt’s ranking technique is used to analyze the most significant strategies

in respect of Green Banking. If the goal is to attain sustainable development this can be achieved

only through creating awareness and imparting education. Among the internal subsystems

emphasis should be given to publications, newsletters so as to create awareness and effective

means for external subsystems are event meetings, media and websites. A proper formulated

green policy guideline is needed for effective Green Banking.

Sahoo and Nayak (2008) explore the relevance of Green Banking and site international

experience in this respect. The researchers find that there has not been much initiative by banks in

India and thus policy measures are needed to promote Green Banking in India. The researchers

reveal that none of the Indian banks have adopted equator principle and none of them is signatory

to the UNEP financial initiative statement. Indian banks should use environmental criteria for

funding projects.

Research Objective The study is conducted to know whether the perceptions of the e-customers with respect to green

banking initiative differ with their demographic characteristics or not.

Research Hypothesis

H1: There is significant difference in perception of e customers relating to Green Banking

Initiative among people belonging to different age group.

H0: There is no significant difference in perception of e customers relating to Green Banking



Initiative among people belonging to different education level.


Initiative among people belonging to different education level.


Initiative among people belonging to different income level.




Initiative among people belonging to different occupation level.



3. Research Methodology

The researcher has considered Top 4 Banks among NSE 50 (S& P CNX Nifty) companies which

have average market capitalization of 5 billion rupees or more during last six months. These

banks are State Bank of India, Axis Bank, ICICI Bank Ltd. and HDFC Bank Ltd and the

respondents are the e-customers. The survey of 384 e-customers was carried out by the researcher

on the basis of convenience sampling method. A self-administered questionnaire was devised

whereby the questionnaire was sub divided into two categories’. The target questions focus on the

independent variables such as perceptions of the e-customers and dependent variables such as

20

age, education, income, and occupation of the e-customers. The scaling used in this research is

the 5-point Likert scale of 1-stronglydisagree, 2-disagree, 3-slightlydisagree, 4-agree, 5-

stronglyagree. The questions contained in the questionnaire were close ended questions.

4. Research Analysis

It includes the sample characteristics analyzed in the context of the demographic aspects as well

as green banking initiatives by NSE 50 banks in Ahmedabad city & its awareness among their e-

customers. The hypothesis testing with respect to perceptions of e-customers and their

demographic aspects is carried out with the help of one way annova analysis.

Sample Characteristics: Table 1: DEMOGRAPHIC DETAILS

Sr.

No.

Demographic

Parameter

Category No. of Customers % of Customers

1 Gender Male 210 54.68

Female 174 45.32

Total 384 100

2 Age Group Less than 20 39 10.15

21-30 years 86 22.40

31-40 years 134 34.90

41- 50 years 92 23.96

Above 50 years 33 08.59

Total 384 100

3 Education Graduate 112 29.17

Post Graduate 192 50.00

Others 80 20.83

Total 384 100

4 Annual Income Below Rs. 1,00,000 73 19.01

Rs. 1,00,000 -3,00,000 107 27.86

Rs. 3,00,001 -5,00,000 134 34.90

More than Rs. 5,00,000 70 18.23

Total 384 100

5 Occupation Govt Employees 51 13.28

Self Employed 146 38.02

Retired Personnel 124 32.29

Private Employees 35 09.12

Students 17 04.43

Others 11 02.86

Total 384 100

Table 2: GREEN BANKING INITIATIVES BY NSE 50 BANKS & ITS AWARENESS

AMONG THEIR E-CUSTOMERS (in Percentage) Sr. No. Green Banking Initiatives Aware Not

Aware

1 Green Checking 80% 20%

2 Green Loans 62% 38%

3 Green Mortgages 40% 60%

4 Green CDs 35% 65%

5 Controlled Use of Energy 70% 30%

21

6 Facility of e-statement registration 74% 26%

7 Reduced wastage of Papers and Energy through Net Banking

Approach

80% 20%

8 User of Solar Power ATMS 50% 50%

9 Energy Efficient Branches 69% 31%

10 Providing Recyclable debit cards and credit cards 70% 30%

11 High Efficiency Lighting 60% 40%

12 Using recycle paper or recycle waste 64% 36%

13 Bank Environmental Policy 65% 35%

14 Online Bill Payment 88% 12%

15 Cash Deposit System 58% 42%

16 E- Investment Services 50% 50%

Hypothesis Testing:

Age Group & Perceptions


Inititiative among people belonging to different age group.



Table 2: ANOVA ANALYSIS

Sum of Squares Df Mean Square F Sig.

Between Groups 6.975 4 1.744 1.426 .225

Within Groups 463.525 379 1.223

Total 470.500 383

Interpretation: The above result clearly indicates that the value of f 1.426 with 4 & 379

degrees of freedom, resulting in the probability of 0.225. As the associated probability of value of

F test is more than significance level of 0.05, the null hypothesis is accepted. So, there is no

significant difference between the perceptions of e-customers relating to Green Banking Initiative

among people belonging to different age group.

Education Level & Perceptions

H1: There is significant difference in perception of e customers relating to Green

Banking Initiative among people belonging to different education level.

H0: There is no significant difference in perception of e customers relating to Green

Banking Initiative among people belonging to different education level. Table 3: ANOVA ANALYSIS

Sum of Squares df Mean Square F Sig.

Between Groups 13.129 2 6.564 4.186 .016

Within Groups 597.535 381 1.568

Total 610.664 383


degrees of freedom, resulting in the probability of 0.016. As the associated probability of value of

F- test is less than significance level of 0.05, the null hypothesis is rejected. So, there is

significant difference in perception of e customers relating to Green Banking Initiative among

people belonging to different education level.

22

Annual Income & perceptions


Banking among people belonging to different income level.


Banking among people belonging to different income level Table 4:ANOVA ANALYSIS


Between Groups 11.568 3 3.856 3.109 .026

Within Groups 471.367 380 1.240

Total 482.935 383


degrees of freedom, resulting in the probability of 0.026. As the associated probability of

value of F - test is less than significance level of 0.05, the null hypothesis is rejected. So,

there is a significant difference in perception of e customers relating to Green Banking


Occupation & Perceptions


Banking Initiative among people belonging to different occupation level.


Banking Initiative among people belonging to different occupation level. Table 5: ANOVA ANALYSIS


Between Groups 15.856 5 3.171 2.637 .023

Within Groups 454.644 378 1.203

Total 470.500 383


degrees of freedom, resulting in the probability of 0.023. As the associated probability of

value of F - test is less than significance level of 0.05, the null hypothesis is rejected. So,

there is asignificant difference in perception of e-customers relating to Green Banking


Findings based on Demographic Characteristics

1. The majority of respondents are male respondents.

2. The majority of respondents belong to age group of 31-40 years.

3. The majority of respondents are post graduates.

4. The majority of respondents having annual income of Rs.3-5 lakhs.

5. The majority of respondents are self-employed.

Findings based on awareness level of E-CUSTOMERS with respect to the green

banking initiatives

The respondents covered under the study exhibited high awareness level with respect to

under mentioned green banking initiatives.

i. Green Checking

ii. Controlled Use of Energy

iii. Facility of E-statement Registration

iv. Reduced wastage of Papers and Energy through Net Banking Approach

v. Providing Recyclable debit cards and credit cards

vi. Online Bill Payment

23

Findings based on ANOVA Analysis

1. From the Hypothesis Testing with help of One Way Anova Analysis it is deduced that

there is a significant difference in perception of e customers relating to Green

Banking Initiative among people belonging to different education level.



Banking Initiative among people belonging to different income level.



Banking Initiative among people belonging to different occupation.


there is no significant difference in perception of e customers relating to Green

Banking Initiative among people belonging to different age group.

Suggestions

The awareness level of the e-customers with respect to the green banking was low with

respect to initiatives such as Green Mortgages, Green CDs, User of Solar Power ATMS,

and E- Investment Services. The banks can mitigate this problem by conducting more

workshops and seminars for green banking. SBI was the first in India to start introducing

Solar power ATMs but 50 % of the respondents don‟t know this and Pockets by‟ ICICI

is first in India to carry out a slew of banking services on the social media site, Face

book. So bank should design strong strategies to promote these green banking initiatives

as done in other countries.

Conclusion

Overall Green banking is really a good way for people to get more awareness about

global warming; each businessman will contribute a lot to the environment and make this

earth a better place to live. Thanks to green banking. Until a few years ago, most

traditional banks did not practice green banking or actively seek investment opportunities

in environmentally friendly sectors or businesses. Only recently have these strategies

become more prevalent, not only among smaller alternative and cooperative banks, but

also among diversified financial service providers, asset management firms and insurance

companies. Although these companies may differ with regard to their stated motivations

for increasing green products and services (e.g. to enhance long-term growth prospects,

or sustainability principles on which a firm is based), the growth, variation and

innovation behind such developments indicate that we are in the midst of a promising

drive towards integrating green financial products into mainstream banking. This concept

of “Green Banking” will be mutually beneficial to the banks, industries and the economy.

Not only “Green Banking” will ensure the greening of the industries but it will also

facilitate in improving the asset quality of the banks in future. This study focuses on the

perception and acceptability of Green Banking Initiatives by e customers and aims to

gain a deeper understanding of the demographic factors influencing the initiatives of

Green Banking particularly in Ahmedabad city. The demographic factors such as

education, income and occupation must be taken into consideration by any banker while

selling the products to the e-customers online as a part of Green Banking Initiative.

24

References

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Marketing, Financial Service & Management Research, 1(2). Retrieved on 25 January 2015

from: http://indianresearchjournals.com/pdf/IJMFSMR/2012/February/ijm-4.pdf.

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Research.

3. Jha, N. & Bhome, S. (2013). A study of green banking trends in India. Abhinav International

Monthly Refereed Journal of Research in Management & Technology. Vol II.

4. Nath, V., Nayak, N. & Goel, A. (2014). Green Banking Practices- A Review. International

Journal of Research in Business Management. Vol 2(4), 45-62. Retrieved from SSRN on 27

January 2015 from: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2425108.

5. Rajput, N., Kaur, R. & Khanna, A. (2013). Indian Banking Sector towards a Sustainable

Growth: A Paradigm Shift. International Journal of Academic Research in Business and

Social Science. Vol 3(1).

6. Sahoo, P. & Nayak, B. (2008). Green Banking in India. Discussion Paper Series No.

125/2008.

7. Sharma, N., Sarika, K. & Gopal, R. (2014). A study on customer’s awareness on Green

Banking initiatives in selected public and private sector banks with special reference to

Mumbai. IOSR Journal of Economics and Finance, 28-35. Retrieved on 20 January 2015

from: www.iosrjournals.org/iosr-jef/papers/icsc/volume-2/14.pdf.

8. Sudhalakshmi, K. & Chinnadorai, K. (2014). Green Banking Practices in Indian Banks.

International Journal of Management and Commerce Innovations. Vol 2 (1), 232-235.

9. Yadav, R. & Pathak, G. (2013). Environmental Sustainability through Green Banking: A

Study on Private and Public Sector Bank in India. OIDA International Journal of Sustainable

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http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2385573.

10. Marketing research concept and cases by Donald R Cooper, Pamela S Schindler, Tata

Mcgraw Hill

25

Pre & Post-Merger Financial and sock return analysis of Indian

Banking Sector

Mr. Ritesh Patel

Assistant Professor, S.V. Institute of Management, Kadi

Ms. Ankita Kathiriya

Research Scholar, B.K. School of Business Management,

Gujarat University, Ahmedabad

Abstract

_____________________________________________________________________________

Banking Industry plays an important role in the economic development of India. For strengthening

structure of banks, concept of merger and acquisition is adopted. This study is undertaken with an

objective to check improvement in financial performance and stock return performance of banks after

merger. This study is undertaken on 4 banks. A comparison between pre and post-merger performance in

terms of net profit margin, return on net worth, return on long term fund and return on assets is done.

This Study is undertaken by applying paired sample t-test. For IDBI Bank merger has improved financial

performance where as for other banks merger remain somewhat beneficial. After merger, stock return

performance has improved only for ICICI Bank. Reset of the banks has found loss in stock return after

merger. Overall impact of merger and acquisition is mix, i.e. both positive and negative on Indian

banking sector. It can be concluded that merger between the two banks is beneficial for Indian banks but

it requires proper analysis before doing merger deal.

Keywords: Merger, Financial performance, Stock return, Public sector banks, Private sector banks

______________________________________________________________________________

1. Introduction

Indian banking industry is very important for development of economy. For

strengthening structure of banks, merger is adopted. Mergers and acquisitions are among

the most effective ways to expedite the implementation of a plan to grow rapidly.

Companies in all industries have grown at lightning speed, in part because of an

aggressive merger and acquisition strategy. The impact of technology and the internet has

only further increased the pace and size of deals. Table 1 shows various mergers happen

in Indian banking industry since nationalization.

Table 1 Merger & Acquisition in Indian Banking Industry

Sr. No. Name of the Transferor Bank

Name of the Transferee

Bank Date of Merger

1 Bank of Bihar Ltd State Bank of India November 8, 1969

2 National Bank of Lahore Ltd. State Bank of India February 20, 1970

3 Miraj State Bank Ltd. Union Bank of India July 29, 1985

4 Lakshmi Commercial Bank Ltd Canara Bank August 24, 1985

26

5 Bank of Cochin Ltd State Bank of India August 26, 1985

6 Hindustan Commercial Bank Punjab National Bank December 19, 1986

7 Traders Bank Ltd. Bank of Baroda May 13, 1988

8 United Industrial Bank Ltd. Allahabad Bank October 31, 1989

9 Bank of Tamilnadu Ltd. Indian Overseas Bank February 20, 1990

10 Bank of Thanjavur Ltd. Indian Bank February 20, 1990

11 Parur Central Bank Ltd. Bank of India February 20, 1990

12 Purbanchal Bank Ltd. Central Bank of India August 29, 1990

13 New Bank of India Punjab National Bank September 4, 1993

14 Bank of karad Ltd Bank of India 1993-1994

15 Kashi Nath Seth Bank Ltd. State Bank of India January 1, 1996

16 Bari Doab Bank Ltd Oriental Bank of commerce April 8, 1997

17 Punjab Co-operative Bank Ltd. Oriental Bank of commerce April 8, 1997

18 Bareilly Corporation Bank Ltd Bank of Baroda June 3, 1999

19 Sikkim Bank Ltd Union Bank of India December 22, 1999

20 Times Bank Ltd. HDFC Bank Ltd February 26, 2000

21 Bank of Madura Ltd. ICICI Bank Ltd. March 10, 2001

22 ICICI Ltd ICICI Bank Ltd May 3, 2002

23 Benares State Bank Ltd Bank of Baroda June 20, 2002

24 Nedungadi Bank Ltd. Punjab National Bank February 1, 2003

25 South Gujarat bank ltd. Bank of Baroda June 25, 2004

26 Global Trust Bank Ltd. Oriental Bank of commerce August 14, 2004

27 IDBI Bank Ltd. IDBI Ltd April 2, 2005

28 Bank of Punjab Ltd. Centurion Bank Ltd October 1, 2005

29 Ganesh bank of kurundwad ltd Federal Bank Ltd September 2, 2006

30 United Western Bank Ltd. IDBI Ltd. October 3, 2006

31 Bharat Overseas Bank Ltd. Indian Overseas Bank March 31, 2007

32 Sangli Bank Ltd. ICICI Bank Ltd. April 19, 2007

33 Lord Krishna Bank Ltd. Centurion bank of Punjab August 29, 2007

27

34 Centurion Bank of Punjab Ltd. HDFC Bank Ltd. May 23, 2008

35 The Bank of Rajasthan ICICI Bank Ltd August 13, 2010

36 ING Vysya Bank Kotak Mahindra Bank Year 2015

(Source: Compiled by researchers from various Banking progress report of RBI)

2. Literature Review

2.1. Literature review on Financial Performance

On scanning the past studies on merger, we came to know that researchers have found

merger profitable as well as unprofitable. Many researchers have found that financial

performance in post-merger situation has improved. For instance, Waegelein et al (2003)

has applied regression model to check the financial performance of merger firm in post-

merger era & found that there is improvement in post-merger operating financial

performance measured by industry return on assets for the full sample. Azeem et al

(2011) have analysed Merger and Acquisitions in the Indian Banking Sector in Post

Liberalization Regime by taking data from year 2000 to 2010. Researchers have adopted

Mean score, Standard deviation, Pair t-test for study purpose & found that Banks able to

generate higher net profits after the merger in order to justify the decision of merger

undertaken by the management to the shareholders. Goyal et al (2012) has undertaken a

Case Study of merger of ICICI Bank with other financial institutions. Researcher has

found that from merger of various financial institutions in itself, ICICI Bank Ltd.; emerge

as market leader in private sector banking. Devarajappa et al (2012) has examined case of

mergers between HDFC Bank and Centurion Bank of Punjab by taking data from year

2005 to 2011.Researcher has applied Mean score, Standard deviation and Paired t-test as

analytical tools to examine financial performance after merger & found that after the

merger the financial performance of the banks have improved. Jahanzaib et al (2013) has

analysed the efficiency of Pakistani banks in pre & post-merger situation by studying

data from year 2001 to 2007. Researcher has used correlation, regression and DEA

Model to study data & from that, they found that efficiency & effectiveness of banks has

improved but improvement in effectiveness is lesser as compare to efficiency. Few

Financial Ratios has shown improvement after merger.

In contrast to this many researchers have found merger as negative outcome, for example,

Leepsa et al. (2012) has studied Post merger financial performance of selected Indian

manufacturing firms by taking data from year 2003 to 2007. Researcher has applied

Paired t-test to study post-merger performance & founds that there is not much

significant improvement in financial ratios after merger, which put a question mark on

the motive behind mergers & merger does not result in fulfilling objectives. Muhammad

et al (2014) have analysed the post-merger financial performance of banking sector in

Pakistan by taking data from year 2002 to 2011. Researchers have adopted mean score as

analytical tools to compare pre & post-merger performance. From study, it was founding

that after the merger there is a decrease in the financial performance of selected firm.

28

2.2. Literature review on stock return performance

Few researchers have found merger as beneficial for stock performance, for intense,

(Walter, 1987) found that merger has positive impact on wealth creation for shareholders

of both target bank & acquire bank. (Govindarajan & Venkatesan 2011) found that

investors have reacted positively, in turn increasing the share prices of the public sector

banks involved in the deals. Olowoniyi et al (2012) studied the wealth creation for

shareholders from Conglomerates and found relationship between net profit margin and

positive return to shareholders in post-merger situation. Anand et al. (2008) has analysed

the post-merger stock return performance of Indian banks using an event study

methodology of Pre-merger (1 to 40 days) to Post-Merger (1 to 40 days) by covering

duration of 1999-2005. Researcher has applied OLS regression on various variable such

as cumulative average abnormal return, average abnormal returns & weighted average

abnormal return & found that merger announcement in the Indian banking industry has

positive and significant shareholder’s wealth effect both for the bidder and target banks.

Ioannis et al (2011) have studied the post-merger stock return & wealth of shareholders

using an event study methodology of Pre-merger (20 days) to Post-Merger (20 days)

considering duration of 1990-2004. By Applying OLS regression & GARCH Model,

researchers have found that in Post-merger situation, Share Holders are getting Positive

return & investors have reacted positively to merger event.

In contrast to these studies, many researchers have found that mergers resulted in

negative return for stock. for example, Bradley et al (2011) has analysed the wealth from

merger applying Regression model and reveals that the post-merger equity risk resulted

in significant decrease in shareholder’s wealth. Nagiya et al (2011) have studied the post-

merger stock return performance using event study methodology of 120 days window (-

60, +60) and found that after merger, there was a little fall in return of stock and not

improved further.


3.1 Research Objectives

This study is carried out to fulfil various objectives such as to evaluate the banks

performance before and after merger, to analyse the financial strength of the selected

Indian Banks on the basis of key financial ratios & to analyse the performance of stock

return.

3.2 Research Design

The research design in this study is descriptive research design as this study assist the

decision maker in determining, evaluating, and selecting the best course of action to take

decision in a given situation.

3.3 Sample & Data Selection

For the present study, two public sector banks & two private sector banks have been

selected. They are IDBI Bank, Indian Overseas Bank, ICICI Bank & HDFC Bank. The

basic data for this current study has been collected from the Internet, Books, Journals and

29

Electronic database Ace Equity portal. Mean score, Paired sample T-test are used to

study financial performance. The information on bank merger is very sensitive for

investors. To evaluate stock performance, Event study methodology is carried out

covering a period of 30 days before merger and 30 days after merger. Under event study

methodology, Daily returns of stock, Average abnormal returns, Cumulative Abnormal

Returns are calculated using following formulas.

1) Daily returns are calculated of each selected bank for both pre and post-merger periods by

using the following equation:

1 1[( ) / ]*100it t t tR P P P …………………………………. (1)

Where, itR = the daily returns of a stock ‘i’ at time‘t’

tP = the closing price of a stock at time‘t’

1tP = the previous day closing price of a stock at time‘t-1’

2) Abnormal returns were computed for each stock as follows:

[ ]it it mtAR R R …………………………………… (2)

Where,

itAR = excess returns for stock ‘i’ at time ‘t’

itR = simple returns of a stock ‘i’ at time ‘t’

mtR = returns for the Market Index at time ‘t’

3) Average abnormal returns are computed by below given equation

AR (1/ )t itAAR n …………………………………… (3)

Where, tAAR = average abnormal returns at time‘t’

ARit = abnormal returns for stock ‘i’ at time ‘t’

n = sample size

4) To check cumulative effect of events, the Cumulative Abnormal Returns on stocks is used. It is

calculated using below given formula

ARt tCAR …………………………………………. (4)

Where,

tCAR = Cumulative abnormal returns at time ‘t’

ARt =abnormal returns at time ‘t’

4. Data Analysis & Interpretation

4.1. Financial performance Analysis

1. IDBI Bank:

Table 2 Pre & post-merger profitability ratios of IDBI Bank Profitability Ratio Pre-Merger Post-Merger

Net profit margin 7.21 7.54

Return on long term fund 88.14 126.72

Return on net worth 7.15 10.78

Return on assets 105.78 118.92

Net profit margin of IDBI bank before merger was 7.21 which was increased after merger

up to 7.54. Return on long term fund of IDBI bank before merger was 88.14% which is

30

increased after merger up to 126.72%. Return on net worth of IDBI bank before merger is

7.15 which was increased after merger up to 10.78. Return on assets of IDBI bank before

merger was 105.78% which was increased after merger up to 118.92%. So, merger has

positive effect on the profitability of IDBI bank.

2. Indian Overseas Bank

Table 3 Pre & post-merger profitability ratios of Indian Overseas Bank Profitability Ratio Pre-Merger Post-Merger





Net profit margin of Indian overseas bank before merger is 11.77 which was decreased

after merger up to 11.23. Return on long term fund of Indian overseas bank before

merger was156.84% which was decreased after merger up to 130.99%. Return on net

worth of Indian Overseas bank before merger was 28.61 which was decreased after

merger up to 20.21. Return on assets of Indian overseas bank before merger was 40.41%

which was increased after merger up to 116.5%. Only, return on assets has positive effect

on the profitability of Indian Overseas bank. All other ratios reflate negative effect of

merger.

3. ICICI Bank

Table 4 Pre & post-merger profitability ratios of ICICI Bank Profitability Ratio Pre-Merger Post-Merger





Net profit margin of ICICI bank before merger was 12.69 which was decreased after

merger at 11.80. Return on long term fund of ICICI bank before merger was 76.87%

which was decreased after merger up to 57.86%. Return on net worth of ICICI bank

before merger was 15.65 which was decreased after merger up to 9.37. Return on assets

of ICICI bank before merger was 185.88% which was increased after merger up to

414.85%. So, return on assets makes the positive effect on the profitability of ICICI bank.

All other ratios stimulate negative effect of merger.

4. HDFC Bank:

Table 5 Pre & post-merger profitability ratios of HDFC Bank Profitability Ratio Pre-Merger Post-Merger





Net profit margin of HDFC bank before merger was 15.85 which was decreased after

merger up to 14.2. Return on long term fund of HDFC bank before merger was 67.2%

which was increased after merger up to 67.37%. Return on net worth of HDFC bank

before merger was 23.04 which was decreased after merger up to 15.12. Return on assets

before merger was 138.13% which was increased after merger up to 362.4%. So, return

31

on assets and return on long term fund shows positive effect on the profitability whereas

net profit margin and return on net worth demonstrate negative effect of merger.

4.2. Stock Return analysis

Table 6 Pre & Post-merger stock return analysis of IDBI Bank

Time Period Days Mean Return Stock AAR CAR

Pre-Merger

-30 0.0099 0.0071 0.21

-15 0.164 0.134 0.201

-7 0.0166 0.0126 0.088

-3 0.0397 0.0361 0.108

Post-Merger

3 0.0036 -0.0008 -0.0025

7 -0.0019 -0.0081 -0.0565

15 0.0031 -0.0007 -0.01

30 -0.0017 -0.0049 -0.14

From the above table it is seen that in pre-merger period return of stock of IDBI Bank

was remain positive which was remain both positive and negative during post-merger

period. Highest return was 1.64% & 0.36% in pre-merger & post-merger period,

respectively. AAR and CAR Both remain positive in pre-merger period and were remain

negative in post-merger period. Overall, after merger performance of stock has decreased.

Table 7 Pre & Post-merger stock return analysis of Indian Overseas Bank Time Period Days Mean Return Stock AAR CAR

Pre-Merger

-30 -0.0012 0.0009 0.0267

-15 0.0053 0.0051 0.0766

-7 0.0056 0.0014 0.0098

-3 0.0027 0.0039 0.0118

Post-Merger

3 0.0033 -0.0111 -0.0333

7 -0.0011 -0.0095 0.0666

15 0.0097 0.0016 0.0247

30 0.0055 0.0013 0.0384

From this table it can be seen that mean return of stock (R) was remain positive till 15

days’ windows and then it turns to negative return where as in post-merger period, mean

return was positive except 7-day window. Highest return of stock was 0.56% & 0.97% in

pre and post-merger period, respectively. AAR was positive in pre-merger period where

as in post-merger it was remain positive for only 15 & 30 days. Highest AAR was 0.51%

in pre-merger period and 0.16% in post-merger period. In relation to that, CAR was

32

positive in pre-merger period where CAR in post-merger period was remain positive

except 3 days window. Highest CAR was 7.66% in pre-merger period and 6.66% in post-

merger period. Overall, after merger performance of stock has decreased.

Table 8 Pre & Post-merger stock return analysis of HDFC Bank


Pre-Merger

-30 0.025 -0.0008 -0.02

-15 -0.0074 -0.0057 -0.085

-7 -0.0088 -0.0093 -0.065

-3 -0.028 -0.0178 -0.0533

Post-Merger

3 -0.0056 -0.005 -0.015

7 -0.014 -0.0069 -0.048

15 -0.01 -0.0061 -0.09

30 -0.092 -0.0032 -0.096

Table shows that during pre-merger period, return of stock was remain negative for 3, 7

& 15 days windows and be positive in 30 days window. In contrast to that, during post-

merger the return was remain negative for all days. AAR & CAR remain negative for

both pre & post-merger time periods. Overall, after merger performance of stock has

decreased.

Table 9 Pre & Post-merger stock return analysis of ICICI Bank


Pre-Merger

-30 0.0047 0.0036 0.1078

-15 0.0041 0.0042 0.0632

-7 0.0004 0.0007 0.0049

-3 -0.0056 -0.0017 -0.005

Post-Merger

3 0.0191 0.0117 0.0351

7 0.0042 0.0032 0.0221

15 0.0056 0.0037 0.055

30 0.0051 0.0015 0.0444

Above table shows that during pre-merger mean return of stock (R) was positive except

day 3 where as it remains positive for all days in post-merger period. Highest positive

return was 0.47% & 1.91% in pre and post-merger period, respectively. AAR & CAR,

both during pre-merger period remain positive except day 3 window. In post-merger

period both AAR & CAR remain positive. AAR has highest return on 0.42% & 1.17% in

33

post-merger period. In same line, CAR has highest return on 1.07% & 5.55% in post-

merger period. Overall, after merger performance of stock has improved.

5. Hypothesis Testing

Table 10 Paired Sample t-test for IDBI Bank Sr.

no.

Null Hypothesis P value t Critical

value

Outcome

1 There is a significant difference in net worth of IDBI

bank in pre and post-merger time period.

0.0224 3.18 HO is

accepted.

2 There is a significant difference in total assets of IDBI


0.002 3.18 HO is

accepted.

3 There is a significant difference in total income of IDBI


0.02 3.18 HO is

accepted.

4 There is a significant difference in net profit margin of

IDBI bank in pre and post-merger time period.

2.12 3.18 HO is

accepted.

Table 11 Paired Sample t-test for Indian Overseas Bank (IOB) Sr.

no.

Null Hypothesis P value t critical

value

Outcome

1 There is a significant difference in net worth of IOB in pre

& post-merger time period.

0.003 3.18 HO is

accepted.

2 There is a significant difference in total assets of IOB in pre

& post-merger time period.

0.0004 3.18 HO is

accepted.

3 There is a significant difference in total income of IOB in

pre & post-merger time period.

0.001 3.18 HO is

accepted.

4 There is a significant difference in net profit margin of IOB

in pre & post-merger time period.

0.37 3.18 HO is

accepted.

Table 12 Paired Sample t-test for ICICI Bank Sr.

no.

Null Hypothesis P value t critical

value

Outcome

1 There is a significant difference in net worth of ICICI


0.0012 3.18 HO is

accepted.

2 There is a significant difference in total assets of ICICI

Bank in pre and post-merger time period.

0.0012 3.18 HO is

accepted.

3 There is a significant difference in total income of

ICICI Bank in pre and post-merger time period.

0.0011 3.18 HO is

accepted.

4 There is a significant difference in net profit margin of

ICICI Bank in pre and post-merger time period.

0.67 3.18 HO is

accepted.

Table 13 Paired Sample t-test for HDFC Bank Sr.

no.

Null Hypothesis P value t Critical

value

Outcome

1 There is a significant difference in net worth of HDFC


0.04 3.18 HO is

accepted.

2 There is a significant difference in total assets of HDFC


0.03 3.18 HO is

accepted.

3 There is a significant difference in total income of

HDFC Bank in pre and post-merger time period.

1.34 3.18 HO is

accepted.

4 There is significant difference in net profit margin of

HDFC bank in pre & post-merger time period.

2.04 3.18 HO is

accepted.

34

6. Conclusion

Merger and Acquisition is useful tool for growth and expansion in Indian banking sector.

It is helpful for survival of weak banks by merging into larger bank. This study shows the

impact of M & A in the Indian banking sector and researcher took four banks for the

study as sample to examine that merger led to a profitable situation or not. For this a

comparison between pre and post-merger performance in terms of net profit margin,

return on net worth, return on long term fund and return on assets is undertaken. For IDBI

Bank merger has improved financial performance where as for other banks merger

remain somewhat beneficial as par as financial performance is concern. From stock

return analysis it can be concluded that, for IDBI Bank, Indian Overseas Bank and HDFC

Bank merger remain negative as stock performance has reduce after merger whereas for

ICICI bank merger remain beneficial. Overall impact of merger and acquisition is mix,

i.e. positive as well as negative on the Indian banking sector. So, it can be concluded that

merger between the two banks can be beneficial for Indian banks but detail analysis and

forecasting is required before making merger deal.

References

1. Abbas, Q., Hunjra, A. I., Saeed, R., & Ijaz, M. S. (2014). Analysis of Pre and Post-Merger

and Acquisition Financial Performance of Banks in Pakistan. Information Management and

Business Review, 6(4), 177.

2. Anand, M., & Jagandeep, S. (2008). Impact of merger announcements on shareholders'

wealth: Evidence from Indian private sector banks. Vikalpa: Journal for Decision Makers,

33(1), 35-54.

3. Asimakopoulos, I., & Athanasoglou, P. P. (2013). Revisiting the merger and acquisition

performance of European banks. International Review of Financial Analysis, 29, 237-249.

4. Benson, B. W., Park, J. C., & Davidson, W. N. (2014). Equity‐Based Incentives, Risk

Aversion, and Merger‐Related Risk‐Taking Behavior. Financial Review, 49(1), 117-148.

5. Devarajappa, S. (2012). Mergers in Indian banks: a study on mergers of HDFC bank ltd and

centurion bank of Punjab ltd. International Journal of Marketing, Financial Services &

Management Research, 1(9), 33-42.

6. Goyal, K. A., & Joshi, V. (2012). Merger and Acquisition in Banking Industry: A Case

Study of ICICI Bank Ltd. International Journal of Research in Management, 2(2), 30-40.

7. Hakro, A. N., & Akram, M. (2009). Pre-Post performance assessment of privatization

process in Pakistan. International Review of Business Research Papers Vol. 5 No. 1,

January, 70-86.

8. Khan, A. A. (2011). Merger and Acquisitions (M&As) in the Indian banking sector in post

liberalization regime. International Journal of Contemporary Business Studies, 2(11), 31-45.

9. Leepsa, N. M., & Mishra, C. S. (2012). Post-merger financial performance: a study with

reference to select manufacturing companies in India. International Research Journal of

Finance and Economics, 83(83), 6-17.

10. Nangia, V. K., Agarawal, R., & Reddy, K. S. (2011). An empirical test on share price

behavior of target firms in reference to announcement of open market acquisitions, ELK

asia pacific journal of finance and risk management,2 (1), 1-35

11. Neely, W. P. (1987). Banking acquisitions: Acquirer and target shareholder

returns. Financial Management, 66-74.

35

12. Olusola, O. A., & Olusola, O. J. (2012). Effect of Mergers and Acquisition On Returns to

Shareholders of Conglomerates in Nigeria. Research Journal of Finance and

Accounting, 3(7), 86-90.

13. Patel, R. (2014). Pre-Merger and Post-Merger Financial & Stock Return Analysis: A Study

with reference to selected Indian Banks. Asian Journal of Research in Banking and Finance,

4(12), 1-9.

14. Ramaswamy, K. P., & Waegelein, J. F. (2003). Firm financial performance following

mergers. Review of Quantitative Finance and Accounting, 20(2), 115-126.

15. Sultan, J., Ali, A., & Saeed, A. (2013). A Comparison of Technical Efficiency of

Performance of Different Banks Before and After Merger: A Study of Pakistan Banking

Industry. Journal of Economics and Sustainable Development, 4(9), 113-126.

16. Venkatesan, S., & Govind Raj, K. (2011). “Acquisition activities of Public sector banks in

India and its impact on shareholder’s wealth”, International Research Journal of Finance

and Economics, 67, 63-71.

36

A study of Job Involvement among the employees of selected Private

Banks of Gujarat

*Tushar Panchal

**Dr. Jayanti Ravi

*Research Scholar, Dept. of Business Management, S P University, Vidyanagar **

Government of Gujarat, Gandhinagar, Gujarat

Abstract

__________________________________________________________________________ Job involvement is generally described as an attachment to one's job that exceeds normal levels of

commitment. The employee can become so involved with her job that it gives her enduring satisfaction,

making her more enthusiastic. “The degree to which an employee is engaged in and enthusiastic about

performing their work is called Job Involvement” This is a very important concept to be examined to have

high productivity in today’s competitive era. To study the concept, researchers have selected a few private

banks of Gujarat. From about 100 employees, data has been collected through a structured questionnaire

on Job Involvement. Care was taken in filling up the questionnaire to minimize the bias and other related

factors. The collected data is analysed using statistical software SPSS. The research concluded based on

the analysis and obtained findings. The study would be helpful to banks for taking strategic decisions and

formulating the banks’ policies accordingly. The study covers whole of Gujarat and/or India and Both

Private and Public sector banks.

Keywords: - Job Involvement, Private bank, Commitment, Performance, Productivity, SPSS

___________________________________________________________________________________

1. Introduction Human behavior plays an important role in increasing organization’s effectiveness. In particular,

any effort to increase organizational effectiveness requires a high degree of Job Involvement (JI)

among members of an organization (Elankumaran, 2004). Job Involvement is an important

variable for an organization. For highly involved employees, their jobs seems inevitably

connected to their diverse identities, interests and life goals, as well as the satisfaction that they

can derive from performing their job duties effectively. More involved employees also feel more

competent and successful at work, believe that their personal and organizational goals are

compatible and tend to attribute positive work outcomes.

More involved persons also feel more competent and successful at work, believe that their

personal and organizational goals are compatible, and tend to attribute positive work outcomes to

their internal and personally controllable factors. However, because some people exhibit less

variability in their efforts than others, it may be of interest for organizations to identify which

employees, whether managers or supervisees, are more prone to variability in their responses.

Furthermore, organizations need to know how to achieve the highest degrees of JI or improve

these levels. Although all organizations likely aspire to encourage a high degree of JI, this effort

is extremely difficult, largely because of the inherent differences in the degrees of JI among

employees.


First Lodahl and Kejner (1965) presented the phenomenon of job involvement by discussing

various data about the impact of job design elements on job involvement. Job involvement is

important element that has significant impact on individual employee and organizational

outcomes (Lawler, 1986). Li and Long (1999) define job involvement as degree to which one

show emotional or mental identification with his job.

37

Job involvement can be elaborated that it is engagement regarding the internalization of values

about the righteousness of work or the significance of work in the value of the individual (Lodahl

& Kejner, 1965). This shows that researchers are working on this long ago and many

organizations have applied the research findings. Most of the researchers are agreed on this fact

that job involvement is different construct from other associated constructs which includes

organizational commitment, job satisfaction and intrinsic motivation (Shore, Thornton& Shore,

1990; Patterson & O'Driscoll, 1990; Brooke, Russell & Price, 1988; Dolke & Srivastara, 1988;

Blau,1986).

Reitz and Jewell (1979) said that job involvement is linked to importance of work in individual’s

routine or daily life .This mean if one gives importance to his work certainly he is loyal to his

work as well as to the organization. This will also affect the performance of individual. In

addition, Gurin, Veroff, and Feld (1960) also sighted involvement as the extent to which

performance have an effect on one’s self-esteem. Job factors can influence the involvement level

of individual in his job (Vroom, 1962). Lawler and Hall (1970) in this regard proposed that most

practical sight of job involvement might be role of job and individual relationship. Both

individual’ sown personality and variables influenced by different situations can change the level

of job involvement (Rabinowitz & Hall, 1977).

The employees whose involvement in job is high can be said that the job is important to

individual's self-image (Kanungo, 1982). Job involvement is very low among part time

employees and research shows that job involvement in full time employees are higher than the

part time or contractual employees (Martin & Hafer, 1995). It can be said that employees are

involved in their job if they enthusiastically take part in the job related matters (Allport, 1943),

they see job as most important and significant part in life (Dubin, 1966), and recognize

performance as main feature of their self-worth (Gurin et al., 1960). This means that job

involvement has major impact on productivity and efficiency of employee and work has vital role

in increasing job involvement of individual if it plays significant role in the life of employee.

(Probst & Tahira, 2000).

Lawler (1986) sees job involvement as significant key factor for creating and increasing

motivation of employees in view of organization and motivation play important role in

productivity and performance of individual. If we see job involvement from the view of

individual it may be believed as significant to individual’s own growth and satisfaction within the

work environment as well as motivation and attitude directed to goal (Hackman & Lawler, 1971;

Kahn, 1990; Lawler & Hall, 1970). Management should understand the importance of job

involvement because it is most important and essential component of work behavior among the

workforce as prior research proved this phenomenon (Manojlovich, Laschinger, & Heather, 2002;

Soong, 2000). It was highlighted that by giving employees power over their work content i.e.

decision regarding swiftness of work ,quality of product and job related abilities and resources

can motivate the employees to enhance their job involvement.

(Hackman & Oldham 1975, 1976, 1980), proposed in their job characteristics model (JCM) that

features of job can affect the job involvement because these features may encourage the internal

motivation of employees. In other words, goodness and significance of work play important role

in the worth of employee due to internalization of value through job involvement (Lodahl &

Kejner, 1965). Other researchers Lawler (1992) and Pfeffer (1994) also argued that through job

design, job involvement could be increased. Employees with significantly high job involvement

considered and recognized by their job and job play an important role in their routine lives

(Sonnentag & Kruel, 2006) i.e. job is more important for their lives from anything else.

38

3. Research Objectives

To study the Job involvement of Private bank employees

To analyze the critical factor responsible for Job involvement

To study the importance of Job involvement in organizations

Hypothesis

H0: There is no significance difference between Age group and combined Job Involvement

H1: There is significance difference between Age group and combined Job Involvement


Research Design

As researcher wants to know the existence level of Job involvement of employees of selected

Private Banks, the research design would be Descriptive Research design.

Data Collection Method

Personal Survey Method has been used to collect the required data.

Sampling

By Convenience non-random sampling, the sample of 100 respondents selected.

Research Instruments and Reliability: The present study utilized a Job Involvement scale

developed by Agarwala (1978). This JI scale uses a Likert- type response continuum: Strongly

Agree, Agree, Neutral, Disagree, and Strongly Disagree.

The Agarwala JI Scale possesses convergent and discriminating validity utilizing the multi trait-

multi method matrix analysis technique employed by Campbell & Lee (1988). Another

evidence of the validity of this JI scale is its correlation of 0.85 with Lodhal and Kejner‘s

abbreviated JI Scale. The 5-item abbreviated scale of the 29-item JI scale also correlated

with Lodhal & Kejner‘s 5-item JI Scale. The construct validity of this JI scale has been

demonstrated by correlations of JI scores with other variables in the predicted direction (Pathak,

1982b). Here, for this study the Cronbach Alpha = 0.873

Reliability Statistics

Cronbach's Alpha Cronbach's Alpha Based on Standardized Items N of Items

0.874 0.885 29

5. Data Analysis

Demographic Analysis Category No. of Respondents

Gender

Male 73

Female 27

Total 100

Age Group (in Years)

18-25 8

25-35 63

Above 35 29

Total 100

Experience(in Years)

Less than 2 28

2-5 41

Above 5 31

Total 100

39

Calculation of Job Involvement: Table 2 Total Score of Respondents for 29 items of Job Involvement Scale Responde

nts

Scor

e

Responde

nts

Scor

e

Responde

nts

Scor

e

Responde

nts

Scor

e

Respond

ents Score

1 118 21 97 41 108 61 125 81 124

2 118 22 102 42 108 62 83 82 99

3 129 23 93 43 116 63 79 83 90

4 120 24 96 44 88 64 84 84 88

5 121 25 96 45 116 65 88 85 81

6 103 26 86 46 101 66 124 86 90

7 40 27 83 47 116 67 91 87 90

8 92 28 89 48 117 68 106 88 91

9 102 29 98 49 93 69 93 89 102

10 121 30 84 50 113 70 96 90 103

11 95 31 85 51 129 71 91 91 102

12 112 32 101 52 116 72 104 92 97

13 98 33 84 53 83 73 117 93 96

14 104 34 84 54 100 74 91 94 96

15 90 35 90 55 100 75 90 95 96

16 125 36 94 56 100 76 86 96 97

17 120 37 90 57 99 77 87 97 91

18 98 38 102 58 57 78 92 98 91

19 106 39 109 59 106 79 102 99 91

20 120 40 105 60 124 80 87 100 61

Average 98.82

(Source: Designed by Researcher)

Score bifurcation of Scale: Total Scale point = 5

Scale dimensions (Strongly Agree= 5, Agree=4, Neutral=3, Disagree=2 Strongly Disagree=1)

No. of Items = 29 ; Standard Score = Total Scale point * No. of Items = 5 * 29 = 145

Weightage Demarcation = 50% of Standard Score = 72.5

Different Weightage: - Score 72.5 to 92 = Average

Score 93 to 113 = Good ; Score above 113 = Excellent

Here, by analysis, researcher found the combined score = 98.82

Which indicates Job Involvement of bank employees is GOOD.

Paired Samples t-Test (Age group – Job Involvement)

H0: There is no significance difference between Age of respondents and Job Involvement

H1: There is significance difference between Age of respondents and Job Involvement

Paired

Samples Test

Paired Differences

t df Sig.

(2-tailed) Mean Std.

D

Std.

Error

Mean

95% Confidence Interval

of the Difference

Lower Upper

Age group –

Job

Involvement

-2.43 0.75 0.075 -2.58 -2.28

-

32.3

4

99

0.000

(H0

rejected)

40

Here, Sig value 0.000 < 0.05 so, H0 rejected

i.e. There is significance difference between Age of respondents and Job Involvement, which

indicates that as Age of respondent’s increases, the level of their Job involvement varies.

Correlation (Job Involvement and Job Satisfaction) H0: There is no significant relation between Job Involvement and Job Satisfaction

H1: There is significant relation between Job Involvement and Job Satisfaction

Correlations Job Involvement Job Satisfaction

Job Involvement

Pearson Correlation 1 0.621**

Sig. (2-tailed) 0.000

N 100 100

Job Satisfaction

Pearson Correlation 0.621**

1

Sig. (2-tailed) 0.000

N 100 100

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

Here, Sig value 0.000 < 0.05 so, H0 rejected

i.e. There is significant relation between Job Involvement and Job Satisfaction, which indicates

that Job involvement may affect the level of Job Satisfaction and vice versa.

Conclusion

The result of present study present study implies that job involvement is the crucial element for

organizational effectiveness. In this study Job Involvement of bank employees is GOOD. This

study revealed that the job involvement has a direct relationship with organizational effectiveness

by way of their working style, personal life, relations with superiors and colleagues, extra duties

and responsibilities etc. This study is very much helpful to the management for future decisions

and forecast. Also, there is significance difference between Age of respondents and Job

Involvement. It is concluded from the analysis that there is a relationship between the job

involvement and job satisfaction.

References

1) Lawler, E.E. (1986). High-Involvement Management, Jossey Bass, SanFrancisco, CA.

Management Journal, Vol.33, Pp.692-724

2) Li Ye, & Long Lirong. (1999). A literature review on job involvement. Social

Psychological Research, (4):57–63 (in Chinese).

3) Lodahl TM, Kejner M. (1965). The definition and measurement of job involvement.

Journal of Applied Psychology, 49: 24-33.

4) Lawler, E. E., III. (1992). The ultimate advantage: Creating the high-involvement

organization. San Francisco: Jossey-Bass.

5) Reitz, H. J., & Jewell, L. N. (1979). Sex, locus of control, and job involvement a six-

country investigation. Academy of Management Journal, 22(1), 72-88

6) Shore, T.H., Thornton, G.C., & Shore, L.M. (1990). Distinctiveness of three work attitudes:

Job involvement, organization commitment, and career saliences. Psychological Reports,

67, 851–858

7) Pfeffer J. (1994). Competitive Advantage through People: Unleashing the Power of the

Work Force. Harvard Business School Press: Boston.

8) Patterson, J.M., &O'Driscoll, M.P. (1990). An empirical assessment of Kanungo's 1982

concept and measure of job involvement. Applied Psychology in International Review,

30(3), 293–301.

41

9) Sonnentag, S., &Kruel, U. (2006). Psychological detachment from work during off-job

time: The role of job stressors, job involvement, and recovery-related self-efficacy.

European Journal of Work and Organizational Psychology, 15(2), 197–217.

10) Hackman, J. R., & Oldham, G. R. (1975). Development of the job diagnostic survey.

Journal of Applied Psychology, 60, 159–170.

11) Hackman, J. R., & Oldham, G. R. (1976). Motivation through the design of work: Test of a

theory. Organizational Behavior and Human Performance, 16, 250–279.

12) Hackman, J., & Oldham, G. (1980). Work redesign. Reading, MA: Addison-Wesley.

13) Soong, S. W. (2000). The study on the devotion and job satisfaction of adults’ participation

in volunteer services. Taiwan: National Kaohsiung Administration, Normal University.

14) Manojlovich, M., Laschinger, S., & Heather, K. (2002). The relationship of empowerment

and selected personality characteristics to nursing job satisfaction. Journal of Nursing

Administration, 32(11), 586–595.

15) Kanungo, R. N. (1982). Measurement of job and work involvement. Journal of Applied

Psychology, 67, 341 –349.

16) Lawler, E. E., Ill, & Hall, D. T. (1970). Relationship of job characteristics to job

involvement, satisfaction, and intrinsic motivation. Journal of Applied Psychology, 54,

305-312.

17) Kahn, W. A. (1990). Psychological conditions of personal engagement and disengagement

at work. Academy of Management Journal, 33, 692–724.

18) Hackman, J., & Lawler, E. (1971). Employee reactions to job characteristics. Journal of

Applied Psychology, 52, 259-286. (Monograph).

19) Probst & Tahira.M. (2000). wedded to the job: Moderating effects of job involvement on

the consequences of job insecurity. Journal of Occupational Health Psychology, 1076-8998,

Vol. 5, Issue 1

20) Gurin, G., Veroff, J., & Feld, S. (1960). Americans view their mental health. New York:

Basic Books.

21) Dubin, R.J. (1966). Industrial worker's world: A study of the central life interest of

industrial workers. Social Problems, 3, 131–142.

22) Allport, G. (1943). The ego in contemporary psychology. Psychological Review, 60, 757–

760.

23) Martin TN, & Hafer JC. (1995). The multiplicative interaction effects of job involvement

and organizational commitment on the turnover intentions of full- and part-time employees.

Journal of Vocational Behavior, 46: 310-331.

24) Vroom, V. (1962). Ego-involvement, job satisfaction, and job performance Personnel

Psychology,15, 159-177.

25) Dolke, A.M., & Srivastara, P.K. (1988). Need satisfaction, job involvement and intrinsic

motivation: A factor analytic study. Indian Journal of Applied Psychology, 25, 13–17.

26) Brooke, P.P., Russell, D.W., & Price, J.L. (1988). Discriminant validation of measures of

Job satisfaction, job involvement and organization commitment. Journal of Applied

Psychology, 73, 139–145.

27) Elankumaran, S. (2004) Personality, organizational climate and job involvement: An

empirical study, Journal of Human Values, 10

28) Pathak, R.D.(1982b) Job involvement: its relationships to certain variables among

bank officers in India. Prajnan, 9, pp555-62

29) Lodahl, T.M. &Kejner, M., (1965),the definition and measurement of job

involvement. Journal of Applied Psychology, 49, Pp 24-33

30) Campbell,D.J& Lee,C.(1988) Self appraisal in performance evaluation:

Development versus evaluation. Academy of Management Review, 13, pp 302-314

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Industrial Relations, 4, pp 219-31

42

Indian Banking Sector: Challenges and Opportunities

Pranav H. Sheth

Research Scholar, B.K. School of Business Management, Gujarat University, Ahmedabad

Dr.Priyanka Pathak

Associate Professor, LJIMS, Ahmedabad.

Abstract

___________________________________________________________________________

The banking industry in India has a big history, which covers the traditional banking Practices from the

time of British to the reforms period, nationalization to privatization of banks and now increasing

numbers of foreign banks in India. So, Banking in India has gone through a long journey. Banking

industry in India has changed a lot with use of technology. It has brought a revolution in the working

style of the banks. The majority of the banks are still successful in keeping with the confidence of the

shareholders as well as other stakeholders. However, with the changing dynamics of banking business

brings new kind of risk exposure. In this paper an attempt has been made to find out general sentiments,

challenges and opportunities for the Indian Banking Industry. This paper focuses on three important

areas i.e. introduction and general scenario of Indian banking industry, various challenges and

opportunities faced by Indian banking industry and urgent emphasis required on the Indian banking

product and marketing strategies to get sustainable competitive edge over the intense competition from

national and global banks.

Key words: banking, growth, committee, policy, rural, government.

___________________________________________________________

1. Introduction

In past few years, we have seen that the World Economy is passing through some intricate

circumstances as bankruptcy of banking & financial institutions and debt crisis in major

economies of the world. The scenario has become very uncertain causing recession in major

economies like US and Europe. It creates some serious questions about the survival, growth and

maintaining the sustainable development.

However, India’s Banking Industry has been amongst the few to maintain resilience. The pace

of development for the Indian banking industry has been remarkable over the past decade. It is

evident from the higher pace of credit expansion; expanding profitability and productivity

similar to banks in developed markets, lower incidence of non- performing assets and focus on

financial inclusion have contributed to making Indian banking strong. Indian banks have begun

to revise their growth approach and reevaluate the prospects on hand to keep the economy

rolling.

2. History

Bank of Hindustan was set up in 1870; it was the earliest Indian Bank. Later, three presidency

banks under Presidency Bank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of

Madras were set up, which laid foundation for modern banking in India. In 1921, all presidency

banks were amalgamated to form the Imperial Bank of India. Imperial bank carried out limited

number of central banking functions prior to establishment of RBI. It engaged in all types of

43

commercial banking business except dealing in foreign exchange. Reserve Bank of India Act

was passed in 1934 & Reserve Bank of India (RBI) was constituted as an apex body without

major government ownership. Banking Regulations Act was passed in 1949. This regulation

brought RBI under government control. Under the act, RBI got wide ranging powers for

supervision & control of banks.

The Act also vested licensing powers & the authority to conduct inspections in RBI. In 1955,

RBI acquired control of the Imperial Bank of India, which was renamed as State Bank of India.

In 1959, SBI took over control of eight private banks floated in the erstwhile princely states,

making them as its 100% subsidiaries. It was 1960, when RBI was empowered to force

compulsory merger of weak banks with the strong ones. It significantly reduced the total

number of banks from 566 in 1951 to 85 in 1969. In July 1969, government nationalized 14

banks having deposits of Rs. 50 cores& above. In 1980, government acquired 6 more banks

with deposits of more than Rs.200 crores. Nationalization of banks was to make them play the

role of catalytic agents for economic growth.

The Narasimha Committee report suggested wide ranging reforms for the banking sector in

1992 to introduce internationally accepted banking practices. The amendment of Banking

Regulation Act in 1993 saw the entry of new private sector banks. Banking industry is the back

bone for growth of any economy. The journey of Indian Banking Industry has faced many

waves of economic crisis. Recently, we have seen the economic crisis of US in 2008-09 and

now the European crisis. The general scenario of the world economy is very critical. It is the

banking rules and regulation framework of India which has prevented it from the world

economic crisis. In order to understand the challenges and opportunities of Indian Banking

Industry, first of all, we need to understand the general scenario and structure of Indian Banking

Industry.

3. Indian Banking Scenario

The banking scenario in India has become very dynamic now-a-days. Before pre-liberalization

era, the picture of Indian Banking was completely different as the Government of India initiated

measures to play an active role in the economic life of the nation, and the Industrial Policy

Resolution adopted by the government in 1948 envisaged a mixed economy. This resulted into

greater involvement of the state in different segments of the economy including banking and

finance. The Reserve Bank of India was nationalized on January 1, 1949 under the terms of the

Reserve Bank of India (Transfer to Public Ownership) Act, 1948. In 1949, the Banking

Regulation Act was enacted which empowered the Reserve Bank of India (RBI) "to regulate,

control, and inspect the banks in India." The Banking Regulation Act also provided that no new

bank or branch of an existing bank could be opened without a license from the RBI, and no two

banks could have common directors.

By the 1960s, the Indian banking industry had become an important tool to facilitate the speed

of development of the Indian economy. The Government of India issued an ordinance and

nationalized the 14 largest commercial banks with effect from the midnight of July 19, 1969. A

second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason

for the nationalization was to give the government more control of credit delivery. With the

second dose of nationalization, the Government of India controlled around 91% of the banking

business of India. Later on, in the year 1993, the government merged New Bank of India with

Punjab National Bank. It was the only merger between nationalized banks and resulted in the

reduction of the number of nationalized banks from 20 to 19. After this, until the 1990s, the

44

nationalized banks grew at a pace of around 4%, closer to the average growth rate of the Indian

economy. In the early 1990s, the then Narasimha Rao government embarked on a policy of

liberalization, licensing a small number of private banks. The next stage for the Indian banking

has been set up with the proposed relaxation in the norms for Foreign Direct Investment, where

all Foreign Investors in banks may be given voting rights which could exceed the present cap of

10%, at present it has gone up to 74% with some restrictions. The new policy shook the

Banking sector in India completely. Bankers, till this time, were used to the 4-6-4 method

(Borrow at 4%; Lend at 6%; Go home at 4) of functioning. The new wave ushered in a modern

outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom

in India. People not just demanded more from their banks but also received more.

4. Indian Banking Industry Structure

Banking Industry in India functions under the Reserve Bank of India - the regulatory, central

bank. Banking Industry mainly consists of: • Commercial Banks • Co-operative Banks.

The commercial banking structure in India consists of: Scheduled Commercial Banks

Unscheduled Bank. Scheduled commercial Banks constitute those banks which have been

included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn

includes only those banks in this schedule which satisfy the criteria laid down vide section 42

(60) of the Act. Some co-operative banks are scheduled commercial banks although not all co-

operative banks are. Being a part of the second schedule confers some benefits to the bank in

terms of access to accommodation by RBI during the times of liquidity constraints. At the same

time, however, this status also subjects the bank certain conditions and obligation towards the

reserve regulations of RBI. For the purpose of assessment of performance of banks, the Reserve

Bank of India categories them as public sector banks, old private sector banks, new private

sector banks and foreign banks.

5. Current Challenges of Indian Banking Industry

India still has a huge number of people who do not have access to banking services due to

scattered and fragmented locations. But those people who are availing banking services, their

expectations are rising as the level of services is increasing due to the emergence of Information

Technology and competition. Many foreign banks are playing in Indian market are giving

number of services and so now Indian banks have laid emphasis on meeting the customer

expectations. But, the existing situation has created various challenges and opportunity for

Indian Commercial Banks. In order to encounter the general scenario of banking industry

following are the challenges and opportunities lying with banking industry of India.

(a) Rural Market: Reaching in rural India is a big challenge for the private sector and foreign

banks. In terms of quality of assets and capital adequacy, Indian banks are considered to have

clean, strong and transparent balance sheets relative to other banks. Consequently, we have seen

some examples of inorganic growth strategy adopted by some nationalized and private sector

banks to face upcoming challenges in banking industry of India. For example ICICI Bank Ltd.

merged the Bank of Rajasthan Ltd. in order to increase its reach in rural market and market share

significantly. State Bank of India (SBI) has also adopted the same strategy to retain its position. It

is in the process of acquiring its associates. SBI has merged State Bank of Indore in 2010.

45

(b) Risks Management: The growing competition increases the competitiveness among

banks. But, existing global banking scenario is seriously posing threats for Indian banking

industry. We have seen the bankruptcy of some foreign banks in near past. According to Shrieves

(1992), there is a positive association between changes in risk and capital. Research studied the

large sample of banks and results reveal that regulation was partially effective during the period

covered. Moreover, it was concluded that changes in bank capital over the period studied was

risk-based. Wolgast, (2001) studied the Merger and acquisition activity among financial firms.

The author focused bank supervisors in context with success of mergers, risk management,

financial system stability and market liquidity. The study concluded that large institutions are able

to maintain a superior level of risk management . Al-Tamimi and Al-Mazrooei (2007) examined

the risk management practices and techniques in dealing with different types of risk. Moreover,

they compared risk management practices between the two sets of banks. The study found the

three most important types of risk i.e. commercial banks foreign exchange risk, followed by

credit risk, and operating risk. Sensarma and Jayadev (2009) used selected accounting ratios as

risk management variables and attempted to gauge the overall risk management capability of

banks. They used multivariate statistical techniques to summarize these accounting ratios.

Moreover, the paper also analyzed the impact of these risk management scores on stock returns

through regression analysis. Researchers found that Indian banks' risk management capabilities

have been improving over time. Returns on the banks' stocks appeared to be sensitive to risk

management capability of banks. The study suggest that banks want to enhance shareholder

wealth will have to focus on successfully managing various risks.

(c) Growth of Banking: Zhao, Casu and Ferrari (2008) used a balanced panel data set

covering the period of 1992-2004 and employing a Data Envelopment Analysis (DEA)-based

Malmquist Total Factor Productivity (TFP) index. The empirical study indicated that, after an

initial adjustment phase, the Indian banking industry experienced sustained productivity growth,

which was driven mainly by technological progress. Banks' ownership structure does not seem to

matter as much as increased competition in TFP growth. Foreign banks appear to have acted as

technological innovators when competition increased, which added to the competitive pressure in

the banking market. Finally, our results also indicate an increase in risk-taking behaviour, along

with the whole deregulation process. It was found in the study of Goyal and Joshi (2011) that

small and local banks face difficulty in bearing the impact of global economy therefore, they need

support and it is one of the reasons for merger. Some private banks used mergers as a strategic

tool for expanding their horizons. There is huge potential in rural markets of India, which is not

yet explored by the major banks. Therefore ICICI Bank Ltd. has used mergers as their expansion

strategy in rural market. They are successful in making their presence in rural India. It strengthens

their network across geographical boundary, improves customer base and market share.

(d) Market Discipline and Transparency: According to Fernando (2011) transparency and

disclosure norms as part of internationally accepted corporate governance practices are assuming

greater importance in the emerging environment. Banks are expected to be more responsive and

accountable to the investors. Banks have to disclose in their balance sheets a plethora of

information on the maturity profiles of assets and liabilities, lending to sensitive sectors,

movements in NPAs, capital, provisions, shareholdings of the government, value of investment in

India and abroad, operating and profitability indicators, the total investments made in the equity

share, units of mutual funds, bonds, debentures, aggregate advances against shares and so on.

(e) Human Resource Management: Gelade and Ivery (2003) examined relationships

between human resource management (HRM), work climate, and organizational performance in

the branch network of a retail bank. Significant correlations were found between work climate,

46

human resource practices, and business performance. The results showed that the correlations

between climate and performance cannot be explained by their common dependence on HRM

factors, and that the data are consistent with a mediation model in which the effects of HRM

practices on business performance are partially mediated by work climate. Bartel (2004) studied

the relationship between human resource management and establishment performance of

employees on the manufacturing sector. Using a unique longitudinal dataset collected through site

visits to branch operations of a large bank, the author extends his research to the service sector.

Because branch managers had considerable discretion in managing their operations and

employees, the HRM environment could vary across branches. Site visits provided specific

examples of managerial practices that affected branch performance.

An analysis of responses to the bank’s employee attitude survey that controls for unobserved

branch and manager characteristics shows a positive relationship between branch performance

and employees’ satisfaction with the quality of performance evaluation, feedback, and

recognition at the branch—the “incentives” dimension of a high-performance work system. In

some fixed effects specifications, satisfaction with the quality of communications at the branch

was also important.

(f) Global Banking: It is practically impossible for any nation to exclude itself from world

economy. Therefore, for sustainable development, one has to adopt integration process in the

form of liberalization and globalization and to do the same India also opened the banking sector

for foreign firms in 1991. The impact of globalization becomes challenges for the domestic

enterprises as they are bound to compete with global players. Current data says in Indian Banking

Industry, there are 36 foreign banks operating in India, and it creates a major challenge for

Nationalized and private sector banks. Because these foreign banks are large in size, technically

advanced and having presence in global market, which gives more and better options and services

to Indian traders.

(g) Financial Inclusion: Financial enclosure has become a necessity in today’s business

environment. Whatever is produced by business houses, that has to be under the check from

various perspectives like environmental concerns, corporate governance, social and ethical issues.

Dev (2006) stated that financial inclusion is significant from the point of view of living

conditions of poor people, farmers, rural non-farm enterprises and other vulnerable groups.

Financial inclusion, in terms of access to credit from formal institutions to various social groups

is an important factor. Apart from formal banking institutions should look at inclusion both as a

business opportunity and social responsibility, so one can say that the role of the self-help group

movement and microfinance institutions is important to improve financial inclusion.

(h) Employees’ Retention: The banking industry has changed too much in the last decade,

shifting from transactional and customer service-oriented to an increasingly aggressive

environment.. Long-time banking employees are often resistant to perform up to new

expectations and the diminishing employee morale results in decreased revenue. Due to the

intrinsically close ties between staff and clients, losing those employees completely can mean the

loss of valuable customer relationships.

Therefore, the banks are concerned about employee retention from all levels: from tellers to

executives to customer service representatives. The competition to retain key employees is

intense. Top-level executives and HR departments spend large amounts of time, effort, and

money trying to figure out how to keep their people from leaving.

47

(i) Customer Retention: Levesque and McDougall (1996) investigated the major determinants

of customer satisfaction and future intentions in the retail bank sector. They identified the

determinants which include service quality dimensions (e.g. getting it right the first time), service

features (e.g. competitive interest rates), service problems, service recovery and products used. It

was found, in particular, that service problems and the bank’s service recovery ability have a

major impact on customer satisfaction and intentions to switch. Clark (1997) studied the impact

of customer-employee relationships on customer retention rates in a major UK retail bank. He

revealed that employee and customer perceptions of service quality are related to customer

retention rates and that employee and customer perceptions of service quality are related to each

other. Clark (2002) examined the relationship between employees’ perceptions of organizational

climate and customer retention in a specific service setting, viz. a major UK retail bank.

Employees’ perceptions of the practices and procedures in relation to customer care at their

branch were investigated using a case study approach. The findings revealed that there is a

relationship between employees’ perceptions of organizational climate and customer retention at

a micro organizational level. He suggested that organizational climate can be subdivided into five

climate themes and that, within each climate theme, there are several dimensions that are critical

to customer retention.

(j) Social and Ethical Aspects: There are some banks, which proactively undertake the

responsibility to bear the social and ethical aspects of banking. This is a challenge for commercial

banks to consider these aspects in their working. Apart from profit maximization, commercial

banks are supposed to support those organizations, which have some social concerns. Benedikter

(2011) defines Social Banks as “banks with a conscience”. They focus on investing in

community, providing opportunities to the disadvantaged, and supporting social, environmental,

and ethical agendas. Social banks try to invest their money only in endeavours that promote the

greater good of society, instead of those, which generate private profit just for a few. He has also

explained the main difference between mainstream banks and social banks that mainstream banks

are in most cases focused solely on the principle of profit maximization whereas, social banking

implements the triple principle of profit-people-planet.

6. Conclusion

Over the years, it has been observed that clouds of concern and drops of growth are two important

phenomena of market, which frequently changes in different sets of conditions. The pre and post

liberalization era has witnessed various changes which directly affects these phenomena. It is

evident that post liberalization era has spread growth in India, but it also has posed some

challenges. This paper focuses on various challenges and opportunities like rural market,

transparency, customer expectations, management of risks, growth in banking sector, human

factor, global banking, social, ethical issues, employee and customer retentions. Banks are

striving to fight the competition. The competition from global banks and technological innovation

has compelled the banks to rethink their policies and strategies.

7. Suggestions

The biggest challenge for banking industry is to serve the mass market of India. Companies have

shifted their focus from product to customer. The better we understand our customers, the more

successful we will be in meeting their needs. In order to mitigate above mentioned challenges

Indian banks must cut their cost of their services. Another aspect to encounter the challenges is

48

product differentiation. Indian banks must adopt some product innovation so that they can

compete. Technology up gradation is an inevitable aspect to face challenges. The level of

consumer awareness is significantly higher as compared to previous years. Now-days they need

internet banking, mobile banking and ATM services. Expansion of branch size is also important

in order to increase market share. Therefore, Indian nationalized and private sector banks must try

to work towards global markets as some of them have already done it. Indian banks are

trustworthy brands in Indian market; therefore, these banks must utilize their brand equity as it is

a valuable asset for them.

References

1. Al-Tamimi, H. A. H and Al-Mazrooei, F. M. “Banks' risk management: A comparison study

of UAE national and foreign banks”. Journal of Risk Finance.

2. Deoda Shraddha, Journal of Research in Business, Economics and Management (JBREM)

ISSN: 2395-2210, Volume 1, Issue 1, January, 2015

3. Goyal, K. A. and Joshi, V. “Mergers in Banking Industry of India: Some Emerging Issues”.

Asian Journal of Business and Management Sciences.

4. Sensarma, R. and Jayadev, “Are bank stocks sensitive to risk management?” Journal of Risk

Finance.

5. Shrieves, R. E. “The relationship between risk and capital in commercial banks”. Journal of

Banking & Finance, 1992.

6. Wolgast, M. “M&As in the financial industry: A matter of concern for bank supervisors?”

Journal of Financial Regulation and Compliance.

7. Zhao, T., Casu, B. and Ferrari, A. “Deregulation and Productivity Growth: A Study of The

Indian Commercial Banking Industry”. International Journal of Business Performance

Management.

49

A Study on the extent of financial inclusion in the North Gujarat Region

NC Raghavi Chakravarthy

Junior Research Fellow, S D School of Commerce, Gujarat University, Ahmedabad

Abstract

__________________________________________________________________________ Financial inclusion is a key factor which is important for the growth of the country, as a country cannot

develop be excluding a certain section of the society. In the present paper, the researcher has tried to find

the extent of financial inclusion in the North Gujarat region, which included the districts of Gandhinagar,

Patan, Sabarkantha, Banaskantha and Mehsana. Data was collected from 110 units with the help of a

questionnaire. This study has been conducted using four criteria of the usage dimension as specified by

G20 Financial Inclusion Indicators. The four criteria used include (1). Formally banked adults. (2). Adults

with credit at regulated institutions (3). Adults with insurance (4). Saving propensity. It was found that

Gandhinagar had the highest number of formally banked adults as well as it had the highest saving

propensity. Mehsana district had the highest number of adults with insurance and Sabarkantha had the

highest number of adults with credit at a regulated institution.

Key words: Financial Inclusion, Extent of financial inclusion, North Gujarat region, G20 Financial

Inclusion Indicators

___________________________________________________________________________________

Introduction

An act of including someone into a system who earlier were not including is known as inclusion.

Financial inclusion can be defined as actions which ensure that the financial services such as

banking services, insurance services and other financial services reach even the most deprived

sections of the society so that they can use those services and improve their status of living.

The Committee on Financial Inclusion constituted under the chairmanship of C Rangarajan

defined Financial Inclusion as under:

“Financial inclusion may be defined as the process of ensuring access to financial services and

timely and adequate credit where needed by vulnerable groups such as weaker sections and low

income groups at an affordable cost.”

Financial inclusion is essential for the development of a country because a country where in a part

of the population is deprived of some services would not be able to progress. In order to develop,

all the sections of the society should get equal opportunities to grow which is only possible if

financial inclusion is there.

Financial inclusion would also help in economic development as there would be reduction in the

poverty and inequality of income in the country. Financial inclusion is also essential because a

large population which borrows from informal channel would be able to get finance from the

formal system. As a result, their interests would be protected and they would not be exploited by

anyone.

Financial inclusion would also help the people to save and manage their finances in a better

manner as they can keep a track on their expenses. Moreover, whenever any contingency arises

they would have some savings with themselves to lean on to. So for a developing country like

India, it is very important that the entire population is financially included.

50

According to the G20 Financial inclusion indicators, financial inclusion is measured in three

dimensions namely (a) access to financial services (b) usage of financial services and (c) Quality

of the products and services delivery.

In the present study, the researcher aims to find the financial inclusion in the North Gujarat region

using the usage of financial services dimension.

Literature review

Sharma and Kukreja (2013) studied the role of financial inclusion in strengthening India's

position in relation to other developing nations. They concluded that financial inclusion plays an

important role for the economic and social development of the society and still many efforts are

to be made to achieve this objective.

Grag and Agarwal (2014) found that in spite of many efforts by the regulators, the government

and all the concerned parties the efforts are not giving the desired results. They suggest that it is

important for the regulator to create an atmosphere for financial inclusion. They also suggest that

the concerns of all the stakeholders need to be addressed by formulating policies which address

all their concerns.

Shetty, Hans and Rao found that there has been a major change in the financial activity and

economic security of the SHG members. They conclude that the SHG Bank linkage programme

should be considered as a benchmark for women empowerment and socio economic development

of women. Still policies need to be improved so that the goal of financial inclusion is achieved

Ramakrishnan (2012) considered financial inclusion and financial literacy is essential as the

people who are financially literate will be able to make informed decisions. Moreover, if the

people are financially literate, they are able to understand the importance of savings.

After undertaking the literature review, the below objective of the study have been formulated.

Objectives of the study:

The following are the objectives of the study:

1. To know the extent of financial inclusion in the North Gujarat Region

2. To determine which is the most financially included district in this area.

Scope of the Study:

For undertaking the present study, the data was collected by the researcher from the five districts

of North Gujarat Region namely Gandhinagar, Mehsana, Banaskantha, Patan and Sabarkantha.

Sources of the Data:

The present study uses the data collected in the above mentioned five districts by primary survey

using a questionnaire. A total of 110 units have been considered for the purpose of the study.

Research methodology:

In order undertake the study; the researcher has used the usage of financial services as a

measurement tool. According to the criteria laid down by the G20 Financial Inclusion Indicators,

this dimension covers the following eight criteria:

51

(1). Formally banked adults. (2). Adults with credit at regulated institutions (3). Adults with

insurance (4). Saving propensity (5). Cashless transactions (6). High frequency account usage (7).

Mobile transactions usage (8). Remittances.

For the purpose of this study the first four criteria are considered.

In order to determine whether a respondent qualifies or not for that criteria, the following

methodology was adopted:

1. Criteria 1: Formally banked adult:

For calculating the number of respondents who fall in this criterion, the researcher has considered

four different types of accounts which are used by the people which include savings account,

fixed deposit account, post office savings account and public provident fund account. If the

respondent has any one of these accounts then he is considered as a formally banked adult. If the

respondent is a formally banked adult, then he is assigned “1” otherwise “0”.

2. Criteria 2: Adult with insurance:


four different types of insurances which are available to the people which includes life insurance,

health insurance, accident insurance and other insurance. If the respondent has any one of these

insurances, then he is considered as an adult with insurance. If the respondent is an adult with

insurance, then he is assigned “1” otherwise “0”.

3. Criteria 3: Adults with credit at a regulated institution:


two different types of loan account namely, the loan account with a nationalized bank and loan

account with a cooperative bank. If the respondent has any one of these loan account, then he is

considered as an adult with credit with a regulated institution. If the respondent is an adult with

credit at a regulated institution, then he is assigned “1” otherwise “0”.

4. Criteria 4: Saving propensity:


whether or not a respondent has saved at a financial institution or not. If he has saved during the

past year at any financial institutions, then he is considered to have saving propensity and is

assigned “1” or otherwise “0”.

Data analysis and interpretation:

Out of the units interviewed, 11% belonged to Gandhinagar district, 25% to Mehsana, 18% to

Patan, 35% to Banaskantha and 11% to Sabarkantha district.

It was observed that out of the total units considered, 81.82% were formally banked individuals,

62.73% were adults with insurance 28.18% were adults with credit at a regulated institution and

81.82% were adults who have saving propensity. The information is explained in the below

charts

52

Chart 1: Percentage of units covered under the four criteria considered for the study

Formally Banked Adult,

Yes, 81.82, 82%

Formally Banked Adult,

No, 18.18, 18%

Criteria 1: Formally Banked Adult

Yes No

Adult with Insurance, Yes,

62.73, 63%

Adult with Insurance, No,

37.27, 37%

Criterion 2: Adult with Insurance

Yes No

Adult with Credit at

Regulated Institutions, Yes, 28.18,

28%

Adult with Credit at

Regulated Institutions, No, 71.82,

72%

Criteria 3: Adult with Credit at Regulated Institutions

Yes No

Saving Propensity, Yes, 81.82,

82%

Saving Propensity, No, 18.18,

18%

Criteria 4: Saving Propensity

Yes No

53

When the data was observed district wise, it was found that, in the formally banked adult criteria,

Gandhinagar district tops with 91.67%. This is due to the reason that about 75% of the units of

who have been interviewed were employed in either public sector or private sector. When the

adults with insurance are considered, Mehsana Taluka had the maximum number of units who

had insurance. About 81.48% of the units had insurance in this district. The possible reason for

this might be due to the high number level of literacy in this district. Out of the units that were

interviewed of this district, about 70% of the units had completed their basic education and 37%

of them were graduates and above.

The units in Sabarkantha had the maximum number of respondents who had loan account. This

might be due to the reason that only 35% of the units of this region have savings over Rs. 1 lakh

and as a result, they depend on the credit given by the financial institutions to finance their

activities. Another point that has to be noted is that the units in Banaskantha region are more

financially weak than those of Sabarkantha as about 30% of the units have savings of more than

Rs 1 lakh. Yet it is observed that the number of loan account holders in this district is only at

3.70%. This might be due to the reason that the literacy level in this district is lowest among all

the districts considered. Due to this, there might be lack of awareness among the units of this

district.

The saving propensity of adults in Gandhinagar district was the highest with 91.67% of the units

responding positively when asked whether they have undertaken savings in a financial institution

in the past year. This can also be attributed to the fact that the units of this region are employed in

the organized sector and they set aside certain amount for their future.

The lowest number of formally banked adults was in Patan with 58.33% having an account with a

financial institution. The lowest number of insured adults was in Banaskantha with 44.44%

responding that they have insurance. This might be due to reason that only 39% out of the units

interviewed in this region had completed their basic education. So, it might be possible that due to

this reason there is lack of awareness among the respondents of this region. No unit in the district

of Patan had credit at a regulated institution. This might be due to the fact that the units of this

district are financially stronger than the respondents of the other districts and as a result, they do

not have to depend on credit from institutions to finance their activities. About 41% of the units

of this area are having saving of more than Rs. 1 Lakh and as a result they finance their activities

from this whenever the need arises.

The lowest saving propensity was observed in the district of Patan with 58.33% responding

positively when inquired about the savings undertaken by them in a financial institution in the

past year. This might be due to the fact that about 75% of the units of this region are engaged in

farming activities and their savings get diverted for reinvestment in their farms.

The above information is presented in the below table and graph in detail

Table 1: Percentage of units covered under each criterion considered for measuring

the financial inclusion

Criteria Gandhinagar Mehsana Sabarkantha Banaskantha Patan

Formally Banked Adult 91.67 81.48 85.00 72.22 58.33

Adult With Insurance 58.33 81.48 75.00 44.44 58.33

Adults With Credit At

Regulated Institutions 8.33 55.56 65.00 3.70 0.00

Saving Propensity 91.67 81.48 85.00 72.22 58.33

(Source: Computed from Primary data)

54

Findings of the Study

1. While analyzing the data, it was found that the about 92% of the adults in the Gandhinagar

district were formally joined with the banking system. This is due to the reason that about 75% of

the respondents of this region were employed public or private sector. So they had a savings

account with a financial institution. The least number of formally banked individuals was in the

district of Patan.

2. It was also observed that the banking system has penetrated fairly in the rural areas of the

North Gujarat region as in almost all the districts, the number of adult bank account holders is

above 55%.

3. Mehsana had the maximum number of adults with insurance and Banaskantha had the lowest

number of adults with insurance. The high level of insured adults in Mehsana is due to the reason

that about 70% of the units had completed their basic education while 37% of them were

graduates. So as a result, there is a high level of awareness as well as understanding about the

importance insurance among the adults of this district. While in case of Banaskantha, only 39%

out of the units considered in this region had completed their basic education. As a result of this,

there is less awareness among the units of this district.

4. In the criteria of Adults with credit in a regulated institution, huge variations are observed as

the highest was in Sabarkantha and the lowest was in Patan were it fell down to 0%. The reason

for this is because, the units of Patan district are financially strong and as a result, they don’t need

to take loans to finance their activities. On the other hand, the units in the Sabarkantha district are

comparatively weaker than that of Patan districts. As a result, they depend on the credit extended

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.33

Percentage of units financially inculded in each district

GANDHINAGAR MEHSANA SABARKANTHA BANASKANTHA PATAN

55

5. It is also observed that the units in Banaskantha district are weaker than those of Sabarkantha,

but the adults with credit at regulated institution are the second lowest. This might be due to the

reason that the level of literacy in Banaskantha is the lowest among all the districts which are

considered. As a result, the units of this district might be less aware about the various credit

facilities which are available.

5. The saving propensity of the adults in Gandhinagar is the highest with 91.67% of the units

saving during the last year in a financial institution as about 75% of the units are employed in

either private sector or the government sector and as a result, they save for their future in the

financial institutions. The saving propensity was the lowest in Patan as about 83% of the

population is engaged in either farming or are doing some sort of business. Due to this their

savings get diverted to be reinvested in either their farms or in their business.

6. It is observed that the rural population in the districts of Gandhinagar, Mehsana and

Sabarkantha are more financially included than the rural population of Banaskantha and Patan.

Conclusion

This study was undertaken to study the extent of financial inclusion in the North Gujarat Region.

For this purpose, the researcher used the usage dimension of the G20 Financial inclusion

indicators. Four criteria from this dimension were used to undertake this study. They are formally

banked adult, adults with credit at a regulated institution, adults with insurance and adults having

saving propensity. For the purpose of this study, information from 110 units was collected using

questionnaire in 5 districts namely, Gandhinagar, Mehsana, Patan, Sabarkantha and Banaskantha.

The first objective of this study was to know the extent of financial inclusion in the North Gujarat

region. It was observed that the 81.82% of the adults in this region had a formal bank account.

About 62.73% had insurance, 28.18% had taken credit from a regulated institution and 81.82%

had saving propensity. From this it can be concluded that banking and insurance services in this

region have reached the rural population but the extension of credit facility has to be improved.

The second objective of this study was to determine the most financially inclusive district in this

region. It was observed Gandhinagar district had the most number of formally banked adults as

well the highest number of adults with saving propensity. This is due to the reason that about 75%

of the respondents of this region were doing a job and so they had a savings account with a

financial institution.

Mehsana district had the highest number of Insured adults. The high level of insured adults in

Mehsana might be due to the reason that about 70% of the units had completed their basic

education while 37% of them were graduates. So as a result, there is a high level of awareness as

well as understanding about the importance insurance among the adults of this district.

Sabarkantha had the highest number of adults with credit at a regulated institution as the units in

the Sabarkantha district. This might be due to the reason that only 35% of the units of this region

have savings over Rs. 1 lakh and as a result, they depend on the credit given by the financial

institutions to finance their activities. Further it has been found that in spite of being financially

weaker than the units of all the districts considered, the units of Banaskantha had the second

lowest loan account holders which might be due to the low level of literacy and lack of awareness

among the people of this district.

56

The banking facility has the maximum penetration in all the districts. Due to this the saving

propensity of the adults in this region is also. The penetration of insurance services is also good.

But the credit services in this region need to improve as a lot of fluctuation are observed in the

usage of these services. Special attention need to be given in this area to ensure that the objective

of financial inclusion is attained fully. For this, literacy level has to be increased so that the

people become aware more aware about the various facilities available to them.

So, it is concluded that if the objective of financial inclusion has to be achieved, then the literacy

level among the population has to be increased and awareness has to be created among the

general public about the various facilities. Then and then only the objective of financial inclusion

can be attained by the country.

References:

1. Rangarajan Committee. (2008). Report of the committee on financial inclusion. Government

of India. Retrieved December 10, 2015, from https://www.nabard.org/pdf/Chap_II.pdf

2. Khaitan, R. (2014, April 29). The Role of Financial Inclusion and Financial Deepening.

Retrieved December 3, 2015, from http://www.ifmr.co.in/blog/2014/04/29/the-role-of-financial-inclusion-and-financial-deepening/

3. G 20 Financial Inclusion Indicators. (n.d.). Retrieved December 3, 2015, from

http://www.gpfi.org/sites/default/files/G20 Set of Financial Inclusion Indicators.pdf

4. Sharma, A., & Kukereja, S. (2013). An Analytical study: Relevence of Financial Inclusion for

developing nations. International Journal of Engineering and Science, 15-20.

5. Garg, S., & Agarwal, P. (2014). Financial Inclusion in India- A review of initiatives and

achievements. IOSR Journal of Business and Management (IOSR-JBM), 16(6), 52-61.

Retrieved December 3, 2015, from http://www.iosrjournals.org/iosr-jbm/papers/Vol16-

issue6/Version-1/H016615261.pdf

6. Shetty, S., Hans, V., & Rao, P. (n.d.). Self help Groups, Financial Inclusion and Women

Empowerment. Retrieved December 2, 2015, from http://ssrn.com/abstract=2662004

7. Financial Literacy and Financial Inclusion. (2012). Retrieved November 23, 2015, from

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2204173

https://www.nabard.org/pdf/Chap_II.pdf

http://www.ifmr.co.in/blog/2014/04/29/the-role-of-financial-inclusion-and-financial-deepening/

http://www.ifmr.co.in/blog/2014/04/29/the-role-of-financial-inclusion-and-financial-deepening/

57

Do Shariah-compliant stock indices perform better than

Conventional stock indices?

Ashish Siddiqui

Assistant Professor-Finance, Department of Animation, Gujarat University

Dr.Nilam Panchal

Associate Professor-Finance, B.K School of Business Management, Gujarat University

Abstract

___________________________________________________________________________ Tremendous growth of Shariah finance in the past few years has motivated many investors to have shariah

complaint stocks in their portfolio along with conventional stocks... As on today there are hundreds of

Shariah Compliant Indices launched in different countries. Following the trend in 2010 the Bombay Stock

Exchange has launched India’s first index of companies compliant with Shariah law, or shariah. The index

is made up of the 50 biggest Indian companies whose operations are deemed to be consistent with shariah-

meaning that they don’t derive significant profit from interest payments, or sell products or services such

as tobacco, alcohol or weapons, which are considered in the Shariah faith as sinful. There are arguments

that suggest that Shariah compliant stocks have performed better than conventional stocks, however there

are few empirical evidences that would really tell about the truth of this argument. This paper examined

about the potential of S&PBSE-Shariah indices by comparing them with S&P BSE conventional indices

during the period of April 2013 to October 2015. The risk adjusted measure shall was employed, also

correlation coefficient and t-test have been be used to test the relationship and mean return of shariah

compliant indices and conventional indices. The study reveals that shariah complaint stocks perform better

than conventional stocks as per the sharpe ratio, although the mean returns of conventional show

promising and better result than shariah complaint stocks index, the total risk ie..Standard deviation of

conventional stock index is quite high compared to shariah complaint stock index.

Keywords: Shariah finance (Islamic), Shariah indices Risk adjusted measure, t-test and correlation

coefficient

_________________________________________________________________________________

1. Introduction

Islamic financial assets around the world hit USD 1.3 trillion in 2011, a 150% increase over five

years as the industry expands into a new country beyond core markets in the Middle East and

Malaysia (Davies; Reuters, 2012). El Qorchi (2005) as cited in Pok (2012) has summarized that

this significant shift from conventional into Shariah financial system is generated by three main

reasons. First, a strong demand for Shariah-compliant financial products from a large number of

Muslim communities worldwide. Second, a strong demand from oil rich nations particularly the

Middle East countries which prefer to invest in Shariah-compliant products. The last reason is the

competitiveness and the ethical focus of the Shariah-compliant products not only attracting

Muslim investors but also non-Muslim investors.

However, there is a pessimistic view in Islamic equity investment about the performance of

Shariah-compliant stocks which have generally underperformed when compared to the

performance of conventional stocks. This pessimistic view is based on the fact that Shariah-

compliant stocks or companies experience limited economic activities for two reasons. First,

Shariah restrictions limit a company’s ability to use external sources of financing and this limit

reduces the company’s sustainable growth. Second, Shariah restrictions limit investment

opportunities so the company’s income is potentially reduced (McGowan & Junaina, 2010).

58

Hence, the objective of this research is to examine the financial performance of investment

portfolio comprising of Shariah compliant stocks only, and compare its performance to the

conventional stocks portfolio of public companies listed on Bombay Stock Exchange.


Dharani and Natarajan (2011) in their study analyzed the performance of the Shariah index and

conventional index in India. The t-test was used to examine the difference of the mean returns

between both indices. The average Monday return of the Nifty Shariah index was compared with

the average return of the Nifty index by using two sample t-tests. The study found that there was

no difference between average day-wise returns of the Nifty Shariah index and average day return

of the Nifty Index during the study period. They found that Nifty Shariah had underperformed

during the period of 2nd January 2007 to 31st December 2010.

According to Albaity and Ahmad (2008), Shariah stock investment is based on the Shariah

principles of transactions and it also falls into the category of ethical investment. KLSI is

marginally underperforming Kuala Lumpur Composite Index (KLCI), which was measured by

mean and standard deviation; thus, the securities under KLCI are less than the KLSI. The risk

adjusted returns indicate that KLCI has higher returns and higher beta. Thus, KLSI has lower risk

adjusted returns and lower beta in the short run. Meanwhile, Sadeghi (2008) investigated the

impact of the introduction of Bursa Malaysia Shariah index on the financial performance and

liquidity of the screening securities involved in the Shariah index in Malaysia. The study found

that the introduction of the Shariah index has a positive and strong impact on the financial

performance of the Shariah compliant stocks.

Rahim et al. (2009) investigated the transmission of information (at return and volatility level) on

top of the correlation between Kuala Lumpur Shariah Index (KLSI) and Jakarta Shariah Indices

(JII). The results indicate significant unidirectional return and volatility transmissions from KLSI

and the JII. However, volatility is highly persistent and mean reverting in each market. In

addition, they also found that there is a low correlation between the two Shariah stock markets,

KLSI and JII. The Sharpe, Treynor and Jensen method has been used to measure the return

performance of index. From January 1996 to December 2005, it showed that there was no

significant difference in performance between Shariah and conventional indexes. Indeed, the

DJIM outperformed their conventional counterparts from 1996 to 2000 and underperformed from

2001 to 2005. Overall, similar reward to risk and diversification benefits exist for both sets of

indexes. The multivariate co-integration analysis suggests that both Shariah and conventional

groups are poorly integrated for the overall period (Hassan and Girard, 2011). Hussein (2004)

indicated that the application of ethical screens did not have an adverse impact on the Financial

Times Stock Exchange (FTSE) Global Shariah index performance. Since the FTSE Global

Shariah index and its index counterparts are not from the same category of risk, and since the raw

returns are not adjusted for risk, they utilized the Capital Asset Pricing Model (CAPM) in order to

estimate the risk-adjusted returns. A comparison of the raw and risk-adjusted performance

showed that the Shariah index performed as well as the FTSE All-World index over the entire

period. There is clear evidence that the Shariah index yields statistically significant positive

abnormal returns in the bull market period, though it underperforms the FTSE All-World index in

the bear market period.

Besides that, Beik and Wardhana (2011) evaluated further the effect of financial crisis in Jakarta

Shariah Index (JII) that started in early 2006. Cointegration test was used to examine the long-run

Journal of Entrepreneurship and Business 4 relationship among the stock markets and they

concluded that there is no relationship between Indonesia’s market and both Malaysia and the US

markets. Thus, the VAR model is used in evaluating the short-run dynamic interactions and it

59

stated that the JII is significantly affected by the shock or disturbance-taking place in the other

markets. However, the results indicate that the JII is the least volatile and more stable market in

the short run. Shakrani et al., (2005) found that by using the GARCH model before the launching

of Shariah approved counters, the information of DJII was found to be the major factor that

influenced the feature of volatility persistence in KLCI returns. On the other hand, after the

launching of Shariah approved counters, it was found that interest rate variable has a greater

influence on the feature of volatility persistence in KLCI returns.

3. Research Gap

Few studies have been made addressing the issue of performance of Shariah compliant equity

funds. While some of the studies concluded that islamic equity funds underperform their

conventional counterparts because of limited diversification (Hassan 2002). Others argued that

their performance is at par or even better than their counterparts [Hussein and Omran (2005)].

While other researchers have shown that it varies in bull and bear market periods [Hussein

(2004), Abdullah et. al. (2002)] and different regions [Hoepner, Hussain and Rezec (2010)].

Dharani and Natarajan (2011) in their research found that shariah returns underperformed

compared to conventional returns but they researched by taking nifty and not BSE shariah

indices.

4. Need for the Study

In recent past number of Shariah Compliant products have been launched to meet the growing

demand but very few studies have been conducted on such its performance despite their

increasing popularity. In the past researchers have concluded that Islamic equity funds

underperform their conventional counterparts because of limited diversification (Hassan 2002).

Others argued that their performance is at par or even better than their counterparts [Hussein and

Omran (2005)]. While other researchers have shown that it varies in bull and bear market periods

[Hussein (2004), Abdullah et. al. (2002)].

This paper studies the overall performance of S&P BSE 500 in comparison to BSE-Conventional

stock Sensex and aims to find answer to the following questions:

Do the Islamic stock indices achieve lower return levels compared to conventional stock

indices?

What is the overall performance of Shariah compliant after adjusting risk free rate of

return?

Do Shariah complaint stocks indices return perform better after considering statistical

measures when compared directly with conventional stock indices returns?


To attain the objective of the study, Shariah indices monthly data from April 2013 to October

2015 and conventional BSE Sensex indices for the same period were selected to examine the

differences between the performances of both indices. The risk and return of both indices are

calculated using the risk adjusted measurement. The Sharpe, Treynor, and Jensen ratio is applied.

Since historical Shariah Sensex index data were available from April 2013 onward, this study is

limited to the selection of data from April 2013 onwards for the both Shariah and conventional

indices.

60

5.1. The Return

The raw returns of both Shariah and conventional indices are calculated at the beginning. Then,

the significant differences between raw returns of both Shariah and conventional indices for each

identified period are examined by employing the ‘t-test’. The simple returns are estimated by

taking into account the monthly return as this month’s index price minus the last month’s index

price and divided by the last month’s index price.

Rt = (Pt - Pt – 1) / Pt – 1 Equation (i) Where,

Rt is the return at time t,

Pt is the index price at time t (this month index price)

Pt -1 is the index price at time t-1 (last month index price)

5.2. Risk Adjusted Measurement

This study employs various risk-adjusted performance measurements to estimate both the

Conventional and Shariah indices. This study also focuses mainly on secondary monthly time

series data such as monthly opening and closing price of each Shariah and conventional index.

The opening and closing price of both the indices is collected from the Indices segment. As

known, the risk adjusted return as a performance measure will be estimated using the Sharpe

index ratio, Treynor ratio, and Jenson ratio. Previous studies have also used this risk-adjusted

measurement method to measure the performance of indices (Dharani and Natarajan, 2011;

Hassan and Girard, 2011; Albaity and Ahmad, 2008).

5.1.1. Sharpe Ratio

Firstly, the study used the Sharpe ratio (SR). The Sharpe ratio measures the performance of

securities indices. This indicates the amount of excess return of the portfolio over the risk free

rate in a given period per unit of risk. The same approach was adopted by Albaity and Ahmad

(2008) for analyzing the performance of the Shariah index in Bursa Malaysia. This study also

employed the same measure for analyzing the performance of global Shariah and conventional

indices. Generally, a higher SR indicates higher or superior performance and vice versa.

The Sharpe Index (SI) is as follows:-

SI it = [(AR it - ARFR)] / σi Equation (ii)

Where, AR i is monthly average return for the Index over the period ARFR is monthly average of

the risk free rate σi is standard deviation of Index return

5.1.2. Treynor Ratio

The second measurement for the risk adjusted is the Treynor ratio (TR). The Treynor index

performance measures the portfolio performance including risk, which is associated with general

market fluctuations. This performance measure differs from the Sharpe ratio because it uses beta

or systematic risk, whereas the Sharpe ratio uses standard deviation of returns as a measure of

total risk in examining the portfolio performance. The Researchers have calculated Beta through

regression. Thus, a higher Treynor ratio indicates superior performance of indices and vice versa.

Dharani and Natarajan (2011) used the Treynor ratio to compare the performance of indices by

including the risk for Nifty Shariah index and the Nifty index in India.

61

The Treynor Index (TI) for the selected indices is computed as:

TIit = (ARit - ARFR) / β Equation (iii)

Where,

Tit is the Treynor index ARit is the average return of the index ARFR is the average risk

free rate of the return.

β is the beta coefficient computed using the market model as follows:

Rit = αit + βiRm, t + εit Equation (iv)

Where,

Rit and Rm, t represent the return of the Shariah and conventional indices respectively,

and

εit is the residuals of regression.

5.1.3. Jensen Ratio

Thirdly, the Adjusted Jensen's Alpha Index performance is calculated, which represents the

average return on a portfolio over and above of that predicted by the CAPM, given the portfolio's

beta and the average market return. Capital Asset Pricing Model (CAPM) was introduced based

on the portfolio performance measure to examine the excess return provided by funds called the

Jensen Alpha Index Performance measure. It represents the average returns on a portfolio over

and above the estimated return using CAPM, to the given portfolio beta and the average market

return. The Alpha in the model represents the average portfolio return adjusted for risk. Hassan

and Girard (2011) used the Jensen Alpha to measure the performance between the Dow Jones

Conventional and Shariah indexes.

The portfolio Alpha Jensen is expressed as:

αi= ARit – [ARFRit + βi (Rm – ARFR)] Equation (v)

Where,

αi is a portfolio Alpha

ARitis the average return of the index

ARFRit is the average risk free rate of the return

βi is the beta coefficient

The positive Alpha Jensen indicates a superior performance and the negative Alpha Jensen

indicates an inferior performance of the portfolio index.

6. Results and Discussion

Table-1 presents monthly raw returns of the BSE- Shariah and BSE-conventional indices during

the period under study. A close introspection of the table reveals that in case of BSE- Shariah

Index has shown inferior performance as compared to its conventional counterpart during the

reference period. However the Shariah Index was found to be less volatile than its counterpart

BSE-conventional index.

62

TABLE 1 RAW MONTHLY RETURN TABLE 2 RISK ADJUSTED RETURN

(Source: Researchers have calculated above data from the time series Data obtained from official website

http://www.bseindia.com) Table-2 Suggest Risk adjusted return. These figures are arrived by converting Raw monthly

return into raw annual return and then deducting risk free rate( 364 t-bills) from Raw annual

return resultant figures suggest excess return. Table 2 reveals that conventional index perform

better than Shariah index so far average risk adjusted return is concerned, however the risk

associated with conventional index is quite high compared to Shariah index.

Table 3 reports the regression statistics between conventional and Shariah indices for the period

under study. Correlation between Shariah and conventional indices is 0.61 which suggest positive

relation between the Shariah and conventional returns. The t-test is used to test whether there is

any difference between the means of the indices. The result of the P-value indicates that there is

no significant difference in mean between the conventional and Shariah indices at the 5% level.

This is consistent with the results of Hassan and Girard (2011), Dharani and Natarajan (2011),

and Albaity and Ahmad (2008) who stated that the returns of the ethical investments are not

significantly different from those of the conventional vehicles.

TABLE 3 Table 4 RISK ADJUSTED MEASURE

(Source: Researchers have calculated above data from the time series Data obtained from official website of

http://www.bseindia.com)

Table 4-Reports a more comprehensive analysis regarding the risk and return of the Shariah and

conventional indices. Below summarizes the comparison of risk-adjusted return between shairah

and conventional returns measured by Sharpe Ratio, Treynor ratio and Jensen’s Alpha. From the

result, the risk-adjusted return measured by Sharpe Ratio suggests that Shariah returns are better

than conventional returns. These results support those found by Natarajan and Dharani (2012)

who conducted a similar research in India. In contrast, this result differs from the result by

Rahmayanti (2003) and Hussein and Omran (2005) which find that the Sharaih portfolio

performs in a diverging manner to its counterparts during certain periods.

MONTHLY RETURN ISLAMIC CONVENTIONAL

MIN -0.0578 -0.0643

MAX 0.0633 0.0880

MEAN 0.0094 0.0103

STD DEV 0.0261 0.0382

SKEWNESS -0.0270 -0.0295

KURTOSIS 0.4699 -0.4109

RISK ADJUSTED RETURN ISLAMIC CONVENTIONAL

MIN -0.7723 -0.84715

MAX 0.6713 0.96823

MEAN 0.0304 0.04155

STD DEV 0.3130 0.45688

SKEWNESS -0.0261 -0.04272

KURTOSIS 0.4336 -0.43420

Regression Statistics

Multiple R 0.610111161

R Square 0.372235629

Adjusted R Square 0.349815473

Standard Error 0.368397859

Observations 30

t Stat 0.110426671

P(T<=t) two-tail 0.912504412

Risk adjusted measure ISLAMIC CONVENTIONAL

SHARPE 0.09706 0.09094

TREYNOR 0.03392 0.04155

JENSEN -0.00917 0

http://www.bseindia.com)/

63

Nevertheless, a significant difference is shown by the Treynor Ratio measure in which the

conventional index returns presents higher risk-adjusted return against its Shariah counterpart.

The value of Treynor Ratio for Syariah stocks is 0.03392, lower than the value of conventional

stocks at 0.04155. High Treynor Ratio means a high excess return. On the other hand, the Treynor

Ratio has an inverse relationship with the systematic risk or beta. High Treynor Ratio means low

beta and vice versa. Here though beta of conventional index is higher than Shariah index but beta

of Shariah index returns is still high compared to its returns. Jenson’s measure for both the

indices is performing more or less in similar manner.

7. Conclusions

This paper empirically examines the performance of Shariah stock index compared to

conventional stock index of Bombay Stock Exchange using Risk-Adjusted Return measurements.

The statistical result using T-test indicates no significant difference on risk and returns, measured

by monthly return, standard deviation and beta, between both Shariah and conventional indices.

Furthermore, this research also evaluated the performance of both Shariah and conventional

indices by employing Risk-Adjusted Return measurement, consisting of Sharpe ratio, Treynor

ratio and Jensen’s Alpha. Measurement using Sharpe ratio shows that shariah index return

performs better than conventional index return ,However the measurement using Treynor ratio

indicates that Shariah index have lower risk-adjusted return than conventional index returns.

Shariah stocks are also suitable for investors who plan for low volatility return from the

investment selection based on market trend performance because Islamic indices provide a less

risky kind of investment, which is in line with the nature of Islamic value of small uncertainty

(Gharar).Consequently; there is no harm for investors investing in the Shariah compliant stock.

Moreover, it is also recommended that most investors invest in shariah stock since the shariah

index under study shows has a positive return and performs well. In addition, since this study was

limited to the performance of data from April 2013 to October 2015 conventional and Islamic

indices, it is suggested that future researches identify more indices that are available from BSE

with the purpose of deeply understanding the differences between performance returns for both

conventional and Islamic(shariah) indices.

References

1.Abdullah, F., S. Mohamed and T. Hassan, (2002) "A Comparative Performance of Malaysian

Islamic and Conventional Mutual Funds, Pertanika, 8(2), 30-49.

2.Albaity and R. Ahmad (2008) "Performance Of Syariah And Composite Indices: Evidence

From Bursa Malaysia" Asian Academy Of Management Journal Of Accounting And Finance

AAMJAF, Vol. 4, No. 1, 23- 43, 2008 http://web.usm.my/journal/aamjaf/vol%204-1-2008/4-1-

2.pdf

3.Dharani M and P. Natarajan (2011) "Equanimity of Risk and Return Relationship between

Shariah Index and General Index in India" Journal of Economics and Behavioral Studies Vol. 2,

No. 5, pp. 213-222, May 2011

4.Elfakhani, Hassan, M. K., & Sidani, Y. (2005). "Comparative Performance of Islamic Versus

Secular Mutual Funds", 12th Economic Research Forum Conference, University of New Orleans,

USA, November 2005.

http://web.usm.my/journal/aamjaf/vol%204-1-2008/4-1-2.pdf

http://web.usm.my/journal/aamjaf/vol%204-1-2008/4-1-2.pdf

64

5.Hakim, S. and M. Rashidian. 2002a. "Risk and return of Islamic stock market indexes" Paper

presented at the International Seminar of Non-bank Financial Institutions: Islamic Alternatives,

Kuala Lumpur, Malaysia.

6.Hassan, M. K. 2002. Risk, return and volatility of faith-based investing: The case of the Dow

Jones Islamic Index. Paper in Proceedings of 5th Harvard University Forum on Islamic Finance,

Harvard University

7.Ismail G. B. and M. S. Shakrani (2003), "The Conditional Capm And Cross-Sectional evidence

Of Return And Beta For Islamic Unit Trusts In Malaysia" IIUM Journal of Economics and

Management 11, no.1 (2003).

8.Kräussl, R. and R. Hayat. 2008. Risk and Return Characteristics of Islamic Equity Funds.

Retrieved May 19, 2010, from Social Science Research Network (SSRN):

http://ssrn.com/abstract=1320712

9.Mansor F and Bhatti M. A.(2011) "Risk and Return Analysis on Performance of the Islamic

mutual funds: Evidence from Malaysia" Global Economy and Finance Journal Vol. 4. No.1.

March 2011 Pp. 19-31 http://wbiaus.org/2.%20Fadillah-FINAL.pdf



http://wbiaus.org/2.%20Fadillah-FINAL.pdf

65

Microfinance delivery models followed by Microfinance Institutions in

Gujarat

Bhoomi Parekh

Research Scholar, Gujarat Technological University, Ahmedabad

Abstract _____________________________________________________________________________________

Financial sector policies in India have long been driven by the objective of increasing financial inclusion.

For the developing countries like India, microfinance has come as a breakthrough in the philosophy and

practices of poverty eradication, economic empowerment and inclusive growth. In recent years

Microfinance has attracted widespread attention for its developmental impact for the poor. Microfinance

itself is a credit lending model, and within this lending model exist several subcategories, i.e. microfinance

lending models, which differ in terms of where their funds are sourced from, and how the money is

governed. The forms, features and working pattern that exist with MFI's can clearly be categorized in the

form of different models of Microfinance. This research paper has studied mode of operating of

microfinance institutions in Gujarat and have classified their methodology using different indicators based

on their legal form with the help of secondary data sources. Different microfinance delivery models have

their own unique methods and so none of them is superior to other. Thus, depending upon the

characteristics of the region and people that are to be served, the appropriate model should be applied.

Keywords: Microfinance, Microfinance Institutions, Delivery models, Legal Form

Introduction

The lack of access to credit for the poor is attributable to practical difficulties arising from the

discrepancy between the mode of operation followed by financial institutions and the economic

characteristics and financing needs of low-income households. However, it has been experience

that providing finance to small entrepreneur and producers demonstrate that poor people, when

given access to responsive and timely financial services at market rates, repay their loans and use

the proceeds to increase their income and assets.

The taskforce on Supportive Policy and Regulatory Framework for Microfinance has defined

microfinance as “Provision of thrift, credit and other financial services and products of very small

amounts to the poor in rural, semi-urban or urban areas for enabling them to raise their income

levels and improve living standards”.

Microfinance presents a series of exciting and acknowledged possibilities for extending market

thereby reducing poverty, gender empowerment and promoting social change. India has

christened as a developing country with its characteristic demographic function's and skewed

distributed income structure certainly a rip case for implementing it and so it has happened albeit,

on the national scale. The forms, features and working pattern that exist with MFI's can clearly be

categorized all over India. Regional demographic features such as literacy, occupation, group

dynamics, existence and prevalence of institutions and regional pressure group characteristics

may explain this distinctness. The extents to which MFI's have spread and covered the district of

Gujarat obviously pronounce that there is lot of work that needs to be done.

66

Microfinance Institutions A microfinance institution (MFI) is an organization that provides financial services to the poor.

This very broad definition includes a wide range of providers that vary in their legal structure,

mission, and methodology.

Types of Microfinance Institutions

Type of entity Non-profit Mutual benefit For-profit

Association Society under

Societies

Registration Act 1860

Cooperative which can

be just a savings and

credit cooperative or be

further licensed as

Cooperative bank.

Association of person

Trust under Indian

Trusts Act 1920

Charitable trust Mutual benefit trust Investment trust

Company under Indian

Companies Act, 1956

Section 25 company Mutual benefit (Sec 6 20A

Nidhi Company)

Company which is

further either an NBFC

or a bank

(Source: NABARD report on Financial Inclusion 2008)

Microfinance Delivery Models

Microfinance services are provided with different methods in India and elsewhere. Delivery

models can be divided into two broad categories.

I) Group models

II) Individual models

Group models can be divided into three categories.

I) Self-help Groups (SHG)

II) The Grameen model

III) Joint Liability Groups (JLG)

The individual model corresponds to individual banking.

Self-help Group-Bank-linkage:

The SHG model, in the form of the SHG-Bank-linkage program (SBPL) was initiated in the early

1990s by the National Bank for Agriculture and Rural Development (NABARD). SHG linkage is

based on the principle of ‘savings first’. These savings are not only a way of creating group

solidarity and, testing people’s willingness regularly to keep some cash aside, they also create a

loan fund from which the group can borrow. Such groups normally comprise of 15-20 women.

Peer-pressure replaces traditional guarantees, such as references and assets or collateral. The

existing network of government banks binds the SHGs to credit channels, and having

demonstrated the financial success of this endeavor. The private banks are also increasingly

venturing into this field.

To obtain loans from banks, the SHG members must first establish their credit-worthiness, by

maintaining scrupulous records of savings and mutual lending, usually for a period of six months.

Further, the mechanism guards against defaults on loan payments, as no new member may

receive a fresh loan until the previous arrears are cleared. Another repayment incentive is the

ability to access larger repeat loans upon on-time repayment. The loans offered to the SHGs are

usually a multiple (2-4 times) of their savings, and are granted to the SHG as a whole, which then

decides autonomously on the disbursement among the members. It is argued that the meetings

67

reinforce a culture of discipline, routine payments and staff accountability, while others counter

the claim arguing that daily or weekly congregation compounds the workload of the borrowers

and at times discourages new entrants. There is also the assertion that the ‘group leader’ may

wield undue control over loans issued to the other members. While ideally, once members have

managed to build up their assets, they should be able to operate individual accounts; this is not

always the case. Critics of the SHG movement argue that poor people, given the choice, prefer an

individual service and the simplicity of a reliable retailer managing the bookkeeping, rather than

taking on the added responsibilities and risks of running their own mini-financial institution

(SHG). Among the other drawbacks, SHGs entail a process of mutual self-selection, which may

lead to the exclusion of the economically weakest members in a community. Further, it is noted

that repayment does not depend solely on peer pressure; rather it also requires management,

transparency and accountability, for which apparatus of training and supervision should be in

place.

The Grameen model: The Grameen model was initiated by Mohammed Yunus in Bangladesh. With this model, the

institution lends to affinity groups of 5 individuals. These groups are very standardized in

structure. They organize weekly meetings and saving is mandatory for members. Credit is not

given to all members simultaneously, but all hope to have their turn and all stand for each other’s

obligations. The groups are created under supervision of the MFI, according to a well-defined

structure to facilitate access to microfinance services.

Join Liability Groups or Individual Liability: MFIs serve as ‘lending intermediaries’ between investors (banks/private equity firms) and the

microcredit borrowers. In India, they exist either as NGOs or as Non-Banking Finance

Companies (NBFCs). The Joint Liability Group method was made famous by Grameen Bank in

Bangladesh and has been replicated by MFIs across the world. Under the JLG model, MFIs

organize members into groups with the understanding that even though members will be given

individual loans, the group as a whole will be liable for repayment. As in the case of the SHGs,

social pressure ensures that repayment levels remains over 98 per cent in India. The size of the

group is much smaller than an SHG with each group comprising of 5 women. Certain MFIs also

lend to individuals with individual liability. In order to qualify for a bigger individual loan,

members must have demonstrated good credit history over one to two years.

The advantage of the JLG model over the SHG model lies in the former’s ability to scale. It is

highly replicable and allows MFIs to rapidly expand their client base and become more

profitable. In fact, 30 percent of the 70 million microfinance clients in India are members of the

top 10 MFIs. Critics of the MFI/JLG model argue that high growth rate experienced by MFIs in

India has translated into a mission drift with the focus shifting from client satisfaction to profit

making.

Data and Methodology

One of the biggest problems in conducting study of MFIs in India is that for want of mandatory

disclosure requirements and lack of dedicated legislation governing MFIs; it is very difficult to

identify MFIs on a single platform. By far Mix Market and Sa-Dhan (The Association of

Community Development Finance Institution) are among most reliable database currently

available on MFIs.

Currently, there are six and seven MFIs, which are established in Gujarat, have been reporting to

Mix Market and Sa-Dhan respectively. These MFIs are common and overlapping and

68

additionally some MFIs have not being updated their reports since last 3years or have been

closed. So, apparently there are seven MFIs that are being reportedly reporting to either or both

Mix Market or Sa-Dhan.

Out of seven MFIs mentioned above, there are four NBFCs, two co-operatives and one trust form.

Based on their outreach i.e.; total number of borrowers served (as published in Sa-Dhan MFI

directory as on November 2014), I have chosen one MFI from each working under different legal

form. I have studied the microfinance delivery models of Namra Finance Ltd. (NBFC form), Shri

Mahila Sewa Sahkari Bank Ltd. (SEWA Bank) (Co-operative form) and Prayas – Organization

for Sustainable Development (Trust form).

The data has been collected from secondary data sources through online information available on

the websites of MFIs, Mix Market and Sa-Dhan and related research papers. Additionally,

unstructured interview was conducted with the managers and directors of above institutions.

Microfinance institutions in Gujarat and model followed by them

1. NAMRA Finance Ltd. The main objects of the Namra Finance ltd., a wholly owned subsidiary of Arman Financial

Services Ltd., consist of providing a wide spectrum of financial services both Funds based and

Non Fund Based activities which includes term loans, collateral free credit, other forms of credits,

thrift and savings and insurance.

Microfinance Delivery Model It currently follows individual and JLG based Microfinance. The group size is between 10-30

members. The group members will have to share the responsibility of repayment. The

organization has in place a separate trained team for this programme with an experienced leader.

Operational Unit It has set up branches for disbursement, collection and monitoring of microfinance loans.

Decision making, accounting and MIS are being decentralized for achieving faster expansion.

Branch Managers are responsible for achieving growth as well as portfolio quality targets.

Microfinance procedures Borrowers are selected from lower income group (earning less than $2 per day). In the rural and

urban slum areas borrowers should be only women. There may be male clients in the urban areas

and particularly among target groups with micro-entrepreneurs and small trading activities.

However, male clients would not be more than 5% of total number clients. Detailed procedure as

follows:

a) Client Identification Field Officers (FO) based in respective branch offices will be responsible for locating potential

clients in market areas. The clients should already be involved in an income generating activity.

b) Group Formation Homogenous clients would be identified in an area with similar loan requirements. FOs would

organize them into groups of 8-12 members and would ask them to form groups. Each group

should have a Group leader elected by the Group members. FOs would inform the group about

Namra’s loan policies, processes and group’s collective responsibilities.

c) Loan Application Once the group has been formed loan application from each client along with address proof

would be mobilized. If formation of group is not possible or particular client has higher loan

69

demand then client is considered for Individual loan. The Loan Application in the Namra’s

format has to be submitted by the clients to the Branch manager at the office. After receiving the

applications manager would conduct Field Investigation.

d) Disbursement Disbursements would be made at the Branch Office. Head Office would send the funds as per the

disbursement plans of the branches and the Branch Manager would make the disbursements

though cash as is decided for the individual branch. The clients have to bring the processing fee

and documentation charges with her. These are not deducted from the loan amount.

e) Collection Repayments are weekly and are either made at the office or deposited by the groups in the bank

account of the company. While making the collection the client is given the receipt and the

collected amount has to be deposited with the Accountant in the branch office

2. SEWA Bank The first major development effort of SEWA, the SEWA Co-operative Bank embodies a well-

thought out concept to serve poor, self-employed women. It aims at providing an integrated set of

banking services which make it a multi-service organization that has deviated from the general

pattern of co-operative banks.

Objectives of SEWA Bank

a. Providing facilities for savings and fixed deposit accounts, thus, inculcating thrift in the

women, managing their savings and ensuring safe custody of the cash the women receive as

loans.

b. Providing credit to further the productive, economic and income-generating activities of the

poor and self-employed.

c. Providing integrated insurance services covering death, sickness and asset loss – as a form of

social security protection to informal sector women workers

d. Extending technical and management assistance in production, storage, procuring, designing

and sale of goods and services.

e. Adopting procedures and designing schemes suitable to poor self-employed women, like

collecting daily savings from their places of business or houses, or providing saving boxes

and giving training and assistance in understanding banking procedures.

Process of granting Microfinance loans After the formation of the group, the representative of MFI will monitor the activity of the group

for the first six months. Thus the loan is not granted till the initial six months in order to supervise

the group and to check whether it is working and functioning as per the rules and regulations of

the Microfinance institutions.

After the completion of first six months of the SHG, the representative visits the group by going

to the house of member of the group. The representative, at this time initiates the process of loan

and is described as under:

Step – 1 Decide the grade of the group The auditor from MFI will go to the place where the group members live, after the completion of

first six months. She/he will check all the activities of the group and will grade their activities as

per grading form.

70

Step – 2 Decide the credit rating of the group The group that gets A Grade is the only group that is allowed to move further to the step – 2 of

the loan process. Now, the group’s credit rating is done by using another form know as credit

rating form.

Step – 3 Deciding the loan eligibility Based on the credit rating of the group, it is granted the maximum amount of loan that the group

as a whole could take.

Step – 4 Decision of members that will take loan At this stage, members of the group have to decide that who among them will take the loan from

the available limit and how much. The group members have generally decided the loan taker well

in advance. The decision is taken in meetings where the members tell the purpose of the loan. The

priority of loan to be taken by each member is decided based on the requirement of the members.

The basic and urgent needs of the members are satisfied first through loans.

Step – 5 Confirmation from other group members and documents submission The auditor has also to check that whether the loan is taken by the member after confirmation

from all the other members of the group. Moreover, it is compulsory condition that all the

members of the group should have the information and knowledge about the person who is taking

loan, the amount of loan, the purpose for which the loan is being taken, etc.

Step – 6 Disbursement of the loan This is the last phase of the process of the loan. Here, the member to whom the loan is to be given

goes to the bank. Also, the guarantor and one of the family members of the person who is taking

loan will also come. Then the identity of the person is checked and also all the documents

submitted by the member are verified.

After all the above formalities, the loan amount is given to the member.

3. PRAYAS - Organization for Sustainable Development

Organisation Structure Prayas is presently in involved in providing financial and non-financial services to its members.

For carrying out the activities the organisation is divided into two separate structure.

Social Development Wing (SD Wing): SD wing carries out all the development activities of non-

financial nature. The wing has several programme going under it such as natural resource

management, water and sanitation, rights based programmes, disaster relief etc. The staff and

work is completely separate from the other wing of the organisation providing financial services.

PRAYAS Jan Vikas Bhandol (PJVB): Jan Vikas Bhandol is the other wing of the organisation

providing microfinance services. PJVB is the name of the microfinance programme and has

completely separate staff at the unit offices.

Microfinance Model

Prayas is using JLG model for delivering microfinance. JLG will be of five women members

living in the vicinity of the area selected by PRAYAS. Through JLGs PRAYAS brings together

women of targeted families and provides credit to each member of the group.

71

Microfinance procedure

The following steps are followed while granting a microfinance loan to the clients:

a) General meeting

For forming groups in a new area/village first a general meeting should be organized in that

village/area. The general meeting should start and end on time. The purpose of the meeting is

to inform the residents about Prayas, its vision and mission, and the services and products

available.

b) Group formation

The group formation meeting is conducted only subject to expression of interest amongst the

client after the conduct of general meeting. During this meeting the CC should explain the

details of the group methodology, the concept of joint liability, and the responsibilities of the

group leader.

c) Compulsory group training

In order to train the members in the organizational products and policies Prayas will carry out

three days Compulsory Group Training (CGT). Training sessions will only be held if the

entire group is present and arrives in a timely fashion. Group members must agree, of their

own volition, to the terms and conditions of joint liability. During the group training process

members should learn about the organisation, and the JLG loan products related processes

During the CGT, the members should choose a name for their group and elect a Group

Representative for the loan cycle. There should be one Group Representative in a JLG. This

position can be rotated with successive loan cycles.

d) Group recognition test

Upon completion of the CGT by the CC, the UM or Credit officer should administer the

Group Recognition Test (GRT) along with all the documents. Any staff above UM can also

administer GRT. The GRT is designed to assess the quality of the proposed groups, and to

confirm that they meet Prayas criteria. All members must be present for GRT; otherwise the

meeting should be cancelled. All members should come with original KYC documents for

verification.

e) Loan process

a. Loan appraisal

Based on the results of the GRT, the UM should decide whether to approve the group or not.

If approved, the UM will check the homes of the prospective clients to perform verification

checks on their assets and income activities as noted in the Loan Application forms, speak

with member’s immediate relatives to see if there is family support for the member’s interest

in becoming a client of Prayas.

b. Loan sanctioned

Based on the appraisal done by the UM, UM will recommend the loan. This will be sent to

Operation Manager/Area Manager for verification. Here past loan history and other details as

per criteria will be re-cheked and the loan will then be sanctioned by Area

Manager/Operation Manager.

c. Loan disbursement

The Group Leader is to be communicated about the loan sanction/rejection and disbursement

over phone. If the loan amount is sanctioned then CC should once again inform her/him about

upfront charges (both individually and Group wise manner), which is to be deposited at the

time of disbursement.

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f) Loan utilization check and client contact

Loan utilization check has to be done for 100% clients. The LUC can be done by UM and AM.

Prayas will maintain regular contact with its clients.. 1st visit will be done within one month

(LUC), 2nd visit in 6th month and 3rd in the 9th month. ‘LUC and client contact format’ has to

be used for these visits.

g) Loan collection

The collections from the members are made only in centre/area meetings. The date/day of

repayment is as per the repayment schedule and the time is as mutually decided by the group at

the time of GRT.

COMARATIVE STUDY OF VARIOUS CHARACTERISTICS OF LENDING OF MFIs

IN GUJARAT Sr.

No.

Characteristic NAMRA finance

Ltd.

SEWA Bank PRAYAS

1 Year of

establishment

1992 1974 1997

2 Legal Form NBFC Co-operative Trust

3 Client profile Women Women Women

4 Lending model JLG SHG JLG & SHG

5 Type of lending Group &

Individual

Group Group

6 Group size 10-30 10-20 JLG – 5-30

SHG – 10-20

7 Loan disbursed to Each member of

group

simultaneously

One member at a time

in a rotation

Each member of

group simultaneously

8 Time of loan

disbursement

Immediately after

group formation

and verification

Group needs to save

first during initial 4 to 6

months and based on

their savings, loan is

disbursed after initial

savings

Immediately after

group formation and

verification

9 Collateral /

guarantee

Guarantee of other

member of group

Group savings as

collateral and guarantee

of other member of

group

Guarantee of other

member of group

10 Loan size First cycle – 5000

to 20000

Second and more

cycle – upto 25000

Individual - 50000

Based on saving pattern

of group. It ranges from

1-4 times of saving

amount

First cycle – 5000 to

15000

Second and more

cycle – upto 25000

11 Loan duration 12 months 11 months 12 months

12 Installment

duration

Monthly Monthly

13 Training before

loan disbursement

Yes Yes Yes

14 Supervision by field

officer

Monthly Monthly Monthly

15 Purpose of loan Income generation

and consumption

Income generation Income generation

and consumption

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Conclusion

It can be seen that each microfinance delivery model has its own unique way of providing

microfinance. SHG model generally linked to commercial bank under SHG-Bank linkage

programme through directly approaching bank mediator as it is done by Prayas Trust. But, SEWA

Bank’s microfinance clients can open their bank account in the SEWA bank directly and in turn

bank has security to some extent, while granting loans.

Majorly the difference lies in the loan amount disbursed i.e.; the JLG model gives loan to each

member of the group while in SHG model loan is given to only one member at one time. This

applies that the former model has more financial exposure which may prove risky to institute as

compared to the latter model.

Further, in JLG model, the loan is given immediately where in SHG model loan is given after

inculcating the saving habit among group.

Further Study

The study of microfinance delivery models can further be compared by analyzing their

performance. Performance can again be compared using different parameters like financial

performance indicators, outreach indicators, non performing accounts indicators9, social impact

and development etc.

In near future, microfinance regulation bill is going to be implemented by RBI, which can affect

the current microfinance delivery procedure of MFIs. Thus a study could be conducted on this

too.

References

1. Sa-Dhan. (n.d.). Directory of Microfinance Institutions (MFIs) in India - Version 1. Retrieved

Marach 10, 2015, from Sa-Dhan:

http://www.sadhan.net/Resources/Final%20MFI%20Directory%20Report%2020%20Nov%2

02014.pdf

2. Prayas. (April 2013). Prayas Jan vikas Bhandol (microfinance) - Operational Manual -

Version 1.2. Adalaj: Prayas.

3. Mix Market. (n.d.). Arman financial information. Retrieved march 12, 2015, from mix

market: http://reports.mixmarket.org/mfi/disha-microfin

4. mix market. (n.d.). Prayas financial informatioin. Retrieved march 12, 2015, from mix

market: http://reports.mixmarket.org/mfi/prayas

5. Mix Market. (n.d.). SEWA bank financial information. Retrieved march 12, 2015, from Mix

Market: http://reports.mixmarket.org/mfi/sewa-bank

6. NABARD. (2008). Financial Inclusion. Mumbai: National Bank for Agriculture and Rural

Development.

7. Vikas Singh, J. K. (2010). Status of different microfinance model in India. Allahabad: IIIT

Allahabad.

8. Agarwal, P. K., & Sinha, P. ( 2010). FINANCIAL PERFORMANCE OF MICROFINANCE

INSTITUTIONS OF INDIA: a cross sectional study. Delhi Business Review;Vol. 11, No. 2 ,

37-46.

9. Meyer, R. L. (2002). Track record of Financial Institutions in assisiting the poor in Asia. ADB

INSTITUTE RESEARCH PAPER , series 49.

74

Management of Intellectual Property Rights (IPR)

in Drugs & Pharmaceutical Industry

Padmin Buch

IPR Domain Expert & Management Consultant

Abstract

_________________________________________________________________________

Drugs and Pharmaceutical Industry (Pharma industry) at the international level in general and in India in

particular is one of the most promising industry having good profits, growth, knowledge and possibilities.

Sustainability of its success and growth depends a lot on new inventions through research and

development. Protection of new inventions under Intellectual Property Rights (IPR) / Patents has emerged

as one the most significant and strategic tool for Pharma industry. This is by way of providing the inventor

the rights of ownership of the invention for 20 years and fetch legitimate rewards. It also means that

Pharma industry including the SME sector has to be innovative and be competitive in this IPR regime.

Importantly crucial issues of affordable pricing and accessibility of drugs (particularly life- saving drugs)

have also cropped up. There is also the factor of litigations.

The Pharma industry, with due support from Government, would have to face and manage such challenges

posed by IPR regime. There are number of opportunities also for those who are proactive and manage the

challenges. India’s IPR Laws are in compliance with WTO / TRIPS norms. At the same time India has

incorporated a few provisions to tackle above mentioned issues. Further new developments in the form of

Pharma Vision 2020 and National IPR Policy (proposed) also indicate that the challenges posed by IPR

can be positively managed by the Pharma industry in India.

_____________________________________________________________________________________

1. Introduction

In today's era Pharmaceutical (Pharma) industry is one of the most promising industry having

good profits, growth, knowledge and possibilities. In the Pharma sector starting from initial stage

till the final stages there are enormous chances of the products being success or failure.

Apart from these challenges, a large amount is invested before any product launched in the

market. In this whole process from drug designing to manufacturing, Intellectual Property Rights

(IPR) plays an important role. Intellectual Property Rights today are the most strategic and

powerful asset of all large Indian and Multinational Pharma Companies throughout the world,

providing continued global market, economic dominance and profitability. They decide mergers

and acquisitions based on the Intellectual Property Assets of the target S.M.E or Partners.

Intellectual Property Rights today are independent commodities and assets for trading by way of

their safe licensing, joint R&D/Production ventures, recognized globally.

Importantly, with increased penetration and implementation of Intellectual Property Rights, the

Small & Medium Enterprises (SMEs) in Pharma sector are also greatly affected both directly &

indirectly.

2. Pharmaceutical industry: Management of IP challenges & Prospects

IP challenges and prospects in Pharma IPR are generally understood to have specific principal

areas to have impact in pharmaceuticals. These are

75

IPR and innovations in the Pharma industry.

IPR and pricing as well as accessibility of pharmaceuticals / medicines

Specific provisions in Indian Patent Law affecting both domestic and global

pharmaceutical industry

Challenges & prospects for Indian SMEs in Pharma industry in the IPR regime.

The paper discusses the above in the context of status of Pharma industry & IPR framework in

India and at the international level.

3. Drugs & Pharmaceutical Industry

India enjoys an important position in the global pharmaceuticals sector. The Indian

pharmaceuticals market is the third largest in terms of volume and thirteen largest in terms of

value. Branded generics dominate the pharmaceuticals market, constituting nearly 70 to 80 per

cent of the market. India is the largest provider of generic drugs globally with the Indian generics

accounting for 20 per cent of global exports in terms of volume. Of late, consolidation has

become an important characteristic of the Indian pharmaceutical market as the industry is highly

fragmented.

The total size of Indian Pharmaceutical Market (IPM) improved by @ 14.1 per cent to Rs. 88,111

crore( US $14.20 billion) during 2014-15. It achieved highest growth of @17.2 % and reached at

Rs. 21,968 crore (US $4.50 billion during January- March 2015 (three months)

The growth projections for Indian pharmaceutical market (McKinsey report) b year 2020 are

given in the table below.

Table 1.0 Indian Pharmaceutical Market - Growth projections by year 2020

PH BuchPH Buch

12

Indian Pharmaceutical MarketIndian Pharmaceutical Market

Growth projections by year 2020Growth projections by year 2020

Assumed

CAGR(%)

Status Projected Size

(Billion US $)

Most

Likely

10 Pessimistic

case35.00

14.50 Base case 55.00

17 Aggressive

case70.00

Source :India Pharma 2020 Report, McKinsey & Co.

The Indian pharmaceutical industry is one of the most attractive investment destinations in the

world. With ever increasing returns, lowering risks and anticipated multifold growth, investors

are more interested in this industry than ever before. Since 2000, the drugs and pharma sector has

attracted one of the highest foreign direct investment (FDI) inflows of approximately $12,689

million (April 2000 to September 2014)

76

3.1 Gujarat the Pharma Hub of India - Table 2.0 Indian Pharma Zones

PH BuchPH Buch

14

Indian Indian PharmaPharma ZonesZonesIndia has three distinct India has three distinct PharmaPharma Clusters (Zones) of Clusters (Zones) of

manufacturing bases.manufacturing bases.

Primarily Bulk

Drugs, Some

Formulations

Southern India

(Chennai-

Hyderabad Axis)

III

-do-Northern IndiaII

Bulk Drugs,

Formulation &

Merchant Exports

Western India

(Mumbai - Gujarat

Axis)

I

Product FocusRegionZone/

Cluster

Gujarat State is primarily a formulation Gujarat State is primarily a formulation zonezone

Gujarat : Share of Indian Pharma market @ 35 % to 40%

Five Pharma SEZs

Contract Research and Manufacturing Potential

CROs in Gujarat : @ 40% of India

Well Established Healthcare Sector

Potential in Medical Tourism

Good base in Pharma machinery : @35% share in India

Proactive Drug Regulatory Authority

3.2 Pharmaceuticals: The technology & Innovation challenge

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. As on March 2014, Indian pharmaceutical manufacturing

facilities registered with the US Food and Drug Administration (FDA) stood at 523, highest for

any country outside the US.

However, it is the continuous research & development leading to new innovations and inventions

that would provide an edge in the competitive market scenario. Going forward, better growth in

domestic sales would also depend on the ability of companies to align their product portfolio

towards therapies for life style diseases such as cardiovascular, anti-diabetes, anti-depressants and

anti-cancers that are on the rise.

Further, large MNCs having new drugs with product patent monopoly the Indian Pharma

companies and the market would have to find a way manage this challenge.

4.0 Intellectual Property Rights (IPR)

Intellectual property (IP) refers to creations of the mind, such as inventions; literary and artistic

works; designs; and symbols, names and images used in commerce.

IP is protected in law by, for example, patents, copyrights, designs and trademark, which enable

people to earn recognition or financial benefit from what they invent or create. By striking the

right balance between the interests of innovators and the wider public interest, the IP system aims

77

to foster an environment in which creativity and innovation can flourish. IPR essentially grants

the ownership rights to the inventor for his / her invention.

The pharmaceutical industry being a knowledge based industry is a wonderful example of the

importance of intellectual property. In this particular industry, intellectual property does more

than just maximize profits and keep the market competitive. The protection of intellectual

property rights helps establish a strong and effective public health infrastructure.

Perhaps most importantly, intellectual property helps promote the development and availability of

new products. To create new drugs, a substantial amount of money is spent on research, and

without investments to support research, new drugs would take longer to hit the market. Money is

needed to develop products and make sure they are safe, as well as effective. Intellectual property

helps turn innovative ideas into possible new drugs, and thus provides incentive for innovation.

4.1 How and Why IP Protection Works in the pharmaceutical industry There are three key elements for an effective intellectual property system:

It must provide fair and effective incentives for innovation

It must provide innovators certainty regarding their rights

It must offer patent holders strong enforcement tools for defending infringed patents

At the same time the Intellectual Property Rights framework should also ensure following

There should not be a situation of monopoly for long, particularly in the field of

pharmaceuticals involving life saving medicines

Essentially in the pharmaceuticals, IPR should be able to strike a balance among

encouraging innovation while taking care of pricing and accessibility.

Only true innovations be granted IPR / Patents

The IPR law framework in the world in general and in India in particular strictly adheres to the

above requirements.

4.2 IPR framework in India

The IPR framework in India is stable and well established from a legal, judicial and

administrative point of view and is fully compliant with the Agreement on Trade-Related Aspects

of Intellectual Property Rights (TRIPS).

CONTROLLER GENERAL OF PATENTS, DESIGNS, TRADE MARKS

and GI, under the Department of Industrial Promotion and Policy (DIPP), Ministry of Commerce,

Government of India is the main authority in India.

78

Chart 1.0 Indian IPR Organisation System

PH BuchPH Buch

1919

IPRIPR

Organizational ChartOrganizational ChartCONTROLLER GENERALCONTROLLER GENERAL

OF PATENTS,DESIGNS , TRADE MARKS

AND GI,M/O.INDUSTRY AND COMMERCE

GRANT OF PATENTS

AND

REGISTRATION OF

DESIGNS

DOCUMENTATION

INCLUDING RERIEVAL AND

TDISSEMINATION OF

INFORMATION CONTAINED

IN PATENT DOCUMENTS

REGISTRATION OF

TRADE MARKS

PATENT OFFICEPATENT OFFICE PATENT INFORMATIONPATENT INFORMATION

SYSTEMSYSTEMTRADE MARKS REGISTRYTRADE MARKS REGISTRY

KOLKATTAKOLKATTA

NEW NEW DELHIDELHI

CHENNAICHENNAI

MUMBAIMUMBAI

NAGPURNAGPUR

AHMEDABADAHMEDABAD

KOLKATTAKOLKATTA

NEW NEW DELHIDELHI

CHENNAICHENNAI

MUMBAIMUMBAI

4.3 Indian Patent Laws

Patents remain the key IPR component for pharmaceutical industry. The main and fundamental

patents law in India is The Patents Act, 1970 - as amended up to the Patents (Amendment) Act,

2005.

The Patents (Amendment) Act, 2005 is the third of three amendments to the Patents Act of 1970,

to bring India’s patent regime into compliance with the WTO TRIPS Agreement. It extends the

product patent protection to the areas of pharmaceuticals and agricultural chemicals.

The introduction and implementation of Product patent protection in India resulted in substantial

upheaval in Indian pharmaceutical industry.

5.0 IPR management in Pharmaceutical industry:

5.1 The Product patent protection

The Indian Patent Regime has been instrumental for the development of the Indian Generic drugs

industry, making possible the production and availability of essential drugs at affordable prices.

Prior to the WTO and TRIPS the two distinct features of the Indian Patents Act, 1970, i.e.

allowing only for process patent and not product patent by virtue of Section 5 of the Indian

Patents Act, 1970, are the major factors for the growth of generic industry. The then act was

prepared keeping in mind the socio-economic condition of the country.

The growth of generic pharmaceutical industry due to the favorable patent regime not only had

impact in India but also well beyond its borders. India is the main supplier of essential medicines

for developing countries. As per the Annual Supply Report of UNICEF, India was the largest

supplier country in 2014. UNICEF procured $558 million worth of services and supplies from

India. Further as per the reports of Campaign for Access to Essential Medicines, around 67 % of

medicines exports from India go to developing countries, around 75-80% of all medicines

distributed by the International Dispensary Association (IDA) to developing countries are

manufactured in India.

But the change in the Patents Act, 1970 in order to harmonize it with the Trade Related Aspects

of Intellectual Property Rights (TRIPS) Agreement, has had profound impact.

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The Patents Amendment Act, 2005, introduced "Product Patent" in India. The product patent was

granted for the new product for a period of twenty years. Earlier due to absence of product patent,

only process patents are granted for a new process of manufacturing an already known product or

for manufacturing a new product (called reverse engineering). This helped Indian pharmaceutical

industry to develop generic versions of the new medical drugs without having fear of

infringement of patent. This has also helped in achieving a key-objective of policymakers in the

developing world to ensure the availability of new medical treatments to save millions of lives by

production of cheap generic versions of on-patent drugs.

The introduction of product patents is considered as a major incentive for developing new

medicines, especially for tropical diseases, not focused upon by the developed nations; it has a

snowball effect on the Generic industries with only one saving clause.

The Current Situation

Earlier the Indian pharmaceutical industries by using the process of reverse engineering, various

Indian pharmaceutical industries produced generic drugs on mass level of the on-patent drugs,

enabling affordable access of these to under-developed and developing nations. The product

patents regime means, that Indian generic drugs manufacturers can no longer manufacture drugs

by reverse engineering till the time patent is in force.

An estimation of loss to the Indian Pharmaceutical Industry due to such changes in IPR is shown

below.

Table 3.0 Sales loss to Indian Pharmaceutical Industry, by Value (2010-2015)

Year Value(US $ Billion)

2010 0.05

2011 0.14

2012 0.38

2013 0.12

2014 0.21

2015 E 0.19

Source : TechSci Research estimates, ASSOCHAM report, 2015

Among Indian industries, the average investment in R&D is only 0.7 per cent which is extremely

low by world standards. The lack of R&D investment is largely because of the protectionism and

a non-competitive market due to the high import duties imposed on imported drugs. The number

of patent applications filed by Indian institutions is very less. Some prominent Indian applicants

are Council of Scientific and Industrial Research and National Institute of Pharmaceutical

Education and Research (NIPER) and Indian Council of Medical Research. Drug discovery

research is still finding its feet in India. The following table indicates slowing down of Pharma

patents filed with Indian Patent Office.

Table 4.0 India Pharma patents filed (number of patents)

Year Pharmaceutical Patents filed

2010 3526

2011 2762

2012 2954

2013 2507

2014 ( provisional) 2600

Source : IP India

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While it is heartening to note that many large Pharma companies are investing in research &

development now, it will at least be a decade before a critical mass is in place and results start

accruing. This would mean that most of the pharmaceutical product patents would be owned by

MNCs. Almost all of India's drug market consists of second-and-third generation drugs no longer

subject to patent protection. This shows that product innovation has not found its ground in India,

and we are involved in the production of already existing medicines for diagnosed diseases.

Product patents are a crucial factor in innovation, ensuring that investor companies will have the

possibility of being rewarded for the major investments needed to develop new medicines and

cures. This system provides a higher degree of assurance to developers to risk the capital

necessary in the research and development process.

The only valid opposition to the product patent is the price and / or accessibility of the patented

drug. For this a study of system of pricing of the medicines and the patented drugs shows us that

it can be made acceptable by using Article 7 of the TRIPS Agreement, according to it "the

protection and enforcement of intellectual property rights should be in a manner conducive to the

socio-economic welfare of the country, and the flexibilities of the agreement".

Further, couple of special provisions in the Indian Patent Act also aims to encourage generic

drugs which in turn make available less costly medicines to the public at large. These are

discussed here under.

IPR management in pharmaceutical industry:

5.2 Specific provisions in Indian Patent Law affecting both domestic and global

pharmaceutical industry

India fought hard against product patents on medicines, however lost that battle, but did score an

important victory. It got inserted in the Agreement on TRIPs, a few provisions whereby member

countries would retain the right to tackle issues of accessibility and affordable prices of important

and life saving medicines. Also to prevent extending product patent beyond 20 years by way of

superficial changes and thereby not allowing entry of cheaper generic versions

These provisions include:

Compulsory licensing – Sec 84(1) of Indian Patent Act

Not allowing incremental innovations to be patented -( Sec 3(d) of Indian Patents

Act

5.2.1 The provision of compulsory licensing in Indian Patent Act

In the year 2012, Bayer v. Natco (Nexavar) case emerged as India's first case in which

compulsory licensing was granted.

o April 2012 : Indian Patent office allowed Indian company Natco pharma to

produce & sell Nexavar ( Sorafenib Tosylate) the Anti-Cancer drug

o The drug is patented (up to 2020) by the German pharma company Bayer.

o The Indian Generic version expected to cost Rs. 8800/- as against Bayer price of

Rs.2.80 lakhs (120 capsule pack therapy for a month)

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o Natco to pay royalty @7.00% to Bayer (March 2013 verdict)

o Decision taken under provision of Compulsory Licensing (Sec 84) of Indian

Patent Act

o Compulsory License to produce a generic version of a life saving drug can be

issued three years after the patent was granted to innovator company if the price

is still seen as too high or the medicine (life saving) is not n being made available

in sufficient quantity( working of patent)

The case opened a plethora of questions with regard to India's patent policies. The decision of the

case, which came in less than 6 months, reflected that instead of having very strict IP protection

regime, the interest of public at large will be of paramount importance. However, the decision

also encountered severe criticism from the large segment of multinational companies

internationally

However, India is following a consistent practice. The approach followed by India is in

compliance with its international commitments. India has made several amendments to the

existing patent act to make its laws TRIPS complaint. Further a large number of non profit

organisation from across the world as also some of the countries have backed India in this matter

so as to make available cheap & quality life saving drugs to the developing countries.

5.2.2 Provision of Section 3(d) of Indian Patents Act

It stipulates the mere discovery of a new form of a known substance which does not result in the

enhancement of the known efficacy of that substance or the mere discovery of any new property

or new use for a known substance or of the mere use of a known process, machine or apparatus

unless such known process results in a new product or employs at least one new reactant, is not

patentable.

The main objective of this section is to prevent several pharmaceutical companies from obtaining

patents on old medicines which are just a mere increment or trivial improvement of the known

substances and also a refusal to the patent on discovery of new form or new use of old drugs.

Under this provision, the case of Glivec (Imatinib Mesylate) an anti leukemia drug of Novartis

AG (the large MNC Pharma Company) is noteworthy.

The case began in the year 1997 with patent application filed by the petitioner before Chennai

patent office related to drug name GLIVEC which was slightly a different version of their 1993

patent for ANTI LEUKAEMIA drug. In this case the Chennai Patent Office rejected the

application under section 3(d) of the Indian patent act 1970. Consequently the petitioner

challenged the constitutionality of section 3(d) before High Court at Madras.

The High court also found that the Novartis' patent application for the beta-crystalline form of

Imatinib Mesylate (polymorph B) did not pass the test of section 3(d) as it did not have any

enhanced therapeutic efficacy. On Novartis approaching the Supreme Court, it also upheld (year

2013) the observation of the High Court and Indian Patent office and rejected the patent

application filed by the petitioner.

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5.3 Generic drugs: The Huge opportunity for Indian Pharma in the IPR regime

A generic drug is a pharmaceutical product, usually intended to be interchangeable with an

innovator product that is manufactured without a license from the innovator company and

marketed after the expiry date of the patent or other exclusive rights.

Already prevalent in the U.S., Europe and much of the developing world, generic drugs are now

finding their way into previously untapped markets such as Japan, largely driven by regulatory

efforts to reduce healthcare costs.

The following table provides estimated demand for generic drugs over next five years

Table 5.0 Estimated potential for Generic drugs

Year Estimated revenue( US $ Billion)

2015-16 350

2016-17 390

2017-18 440

2018-19 490

2019-2020 550

Source : Generic Drugs Market: 2015 - 2030 - Opportunities, Challenges, Strategies & Forecasts, 2015

5.4 IPR management in Pharmaceutical industry: The Small & Medium sector

India is home to approximately 8000 SMEs which collectively account for around @ 70% of the

total Pharma companies in India (ASSOCHAM report, September 2015). Research &

Development is one of the key tools to tackle the challenge of IPR and product patent regime.

However, Small & Medium Enterprises (SMEs) in the Pharma sector can not afford to invest

heavily in R & D.

Management of IPR regime challenge for this sector was not easy. The trends are now changing.

The opportunity avenues have emerged for proactive units of this very vital segment. These

include following

Contract manufacturing

Contract research

Research in the areas such as New Drug Delivery System (NDDS) and protecting

it under patents.

Patent tracking : systematic search of the global database of pharmaceuticals

patents to improve own process and / or products

In licensing arrangement with product patent holder in niche therapeutic segments

Industry – academic interface for research, patent protection and

commercialization

The Pharma SMEs would have to chalk out an action plan to be fully aware of key provisions and

issues of IPR while updating their manufacturing set up as per WHO-GMP norms. The State and

Central Government as also other organisations have schemes and facilities to support t such

proactive Pharma SMEs.

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6. Conclusion

At the global level, Intellectual Property Rights (IPR) and Pharmaceutical industry are closely

linked. India as one of the major player in the world Pharma market is under constant focus to

comply with the IPR laws framework. This poses major challenges to both the Indian

Government as also Indian pharmaceutical industry including its SME segment. The challenge is

to encourage and sustain research and innovation while also taking care of accessibility and price.

India has TRIPS compliant and sound IPR laws framework. It also has included a few special

provisions (again TRIPS compliant) to support its domestic Pharma industry and importantly

address the issue of accessibility of cheap and quality drugs to the public at large.

For proactive Pharma units (both large & small scale) there are also good opportunities in this

IPR regime. The Indian Government is also undertaking systematic efforts to foster growth of the

Indian Pharmaceutical Industry while making its IPR framework in compliance with global WTO

/ TRIPS norms. Two major initiatives in this regard are as follows

1. The recently launched Indian Pharma Vision

2. Proposed National IPR Policy( First Draft submitted)

Both the Government and the industry would have to contribute with full might to make above

initiatives workable and achieve the desired goals.

References:

1. Consolidated FDI Policy, Department of Industrial Policy & Promotion (DIPP), Press

Information Bureau (PIB), Media Reports, Pharmaceuticals Export Promotion Council

2. IPR in Pharmaceuticals, ASSOCHAM report, 2015

3. India: Compulsory Licensing: An Emerging Trend towards Indian-Patent Regime by

Priyanka Rastogi & Anshu Bansal, 25/02/2014

4. INTELLECTUAL PROPERTY RIGHTS AND INNOVATION: MNCs in Pharmaceutical

Industry in India after TRIPS, Sudip Chaudhuri

5. www.makein India.com

6. India: The Trickle-Down Effect of Product Patent In India And On The Developing World,

12 September 2013, Singh & Associates

7. Word Intellectual Property Organisation(WIPO) – various publications

8. Market Segmentation: techniques, actors and incentives – The use of intellectual

property rights. 2011, Wilder, Richard

9. PWC report, 2014

10. India: Section 3(D) Of Indian Patents Act 1970: Significance and Interpretation, Aayush

Sharma, 26 February 2014

http://www.makein/

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Involving Patients in improving Healthcare Safety- A Participative

Way of Healthcare Risk Management

Dr. Sanjaykumar Ramji Dalsania

Chief Quality Officer; Apollo Hospitals International Limited, Ahmedabad

Dr. Mahesh Patel

Manager – Quality, Apollo Hospitals International Limited, Ahmedabad

Abstract

_____________________________________________________________________________ Considering the complexity of healthcare processes, any hospital, however technologically advanced, is

potentially error-prone and unsafe. Patients come across a variety of risky and hazardous situations during

the hospitalization. Although the health provider is primarily responsible for ensuring patients’ safety,

patients themselves do have an important role in their own well-being while they are treated in the

hospitals. In modern healthcare systems, the patients’ role has evolved from passive recipients of the

medical care to active, empowered and informed co-producers of their health.

Smartly designed hospital infrastructure, strict compliance of defined safety SOPs and protocols, rigorous

staff training, achievement of national/international accreditations etc do contribute to the patient safety at

large, but the entire spectrum of patient safety is never achieved without engaging patients themselves.

This paper enlists various methods and their rationale of patient participation and ways of reducing risks

in patient care. Few unique concepts mentioned in the paper are noteworthy which function round-the-

clock to obtain patients’ feedbacks and complaints on any obvious safety deviations while they are still

admitted. Optimally and timely engagement of all stakeholders in patient care delivery has not only proven

effective but has proved the fact that patient is an important link in safety chain across the healthcare value

stream.

Key Words: Patient, Safety, Risk Management, Errors, Healthcare, Hospital

__________________________________________________________________________________

Introduction Safety at any point of time is the universal concern for human lives. Safety becomes more

important in certain sectors of industry like healthcare where the single error may lead to the

grave consequences, permanent harm or death of the patient. The patient safety concern is a

constant adverse element embedded very profoundly in healthcare systems. Patient care in any

hospital is associated with a wide range of medical errors and hazards, ranging from near misses

to sentinel events and patients are exposed to several clinical and operational risks while they

are hospitalized.

Though many modern hospitals have protocolized and been following the safety procedures for

patients, these protocols are not so effective without the actual involvement of patients.

According to WHO, “Promotion of patient safety is connected to the development of consumer

empowerment and patient involvement and participation. Patients should become active

partners in improving the safety, quality and efficiency of health service delivery.”

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Figure: 1 Patient Participation in Healthcare Delivery

The very concept of patient collaboration is a simple yet very effective model for ensuring the

safety through effective risk management for patient safety. Optimally and timely engaging all

stakeholders in patient care delivery has not only proven effective but has proved the fact that

patient is an important link in safety chain across the healthcare value stream.

Patient Rights & Responsibilities An integral part of any healthcare system, these are well defined by the national and

international accreditation bodies. These statements are well defined hints for patient

participation in the system. These rights and responsibilities are not only well displayed across

the organization but are also put into every patient room along with guide/instruction manual

provided to the patients during their admission or visit to the hospital. Patients are motivated as

how their cooperation in following their own rights and responsibilities will enable the

healthcare professionals to provide them with best care. Patients’ responsibilities like honesty in

treatment disclosure, treatment compliance not only help the doctors to go for the correct

diagnosis but also understand the clinical expectation of the patient. Other patient

responsibilities like transparency and honesty in taking sincere efforts to understand the

treatment and therapies and effective treatment outcome help to prevent errors at various levels.

Family Meetings This is another way of looking at family/relative’s involvement in the patient care. The patient

and family meeting is the tool to help team members to develop a shared understanding of the

full extent of the patient and family’s needs which are then translated into stated goals of care.

The patient and caregivers within the family are viewed and respected as integral members of

the care team. Interdisciplinary Team Rounds (IDTR) empower the patients as active partners in

86

care delivery; improves care by increasing coordination of services, especially for complex

problems; integrates healthcare for a wide range of problems/needs and can serve patients of

diverse cultural backgrounds by using time more efficiently. Core elements of such rounds

include reviewing together the events of the past 24 hours, creating a daily assessment and plan

of care, and reviewing and updating criteria and progress toward hospital discharge. A team

consisting of doctor, nurse, service line manager, medical social worker visits patient areas in

critical care zone and conduct one-on-one sessions with patients’ relatives and gives review on

the patient health status, estimated cost of treatment and other aspects of patient care. This is a

transparent system wherein clinical and operational information pertaining to the patients are

shared at each level.

Medication Errors Prevention Patients are a central part of the treatment team who may be aware of errors which are not

obvious to their providers. As a result, patients are uniquely positioned to provide important

information potentially unavailable from other sources. Patients and their relatives are usually

the first ones to notice any observable errors resulting from any healthcare processes (like

medication system etc). They will probably be unable to distinguish between medication errors,

adverse drug reactions, or ‘side effects’. Attributions of adverse drug reactions are related to

people's previous experiences and to their level of education. The evidence suggests that

patients' reports of adverse drug reactions are more accurate. Patients who, however tentatively,

attribute their symptoms to their medicines may be deterred from saying anything, for fear of

seeming critical of the prescriber. Without the expectation that their fears will at least be

listened to and taken seriously, patients may decide to say nothing, even if they have stopped

taking the drug as a result. If the patient remains silent, this is likely to lead the prescriber to

conclude that there are no problems and that the medicine can safely be prescribed again. If the

patient does say something, however tentative, and their attribution is correct or at least

plausible, this may make the prescriber more cautious while prescribing similar drugs.

Patients require information to help them make correct attributions and differentiate between an

error, a side-effect, the drug's normal therapeutic action, and the symptoms of their underlying

condition(s), if any. Patients are educated to ask care provider whether they are given correct

medicines in the correct dose and at the correct time. It is vital to involve patients in the

medication safety practices as today medicines are complex and powerful. That is why it is

more important than ever that patients understand what they are taking and how it is helpful to

them. Patients are educated on medication safety during each visit. Pharmacy can also make

efforts to educate patients on certain medication safety criteria though brochures, leaflets,

patient education counters etc. The information can also be written over bags provided for

dispensing medication. Patient also plays a role of pharmacovigilance indirectly. SPEAK-UP

concept focuses in making patients aware about their integral role in safe medication practices.

S - SPEAKING up with questions or concerns

P - PAYING ATTENTION to the health care delivery

E - EDUCATING themselves

A - ASK a family member/friend to serve as an ADVOCATE

K - KNOWING current medications and why

U - USING an accredited healthcare organization or hospital

P - PARTICIPATING in all decisions

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Figure:2 Promoting Patient Participation

Prevention of Healthcare Associated Infections (HAI)

Preventing HAI is a fundamental priority for patient safety. Monthly and quarterly campaigns

are conducted where patients are targeted with leaflets, posters and other measures to raise their

awareness and are asked to complete surveys to assess the baseline and outcomes. Information

and education on hand hygiene is equally important. Patient knowledge about HAI is proved to

be advanced after such information sessions. Patients’ initiatives to ask doctors and nurses

whether they have washed their hands play a vital role in infection prevention and control. They

are usually informed to ask and observe staff about hand washing practices.

Fall Prevention Nurses are trained to engage patients in fall prevention by engaging with families directly to

educate and encourage specific behaviors. The patients are educated during their initial assessment

by nurse responsible for patient care on the nurse call-bell system, bed-side railing and grabs bars

in washrooms. The patients’ relatives are involved in educating them on how to prevent patients

from fall and what to do in case of fall. Patients are motivated to frankly and clearly define their

symptoms during initial patient safety assessment.

Safe Surgery Interventions Most studies of interventions to prevent wrong-site surgery have focused on checklists for

surgeons/anesthesiologists to perform before surgery, yet patient engagement as a means to avoid

wrong-site surgery is very vital as well.

Safe Blood Transfusion

Patients can also be involved in safe blood transfusion through the effective counseling. With a

proper education, they may ask questions on the_

- Appropriateness of the blood transfusion

- Risk benefits alternatives

- Ensure his/her identity is properly checked

- Monitor how they feel and report to the staff if they think there is a complication

Health care professionals’ involvement in promoting patients’ rights

Promotion of transparency in healthcare delivery

Training of the staff. Aware employees can educate the patients

Particular vigilance with respect to new technologies and new treatment modalities

Information Center

Patient Education

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Patient Consent Informed consent is the process by which the healthcare provider discloses appropriate

information to a competent patient/relative so that the patient may make a voluntary decision to

accept or refuse the treatment/surgery. The most important goal of informed consent is that the

patient has an opportunity to be an informed participant in the health care decisions. Patients often

feel powerless and vulnerable. To encourage voluntariness, the physician can make it clear to the

patients that they are participating in a decision-making process, not merely signing a form.

Voice of Customers (VoC) This feedback system focuses on how patients feel about the services delivered to them at various

platforms during their stay or visit to the hospital. Patients score their experiences or

feelings/perception about the services as a part of VoC in which all those touch points are brought

into a simplified questionnaire to the patients so that they can share their views and opinion. The

dedicated team of Guest Relations visits each patient during their stay and inquires them about the

services being delivered to them and about safety violation observed if any. On the spot

corrections and action are taken on the concerned areas.

In the concept of Service Line Management, a dedicated team of managers manage a particular

clinical specialty and thus become a single-point contact for patients/relatives admitted under that

specialty. This facilitates the patients/relatives to communicate freely and confidently with the

managers who are exclusively in-charge of such patients.

Limitations of the study

Several barriers to patient participation, including inadequate health literacy and lack of

confidence are very important deterrents which negate the effectiveness of many collaborative

initiatives. Efforts may thus be made to overcome these hurdles. There are few non-modifiable

factors such as old age or disease severity which need to be taken into account while devising any

such cooperative efforts. The acknowledgment that only an informed patient can really be engaged

in his or her own healthcare and can contribute to the quality of services has brought the

importance of effective policies promoting health literacy to the international agenda.

References

1. World Health Organization, Regional Office for Europe. (2013). Exploring patient

participation in reducing health-care-related safety risks. Website: http://www.euro.who.int

2. HealthIT. (2014). Patient participation. Website: http://www.healthit.gov

3. Pubmed. (2010). Patient participation: current knowledge and applicability to patient safety.

Website: http://www.ncbi.nlm.nih.gov/pubmed/20042562

4. Patient & Information Directorate, NHS, England. (September 2013). Transforming

participation in health and care. Website: http://www.england.nhs.uk

5. Institute of Medicine. (October 2012). Core principles & values of effective team-based

health care. Website: https://www.nationalahec.org

6. Nicky Britten. Br J Clin Pharmacol. 2009 June; 67(6): 646–650. doi: 10.1111/j.1365-

2125.2009.03421.x. PMCID: PMC2723203. Website: http://www.ncbi.nlm.nih.gov

7. BMJ Qual Saf 2014;23:548-555 doi:10.1136/bmjqs-2012-001769. (December 2013). Promoting engagement by patients and families to reduce adverse events in acute care

settings: a systematic review

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2723203/

89

Pharmacoeconomics research through clinical trials: overview

Neeraj Rathod

Pharmacovigilance expert, Lambda therapeutics

Rashmi Pant

Owner, HOW TO

Abstract

___________________________________________________________________________________

Due to rising cost of pharmaceutical products and healthcare services, there is a need of suiltable

healthcare alternative which provides best healthcare outcome per expediture. Pharmacoecomic research

helps clinicians and decision makers to make choice about new pharmaceutical product.

Pharmacoeconomics is a specific form of health economics that is restricted to pharmaceutical products.

Pharmacoecnomics is deals with impact of pharmaceutical products and services on individuls, society and

governments. Pharmacoeconomics mainly having two componenents cost and outcome which combined

into a quantitative measure or ratio. It can be done using various methods like Cost-minimization analysis

(CMA), Cost-effectiveness analysis (CEA), Cost-utility analysis (CUA), and Cost-benefit analysis (CBA).

The results of pharmacoeconomic research provides quantitive assessment. Drug development is start

through clinical trials hence it is need of time to have pharmacoeconomic approach in clinical trials.

Unfortunatety, there are very limited information available which focusing in pharmacoeconimic research

though clinical trials.Increase number of clinical trials required that integrate economic and clinical

information to faciliate need of health service decision makers. This give comaparision of cost and benefits

of new drug therapy versus reference standard therapy.

Key words: Pharmacoeconomics, Pharmacoeconomic evaluation, Cost analysis, Clinical trials

___________________________________________________________________________________

Introduction

The growing expenditure of healthcare systems is key concern to all patients, healthcare

professionals and the drug regulatory agencies. The increased in healthcare cost is mainly due to

increased life expectancy, technological innovation, improved standard of living and rising

demand of quality healthcare services. Even though the wide ranging evidences suggest use of

pharmaceutical, very few data available which talks about actual cost and benefits attributed to

specific drug therapies. Primary reason of this stigma is the lack of defined methodology with

focus approach. Although private health insurance and government programs cover a growing

portion of drug expenditures; a sizable amount of drug costs is still paid directly by consumers.

The costs of pharmaceuticals and pharmacy services have, therefore, become an important issue

to patients, third-party payers, and governments alike. Therefore, it is necessity of current era to

evaluate cost and consequences (outcome) of drug therapy beginning from drug development

process through clinical trials.

Pharmacoeconomics is branch of health economics which deals with measurement of both the

cost and consequences (outcome) of therapeutic decision making. Pharmacoeconomics is a field

within the broader health economics field that focuses mainly on the costs and benefits of

pharmaceuticals. Pharmacoeconomic analysis concerns not only the efficacy and effectiveness

of new health technologies but with the costs of these technologies weighed against their

benefits. Pharmacoeconomic analysis helps the decision makers of healthcare institution to

optimise the limited resources in health. Healthcare providers and administrators must balance

90

the needs of individual patients with the larger societal needs, recognizing that limited resources

cannot meet all needs and wishes. Therefore, pharmacoeconomic analysis is needed to assess

both costs and benefits in order to bring the efficiency of the medical advances in an evidence-

based manner. (2)

Pharmacoeconomics can be computed on the basis of COST. To evaluate the economics of

drug therapy cost is divided in to mainly three categories:

1. Direct cost

2. Indirect cost

3. Intangible cost

1. Direct cost

Direct medical cost

This is what is paid for specialized health resources and services.

This includes acquisition cost of medicines, consumables associated with associated drug

administration, staff time in preparation and administration of medicines and laboratory cost of

monitoring effectiveness and adverse reactions

Direct nonmedical cost

This includes cost necessary to enable an individual receive medical care such as lodging,

special diet, transportation and loss of work time (important to employers) such as otitis media

in paediatric patients who lost work time during the treatment of their kid.

2. Indirect cost:

This is the cost incurred by the patient, family, friends or society. Many of these are difficult to

measure, but should be of concern to society as whole. This included productivity loss in

society, unpaid care givers, lost wages, expenses of illness borne by patients, friends, employers

and governments and loss of leisure time.

3. Intangible cost

These are cost related with the patient’s pain and suffering, worry and other distress of the

family members of a patient, effect on quality of life and health perceptions. E.g. patients of

cancer, HIV or having terminal illness in which quality of life are suffered due to adverse

reactions of the drug treatments.

Methods of pharmacoeconomic evaluations (3) (4)

There are four pharmacoeconomic evaluations frequently used, which includes

Cost Minimisation Analysis (CMA)

Cost Effectiveness Analysis (CEA)

Cost Benefit Analysis (CBA)

Cost Utility Analysis (CUA)

1. Cost Minimisation Analysis (CMA)

This method only focusing on the cost and ignores outcomes. This analysis should be

performed on scenarios where health benefits obtained from two alternative therapies are

identical and therefore need not be considered separately. The objective of this method is to

select the least costly among the multiple equivalent interventions E.g. brand name vs.

generic. This method cannot be used to evaluate programmes or therapies that lead to

different outcomes. This method is targeting on net results (i.e. cost / patient treated)

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2. Cost Effectiveness Analysis (CEA)

This method is use in situation when two or more drug therapies have the same treatment

objectives but different degrees of efficacy. The most important question arises when

comparing therapies is, how much additional benefit is achieved for additional cost incurred?

It is therefore necessary to calculate the incremental cost-effectiveness of the one therapy (A)

over the other (B) this is expressed as the incremental cost-effectiveness ratio

Cost A – Cost B

Incremental Cost Effective Ratio =

Effect A –Effect B

The results of Incremental Cost Effectiveness Ratio are demonstrated on the plane.

Interventions with higher effectiveness and lower cost (Q2) are said to be dominate

and can easily be accepted

Interventions with lower effectiveness and higher cost (Q4) are rejected

Interventions with lower effectiveness and lower cost (Q3) are occasionally forced to

be consider in developing nations

Interventions with higher effectiveness and higher cost (Q1) are frequently fall in to

wealthy industrialized countries.

Example: The diuretic hydrochlorothiazide may be the most inexpensive treatment for

hypertension, but it often requires potassium supplement. The additional cost involved in the

therapy means this drug is not always the most cost effective therapy.

3. Cost Benefit Analysis (CBA)

In this analysis, cost of therapy and consequences both are measured in monetary terms and

this will involve evaluating intangible cost in monetary value attached to different states of

Q3

Higher Cost

Lower

Effectiveness

Higher

Effectiveness

Lower Cost

Q4 Q1

Q2

92

health e.g. physical, emotional or psychological distress associated with being ill versus being

healthy. Determining the economic value of saving a life is especially problematic, which is a

chief reason that cost benefit analysis is used more commonly in setting where determining

the monetary value of human life is not required. This analysis allows comparisons to be

made between cost and benefit arising in very different areas. Cost benefit analysis can be

useful in making strategic decision on health care programmes.

Example: A nationwide immunization programmes can be fully costed in terms of resource

utilization consumed in running the programmes. This can be value against reduced mortality

and morbidity that occurred as a result of the programme.

4. Cost Utility Analysis (CUA)

In cost-utility analysis (CUA), the benefits are measure in healthy years, to which a valued

has been attached. Unlike CEA,CUA is multidimensional and incorporates considerations of

quality of life as well as quantity of life using a common unit.

Example: In studies looking at hormone replacement therapy, benefits such as reduction in

fracture risk and alleviation of menopausal symptoms can be incorporated alongside risks

such as stroke or breast cancer. The frequently used measures of benefit in CUA are quality

adjusted life year (QALY), disability adjusted life years (DALYs) and healthy year

equivalents (HYEs).

Clinical Trials

Clinical trials are research investigations in which people volunteer to test new treatments,

interventions or tests as a means to prevent, detect, treat or manage various diseases or medical

conditions. Some investigations look at how people respond to a new intervention* and what side

effects might occur. This helps to determine if a new intervention works, if it is safe, and if it is

better than the interventions that are already available.

Clinical trials might also compare existing interventions, test new ways to use or combine

existing interventions or observe how people respond to other factors that might affect their

health (such as dietary changes).

The World Health Organization (WHO) definition for a clinical trial is ‘any research study that

prospectively assigns human participants or groups of humans to one or more health-related

interventions to evaluate the effects on health outcomes’.

Clinical trial interventions include but are not restricted to:

experimental drugs

cells and other biological products

vaccines

medical devices

surgical and other medical treatments and procedures

psychotherapeutic and behavioural therapies

health service changes

preventive care strategies and

educational interventions.

Clinical trials of experimental drug, treatment, device or behavioral intervention may proceed

through four phases:

93

Phase I clinical trials test a new biomedical intervention in a small group of people (e.g., 20- 80)

for the first time to evaluate safety (e.g., to determine a safe dosage range, and to identify side

effects).

Phase II clinical trials study the biomedical or behavioral intervention in a larger group of

people (several hundred) to determine efficacy and to further evaluate its safety.

Phase III studies investigate the efficacy of the biomedical or behavioral intervention in large

groups of human subjects (from several hundred to several thousand) by comparing the

intervention to other standard or experimental interventions as well as to monitor adverse effects,

and to collect information that will allow the intervention to be used safely.

Phase IV studies are conducted after the intervention has been marketed. These studies are

designed to monitor effectiveness of the approved intervention in the general population and to

collect information about any adverse effects associated with widespread use.

Any drug development process passes through above mentioned steps with focus of first safety

and then after efficacy of molecules, but very few clinical trials conducted with aim of identifying

pharmacoeconomic aspects. (6)

Data collection from the www.clinicaltrials.gov has listings of pharmacoeconomic trials since

1995. www.clinicaltrials.gov is a searchable registry and results database of federally and

privately supported clinical trials conducted in the United States and around the world. From

1995, pharmacoeconomic research grew at very slow rate due to less of interest and negligence

in this research area. There are only 132 clinical trials are registered from 1995 to 2015. Figure

1 presents brief snapshot of pharmacoeconomic research by start dates.

Figure 1 : Number of pharmacoeconomic clinical trial by start date

Data collected from www.clinicaltrials.gov suggested that pharmacoeconomics research were

conducted mainly on interventional clinical trial type Phase 3 and Phase 4. We could not

identify clinical trial phase in 45 clinical studied due to non-availability of data. Table 1 provide

overview of phase wise details of clinical trials

Number, 1995, 0 Number, 1996, 1

Number, 1997, 0 Number, 1998, 0 Number, 1999, 0 Number, 2000, 1

Number, 2001, 2

Number, 2002, 4 Number, 2003, 5

Number, 2004, 12 Number, 2005, 13

Number, 2006, 9

Number, 2007, 12

Number, 2008, 9 Number, 2009, 10 Number, 2010, 10

Number, 2011, 8

Number, 2012, 12

Number, 2013, 5

Number, 2014, 10 Number, 2015, 9

https://translate.googleusercontent.com/translate_c?anno=2&depth=1&hl=en&rurl=translate.google.co.in&sl=en&tl=gu&u=http://www.business-standard.com/search%3Ftype%3Dnews%26q%3DWww.clinicaltrials.gov&usg=ALkJrhhaCCTCIKHUtD-Yirc0bmX2xjp5aA

https://translate.googleusercontent.com/translate_c?anno=2&depth=1&hl=en&rurl=translate.google.co.in&sl=en&tl=gu&u=http://www.business-standard.com/search%3Ftype%3Dnews%26q%3DWww.clinicaltrials.gov&usg=ALkJrhhaCCTCIKHUtD-Yirc0bmX2xjp5aA

http://www.clinicaltrials.gov/

94

Table 1: Phase wise details of clinical trials

First study by start date was registered in www.clinicaltrials.gov in year 1996. There were total

56655 patients were participated in pharmacoeconomic research clinical trial till 2015. This

number is quite high as compare to total number of studies registered through

www.clinicaltrials.gov. Table 2 depicts phase wise patient’s enrollment in clinical trials

involving pharmacoeconomic research.

Table 2: Phase wise patient enrollment

Upon evaluation of data, it can be directly conclude that clinical trials involving

pharmacoeconomic research is mainly funded by pharmaceutical industry (50%). This is

indicative that industry putting more effect compare to regulatory agency. Table 3 highlight

snapshot of funding of pharmacoeconomic clinical trials.

Table 3: Phase wise patient enrollment

Clinical trials funded by Number

Industry 66

Industry|Other 1

Other 41

Other|Industry 21

Other|Industry|NIH 1

Other|U.S. Fed|NIH 1

U.S. Fed|Other 1

(blank)

Grand Total 132

Out of 132 clinical studies, results available for only 16 studies while no results available for 116

studies. Due to existence of limited information, we can comment any specific factors for non

availability of clinical trial results. Table 4 shows availability of results from clinical trials

Table 4: Phase wise results

Type of clinical

trials

Phase

1

Phase

2

Phase 2|Phase

3

Phase

3

Phase

4

(blank

)

Grand

Total

Interventional 2 11 1 33 36 13 96

Observational

1 3 32 36

Grand Total 2 11 1 34 39 45 132

Type of clinical

trials

Phase

1

Phase

2

Phase 2|Phase

3

Phase

3

Phase

4

(blank

)

Grand

Total

Sum of enrollment 112 835 600 14662 12091 28355 56655

Results Phase

1

Phase

2

Phase 2|Phase

3

Phase

3

Phase

4

(blank

)

Grand

Total

Has Results

1

5 5 5 16

No Results

Available 2 10 1 29 34 40 116

Grand Total 2 11 1 34 39 45 132



95

Advantages of pharmacoeconomic studies in context of drug development process (7)

1. There are no restrictions on who can do studies

2. Pharmacoeconomic studies can be undertaken at any point in a product's life cycle

3. The timing of studies depends upon the needs of the users of studies

4. Early studies, during the research and development (R&D) phase of the drug, may be

undertaken by the company to guide future (i.e. Phase III and IV) R&D decisions and

marketing planning

5. Phase III studies may have a particular role in pricing and formulary decisions early in the

product’s life cycle.

6. Pharmacoeconomic studies may also play a role in initial clinical and prescribing guidelines

7. Phase IV pharmacoeconomic studies (post-marketing) would contribute by updating previous

studies on the basis of the new effectiveness data; and provide better evidence regarding

utilization and adverse events

Limitations:

The whole procedure may be subject to bias, in the option of comparator drug, the assumptions

made, or in the selective reporting of outcome. This mistrust arises because the majority studies

are conducted or funded by pharmaceutical companies. Variations in costs, diversity in effects

work are fascinated in the results, and there is a publication bias towards those studies

constructive to sponsoring companies. Doctors may tend to equate health economics with

rationing or cost cutting, and many therefore reject on principle the whole process as unethical.

Since resources are limited within health services, wasting them by inefficiency is wrong, as it

reduces the clinician’s ability to give the best possible care to his patients. It therefore seems

unethical not to consider the economics of a medical intervention. A key problem is our ability to

implement the results of a study. No matter how good a study is, and how cost effective a therapy

compared to existing treatment, it may not be possible to achieve its potential benefits because of

the existing cumber some management structures.(8)

Conclusion: There is very limited number of pharmacoeconomic research in clinical trials. Majority of

clinical trials were interventional in nature funded by pharmaceutical industry mainly, although

results are available for only few studies. Due to availability of limited number of information of

www.clinicaltrials.gov, we could not able to provide rational about non availability of results.

However, certainly there is a need of increase number of clinical trials which combines economic

and clinical information to meet the needs of health service decision makers. The explicit and

scientific combination of economic evaluation into clinical trials will assist decision maker to

take rational decision by having access of cost and benefit of new drug. However, this

combination approach must not compromise the vital objective of clinical trials. The joint

objective of combining clinical and economic evaluation must be to generate data that helps

decision makers to improve the health of served population. The collaborative assessment of the

cost and benefit within trials will facilitate the health services to use limited pharmaceutical

resources in to better way. (9)


96

References

1. Scaria, S., Raju R., Joseph S., Mohan A., & Nair A. (2015). Pharmacoeconomics:

Principles, Methods and Indian Scenario. International Journal of Pharmaceutical Sciences

Review and Research, 34 (1) (08), 37-46.

2. Pharmacoeconomic guideline for Malaysia. (2012, march 1). Retrieved December 3, 2015.

3. Kumar, H., & Khanagwal, A. (2011). Pharmacoeconomics- Added The Value Of Drugs.

Asian Journal of Biochemical and Pharmaceutical Research, 1(2), 695-712.

4. (n.d) (2002). An Introduction to Pharmacoeconomics. NMIC Bulletins, ST. James Hospital,

National Medicines Information Centre, 8(5).

5. Australian Clinical Trials. (n.d.). Retrieved December 3, 2015, from

https://www.australianclinicaltrials.gov.au/what-clinical-trial

6. (n.d.). Retrieved December 3, 2015, from

https://docs.gatesfoundation.org/documents/clinical_trials.pdf

7. (n.d) (1997). Guidelines for economic evaluation of pharmaceuticals: Canada. Retrieved

December 3, 2015, from https://www.cadth.ca/media/pdf/peg_e.pdf

8. Powar, P., Nagare, A., Ambikar, R., Sharma, P., & Vyawahare, N. (n.d.).

Pharmacoeconomics- Costs of Drug Therapy to Healthcare Systems. Journal of Modern

Drug Discovery And Drug Delivery Research, 1(2), 1-6.

9. Haycox A., Drummond M., Walley T. (1997). Pharmacoeconomics: integrating economic

evaluation into clinical trials. Br J Clin Pharmacol. 997 (43). 559-562.

97

Sales promotion to doctors’: The societal perspective

Reshmi Menon

Faculty, Som-Lalit Institute of Business Management, Ahmedabad

Dr. NeelimaRuparel

Associate Professor, B. K. School of Business Management, Gujarat University, Ahmedabad

Abstract

___________________________________________________________________________

With increasing competition in the high growth pharmaceutical industry worldwide and existing low level

of differentiation among the medicinal products, the pharmaceutical companies resort to aggressive sales

promotion practices to the doctors, who are their prime customers. Empirical evidence indicates that

these sales promotion practices do influence the prescribing habits of the doctors, by inducing biased

prescription, or prescribing medicines that may not be warranted.These in turn results in increased

health risks and increased drug costs to the patients. Ethical guidelines have hence been formulated in

various countries, to regulate the doctor-pharmaceutical industry interaction. However, these guidelines

have seldom taken the society’s perception of these interactions into consideration, while formulating the

policy guidelines. Public perception studies on the doctor pharmaceutical industry interactions

worldwide have been few and have shown varied results. This research examines the public perception of

pharmaceutical companies’ sales promotion to doctors’ in the Indian context through a survey of 202

respondents, in terms of their awareness, desire for disclosure and consequences of the varied

promotional practices on the prescribing practices of the doctors. The findings of the study indicate a

high level of public trust on the doctors in spite of the high awareness levels about the sales promotion

practices, alongwith a strong desire for disclosure and thereby a greater transparency in the doctor

pharmaceutical industry interactions.

Key Words: ethics, sales promotion, pharmaceutical, public perception

_____________________________________________________________________

Introduction

The pharmaceutical industry is one of the highest growing industries worldwide. Since the early

1950’s, this industry has been characterized by the presence of a large number of players

i.e.pharmaceutical companies and a plethora of drugs or medicines being continuously

introduced into the market. This has resulted in intense competition existing between the

pharmaceutical companies, both to increase their market shares and their respective profits.

Most of these drugs share almost similar characteristics, with no much differentiation existing

between them. This lack of differentiation and the intense desire for growth has resulted in the

pharmaceutical companies adopting various sales promotion practices for influencing the

doctors’ prescribing habits.

In the pharmaceutical industry, the key decision maker of drugs to be used in treatment is the

doctor, while the end consumer buys and consumes the products on the prescriptions made by

the doctors. This makes the pharmaceutical market quite different from other markets, wherein

the focus of all the promotional activities is the doctor, and not the end consumer.

As with the promotional practices worldwide, the sales promotion activities in the Indian

pharmaceutical industry could be classified as ethical and unethical practices. In the Indian

98

market, based on discussion with managers in a cross section of companies and researchers’

familiarity with the market, various studies have delineated the sales promotion practices

prevalent in the Indian pharmaceutical industry to the doctors. Thesepractices include giving of

different types of small and large gifts to the doctor, sponsorships for participation in various

domestic and international conferences, patient disease awareness and detection camps, drug

samples intended for patient use, continuous medical education programs (CMEs) etc.

According to one estimate, in the US, the per doctor spending by the pharmaceutical companies

is as high as $21,000 per year (Jureidini and Mansfield,2001).

Empirical evidence have shown that these varied sales promotion practices do influence the

prescribing habits of the doctors, as reflected in the exponential increase in the sales of the

pharmaceutical companies every year. The doctors however, are of the view that their

prescribing habits or practices are not biased by the sales promotion, but do accept that their

colleagues could be getting influenced. This biased prescribing by doctors under the influence

of the sales promotion activities or gifts may result in increased health risks and increased costs

to the patients. The patients are largely unaware of these effects, and hence seem unconcerned.

However, it needs to be understood that the doctor holds a primary responsibility towards the

patients in terms of upholding the patients’ interests more than their own personal interests. The

sales promotion activities thus can lead to conflict of interest situation for the doctors. Many a

time, it is also argued that small gifts do not bias the doctors’ minds, and hence can be

continued to be given as brand reminders. However, studies do suggest that doctors’ being

human beings would always want to reciprocate for what they have received, and thereby

resulting in increased prescriptions.

The key element in a doctor patient relationship is the element of trust. Many a times, the

patients are unaware of any kind of interactions between the pharmaceutical industry and the

doctors, or of the effects of such kind of interactions. If the patients become aware of the

adverse effects of such kind of interactions in terms of health risks or increased costs, it is likely

to undermine the trust that the patients have on the doctors and their capacity to treat the

patients.

However, very few studies have been done worldwide to understand the public perception of

the doctor – pharmaceutical industry interactions especially in terms of the sales promotion

practices. Most of the studies have focused towards understanding the doctors’ views on these

interactions. Also, these few public perception studies done predominantly in the US, and some

other countries including Turkey and Australia, have shown varied results in terms of the public

awareness, perceived appropriateness or acceptability, desire for disclosure and the perceived

consequences of these interactions on the doctors’ prescribing practices.

Literature Review

The pharmaceutical market is very different from the other markets as in this market; the

chooser is not the ultimate user of the product. The pharmaceutical industry marketing strategies

thus differ from other markets primarily in terms of conceptually defining the real customer of

the pharmaceutical products. In this case, the doctor, though playing an intermediary role, is the

key decision maker, as the patient ultimately buys the drugs based on the choices made by the

doctor. In pharmaceutical marketing, from the drug manufacturer’s point of view, the doctor

being the principal decision maker, is the customer and is hence is the focus for all the

promotional activities (Gönül et al., 2001).

99

The sales promotion activities in the pharmaceutical industry primarily involve sharing of facts

on drugs (based on trials) to doctors (who are already proficient enough in medical science) and

not to the final users of the drugs i.e. the patients (Kolhatkar and Inamdar, 2012).

Too Great a Price – For the Consumer With approximately 348 new drugs introduced in the period 1981-88 by major US

manufacturing companies, only 3% of the drugs made any value addition to the existing

therapy, while 84% gave very little or no additional value (Randall T, 1991).Yet, all these drugs

have been lavishly promoted to the doctors, resulting in their excellent sales in the respective

markets (Verma,2004). The principal reason of pharmaceutical companies spending enormous

sums of money on promotion to doctors’ is because, as Barnes puts it the doctor’s prescription

choice can make or mar the success of a brand, and empirical evidence shows that there is an

impact on the doctors’ prescribing preferences due to drug promotion (Banks and

Mainous,1992) practices of the pharmaceutical industry (Buckley,2004).

But, it needs to be realized that this lavish promotion comes at a cost , which is ultimately

passed on to the consumers in the form of increased drug prices and increased health risks due

to biased prescribing practices of the doctors under the influence of sales promotion.Thus, from

an ethical perspective, the act of gift giving comes at too great a price (Randall T,1991), thereby

necessitating the establishment of ethical codes to regulate these pharmaceutical industry -

doctor interactions. Medical Associations worldwide have established ethical guidelines for the

same (as also, Medical Council of India), but not many of these guidelines have been

categorical enough, to control or prevent the ill effects of these interactions (Verma,2004). It is

further suggested that a general public awareness drive both at the individual and the societal

level needs to be initiated (Jain,2010).

Doctor-Patient Relationship: Element of Trust

The key element in a patient – doctor relationship is the existence of trust for the doctors and

their treatment related decisions in the patients’ minds. This trust may either exist due to the

position that the doctor occupies in the patients’ minds or due to the doctors’ honesty as seen

over a period of time and hence the evolved relationship (Coyle and null, 2002) .

If a patient perceives that a doctor is prescribing or treating under the influence of some or the

other pharmaceutical companies’ sales promotion, it is likely to negatively affect or erode the

patients’ trust in their doctors’ are upholding their patients’ best interests, as also in the

capability of the doctors to treat their patients (S. L.G. Md et al.,2008).

Any interaction which creates an opportunity for bias, conflict of interest and negative public

perception is to be considered unethical by the doctors. Moreover, with varying value of the

gifts it sometimes becomes difficult for the doctor to make a distinction between the acceptable

and the unacceptable practices or gifts while trying to resolve the conflict of interest, and hence

requires the development of certain ethical guidelines enabling the doctors to judge the

difference (Coyle and null,2002).

This process gets relatively simplified and more acceptable if the public is aware of these

interactions (Arnold S. Relman,1985; A S Relman,1989), and the acceptability criteria of the

public on these interactions is known to the doctors. This necessitates the need for disclosure

and creation of public awareness of the doctor- pharmaceutical industry interactions.

100

Public perception of pharmaceutical companies’ sales promotion to doctors

The public perception studies on the pharmaceutical companies’ sales promotion to doctors

have been very few, even though the ethical guidelines regulating the doctor pharmaceutical

industry interaction have been reiterating the importance of using it to gauge the acceptability of

the various promotion practices (Macneill et al.,2010)

A patient perception study done in 1995 on 649 adults of Kentucky indicated that the people

were largely unaware about the practices of giving personal gifts to doctors by the

pharmaceutical companies. Moreover, the patients in the study approved more of the office

based gifts to be given to the doctors than the gifts for personal use. They felt that personal gifts

had a negative influence on the prescribing practices thereby affecting the quality of healthcare

and increased cost to the patients (Mainous, Hueston, and Rich,1995).

Another study in 1995, to assess the patient awareness and attitudes of 486 adults based in

Missouri, concluded that patients were more approving of gifts which were of relatively less

monetary value and of use to patient care rather than of high value gifts being given to doctors

by the pharmaceutical companies and more of personal use (Blake and Early,1995).

In a survey conducted by Gibbons et al, 1998 with 268 physicians and 196 patients at a military

and civilian center, with an objective of comparing the attitudes of doctors and patients on the

gift giving practices to doctors by the pharmaceutical industry, concluded that there were

differences in the attitudes of both classes of respondents. The patients were more unapproving

and felt that gift have a greater influence on the prescribing practices, as compared to the

doctors.

Further, a relatively recent Michigan based study by Jastifer and Roberts, 2009 with 903 adult

patients, reinstated that the public approval rates for this gift giving practice to doctors by the

pharmaceutical companies, had reduced as compared to the 1990’s. Also, the study concluded

that patients approved of the different gifts on the monetary value and its perceived benefits to

patient care. Jastifer and Roberts, 2009 have further suggested that public opinion should be

included while formulating the ethical guidelines regulating these interactions.

Unlike other studies done on patient perception studies, Semin et al.,2006 in a survey conducted

with 584 volunteers in various healthcare centers in Turkey, found that majority of the public

was aware of these promotional activities being done by the pharmaceutical companies and

considered it to be unethical. The study further reiterates strict regulations to control these

doctor pharmaceutical interactions or promotion and emphasizes the need for the inclusion of

the public opinion in the formulation of these regulations or guidelines.

Tattersall, Dimoska, and Gan, 2009 conducted an anonymous survey in Metropolitan Sydney in

2009, to know the patient views on the doctor pharmaceutical industry interactions and their

desire for disclosure of these interactions. They found that majority of the respondents were

unaware of any kinds of such interactions but expressed their desire for a disclosure of these

interactions, whether in cash or kind. Further, the study also found that the respondents were of

the view that disclosure of interactions by their doctors if happened would only increase their

confidence in the disclosing doctors.

In a study done to compare the public and physician attitudes to the promotional practice of

giving gifts to doctors, Macneill et al.,2010 found that the acceptability or appropriateness of

gift giving differed depending on the types of gifts, both among the doctors and the public.

However, in this study public was more approving of the gift giving practice as compared to the

101

doctors. This study further questions the need for including the public opinion while

formulating ethical guidelines, and suggests the complete elimination of the gift giving practice

to the doctors by the pharmaceutical companies.

Public opinion should form a threshold for deciding on the acceptability or appropriateness of

the doctor pharmaceutical industry interaction and thereby the resolution of conflict of interest

situations, as delineated by medical organizations formulating ethical guidelines worldwide.

Arkinson, Holbrook, and Wiercioch, 2010 conducted an extensive literature review on the

doctor-pharmaceutical industry interactions and concluded that there is an insufficiency of

patient perception studies on these interactions worldwide.

Research Methodology

The research study involved a survey of 202 adult respondents (greater than 18 years of age)

based in Ahmedabad city. The sample was selected on a convenience sampling basis and the

data was collected using a self administered structured questionnaire. The questionnaire

consisted of questions designed to address principally the four objectives of the study: public

awareness, acceptability, desire regarding the disclosure and the perceived effects of the

pharmaceutical companies’ sales promotion to doctors especially in terms of their prescribing

practices, and the demographics or the personal details of the respondents.

The data thus collected from the respondents was coded and further analyzed with relevant

statistical techniques on SPSS-PC, version 20.0. The Likert scales used to assess various criteria

in the questionnaire were collapsed into respective dichotomous variables like acceptable/not

acceptable, for simplification of analysis and interpretation of coded data and thereby the

findings of the study. Frequency distribution and chi square tests for hypothesis testing were

done at 95% confidence interval with p< 0.05 being considered to be statistically significant to

assess the public opinion in terms of the public awareness, appropriateness, perceived effects on

the doctors’ prescription choice, desire for disclosure of interactions and the demographics or

the personal information of the respondents.

Data Analysis and Interpretation

1. Sample Profile

Fig.1Sample Profile by Gender

The sample respondents consisted of 66% males and 34% females.

Male, 66% Female, 34%

Gender (%)(n=202)

Male

Female

102

Fig.2 Sample Profile by Age

55% of the respondents were in the age group of 22-30 years and constituted the majority. 12 %

of the respondents were in the age group of 18-21 years. 19% of the respondents were in the age

group of 31-40 years.

Fig.3 Sample Profile by Marital Status

52% of the respondents were married, while 48% respondents belonged to the unmarried

category.

18-21 yrs, 12%

22-25 yrs, 33%

26-30 yrs, 22%

31-35 yrs, 11%

36-40yrs,

8%

41-45 yrs, 5%

46-50 yrs, 5%

51-55 yrs, 3%

> than 55yrs,

0%

Age (%) (n=202)

18-21 yrs

22-25 yrs

26-30 yrs

31-35 yrs

36-40yrs

41-45 yrs

46-50 yrs

51-55 yrs

Married

52%

Unmarried

48%

Marital Status (%)(n=202)

Married

Unmarried

SEC A1, 14%

SEC A2, 32%

SEC B1, 16%

SEC B2,

19%

SEC C, 18%

SEC (%)(n=202)

SEC A1

SEC A2

SEC B1

SEC B2

SEC C

103

Fig.4 Sample profile by Socio-Economic Class

48% of the respondents belonged to the SEC A class, while 52% of the respondents belonged to

the SEC B and C classes.

Fig.5 Frequency of visit to the doctor in the last six months

In the last six months, 49% of the respondents visited the doctor twice and constituted the

majority. 23% of the respondents visited the doctor once in the last six months.

2. Awareness regarding pharmaceutical companies sales promotion to doctors :

Fig.6 Public awareness of MR promotion to doctors

88% of the public is aware that pharmaceutical companies promote the drugs(medicines) to

doctors through medical representatives (MRs).

Once, 23%

Twice, 49%

Thrice, 13%

>3 times, 12% No response,

2%

Frequency of visit to doctor (%) (n=202)

Once

Twice

Thrice

>3 times

No response

88%,

No

10% Not Sure

2%

Awareness: MR promotion to Drs (%)(n=202)

Yes

No

Not Sure

104

Fig.7 Public awareness of Drs. receipt of gifts from pharmaceutical companies

51% of the public is aware of doctors’ receiving gifts from pharmaceutical companies to

prescribe the companies’ brand of medicines.

Fig.8 Public awareness of having seen Drs. receiving gifts from pharmaceutical companies

44% respondents have seen doctors receiving gifts from pharmaceutical companies, thus

constituting a sizeable number of the same.

3. Acceptability /Appropriateness regarding pharma. cos. sales promotion to

doctors :

Yes

51%

No

46%

Not Sure

3%

Awareness: Drs. receipt of gifts from pharmaceutical

companies (%) (n=202)

Yes

No

Not Sure

Yes

44% No

52%

Not Sure

4%

Awareness : Seen Drs. receiving gifts from pharma. cos.

(%) (n=202)

Yes

No

Not Sure

105

Fig.9 Appropriate/ok on giving of gifts to Drs. in various forms by pharma.cos.

69% public held neutral (no specific) views on the appropriateness of giving gifts to Drs. by

pharmaceutical companies. However, this was followed by 17% of the public considering it to

be not ok (inappropriate), the practice of giving gifts to doctors by the pharmaceutical

companies.

Fig.10 Appropriate/ok on various reasons for giving of gifts in different forms by

pharma.companies to doctors

85% of the public felt it was appropriate to give gifts to encourage Drs. to remember that

company’s brand of medicines, while 44% felt it was not appropriate to give gifts to encourage

Drs. to prescribe that company’s brand of medicines.

4. Perceived effects on prescribing practice of the doctors :

Table 1: Consequence of promotional practice (gifts/sponsorship) onprescribing practice of

doctors

0%

10%

20%

30%

40%

50%

60%

70%

It is perfectly ok

(appropriate-

nothing wrong),

5%

It is somewhat ok

(somewhat

appropriate-

somewhat wrong) ,

7%

Neutral (no specific

views), 69%

It is not ok

(inappropriate),

17% It is absolutely not

ok (absolutely

inappropriate and

wrong), 1%

Appropriate/ok: giving varied gifts to Drs. by pharma.cos.

(%) (n=202)

0%10%20%30%40%50%60%70%80%90%

Appropriate

(OK)

Not

Appropriate

(Not OK)

Undecided

(Not Sure)

85%

11% 4%

48%

44%

8%

49%

36%

15%

Q5a. Remember

medicines

Q5b. Rx medicines

Q5c. Compensate time

spent with MR

106

Consequences of gifts Yes No Unsure/Do not know

Doctors prescribe needless medicines to patients 88% 10% 1%

Doctors prescribe more costly medicines to patients 17% 76% 5%

Doctors prescribe less effective medicines to patients 28% 44% 27%

Doctors prescribe wrong medicines to patients 11% 57% 29%

(n=202)

88% public opines that doctors prescribe needless medicines to patients due to promotional

practice of gift giving to doctors by pharmaceutical companies. Majority of the public in the

other three cases ie. costly medicines, less effective medicines, and wrong medicines do not

believe that the doctors prescribe any of the same under the effect of gifts or sponsorships.

5. Public desire for disclosure of pharmaceutical sales promotion to doctors:

Fig.11 Public need for disclosure of gifts/sponsorships receivedby Drs. from

pharma.companies

78% public (majority) desires that doctors should inform or disclose to their patients, any

gifts/sponsorships received from pharmaceutical companies.

Fig.12 Continuation of treatment with the same doctor on disclosure

Unflinching faith or trust for one’s doctor exists among the public as indicated by a 61%

categorical yes, for continuation of treatment with the same doctor even after disclosure of

interaction. This further delineates the opportunity for doctors to disclose and be transparent

without losing the patients or their trust.

Yes, 78%

No, 19% Not Sure, 2%

Drs. should inform/disclose to patients about gifts/spons.

recd. from pharma. cos. (%)(n=202)

Yes

No

Not Sure

Yes - 61%

No, 28%

Not Sure, 10%

Continuation of treatment with the same doctor on

disclosure(%) (n=202)

Yes

No

Not Sure

107

Findings &Conclusion

For the general public, awareness levels of the gifts being received by the doctors from the

pharmaceutical companies to prescribe the companies’ brand of medicines was not different from

the worldwide awareness levels. Moreover, there was no relationship between demographics

(gender, marital status, SEC) and awareness levels regarding doctors receiving different gifts or

sponsorships from pharmaceutical companies, except age (p=0.008).There is no significant

relationship between the demographics and the consequence of the promotional practice of

giving gifts to the doctors. The only exception to the same being that a significant relationship

exists between age and the public perception of less effective medicines being prescribed by the

doctors(p=0.015) , with public in the age group of 18 to 30 years predominantly rejecting the

same. No significant relationship between exists between the necessity to disclose or inform the

patients by the doctors of gifts or sponsorships received from pharmaceutical companies and the

demographics (i.e. age, gender, marital status, SEC).

The element of trust which governs a doctor-patient relationship, is significant among the Indian

public , as was reflected in their opinion on the appropriateness, ethical acceptability,

consequences and the effect on the choice of drugs by doctors under the influence of sales

promotion by the pharmaceutical companies (even though SEC differences are significant for

many of the variables).

In line with the public opinion worldwide, majority of the Indian public (78%) also desired that

the doctors should inform or disclose to their patients about any gifts or sponsorships received

from pharmaceutical companies. This in turn indicates the desire of the Indian public to have

more transparency in the interactions between the doctors and the pharmaceutical companies

especially in terms of the sales promotion practices.This desire for transparency in the

interactions, offers a great opportunity for doctors in India to disclose and be transparent without

losing the patients or their trust, since 61% of the public chose a categorical yes towards

continuation of treatment with the same doctor even after disclosure of interactions. Disclosure

and more transparency may give the public the much needed choice to reflect further on their

doctors’ competence levels and their ethical dimensions and thereby make the right choice of the

doctor whom they may consult in the future.

This research study has several limitations which include the use of survey for research purposes.

The survey was conducted assuming that the respondents would be conversant with the English

language and are self-willing to be a part of the survey. Also, due to a dearth or nonexistence of

similar studies in the Indian context (to the best knowledge of the researcher), the survey

questions could not be compared and validated with other such studies in the current context.

Moreover, with the use of self-administered structured questionnaire as a research tool, recall and

self-selecting bias of the respondents remains a possibility, to have crept in during data collection

phase.

The results of this study could be extended as the foundation for several such studies related to

public perception of sales promotion practices and interactions in various other professions (eg.

architects, chartered accountants etc.) and industries. However, the study remains more critical

for the medical profession as compared to others, because the difference that the doctors create

may affect the patients directly or indirectly in terms of the related health risks and cost of living.

108

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110

Indian Pharmaceutical Companies and ANDA filings, the driver of the

off patent (generic) drug revolution-Myth or reality

Rashmi Pant

Owner- “HOW TO”

Abstract

__________________________________________________________________________ To study the ANDA (abbreviated new drug application) filings for off patent drugs by generic drug

manufacturers at the USFDA over a period of nearly 4 years starting from 2012 till 2015. Data collection

and research findings from the USFDA website reveal that there has been a consolidation in the number

of ANDA filings in the 4 year period. The number has practically remained steady despite the approval

timelines for a generic drug application going to as high as 27-30 months. With 11 months of the year

2015 over, the number of ANDA filing approvals at the USFDA website has crossed the benchmark of the

last 3 years and with still one more month to go before the year 2015, the future for the generic drug

applications remains promising. Greater than 2000 ANDA applications are approved each year and least

500 fall under the new drug approvals category each year considering the period from 2012-2015. In the

period 2012-2015, at least 100 drug applications fall under the tentative approval category. The Generic

Drug User Fee Act (GDUFA) in the US was initiated to expedite the approval of generic drugs on

collecting higher fees to process applications. But since its implementation in 2012, the average approval

timeline of ANDA has increased to 27 to 30 months, from an average of 24-25 months. As part of the

reforms process under GDUFA, the drug regulator, USFDA, targets to bring down the overall ANDA

approval timeline to 10 months by 2017.

Key words: Off patent, generic drugs, ANDA, USFDA, approvals

__________________________________________________________

Introduction

An Abbreviated New Drug Application (ANDA) is submitted based on FD&C Act 505(j).

ANDAs are submitted for Generic drugs; a NDA must be previously approved and listed, known

as the reference listed drug (RLD). These are applications for generic drugs which are filed at the

US FDA website in higher volume (filed by Pharmaceutical companies and those filings are more

than 500 approvals/year). These are off patent generic drugs with lower complexity (safety and

efficacy already established). ANDAs can be filed for multiple applications. For the ANDA filing

there is a User fee (GDUFA) which was implemented from the year 2013.

Assumptions

ANDA filings trend study is being conducted for a focused period of 2012-2015. Pre 2012, the

trends were favourable and ANDA market remained profitable for majority of the generic drug

manufacturers worldwide particularly India. As time progressed, with the rising consumption of

generic drugs made by Indian manufacturers in the USA and the simultaneous cost of healthcare

going up at a sky rocketing pace, the USFDA started exercising policies related to strict

adherence to the documentations for the ANDA filings particularly with respect to compliance

and simultaneously introduced a fee for the ANDA filing. Major changes were in store for the

Pharmaceutical companies in India as many small and medium range players could not afford to

pay for the fee for their large pipeline of generic drugs. The USFDA wanted to allow only those

Pharmaceutical manufacturers to file who were able to satisfy their “quality” and compliance

http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/AbbreviatedNewDrugApplicationANDAGenerics/ucm126389.htm

111

standards and sieve out the smaller players of the industry. This also helped the regulators to

control consumption of medicines form other countries and increase their in house production of

medicines. This move has also helped them conserve the existence of their domestic production

lines.

Another important factor is that the ANDA approval process takes around 27-30 months and an

accelerated approval takes around 25 months as per the laid down guidelines. However, the

nature of the ANDA review and approval process will guarantee that there is always a backlog.

That is because firms submit applications on an ongoing basis, and it takes the OGD (office of

generic drugs) time to review and assess each application.

Research Objective

The objective of the research is to understand the trends in the ANDA approvals by

Pharmaceutical manufacturers in the US form the period of 2012-2015. The detail of each

manufacturer from various countries gives the list of the key manufacturers who are authorized to

sell their off patent drugs and formulations. Most of them are large global manufacturers but

Indian Pharmaceutical manufacturers dominate the Top 20 companies in ANDA filings. Needless

to say, that the Indian Pharmaceutical companies are the largest suppliers of generic drugs to the

west. Indian Pharmaceutical manufacturers are the companies which file the a significant

percentage of the ANDAs. However with the constant “not approval letters,” approvals and

tentative approvals, and some withdrawals each month, the backlog was maintained at a

consistent level of about 400 ANDA until November 2002, when there was a decided change in

the trend and the backlog began to grow. By the end of 2006, just four years later, the ANDA

backlog stood at 1300. It is not difficult to see why the backlog has increased so dramatically.

The number of submissions outpaces the number of approvals by multiples ranging from about

1.5:1 to about 3:1 each year. Clearly, this has not been a forward scenario for OGD and clearly

was the foundation for the Generic Drug User Fee Act of 2012 (GDUFA).


Secondary desk research method of data collection for ANDA filings has been done for 47

months (2012-2015) and collated for each calendar year from downloadable formats available at

the US FDA website. Data collected for each year is available with the name of the ANDA filing

with details of company name, filing number, active ingredient, date of filing and type of

approval. Data compilation is done by applying a pivot table to the raw data. Grids for arriving at

various types of inferences have been prepared. Data for studying the trends in ANDA approvals,

tentative ANDA approvals for the period 2012-2015 have been arrived at. Monthly trends for

each year have been compiled to determine peak periods of approval in each year. Data for the

leading players for ANDA filings have been collected and their filings studied for the 47 month

period. Contribution of each player to the filings for the year is also calculated based on the total

ANDA approvals for the year. The entire process has also been repeated to arrive at trend for

tentative ANDA approvals for the period 2012-2015 and the dominance of Indian Pharmaceutical

companies in the filings.

Each year’s filings is dominated with existing molecules/ active ingredients as well newer

molecules going off patent. The dominant companies for top active ingredients for the respective

year are also derived as a conclusion. The data is consolidated in bar and line graphs for an in-

depth understanding.


112

ANDA approvals yearly 2012 2013 2014 2015

Approval 619 589 590 588

Tentative Approval 122 120 111 122

Others (Labeling revisions,

supplements,etc) 1727 3649 3669 2536

Grand Total 2468 4358 4370 3246

Percentage contribution 25.1 13.5 13.5 18.1

Please note : 2015 is 11

months data

2012 2013 2014 2015

Approval 619 589 590 588

Tentative Approval 122 120 111 122

619589 590 588

122 120 111 122

0

100

200

300

400

500

600

700

No. of ANDA

approvals

Trend ANDA approvals 2012-2015

Summary of data compiled for 2012-2015:

1. Yearly trends in ANDA approvals and tentative approvals

2. Top Companies with ANDA filings

3. Monthly trends in ANDA approvals each year

4. Top Active ingredients each year

5. Top Active ingredients each year –Company wise

Research Findings:

Trends in ANDA approvals (2012-2015)

ANDA filings each of the above mentioned years are of various types. The same may be related

to the Chemistry of the drug, New Strength, Efficacy Supplement with Clinical Data to Support,

Labeling Revision, Manufacturing Change or Addition, Manufacturing revision, New Dosage

Regimen, New or Modified Indication, New Route of Administration, OTC Labeling, Package

Change, Patient Population Altered, Supplement, General Efficacy (Mark IV), Approval and

tentative approvals. From the point of view of the objectives and assumptions of this research

paper, the ones which are of interest are the ANDAs with the approval and tentative approval

status.

Before the Generic Drug User Fee Act of 2012 (GDUFA), the ANDA approvals were in the

range of 25% of the total filings for the year which gradually took a drop by 50 % till the year

2014. Government regulations, approval backlogs at the OGD, continuous stringency in the OGD

regulations, withdrawals, and changes in entry and exit strategies of the various pharmaceutical

companies have continued to contribute to the decrease in the overall contribution of the ANDA

filings each year.

The total number of ANDA approvals have remained nearly maintained a number of 600 each

year. In 2015, possibilities are that this number may be maintained or exceed 600. Most of the

ANDA filings are related to Manufacturing revision and labeling revision which account for

greater than 70% of the filings each year. With the advent of newer pharmaceutical

FIGURE 2

FIGURE I

113

Year

ANDA

Receipts

ANDA

Backlog

2005 766 780

2006 793 1172

2007 880 1309

2008 830 1441

2009 859 1630

2010 813 2236

2011 893 2500

2012 1103 2933

AVG 867 1750

manufacturers, advent of new or additional manufacturing locations, newer and revised

manufacturing process and controls related to quality, compliance, bioequivalence and

safety for each ANDA each year, the total number has exceeded 2000 in the years 2013 and

2014. A lot of pharmaceutical companies had shifted their manufacturing capacities to off shoring

locations in these periods to save costs as well as filed the ANDAs from those respective

countries. This may be particularly true for some biologics or bio similars approved for US based

companies.

Many of the ANDA drugs are also re filed when there are safety concerns or side effects,

packaging revisions, dosage revisions, formulation storages, warnings etc. This number has

always been in an average range of 1400-1500 filings for the period of 2012-2014. ANDA filings

with Efficacy Supplement with Clinical Data to Support have also maintained a steady number of

100 filings for the period of 2012-2014.

Reasons for low growth in ANDA approvals in the periods 2012-2015:

Fee structure, Economic impact of generic drugs

The user fee rate for filing a new ANDA application has increased by nearly 25% from the year

2013 to 2014. This has further reduced the filing and approval rate of new ANDA applications.

Further post approvals of the ANDA, the generic drug is made for the US population. As generic

drugs prove more cost effective than their branded counterparts, it is evident that they have a

significant economic impact on in term of yearly savings in terms of prescriptions. Generic Drugs

account nearly 80 percent of the 4 billion prescriptions written in the U.S. in 2011 as they cost

30% to 80% less than brand counterparts.

Challenges in Generic Drug Review- ANDA approval backlogs

1. Complex products and dosage forms

2. Growing workload

a. Receipt of applications continue to be greater than approvals

b. Increasing complexity of review process

3. GDUFA review performance commitments

Trends in ANDA Receipts every year versus trends in ANDA backlogs

A trend of ANDA receipts versus backlog from the year 2005 till

2012 shows that on average 867 ANDA applications are received

every year. The total backlog each year is nearly double of the

total ANDA receipts every year. The backlog in these 8 years has

considerably slowed down the growth of the ANDA approvals.

Despite the fact that applications are filed by at least 50% of the

renowned worldwide pharmaceutical manufacturers, the approval

process by itself is lengthy and complex one. The products which

are filed are complex in nature and carry complexity in their

formulations as well. This adds to the slowness of the review

process as there had been a staff shortage at the USFDA in the

period 2005-2012 as well.

FIGURE 3

114

MYLAN APOTEXAUROBIN

DOTEVA

SUN

PHARMA

DR

REDDYS SANDOZ

WOCKHA

RDTACTAVIS CIPLA

2012 59 32 29 28 23 21 20 16 14 14

2013 23 16 21 22 34 18 14 2 19 3

2014 50 23 6 22 24 9 12 0 8 1

2015 26 12 26 17 6 2 15 2 20 1

0

10

20

30

40

50

60

70

ANDA Approvals

ANDA approvals Top Companies 2012-2015

Jan Feb Mar AprMa

yJun Jul Aug Sep Oct Nov Dec

ANDA Approvals by month 38 40 60 39 67 41 48 72 68 57 36 53

0

10

20

30

40

50

60

70

80

ANDA Approvals by

month

2012- ANDA Approvals by month

Top companies in ANDA approvals 2012-2015

The top 20 companies in ANDA filings contributed more than 40% to the total ANDA filings in

the year 2012 which has reduced to less than 25% in the years 2013-2014. 5of the top 10

companies are Indian Pharmaceutical companies. The top 23 companies contribute nearly 42 %

of the total filings in the period 2012-2015. Of those nearly 10 companies are Indian

Pharmaceutical manufacturers. Some of the new players which have recently added to the top 23

are Hospira, Amneal and Fresenius Kabi. All these 3 companies have registered their highest

number of ANDA filings in the year 2015.

37 off patent drugs (FIGURE 5) have been filed by these 3 companies namely acetaminophen,

ampicillin sodium, argatroban,aripiprazole, bivalirudin, cisatracurium besylate, codeine

phosphate; phenylephrine hydrochloride; promethazine hydrochloride ,dexmedetomidine

hydrochloride, divalproex sodium, dutasteride, entecavir, estradiol, glucagon hydrochloride,

itraconazole, levetiracetam, Levofloxacin, lidocaine,Linezolid,magnesium sulfate,memantine

hydrochloride,montelukast,moxifloxacin,neostigminemethylsulfate,niacin,oxybutynin,quinine

sulfate,rabeprazole sodium,telmisartan,temozolomide,tobramycin and zoledronic acid.

These 37 active ingredients are used for treatments for a wide range of diseases both acute,

chronic and lifestyle diseases.

I. ANDA filings -2012

ANDA filings in the year 2012 show the following 12 monthly trends:

Emerging players in ANDA filings 2012 2013 2014 2015

HOSPIRA 5 3 5 10

FRESENIUS KABI 2 1 6 10

AMNEAL 4 6 6 17

FIGURE 4

FIGURE 5

FIGURE 6

115

No Active Ingredient=310 for 619 approvals No of approvals

Grand Total 619

1 MONTELUKAST SODIUM 25

2 ESCITALOPRAM OXALATE 16

3 IRBESARTAN 14

4 CLOPIDOGREL BISULFATE 13

5 OLANZAPINE 12

6 QUETIAPINE FUMARATE 12

7 NEVIRAPINE 11

8 HYDROCHLOROTHIAZIDE; IRBESARTAN 10

9 FEXOFENADINE HYDROCHLORIDE 9

10 LEVETIRACETAM 9

Jan Feb Mar AprMa

yJun Jul Aug Sep Oct Nov Dec


0

10

20

30

40

50

60

70

80

90

100

ANDA Approvals by

month

2013-ANDA Approvals by month

August month is the peak month for ANDA approvals in the year 2012 followed by May and

September months. The trends in 2012 start with a low number in 2012 every 3 months, reaches a

peak in March, May, August , September , October and December. The total number of active

ingredients approved as ANDAs in the year 2012 are 319 molecules for a total of 619 ANDA

approvals. The top 10 ANDA ingredients account for greater than 20% (131 Active ingredients)

of the total number 319 off patent drugs approved in 2012. Below is a list of the molecules filed

in the year 2012 based on the number of times they have been filed in the calendar year 2012. Out

of the top 10 molecules, 3 are for central nervous system and 2 are for the cardiovascular system

which are indicative of the rising incidence of such disorders in the US population on account of

lifestyle as well as genetics. The highest number of ANDA approvals for an active ingredient =25

which is monteleukast in 2012.

II. ANDA filings -2013

The year 2013 witnessed a decline of nearly 5% in the total number of approvals over the

period 2012 (less by 31 approvals). The trends in the monthly approvals are reflective of the

decline in the year 2013.

FIGURE 7

FIGURE 8

116

Jan Feb March April May June July Aug Sep Oct Nov Dec


0

20

40

60

80

100

120

ANDA Approvals by month


The month of July 2013 saw the highest number of ANDA approvals .Approval trend started on a

promising note in the months of February and March, reached a peak in the month of May 2013

(78) after falling in April 2013 and June 2013. Post July 2013, the ANDA approvals never

achieved a number greater than any of the minimum peak number ( around 50) achieved in the

year 2013 and faced a decline and fell to its lowest of 31 in October 2013 and 34 in Dec 2013.

The trends were also found to be similar when the list of molecules approved as ANDA filings

were analyzed when only 101 approvals were approved for the top 10 molecules of 2013 which

accounted for less than 20% of the total filings approved. The highest number of ANDA

approvals for an active ingredient in 2013 has been just 15 and the name of the ingredient is

zoledronic acid.

III. ANDA filings -2014

The scenario in 2014 hardly saw any change in the year 2014 with the total number of approvals

remaining at 590 in 2014 versus 589 in 2013. The year had a stagnating trend of ANDA

approvals in the year with only one peak of 108 in month of August 2014. Only the months of

June and Oct 2014 saw approvals in the range of 50.The year virtually saw stagnation in the

number of ANDA filings and it looked as the pharmaceutical industry worldwide was hardly

investing in the sector even for its generic drug formulations. Newer players with newer types of

molecules with limited number of manufacturing units, resources and limited filing budgets

started their existence in the ANDA approvals in the year 2014. Of the 590 filings only the top

10 molecules resulted only in 74 filings which was only less than 13 % of the total 312 molecules

filed in the year 2014. The list of key active ingredients or molecules approved for the year 2014

is as follows:

FIGURE 9

FIGURE 10

117

No Active Ingredient= 312 for 590 approvals No of approvals

1 FLUDEOXYGLUCOSE F-18 14

2 AMMONIA N-13 10

3 PHENTERMINE HYDROCHLORIDE 9

4 TELMISARTAN 8

5 DICLOFENAC SODIUM 6

6 LAMIVUDINE 6

7 SODIUM FLUORIDE F-18 6

8 ADENOSINE 5

9 DULOXETINE HYDROCHLORIDE 5

10 LEVONORGESTREL 5

Jan Feb March April May June July Aug Sep Oct Nov

ANDA Approvals by month 39 34 30 55 54 64 77 46 69 66 54

0

10

20

30

40

50

60

70

80

90



No Active Ingredient= 322 for 588 approvals-11 months No of approvals

1 FLUDEOXYGLUCOSE F-18 17

2 MEMANTINE HYDROCHLORIDE 14

3 SODIUM FLUORIDE F-18 13

4 ARIPIPRAZOLE 12

5 DUTASTERIDE 10

6 ETHINYL ESTRADIOL; LEVONORGESTREL 9

7 MONTELUKAST SODIUM 9

8 VALSARTAN 9

9 AMMONIA N-13 8

10 ETHINYL ESTRADIOL; NORETHINDRONE ACETATE 7

There has been an increase by 15 newer molecules in the year 2014 over the year 2013 but the

total numbers of ANDA approvals have not changed for the year 2014. Needless to say that the

US FDA is faced with a very serious backlog because of which the ANDA approvals remain

extremely slow. The highest number of ANDA approvals for an active ingredient has fallen to 14

in the year 2014 for the active ingredient, Fludeoxyglucose -18.

IV. ANDA filings -2015

The total number of ANDA approvals has reached the previous 2 years number in 2015 in 11

months and with Dec 2015 still remaining, another 50-60 ANDA filings may still be ready to be

approved. Indian Pharmaceutical companies are hopeful that the years post 2015 will see

increasing numbers of ANDA approvals. The year 2015 started with a slow note of less than 50

ANDA approvals in the first 3 months of the calendar year. April 2015 started with approvals

crossing 50 and a steady increase in ANDA approvals was highlighted in the period April-June

2015.The growth path continued and July 2015 became the peak month of the year with 77

approvals. The quarter suffered a minor trough in August 2015 with 46 approvals but picked up

again in September 2015 with greater than 60 approvals. The total number of approvals for the

year 11 months of 2015 has reached 588.

FIGURE 11

FIGURE 12

FIGURE 13

118

Company Name 2012 2013 2014 2015

Total of Tentative approvals 122 120 111 122

Others 28 42 33 46

Top 20 Companies 94 78 78 76

Indian Pharma companies (14) 49 43 30 34

MYLAN

PHARMS

INC

APOTEX

INC

CIPLA

LIMITEDTEVA

AUROBIN

DO

PHARMA

LTD

WATSON

LABS INCACTAVIS

HETERO

DRUGS

LTD

ALEMBIC

LTD

TORRENT

PHARMS

LTD

2012 14 10 7 7 6 6 5 5 4 4

2013 11 4 1 7 8 4 3 2 1 1

2014 17 10 2 7 2 4 3 6 1 2

2015 11 2 4 6 4 6 11 3 4 3

02468

1012141618

No of Tentative ANDA

Approvals

2012-2015-Tentative ANDA approvals Top 10 Companies

A look at the key active ingredients of ANDA filings in the year are as follows:

A total of 322 active ingredients have been approved for a total of 588 ANDA applications. The

top 10 active ingredients account for 108 ANDA approvals. This is significant rise in the number

of approvals for the top 10 indications in the 11 months of 2015. The highest number of ANDA

approvals for an active ingredient =17 which has risen by 3 for the same molecule,

Fludeoxyglucose-18. Montelukast gets back into the top 10 active ingredient list with 9 ANDA

approvals in 2015.

Tentative Approvals- The India factor

The Indian Pharmaceutical companies lead the area of the ANDA tentative approvals for the

period 2012-2015. Of the top 20 companies in the ANDA tentative approval list, 14 companies

are Indian Pharmaceutical manufacturers. When research on the USFDA website conducted for

tentative approvals for the period 2012-2015, it was found that on 100-125 ANDA approvals

were always present in the tentative approval category and majority of them were filed by Indian

Pharmaceutical manufacturers. Needless to say if the US FDA ANDA approvals did not take

backseat because of the backlog, the scenario would be dominated by the Indian pharmaceutical

players. For the top 20 companies, total tentative approvals were the highest in the year 2012 and

are maintaining an average of 75 each year for the period post 2012 till date. Of the 14 Indian

Pharmaceutical companies which are a part of the top 20 companies in tentative ANDA

approvals, the total contribution to the total tentative approvals was nearly 40% which has

gradually reduced to 36 % in the year 2013, 27 % in 2014 and risen to nearly 28% in the 11

months of 2015(34 Approvals in 2015).If this trend continues, Indian Pharmaceutical

manufacturers will dominate the tentative ANDA approval list.

FIGURE 14

FIGURE 15

119

Trends in Tentative ANDA approvals for the period of 2012-2015 for the top 10 companies also

have 5 Indian Pharmaceutical manufacturers in the list.

Summary

Indian pharmaceutical companies have reaped significant gains from sale of cheaper generic

versions of blockbuster drugs in the US market. Indian pharmaceutical companies do so by filing

ANDA approvals each year which when approved are registered on the USFDA website in the

public domain. This happens only after the manufacturer ahs filed all the documents with respect

to the requirements of the ANDA filing along with fee for the filing. Once the filing has been

received, the USFDA inspectors issue a letter for the manufacturing facility inspection at the

place where the drug has been manufactured. The time lag between the filing process and

inspection is a fairly large and the inspection may take a week to 10 days or more based on the

nature of the drug manufacturing process , facility and related parameters. Post inspection , the

inspectors release their reports. If the report carries no queries, the approval process takes its

route. If report carries findings, then a Form 483 is issued post inspection in which the

manufacturer ahs to make amends to the manufacturing process at the facility and further re apply

for ANDA approval or else in drastic circumstances withdraw the product completely. as per the

report released by the inspectors. This entire process of approval takes around 25-30 months.

Indian pharmaceutical manufacturers are the largest suppliers of cost effective generic drugs to

the west both in number and value.

References

1. http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandAppro

ved/ApprovalApplications/AbbreviatedNewDrugApplicationANDAGenerics/ucm126389.ht

m

2. http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandAppro

ved/DrugandBiologicApprovalReports/ANDAGenericDrugApprovals/ucm050527.htm

3. Generic Drugs – Application and Regulatory Review by Naiqi Ya, Ph.D.,Deputy Director,

Division of Chemistry IV, Office of Generic Drugs

4. PHARMACEUTICALS Sector update by Edelweiss Securities Limited

5. http://www.lachmanconsultants.com/2015/09/august-2015-anda-approvals-break-a-gdufa-

record-but-receipts-flounder/

6. http://www.lachmanconsultants.com/2015/07/the-backlog-at-ogd-a-historical-look/

7. http://pharmabiz.com/ArticleDetails.aspx?aid=91060&sid=1

8. http://www.pharmabiz.com/NewsDetails.aspx?aid=73066&sid=2

9. http://articles.economictimes.indiatimes.com/2014-12-02/news/56649153_1_drug-approval-

usfda-drug-applications

10. http://www.financialexpress.com/article/industry/companies/pharma-companies-eye-us-

complex-generics-market/63089/

11. http://www.financialexpress.com/article/companies/drug-firms-face-anda-blues/19233/

12. http://www.telegraphindia.com/1150622/jsp/business/story_26993.jsp#.VlfyB3YrLIU

13. https://www.edelresearch.com/showreportpdf-27858/PHARMACEUTICALS_-

_SECTOR_UPDATE-DEC-14-EDEL

14. http://www.ibtimes.com/40-all-generic-new-drug-applications-approved-fda-first-half-2013-

were-filed-indian-companies

15. http://www.asq509.org/ht/a/GetDocumentAction/i/86200




http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/DrugandBiologicApprovalReports/ANDAGenericDrugApprovals/ucm050527.htm

http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/DrugandBiologicApprovalReports/ANDAGenericDrugApprovals/ucm050527.htm

http://www.lachmanconsultants.com/2015/09/august-2015-anda-approvals-break-a-gdufa-record-but-receipts-flounder/

http://www.lachmanconsultants.com/2015/09/august-2015-anda-approvals-break-a-gdufa-record-but-receipts-flounder/

http://www.lachmanconsultants.com/2015/07/the-backlog-at-ogd-a-historical-look/

http://pharmabiz.com/ArticleDetails.aspx?aid=91060&sid=1

http://www.pharmabiz.com/NewsDetails.aspx?aid=73066&sid=2

http://articles.economictimes.indiatimes.com/2014-12-02/news/56649153_1_drug-approval-usfda-drug-applications

http://articles.economictimes.indiatimes.com/2014-12-02/news/56649153_1_drug-approval-usfda-drug-applications

http://www.financialexpress.com/article/industry/companies/pharma-companies-eye-us-complex-generics-market/63089/

http://www.financialexpress.com/article/industry/companies/pharma-companies-eye-us-complex-generics-market/63089/

http://www.financialexpress.com/article/companies/drug-firms-face-anda-blues/19233/

http://www.telegraphindia.com/1150622/jsp/business/story_26993.jsp#.VlfyB3YrLIU

https://www.edelresearch.com/showreportpdf-27858/PHARMACEUTICALS_-_SECTOR_UPDATE-DEC-14-EDEL

https://www.edelresearch.com/showreportpdf-27858/PHARMACEUTICALS_-_SECTOR_UPDATE-DEC-14-EDEL

http://www.ibtimes.com/40-all-generic-new-drug-applications-approved-fda-first-half-2013-were-filed-indian-companies

http://www.ibtimes.com/40-all-generic-new-drug-applications-approved-fda-first-half-2013-were-filed-indian-companies

http://www.asq509.org/ht/a/GetDocumentAction/i/86200

120

16. http://m.btvin.com/article/read/news/2923/exclusive---usfda-approvals-to-india-pharma-cos-

up-100--in-jul-sep-

17. http://fds.duke.edu/db/attachment/2575

18. http://www.raps.org/Regulatory-Focus/News/2015/04/08/21933/An-Increasing-Number-of-

Companies-Are-Using-a-Once-Obscure-FDA-Drug-Approval-Pathway/

19. http://www.pharmpro.com/blogs/2014/12/biotech-and-generic-drugs-2015-trends-and-

predictions

20. Recent trends in brand-name and generic drug competition, Journal of Medical Economics

2013, 1–8, Henry Grabowski, Duke University, Durham, NC, USA; Genia Long and Richard

Mortimer, Analysis Group, Inc., Boston, MA, USA

Appendix and tables

List of key terms

USFDA; OGD; Generic Drug User Fee Act of 2012 (GDUFA); NDA Approval

Tentative approval; Indian Pharmaceutical manufacturers; Generic drugs

Off patent drugs

TABLE 1

Company ANDA Approvals

2012 2013 2014 2015

1 MYLAN 59 23 50 26

2 APOTEX 32 16 23 12

3 AUROBINDO 29 21 6 26

4 TEVA 28 22 22 17

5 SUN PHARMA 23 34 24 6

6 DR REDDYS 21 18 9 2

7 SANDOZ 20 14 12 15

8 WOCKHARDT 16 2 0 2

9 ACTAVIS 14 19 8 20

10 CIPLA 14 3 1 1

11 MACLEODS PHARMS LTD 13 3 9 11

12 SAGENT PHARMS 12 7 5 2

13 WATSON LABS 12 5 5 8

14 LUPIN LTD 11 23 13 26

15 ROXANE 11 6 5 5

16 GLENMARK GENERICS 10 10 4 10

17 TORRENT PHARMS LTD 8 6 6 7

18 ZYDUS CADILA 7 5 14 2

19 ALEMBIC LTD 6 6 5 9

20 EMCURE PHARMS LTD 6 11 11 1

21 HOSPIRA 5 3 5 10

http://m.btvin.com/article/read/news/2923/exclusive---usfda-approvals-to-india-pharma-cos-up-100--in-jul-sep-

http://m.btvin.com/article/read/news/2923/exclusive---usfda-approvals-to-india-pharma-cos-up-100--in-jul-sep-

http://fds.duke.edu/db/attachment/2575

http://www.raps.org/Regulatory-Focus/News/2015/04/08/21933/An-Increasing-Number-of-Companies-Are-Using-a-Once-Obscure-FDA-Drug-Approval-Pathway/

http://www.raps.org/Regulatory-Focus/News/2015/04/08/21933/An-Increasing-Number-of-Companies-Are-Using-a-Once-Obscure-FDA-Drug-Approval-Pathway/

http://www.pharmpro.com/blogs/2014/12/biotech-and-generic-drugs-2015-trends-and-predictions

http://www.pharmpro.com/blogs/2014/12/biotech-and-generic-drugs-2015-trends-and-predictions

121

TABLE 2

No of tentative approvals

Company Name 2012 2013 2014 2015

1 MYLAN PHARMS INC 14 11 17 11

2 APOTEX INC 10 4 10 2

3 CIPLA LIMITED 7 1 2 4

4 TEVA 7 7 7 6

5 AUROBINDO PHARMA LTD 6 8 2 4

6 WATSON LABS INC 6 4 4 6

7 ACTAVIS 5 3 3 11

8 HETERO DRUGS LTD 5 2 6 3

9 ALEMBIC LTD 4 1 1 4

10 TORRENT PHARMS LTD 4 1 2 3

11 WOCKHARDT LTD 4 0 0 0

12 DR REDDYS LABS LTD 3 3 2 2

13 MACLEODS PHARMS LTD 3 2 7 3

14 MICRO LABS LTD 3 0 0 0

15 SANDOZ INC 3 6 7 6

16 SUN PHARM INDS LTD 3 5 4 2

17 GLENMARK GENERICS 2 1 0 3

18 LUPIN LTD 2 16 2 4

19 UNICHEM LABS LTD 2 0 0 1

20 ZYDUS PHARMS USA INC 1 3 2 1

TABLE 3


Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total

2012 38 40 60 39 67 41 48 72 68 57 36 53 619

2013 38 56 57 47 78 39 91 33 33 31 52 34 589

2014 40 38 49 50 30 52 30 108 57 58 33 45 590

2015 39 34 30 55 54 64 77 46 69 66 54 588

22 FRESENIUS KABI 2 1 6 10

23 AMNEAL 4 6 6 17

Others 363 264 249 245

Grand Total 619 589 590 588

% Contribution ( Top 23 Companies) 58.6 44.8 42.2 41.7

% Contribution ( Top 10 Companies) 41.36 29.20 26.27 21.60

122

Classifying healthcare offerings to gain strategic marketing insights

Ashwini Vora

Visiting Faculty, B K School of Business Management

Abstract

______________________________________________________________________________

How the intangible and perishable services with its heterogeneity play an important role for the welfare of

all? When customer/ patient goes to avail this service, he is not aware about its quality and his reactions

and perceptions. Only through references he sets his expectations. The nature of service is incorporeal and

abstract. Word of mouth plays an important role. Issues like inability to maintain inventory, difficulty in

matching demand and supply, challenges to train the human resource, customer participation as a co-

creator of value, consistent quality, pricing strategies etc. are articulated in a systematic manner Hospital

is taken as a profit making organization and all strategies described lead towards customer satisfaction,

quality and ROI. All areas described explain how service excellence for competitive advantage can be

attained. All 7 P’s of marketing mix are focused. New features like role of IT, digitalization, E-Health,

Telemedicine are added to meet customer defined values and value addition. It explains the shift of focus of

top management towards the employees, i. e. internal marketing. New concept of societal marketing and

socio-economy based pricing policy are discussed.

________________________________________________________________________

Introduction

Since Independence India has made serious strides in improving the health of People of nation.

The health of nation is more important than wealth of the nation. Decades ago the total body of

literature on Hospital administration was managed by a single doctor. Today it has become the

system which requires a multi- pronged approach and total Professionalism to achieve quality and

cost effectiveness. It is no more a philanthropic institute but a profit making business. Public and

private health expenditure is 13% and 87% respectively. There is a shift from selling to marketing

concept. The total focus has shifted to ‘patient services’ Instead of only medical and surgical

therapies. Indian Healthcare industry is around USD 46.4 billion and will grow by 12-15% in the

next five years accounting for nearly 8.5 % of GDP.

India is aggressively promoting Medical Tourism High cost of treatment in developed countries

like U.S.A and U.K has been forcing patients to go to cost effective destinations like India where

there is less waiting time. India has now the state- of - art hospitals of international standard and

internationally qualified and experienced specialists. India also excels in alternative medicines

and offers holistic healthcare addressing mind, body and soul. India’s healthcare industry is

poised to become major driver of economic growth. There are lots of business opportunities in

this complicated and challenging sector. It is like an industry. So the hospital has to be projected

as a service product. This people centric product will not be successful unless it is priced,

advertised and sold properly. It is complex because here the consumer is a patient but

purchaser/decision makers are the relatives. Both are to be satisfied. Both differ in their

perceptions depending on their culture, personality traits, mood, lifestyle etc.

Hospital as a Package Concept

This product is to be viewed as a package concept offering core services, supportive or auxiliary

service(mandatory) and augmented (value added) services. Healthcare customers are now

123

knowledgeable and do lot of homework before purchasing the service. They have number of

options to purchase due to shift from monopoly to oligopoly. They do trade-off between many

parameters. Due to intangible nature of service, customers come with certain expectations. While

consuming the service they go on evaluating at every encounter they come across. They also take

part in production of service offering and thereby reinforcing that the basic service package has to

be expanded to a more holistic model of augmented offering. They expect services which were

promised to match their expectations and also want some value addition. If services exceed their

expectations they are delighted and for them this becomes the quality service. So quality is in the

eyes of customers and not in the eyes of providers. So satisfaction is largely the result of fulfilled

expectations, Satisfied customers are brand ambassadors and walky talky billboards. All

corporate hospitals aim at consistent quality and quality assurance. The obvious answer is

accreditation which gives transparency in everything from operating to cleaning procedures. This

helps in tie-ups with overseas health insurance agencies such as BUPA and CHUBS and make

easier route for patients to India.

The government has introduced various health schemes in its Five Year Plans for the health of the

women, children and public at large. In 1954 Central Government Health Scheme was introduced

with an aim to provide comprehensive medicare to Central Government employees and their

families. Then ESIS was introduced for the benefit for workers. Penetration of medical insurance

is very slow. With the emergence of private sector in hospital sector the people have started

discriminating the quality between the public and private hospitals . They have realized the

importance of medical insurance. Introduction of TPA has made cashless procedure easier. In this

system the insured patient would avail medical assistance at any of the empanelled

hospitals.TPA undertakes administrative functions on behalf of the hospital and become interface

between the patient and the insurance company.

Tangibalising intangible through physical evidence-

For revenue generation in today’s competition, private sector has started focusing from

management perspective They have started with ambience i.e. physical evidence to attract the

patients. Specialized people are hired to make attractive mouse-trap. Elements included are

exterior attributes and interior attributes. These elements have maximum impact when patients

physically use them.SOR model and its concept plays an important role in developing services

cape. It is like packaging. It facilitates the activities of both employees and customers

simultaneously. Thus, it wraps the service, provides conducive environment to internal customers

and provides image of what is inside to the external customers. From marketing perspective it

gives competitive advantage and promotes internal marketing. It is the non verbal communication

imparting message through object language to the customer’s perceptions. Now the design of the

website plays the visual role for invisible service. ‘Unhospital’ like setting take hospital

hospitality to a new level. Forward looking hospitals are incorporating nature, art and music for

the speedy recovery of the patients.

Focusing on process-

According to Bitner and Zeithaml’s Servqual Model, Provider Gap 3 i.e. between customer

driven standards and actual service delivery is very important in healthcare. As it helps to reduce

the Zone of Tolerance i.e. between expectations and perceptions. Even when guidelines exist for

performing excellent service and treating patients correctly, high quality service performance is

not a certainty. Many of the critical inhibitors found in delivering consistent quality service

include-

124

1. Employees do not clearly understand the roles they are to play.

2. The wrong employees recruited.

3. Inadequate use of technology for taking scientific interviews

4. Inappropriate compensation and rewards

5. Lack of empowerment and team work

Above these, in delivery process uncontrollable variable is patient. In services, customer

participation is inevitable. The patient has to take part in the production of the service. If they do

not perform their role appropriately, service quality is jeopardized as production and consumption

are simultaneous. Without patient participation, the diagnosis methods are endless. Both the

external and internal customers are required for real time marketing. When both of them come in

direct contact, the expectations are met and the promises are kept or broken. Internal marketing

encompasses all the strategic management activities that aid and empower the ultimate real time

service providers to deliver expected quality service and fulfill promises. These activities include

recruiting (hire the best), training (develop the best), motivating and rewarding (retain the best)

and providing needed supportive systems. So to deliver seamless service, from the expectations to

the delivery of value, the service triangle should be aligned properly. Satisfied employees are

responsible for satisfied patients. From my observation on ‘coping with the complaint’ revealed

that there is relationship between customer satisfaction and the service provider/personnel

commitment. Higher level of the service provider’s commitment and dedication results in

reducing customer complaints and increasing their satisfaction.

Balancing between internal/external marketing-

Why researchers insist on internal marketing, there is the reason. In services there are less

chances of recovery. You can’t rectify your mistakes. So the framework of internal marketing

should involve people from cross-functional areas and from different levels of hospital. Internal

customers need to have the sense of ownership and sense of purpose while serving the patients.

This will make them more accountable and responsible for their duty. That is why five broad

parameters are considered for evaluating the quality I.e. Empathy, responsiveness, reliability,

accountability and tangibles. There are some barriers like interdepartmental and

intradepartmental conflicts, resistance to change, absence of personal accountability, ego, lack of

openness etc. But proper conflict management, networking and relationship building help the

hospital to envision itself as ever evolving and improving unit. Again CEOs have to focus on

MBO to professionalize their functioning. MBO plays the crucial role in strategic planning for

long term development through mutual goal setting. There is hardly any hospital making use of

this process. If any hospital wants to undertake performance appraisal of its employees through

MBO, it will require clear definition of the goals expected to be achieved as well as measurement

of the actual achievement of these goals. Quantifiable goals help to improve supervisory and

managerial performance clearly and constructively.

Now about the external marketing, healthcare has evolved from a protected single location

service to a well organized, competitive, multi location concept and hence the need to have

dedicated marketing department. It has given to new marketing strategies. In hospital priority is

given to promoter’s perspective, doctor’s perspective and the patient’s perspective. This

segmentation helps to create ‘Niche segments’. The corporate hospitals are utilizing every

possible tools to reach its target audience by way of multihued brochures, advertisements, public

relations and social responsibilities. The mantra is to incorporate a marketing department

followed by a Public Relation (PR) department. Word of mouth plays an outstanding role.

Scientific method of marketing helps to differentiate and be more visible in the market. In the

activity of branding, PR plays an intrinsic role of telling people that we are here.. Advertisements

and publicity measures are sensitive to promote medical services. CRM helps to retain existing

125

patients. They will recommend to their friends, relatives and neighbours. So hospitals should

appoint PSO(patient service officer) rather than PRO. Feedback forms, suggestion boxes and

patient satisfaction surveys can also be used to remove the weak areas affecting the quality. IT

has helped to go for data based marketing linked to the knowledge based marketing. Data Mining

Tools are used for searching and analyzing customer data to find potentially useful information.

Pricing as the crucial element-

Regarding pricing, healthcare services are less price elastic. Pricing has a greater significance in

Indian scenario where the insurance coverage is minimal. More than 80% of the expenses are out

of the pocket. Sensitivity to pricing is higher in India as the majority of population is unable to

bear the expenses for quality healthcare through private sector. Price elasticity varies depending

on the nature of treatment. Customers i.e. patients have different perceived values. What is

received varies across customer as they continuously compare with what is given. There are

disparities in pricing among different categories of hospitals, different locations and different

cities. So it is challenging to formulate cost based and competition based pricing strategies.

Increasing cost in inputs is found aggravating the task of setting a fee structure along with the

doctor’s fee based on their experience and skill. This makes it difficult for the fair

synchronization of users’ and hospitals’ interests. From the view point of societal marketing, the

fee structure should be in proportion to the income of users which would engineer a sound

foundation for qualitative or quantitative improvements. The motive ‘surplus generation’ should

not establish an edge over the motive ‘public interests’. The best solution is the health insurance

i.e. community insurance where the insurer covers a diverse risk portfolio and at the same time,

patients are provided relief from high medical costs.

Quality- the seal of assurance

In order to provide quality service, hospitals will have to work out well-defined protocols for their

operating systems. They will have to achieve specialized international standards in specific

disciplines to become a benchmark for others at the national level. In India, the complexity of

hospital is due to the multi -cultural and heterogeneous workforce, with high grade professionals

at one end and less qualified housekeeping staff at the other end. The vast difference in

qualification and experience between professionals and non-professionals makes it imperative to

create right type of organizational climate supported by documented quality system for

effectiveness. In healthcare sector , quality is the synonymous with affordability, accessibility,

less medication errors and many more benefits. Quality is doing the right thing right the first time

and doing it better the next time. So it is simply the process of incremental improvements. Quality

is not obtained by chance. It requires systematic planning to achieve. It is not only to gain

goodwill but also to avoid competition. Quality becomes the Unique Selling Point and the engine

of the economy and the fabric of a corporate hospital.

TQM makes it essential for priority to the quality of personnel. The hospital professionals have to

develop required skills, knowledge of the subject, knowledge of IT, leadership qualities and

balanced mind to take right decisions at critical times. Technical quality can be improved with the

help of sophisticated technology whereas functional quality by Human Resources having right

attitudes. Quality is described as having eight dimensions: effectiveness, efficiency, interpersonal

relationship, safety, technical competency, access, continuity and amenities. Each of these

dimensions should be met at least minimally to meet the definition of quality. Now medical

services are available online. Dimensions for evaluation of E-QUAL are different. They are:

accessibility, navigation, design and presentation, content and purpose, responsiveness,

customization, personalization, reputation and security. Indian hospitals have achieved

accreditations from different bodies both international (JCI, JCAHO) and domestic (NABH).

TQM, SIX SIGMA and QUALITY CIRCLES are various tools used to evaluate the quality. Six

sigma is very difficult to implement as hospital’s quality is mainly in the hands of HR and there is

126

very high rate of human turnover. So it is very difficult to reduce errors / defects. Quality circle is

found to be a unique tool for making available world class service. It aims at –

1. Increasing quality and cost awareness

2. Utilizing the creativity of the workforce

3. Improving morale of the workers

4. Developing managerial ability and leadership

5. Implementing and managing new ideas

6. Improving operations resulting into a better service

7. Improving human resource quality, efficiency and productivity

The concept of QCs is based on the concept of performance-orientation with the help of people-

orientation. There is steering committee around which there are leading committees assigning the

teams and groups certain responsibilities making the road for effective interactions, accepting the

suggestions and exploring avenues for qualitative improvements. Education and training

programmes are required to be incorporated with the evolving technologies and principles. This

will make it possible quality in totality. Consistency in quality offering, speed and price savings

are more important to most of the patients than customized healthcare offerings.

Conclusion

It is observed that in India hospitals have started their marketing in the planned and scientific

manner. They have realized the difference between philanthropic and profit making service

organisation. So they are implementing strategic marketing tools to generate revenue. Importance

of service quality, Its assessment, pricing policies, customer’s expectations for value for what

they spend, their satisfaction and delight, customer relationship etc. are now on priority for

hospital professionals. Owner doctors are now able to discriminate between administration and

management. Healthcare sector is very challenging service sector as it requires knowledgeable

and highly skilled employees. All the services tangible or intangible that are involved in the

process of delivery should be given equal importance. They all affect the consumer buying

behavior.

References

1. Berry LL, Parsuraman, Zeithaml VA, 1993, “ 10 lessons for improving service quality”,

Marketing Science Institute Report No. 93-104

2. Express Healthcare January 2008

3. Ian Putzer “ Shifting Gears”, Journal of commerce August -2004

4. Services marketing by Bitner and Zeithaml

5. Shostack GL. “Designing service that deliver”, Harvard Business review. January-February

1984

127

Adoption of 3PL Practices in Kutch: Impact and influence of Key

success Factors on Revenue Growth

Rucha Vyas Research Scholar, Gujarat University, Ahmedabad

Abstract

____________________________________________________________________________________

Third party logistics (3PL) is a dynamic business of growing importance all over the world. However, it is

at a very nascent stage in India, though some domestic and multinational companies are trying to establish

themselves in this sector. This paper is an attempt to provide a 3PL perspective in Kutch. The paper

focuses on three major issues – present extent of usage of third party logistics services, reasons for

outsourcing and impact of usage of third party logistics services on revenue growth. The paper reveals that

most 3PL users are satisfied with the current level of services provided by 3PL service providers as it has

led to a positive impact on business results.

Key Words: Supply Chain Management, Third Party Logistics, Outsourcing, India.

________________________________________________________________________

Introduction

Organizations are searching for new practices that can influence financial performance and

success. Outsourcing is one of the business practices adopted by the firms that influence growth.

Outsourcing of logistics is defined as provision of a single or multiple logistics services by a

vendor on contract basis. Providers of these logistics services are generally referred as third

party logistics service providers.

Outsourcing of logistics function is a business dynamics of growing importance all over the

world. A growing awareness that competitive advantage comes from the delivery process as

much as from the product has been instrumental in upgrading logistics from its traditional

backroom function to a strategic boardroom function (Razzaque and Sheng, 1998). In order to

handle its logistics activities effectively and efficiently, a company may consider the following

options – it can provide the function in-house by making the service, or it can own logistics

subsidiaries through setting up or buying a logistics firm, or it can outsource the function and

buy the service. Currently, there has been a growing interest in the third option, i.e. outsourcing

of logistics functions to third party logistics service providers.

Third party logistics services are widely prevalent in North America (Lieb, 1992; Lieb and

Randall, 1996) and Europe (Lieb, Miller and Wassenhove, 1993) and have been examined in a

number of previous studies. Similar studies have focused on logistics issues in Bulgaria

(Bloomen and Petrov, 1994), South Africa (Cilliers and Nagel, 1994), Australia (Dapiran, Lieb,

Millen and Sohal, 1996), Korea (Kim, 1996), Asia Pacific (Millen and Sohal, 1996), Singapore

(Bhatnagar, Sohal and Millen, 1999), and Indochina (Goh and Ang, 2000). These countries have

availed large benefits of 3PL services over the last few years. However to date there has been no

comprehensive study reported in the literature that has focused on third party logistics services

in India. There are many isolated examples of individual organizations and their respective

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logistics capabilities. Hence, it was considered important to carry out a comprehensive survey

on 3PL practices in India.

The paper has been organized as follows. In the next two sections, we present a brief description

of the Indian transport environment followed by a review of the relevant segments of literature.

Subsequently, we outline the research methodology which is then followed by the results, based

on data analysis, from the survey. Finally, conclusions arising from this research are presented.

The Indian Transportation Environment

With a gross domestic product (GDP) of over US $475 billion, the Indian industry spends 14

percent of its GDP on logistics. The Indian logistics environment comprises road transport

companies, railways, air freight companies, inter-modal transport providers, ports and shipping

companies, as well as 3PL companies. Their performance is critically dependent on the state of

infrastructure – roads, railways, ports and airports.

Roads & Trucking: The Indian road network is second largest network in the world. At the

beginning of the first plan, India had about 4,00,000 kms of total road length out of which

1,57,000 kms was surfaced road. Today, India has a network of 4.86 million kilometre. Out of

this, more than half is surfaced. The National Highways which comprise less than 2 per cent of

total length of roads now encompass a road length of 92,851 kms. and carry more than 40

percent of the total road traffic. In order to connect all major cities by four-lane highways, a

new scheme called “Pradhanmantri Bharat Jodo Pariyojana” was started. Recognising that

rural connectivity is a key component of rural development and poverty alleviation in India, the

Government of India, undertook the Pradhan Mantri Gram Sadak Yojana (PMGSY). Rural

roads network now connects around 65 per cent all weather roads. Roads occupy a crucial

position in the transportation matrix of India as they carry nearly 65 per cent of freight and more

than 80 per cent of passenger traffic.

The National Highways Development Project (NHDP) which involves developing Golden

Quadrilateral (Mumbai, Delhi, Chennai and Kolkata), North-South and East-West corridors,

Port connectivity and other projects, PPP in roads developments and rationalisation of taxes etc.

During XI Plan, apart from completing NHDP I and II, work was started on, NHDP III, IV, V

and VI to ensure inter-regional connectivity of districts, converting single lane roads to two –

lanes roads, constructing expressways in high traffic corridors, etc. Twelfth Plan aims to

complete these projects and also work on State Highways and District roads to ensure full

connectivity. It also aims to connect the remaining rural habitations by constructing new roads

and upgrading existing roads.

Rail Transport: Indian Railways, is the fourth largest railway network in the world. It has been

contributing to the industrial and economic landscape for over 165 years. There are two main

segments of railways - freight and passenger. The freight segment accounts for about 70 per

cent of revenues and passengers thirty per cent of revenues. The total route length of railways is

about 65,400 kilometres. Out of which about 21 thousand kilometres. During 2012-13 it carried

more than 8400 million of passengers and more than 1 billion tonnes of freight traffic.

In order to meet the above challenges, railways is trying to improve resource management.

Rational price policy, increased wagon load, faster turnaround time, Public-Private Partnersips

(PPPs), double line freight corridor for efficient freight movements are some of the steps taken

in recent years to improve railway’s performance.

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During the Twelfth Plan, the railways focus would be on construction of six dedicated freight

corridors, segregation of freight and passengers lines, providing improved connectivity to

industry cluster and ports, creation of additional Capacity, modernization, and overall

improvement in productivity.

Airports & Air Cargo: Air transports is the preferred mode of transport especially for long

distance travel, business travel, accessing difficult terrains and for transporting high value and

perishable commodities. In the civil aviation sector, there are three parts – operational,

infrastructural and developmental. The first is the operational. There are 10 scheduled passenger

operators (three in public sector - Air India Ltd., Air India Charters Ltd. and Air Lines Allied

services and seven in private sector) and three cargo operators in the country with the combined

fleet size of 413 aircrafts. Indian Airlines and Air India were amalgamated with National

Aviation Company Ltd. (NACIL) with effect from November 2010, the name of National

Aviation Company Ltd., has been changed to Air India Ltd.

The private sector is now playing a crucial role in the development of both airline and airport

sector. Its market share in the domestic traffic during 2012 reached more than 82 per cent from

near 50 per cent share earlier.

Regarding infrastructural facilities, Airport Authority of India (AAI) is the main organization

managing 125 airports across the country. The Private sector by way of participating in public–

private partnership (PPP) has also been playing an important role in developing airport

infrastructure in India. During the Eleventh Plan, five international airport projects were

successfully completed through the PPP mode, viz. Greenfield development of Hyderabad and

Bengaluru international airports and modernisation of Kochi, Delhi and Mumbai international

airports. AAI is upgrading and modernising 35 non-metro airports in the country. AAI is also

enhancing air connectivity in the North-East by way of Greenfield airport at Sikkim.

Regarding regulatory cum developmental aspect, the Department of Civil Aviation,

Government of India, is responsible for it. International services are governed by bilateral

agreements. The Airport Economic Regulatory Authority (AERA) was established in the

Eleventh Plan to safeguard the interests of users and service providers at Indian airports.

Domestic passenger traffic handled at Indian airports reached 122 million during 2013-14 5 per

cent more than handled in the previous year. International passenger traffic was placed at about

46.6 million during 2013-14, registering a growth of 8.3 per cent over the last year.

Other Recent important developments in the airline and airport sector included: (i) liberalization

of FDI limit upto 100% through automatic route for setting up Greenfield airports; (ii) A Civil

Aviation Economic Advisory Council (CAEAC) was set up to look into the economic issues

facing the civil aviation sector. (iii) Liberalization of bilateral air services agreement in line with

the contemporary developments in international civil aviation sector; (iv) adoption of a limited

Open Sky Policy in international travel to meet the traffic demand during peak season; and (v)

adoption of trade facilitation measures in custom procedures to facilitate speedy clearance of air

cargo. (vi) For seamless navigation of civil aircrafts, a GPS-aided GEO augmented Navigation

(GAGAN) project is being implemented. (vii) The Domestic Air Transport Policy approved by

the government provides for foreign equity participation up to 49 per cent and investment by

non-resident Indians (NRIs) up to 100 per cent in the domestic air transport services. With a

view to attracting new technology and management expertise, government has permitted up to

49 per cent Foreign Direct Investment (FDI) by foreign airlines in Indian airline companies.

130

It is estimated that international and domestic passengers would increase by 12 and 8 percent

per annum respectively in the 12th plan. International and domestic cargo traffic is expected to

grow at the rate 12 and 10 percent per annum respectively in the Twelfth Plan. The Twelfth

Plan lays stress on increasing the airport and aircraft capacities and improving the airport

infrastructure in order cope with the increased demand placed on aviation sector.

Seaports & Shipping: Water transport can be divided into inland water transport and shipping.

Shipping can again be divided into coastal shipping and overseas shipping. India has about

14500 km of navigable waterways which comprise rivers, canals, backwaters creeks etc. About

50 million tonnes of cargo is being annually moved by inland water transport.

Over the years, the importance of this mode of transport has declined considerably due to

expansion of rail and road transport and navigational inadequacies. The government approved

the Inland Water Transport Policy which includes a number of incentives to encourage private

sector participation in inland water transport. Currently, there are five waterways which have

been declared as National Waterways (NWs). The Eleventh Plan aimed at making the existing

waterways fully operational and adding three more waterways to the NWs.

According to the Approach Paper to XII Plan, since the inland waterways provide a clean and

efficient mechanism for transportation of goods across regions where quite often road

movement may not be feasible or be more expensive, there is a need to develop this sector.

India has a long coastline of 7,517 kms, 12 major ports and over 200 minor ports and a vast

hinterland. Coastal shipping is very energy efficient and cheapest mode of transport for carrying

bulk goods (like iron and steel, iron-ore, coal, timber etc.) over long distances. However, there

had been a sharp decline in coastal shipping operations during 1960s and 1970s. The Gross

Tonnage (GT) fell from 0.31 million in 1961 to 0.25 million in 1980. However, there was an

improvement in the coastal shipping in 2001 as coastal tonnage rose to 0.70 million. There was

further improvement in the ensuing year as coastal tonnage increased to 0.80 million in 2003

and further to 1.08 million in 2013. The main factors for poor growth of coastal shipping have

been (1) high transportation costs (2) port delays (3) over-aged vessels (4) lack of mechanical

handling facilities (5) imbalance in coastal traffic movement and (6) slow handling of the cargo

at ports. These inflict heavy losses on shipping companies.

Almost 95 per cent of India’s global merchandise trade is carried through the sea route. India’s

overseas shipping has improved over the planning period. The country has one of the largest

merchant and shipping fleet among developing countries. As compared to .192 million Gross

Tonnage (GT) at the time of Independence shipping tonnage was about 10.3 million in 2013.

The fleet at the end of March 2013 was 1186 vessels (1 per cent of world fleet).

Since ports are very important for coastal and overseas shipping, special efforts have been made

in the Five Years Plans for the development and modernization of existing ports and

establishment of new ports. The total traffic carried by the major ports was about 555 million

tonnes during 2013-14. The 12 major ports carry about 57 per cent of the total traffic, with

Kandla as the top traffic handler in each of the last five years.

All the factors related to transport infrastructure stated above have adversely affected the

logistics network in the country - both in terms of lead-time and costs (Korgaonker, 1999).

However, a host of policy changes currently underway is expected to bring about a positive

change in the Indian transportation environment. This provides vast opportunities for companies

offering logistics services in the country and hence augurs good news for Indian organizations

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to reduce logistics costs by using third party logistics services for enhanced supply chain

efficiencies.

Literature Review

Outsourcing, third party logistics services (3PL) and contract logistics generally mean the same

thing (Lieb, Millen and Wassenhove, 1993). It involves the use of external companies to

perform logistics functions, which have traditionally been performed within an organization.

The functions performed by third party logistics service providers can encompass the entire

logistics process or select activities within that process.

A key rationale for outsourcing of logistics functions is the intensified globalization of

businesses. During the last two decades, globalization has emerged as a major force of shaping

business strategies, leading firms to develop products designed for a global market and to

source components globally (Cooper, 1993). This has led to more complex supply chains

requiring larger involvement of managers in logistics functions. Lack of specific knowledge of

customs, tax regulations and infrastructure of destination countries has forced firms to acquire

expertise of third party logistics service providers. As a result firms are concentrating their

energies on core activities and leaving the rest to specialist firms (Byrne, 1993; Foster and

Muller, 1990; Trunick, 1989).

An equally important development that is impacting the logistics industry is the increased

emphasis on supply chain management as a source of competitive advantage. In the last two

decades, the quest for time based competence led initially to a rapid adoption of new

manufacturing methods like just-in-time, flexible manufacturing systems, computer aided

manufacturing and so on by organizations. These methods have brought about significant

improvements in supply chain performance through their focus on compressed manufacturing

lead times and improved quality. However, further enhancements in supply chain performance

will necessitate speeding the flow of information on orders to upstream supply chain partners,

and expediting logistics activities like storage and delivery of materials or products through the

entire supply chain (Bhatnagar, Sohal and Millen, 1999). A recent research carried out on

supply chain management practices in India highlights that the opening of Indian economy and

globalization of businesses has been a key factor for the Indian industry to align supply chain

strategy with business strategy, streamline processes for supply chain integration and form

partnerships for minimizing inventories. Indian organizations are increasingly deploying supply

chain strategies for logistics improvements – to increase sales revenue, enhance profits, reduce

order to delivery cycle time and minimize inventories. (Sahay and Mohan, 2003).

Logistics is therefore emerging as a key frontier of competition in the future. Good logistics

performance requires a tradeoff between the need to reduce overall supply chain inventory and

lead times, while simultaneously capturing economies of scale and improving customer service

for enhanced business performance. Versatility of third party logistics service providers enables

them to maintain this trade-off by turning fixed costs into variable costs for companies using

their services (Trunick, 1989). The use of third party logistics service providers has gained

prominence in this context.

Empirical studies have tested the following factors in defining the extent of usage (Lieb, 1992;

Dapiran, Lieb, Millen and Sohal, 1996; Bhatnagar, Sohal and Millen, 1999):

• Length of experience with third party logistics firms

• Level of commitment to the usage of third party logistics services

• Percentage of the total logistics budget allocated to third party logistics service providers

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• Specific logistics services outsourced (warehouse management, shipment consolidation, fleet

management, order fulfillment, product returns, carrier selection, logistics information systems,

rate negotiation, product assembly, order processing, inventory replenishment, order picking,

inbound transportation, outbound transportation, labelling and packaging, distribution, custom

clearance and forwarding, import export management, customer service/support).

At the same time, studies indicate that firms outsource logistics functions for a variety of reasons.

Watson and Pitt (1989), Sheffi (1990), Foster and Muller (1990), and Bardi and Tracey (1991)

have suggested the following reasons for the growth of logistics outsourcing in America: need to

focus on core activities, better transportation solutions (e.g., consolidation), cost savings,

customized services, reducing inventory, penetrating markets, becoming more active in

international shipping, gaining the use of sophisticated technology, need for more professional

and better-equipped logistics services. Gooley (1992) added flexibility as another reason for

outsourcing based on his experience with European firms. By understanding the reasons for

outsourcing of logistics services, 3PL service providers can gain insight into the benefits sought

and provide focused services. A third party logistics service provider with experience, focus and

expertise is regarded as more competent, compared to those service providers who profess to be

"all things to any consumer" (Sink et al., 1996).

The research on supply chain management practices in India has identified that outsourcing of

logistics activities is growing in popularity for Indian organizations and there has been an

increase in the number of third party logistics providers over the last couple of years (Sahay and

Mohan, 2003). The major reasons cited for usage of 3PL services include – cost reduction (27

percent), strategic reasons (26 percent), process effectiveness (24 percent), and lack of internal

capability (11 percent).

Usage of third party logistics services is a strategic decision and hence it is necessary to perceive

and quantify the impact it has on business performance. The purpose of engaging in third party

relations is seldom cost reduction alone, but a combination of service improvements and efficient

operations (Larsen, 2000). Studies based on user firms indicate that the decision is worthwhile if

it has an impact on one or more factors depicted in Table I.

Table I: Impact of usage of 3PL services – Literature Review

Factor Identified by (Year)

Impact on Customer Satisfaction Gooley (1992); Lieb et al. (1993)

Impact on Logistics system performance Lieb et al. (1993); Dapiran et al. (1996); Bhatnagar

et al. (1999)

Reduction in capital investment in facilities Foster & Muller (1990); Richardson (1992, 1995)

Reduction in capital investment in equipment Fantasia (1993); Foster & Muller (1990);

Richardson (1992)

Reduction in investment in information technology Goldberg (1990); Sheffi (1990); Trunick (1992);

Fantasia (1993)

Impact on Employee morale Bowersox (1990); Dapiran et al. (1996)

Reduction in manpower cost Foster & Muller (1990); Richardson (1992, 1995)

Improvement on specific Logistics function

parameters

Minaham (1997); Mc Mullan (1996)

Improvement in inventory turnover rates Richardson (1990, 1995)

Improvement in on-time delivery Richardson (1995)

Increasing productivity Bradley (1995)

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Lieb et al. (1993), Dapiran et al. (1996), and Bhatnagar et al. (1999) have observed that the future

usage of third party logistics services is a function of the current level of satisfaction of the firm

with the logistics services provider. The authors have also explored the changes in the level and

the nature of outsourcing of logistics services by the user firms. All the above studies indicate

high levels of satisfaction with third party logistics services providers, which will translate in

increased outsourcing in the future. Typically, firms start with the outsourcing of few logistics

services, moving over to activities which have maximum impact on logistics performance and

then increase scope of usage of logistics services with perceived and quantifiable impact on

overall business performance.

The above studies provide a robust framework for the research methodology for analyzing the

third party logistics practices in India. The input variables to the research framework depict the

organization-specific characteristics, such as the extent of usage of third party logistics services,

the reasons for outsourcing and the impact of the usage of third party logistics services. The

output function of future usage of third party logistics services is influenced by the three input

variables.


To determine the usage of third party logistics practices in India, a mail survey was conducted

during 2002-03. The survey questionnaire was designed based on the studies carried out by Lieb

et al. (1993), Dapiran et al. (1996), Bhatnagar et al. (1999), Larrhoven et al. (2000) and Sahay et

al. (2002). The survey instrument focused on the following areas:

1. Importance of various logistics activities to organizations;

2. Extent of usage of services offered by third party logistics service providers for carrying

out specific logistics activities;

3. Reasons for outsourcing;

4. The impact of using third party logistics services on logistics performance, customer

satisfaction and employee morale;

5. The benefits of using third party logistics services on specific business objectives;

6. The overall satisfaction with third party logistics service providers; and

7. The future plans of current users of third party logistics services.

The respondents were requested to fill out the survey that best captured the current state of

logistics issues in the organization with emphasis on outsourcing. In addition to the questionnaire

survey and a number of personal visits to various organizations were carried out to get first-hand

information related to this field as well as cross-check on the responses received from the survey

participants.

The target population for this study was the organizations in Kutch involved in 3rd party logistics

services. The questionnaire together with the cover letter and a post-reply envelope were mailed

to these organizations addressed to the above executives. Within a month of sending out the

survey questionnaire 86 responses were received. Thereafter reminder telephone calls were made

to the remaining organizations that had not responded. As a result, 34 organizations responded

more in the next two weeks. It resulted in the final response rate of 120 or 24.0 percent of the

original sample of 500 organizations.

The response rate is in line with the previous studies conducted on third party logistics services in

North America, Europe, Australia and Singapore that were based on 131, 53, 84 and 126

responses respectively (Lieb et al., 1993; Dapiran et al., 1996; Bhatnagar et al,, 1999; Laarhoven

et al., 2000) resulting in response rate of 12.6 percent in Australia and 16.8 percent in Singapore.

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The response rate also compares well with the previous study conducted on Supply Chain

Management Practices in Indian industry that had a response rate of 156 organizations or 9.0

percent (Sahay et al., 2002). Finally, detailed data analysis was performed on the usable sample

size of 120 Indian organizations. Analysis of the data is presented in the following section.

Results & Analysis

Participants’ profile

The responding organizations represented a broad cross-section of the industry including

Engineering, Chemicals, FMCG, Retail, Automotive, Textiles, Metal, Pharmaceuticals, Trading,

and Telecom industries. However, majority of the respondents were from Automotive,

Engineering, Chemicals, Metals and FMCG (Table II).

Table II: Classification of Respondents by Industry

Industry Respondents Percentage

Engineering 36 30

Automobile 28 23.33

Others 20 16.67

Chemicals 8 6.67

Metals 6 5

FMCG 6 5

Textile/Clothing 5 4.17

Services 5 4.17

Telecommunication 4 3.33

transportation 2 1.66

Present extent of usage of Third Party Logistics

66 percent respondents indicated that their organizations use third party logistics services, while

34 percent do not currently outsource logistics functions to third party logistics service providers.

Of those organizations currently outsourcing logistics services, 84 percent indicated that their

firms employed the services of more than one logistics service provider. Furthermore 30 percent

of these have been using the services of third party logistics service providers for over 3 years.

Another 18 percent have been working with third party logistics service providers for 1-3 years.

This indicates a relatively low amount of experience with third party logistics service providers in

India as a result of which the concept of outsourcing logistics functions to third party logistics

service providers is still in its nascent stage in India. This is in contrast to studies conducted in

developed countries like North America, Europe, Australia and Singapore (Lieb et al., 1993;

Dapiran et al., 1996; Bhatnagar et al,, 1999).

Out of the total no of respondents, more than half the organizations have already outsourced

logistics activities such as Outbound Transportation (59.6%), Inbound Transportation (54.1%)

and Custom Clearing and Forwarding (52.5%). Other logistics activities that have been

outsourced by more than a fourth of the respondents are Import and Export Management (36.5%),

Outbound Warehousing (36.9%), Inbound Warehousing (34.5%), Labelling and Packing (27%),

Fleet Management & Consolidation (33.6%), Order Picking (29%) and Inventory Management

(28.5%) indicating that these are the more important services that are already being outsourced.

The logistics functions that are least outsourced include Marketing sales promotion,

Assembly/Installation, Selected Manufacturing and Customer Service/Support.

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To determine why organizations decide to outsource certain logistics functions, respondents were

asked to indicate the importance of the same set of logistics functions on a 5-point Likert scale,

with a score of 1 indicating “not important” and a score of 5 indicating “very important”. The

responses to importance rating and the extent of outsourcing of all logistics functions are

presented in Table III.

Table III: Importance Rating and Extent of Outsourcing of Logistics Activities

Logistics Activities Current

Outsourced

(%)

Importance Rating

Outsourcing

Organisations

Non-Outsourcing

Organisations

Customer Service/Support

Inventory Management

Rate Negotiation

Outbound Transportation

Distribution

Custom Clearing & Forwarding

Order Fulfilment

Selected Manufacturing

Order Picking

Outbound Warehousing

Labelling & Packaging

Import/Export Management

Inbound Transportation

Inbound Warehousing

Fleet Management & Consolidation

Marketing Sales Promotion

Order Processing

Assembly/Installation

Reverse Logistics

15.8

28.5

22.6

59.6

22.9

52.5

20.4

16.4

29.0

36.9

27.0

36.5

54.1

34.5

33.6

8.5

19.4

12.7

22.2

4.50

4.36

4.23

4.00

3.91

3.91

3.80

3.75

3.69

3.69

3.55

3.54

3.44

3.42

3.40

3.25

3.22

3.00

3.00

4.14

4.27

4.37

3.91

3.80

3.50

3.77

3.24

3.54

3.49

3.00

3.34

3.25

2.86

3.12

3.89

3.93

2.74

2.40

(** Importance rating on a 5 point Likert scale: 1 indicating “not important” and 5 indicating “very

important”)

Very clearly, outsourcing percentage is higher for organizations with importance ratings between

4.00 and 3.25, i.e. “moderately important”. Organizations are still not open to increased

outsourcing of either “very important” or “less important” logistics activities.46.7 percent of

organizations in India use 3PL providers to perform both domestic and international operations.

The other 44.4 percent use such services for domestic operations only and 8.9 per cent use these

for international operations only.

Besides, the respondents were also asked to quantify the percentage improvement on financial

indicators – improvement in sale revenues, working capital improvement, capital asset reduction,

production cost reduction, labour cost reduction, return on asset improvement, logistics cost

reduction – because of the usage of 3PL services. User organizations have cited substantial

financial improvements as shown in Table IV. The financial improvements tie well with the focus

on logistics cost reduction as the primary reason for using 3PL services.

Table IV: Financial Improvements

Financial Indicator % Improvement

Improvement in sales revenue

Working capital improvement

Capital asset reduction

Production cost reduction

13.5

12.3

9.2

10.5

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Labour cost reduction

Return on Assets improvement

Logistics cost reduction

10.0

10.0

15.0

Influence of Key Success Factors on Financial Performance (revenue growth)

Inter-firm analysis model uses revenue growth matrices that are associated with key success

factors such as breadth of services, industry focus, relationship with 3PLs, investment

information systems, skilled logistics professionals and supply chain integration which had been

considered by most of the researchers. The objective here is to identify Indian 3PL service

provider firm’s key success factors that significantly influence financial performance.

The data collected from the questionnaires is assessed in terms of the responses from 3PL service

providers. For the purpose of analysis, the responses are aggregated to reflect overall assessment.

It is important to remember that responses are from the provider’s perspective only and any

response from the client has not been included. 3PL service provider firms are classified into

small and large firms in terms of annual revenue. Multivariate regression analysis is performed to

map financial performance metrics with key success factors.

Key Success Factors and Performance

Several key success factors have been proposed in the 3PL literature to influence performance.

Long term relationships and building a history of favourable experiences is one such example of a

key success factor (LaLonde and Cooper, 1989). The benefits of deeper relationships with

customers that it helps the 3PL service provider firm to build a broader range of service offerings,

gain knowledge, and obtain access to new markets (Cho et al 2008). Another key success factor is

the use of information systems to manage inventory and customer order fulfilment (Golop and

Reagan, 2001). The use of information systems also helps in monitoring and evaluating the 3PL

service provider progress towards a long lasting relationship (Qureshi et al. 2008). IT with respect

to logistics function also facilitates activities such as order fulfilment, information systems

tracking, fleet planning and asset management (Wu and Chou 2007). Bardhan et al. studied that

investments in IT systems would enhance logistics performance. Large-size logistics companies

wuld probably invest in information systems more in order to obtain competitive edge and to take

the lead in the global supply chain network (Sauvage 2003). Previous studies indicate that better

information systems have improved profitability of logistics firms (Stank et al. 1999). The

previous research on 3PL service providers have selected financial metrics such as revenue

growth (Piplani et al. 2004) to be the focus of the influence of the key success factors.

Based on the above discussion, the following hypotheses are developed to relate key success

factors and financial performance measure as revenue growth.

H1: The key success factor of breadth of services is positively related to revenue growth.

H2: The key success factor of industry focus is positively related to revenue growth.

H3: The key success factor of relationship with 3PLs is positively related to revenue growth.

H4: The key success factor of investment in information systems is positively related to revenue

growth.

H5: The key success factor of skilled logistics professionals is positively related to revenue

growth.

H6: The key success factor of supply chain integration is positively related to revenue growth.

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Table V: Summary of results for all respondents

Independent Variables B Value t – value Hypothesis

Revenue Growth as Criteria Variable (H1 to H6) Adjusted R2 = 0.12

Breadth of Services 0.23 1.692** H1 is Supported.

Industry Focus -0.04 -0.27 H2 is not Supported.

Relation with 3PL 0.15 1.13 H3 is not Supported.

Investment in Information Systems 0.19 1.645 H4 is not Supported.

Skilled Logistics Professional -0.03 -0.33 H5 is not Supported.

Supply Chain Integration 0.05 0.54 H6 is not Supported.

The results show that the breadth of services was positively correlated with revenue growth and

the hypothesis is supported. For other factors, the analysis showed that there was no positive

correlation with revenue growth.

Conclusion

Changing business environment has pushed organizations in India to concentrate on their core

activities and offload a host of logistics functions to experts in the field. Globally, the range of

effective logistics outsourcing includes, apart from transportation, warehousing and custom

clearance a whole range of other activities such as freight bill payments, auditing, contract

manufacturing and assembly operations, packaging and labelling, freight consolidation to name a

few. The practices in Indian industry reveal that:

• Warehousing, inbound and outbound transportation, custom clearing and forwarding are the

most frequently outsourced activities.

• Activities such as packaging, fleet management and consolidation are gaining attention and

growing in popularity.

• More and more companies are planning to use 3PL services in the future as an integrated set of

services rather than for just movement of material.

• The motivation for doing so comes due to the benefits of logistics cost reduction, ability to

focus on the core business, and improving supply chain efficiency.

Though the usage of 3PL services reveals positive and significant impact on business

performance, third party logistics practices are still at a nascent stage in Kutch. 55% of companies

subscribe to 3PL services as compared to 75% globally and these seem to be more of

transportation and warehousing related activities. Organizations will increase the usage of 3PL

services in traditional logistics activities and increase the scope of outsourcing based on the

overall satisfaction and the impact on business objectives – logistics system performance,

customer satisfaction and employee morale. These indicators should help the 3PL service

providers plan the depth and scope of their service offerings in India. They clearly highlight the

importance of delivering results that impact the business objectives in order to increase

outsourcing opportunities for Indian organizations.

It is evident that usage of 3PL services can help organization’s achieve substantial results, both in

terms of customer satisfaction and logistics cost reduction. This will form the cornerstone for

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increase in outsourcing of logistics functions in the near and long-term future by present and

prospective users for improved business results and supply chain efficiencies.

References

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140

The importance of Information & Communication Technology (ICT)

in various Port Operations

Vasudev Modi

Assistant Professor, B K School of Business Management, Ahmedabad

Nehal Shah Assistant Professor, Gandhinagar Institute of Technology, Gandhinagar

Abstract

____________________________________________________________________________

Information technology has become an essential part of the rapid and accurate transfer and processing of

enormous volumes of data processed in international transport firms and port organizations. The proper

management of systems, which process this information and communicate it to those who manage port

operations, is vital for efficient transport. This explains why container-tracking systems are given high

priority among operational computer applications in ports. This paper investigates the importance of

information technology and its role in improving the operational systems in cargo handling.

Keywords: Information Technology, Ports, Supply-Chain Management, Logistics, RFID.

________________________________________________________________________

Introduction

A survey of seafarers conducted during the Rochdale Committee of Inquiry into Shipping

showed that 66% of all seafarers switch between companies while 32% remain with the first

company they joined, indicating a very high level of human mobility in the shipping industry.

Accompanying the high inter-company mobility is the high cross-sectoral movement of

personnel, which has been termed as ‘wastage’; it is called so as this personnel movement has

been a one-way direction, therefore a loss to the shipping industry.

Previous research indicated that an average time span of shipping officers’ active seafaring

career was 7 years. Recent reports in China recorded a 60% of attrition of graduates in a period

of 5 years after they joined the shipping industry. In addition, there has been difficulty in

attracting personnel into the industry for various reasons. Conventional teaching from human

resource management cannot effectively solve the problem of high turnover in the shipping

industry not only due to the high costs involved in retaining a leaving personnel, but also the

initial motives of leaving being irrelevant to any retention incentives. The battle for retaining

expertise and skills has gone for years with little success.

The last 10 years have seen a technological revolution that has offered solutions that make

logistics and Supply Chain Management (SCM) even more streamlined and efficient than it has

ever been. One key component of SCM is Information and Communication Technology (ICT)

since “no product flows until information flows”. The need to serve customers in a flexible and

speedy manner has forced manufacturers and distributors to effectively exploit ICT, by creating

“global nervous systems” that link a continuous flow of supply and demand information

between suppliers and customers (Edwards, Peters and Sharman, 2001). This has raised the

level of information intensity in logistics and SCM services.

In this context, ICT developments have increasingly influenced the transport and logistics

services market, shifting the focus from a physical to a more electronic one and giving rise to

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new organizational forms for these services. As a result, growth in the volume of electronic

communication along the supply chain is expected to double by 2005. For example, electronic

exchanges of transport documentation, invoices, order instructions and payments are forecast to

grow by 59% (Trilog, 1999). This has led to an increasing interest in assessing the effects of

ICT on the transport and logistics service industry.

Fig 1: Indicative timeline of ICT applications in Maritime management

Various ICT in Port Operations:

IT in Supply Chain Management (SCM):

Supply-chain management can be defined as:

All processes concerned with the enhancement of movement and handling of goods from point

of production (supply) to point of consumption (demand).

Supply-chain management is a process responsible for development and management of the

total supply system of a firm, both the internal and the external components (Burt, 1996).

During the past two decades, the maritime industry has witnessed the evolution of one of the

most important trends in the history of port community ± the increasingly sophisticated use of

computers. Although these devices and electronic commerce have found applications in

port/transport industry, the business sector is a major beneficiary (Burt, 1996).

Electronic commerce (EC) may be defined as the use of technology to facilitate the exchange of

information in commercial transactions among enterprises and individuals, enhancing growth

and profitability across the supply chain (Heffernan, 1998). Based on the estimates produced by

the US Government, the global free market of information technology and telecommunications

via Internet is doubling every 100 days by individuals and businesses (Phillips, 1999). As a

transaction payment method and delivery medium, the cost-effectiveness of the Internet and EC

is now disputable. In Australia, approximately 1.5 million organizations and individuals have

access to the Internet; of those, approximately 250,000 are business related. The worldwide

volume of EC conducted over the Internet and its derivatives is expected to reach US$300

billion a year by the early part of the next decade. It is in the business-to-business application of

EC that the Internet is beginning to transform the global supply chains of international trade. In

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international transportation and logistics services, the already vigorous growth in the volume of

global trade is likely to be further accelerated as EC facilitates new connections of buyers and

suppliers. In the Australian maritime industry, terminal operators and port/transport industry

intend to develop a longer-term approach to EC to improve the efficiency of operations, aiming

to enhance the competence of their existing operational system (Cox, 1999).

Given the complexity of the supply chain, with multiple participants, there is ample opportunity

to increase efficiency and reduce costs by EC, which enables integration of the increasingly

tighter links in the supply chain. The efficient usage of EC in shipping and cargo distribution

could provide:

Transportation management, including optimizing the choice of carriers based on

service requirements and freight rates;

Logistics management, including the tracking of containers from the port of origin to

the port of unloading in Australia, on the rail track and between origin and the final

destination and flexible routing, storage and distribution as necessary;

Trade and transportation documentation, including the electronic development and

transfer of shipping documents, customs clearance and other regulatory requirements;

International trade finance; and Insurance.

Data transmission in the port terminal To shorten time spent by vessels in the terminal requires that special emphasis be placed on

receiving details of containers (e.g. shipment, physical location) prior to the arrival of the vessel

to reduce the US$45,000/day (£30,000) stay of a third generation of containership or

US$65,000 (£42,000) of a large vessel at port. Hence, the development of containerization is

accompanied by the application of computerized tele-transmission of manifest and stowage plan

details from the port of loading to the port of discharge. Transmitted data are used to plan

discharging operations, as well as to print required report documentation. For a container

terminal equipped, for example, with ship-to-rail technique, accurate and current information on

all container operations is vital. A properly-designed, computerized container control system

increases the operating efficiency of the terminal. However, the main benefits provided by such

a system are the following:

faster discharging and loading of containers;

increased productivity through faster turnaround of containers; better monitoring of the

storage of containers (leading to increases in stacking area's capacity);

high level of accuracy of information; and

high level of consistency of the information given to various parties in the chain of

transport.

Depending on the number of containers handled, three types of data processing systems are also

required in port terminals: off-line central system, online multi-point system and online

multipoint system with direct telecommunication to yard mobile equipment.

The first type records the container movements centrally, usually in the operation centre of the

terminal, i.e. the point of loading on train, the length of transportation and the terminal that the

containers are to be unloaded. Basically, the information is recorded in the computer system

rather than using the old methods of board or card file system. One of the advantages of such a

system over a manual one is that data can be automatically validated during data entry.

The second type consists of a multipoint system giving direct access to the computer from the

points where movements of containers take place (e.g. portto- inland depots). This system

provides updated information on the status of the train/truck such as travelling time, departure

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time and the time of arrival at destination. This is the area that provides necessary information

to the freight forwarders.

The third type offers the possibility for communication of yard operations via computer,

particularly between the operator of the crane and container management personnel. The cabin

of the crane operator is equipped with visual display units (VDU) and simplified keyboards.

The driver receives on the VDU an order to move a container. Confirmation of the execution of

the order on the keyboard causes automatic updating of the container layout. This solution

makes it possible to follow container movements very closely and also facilitates execution of

loading or discharging operations. The above data process systems are currently in place in

several US (e.g. Long Beach), European (e.g. Rotterdam) and Asian (e.g. Singapore) ports.

Electronic devices in container terminals Providing reliable service to the interacting elements of the transportation chain is a major

objective of any container terminal. Within a port community, the effective flow of information

is considered to be an important variable. For example, in an eight-berth terminal where eight

ships are berthed for loading/ unloading some 6,000 containers simultaneously, a highly

sophisticated information technology is required to provide reliable and timely information for

hundreds of people within the port/transport community. Among them are freight forwarders,

transport companies, rail operators, crane operators and container carriers in terminals. To carry

out an effective data management, appropriate electronic devices must be used. However,

despite the fact that several devices are available in the market, they are not employed in every

container terminal. Whilst they can operate as individual devices in ports and outside terminals

(e.g. rail track), they should be integrated to the port and transport network communications via

a computer system. Only a few international ports have taken maximum advantages of the

existing devices to improve their operational efficiency, minimize terminal congestion and

establish a fully integrated system (World Cargo News, 1997). A brief description of the

following devices aims to explain their importance in container tracking, recording, movements

and segregation of imported/exported containers.

Microwave Technology Automated container identification procedures are in the stage of research and development,

conducted collaboratively by the shipping operators (World cargo News, 1997). At present,

material handling systems are generally manually operated. One of the few US terminals (e.g.

Long Beach, Los Angeles) has gone beyond the experimental stage of advancing the state of

practice of material handling. Some have employed computer process control to minimize crane

travel time from ship's hull to the quay. Microwave technology is simply employed to track the

placing and pick-up of containers by recording relevant data on tags installed on the containers.

In ship-to-rail direct loading at the terminal, for example, this method would reduce the crane's

waiting time when the spreader is in the ship's hull. This is the area in which significant ship's

time including human resources can be saved or wasted and the performance of port terminals is

appraised.

The system is called “prime mover tracking system'' (PMTS) which enables the terminal

supervisor to track the unloaded containers at any time while containers are in the terminal. The

PMTS enables the operator to track the containers and feed back the location of the containers

to the central information system where data can be checked. Any difference between the

commanded and the actual slot can be readily spotted when the operator activates the twist lock

(four connecting points on the four corners of the container and the spreader of the crane).

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As the container comes off the ship, its identification number is read and stored in a computer,

PC. When the container is loaded on to the terminal trailer, the ID number is written into a re-

writable tag that is then mounted on the terminal tractor. In the absence of totally reliable,

automatic PMTS, it is assumed that the ID data are input manually to the PC by a checker. The

container ID data are transmitted by wire to a tag-writer installed on the leg of the container

crane and then transmitted to the tag. In this system, no fiber optical or other links between the

PC and the tag-writer are required. The tag also contains fixed information identifying the tag

itself. When the container carrier arrives at the stacking area, the tag is read by a tag-reader

installed on the leg of the yard crane, connected to a computer on the cabin of the crane. The

actuation of the spreader twist-locks signals the on-board computer to interrogate the tag reader.

The trolley of the yard crane is then driven to the desired slot. The position of the trolley can be

obtained from the PMTS that is accurate to less than one meter. The on-board computer uses its

stored image of the stacking area to identify where the container has been placed. The data are

transmitted via a radio data link to the central information system and stored in a database. In

principle, the tag could also be mounted on the equipment such as straddle carriers, forklifts,

stackers and intermodal rail wagons. This system facilitates the identification of containers on

the train. The PMTS workstation is connected to the reference station with an integrated data

transceiver. The workstation is a Pentium PC that interrogates the position data from the

container carriers, stores the data, together with heading and speed and provides indications of

status and errors. As stated above, the PMTS is a new innovation in facilitating the container

handling particularly where the large number of containers should be stacked in terminal. The

maximum advantages of the system can be realized where the container handling is carried out

by RTG (rubber-tired gantry) capable of stacking up to eight containers high and nine

containers wide.

Tagging technology in transportation of cargo by rail Recent advances in microwave technology include a tag that allows data read or write. The tag

can contain up to 4,000 characters of data that can be updated by radio signals broadcaster

installed in the terminal or alongside of the train track (e.g. automated wagonload operations on

the New Zealand railway system). The tags can be read while the train is moving at up to

110km/hr. This system must be modified when the fast freight trains (160km/hr operate in

Japan and Germany) are used for freight transportation. The antenna used in this system creates

an inductive radio frequency field to activate and receive data from tags. It contains a transmit-

coil with associated tuning and matching components, and a receive-coil. When a consignment

is loaded on the train, the computer will be able to provide relevant information on content of

containers loaded on the train, wagons and destinations. Information is then passed to the yard

staff. Based on this information, a work order is passed to the crew of the train. As the train

leaves the yard, automated vehicle identification (AVI) reader reads the tags on each wagon and

sends a message to the central computer to compare the manifest with information in the central

computer. At the same time, the wagons are weighted to check for load discrepancies. Both sets

of data are then sent ahead of the train to the next stop so that the freight forwarders can be

advised of arrival.

Barcode Scanner A barcode scanner would help the customs decide whether physical inspection of containers is

required particularly when several vessels unload thousands of containers simultaneously.

Barcode and optical character recognition are basically two automatic identification systems.

They are environmentally sensitive and application restrictive. The scanner is easy to use where

the ambient light environment in the container terminal is high. A barcode is ideal, especially

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for shipping manifests and outer packing cases or other exposed surfaces. This system is

capable of providing prompt information required by customs when vessels are at berth. It

operates most effectively in a controlled environment particularly when relatively small

amounts of data need to be captured. A barcode scanner is a wireless scanning technology that

communicates with the host computer. In the rough environment of a port terminal where the

visibility of the straddle carrier operator is minimal (due to the size of the carrier and the

position of the driver-approximately 6m above the ground), this wireless system provides

effective services to most terminal operators and operational systems.

Radio Frequency Microcircuit System (RF) The system was developed to identify the containers when traffic at terminals reaches the peak.

It is not easy to check and control the traffic at a terminal where thousands of containers are

stacked and hundreds of containers are on the move. Container carriers deliver the stacked

imported containers to the quay area and the newly unloaded containers occupy their slots. The

system is ideally suited for operation in a harsh and outdoor environment. Nonconductive

materials such as grime, snow and rain that intrude between the interrogator and transponder do

not appear to affect operation of the system.

The system consists of the reader or antenna (that is buried in the pavement of the terminal to

keep it free from vandalism, accident and weather) transponders (tags), an interrogator and

computer interface tag. RF system offers high-speed and remote electronic identification of

equipment. The heart of the system is the tag, powered either by a battery or by an RF beam

from the antenna. Each tag can have a unique code that is related to the object to which the

transponder is attached. The electronic components of the transponders are enclosed in rugged

packages that may be as small as a credit card. One application for RF systems is in monitoring

the movement of containers and their status in the terminal. This is the area that assists the

terminal operator to produce prompt reports for importers/exporters and other relevant agencies.

The system can also track containers entering and leaving the terminal through the gate or as

they pass the scanning points in the yard.

Voice recognition technology Voice recognition technology (VRT) provides communications between the crane operator and

the ground personnel. This system could be used standalone or it can be integrated with other

technologies in communications between the crane operator and on quay personnel during

loading and unloading of a vessel.

Voice systems use pattern recognition similar to that in barcode systems. Instead of an image,

the computer recognizes words in a pre-programmed vocabulary. When it is activated, crane

operators speak into a microphone; the machine recognizes words or phrases and then converts

them into electronic impulses for the micro- or host computer. The high-performance units

operate at an accuracy rate of 99.5 per cent. One of the advantages of the system is message

recording. This would assist the terminal operator in providing the final report on the position of

containers loaded on to the ship. When properly integrated, the system can assist in the

automatic capture and processing of marine terminal data.

Figure 2 loosely illustrates the links between the above devices and port components where the

central computer integrates the entire system. In the following section, we will simulate the

effect of utilizing some of these devices by comparing two port operational systems, a

traditional system versus alternative case where devices are employed.

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Fig 2: Electronic devices in port terminals

Satellite communications Getting data from ship to shore and back is still no mean feat, even after a century of doing it.

Several years ago, satellite services for vessels at sea were relatively difficult to come by,

because satellite operators did not always see the value in the prevailing business model.

Vessels would often have to rely on spill-over services from satellite beams designed for land-

based services. Things have changed. There are two broad service categories for maritime:

Mobile Satellite Services (MSS) and Very Small Aperture Terminals (VSAT).

MSS is offered by the likes of Inmarsat and Iridium, and offer volume-based charging. Their

bandwidth is relatively constrained, at maximums of around half a Mb/s. Their advantages are

ease of installation and, in Iridium's case, coverage all the way to the poles (which may well be

useful as summer ice continues to melt, and the North-West Passage opens up new

opportunities for commercial shipping).

Whereas MSS terminals are typically mobile, VSAT requires the installation of more permanent

equipment. The installation costs are higher generally, but it does provide always-on

connectivity designed to encourage more constant use, rather than the piecemeal

communications typical of MSS. It also offers more bandwidth, extending up to 4Mb/s. For

vessels that restrict communications to the bare essentials, MSS can prove a cheaper option.

However, for vessels with heavier communications needs, such as cruise ships, or oil and gas

rigs, VSAT is often preferable.

VSAT is purchased for a variety of reasons, depending on the nature of the vessel. Crew welfare

is a particularly important issue. Sourcing crew has been a chronic problem for logistics,

fishing, and other vessel types. Providing the facility to call home, exchange email, or even

check social media websites, can help to attract crew members to uncomfortable - and

sometimes dangerous - employment at sea.

Cruise ships are also in a position to profit from the use of VSAT, because they can offer it as a

value-added service for customers; and they can offer it internally to third-party retailers

installed on the ship who need to resolve credit card transactions. "Hopefully cruisers are

making money on it," says Disant, "but fishermen, transport logistic, 'yachties', and other sea

workers have to bear the integral cost."

147

Radar Marine radar systems now offer far more than the glowing green circular displays of yesteryear.

The marine radar displays built into integrated bridge systems will show a variety of data inputs,

including radar, sonar, weather, and satellite imagery. The systems required to collate and

display this data require relatively high levels of computing power. Some can run on Microsoft

Windows-based PCs - not always to their operators' liking. "You have some people on the water

that have been trying to avoid computers for years," reports Disant, "and now they have to deal

with it."

Radar is changing again. International Maritime Organization (IMO) radar performance

standard MSC 192(79) imposed new performance standards for ship-borne radar for all radar

equipment installed after'1'July 2008. These requirements included improved target detection in

rain and sea 'clutter'. Solid-state (broadband) radar is starting to be adopted to enable vessels to

'see' better. This radar technology abandons the magnetrons used by traditional radar, which

send out a powerful microwave signal and then switch their internal circuitry to detect it

bouncing back. Instead, solid-state radar uses two amplifiers, one of which is constantly sending

and the other constantly listening. The advantages of solid-state radar include smaller target

detection, especially at close range, as magnetron-based radar is often relatively blind to close-

range targets.

In a marine environment, this capability can be particularly advantageous. Not only does it

make navigation easier in dark conditions and poor weather, but it can also help to detect

possible piratical vessels. Pirate craft are often very small and low to the sea, making them hard

for conventional radar to spot: solid-state radar has a much better chance of providing an early

warning.

Crew Management The management of crew on-board vessels has become more stringent in recent years. In 2006,

the International Labor Organization (ILO) passed the Maritime Labor Convention that asserted

strict working conditions for people working at sea. "It has becoming more critical for operators

to show that they're compliant with the rules. It can't just be a handwritten time sheet. It has to

be a [computerized] system," says Dan Endersby, VP Global Business at shipping software

services company C-MAR Group. "There are lots more red tapes."

This administration must be conducted on any vessel trading internationally and weighing over

500 tones. Typically, crew-management systems will use a central server that collects data from

computers around the vessel. The captain manages work and rest hours, and to maintain the

conditions for vessel certification. This data is also being replicated far more with on-shore

systems, typically via VSAT links.

Vessel Monitoring These days there can be hundreds of sensors on an ocean-going vessel, including everything

from the various parts of the engine through to the gyro, and the weather data. A lot of this

information is collected and documented in the standard black box voice and data recorder,

which is heavily sealed and fireproofed, and designed to be collected in the event of a ship

sinking.

Accident investigators are already hunting for this following the most recent Genoa disaster this

week. All of this data must be collected, and it is often done so using antiquated, pre-TCP/IP

148

standards. Although now other systems (such as IP cameras) are starting to be introduced that

make it easier to communicate information around the ship.

As more sensors are placed aboard vessels and used to keep track of conditions, ship-to-shore

communications are becoming increasingly important. Data is increasingly being collected and

transmitted back to the manufacturer for shore side analysis, as more computing power and

expertise is available there. The manufacturer can then contact the crew, to indicate whether the

equipment needs any maintenance or reconfiguration. "You could say that the crew has taken on

a more supervisory role in understanding how the data is being collected and transmitted," says

Endersby. "Crews have become a lot savvier in their knowledge of data collection instead of

just being mechanical engineers taking an engine apart." Some vessels have highly sophisticated

monitoring technologies. The Maltese Falcon is a yacht built for venture capitalist Tom Perkins

that features a unique mast system called DynaRig. Fiber-optic cables have been embedded into

the carbon fiber masts for strain monitoring purposes. Data from the cables indicating how

much strain they are under is transmitted to a computer system on the bridge so that the captain

can keep tabs on the mast load.

The pace of ICT development in the marine sector will be limited by the willingness of

conservative users to deploy it, and by the business model. After all, even the most exciting

technological developments need a return on investment. The UK government is helping,

though. The UK's Technology Strategy Board is investing '8m in a competition for projects that

will enhance the efficiency of maritime vessels. ICT is a key part of that project.

Conclusion

The advancement of information technology provides a wide range of options for the container

terminal operator to automate its information system. Electronic devices employed in container

terminals reduced the manual effort and paper flow, facilitated timely information flow and

enhanced control and quality of service and decision made. The use of computer simulation has

become a standard approach for evaluating design of complex cargo handling facilities. It

enabled us to investigate the behaviour of two different operational systems leading to

significant savings derived from the implementation of electronic devices in port terminals. The

information technology, including the Internet, is facilitating the exchange of information in

commercial transactions among enterprises and individuals, and enhancing growth and

profitability across the supply chain & overall maritime management.

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150

Bottlenecks to the Chemical Industry due to inadequate Port &

Logistics Infrastructure in Gujarat State

Gopal Desai

Research Scholar, Gujarat University

Manish Gupta

Student, MBA Maritime Management. Gujarat University

Abstract

___________________________________________________________________________

Port led development is the key to industrial growth for any country. In the current scenario of global

competitive market, it is going to be much more necessary for industry to setup manufacturing base near

to the port infrastructure. As the cost of handling and logistics are increasing day by day, port and

logistics infrastructure would be making the key difference in offering global competitiveness to the

industries in the hinterland.

Chemical industry in Gujarat is widely developed and contributing significantly in the EXIM trade.

Though apparently it seems that the industry is having adequate Infrastructure advantage in terms of

storage and handling at ports, however the industry is facing bottlenecks in delivering the products and

services in the domestic and international market. The research paper is aimed at studying the gaps and

finding out the infrastructure bottlenecks that are hindering the growth for the chemical industry.

The research was conducted mostly from secondary sources with very limited primary survey. The key

findings suggest that existing infrastructure at the ports of Gujarat should be upgraded in terms of

providing dedicated berths for chemical cargo, Berthing and handling facilities for large size tanker

vessels, speedy evacuation, efficient material handling systems, and well maintained high speed road

facilities.

Keywords: Chemical, Logistics, Port Management

_______________________________________________________________________

1. Introduction

1.1 Need for the study

The Chemical Industry is one of the most important sectors world over which contributes

significantly in the day to day life of human beings and also modern developments today. The

Chemical Industry comprises of manufacturing and distribution of various Petrochemicals,

Inorganic Chemicals, Organic Chemicals, Fertilizers, Dyes and Dyes Intermediates, Paints &

Colours, Bulk Drugs and Speciality Chemicals. India, though not supplier of sizable chemical

volumes, is one of the important players in the global markets of Chemicals. Gujarat,

Maharashtra, Tamil Nadu are some of the major manufacturing hubs of various chemicals in

India. Gujarat being the leader in Chemical Industry contributes significantly in terms of

Manufacturing and Exports of various chemicals including Petrochemicals, Inorganic

Chemicals, Organic Chemicals and Speciality Chemicals over the past few decades.

Gujarat is also one of the most aggressive states in Port led developments in India having 41

number of non-major ports and 1 Major Port. Gujarat Maritime Board (GMB) was created in

1982 under the Gujarat Maritime Board Act, 1981, to manage, control and administer the non-

major (minor) ports of Gujarat. GMB planned for the integrated development of new ports,

151

along with the required road and rail links. It has also played important role in developing and

privatizing port services as well as facilitating private and captive jetties. GMB also came out

with many policies such as BOOT Policy, Captive Jetty Expansion Policy and New

Shipbuilding Policy to promote port led development in the State. Large Investment Projects

such as Special Investment Regions (SIRs), Delhi-Mumbai Industrial Corridor (DMIC),

Petroleum, Chemicals and Petrochemicals Investment Region (PCPIR) and Dholera Special

Investment Region (DSIR) in the State are further going to enhance close linkages between the

port led developments and the Industry.

Gujarat’s port led development has contributed to the growth of Chemical Industry in the state.

Both the Chemical Industry and the Port sector developments go hand-in hand in fulfilling the

complementary requirements of the respective industry. However, there seems to be some gap

in terms of the development of port, maritime and logistics infrastructures including

connectivity issues which could have possible impacts on further growth of the chemical

industry in the State. The Research Paper is all about identifying these gaps in Port, Maritime &

Logistics Infrastructure Developments that are creating bottlenecks on further growth of the

Chemical Industry in the State of Gujarat.

1.2 Aim and objectives of the research

Traditionally, Sea route is more preferred in transporting the materials from one country to the

other. The state of Gujarat is well connected with all other states in India. Gujarat has 1600 Km

long coastline and provides excellent coastal connectivity to the Southern States of

Maharashtra, Goa, Karnataka and Kerala. Besides, Gujarat is well connected though rail and

road to Northern & Central India including the states of Uttar Pradesh, Delhi, Haryana, Punjab,

Bihar, Madhya Pradesh, Rajasthan, etc. which contributes significant volume of the total

exports of India.

The cost of transportation in recent times has been going up. Moreover, the material handling

and cargo evacuation from the ports is directly affecting the cost of raw materials and the

finished products. Effective and efficient transportation and cargo handling is absolutely

required for the cost competitiveness of the industry at the present times. Modes of

transportation such as Road, Railways are now under a lot of pressure and this has led to the

findings of the more cost economical routes of handling &transportation. This is the need of the

hour and every industry has to go for it to sustain in the market for competitiveness.

The objective of the study is to identify the bottlenecks for Chemical Industry due to inadequate

and insufficient port, maritime and logistic infrastructure in Gujarat. The study also aims at

finding possible practical solutions to these bottlenecks to remove the hindrances for further

growth of the chemical industry of the state. The objective of the study is also to extend further

to identify the possible remedial measures in the maritime and logistics infrastructure including

efficient cargo handling and movements.

1.3 Research Methodology

The scope of the Research includes the study of existing port, maritime and logistics

infrastructure prevailing for handling various commodities in the state. The chemical industry

base of the Gujarat state is assessed for the movements of various raw materials and finished

products across different locations. The Research has been carried out mainly based on

secondary sources followed by limited primary research. The research subject is vast and needs

elaborate study of various factors affecting the trade, however the approach was to find out

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bottlenecks at the broader level with very limited and quick findings from interaction with

industry experts and some of the secondary data sources.

2. Chemical Industry scenario in India & Gujarat

India is the 8th largest producer of chemicals & petrochemicals worldwide and 3rd largest in

Asia. India is the 4th largest global producers of Agrochemicals and also accounts for about

16% of the overall production of dyes & dyes intermediates worldwide. The Indian chemical

industry is most diversified and covering 70000 commercial products. Total production of the

Indian chemical industry was about 19.3 MMT in 2013-14 and about 21.2 MMT in the year

2014-15. The estimated size of Indian chemical market is USD 144 Bn. The chemical industry

accounts for about 2.12% of India’s GDP.

The chemical industry in India is fragmented industry with high level of domestic demand. The

key segments in Indian Chemical Industry are Basic Chemicals, Speciality Chemicals,

Pharmaceuticals, Agrochemicals and Biotechnology Products. The Basic Chemicals includes

Petrochemicals, Inorganic Chemicals, Organic Chemicals, Industrial Gases, Fertilizers and

Chloro-Alkali Products. The specility chemical includes Dyes & Dyes Intermediates, Pigments,

Leather Chemicals, Construction Chemicals, Personal Care Chemicals & others. The

Pharmaceutical segments mainly include manufacturing of Active Pharmaceutical Ingredients

(APIs) and various Formulations. The Biotechnology segment includes manufacturing of Bio-

pharma, Bio-Industrial Products and Bio-pesticides. The agro chemical includes manufacturing

of Fertilizers, Pesticides, Herbicides, Fungicides and other crop protection chemicals.

The Western States of Gujarat and Maharashtra are the key hub and accounts for nearly 60% of

India’s Chemical & Petrochemical trade. Gujarat and Maharashtra are the leading players in

manufacturing, alone accounts for nearly 65% of Chemical and 80% of Petrochemical

production in India. The Industry is currently focusing on Speciality Chemicals and Knowledge

Chemicals with increased focus on Research and Development. India has been a major importer

of chemicals and also exports organic chemicals, Dyes and Dyestuffs. Both Imports and Exports

are growing over the last few years. During the year 2013-14, the Exports and Imports of

Chemicals & Chemical Products (excluding Pharmaceutical products & Fertilizers) was INR

1785.67 Bn. and INR 2413.11 Bn. respectively.

Gujarat is a leading state in India with respect to Petrochemicals and Chemical industries spread

mainly on the popularly known the Golden Corridors from Vapi in South up to Ahmedabad&

Mehsana in the northern region. Gujarat is having world’s largest grassroots Refinery of

Reliance Industries Ltd. at Jamnagar followed by other Refineries of IOC at Koyali, near

Baroda, Essar at Jamnagar. Petrochemical complex of Reliance Industries at Baroda & Hazira

are of world class capacity. ONGC Petro Additions Ltd. (OPaL) is setting up another such

petrochemical complex in the PCPIR at Dahej. Besides, Gujarat is also having large Fertilizer

complexes including that of IFFCO at Kandla & Kalol, KRIFCO at Surat, GSFC at Baroda &

GNFC at Bharuch.

Due to availability of basic chemicals, many Large and MSME chemical industries including

Dyes and Dyes intermediates, Paints & Resins, Petrochemicals, Fertilizer, Organic and

Inorganic industries have come up at places such as Ahmedabad, Baroda, Bharuch, Ankleshwar,

Panoli, Dahej, Surat and Vapi. Further to this a significant investment is coming up at Dahej

shaping GIDC & Dahej SEZ including ONGC Petrochemical complex.

153

Gujarat being the chemical hub and also having excellent ports facilities at Kandla & Mundra,

majority of import/export of chemicals in India is taking place from these two ports. More ports

at Dahej including expansion of GCPTCL Chemical Port facility are developing in the State.

Kandla Port and Mundra Port handle large quantities of liquid chemicals. Due to development

of chemical industry as also port & maritime infrastructure development in the state, numbers of

Liquid storage terminals have come up mainly around Kandla, Mundra, Dahej & Hazira.

Because of development of chemical industry, ports & storage terminals, majority of the

chemicals/petrochemicals movement takes place between Gujarat and the rest of India. At

present transport of liquid chemicals is mainly through road, followed by rail of bulk

commodity like edible oil, furnace oil etc. The liquid chemical has been categorized in the

segments such as Solvents, Organic Chemicals, Liquid fuel & Feed Stock, Inorganic Chemicals,

Other Chemicals, etc.

3. Port and Logistics scenario in India & Gujarat

India has a total coastline of about 7517 Kms. stretching right from Gujarat in the West Coast

up to West Bengal in the East Coast. India has 12 Major Ports and about 200 non-major ports.

Major ports are under the jurisdiction of the Govt. of India and are governed by the Major Port

Trust Act, 1963. Non-major ports are under the Jurisdiction of the respective State

Government’s Maritime Boards. Indian ports handles about 90% of India’s total foreign trade

in terms of volume and about 70% in terms of value. Indian ports collectively handled estimated

977 MMT of traffic in 2013-14 of which major ports handled 556 MMT. The non-major ports

together handled 421 MMT in the year 2013-14 contributing to about 43% of the overall port

traffic in India. During the year 2014-15, Indian ports collectively handled 1052 MMT of traffic

of which major ports handled 581 MMT. The non-major ports together handled 471 MMT in

the year 2014-15 contributing to about 44.7% of the overall port traffic in India.

Gujarat with its strategic location is one of the leading Maritime States having 1600 Kms of

coastline which is the longest among the Maritime States of India. Gulf of Khambhat and Gulf

of Kutch provide natural navigational safety and logistical advantage offering nearest maritime

outlet to Middle East, Africa and Europe. Gujarat is having the highest number of commercial

cargo ports and the hinterland for the ports in Gujarat accounts for about 40% of the total Indian

trade.

Gujarat is having the highest number of operational & commercial cargo ports in India. Gujarat

has 1 major port of Kandla and 42 non-major ports out of the total 200 non-major ports in India.

Ports in Gujarat are catering to a vast hinterland including Gujarat, Delhi-NCR, Rajasthan,

Haryana, Punjab and Western Uttar Pradesh. Gujarat also has good road and rail connectivity

which is providing excellent facilities for multi-modal transportation. Gujarat Ports including

the major port of Kandla accounts for about 41% of the total traffic in the total port traffic,

which is more than any other state. In the year 2013-14, Gujarat with 309.9 MMT accounted for

32% of the total traffic of India and 74% of the traffic handled by the non-major ports. In the

year 2014-15, Gujarat handled 428.57 MMT of traffic.

Gujarat non-major ports have registered growth with CAGR of 14.82% in the last decade.

Captive jetties contribute the largest share of cargo handling followed by private ports by

Gujarat non-major ports. The major commodities imported during the year 2013-14 includes

Crude Oil (32%), Coal (29%), Container Cargo (8%), LNG (6%), Iron Ore (2) and other (23%).

The major commodities exported were H.S.D. (28%), Container (20%), Petrol (12%), Naphtha

154

(6%), Cement Clinker (4%), Aviation Turbine Fuel (4%) and Others (26%) during the year

2013-14 from Gujarat.

4. Importance of Port & Logistics in Chemical Industry From the beginning, port led development has been closely linked with industrial developments.

Any Port is dependent on its primary hinterland, secondary hinterland and tertiary hinterland for

the cargo. Chemical Industry located in the hinterland of the nearest port is much dependent on

the port facility for importing and exporting various chemicals for its day to day operations.

These comprise largely of Raw Materials and Finished Products required for the chemical

industries. Besides, port infrastructure, efficient mode of logistics is also vital for the survival of

the Chemical Industry. Transportation by Rail, Road and also through Coastal Movement is the

key to the success of chemical industries.

In Gujarat, there are 4-5 important chemical industry clusters supported by the nearest port in

the state. The major ones are Dyes & Chemical Cluster in Ahmedabad, Petrochemical &

Chemical Cluster in Baroda, Pharma & Chemical cluster in Ankleshwar, Chloro Alkali and

Petrochemical cluster in Dahej, Chemical Cluster in Panoli, Bulk Drugs and Chemical cluster in

Vapi, and a few clusters of chemical industries located in the region of Kutch and Saurashtra.

Since the production centres are located in one region/cluster, there needs to be better

infrastructure and logistics to supply chemical products all across the state and the country.

Kandla, Mundra, Dahej and Hazira, are the important Ports in Gujarat which are catering to the

most of the requirements of the chemical industries in the state. This includes basic chemicals,

organic chemicals, inorganic chemicals, petrochemicals and speciality chemicals. These

chemicals in different forms such as Solid, Liquid and Gaseous are required to be handled and

supplied to respective chemical clusters.

5. Status of the Port & Logistics Infrastructure in Gujarat State

Gujarat based ports have been handling various types of cargo including Dry Bulk (such as

Coal, Iron Ore, Fertilizers, Food Grains, Chemicals, etc.), Liquid Bulk (such as Crude Oil,

Petrol, Liquid Chemicals & Lubricants, etc.), Break-bulk and Containers through port &

logistics infrastructures. Liquid and chemicals are transported by tanker vessels, ISO container

tanks, or barrels that are stuffed in to containers. Gaseous chemicals are transported by tanker

vessels or ISO container tanks. While dry bulk chemicals are transported in bulk carriers or by

containers after re-packing. The following table indicates chemical cargo handling facilities at

various ports in Gujarat.

Table : 1 Chemical Cargo Handling Facilities at Various Ports in Gujarat

Port/Terminal

/Captive Jetty

Cargo Handled Port and Storage

Infrastructure

Hinterland /

Industries catering

Rail & Road

Connectivity

GCPTCL

Dahej

Liquid and Gaseous

chemicals of class A, B

and General Class

Vessel Size: 6000-

60000 DWT

Draft: 16 Meter

Storage Capacity:

3,11,300 CMT

Western, Central

and North India

PCPIR Dahej,

Chemical industries

of South, Central

and North Gujarat.

Connected with NH-8, 4

Kms from Dahej

Railway station & Delhi

Mumbai railway line.

Reliance Port

and Terminal

Ltd.

Sikka

Liquid/Crude

EXIM: Crude, POL and

Petrochemicals

4 tanker Berth , 5

SPM

Captive Use

RIL has largest

refinery in the

world at Jamnagar.

Pipeline, Road, and Rail

connectivity.

155

Crude Import as a

Raw material and

POL export is

handled from this

Port

Port of Pipavav Dry/Liquid/Container

Liquid Exim: Tie ups with

Aegis Logistics, Gulf

PetroChem and IMC

LTD.

5 container, 3 dry

bulk and 1 liquid

cargo berth,

12 meter draft at

liquid berth,

121 Liquid storage

tanks with

4,80,000 KL

capacity,

Fertilizer static

capacity of

1,00,000 MT

North, Central and

western India part

of India.

Private Railway line of

269 Kms with

Surendranagar further

connecting to national

grid, Four Lane

Highway connectivity

with National Highway

8E

Petronet LNG

Dahej

LNG 2 jetties with total

capacity of

10MMTPA

handling capacity

LNG re-gasification

facilities and

Pipeline

transportation

facilities with

GAIL.

Note: EC obtained

for additional

10MMTPA

APSEZ

Mundra

Crude Oil, Liquid

(Petrochemicals, POL,

Vegetable Oil, Glycerine)

Dry Bulk (Fertilizers,

Bauxite etc.)

Containerized cargo

2 SPMs that can

cater VLCC and

ULCC, 4 Liquid

cargo berths.

World class port

with hinterland of

North and central

and western

Gujarat.

Directly rail, Road

connectivity.

Kandla Port

Trust

Dry Bulk & Liquid

Crude, POL, Chemicals,

Salt etc.

Six oil Jetty, 3

SBM, and Liquid

storage facility of

total 2199977KM

by both public and

private players

Local Chemical

Industries,

Industries of Kutch

and Central Gujarat,

North, Central and

North-western part

of India.

Connected with Four

lane national Highway

No 8-A.

Well developed rail

network inside the port

and connectivity with

Major cargo hubs in

hinterland.

Adani Hazira Liquid, Dry Bulk,

Container

2 Multipurpose

berths with liquid

handling facilities,

12000 sq. Meter

covered storage

yards for

fertilizers, FRMs

and other

commodities

Chemical Industries

of Bharuch,

Ankleshwar, Surat,

central Gujarat,

South Gujarat,

North central and

western India.

Part of DMIC,

Connectivity with Delhi-

Mumbai rail line.

Connectivity with

National Highway No 8.

Shell Hazira LNG LNG jetty with two

unloading arm,

Two LNG tanks

with the capacity

of 160000 M3 each.

Above table highlights liquid, crude and gaseous cargo facilities in Gujarat. Hazira Port,

Mundra Port, Kandla Port, Port of Pipavav and many other GMB ports have dry chemical cargo

handling facilities. While Hazira Port, Mundra Port, and Port of Pipavav have container

handling facilities that can be used for the chemical cargo handlings in barrels and ISO

container tanks.

156

6. Bottlenecks to the Chemical Industry due to inadequate Port & Logistics

Infrastructures

Gujarat has one major port and 41 non-major ports along its total coastline of 1600 Kms. There

are number of chemicals being handled from these ports. Kandla, Mundra, Dahej and Hazira

ports contributes the maximum in terms of the traffic and handling of chemicals in the state.

The chemical industries including the MSMEs located in the hinterland of these ports are

largely dependent on these ports for the imports of various raw materials and exports of the

finished/intermediate products. However, the Chemical Industry in Gujarat is facing few

bottlenecks due to inadequate port and logistics infrastructure in the state today. These are

mainly pertaining to the dedicated berth related, turnaround time related, cargo handling &

evacuation related, connectivity & logistics related and few others. Port congestion, shortage of

CFSs and insufficient draft at ports to handle large vessels are the major infrastructural issues.

As mentioned by the senior manager of a chemical company in Gujarat, the capacity to handle

high value cargo needs to be increased. The high value cargo which is typically clean cargo not

being handled in sizable volumes across Gujarat based ports. The ports of Kandla and Mundra

have facilities to handle these types of high value clean cargo. Despite having dedicated jetties

for handling coal at these locations however, due to simultaneous handling of coal at these ports

create dirt and pollution. In Saurashtra region, despite Okha being an all-weather port,

containerised facility is not available there. In Pipavav port, there is a bottleneck with regard to

turnaround time and handling large quantity of chemical products which is mainly due to

inadequate manpower, lack of skilled labour, lack of availability of handling equipment at the

port and limited road connectivity to the hinterland.

Similarly, in case of chemical industries located in Bharuch, Ankleshwar, Jhagadia, Panoli and

Surat are also facing a few bottlenecks. For these industries, Dahej and Hazira are the excellent

port locations catering to their chemical requirements. In South Gujarat, these are the two main

chemical port locations which are strategically located. However, both Dahej & Hazira are

lacking railway connectivity up to the port area which is creating cargo evacuation related

delays & problems related to the storage space at the ports. Moreover, due to lack of rail

connectivity up to the port area, there would be pressure on cargo evacuation through road

connectivity and also chances of multiple handling. Evacuation of cargo from these ports

located near busy towns/cities, in this case Bharuch and Surat, also contributes in the delays. It

is also observed that cargo handling through railways gets affected due to seasonal variations.

Industries faces bottleneck due to non-availability of racks during the peak seasons and post

Diwali seasons. Cargo movement overall gets hampered due to lack of sufficient racks

availability for long distance transportation, over saturation of railway network, unsuitability of

railway wagons to carry different types of cargo, etc.

As said by one of the senior managers of a port infrastructure company in Gujarat, in case of

liquid chemicals, dedicated berths are not sufficiently available in Gujarat. Ideally, a berth

should wait for the vessel and not the vessel should wait for berthing. Due to limited availability

of dedicated berths for liquid chemicals, the existing port infrastructure such as multipurpose

berths being frequently utilised for unloading of cargo. Moreover, in some cases, due to

simultaneous unloading at different berths happening at the same time, the vessels have to wait

for few hours in the sea and the cargo gets delayed. In the extreme conditions, the vessel is

diverted to other nearby ports.

157

Not much of Hazardous Chemicals are being handled due to lack of sufficient handling and

storage related facilities across ports in Gujarat. Moreover, to get the clearance to handle

hazardous chemicals from relevant Authority is a very time consuming process.

The logistics burden of chemical industry is growing day by day apart from rising fuel prices.

Moreover there are logistics infrastructure related bottlenecks including road conditions, traffic

on highways, higher transit time, multiple check-points lower turnaround of vehicles, etc.

Moreover, there is a shortage of 3PLs specialized in transportation of bulk liquids and gases,

especially hazardous materials.

7. Possible solutions and way forward

As observed, despite having well developed port facilities and chemical industry, ports in the

state should address the bottlenecks to the chemical industry in terms of providing the

infrastructure and logistics support services. These would further enable the growth of the

chemical industry in the state.

The rail connectivity up to the Dahej and Hazira port should be developed, for which the

efforts might be on and will take a few years from now.

Dedicated facilities to handle high value clean cargo from various ports, providing

appropriate separation for handling and storage of Dirty and Clean cargo.

Dedicated liquid chemical jetties with sufficient draft and state of the art handling facilities

to accommodate large size tanker vessels to cater future requirements to boost the growth of

chemical industry.

Terminals for handling of LPG and LNG.

Possibility of containerization of chemical cargoes.

Dedicated infrastructure and facilities for handling of sizable volume of hazardous cargo.

Dedicated storage facilities in ICDs in accordance with the class of chemicals.

Timely maintenance of existing road and rail network in the state for efficient evacuation of

cargo and last mile connectivity.

References

1. Port Sector Outline – Glimpse of Gujarat by Gujarat Maritime Board (GMB)

2. Conference Papers – 7th National Conferences on Infrastructure and Ports by Saket.

3. IPA E Magazine

4. Annual Report 2014-15, Ministry of Chemical and Fertilizers, Department of Chemicals &

Petrochemicals, Govt. of India.

5. Websites of respective ports for data on existing capacity and handling statistics.

158

Maritime Industries: Operations & Service Marketing Opportunities &

Challenges

Bijoyen Das

General Manager (Marketing)

Transformers & Rectifiers (India) Ltd, Ahmedabad

Abstract

______________________________________________________________________________ Maritime Operations, as in several other kind of operation becoming more complex to Plan, Manage,

Control & Lead. Maritime Industries encompasses Ship Manufacturing. Port, Shipping and Logistics at

large and managing and maintaining many type of equipment and facilities at Port and salvaging facilities.

At the same time close common understanding and coordination is required between regulatory forces and

society to make the operations more effective and less risk taking.

Shipping Industries has become more capital Intensive, technological & more demanding and subject to

major Global Regulatory Reforms. The Study review about Port importance and various Planning &

Control activities at particular & New Technological development of each decision making process.

The objective of the research work is to provide a comprehensive over view of Port Terminal Operation

Management & 8 Ps of Service Marketing to make Port Operations more effective and efficient. The Study

has been done on Port Terminal Operations and where and how some of Operation Research Techniques

can be implemented effectively.

Key Words: Terminal, Port, QC, QY, Berth, Stowage

___________________________________________________________________________________

Introduction

Port of India:

India‘s has around 7517 km of natural peninsular coastline strategically located on the Crucial

East-West trade route, which links Europe and Far East. The coastline has 12 major ports and

about 187 other minor and intermediate ports. Most of the major ports have been established

in the last few decades. Independent economic planning, while two of the older major ports

like Kolkata and Mumbai were established more than hundred years back during the British

colonial rule. The development of the port sector in India till recently has been exclusively

responsibility of the Central government and had grown into a natural public Private sector

Participation now.

Public Private Partnership in Port Sector: POLICY FRAME WORK:

100% FDI under the automatic route is permitted for port development projects

100% income tax exemption is available for a period of 10 years

Tariff Authority for Major Ports (TAMP) regulates the ceiling for tariffs charged by

Major ports/port operators (not applicable to minor ports)

159

A comprehensive National Maritime Policy is being formulated to lay down the vision

and strategy for development of the sector till 2025

Projects developed through PPP

Significant investment on BOT basis by foreign players including Maersk (JNPT,

Mumbai) and P & O Ports (JNPT, Mumbai and Chennai), Dubai Ports International

(Cochin and Vishakhapatnam) and PSA Singapore (Tuticorin)

Minor ports are being developed by domestic and international private investors:

Pipavav Port by Maersk and Mundra Port by Adani Group (with a terminal operated by P

& O), Gangavaram under construction by Consortium led by DSV Raju.

Govt of India has Maritime Vision 2020 & Sagar Mala Project.

Port & Economic Development:

IMPORTANCE OF PORTS IN ECONOMIC DEVELOPMENT

Infrastructure is understood as an important input for industrial and overall economic

development. While this is certainly true, there is no clear definition of infrastructure to

the current usage of the term in India.

As per the Economic Survey, the following sectors constitute infrastructure

(Economic Survey 2000-2001, p. 171)

(a) Power: Electricity generation;

(b) Coal production;

(c) Petroleum production: crude oil and refinery throughput;

(d) Cement production;

(e) Railways: Revenue-earning goods traffic and passenger kms;

(f) Ports: Cargo handled at major ports;

(g) Civil Aviation: Cargo and passengers handled at Airports Authority of

(h) Roads: Length of roads and length of National Highways; and India (AAI) airports;

(i) Telecommunications: New telephone connections approved

Ports are dynamic nodes in the Supply chain involve complex International Production /

distribution network and have become Integrated Transport Centers and Logistics platforms for

International trade, and Stimulate Trade and Regional development. Now Ports are developing

under Land-lord Port and Private Port Model in India. Opportunities for Private Sector to either

act as Port Operator at Major Ports or Port Developer at minor Ports.

The Key Role is played by Port At present, ports play a significant role in the management and coordination of materials and

information flows, as transport is an integral part of the entire supply chain. Subsequently, the

competitive position of a port is determined not only by its internal strengths such as efficient

cargo handling and hinterland connections but is also affected by its links in a given supply chain.

The supply chain performance of international logistics and maritime (Ports and Shipping)

industries has become a critical source of sustainable advantage and development for them.

Seaports today are considered as sections of a longer maritime logistics chain. The development

of global supply chains changes the traditional role of ports from providers of transhipment

services to a new role as efficient distributors of products across the supply chain and integrated

logistics service providers. However, to fulfil this role ports must evolve from the traditional

functions of facilitating loading and discharging operations to become links in a larger logistics

chain as part of a global distribution channel.

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With rising consumer demand and the resulting growth in global trade, the role of infrastructure

support in terms of rails, roads, ports & warehouses hold the key to the success of the economy.

Ports have been natural sites for transhipment in order to transfer goods from one mode of

transport to another. They have historically provided the link between maritime and inland

transport, and the interface between the sea and rivers and roads and railways.

At present, ports play an import ant role in the management and co-ordination of materials

and information flows, as the transport is an integral part of the entire supply chain. In a wide

sense, ports are complex entities supporting to the procurement of raw materials, the

manufacturing and the distribution of finished goods. They are the potential members of different

supply chains.

CFS is a place where containers are stuffed, de-stuffed and aggregation/ segregation of

export/import cargo take place. With the growing volume of international trade, the need for

expeditious clearance of goods at the port within the minimum possible time has been gaining

importance. This is more so when the ports are facing congestion at their premises. A CFS is an

extended arm of Port/ ICD/ Air cargo Complex, where import/ export goods are kept till

completion of their examination and clearance.

The present paper deal with changing role of operation management and operation research

technique and principals of service marketing.

Future Growth Estimation of Ports in India:

Cargo handling at all the ports is projected to grow at 7.7% p.a. till

2013-14 with Minor ports growing at a faster rate of 8.5% compared to

7.4% for the Major ports

Traffic estimated to reach 960 million tonnes by 2013-14

Containerized cargo is expected to grow at 17.3% over the next 9

years

The New Foreign Trade Policy envisages doubling of India’s share in

global exports in next five years to $150 billion

Growth in merchandise exports projected at over 13% p.a. underlines

the need for large investments in port infrastructure

Investment need of $13.5 billion in the major ports under National

Maritime Development Program (NMDP) to boost infrastructure at

these ports in the next nine years

(Source: www.investmentcommission.in)

The Changing Role of Ports in Logistic Management: Ports have been natural sites for Transhipment in order to transfer goods from one mode of

transport to another. They have historically provided the link between maritime and inland

transport, and the interface between the sea and rivers and roads and railways.

At present, ports play an important role in the management and co-ordination of materials and

information flows, as the transport is an integral part of the entire supply chain.

In a wide sense, ports are complex entities supporting to the procurement of raw materials, the

manufacturing and the distribution of finished goods. They are the potential members of different

supply chains.

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Future of Indian Ports?

Will Indian port sector really see the emergence of private sector as a major player in the

port sector in the future?

Will major ports be fully corporative, and bring about greater rationalization and

transparency in functioning?

Are minor ports in India poised to take a lead over performance of major ports?

Is there enough room for new green field port projects in Indian port sector?

Several of these questions loom large, as the Indian port sector is increasingly coming

under the impact of wide ranging port reforms and private sector investments, in line with

larger transformations underway in many global ports.

The development of the port sector is important to development of maritime trade is an

axiom that no nation can afford to ignore in today‘s globalised world. This was equally

true in the distant past, when maritime nations undertook extensive overseas maritime

explorations and trade to set their mark on global economic history.

Market size:

Major Ports of India:

Mundra, kandla, pipavav, Mumbai port- NSICT,JNPT,GTIL, HAZIRA,

Marmagao port, Panambur port, Cochin Port, Tuticorin Port, Chennai Port, Vizag

Port, Paradip Port, Haldia Port

The handling capacity of major ports in India is sufficient to match trade demand. The capacity of

all the major ports as on March 31, 2015 was 871.52 MMT, compared with 581.54 MMT in

cargo traffic handled through 2014–15. Thus, the capacity utilisation through 2014–15 was

around 66 per cent. Furthermore, as per internationally-accepted norms, the gap between traffic

and capacity is usually around 30 per cent. Additionally, the government has taken several

measures to improve operational efficiency through mechanisation, deepening the draft and

speedy evacuations.

According to the latest provisional data from Indian Ports Association, the publicly-owned major

ports in India reported healthier levels of growth in container throughput in FY 2014–15 than in

the previous year. Container-handling in FY 2015 expanded 6.7 per cent year-over-year to 8

million twenty foot-equivalent units (TEUs) from 7.46 million TEUs through the same period in

2013–14. The data also showed that containerised cargo tonnage grew 4 per cent to 119 million

tons.

In FY 2014–15, cargo volumes at the major ports expanded 4.7 per cent year-over-year to 581.3

MMT. In FY15, coal cargo traffic grew 13.4 per cent to 118.1 MMT from 104.2 MMT in FY14.

With regard to commodities, fertiliser handling rose 19 per cent to 16.3 MMT in FY15.

The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry,

reported that the Indian ports sector received FDI worth US$ 1,637.3 million between April 2000

and May 2015. The ports sector was also awarded 30 projects in FY14, investing over Rs 20,000

crore (US$ 3.16 billion), which is a threefold increase over the preceding year.

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Opportunities for future growth

Gujarat is witnessing a transformation with its fast track clearance of projects resulting in

setting up of petrochemicals, chemicals, automobile plants in the state. Names like TATA

nano and FORD have already started their plants at Ahmedabad, were in general motors and

maruti Suzuki have been in the news for their interest in Gujarat. Now other companies like

china steel Corp, PSA Peugeot citroen, Lupin ,ONGC, Hitachi , Ultratech cements, etc have

shown keen interest in the state. This can only mean Growth from the logistics point of view.

There is a huge market for imports into and via Mundra & Pipavav Viz. Sanitarty ware ,

second hand textile machinery ,etc. promoting imports to and via Mundra and Pipavav would

not only save MTY movement costs but would help locations like Ahmedabad/nhavasheva

any surplus/long stay units.

Hazira has started fully functional work. This would mean that the EMIM COMMUNITY

WOULD HAVE ANOTHER MODERN PORT IN Gujarat besides Mundra/pipavav. Nhava

Sheva is already congested and capacity addition will not be of much use unless the concerns

of the locals are taken care of .the cargo to NSA is expected to shift to this new port enabling

less idle time fro both the shipping lines and the trade,lessening costs and improving

efficiency.

ICD sanand is another outlet for enhancing the volumes into and out of INAMD

Rail connectivity towards to and from ICD Ahmedabad for Mundra and Pipaav Concor runs

11 rakes per week to Mundra 6 rakes and 5 to pipavav every week, which helps customers to

move their cargo on easy way.

Major issues at PORTS

1. Port Conjection

2. Gate close

3. Transporter strike

4. Port strikes

5. Vessel berthing problem

6. Window problem

Increase in Ports capacity over the years

•Capacity at major ports grew to 838.9 MMT in FY15, implying a CAGR of 6.6 per cent since

FY07

•Despite capacity increasing, utilisation rates have been gradually coming down post the global

economic meltdown in FY08

•Utilisation rates of major ports in India are much above world’s average

•In FY14 the cargo handling capacity of major ports was 800.52 MMT

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Bringing the Operational Efficiency of Port Operations:

Efficiency in sea borne Trade, I as a critical driver? In the eyes of the customer Efficiency, speed, cost, security are major criteria and concern that

influence his decision of choice. That is why many countries around the world compete on the

efficiency in supply chain across International Market & gain requisite competitive edge to win

Global contract from MNCs to expand their network.

Operations Involve in Sea Borne Trade (Port Operations) are listed as follows:

Operations of Facilities

Marketing ( Bringing the efficiency through 8 Ps of service marketing )

Transportations ( Shipping lines, Vessel Scheduling, Rail Road Transports, Truck Operating)

Accounting & Finance: Billing System

Governmental Relationships ( Security Plans to ckeck background, Access Control, cargo

movement, Vessel Boarding, vessel clearance, FTZ Regulations, Quarantine Issues,

Inspection Procedures, ware House Examinations, Potable Water, Air Quality, Water Quality

Tennant Relationship

Vessel Activities: Inbound Times, Docking Times, Shifting Times, cargo Operation Times &

Standby.

Cargo Operations: Specific Cargos, Loading, Unloading, Shed Use

Technical Aspects

Information Technology integrations with All Operational Functions: Allow for simultaneous

reporting & processing of tonnage & revenue and on line enquiry capability.

Container Terminal Operations:

Current practices & future Challenges:

Result of Globalization, International trade has increases & Containership concept is preferred

due to Economy of scale. Post 9/11 various security concerns increased 7 increased in equipment

& operational Strategies to satisfy all stakeholders and concern for environment protections. The

logistic market has changed from supplier orientation to customer oriented. Consequently

shipping lines has gained negotiation power over the port and start demanding high performance.

In the world of E commerce it became more challenging to Optimize Port Performance as smaller

& smaller size of consignment are travelled from one corner to another corner of the world.

Operation Plan Optimization:

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Berth Planning:

Berth Planning, the usage of the Quay by vessels. For this information on the vessels Calls ( Ship

Id, route, port etc.), Vessel specifications, Hatch Cover structure are transferred from a

corresponding shipping lines to terminal. The Berth Planning and Quay Cranes are interrelated.

Here the sequencing and planning of Inbound & Outbound containers & its storage area &

distance play an important role.

Dynamic Berth Planning: It’s a dynamic process depends on ship arrival time, weather

conditions, ship operations, environment, crane & departure time of preceding port etc.

Traffic & Quay Yard:

Generally Multi Berthing Planning is considered to avoid interface between deck vessels &

berthing vessels to avoid delay in ship operations.

Tidal Difference:

Berth Scheduling of large vessels are get affected by tides and some port has bridge pier to

overcome. Berth Feasibility depends on water depth & arrival & departure time.

Stowage Planning:

It is the process of specifying the attributes of containers to be loaded in shipping bay. Whole

stowage planning re handling of containers must be considered for successive port. The selection

of higher or lower tier depends on this planning. Vessels Stability & strength are also checked

during this planning at different stage.

QC Work Scheduling:

Most Important function at any Port. Container grouping is required according to size &

destinations Port, loaded in to the same ship. The most QC work scheduling problems are 1.

Reduction of Planning Lead time 2. Simultaneous operations of Quay & Yard.3. Integrating with

real time operation control & loading & unloading sequencing process. 4. Rescheduling

capability. 5. Multiple planning for Multiple Vessels.

Load Unload Sequencing:

After QC Scheduling the sequence of cantering, discharging the Loading the operations is

determined. The Loading Plan should satisfy stowage plan. The Travel distance of truck also

should be considered during ship operation rescheduling & reshuffling for picking up containers

also to be considered during Loading.

Space Planning:

Important for yard operations and for yard management for inbound and outbound containers,

efficient operations of handling equipment & identifications of inventory. There is a two stage

planning process: 1. Storage & Space Planning. 2. Real Time Inventory Identification Planning.

This offers Benefits like Minimize travel distance of YC, Minimize movement of YC, Minimize

numbers of relocations and Congestion of YC.

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Resource Planning: Maintaining Personal Information, Skill Chart, Job Rotation, Scheduling

manpower, Available Human resource, Work Load in each segment, staffs and gangs record.

Some Challenges of Port Operations:

1. One Consignment/Invoice attracts almost 200 plus documents among all the stack holders.

2. Automations and simplifications of documentations

3. Optimization with real Time Using Information Technology

4. Managing Transportations, Human Resource, Safety, Utilities, Inventory Planning,

Operations & Control and bring Economy of Scale is greatest challenge.

5. Service Marketing to overcome competition within the Industries to gain competitive

advantage.

Conclusions & Recommendations:

For competitive advantage and to gain efficiency Operation Research Techniques and

Mathematical Models can be implemented on various Operation and for decision Making as

explained in following Table in Real Time Operations and Controls:

OPERATION RESEARCH TECHNIQUES/MODEL PORT OPERATIONS

QUEING THEORY MODEL Inbound Logistics, Incoming Trucks.

INVENTORY CONTROL MODEL Inbound & Outbound Container Yard Management

DECISION TREE ANALYSIS For Strategic Port Operations

ASSIGNMENT PROBLEMS SOLVING MODEL FOR QC & QY

TRANSPORTATION MODEL For Large numbers of shipping route for several supply

origin to several demand destinations ,Transhipment &

Cross Docking

SQUENCING OPERATIONS For Containerization, QC & QY and Human resource

planning

REPLACEMENT & MAINTANANCE MODEL For Machinaries and Utilities at Terminal / Port.

SIMULATION MODEL For Decision making & Operation Planning of all above

functions.

DYNAMIC PROGRAMMING For Sequence of Inter related decision over a period of

time from ship arraival to ship departure.

3D MODELING For space & Volume Planning of Carrier

INFORMATION & COMMUNICATION TECHNOLOGY Integration of all Operational functions in real Time and

use of RFID for Inventory control.

To gain Competitive Advantages Port Operations should meet customer’s need strategically &

Profitably in competitive environment by taking care of following 8 Ps of service Marketing.

1P: Product Element:

Port & Logistics offers their Services in time, pickup, handling, packaging and

delivering as product. Adding the value by packaging.

2P: Place & Time: when & where to deliver, method and channel employed as

multimodal transportation system. Use of Information technology for tracking and

decoding.

3P: Pricing includes FOB/C&F/CIF etc basis for export consignment and for Domestic it

can be Ex Works or FOR or Door delivery basis. Highly dynamic strategy varies

firm to firm and customer to customer.

4P: Promotions: 3PL & 2Pl logistic providers, shipping and Forwarding agents, Govt.

Authorities provide information related to trade and practices to educate consumers

about services and its benefits.

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5P: Process: Ports issues guidelines about process formalities to be completed by

customers and Logistic Providers for smooth and fast services at dispatch points.

6P: Physical environment: In General Port and Logistic providers offers necessary

convenient environment to customers by providing Buildings, Interior, equipment,

staff member’s uniform to identify them, printed materials etc. to create positive

impact.

7P: People: Port and Logistic sector employ more than 10 million people across India. As

there are scope of massive growth in future, will attract huge employment.

8P: Productivity and Quality: The Productivity of the sector is measured by Revenue

earn per Unit of weight per person and per unit of Volume per person. The measure

of Productivity of this service sector is crucial challenging and demanding varies

across customer segment. References: 1.Web Sites:www.govt-nic.in,www.indianport.com,www.transnet.com,port&shipping 2.Shipping & Express Management by RAN Fouda, 3.Reasarch Paper of Dr Damir Zee-Facing up challenges of port operations in digital world. 4.Research papers on Transportation by ELSEVIER 5.Indian Govt Publication-Maritime Vision 2020 6.Indian Institute of Material Management Monthly publication of Nov 2015 7.Personal Meeting with Shia Siza Pvt Ltd-Ahmedabad.

http://www.govt-nic.in,www.indianport.com,www.transnet.com,port&shipping/

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The Journey of a Retail Entrepreneur

Mr. Nadeem Jafri

Founder & Chief Mentor, Hearty Mart

______________________________________________________________________________

Understanding Retail

Childhood memories often hover around a kirana store which you had frequently visited to

purchase your favourite brand of chocolates or biscuits. Just outside our house we too had a

grocery store owned and run by Kamal bhai – Paavan Kirana store. I loved the store and was a

loyal customer. As a neighbour I got many privileges – one of them was an entry inside his

stingy store. This liberty that I was allowed beyond the boundary set for other customers, must

have proved him expensive as most of the time I would pick up a handful of chocolates from the

jars kept on the shelves and would rarely acknowledge a correct number pocketed. I am sure

this must have accounted for losses which need to be compensated whenever we meet next.

After entering into this industry now I realize what a commendable job Kamal bhai did. In

absence of technology and infrastructure he managed to run his store successfully for many a

decades.

Things have changed a lot from Kamal bhai’s time. Retail has become modernized today. As

per the industry sources the Indian retail industry is one of the fastest growing in the world. It

accounts for over 20% of the country’s GDP and around 8% of the employment. It is expected

to be a US$ 1.3 trillion by 2020. Out of this, organized retail is expected to grow at a rate of

25% per annum. The current market size of Indian retail industry is around US$ 520 billion

(Source: IBEF). However it is important to know that in India organized retail trade only

accounts for 8% of the total retail trade. Though figures seem to be discouraging, the silver

lining is that India is a market where scope for further penetration of organized retail is much

higher than other developed countries where organized retail is approximate 80% of the total

retail trade.

The key demand drivers for the organized retail in India are changing demographic profile and

increase in disposable incomes, urbanization and changing consumer tastes or consumerism.

Trends, to be noted

In 2011 the Indian Government announced reforms in retail sector and with this a road for FDI in

retail opened up. Later in December 2012 FDI on Multi-brand was finally announced by the

Government, making the sector really exciting and upbeat. This reformed retail sector started

seeing changes in its approach to business and new trends were observed. I would list down the

following trends which I feel are important for the retailer to focus on.

Localized product mix and store formats: In a country with immense diversity and

consumer needs changing at every few kilometres, it makes sense to have a customized

product mix specific to the location and even the store formats can be made flexible as

per the need.

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Usage of Data Analytics & Technology: With the usage of smart & high-end billing

software it has become easier for a retailer to track the buying pattern of a specific

consumer and create a customized profile for him. The growing impact of consumerism

has encouraged the usage of technology even at small stores. Data Analytics help in

maintaining right inventory mix at the store and the retailer can earn more profit per

square foot by replacing the merchandize with lesser margins.

Social Media & Customer’s Interactions: As per the research conducted by PEW

research centre in January 2014, 74% of internet users spend time on social networking

sites. This has evolved as an important promotional tool to reach the online audience.

Thus the retailers have started creating the page of their stores on networking sites like

Facebook to promote and advertise. It provides an ideal platform to create one more

avenue of interaction with the prospective patron.

E-Commerce: Internet penetration has given birth to e-commerce in retail. There are

354 million internet users in India. According to the report published by the Internet

And Mobile Association of India (IAMAI), internet users in India have grown by

17% adding 52 million new users this year. This has given birth to the online retail

industry and since a last few years we have seen many home-grown e-tailers setting up

their online shops like Myntra, Snapdeal, Jabong, Flipkart etc.

Mobile Commerce or M-Commerce: The interesting trend of internet penetration is

that out of 354 million internet users almost 60% access the internet through their

mobiles. This has compelled the e-commerce sites to launch their own apps for android

and ios platforms accessible through smart phones. A trend has been seen that consumers

have started shifting from e-commerce to m-commerce because of easier accessibility

and much easier user interface.

Popular Formats

Today shopping is more an experience than just a mere purchase of a product one needs. The

objective of any retailer is to lure maximum customers to his shop and manage more footfalls in

this highly competitive retail scenario. The retail stores can be divided broadly in the following 8

categories:

Company owned or a franchised stores – Mostly Single brand or different brands from

the same manufacturer

Speciality stores – For eg. Furniture stores etc. – Mostly Multi-brand from different

manufacturers

Departmental Stores or Lifestyle stores – Multi-brand from different manufacturers

Super Markets – Catering to daily needs – Food & Grocery, Cosmetics etc.

Discount Stores or Dollar Shop – Every product sold at discounted prices - For eg

Rs.49 or 99 store

Hyper Market – Large supermarket catering to daily needs like food, grocery,

cosmetics etc.

Convenience Stores – Small format stores catering to daily needs specific to the

locality

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Shopping Malls – An enclosure having different formats of retail stores under one

roof.

Key Challenges

Every sector has its own baggage of challenges and retail is no exception. Ideally it makes sense

for a retailer to be aware of the challenges before he decides to plunge into the sector. Based on

my experience I would list down the following challenges which the retail sector is facing today:

Global Economic Slowdown: Economic slowdown affects the flow of money in the

market and thus the industry as a whole gets affected. Shopping of lifestyle products is

curtailed by the customers and even the idea of eating out frequently is curbed resulting

into lesser footfalls at the lifestyle stores or restaurants.

Unorganized Sector: An Indian consumer is as emotional as he is rational. A retailer

needs to ensure that he creates more and more patrons for his store and not just a plain

customer. Mom & Pop stores have survived the organized retail onslaught on the Indian

market mainly because they bring in the human element largely missing from the

organized retail in India.

High Real-Estate Costs or Exorbitant lease and rentals: In case of Urban India

this is a major issue being faced by retailers today. High real estate costs or rentals are

making the survival of large format stores and hyper markets difficult. In Ahmedabad

itself we have seen the closing down of many malls, hyper markets and even a chain of

super market, largely for this reason.

Man-power crisis: Like any other industry retail is also facing a dearth of qualified

staff to manage its huge retail space.

Margin Pressure: Squeezed up profit margins, largely in food-grocery retail segment,

make it difficult for a retailer to survive as the service expectations of the customer

remains high but a lesser margin at his disposal makes it difficult for him to match the

expectations. Because of wafer-thin margins in food-grocery retail, the gestation period

for a retailer to earn or to reach the break-even in business also gets prolonged. This

results in the retailer losing patience and finally into the closure of the store.

Retail Entrepreneur’s Journey

Being a person of advertising and media throughout my professional career I was fortunate to

work on different brands and was fascinated by the stories around the brand development. I

remember once accompanying my employer to a famous communications B-School and was so

impressed by his presentation that I started fostering a dream of emulating him. When finally I

decided to bid adieu to my professional career and look for viable options of entrepreneurship I

reminded myself that I am not going to launch a business but I am going to launch a brand. Thus

my fascination with brands continued in my entrepreneurial journey as well. Here, I am narrating

my thoughts on what goes into brand development and what steps are needed to manage and

sustain the brands created by first generation retail entrepreneur intertwined with my own story.

Creating a retail brand: With a boom in real estate market, Juhapura promised development

but it remained devoid of a proper organized retail outlet which can provide convenience of

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purchase to the residents. It was in this gap that we found a huge opportunity to start an organized

food-grocery store in the area in early 2004.

With the vision of bringing convenience to the locality, we started Hearty Mart in February 2004.

It was positioned as ‘Sabse Khass Ghar ke Paas’; as it was a neighborhood store which was

equipped to cater to the basic needs of the area. Thus it was destined to bridge the gap between

demand of daily needs and the options of supplies available.

Creating a brand is a tough call. As the great David Ogilvy has said:

“Any damn fool can put on a deal, but it takes genius, faith and perseverance to

create a brand.”- David Ogilvy

My learning says that there are four basic steps which a retail entrepreneur should follow to create

his own brand. The steps are as follows:

Step 1: The retail entrepreneur needs to create his own credibility by way of employing fair

practices among his stake holders - investors, partners, employees.

Step 2: With efficient services and ensuring good quality products to his customers he can create

a credible image of his own store; for this he can employ loyalty programs and promotional

activities. A personal touch is required. He should interact with his customers regularly and try to

create patrons and not mere customers. Shop patronage helps in fighting competition.

Step 3: Once he is successful in retaining his customers and has created a strong loyalty for his

store/firm, he can start creating his own in-house private label.

Step 4: By consistently maintaining the service levels, storing and producing good quality

products, engaging with the customers by way of innovative communications and employing on

ground activities at his store, he can create a sustainable brand image for his private label and a

store as well.

Thus Branding for the first generation entrepreneur is not merely creating an image of his store.

This comes at a much later stage. Branding starts with creating his own personal image as a

reliable retail entrepreneur since it would have a cascading effect on the other aspects of his

business.

Leveraging a retail brand: There is no fun if you create a brand but do not leverage it. We

have seen that many corporate retailers enhance their brand salience by way of creating a network

of stores. For a retail entrepreneur it is not so simple, given that he does not have a deep pocket

similar to his corporate counterpart. A well thought of decision, weighing all pros & cons should

be taken as any wrong step might kill the efforts gone in the brand creation.

Ideally, the first step is to identify those challenges which might hinder his growth process. As

discussed in the earlier section, among many challenges the two big challenges a retailer (mainly

food-grocery) faces are:

o Squeezed Up margins

o Higher Real Estate costs

In order to have better margins a retailer can replace the inventory with the products of higher

margins and try to earn a decent profit. This is just a short-term strategy and might not be helpful

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beyond a certain point. The other strategy would be to bring in more footfalls at his store and thus

earn better margins on turnover. This again has its own limitation as every locality has a limited

scope. Hence the long-term strategy for growth is to open multiple stores.

When we faced the similar situation we decided to start a new store in Vadodara. We were

discouraged by the real estate costs and we had to shelve the idea of opening a branch of our store

there. But without implementing multiple store strategy we knew that survival of our business

was bleak. It was during this time that a professor friend gave us an idea to look into rural market

and start a franchise. The idea looked really appealing and we seriously thought of pursuing it.

National Council of Applied Economic Research (NCAER) reports, rural India is home to 720 million consumers across 627,000 villages

The rural market is a promising market as it comprises nearly 720 million people living in almost

627,000 villages, covering 128 million households (Source: National Council of Applied

Economic Research (NCAER)). In other words rural population is thrice of its urban

counterpart in India. Rural India accounts for 2/5th of the total consumption in India. Thus, the

industry players have started looking towards rural market and are devising strategies especially

for the rural consumer.

The e-Choupal project, launched in June 2000 became the largest Internet-based corporate

intervention in rural India. E-Choupal’s network reaches out to more than three million farmers in

over 35,000 villages through 5,050 e-Choupal kiosks that ITC has set up across six states

covering 3.5 million e-farmers. (south and west, Punjab). (Source: The Marketing Whitebook 2007-

2008, pp. no. 111)

Professor C.K.Prahlad has defined the rural market in a most appropriate manner. He has said:

"If we stop thinking of the poor as victims or as a burden and start recognizing them as

resilient and creative entrepreneurs and value-conscious consumers, a whole new world

of opportunity will open up." – Late Prof. C.K.Prahlad in (The Fortune at the Bottom of the Pyramid)

However entering into a rural market is not as easy as an urban market. It is more personalized

and it is the word-of-mouth that works here. We entered the rural market by way of tapping our

social network of an enterprising community, mainly into Punjabi restaurant business in urban

Gujarat but having a rural base. Let me add here that the people of this community helped me in

setting up Hearty Mart at Juhapura in 2004. They provided the domain expertise of the

knowledge of food-grocery to my business since farming is their main occupation at rural level.

They are better known as ‘Cheliya Muslims’ and hail from the villages of North Gujarat. With the

idea of starting our franchisee model we approached two aspiring entrepreneurs of this

community at Ilol village, near Himmatnagar and eventually in 2007 our first franchise was

launched.

This gave boost to our brand – Hearty Mart, as with this our innovative franchise model was

launched. This franchise model helped us in fighting the above mentioned challenges.

The franchisee owner was a farmer himself and had enough space at his disposal. Thus

the real estate cost was no more a deterrent here.

172

Secondly, since he was the native of the village where the franchisee started, he got

acceptance from the local people and he could create patrons easily and a steady footfall

was ensured.

Selling the merchandise on credit is a practice more prevalent in rural market and this

poses a big challenge to the retailer. In case of Hearty Mart model this was curbed to an

extent as the franchisee owner being a native of the village knew customers personally

and he took the risk of credit on himself.

Rather than opening our own branch the franchisee model worked much better as it brought a

feeling of empowerment to the villagers and they were happy to see a person from amongst them

owning a modern organized retail store.

Sustaining a retail brand: This is the third and most important aspect of brand creation. Our

franchise model was launched in Ilol but it needed a backhand support. Since Ilol was the first

franchisee in 2007, ours was a network of just two stores then. This did not help much and the

pressure on us started mounting as our franchisee at Ilol was heavily dependent on us for helping

them in procuring merchandise at an economical cost and we were also concerned about

justifying our franchise fee.

If a strategy of brand sustenance is not worked out, brands might die soon. We knew this fact and

started thinking upon ideas on brand sustenance. A community’s rural base had been targeted by

us for a franchise model. As already mentioned this ‘Cheliya’ community is into restaurant

business and quite well known for its Punjabi joints in major cities and urban Gujarat. We

devised a backward integration strategy of creating a separate business which would be into bulk

supplies of food-grocery, spices to the restaurants. This would be a part of a value chain. It would

purchase in bulk for the restaurants owned by them, this bulk purchase would give us benefits of

economies of scale which would passed on to the franchisee and thus help them procure food-

grocery economically.

Value-Chain of Hearty Mart

The Beneficiaries

Village entrepreneurs who want merchandise at an economical rate

The Business

Hearty Mart: We needed bulk buying capacity to avail the benefit of economies of scale

The Market

Community owned

Restaurants: Requires wholesale groceries at economical cost

Community villagers who stayed back in

Community Entrepreneurs

who ventured out

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This strategy helped us in developing a new company with different sets of entrepreneurs –

Hearty Mart Enterprise Pvt Ltd. This business gradually picked up well and it has become a

backhand support to our franchisee. We are creating our private brands in this company which are

being sold through our network of stores. With Hearty Mart Super Market and Hearty Mart

Enterprise Pvt Ltd in place, we launched an in-house ‘Franchise Development Cell’ comprising of leading managers from both the firms. It works as a consultant to all the

franchisees and help them with ideas and strategy of growth. Now with a proper support system

in place our franchisee network has started soaring in the rural market.

During one of the visits to our franchisee in a village, a common friend told me that Kamal bhai

was not keeping well. I paid a visit to him at his native village along with my team. During the

course of conversation on a lighter note I mentioned the debt I owed to him by having pocketed

the many chocolates from his store. He smiled and said the only way to pay back would be to

make Paavan Kirana Store – a Hearty Mart franchise.

174

Study of Effect of Role Ambiguity on Job Satisfaction of Employees in

Apparel Retail

Anjali Gokhru Faculty Member, K.S. School of Business Management, Gujarat University, Ahmedabad

Nidhi Desai Research Scholar, Gujarat University, Ahmedabad

Abstract

______________________________________________________________________________ The purpose of our study was to ascertain the effect role ambiguity on job satisfaction. The role of an

employee refers to the duties and responsibilities of a job. It is important that the employee is clear about

his/her roles; any vagueness will result into role ambiguity. This may have effects on the employee’s job

satisfaction, commitment, loyalty, performance and desire to stay on the job. Our paper focuses on the

effects of such ambiguity on job satisfaction. This paper discusses the results of a survey conducted on

employees of retail-apparel segment. One hundred forty four respondents from five different apparel stores

of Ahmedabad were surveyed. One to one discussions regarding the topic were done with the managers

and the staff to get the responses to the questionnaire. The statistical analysis was done by regression and

correlation in order to find out the effect of role ambiguity on intrinsic, extrinsic and total job satisfaction

and to study the effect of demographic factors on role ambiguity and job satisfaction; Mann-Whitney and

Annova tests were used. Results from analysis of questionnaire showed that role ambiguity has a negative

effect on job satisfaction. We also found out that role ambiguity differs with gender and organizations but

not with hierarchy; while job satisfaction differed only with organization. These findings are significant to

the managers to design better job descriptions and induction programs which in turn will help them to

reduce the attrition rates which are a major concern in Retail sector. It will also inculcate a feeling of

belongingness and increase the commitment of the employees. Managers need to focus on the issue of high

power distance; so that employees feel free to discuss about their problems and give suggestions related to

job. Job related policies and procedures like opportunities for professional growth, recognition of

accomplishments, promotional policies, compensation practices, etc. should be transparent and effectively

communicated to the employees.

Key Words: Role Ambiguity, Role Clarification, Job Satisfaction, Retail Employees

________________________________________________________________________

Introduction

The Retail Sector of Indian Economy is going through the phase of tremendous transformation.

The Indian retail industry is the fifth largest in the world. The retail sector of Indian economy is

categorized into two segments such as organized retail sector and unorganized retail sector with

the latter holding the larger share of the retail market. At present the organized retail sector is

catching up very fast. The impact of the alterations in the format of the retail sector changed the

lifestyle of the Indian consumers drastically. It is small wonder then that retail sector has opened

the floodgates of employment opportunities to the Indian youth.

Apparel Retail Over the past couple of years there have been sweeping changes in the general retailing

business, mainly in apparel retailing which was once strictly a made-to-order market for

clothing has changed to a ready-to-wear market. Big players like Tata, Raheja, Biyani, etc have

intensified the competition with their professional retail chains like Westside, Shopper’s Stop

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and Pantaloons. Recently, India is increasingly being looked upon as a major supplier of high

quality fashion apparels and Indian apparels have come to be appreciated in major markets

internationally. Preference for readymade garments is increasing and this has become inevitable

with the rise in urbanization. The preference for the branded Western and Indo-western apparels

among the working women is on the rise, which is a welcome relief for the manufacturer and

retailers of branded apparel. The dressing habits are getting refined if not changed specifically

among the working women. A large young working population with a median age of 24 years;

growing numbers of nuclear families in urban areas; increasing working-women population and

emerging opportunities in the services sector have increased the average consumer spend on

branded clothing.

Human Resource in Retail The HR factor in retail management is still largely ignored. The job of a retail employee is very

demanding as he is required to work nine hours every day, which is physically exhausting and

emotionally draining. To use the maximum potential of an employee, the retail brands should

understand the implications, and tactfully implement some remedial policies.

Retail Employees Not Entirely Happy Workers in the retail industry provided one of the lowest ratings of their company as a place to

work compared to other industries, according to a recent Hay Group Insight Employee Survey

Benchmark Report. As retail becomes more and more competitive, stores are open longer hours,

staffing is stretched and associates have to work harder and more varied schedules -- mandatory

weekends, late hours, and split schedules. This clearly has an impact on working conditions and

climate.

Attrition rates and retention of personnel There seems to be a high level of attrition in the retail sector which is almost 40% according to

a recent study. Front end jobs are facing an attrition rate as high as even 80%. Under the present

circumstances, retention and motivation of personnel has become the major concern of HR. A

congenial working atmosphere, support learning and training facilities, a highly competitive pay

structure are some of the effective retention practices followed by the retail sector. While

money is the main attraction for fresher and starters, career satisfaction is the main reason with

experienced personals. Assigning the "right project to the right person" is the organizational

motto these days with companies setting up Manpower Allocation Cells (MAC) to carry out this

agenda. Looking at the current scenario, it could be said that there is an acute shortage of

middle level management professionals in the Indian Retail Industry. The call is for HR

practitioners to play a more proactive and prominent role in order to retain the high tech skilled

employees who are constantly looking for greater gains and prospects in their work. This is the

real HR challenge to retain the "knowledge workers" and "knowledgeable workers" by

introducing new processes and procedures and still ride high in implementing organizational

effectiveness.

Role Ambiguity Role ambiguity is lack of clarity on one’s job profile. The employee remains confused about his

or her role or tasks, caused by lack of required information, lack of communication of available

information, or receipt of contradictory messages regarding the role. E.g. The CEOs of joint

ventures very often experience role ambiguity as they lack sufficient information regarding the

specific expectations of the different policy-makers in each parent firm, different expectations

of the different employee groups in the ventures, and divergent expectations from the vastly

different stakeholders. Naylor, Pritchard, and Ilgen (1980) state that role ambiguity exists when

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focal persons (role incumbents) are uncertain about product-to evaluation contingencies and are

aware of their own uncertainty about them.

Definition: Kahn and his co-authors defined the term "role ambiguity" in a broad sense by

noting that (p. 73): Role ambiguity is a direct function of the discrepancy between the information

available to the person and that which is required for adequate performance of his role.

Subjectively it is the difference between his actual state of knowledge and that which provides

adequate satisfaction of his personal needs and values.

Role Clarification Role clarification is an intervention that is provided in a formal context wherein the supervisor

(role sender) states his or her expectations to the direct report subordinate, and together the two

parties discuss means by which the direct report's obligations can be managed effectively. The

facets of the subordinate's role are, then, defined both in terms of content (i.e., what the duties

are) and process (i.e., how effective performance on the duties should be achieved). A form of

role clarification is responsibility charting. Responsibility charting can be defined as a diagram of

roles held by members of a top management team within the "critical result areas" (CRAs) of an

organization or business unit. After thorough enumeration and clarification of the list of critical

result areas, the procedure utilizes an individual survey of perceived roles within the CRAs,

followed by a group discussion to reach consensus on each manager's role in each CRA.

Job Satisfaction Job satisfaction is the attitude towards one’s job, and indicates the extent to which the employee

is content with his or her job. High levels of job satisfaction means that the employee experiences

a pleasurable emotional state resultant from the appraisal of one’s job whereas low job

satisfaction means that the employee is displeased or encounters stress with his or her job.

What Drives Job Satisfaction? The relationship of role ambiguity and role conflict in job satisfaction is not a correlation. While

lack of role conflict and ambiguity leads to low job satisfaction, presence of role clarity and

absence of role conflict by itself need not necessarily lead to job satisfaction. Job satisfaction is

the result of many variables.

For the purpose of our study a questionnaire containing two parts was used. The first part

measures role ambiguity. It contained 15 questions where respondents had to mark on a scale of 1

to 5. The second part measures job satisfaction and it is the short form of Minnesota Satisfaction

Questionnaire (MSQ). It contains 20 questions. MSQ is an instrument that measures satisfaction

with several different aspects of work environment. It takes little time to administer, is easy to

read, meets the expected standards for reliability and shows evidence of validity.

Intrinsic, Extrinsic and Total Satisfaction In the questionnaire, the job satisfaction part has been divided into 3 parts namely intrinsic job

satisfaction, extrinsic job satisfaction and total job satisfaction. Intrinsic satisfaction is the

satisfaction from those factors that are related to the person or the work he does. Extrinsic

satisfaction is the satisfaction from the factors outside the control of an individual. Total

satisfaction includes both intrinsic as well as extrinsic satisfaction. Questions 1, 2, 3, 4, 7, 8, 9,

10, 11, 15, 16, 20 are based on intrinsic satisfaction. Questions 5, 6, 12, 13, 14, 19 are based on

extrinsic satisfaction. For total satisfaction, questions of intrinsic and extrinsic as well as

questions 17 and 18 are also included. Intrinsic-context factors are less tangible but inherent to

the job; they are controlled by outside forces but affect a participant's internal motivation. The

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factors leading to intrinsic satisfaction are adequate support staff, stable environment,

communication with management, feeling valued as an employee, balance between work and

home, adequate guidance, quality supervision, meaningful work, accomplishing career objectives,

etc. Extrinsic factors are those that are traditionally provided by the employer. The factors leading

to extrinsic satisfaction are family leave, flexible schedule, cafeteria-type benefits, employer-

provided child care, competitive pay, continuing education, etc.

Literature Review

The issues of role ambiguity and work group performance can be traced back to

the Hawthorne studies completed in the 1930s (Roethlisberger & Dickenson, 1939).

Additionally, the seminal work of Kahn, Wolfe, Quinn, Snoek, & Rosenthal, (1964),

recognized that individuals and work groups may be impacted by role ambiguity and that

performance could suffer as a result.

Role ambiguity has been defined as a lack of clear information about job responsibilities and

expectations, including what should be done (expectation ambiguity), when it should be done

(priority ambiguity), how it should be done (process ambiguity), and behaviors that should be

exhibited (behavior ambiguity) (Kahn, et al., 1964; Sawyer, 1992; Singh, Verbke, & Rhoads,

1996).

Rizzo, House, & Lirtzman (1970) developed the measurement instrument which has been

used by the majority of researchers when exploring the effects of role conflict and role

ambiguity. Rizzo (1970) found that role ambiguity was highly correlated to job dissatisfaction

and to a lesser extent with anxiety and propensity to leave the organization.

Rizzo, House, & Lirtzman 1970; Van Sell, Brief, & Schuler 1981; Singh 1998 suggested that

role ambiguity is indeed negatively correlated with job satisfaction and job performance

variables.

Beehr, Walsh, and Taber (1976) surveyed 143 individuals from large mid-western

manufacturing companies and found a .51 (p < .05) correlation between role ambiguity and

job dissatisfaction. Their results also indicated a significant correlation between role

ambiguity and reduced effort towards quality, low involvement, tension, and fatigue. Beehr

(1976) concluded that because workers were unclear as to their required tasks, they were no

longer motivated to put an effort into maintaining quality, and therefore reduced their

involvement with others in the work situations.

Van Sell, et al. (1981) suggested that if employees do not know what is expected of them,

they may be working on the wrong things.

Fisher and Gitelson (1983) performed a meta-analysis in which they examined the results of

43 past studies of the effects of role ambiguity. From their analysis of the data they concluded

that role ambiguity was negatively related to organizational commitment, job involvement,

and satisfaction.

Singh & Rhoads (1991) believe that role ambiguity is more amenable to managerial

"intervention", that is implementing programs to diminish role ambiguity may be less

difficult to conduct than interventions for role conflict.

Sawyer (1992) has even hypothesized that different types of role ambiguity may have

different causes.

Only one study (Goldstein, 1996) has examined role ambiguity within the context of work

groups. There, it was found that, group level role ambiguity does exist and it can be

moderated by task interdependence for groups with high levels of interdependence. Goldstein

further found that group level role ambiguity lead to deteriorated group performance.

Singh (1998) postulates that role ambiguity may take on a curvilinear shape when measured

against job satisfaction, job performance, tension, turnover intentions, and organizational

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commitment. Singh (1998) used a self-report mail survey to capture information from

members of the Association of Sales and Marketing Executives (SME). Based on his

research, Singh suggests that the strategies determined to be helpful in dealing with role

ambiguity are somewhat out of step with conventional wisdom. He notes that increasing role

clarity, by reducing role conflict and role ambiguity, is likely to help salespeople obtain a

higher level of job performance, satisfaction, organizational commitment, and a lower level

of turnover intentions and job tension.

O'driscoll, M. P. & Beehr, T. A. (2000) The authors examined the salience of perceived

control and need for clarity as “buffers” of the adverse consequences of role stressors by

using hierarchical regressions on role ambiguity and role conflict, with job satisfaction and

psychological strain as the criterion variables. In a sample of U.S. and New Zealand

employees, perceived control was directly associated with higher satisfaction and reduced

strain but displayed no moderating effect on stressor-outcome relationships. Need for clarity,

on the other hand, was a significant moderator of the relationship of role ambiguity and

conflict to both satisfaction and strain; that finding suggests that researchers could give more

attention to dispositional variables in examining the correlates of role stressors.

Cha, S., Khan, M. & Murrmann, S. (2000). This study attempted to relate service orientation

discrepancy (SOD) between employees and managers to employees' affective reactions [role

conflict (RC), role ambiguity (RA), job satisfaction (JS), and organizational commitment

(OC)] in the restaurant industry. The findings of the study indicate that there is a SOD

between managers and employees; employees saw themselves as more enthusiastic and less

bureaucratic than managers. When this SOD was correlated with employee outcomes such as

RC, RA, JS, and OC, the results indicated that SOD had a direct effect on RC, JS and OC.

SOD also had indirect effects on JS, and OC through RC and RA. RC had a direct effect on

JS and an indirect effect on OC. RA had a direct effect on JS. Finally, JS had a direct effect

on OC.

(Yousef, 2000) investigated the joint effects of both role conflict and role ambiguity on job

satisfaction and three dimensions of attitudes toward organizational change, namely affective,

cognitive, and behavioural tendency in a multicultural work setting. The study used a sample

of 397 employees from several manufacturing and service organizations in the United Arab

Emirates. Results of the moderated regression analysis revealed that role conflict and role

ambiguity have no interactive effects on job satisfaction and the three dimensions of attitudes

toward organizational change. Results of the moderated regression analysis revealed that role

conflict and role ambiguity independently and negatively affect job satisfaction, cognitive

attitudes, and behavioural tendency attitudes toward organizational change. Results further

pointed out that role ambiguity affected attitude toward organizational change independently

and negatively.

Role ambiguity research has focused mainly on individual’s work roles associated with the

organization as a whole (King & King, 2001) but little has been done to examine roles within

small groups (Beauchamp & Bray, 2001

(Veloutsou & Panigyrakis, 2004). This paper examines the effect of brand managers' role

stress (role ambiguity, role conflict and role overload), perceived performance and

satisfaction on the intention to leave. The results revealed that increased role stress is

associated with lower levels of perceived job performance and job satisfaction, but its

influence on the intention to leave was not significant. In addition, higher levels of perceived

job performance and lower levels of satisfaction were generally associated with higher

intention to leave.

(Kemery, 2006) Edward R. Kemery examined relationships between role conflict and role

ambiguity and clergy satisfaction with their church appointment. Questionnaire data obtained

from 293 United Methodist clergy suggested that role conflict and role ambiguity each have a

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negative relationship with appointment satisfaction. However, when considered together, they

displayed a more complex relationship with appointment satisfaction. Contrary to

conventional wisdom, results indicated that although these stressors operate together to

influence appointment satisfaction, their combined effect is not simply cumulative. That is,

when role conflict is low, clergy report the most satisfaction when role ambiguity is high

Anton, C. (2009) Dysfunctions in role performance have been associated with a large number

of consequences, almost always negative, which affect the well-being of workers and the

functioning of organizations. An individual's experience of receiving incompatible or

conflicting requests (role conflict) and/or the lack of enough information to carry out his/her

job (role ambiguity) are causes of role stress. The hypotheses were confirmed by means of

path analysis carried out with data obtained from a sample of Spanish blue-collar workers

employed by a bus company and a water supply company. Role stressors were negatively

related to affective commitment mediated through job satisfaction. Affective commitment to

the organization exerted a positive influence on performance and reduces the withdrawal

behavior analyzed intention to leave and absenteeism although the strongest predictor

of intention to leave was, in this study, job satisfaction.

(Tarrant,2010) A study of "Role Conflict, Role Ambiguity, and Job Satisfaction in Nurse

Executives" establishes a negative relationship between role conflict and role ambiguity and

job satisfaction, and a positive relationship between role conflict and depression. This study

indicates that low to moderate amounts of role ambiguity relate with high levels of job

satisfaction and low levels of depression.

Research conducted by (Nayab, 2011) clearly established the role of role ambiguity and role

conflict in job satisfaction. Both role conflict and ambiguity lead to low job satisfaction. Job

ambiguity has a stronger negative correlation with job satisfaction compared to role conflict.

The greater the role ambiguity and greater the role conflict, the lesser the job satisfaction.

Research revealed that role conflict and role ambiguity cause stress, hostility, dissatisfaction,

low productivity, difficulties in decision-making, and distortion of reality, all of them

associated with low job satisfaction. Left unchecked these factors can even lead to failure of

the organization.

These findings support the received theory that role ambiguity has a negative effect on the

ability of individuals to work efficiently in a cohesive group environment and that

role ambiguity leads to a loss of organizational memory in the form of lost

employees. All of these studies indicate that role ambiguity comes at a cost to

individuals in the form of tension, anxiety, dissatisfaction and hostility towards others

and at a cost to the organization in the form of non-cohesiveness, decreased

performance, loss of intellectual capital, and the real dollar expense of replacing lost

workers. Without clarity in one’s role it is difficult to function within an ever

changing and very challenging environment. With clarity, individuals can potentially

establish a cohesive group environment that fosters the open exchange of ideas and

knowledge, which can then be transformed into organizational knowledge for the

improvement of group and organizational performance.

Research Methodology Objectives of Study

1. To find out the level of role ambiguity that exists in employees working at apparel stores

in retail.

2. To find out the satisfaction level among the employees working at apparel stores in retail.

3. To study the effect of role ambiguity on intrinsic, extrinsic and total job satisfaction level

of employees.

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Scope of Study

We are targeting employees at sales and managerial levels working in apparel segment of

five retail stores. The aim of our study is to find out the effect of role ambiguity on job

satisfaction.

Sampling Details

Sampling unit- Employees of:

1. Pantaloon- Law Garden

2. Lifestyle- Vastrapur

3. Globus- S.G highway

4. Westside- Law Garden

5. Reliance- S.G highway

Sample Size- 144

Sampling Method- Judgment Sampling and Convenience Sampling

Sampling Area

In this research we have covered 5 retail apparel stores of Ahmedabad city. Data sources

Primary data has been collected through a structured questionnaire.

Secondary data from various sources.

Data collection

For collecting the data the role ambiguity questionnaire and Minnesota Satisfaction

Questionnaire (MSQ) were used. The questionnaire consisted of 35 questions based on

Likert’s scale. In addition to this face to face interviews with the respondents were also

done.

Data Analysis

For the purpose of study regression was used in order to find out the effect of role

ambiguity on intrinsic, extrinsic and total job satisfaction. Non parametric test (Mann-

Whitney was used to compare the role study the effect of demographic factors like gender

and hierarchy on role ambiguity and job satisfaction. To compare role ambiguity and job

satisfaction organization wise, ANNOVA was applied. To study how intrinsic job

satisfaction and extrinsic job satisfaction relate to total job satisfaction we used

correlation statistics.

Analysis & Interpretation of Data

Measuring the level of Role Ambiguity

To measure the role ambiguity the role ambiguity percentile score were considered.

Respondents which had scores falling below 25th percentile are considered to be having

low role ambiguity, those who had a score between 26th to 74th were considered to have

a moderate role ambiguity and those who had a score falling above 75th percentile are

considered to have high role ambiguity.

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Graph 1: This graph shows the level of role ambiguity among the employees.

Interpretation: The above graph shows that 82.64% of the respondents had low role

ambiguity and 17.36% of the respondents had a moderate level of role ambiguity while

not a single respondent had a high level of role ambiguity. Thus we can say that overall

the role ambiguity among employees of retail sector is low.

Measuring the level of Job Satisfaction

Job Satisfaction was also measured in a way similar to that of role ambiguity.

Respondents who had a score below 25 are considered to be having a low level of job

satisfaction; those who had a score of 26 to 74 are considered to be having a moderate

level of job satisfaction and those who had a score above 75 are considered to be having a

high level of job satisfaction.

Graph 2: This graph shows the level of job satisfaction among employees.

Interpretation: It is evident in the graph that most of the respondents (84.72%) had high

job satisfaction and 15.28% had moderate job satisfaction. Thus we can say that overall

the job satisfaction among employees of retail sector is high.

Effect of Gender on Role Ambiguity

Hypothesis 1: There is no difference in perception of employees regarding role

ambiguity on the basis of gender.

Alternate Hypothesis 1: There is a significant difference in perception of employees

regarding role ambiguity on the basis of gender. Table 1: Mann-Whitney Test for effect of Gender on Role Ambiguity

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Gender N Mean Rank

RA 1 38 52.84

2 106 79.55

Total 144

Test Statisticsa

RA

Mann-Whitney U 1267.000

Asymp. Sig. (2-tailed) .001

a. Grouping Variable: Gender

Interpretation: In the table the Mann-Whitney U statistic is equal to 1267.0 with

significance (p value) equal to 0.001 which is less than 0.05. Thus we reject the null

hypothesis and accept H1and come to the conclusion that there is a difference in

perception of male and female employees regarding role ambiguity. Moreover mean

score (Female-52.84, Male-79.55) shows that males have more role ambiguity as

compared to females.

Effect of Hierarchy on Role Ambiguity

Hypothesis 2: There is no difference in perception of employees regarding role

ambiguity on the basis of hierarchy.


regarding role ambiguity on the basis of hierarchy. Table 2: Mann-Whitney Test for effect of Hierarchy on Role Ambiguity

Role N Mean Rank

RA 1.00 123 70.41

2.00 21 84.71

Total 144

Test Statisticsa

RA



a. Grouping Variable: Role


significance level (p value) equal to 0.145 which is greater than 0.05. Thus in this case

we reject alternate hypothesis and accept null hypothesis and conclude that there is a not

much difference in perception of CSA and managers regarding role ambiguity. Moreover

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mean score (CSA-70.41, Managers-84.71) shows that though managers have more role

ambiguity as compared to CSA’s the difference is very less.

Comparison of Role Ambiguity Organization wise

Hypothesis 3: There is no difference in perception of employees working in different

organizations regarding role ambiguity.


working in different organizations regarding role ambiguity. Table 3: ANOVA Test for Comparison of Role Ambiguity in different organizations

N Mean Std. Deviation Organization

Globus 21 1.7397 .53620

Westside 22 1.5424 .31154

Reliance 28 2.0048 .49255

Lifestyle 24 1.5083 .34714

Pantaloons 49 1.6014 .33264

Total 144 1.6755 .43350


Between Groups 4.452 4 1.113 6.899 .000

Within Groups 22.422 139 .161

Total 26.873 143

Table 4: Turkey Test for Comparison of Role Ambiguity in different organizations

(I) Org (J) Org Mean Difference (I-J) Std. Error Sig.

Globus Westside .19726 .12253 .494

Reliance -.26508 .11594 .156

Lifestyle .23135 .12001 .308

Pantaloons .13832 .10475 .679

Westside Globus -.19726 .12253 .494

Reliance -.46234* .11442 .001

Lifestyle .03409 .11855 .998

Pantaloons -.05894 .10307 .979

Reliance Globus .26508 .11594 .156

Westside .46234* .11442 .001

Lifestyle .49643* .11172 .000

Pantaloons .40340* .09515 .000

Lifestyle Globus -.23135 .12001 .308

Westside -.03409 .11855 .998

Reliance -.49643* .11172 .000

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Pantaloons -.09303 .10007 .885

Pantaloons Globus -.13832 .10475 .679

Westside .05894 .10307 .979

Reliance -.40340* .09515 .000

Lifestyle .09303 .10007 .885

Interpretation: The f-test statistics equals to 6.899 with a corresponding P-value of

0.000 which is less than 0.05. Therefore we reject the null hypothesis and accept alternate

hypothesis and conclude that role ambiguity differs with the organization.

The results of the Turkey test could be summarized as follows:

1. When compared to Globus, role ambiguity at Lifestyle, Pantaloons and Westside is

comparable and that at Reliance is more.

2. When compared to Westside, role ambiguity at Reliance is quite high while it is

comparable at Globus, Lifestyle and Pantaloons.

3. When compared to Reliance, role ambiguity at in Westside, Pantaloons and Lifestyle

is significantly high and at Globus it is comparable.

4. When compared to Lifestyle, role ambiguity at Reliance much higher, while at

Globus, Westside and Pantaloons it is comparable.

5. When compared to Pantaloons, role ambiguity in Reliance is quite high and at

Globus, Westside and Lifestyle it is comparable.

6. Reliance has highest role ambiguity compared to other organizations while Lifestyle

has the least.

On the basis of above analysis, the organizations on the basis of role ambiguity can be

ranked as follows:

Ranking on the basis of Role Ambiguity Organization

1 Lifestyle

2 Westside

3 Pantaloons

4 Globus

5 Reliance

This means that Role Ambiguity is lowest in Lifestyle followed by Westside, Pantaloons,

Globus, and Reliance.

Effect of Gender on Job Satisfaction

Hypothesis 4: There is no difference in perception of employees regarding job

satisfaction on the basis of gender.


regarding job satisfaction on the basis of gender. Table 5: Mann-Whitney Test for Effect of Gender on Job Satisfaction

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Gender N Mean Rank

TJS Female 38 63.78

Male 106 75.63

Total 144

Test Statistics

TJS



a. Grouping Variable: Gender


significance level (p value) equal to 0.132 which is greater than 0.05. We therefore accept

null hypothesis and reject alternate hypothesis and conclude that there is not much

difference in perception of male and female employees regarding job satisfaction.

Moreover mean score (Female-63.78, Male-75.63) shows that males are more satisfied

than females. Effect of Hierarchy on Job Satisfaction

Hypothesis 5: There is no difference in perception of employees regarding job

satisfaction on the basis of hierarchy.


regarding job satisfaction on the basis of hierarchy. Table 6: Mann-Whitney Test for Effect of Hierarchy on Job Satisfaction

Role N Mean Rank

TJS 1.00 123 72.61

2.00 21 71.88

Total 144

Test Statistics

TJS



a. Grouping Variable: Role


significance level (p value) equal to 0.941 which is greater than 0.05. We therefore accept

null hypothesis and reject alternate hypothesis and conclude that there is a not much

difference in perception of CSA and managers regarding job satisfaction. Moreover mean

score (CSA-72.61, Managers-71.88) also shows that there is not much difference in the

job satisfaction levels of CSA and managers. Comparison of Job Satisfaction Organization wise

Hypothesis 6: There is no difference in perception of employees working in different

organizations regarding job satisfaction.


working in different organizations regarding job satisfaction.

186

Table 7: One-way ANNOVA for Comparison of Job Satisfaction Organization wise

Organization N Mean Std. Deviation

Globus 21 4.2571 .50678

Westside 22 4.4568 .40039

Reliance 28 3.9482 .56870

Lifestyle 24 3.8688 .36529

Pantaloons 49 4.3418 .38015

Total 144 4.1917 .48865

ANOVA- TJS


Between Groups 6.904 4 1.726 8.807 .000

Within Groups 27.241 139 .196

Total 34.145 143

Table 8: Turkey Test for Comparison of Job Satisfaction Organization wise

(I) Org (J) Org

Mean Difference

(I-J) Std. Error Sig.

Globus

Westside -.19968 .13506 .578

Reliance .30893 .12780 .117

Lifestyle .38839* .13228 .031

Pantaloons -.08469 .11546 .948

Westside Globus .19968 .13506 .578

Reliance .50860* .12612 .001

Lifestyle .58807* .13067 .000

Pantaloons .11498 .11361 .849

Reliance Globus -.30893 .12780 .117

Westside -.50860* .12612 .001

Lifestyle .07946 .12315 .967

Pantaloons -.39362* .10488 .002

Lifestyle Globus -.38839* .13228 .031

Westside -.58807* .13067 .000

Reliance -.07946 .12315 .967

Pantaloons -.47309* .11030 .000

Pantaloons Globus .08469 .11546 .948

Westside -.11498 .11361 .849

Reliance .39362* .10488 .002

Lifestyle .47309* .11030 .000

Interpretation: The f-test statistics equals to 8.807 with a corresponding P-value of

0.000 which is less than 0.05. We therefore reject the null hypothesis and accept alternate

187

hypothesis and conclude that job satisfaction differs with the organization.

The results of the Turkey test could be summarized as follows:

1. Job Satisfaction at Globus is quite higher than at Lifestyle.

2. Job Satisfaction at Westside, Reliance and Pantaloons is comparable with that of

Globus.

3. Job Satisfaction at Westside is much higher than that at Reliance and Lifestyle. And it

is comparable with that at Globus and Pantaloons.

4. Job Satisfaction at Westside and Pantaloons is higher than that at Reliance.

5. Job Satisfaction at Westside and Pantaloons is higher than that at Lifestyle.

6. Job Satisfaction is highest at Westside and lowest at Lifestyle.

On the basis of above analysis, the organizations on the basis of job satisfaction can be

ranked as follows: Ranking on the basis of Job Satisfaction Organization

1 Lifestyle

2 Reliance

3 Globus

4 Pantaloons

5 Westside

This means that Job satisfaction is lowest in Lifestyle followed by Reliance, Globus,

Pantaloons and Westside.

The ranking for Role Ambiguity and rankings of Job Satisfaction are as under: Organization Role Ambiguity Ranking Job Satisfaction Ranking

Reliance 5 2

Globus 4 3

Pantaloons 3 4

Westside 2 5

Lifestyle 1 1

Graph3: This graph shows the comparison of ranking of the organizations for role

ambiguity with that of job satisfaction.

188

Now if we compare the rankings of Role Ambiguity and that of Job Satisfaction we get

the following results:

1. At Reliance, role ambiguity is high and job satisfaction is low.

2. At Globus again role ambiguity is high and job satisfaction is moderate.

3. At Pantaloons, role ambiguity is low and job satisfaction is high.

4. At Westside also role ambiguity is low and job satisfaction is high.

5. At Lifestyle both role ambiguity and job satisfaction are low.

6. Thus except for Lifestyle the case is higher the role ambiguity, lower the job

satisfaction and vice versa.

7. In case of Lifestyle though role ambiguity is low, job satisfaction is not high. This

may be due to the other factors affecting the satisfaction.

Effect of Role Ambiguity on Intrinsic Job Satisfaction

Hypothesis 7: There is no impact of role ambiguity on intrinsic job satisfaction.

Alternate Hypothesis 7: There is a significant impact of role ambiguity on intrinsic job

satisfaction. Table 9: Regression Analysis for Effect of Role Ambiguity on Intrinsic Job Satisfaction

Model R R Square Adjusted R Square

1 .474a .224 .219

ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression 8.570 1 8.570 41.044 .000a

Residual 29.648 142 .209

Total 38.217 143

a. Predictors: (Constant), RA b. Dependent Variable: IJS

0

1

2

3

4

5

6

role ambiguity

job satisfaction

189

Interpretation: The R

square value is 0.224,

which indicates that role

ambiguity accounts for

22.4% of variation in

intrinsic job satisfaction.

As seen in the ANNOVA table, value of F is 41.044 and significance level is 0.000

which is less than 0.05, therefore we would reject the null hypothesis.

It thus proves that there is a significant impact of role ambiguity on intrinsic job

satisfaction.

From table of coefficient we find that the regression line equation is as follows:

Intrinsic Job Satisfaction = 5.098 – 0.565* Role Ambiguity

In the equation 5.098 is the constant and (-0.565) is the role ambiguity coefficient

which shows that there is a negative effect of role ambiguity on intrinsic job

satisfaction.

Effect of Role Ambiguity on Extrinsic Job Satisfaction

Hypothesis 8: There is no impact of role ambiguity on extrinsic job satisfaction.

Alternate Hypothesis 8: There is a significant impact of role ambiguity on extrinsic job

satisfaction. Table 10: Regression Analysis for Effect of Role Ambiguity on Extrinsic Job Satisfaction

Model R R Square

Adjusted R

Square

1 .208a .043 .037

ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression 2.435 1 2.435 6.451 .012a

Residual 53.601 142 .377

Total 56.036 143

a. Predictors: (Constant), RA

b. Dependent Variable: EJS

Model

Unstandardized

Coefficients

Standardized

Coefficients

T Sig. B Std. Error Beta

1 (Constant) 5.098 .153 33.425 .000

RA -.565 .088 -.474 -6.407 .000

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Model

Unstandardized

Coefficients

Standardized

Coefficients

t Sig. B Std. Error Beta

1 (Constant) 4.724 .205 23.038 .000

RA -.301 .119 -.208 -2.540 .012

Interpretation: The R square value is 0.043, which indicates that role ambiguity

accounts for 4.3% of variation in extrinsic job satisfaction.

As seen in the ANNOVA table, value of F is 6.451 and a significance level is 0.012

which is less than 0.05, therefore we reject the null hypothesis and accept alternate

hypothesis.

It thus proves that there is a significant impact of role ambiguity on extrinsic job

satisfaction. From table of coefficient we find that the regression line equation is as

follows: Extrinsic Job Satisfaction = 4.724 – 0.301* Role Ambiguity

In the equation 4.724 is the constant and (-0.301) is the role ambiguity coefficient which

shows that there is a negative effect of role ambiguity on extrinsic job satisfaction.

Effect of Role Ambiguity on Total Job Satisfaction

Hypothesis 9: There is no impact of role ambiguity on total job satisfaction.

Alternate Hypothesis 9: There is a significant impact of role ambiguity on total job

satisfaction. Table 11: Regression Analysis for Effect of Role Ambiguity on Total Job Satisfaction

Model R R Square

Adjusted R

Square

1 .417a .174 .168

ANOVAb

Model Sum of Squares Df Mean Square F Sig.

1 Regression 5.942 1 5.942 29.915 .000a

Residual 28.203 142 .199

Total 34.145 143

a. Predictors: (Constant), RA

b. Dependent Variable: TJS

191

Model

Unstandardized Coefficients

Standardized

Coefficients

t Sig. B Std. Error Beta

1 (Constant) 4.979 .149 33.476 .000

RA -.470 .086 -.417 -5.469 .000

Interpretation: The R square value is 0.174, which indicates that role ambiguity

accounts for 17.4% of variation in total job satisfaction.

As seen in the ANNOVA table, value of F is 29.915 and a significance level is 0.000

which is less than 0.05, we therefore reject the null hypothesis and accept alternate

hypothesis.

It thus proves that there is a significant impact of role ambiguity on total job

satisfaction.

From table of coefficient we find that the regression line equation is as follows:

Total Job Satisfaction = 4.979 – 0.47* Role Ambiguity

In the equation 4.979 is the constant and (-0.47) is the role ambiguity coefficient

which shows that there is a negative effect of role ambiguity on total job satisfaction.

Major Findings

1. There are wide differences in the opinions of male and female employees regarding

role ambiguity. Males are having higher role ambiguity as compared to females.

2. As role ambiguity mean values of CSA’s and managers are not showing much

variance we can say that their opinions regarding role ambiguity are quite similar.

3. When role ambiguity in 5 different organizations was compared, it was observed that

it differed significantly. It was highest in Reliance and least in Lifestyle.

4. The opinion of male and female employees regarding job satisfaction is same as their

mean values are same.

5. As job satisfaction mean values of CSA’s and managers are not showing much

variance we can say that their opinions regarding job satisfaction are same.

6. Like role ambiguity, job satisfaction also differed significantly with organizations. It

was highest in Westside and lowest in Lifestyle.

7. It was found that role ambiguity has a considerable impact on intrinsic job

satisfaction as it accounted for 22.4% of variations in it. The following equation was

derived from the regression study done between role ambiguity and intrinsic job

satisfaction:

Intrinsic Job Satisfaction = 5.098 – 0.565* Role Ambiguity

1. Role ambiguity also had an impact on extrinsic job satisfaction and accounted for

4.3% of variations in it. The following equation was derived from the regression

study done between role ambiguity and extrinsic job satisfaction:

Extrinsic Job Satisfaction = 4.724 – 0.301* Role Ambiguity

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2. Since general satisfaction is the sum of IJS and EJS, so role ambiguity accounts

for 17.4% of the variations in general satisfaction. The Regression line equation is

as follows:

Total Job Satisfaction = 4.979 – 0.47* Role Ambiguity

Conclusions & Recommendations

A survey of employees at the Retail stores revealed that there is a negative effect of Role

ambiguity on Job satisfaction. Overall, the role ambiguity is low and job satisfaction is

high. This high level of job satisfaction is attributed to various factors among which Role

ambiguity is one. Results revealed that intrinsic satisfaction, rather than extrinsic

satisfaction tends to be predictive of total job satisfaction and desire to stay on the job.

Strengths of this study are that it covers major players of the Retail apparel segment and

data has been collected only after detailed interaction with the respondents. Strength is

that the findings corroborate earlier surveys.

The understanding of the research will aid the H.R. manager to design job description

which would enhance job satisfaction and commitment to the organization by reducing

role ambiguity. It would help managers to assign right person for the right job and make

employees more clear about their roles. It would also give them an idea as to how to

increase job satisfaction by defining clearer roles. The managers should see to it that the

orientation program should not be just a formality. The outcome of the research would

also contain a comparative study of different stores in retail. This would give an idea as

to how role ambiguity and job satisfaction differ in different organizations.

References

1. Antón, C. (2009). The impact of role stress on workers' behaviour through job satisfaction

and organizational commitment. International Journal of Psychology, 44(3), 187-194.

2. Cha, S., Khan, M. & Murrmann, S. (2000). The influence of service orientation discrepancy

between managers and employees on employees’ affective outcomes. Asia Pacific Journal of

Tourism Research, 5(1), 65-72.

3. Kahn, R. L. (1964). Organizational Stress. New York: Wiley.

4. Kemery, E. R. (2006). Clergy Role Stress and Satisfaction: Role Ambiguity Isn’t Always

Bad. Pastoral Psychology , 54 (6), 561-570.

5. Nayab, N. (2011, Jan 9). Role Ambiguity and Role Conflict in Job Satisfaction. (L. Richter,

Ed.)

6. O'driscoll, M. P. & Beehr, T. A. (2000). Moderating Effects of Perceived Control and Need

for Clarity on the Relationship Between Role Stressors and Employee Affective Reactions.

The Journal of Social Psychology, 140(2), 151-159.

7. Posner, B. Z. & Randolph, W. (1979). Perceived Situational Moderators of the Relationship

between Role Ambiguity, Job Satisfaction, and Effectiveness. The Journal of Social

Psychology, 109(2), 237-244.

8. Roethlisberger, F. J. (1939). Management and the Worker. Harvard University Press.

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9. Tarrant T, S. C. (2010). "Role Conflict, Role Ambiguity, and Job Satisfaction in Nurse

Executives.". Nursing Admin Quarterly , Jan/March.

10. Veloutsou, C. A. & Panigyrakis, G. G. (2004). Consumer Brand Managers' Job Stress, Job

Satisfaction, Perceived Performance and Intention to Leave. Journal of Marketing

Management, 20(1), 105-131.

11. Yousef, D. A. The Interactive Effects of Role Conflict and Role Ambiguity on Job

Satisfaction and Attitudes Toward Organizational Change: A Moderated Multiple Regression

Approach. International journal of stress management , 7, 289-303.

194

Implications of Technology on Retail

Jasleen Sardar

Senior Marketing Executive, Arvind Ltd

Himani Sardar

Assistant Professor, GLS (J P Shah IBA), Ahmedabad

Abstract

______________________________________________________________________________ During past decade, a number of new technologies have evolved including the internet and it has

fundamentally changed the scenario of how retailers compete in the market. This evolution in technology

has affected retailing in terms of strategy as well as operations. It is even important as to how retailers

conceive such technology. Role of technology in retail has taken an important progress as to maintaining

and meeting the customers’ demands through multi channel. This paper tells as to how information

technology has been used in retail. It also explains the immergence of Omni channel being the

modernization in retail and e-commerce space. Explanation of how Omni channel helps enriching the

customer experience has also being done. Inclusion of case studies has been added to know how the

internet, ecommerce, Omni channels are playing the part in changing the face of retail in the whole world.

Keywords: - Retail, Evolution, Omni channel, technology, customer experience

________________________________________________________________________

Introduction

Elevation in technologies offers a possibility of implementing a great number of contemporary

solutions. These solutions target to increase effectiveness of any individual or enterprise. Such

technological innovations have played a major role in shaping the retail landscape of time.

Information technologies may be applied to different areas of a retail enterprise, for example

supplies, stock control, logistics, customer service. Some of them are used for back-room

operations; others are available for customers in a salesroom. Today, waves of interactive

technologies, many of which are empowered by the Internet, are forcing retailers to rethink the

way they do business.

Thomas P. Hughes in another book American Genesis: A Century of Invention and

Technological Enthusiasm, 1870-1970, offered definition of technology as: “Technology is

the effort to organize the world for problem solving so that goods and services can be invented,

developed, produced, and used.”

In Lever of Riches, Mokyr defines “technological progress” as follows: “By technological

progress I mean any change in the application of information to the production process in such a

way as to increase efficiency, resulting either in the production of a given output with fewer

resources (i.e., lower costs), or the production of better or new products.” (p. 6)

Thus we could say that all the authors duly know the importance and implementation of

technology with passing over of time in all areas of development.

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The world of retailing continues to change swiftly as interaction between the physical and the

digital world opens up new business opportunities and challenges that were hard to imagine just

decade ago. It is now widely recognised that the Internet’s power, scope and interactivity

provide retailers with the potential to transform their customers’ shopping experience

[Evanschitzky et al, 2004; Wolfinbarger and Gilly, 2003], and in so doing, strengthen their own

competitive positions [Doherty & Ellis-Chadwick, 2009; Levenburg, 2005]. Retailing is the

final stage in the distribution process (from manufacturers to consumers). It includes all the

activities involved in selling goods or services directly to final consumers. Any organization

selling to final consumers –whether it is a manufacturer, wholesaler or retailer –is doing

retailing.

“Retailing includes all activities directly related to the sale of goods or services to the ultimate

consumer for personal non business use”-- William J. Stantion and Charles Futrell.

Internet technology plays a vital role in providing quality services by the business units.

Retailing with other parts of business process has also been taking advantage of such

technological revolution to improve their present services. The cutting edge for business today

is E-commerce. The effects of E-commerce are already been observed in various areas of

business world such as launching new products and services to customer service. Businesses are

increasingly using the Internet for commercial activities. The ubiquitous nature of the Internet

and its wide global access has made it an extremely effective mode of communication between

businesses and customers [Rowley (2001)].

The World Trade Organization defines e-commerce as, "e-commerce is the production,

distribution, marketing, sales or delivery of goods and services by electronic means."

Prospects of E-commerce are available for all who are a part of supply chain management. A

retailer can save his existence by linking his business with the on-line distribution. By doing so,

they can make available much additional information about various things to the consumers,

meet electronic orders and be in touch with the consumers all the time. It is also known as

internet retailing or E-retailing or E-tailing.

“Internet retailing does not comprise merely buying and selling goods and services via

computers and computer networks. It is a new retail channel, which retailers can use for a range

of activities.” Chaffey et al, 2000.



1. To know the different uses of technology in the supply chain management.

2. To comprehend the impact of new technology.

3. To understand the role of technology in retail.

4. To study about the evolution or development of technology in retail.

Scope: Illustrative analysis is confined to two companies out of which one is from UK named

Oasis (Fashion retailer) and second is from U S named Chipotle (chain of restaurants)

196

Sample Size: Analysis of two cases to justify the title

Type of data: Secondary data was used.

Source of Data: (i) Different websites (ii) Annual reports of respective companies

Limitations: (i) Evolution of technology only in retail sector has been considered. (ii) Only 4

cases (2 product providers & 2 service providers) have been considered to understand the fact.

Literature Review

Barbara Kucharska (2012) in her article “INFORMATION TECHNOLOGY IN RETAIL

TRADE” states that, the goal of IT in retail is not only to increase the effectiveness in of retail

business only in terms of operations or stock management but also in customer service due to

customisation and automation. The success of such IT practices in retail not only depends on

retailers but also on the attitude, acceptance and usage of technology by the customers. The

survey done by her shows that the customers not only use the implemented technology but also

wishes that retailers must keep on updating such practices by innovative and new technologies.

S.Ramesh Babu, P.Ramesh Babu , Dr.M.S.Narayana (2012) have mentioned in their article that

Retail is growing as a Hi-tech business due to changing consumers aspirations. But retail is still

nor regarded as an industry in India so growing with multiple folds effects is still less. The

success and failure lies with the execution of retail strategies. In this context retail business is an

early adapter of technology. This is one business where the need to capture accurate

information and make it available not only within the store, but send it to warehouses,

distributors, manufacturers, as soon as it has been acquired to manage the short shelf life of

goods and the need to manage the costs of inventory. Their paper focuses on emerging

technologies like RFID system, POS hardware and software and cross channel communications

in retail to develop it for functions like supply chain efficiency, cost control and to achieve

differentiation in market place by a product or service.

Data Analysis

Information used in retail –

Starting from industrial revolution to technology evaluation, every development embarks its

marks and integrates in various industries and aspects. These advancements creeping in day to

day life makes it important for product manufacturer or service provider to catch up with the

trend, so that they can match customer expectation, enhance their experience and increase their

turnover.

With the advent of technology usage and advancement of same in retail sector has opened

various horizons for the service/ product provider in terms of - channels for convenient

purchasing, direct contact with a range of customers through social media, omni channel

retailing, directed advertising etc. Every piece of information is important to understand and

gauge performance. This information is generally derived from the importance of data received.

The right data, in the right form to the right set off people at the right time, is one of the greatest

tools in the hands of the retailer.

Information is always with reference to a particular time frame. Below are the factors affected

through constant updating and incursion of technology in retail activities?

197

Efficient Stocking of merchandise

There are various softwares available that are used in retail sector that help in deriving to

important conclusion on stocks and merchandise. Items purchased or returned suggest

information about performance of the merchandise and the collection per say in particular

season. It acts as the base for sales analysis and aides in reaching to the decision of replenishing

or reordering merchandise for future planning. In this way technology helps in analysing the

performance of collection, planning for next season and avoids situations of stock out helps spot

merchandise or products timely markdowns and higher inventory turns.

Collection of Data

Data is one of the important elements for any retail unit. Here it is when technology helps any

form of industry or company to collect, save, nurture and make efficient use of the data

collected about consumers. This data helps in understanding the purchase history of the

consumers, purchase frequency and typical basket size. This information is generally gathered

through bills made and maintained through loyalty program the store offers to the customer. It

helps in rewarding the regular customer and maintaining them.

Efficiency in Operations

The use of information technology serves as a basis for integrating the functioning of various

departments. When a retailer decides to use the power of technology to aid business, the

investment in terms of money is usually high. However the benefits of the use of information

technology are many. As the process gets automated the time involved in particular task is

reduced. For example, a person manually billing a customer for purchase made will take a

longer time as compared to a person who is needed to scan in the items using the point of sale

systems.

Helps Communication

Communication is a daily state of affair and most crucial, happening irrespective internally or

externally is supported by technology at the best. The information needs of the retailer largely

depend on the size and the spread of the organization. Technology has help retail explore

options to communicate in different variants to customers or manufactures or internally. From

website that helps bring potential customer to the business which acts as one of the best way to

put your brand in front of a larger audience. Besides the regular notion of communicating about

your brand through traditional medium, technology has made it a lot easier by sharing the same

on internet or other social mediums. With an increase in the number of stores and /or an

increase in the number of products sold in the store, gathering of information becomes crucial

Technology plays a vital role in gathering this information and making it available to the right

set of persons.

Omni Channel immergence –

Last year, the Oxford English Dictionary dubbed ‘selfie’ as the word of the year. If it were up to

the retail industry, however, 'Omni-channel' should have been the word to define 2013. As a

new way of thinking about multi-channel retailing, Omni-channel dominated conversations in

2013 and will continue to rule the day in 2015 and beyond. The evolution of technology within

the retail and e-commerce space is shaping how consumers behave and interact with brands and

savvy, smart retailers know that understanding shoppers’ behaviour is a key for success. These

retailers realize they can utilize technology to capitalize on consumer needs and customize

offerings to help significantly increase their bottom lines. The Omni channel performance has

various prospects starting from technological investment, brand differentiator, Innovation,

channel strategies. Consumer electronics and fashion industry noticed a major increase in shift

198

to Omni channel retail then compared to other industry as suggested by “Omni –channel retail -

A delliote point of view” report, 2015.

Following are the insights on the importance of omnichannel (and what happens when

companies aren’t using it).

1. 87% of customers think brands need to put more effort into providing a seamless

experience. (Zendesk)

2. Companies with extremely strong omnichannel customer engagement retain on average

89% of their customers, compared to 33% for companies with weak omnichannel

customer engagement. (Aberdeen Group)

3. 77% of strong omnichannel companies store customer data across channels, compared

to 48% for weak omnichannel companies. (Aberdeen Group)

4. 61% of customers have not been able to easily switch from one channel to another

when interacting with customer service. (Aspect)

5. 64% of customers expect to receive real-time assistance regardless of the customer

service channel they use. (Zendesk)

6. Companies with extremely strong omnichannel customer engagement see a 9.5% year-

over-year increase in annual revenue, compared to 3.4% for weak omnichannel

companies. Similarly, strong omnichannel companies see a 7.5% year-over-year

decrease in cost per contact, compared to a 0.2% year-over-year decrease for weak

companies. (Aberdeen Group)

7. By 2020, the demand for an omnichannel customer experience will be amplified by the

need for nearly perfect execution. (PricewaterhouseCoopers)

Impact of Information Technology on Retail that helps enriching customer experience

through Omni channel

A successful strategy in technology implementation should be aligned with the customer, retailer,

and product manufacturer. The issue arises as to who should be responsible for customer

experience integration: the retailer, producer, or technology provider.

In its current state, technology should complement the process of retailing and experience for the

customer below are some pointers that help us understand the evolution of technology has helped

established the Omni channel concept in retail :-

Channel Integration

In the integrated option, the online and mobile solution drives customers to the stores and

encourages them toward face-to-face contact, as well as provides transparent pricing. Customers

expect consistent, uniform, integrated service and experience, regardless of the channel they use;

they are willing to move seamlessly between channels—traditional store, online, and mobile—

depending on their preferences, their current situation, the time of day, or the product category.

Technology helps the customer to experience the same journey through online application or

visiting physical store increasing the scope and business for the store.

Mobile Solutions The need for cross-channel integration is even more apparent when mobile technologies are used

in-store. Because the importance of the mobile is growing, these should be included in the omni

channel strategy. The “traditional” barrier between “brick and mortar” and online is blurred,

because devices such as smartphones and tablets may be used in-store. This helps the customer

browse through the products easily and brand can make a customer stick to it more than a brick

and mortar store.

http://d16cvnquvjw7pr.cloudfront.net/resources/whitepapers/Omnichannel-Customer-Service-Gap.pdf

http://aberdeen.com/research/8675/ra-omni-channel-experience/content.aspx


http://blogs.aspect.com/2014/01/29/infographic-omni-channel-service-doesnt-measure-up-customers-are-tired-of-playing-games/

http://d16cvnquvjw7pr.cloudfront.net/resources/whitepapers/Omnichannel-Customer-Service-Gap.pdf


http://www.pwc.com/us/en/retail-consumer/publications/retailing-2020.jhtml

199

Role of Social Media With the mobile revolution, together with the growth of social media, has created the situation

where the customers “bring” into the store their whole social network. It helps the store

communicate anything instantly and customers can check a product, promote a product or

service, or contact someone (or a group) to ask a question or can share the feedback. In this new

situation, there is the emergence of one-to-one relationship between retailer and customer which

helps the retailer understand his TG well and their expectations. there are also opportunities in

this area, such as employing customers as brand advocates, involving them at various stages of

product design (co-creation), and utilizing their ability to access focus groups to test new products

and services; or even use social media as an additional sales channel (social commerce).

Changing Role of the Physical Store

Despite the online presence of the stores, customers still want to see, feel, touch, and try the

product. The traditional store could change its role to a “hub,” the focal point which would

integrate all sales channels. There is an opportunity to use the store as a place to provide a

personal experience that will attract customers, regardless of the channel used. The integration of

online and “brick and mortar” channels includes “click and collect,” the ability to order and return

or exchange goods in-store, ordering while in-store, using own mobile device or self-service

technology provided by the retailer. In store technologies have also changed the whole game for

instore experience with use of interactive screens, augmented reality, and “magic mirrors,” as

well as technologies for the staff, such as tablets. All such technologies should interact fully with

the customer experience.

Diverse Customer Requirements

It is not indifferent to say that customers have different requirements, not compulsorily every

customer needs or demands interface with technology. Some like it to be traditional. “Digital

natives,” people, who grow up with constant online access, can be contrasted with older shoppers,

who might still prefer traditional face-to-face interactions with staff members. Thus solution to

this is Omni channel which suits to everyone requirement considering the current scenario

Personalization versus Privacy An emerging issue is the balance between personalization and privacy. Retailers can collect

customer-related data using loyalty cards, and then target customers with product offerings. Large

organizations such as Apple, Google, Facebook, eBay, and Amazon, as well as individual

retailers, are tracking customer behaviour. It helps the retailer to push the right product

understand the shopping or searching history of the customer.

Supply Chain Redesign Supply chain investments are perceived as a key issue in channel integration. When the store is

considered a hub for retail activities, the supply chain design should reflect this. Issues such as

product availability, returns, delivery options, reverse flows, and inventory management across

channels should be addressed. The products could be ordered in-store (via assistant, supported by

technology or self-service technology—mobile or in-store), then delivered directly to the home in

a requested slot. All such options should be supported by redesigned end-to-end distribution and

delivery systems; there should also be integration of marketing and supply chain management to

ensure product availability across channels and a pull-order system from the product

manufacturers.

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Case Study: Oasis (Product provider)

UK fashion retailer Oasis has an ecommerce site, a mobile app, and several brick-and-mortar

locations and it does a pretty good job in fusing those channels to give people a great shopping

experience.

Oasis arms its in-store associates with iPads to give shoppers on-the-spot information on product

availability. This also allows the staff to ring up customers from anywhere in the shop. And if an

item isn’t in-stock, the staff can use their iPads to place online orders for the customer.

A similar service is made available for online shoppers. If an item is sold out online, customers

can use Oasis’ “Seek & Send” service where the retailer searches its stores for the product and

ships it to the shopper. Once the item is located, Oasis will send an email to notify shoppers and

let them track their goods.

In addition, Oasis provides convenient (and free) options when it comes to returning items. Aside

from letting people ship their items back or return them by heading to any Oasis branch, the

retailer also offers easy returns through a service called Collect+ that lets shoppers return

purchases through a network over 5,500 drop off points in local stores, including convenient

stores and grocery stores, allowing customers to return items outside of the normal 9 to 5 post

office hours.

Sephora (Product Provider)

It has “My Beauty Bag” program, which makes it easy for its loyal customers to manage their

“loved” products and purchase history from any device.

Sephora’s Beauty Insiders (i.e. members of its reward program) can use their Beauty Bag on their

phone or on their computer to view and track their purchases and rewards. They can add items to

their shopping list, view their buying history, save items for future purchases, and easily re-order

items. When they’re in the store, they can use Sephora’s app to access their shopping list to

complement their in-store experience

Chipotle (Service Provider)

Chipotle Mexican Grill is utilizing multiple channels to enable customers to place orders

wherever they are. People can place an order online for pick-up at the nearest Chipotle location,

and they can also use its official mobile app to order on the go.

Plus if they create an account, users will be able to track past orders and save their favourites for

faster ordering in the future. Account information can be accessed both online and using the app.

To pull off a successful omnichannel strategy, a retail store needs to determine the key tasks or

actions that customers perform throughout the shopping experience, and then let them accomplish

those tasks across multiple channels. Omnichannel retailing isn’t solely about selling across

multiple channels; it’s also about letting the customer do whatever it is they need to do

throughout their shopping journey no matter what device or platform they’re on.

Starbucks (Service Provider)

The Starbucks has its rewards app which is frequently mentioned in “top” lists of omnichannel

efforts and for good reason: the coffee company does an excellent job in providing a seamless

user experience across all channels. Customers can check and reload their Starbucks card balance

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through their phone, the Starbucks website, or when they’re at the store. Any balance or profile

changes are also updated in real-time, across all channels, letting users stay to know no matter

where they are or what device they’re using. Plus, any earned rewards are automatically reflected

in the account without any action on the user’s part.

Payments can either be paid with their physical rewards card or using their phone and the balance

will automatically be updated online and changes will be done in the app.

Conclusion

The understanding derived from the study and cases discussed helps us learn the role of

Information technology in retail sector. The journey of consumer from traditional shopping

behavior to current use of mobile devices, internet and social network for same, makes the

traditional online – physical dichotomy obsolete. The concept of Omni channel blurs the line

between the same. The emerging Omni channel business model focuses more on the interaction

between consumers and brand rather than the channel through which it caters. The whole activity

simply tries and concentrates in enriching customer experience. Information technology plays the

most important role for the retailer or company to plan out the model for existing traditional

model. As technology is the most crucial element to include mobile & social network

development, redesigning supply chain and focus on customer experience in omni channel.

Though major sales still happens through physical brick and mortar stores, but strong online

channel can increase store network, giving customers flexibility in purchasing. It helps offering

the best of both online and offline stores. Omni channel helps in creating a seamless shopping

experience that is more likely to drive sales across organization. The 2 most important leanings

that acts as benefits are - Collecting customer information for targeted marketing tactics and

reaching to more locations with more sales. But the major shortcoming that can act for Omni

channel is integrated organization. All the departments, offline or online needs to work closely to

overcome the factors that can act as glitches for Omni channel retailing.

The technology which is apparently used to develop the Omni channel should be complementing

it rather than replacing team. At the same time, store employees are perceived as a potential

barrier to technology implementation; thus, training and technology promotion among staff are

required. Since customer is more exposed to things and has opulent reach to the mass, hence its

most important to maintain the relationship as they act as brand advocates. Moreover the physical

store layout has to be optimized to such a level that the addition of new in-store technologies can

merge with current store journey.

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References

1. Barbara Kucharska (2012). “Information Technology in Retail Trade: a study on recently

used and planned information technology in retail trade in Poland”, University of Economics

in Katowice, Poland.-

http://www.ue.katowice.pl/uploads/media/9_B.Kucharska_Information_technology_in_retail.

...pdf

2. S.Ramesh Babu1, P.Ramesh Babu, Dr.M.S.Narayana (Jan-Feb 2012) “RETAIL

TECHNOLOGY: A COMPETITIVE TOOL FOR CUSTOMER SERVICE”, ISSN: 2250–

3676 [IJESAT] International Journal of Engineering Science & Advanced Technology,

Volume - 2, Issue - 1, 110 – 116

3. http://ijesat.org/Volumes/2012_Vol_02_Iss_01/IJESAT_2012_02_01_18.pdf

4. Omni-channel retail A Deloitte Point of View, Deloitte Report (Feb 2015).

5. https://www2.deloitte.com/content/dam/Deloitte/se/Documents/technology/Omni-channel-

2015.pdf

6. On solid ground: Brick-and-mortar is the foundation of online retailing. AT Kearney Report

(2014)

7. https://www.atkearney.com/documents/10192/4683364/On+Solid+Ground.pdf/f96d82ce-

e40c-450d-97bb-884b017f4cd7

http://www.ue.katowice.pl/uploads/media/9_B.Kucharska_Information_technology_in_retail....pdf

http://www.ue.katowice.pl/uploads/media/9_B.Kucharska_Information_technology_in_retail....pdf

http://ijesat.org/Volumes/2012_Vol_02_Iss_01/IJESAT_2012_02_01_18.pdf

https://www2.deloitte.com/content/dam/Deloitte/se/Documents/technology/Omni-channel-2015.pdf

https://www2.deloitte.com/content/dam/Deloitte/se/Documents/technology/Omni-channel-2015.pdf

https://www.atkearney.com/documents/10192/4683364/On+Solid+Ground.pdf/f96d82ce-e40c-450d-97bb-884b017f4cd7

https://www.atkearney.com/documents/10192/4683364/On+Solid+Ground.pdf/f96d82ce-e40c-450d-97bb-884b017f4cd7

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Raymond Women’s Apparel

Pranav H. Sheth

Research Scholar, B.K. School of Business Management, Gujarat University, Ahmedabad

Vasudev Modi

Faculty Member, B. K. School of Business Management, Gujarat University, Ahmedabad.

Abstract

___________________________________________________________________________ It is a proven truth that good retailing creates a strong impact on all tiers of the brand success and thereby

successful positioning in minds of the consumers. So an obvious question arises what is good retailing?

When we talk about good retailing, it includes many things but invariably includes good marketing in a

nutshell. Henceforth, the principle of good retailing is a top-bottom approach to be precisely followed and

importantly practiced by top management, especially when it is a question of brand extension.

One of India’s biggest apparel companies, Raymond has been successful in almost every segment that it has

ventured into. With iconic brands like Raymond, Color Plus, Park Avenue Parx, Manzoni and Notting Hill,

the company commands paramount respect in the industry especially in terms of its quality and thereby

consumer satisfaction.

Raymond had a vision to make couture with class and comfort available to both the gender who dreamt of it

but could not afford it. Raymond was cognizant of the fact that awareness levels for designer wear was

increasing at great pace in the country. The rise in demand for ‘value for money’ products and increasing

fashion awareness has seen the market for ready to wear increasing but it does not fulfill

consumer aspirations. Raymond found a huge gap here to fulfill consumer aspiration and therefore

ventured into fast growing women’s apparel business.

Understanding this need gap in the market an innovative venture was conceptualized by the inimitable

textile giant, Raymond Limited. It was an ideal marriage of two parties, a Corporate with strengths in

marketing and retailing and the designers gifted with immense talent. Raymond launched together some of

the finest range of women’s wear.

However, in spite of all resources and expertise available in abundance the Raymond women apparel

business never met its expectations in terms of volume, growth and financials. The Raymond women’s wear

brand, which was a brand extension, launched in 2007 did and is doing very badly.

Even in a metro like New Delhi, there are just two outlets where the company’s women wear line is sold. In

one of them at Select City walk, the shop owner reveals that even though the women’s wear line occupies 15

% of shelf space, it contributes to just around 5% of sales.

This paper examines the reasons for the poor performance of Raymond’s offerings for women and

recommends a possible solution.

Keywords – Women, Wear, Professionals, Brand extension, Marketing accountability, Retail,

Positioning.

___________________________________________________________

Introduction

Raymond Ltd. is largest integrated manufacturer of worsted fabric in the world headquartered at

Mumbai. It has over 60% market share in worsted suiting in India. It also the India’s

biggest woolen fabric maker. Textile division of the company has a distribution network of

more than 4,000 multi-brand outlets and over 637 exclusive retail shops in the domestic market

itself. Raymond suiting is available in India in over 400 towns through 30,000 retailers and an

exclusive chain is present in over 150 cities across India. Its products are exported to over 55

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countries including US, Canada, Europe, Japan and the Middle East. It has more than 20,000

design and colours of suiting fabric which makes it one of largest collection of designs and

colours by single company.

Background to Entry into Women’s Apparel

There has been a significant increase in the female work force size in India in the last decade.

The increasing numbers of females at work places have lured many companies to make women

specific apparels ranging especially for women in both casual and formal styles and fashion.

Raymond too was also one of such initial company but unfortunately not the first mover.

Raymond women apparels basically targets working women professionals of today.

Wooing Women

The Raymond group initially made an entry into women’s apparel through the “Be” brand line

of designer clothing launched in 2001. However, the brand failed to capture a sizeable market

share and was withdrawn in 2005. This was a hard lesson to learn because it was beyond

imagination that how such a textile giant with all the resources available in abundance to it,

failed into the women’s apparel segment.

However, learning from its past mistakes, Raymond reentered the women’s apparel market in

2007. In September 2007, Raymond made another effort to enter this category at two different

points. Instead of launching a separate brand for women, the company decided to extend both

the existing Park Avenue and Color Plus brands into women’s clothing. Thus, Park Avenue

Woman and ColorPlus Woman were launched.

It becomes important to know two evolutions in short of two most successful brands of

Raymond i.e. Park Avenue and ColorPlus.

Park Avenue: Park Avenue marked Raymond’s entry into the men’s Ready to Wear segment in

1986.A premium contemporary formal wear brand, Park Avenue targets men in the age group

of 30-40 years.

ColorPlus: ColorPlus was launched in 1993 by ColorPlus Fashions, then a unit of Coimbatore

(Tamil Nadu) based Ambattur Clothing Limited which was eventually acquired by Raymond in

2002.

To take advantage of these two established brands, Raymond reentered the market under the

aegis of its two flagship brands so as to reap the benefit of its strong positioning. However,

Raymond preferred not to go for any marketing efforts of women wear under these two brands

under fear that it may create negative impact on the male segment of these brands, which was

again not wrong as Raymond is well-known as a men’s brand and alike is again a concrete

positioning in minds of its consumers.

The marketing strategies of the two sub-brands are analyzed below which was divided broadly

into marketing plan and marketing mix.

Marketing Plan

Marketing Mix

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Products have three distinct lines –

1. Modern Classic Range – for business formal wear.

2. Urban Chic – for business leisure wear.

3. Opium Delight – for business evening wear.

Product has five different product lines –

1. Day wear range.

2. Sporty casual wear range.

3. Outdoor range.

4. Business casuals range.

5. Evening wear range.

Brand Recognition and Awards from 2011 to 2015

- The Brand Trust Report India Study 2015.

– The Brand Trust Report India Study 2014.

- Fortune Magazine.

- Asia Retail Congress 2013.

ed apparel brand - Brand Asset Valuator 2013 which appeared in Economic Times,

Brand Equity.

Textile

category.

-wear Brand of the Year - Images Fashion Awards 2011.

Background and History of Raymond Ltd.

Nine decades old group, in operation since1925.

space.

Brands

portfolio.

Retail Network

in India.

Integrated Operations

One of the few companies that is integrated across value chain.

Product Quality

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Textile brand Raymond has now set out to please women. Raymond is and was by and large for

the ‘complete man’, but now it intends dressing the ‘complete woman’. The women’s wear

offerings by Raymond under Park Avenue and ColorPlus brand will soon make ‘made-to-order’

garments for women from its state-of-art tailoring arm ‘Made-to-Measure’, based at Bangalore.

“Volumes are still small in the made-to-measure business today, but we are thinking about

offering the same service for women,” said Rakesh Pandey, President, Retail and Corporate

Marketing, Raymond (2002).

Women’s wear has never been Raymond’s forte, as it exited its prêt designer brand Be: in the

past. It has also moved out from the women’s wear category with its ready-to-wear brands such

as Parx and Color Plus.

However, Raymond continues to have women’s wear under its flagship readymade brand of Park

Avenue in the western formal wear category. “Park Avenue is the only readymade brand under

which we have women’s wear today. But now we would be entering the women’s garments

segment under our made-to-measure, and will also take it to our stores outside the country,”

added Pandey. Raymond’s made-to-measure stores are already present in West Asia including a

store at a Dubai mall.

Raymond’s entered the made-to measure customized solution market nearly five years ago and

has 45 outlets at present. The high margin ‘customized tailoring’ is still niche in India but there

are others such as the Aditya Birla Group (Linen Club fabrics) and even regional players such as

Cambridge eyeing this segment.

With prices ranging from Rs. 1,600 (for a single shirt) going up to Rs. 15,000 for a two piece suit,

prices can go up to a few lakh depending on the requirement of customers. As Raymond already

manufactures the fabric, offering customized solutions for garments was a natural extension for

the business. Going forward, Raymond would also be offering accessories such as cufflinks, ties

and bags as part of its made-to-measure offering.

The company is also enhancing the distribution of these services with van operations to offer

doorstep delivery of the garments. Besides, the regular stores of the company under ‘The

Raymond shop’ would continue to expand through the franchise route, but mostly in the domestic

market.

In the past, Raymond has been steadily expanding its stores in the international markets in places

such as West Asia and Bangladesh. “Today we have 30 stores in West Asia and another 20 stores

in Bangladesh. But now instead of expanding overseas, we would be adding 1,000 franchises in

the domestic market and entering deeper into the hinterland to tier 4 and 5 cities,” he added.

Most of Raymond’s made-to-measure shops continue to be owned by the company unlike the

franchise-led Raymond shops.

Raymond, the leading textile and apparel brand, with the famous "The complete man" tagline,

will now offer suiting solutions for women. The company plans to take advantage of the market

potential for executive wear among women.

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Pradeep Bhandari, group president, Raymond (2006) said, "Our study revealed that many women

buy Raymond fabrics and get it stitched for themselves. The move is to upgrade the services and

offer such facilities for women at our retail outlets."

Raymond has also signed an MoU with the National Institute of Fashion Technology (NIFT) to

train tailors in different styles and cuts. The company was also exploring the possibility of having

style consultants in Raymond outlets located in top cities, said Aniruddha Deshmukh, president,

retail and FMCG, Raymond (2007).

"Ready-to-wear garments have created excitement in India, but that cannot offer the wide range

and choices offered by tailored products. The expanding market and the increasing demand for

formal wear is creating a huge potential for tailor-made formal wear in India," said Bhandari,

adding that the boom in the services sector and increase in number of women professionals has

fuelled demand for suits in the country. Deshmukh said, "Fabric sales in malls are picking up

while the tailoring conversions have doubled. Currently, the company offers tailoring facility in

about 2-3 stores in malls, which we plan to extend to other stores as well.

Raymond, changing its perception as the caterer of complete men’s wardrobe, Raymond is

extending its ‘made-to-measure’ business to complete a woman’s wardrobe. The company will

soon make ‘made-to-order’ garments for women from its manufacturing facilities based in

Bangalore. Its flagship readymade brand of Park Avenue, Raymond offers a women’s range in

the western formal wear category. The made to measure offering would also be extended to

patrons outside India. Raymond’s made-to-measure stores are already present in West Asia

including a store at a Dubai mall.

“All said and done, still the financial numbers of Raymond do not look encouraging today as it is

facing challenges in terms of growth and profitability. In a micro niche category such as made-to-

measure, to even consider getting into woman’s wear is surprising. While the margins may be

high in the category, the business would lack in terms of volumes and will not have any

significant impact on the balance sheet of the company,” said Arvind Singhal, Chairman,

Technopak, a global management consulting firm (The Hindu, 2013).

Current research gap

The implications and consequences of mismanagement and non-adherence to good marketing

practices at top level has been a very serious issue in the failure or say limited success of

Raymond women wear.

It is the utmost need of today and necessity of tomorrow to focus on these issues now and if the

top management does not take up the wake-up call now it will repeatedly result into loss of

valuable and hard earned money of company, investors and most importantly small investors.

Moreover, various issues have remained unaddressed which must be addressed now for

“complete women” marketing however it is not at all easy and moreover the value of its

successful men’s brand image might be at stake. Notwithstanding, not much research is done in

this area. It is again interesting from the point of view that in spite of low success of its women’s

wear, Raymond has still preferred to keep the marketing of women wear at a very low pitch

which directly has a negative impact on the footfalls at its retail front.

The company should mainly focus on the following aspects. They are like -

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Exclusive retailing by company stores.

Tie-up with strong franchisees sup to three tier cities.

Online and offline retailing.

Balanced advertising/marketing which least damages the parent brand in men’s wear.

Identify present and potential competition.

Demand for and assessment of performance information (especially financial statements).

Styles and fashion statements of working professionals.

Changing patterns of business.

Media management.

Takeovers.

Coping with rapid changes in world of fashion.

Identifying, recruiting and maintaining top class fashion designers.

Creating its unique blend of designs and protecting them with IPR laws.

Need for collaborative effort.

Raymond needs to prepare itself and its employees for overseas assignment.

Employees should be made more motivated, focused and committed

Better use of special talents available in a diverse workforce.

Raymond needs to make good decisions about new markets, products and strategic

alliances.

Enhance customer loyalty by taking various measures.

Managing huge amount of information.

Employees need to be more creative in order to drive innovation.

Sponsorships to major fashion events.

There is utmost need to know in depth about top level management in respect to both the internal

and external policies affecting the segment and brand. All the mentioned reasons indeed provide a

strong reason to go for the research about such policies and lacunas therein.

Design / Methodology / Approach

The research findings are based on the market research of policy of retailing which includes

marketing of Raymond and possible solution for successful positioning of its woman’s apparels

without damaging the parent men’s brand.

The convenience based sampling is used here.

Findings

1. The research early research indicates the fact that the top management here was solely

responsible for its failure. It was the top management which directed and controlled its

activities in such a fashion which created hara-kiri for such good brand which satisfied every

quality parameter.

2. However, the concern for the men’s image of Raymond could not be put to stake and this was

the only reason why top management was reluctant to fast promote the women’s wear and

thus adopted a slow but steady growth and its penetration into women’s wear market.

http://en.wikipedia.org/wiki/Financial_statements

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Managerial Implications

Competition

Madura Garments was the first to extend the Allen Solly brand to the women’s line in 2002. The

company subsequently did the same with the Van Heusen range. Other players followed suit,

including Blackberrys, ITC’s Miss Player and Raymond’s Park Avenue and ColorPlus brands.

However, using its first mover advantage, Madura Garments saw sales of the Allen Solly

women’s wear sub-brand go up to 15 % of the total Allen Solly sales by 2004. Many other

players are also positioning themselves to take advantage of this growing market.

Potential entrants include Arvind Mills, which plans to launch women’s clothing under the

licensed Arrow and US Polo brands, and foreign entrants like the innovative Spanish designer

fashion brand Zara from Inditex.

Problems

The biggest hurdle to the success of the company’s women’s wear lines has been the image of the

Raymond brands. Raymond and Park Avenue have always been positioned to maximize their

exclusivity for men of class (with taglines like ‘The Complete Man’). Once that kind of image is

created for a premium brand (for which a more comprehensive identity is needed), it is very

difficult to change it in the short-to-medium term. Apparel is one of the key areas where men and

women have traditionally had different needs. Also, brands like Allen Solly have been in the

women’s market for eight years now, in which time, the perception of them as men’s brands has

been successfully changed to a great degree. None of the other brands had ‘maleness’ as such a

major component of their core identity as the ones from the Raymond group. The company erred

by not highlighting the extension into women’s market sufficiently through the right media. By

sticking to print advertisements, where a high degree of communication is sometimes not

possible, women’s awareness about these sub brands remains low.

An additional mistake was to enter two different parts of the woman’s apparel sector at the same

time. This meant that the company could not focus on building the core non-male identity

necessary to make either extension successful. Some of the choices about sales outlets location

may also have hurt the sub brands. For instance, in New Delhi, while Select Citywalk is a prime

location, the shop is located on the same floor as the Allen Solly and Van Heusen outlets.

Any female consumers looking for western wear would head to one of these shops, rather than to

one with a totally male-centric image company. How to overcome this mindset of women in

particular is going to be a big challenge for Raymond.

The-Way-Ahead

Given the lack of success of the women’s wear extensions over the past few years, company

would be better off creating a completely separate brand for women’s wear. This would allow it

to define a core identity and values that women can relate to. Trying to change the present sub-

brand(s) to give them such a makeover would risk diluting the parent brand. A possible marketing

strategy for the women’s wear brand is outlined below.

Marketing-Plan

Segmentation: Segment the women’s market by occupation (working woman vs. homemaker)

and age (25-35 years and above 35 years).

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The opportunity in the working women-wear segment is enormous.

Targeting: Focusing on the other segment (above 35 years) would be ideal as this segment would

be better suited for building a premium brand with a deep-seated identity.

This brand can be made an inspirational one and extended downwards in terms of age in the

future.

Only one brand should be created so that the company can focus its resources in this segment.

The brand can be targeted at the modern corporate woman in at a middle management or higher

level initially. Once established, the brand can be extended to target young women starting their

careers. Depending on the brand’s success, a new/related one can be introduced later on as a

smart casuals brand for women.

Positioning: In the first phase (targeting of older professionals), the brand can be positioned as

one which appreciates the unique nature of women who rise to high level positions while juggling

family responsibilities.

The brand shares the journey with them and when they get there, the brand is the woman’s way of

making a distinctive feminine statement. ‘Women have arrived – at the very top’ is the message

the brand would send out.

Later on, a line under the brand can be extended to young women just stepping into their first jobs

as a reassuring, comforting friend who is with them from the very beginning as they start their

career which is a new phase, a new journey and importantly a totally new facet of life.

Marketing-Mix

Product: The product range can be similar to that of the present Park Avenue Woman brand.

Some of the features from the Raymond apparel brand can also be incorporated for class, with

changes to emphasize the feminine nature of the clothing.

Price: Here, the price range can either be similar to the Park Avenue Woman range or, given that

the target segment consists of successful executives, a somewhat higher price can be charged.

Place: Given the profile of the target segment, exclusive brand stores can be opened in cities with

a large number of big companies (Mumbai, Delhi, Bangalore, Hyderabad). It also can be sold

through premium multi-brand retail stores.

Promotion: As a new brand, an aggressive campaign would be required in the initial phases. This

would mainly focus on business channels and up market publications. The brand name needs to

have a strong feminine component. Some of the suggestions for the taglines would be - ‘An idea

whose time has come.’ and ‘I know no ceilings.’

In addition to the media campaigns, to position itself as the working woman’s brand, involvement

with supporting women-specific initiatives launched by companies (like Infosys’ Women’s

Inclusivity Network) can further strengthen the brand. For example, this could take the form of

sponsoring a conference to share best practices for supporting women at work. Social media is

another medium which can be used for this purpose, for instance, hosting Facebook groups for

women to share their experiences and success.

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Research implication / Scope for further study

The research paper clearly shows a scope of further study. These can be enumerated as follows –

1. What new arenas of retailing, company should adopt for the success of women’s wear. The

exclusive store designs in modern world for exclusive women’s retailing.

2. The research gives an idea about areas where alike companies should tie-up with efficient

strong franchisees.

3. The areas where company should focus retail means online and offline retailing.

4. Why one company failed and the other prospered in the same segment / sector is a million

dollar question. As it is very important to know, understand and correct such failures due to

non-adherence or less adherence of good governance by top management, it becomes very

important to conduct corporation/company/sector/promoter specific research. Such research

will bring out the underlying truth beneath the surface which will invariably be much useful

to such companies at large, the same sector and different sector too.

5. To define and redefine brand extension measurements especially concerned to retailing

marketing.

6. Based on this paper, research should not only be restricted to big corporations but also in

MSME sectors especially in the mid-sized companies.

7. This paper also highlights an important point for the entrepreneurial researches as

entrepreneurs are by default the top management.

8. It will be helpful to chambers of commerce and trade bodies to educate their member

companies towards the importance of adherence balanced retailing of two opposite products

of same manufacturer/company.

9. It will be helpful to academia for imparting knowledge of real life cases in relation to brand

extension, retailing, marketing, reentering the market strategies.

10. It will help the top management to learn an important lesson that there are no short cuts to

success and any such shortcuts when fails leads to financial doldrums.

Conclusion

All in all, the women’s western wear market in India is an extremely promising opportunity.

No leading apparel company can afford to be left behind in this area.

Raymond’s foray into this market has not given good returns so far, due mainly to the lack of

a distinctive female brand identity, distributed focus and intensity of competition.

While the competition will only get tougher over time, the company can reap major benefits

with a course correction – launching a new exclusive women’s brand supported by a strong

marketing campaign to emphasize its feminine identity and focusing on one segment at a

time.

Given the Raymond’s proud record of leadership in many segments of the apparel sector, a

day may soon be at hand when it leaves competitors behind in this burgeoning sector as well.

References

1. Cherniss, C. (2001). Emotional Intelligence and Organizational Effectiveness.

2. GOG-AMA Library Corner online database.

3. http://www.researchandmarkets.com/reports/1927058/raymond_limited_company_profile_an

d_swot_analysis.

4. http://www.thehindubusinessline.com/companies/raymond-eyes-the-complete-woman-with-

madetoorder-offerings/article4428505.ece.

212

5. http://www.business-standard.com/article/companies/raymond-offers-suiting-solutions-for-

women-107041001099_1.html.

6. http://www.livemint.com/Companies/8RHcMrlyMlDia2SR0t1HiO/Raymond-eyes-women-

wear-with-launch-of-ColorPlus.html.

7. http://www.fashionunited.in/news/apparel/raymond-to-offer-made-to-order-wardrobe-for-

women-220220135007.

8. National Institute of Fashion Technology.

9. The website of The National Stock Exchange (NSE) and The Bombay Stock Exchange

(BSE).

10. The Mint research.

11. The brand equity, Times of India.

12. The Hindu, 18th February 2013.

213

Study of Consumer Behaviour in Purchase of Real Jewelry with special

reference to Ahmedabad City.

Mehal Pandya

Deputy Director, KMRO at Dr. Babasaheb Ambedkar Open University, Ahmedabad

Abstract

________________________________________________________________________ Men, women and children in every part of the world wear Jewelry in various forms in almost every

human culture. The word Jewelry is derived from the word "jewel" which was anglicised from the old

French word "jovel" around the 13th century. The Indian gems and Jewelry industry can be classified

into various segments such as diamonds, other gemstones, gold Jewelry, pearls and others. However, the

two major industry segments in India are gold and diamond Jewelry which are also classified as real

Jewelry.

The Indian gems and Jewelry industry has the potential to grow from $27.5 billion in fiscal 2011 to $55.3

billion in fiscal 2016 (Source: PC Jewel DRHP.) The states like Kerala, Maharashtra, Gujarat, and

Uttar Pradesh are some of the major demand centres of gold.

Key Words: Jewelry, Indian Gems and Jewelry, Gold and Diamond,Real Jewelry

________________________________________________________________________

Introduction The Gems & Jewellery industry is a fascinating industry in many ways: traditional, on one hand

and glamorous on the other. It is going through a progressive development from an object of

investment to a fashion accessory. It contributes to about 15 % of India’s total exports and is

one of the fastest growing industries in the country. Ahmedabad, Palanpur, Bhavnagar, Valsad,

Navsari and Surat (Cities of Gujarat) with diamond and jewellery units are the main

contributors to the gems & jewellery industry in India. Almost 80 % of the cutting & polishing

of diamonds (processing) is done in Gujarat. In Surat alone, 90 % of total diamonds in Gujarat

are processed by about 10,000 diamond units. Furthermore, in the current financial year

Gujarat’s Gems & Jewellery sector is expected to grow at a rate of 15-20 %. The future growth

will probably be driven by increased exports to US and other international markets and through

domestic consumption.

Literature Review

A literature review is a "critical analysis of a segment of a published body of knowledge

through summary, classification and comparison of prior research studies, and theoretical

articles". The aim of literature review is to show that "the writer has studied existing work in the

field of insight".

Literature Review on Consumer Buying Behaviour of Jewelry Zaveri Samrat (2003) However, since the late 1990s, there was a shift in consumer demand and

as a result women were increasingly opting for fashionable and lightweight Jewelry instead of

traditional chunky Jewelry. There was a rise in demand for lightweight Jewelry, especially for

consumers in the 16 to 25 age group, who regarded Jewelry as an accessory and not an

214

investment. Jewelers should understand the shifting needs, motivations and aspirations of

consumers in the Jewelry market, and to identify new trends and opportunities.

Bhandari Vandana (2005) The branded Jewelry segment occupied only a small share of the total

Jewelry market because of the mindset of the average Indian buyer who still regarded Jewelry

as an investment. Furthermore, consumers have faith on only their family Jewelers while buying

Jewelry. Consequently, the branded Jewelry players tried to change the mindset of the people

and woo customers with attractive designs at affordable prices.

Another study conducted on the practice of shopping for gold as a ritual (Huma Tariq, 2007)

analyzed three basic questions like why, when and how women purchase Jewelry.The study

identified that for many Indian women buying gold is a ritualistic activity. They primarily

purchased gold for Jewelry as well as an investment to support the financial security of their

family in future.

Shah, Ashwin (2008) Head of Retail at C. Mahendra Exports, he holds a similar view with

regard to Jewelry sales at modern shopping malls. Shah elucidates his point, “The young

generation often resorts to some impulse buying.” He stresses that serious buyers who are

looking for high value purchases for occasions such as weddings prefer to plan their Jewelry

shopping and eventually purchase from known reputed Jewelers

The online investment guide ‘Money Morning’ (Caggeso, 2008) identified that the most popular

method of investment in gold by the Indians is in Jewelry though various other ways of

investing like gold coins, bullion, gold ETF, shares in gold mining companies, gold futures etc.

are available.

Jay Desai, Grishma Tandel, Jairaj Tailor & Rohan Shahi,(2009) a report on buying behavior of

gold with regards to Tanishq stated that people are more price conscious & they feel that the

price in Tanishq are more than what the normal retailers have. Customers also found that the

patterns available are lesser than what they get in the normal retail store. Tanishq is one of the

service oriented Jewelry shop so customers are more attracted because of their service People

are not affected with the ambiance of the shop .

The report based the study on Jewelry market consumer (Unity Marketing, 2011) points out a

key difference in Jewelry buying behaviour between men and women. Men primarily purchase

it for gifting to women where as women purchase it for own use or to give as a gift.

‘Hallmarking in India: A Major Quality Initiative in the Largest Gold Jewelry Market in the

World’ (Prasad,2010) was a study conducted to understand the perception of customers

purchasing gold ornaments and their awareness levels on the concept of hallmarking by Bureau

of Indian Standards. This study finds that in India which is the world’s largest market for gold

ornaments and Jewelry, consumers’ protection is still not assured.

According to Shanoo Bijlani and Regan Luis report on Study Thinks Indian Industry Could

reach $100 Bn by 2015-The new Indian Consumer demand greater transparency, better service

and a more compelling value proposition driven by brands and fashion.

K. Balanaga Gurunathan & S. Muniraj,(2012) study evaluates the impacts of Customer

awareness and buyer Behaviour on Buying Jewelry Products–Special Reference to Tamil Nadu

State and concluded that Jewelry investment is a unstabilizing activity, the result shows gold

Jewelry with mean of 4.60 in the first priority , the silver Jewelry with mean of 2.30 in the

215

second priority, diamond Jewelry item with of 1.12 in the third priority, new methods of

investment like Platinum Jewelry with mean of 0.62 in forth priority of customer buying

behavior and awareness of Jewelry in TamilNadu state.

A study on ‘Consumer preference on branded Jewelry in Hyderabad’ (Kumar K. V., 2013)

states that the guiding factors behind purchasing Jewelry are price, purity and design. Other

influencing factors are variety, the brand image, influence of family and friends. The least

guiding factor for purchasing Jewelry are after sales service and display of items in the shop.

A study on ‘consumer attitude towards gold ornaments’ (Natarajan, 2013) states that gold is an

ultimate love object to Indians. It also points out that Jewelry designs vary from region to

region. In South India designs are inspired by nature whereas in North and West India the

designs are inspired by Mughals heritage like ‘meenakari’ and ‘kundan’ work. With these

legendary designs Indian Jewelry is entering into International markets like USA, EU, and

South East Asian countries.

According to (Dr.M.N Nawaz,Mr.Sudindra V.R,2013) that many investor still prefer Jewelry

,gold coins and gold bullion bars forms of investment and prefer to invest in ETF and futures

and options which gives more profit and easy form of investment.42% of investors prefer to

invest in gold than silver, platinum and diamond and the second preference is given to

silver,88% are willing to invest in gold,36 % of investor preferred options of investing in gold is

Jewelry.


The study is based on exploratory and descriptive research design.

To gain an insight into the Jewelry industry, data is collected from various secondary sources.

For fulfilling the major objectives of the study, primary data has been collected from women in

Ahmedabad city using a structured questionnaire. Non-probability sampling using Judgement

technique is used in selecting individual respondents since the study was confined to real

Jewelry items.

Sample Size : 152. Data is subjected to further analysis after forming tabulations and cross

tabulations, implications are drawn from the research findings that may be useful to Jewelry

retailers and for those doing research in this area.

Objectives of the study Women are more passionate about Jewelry as it represents a symbol of feminity and even social

status. The purpose of this research is to find out buying behavior of women towards real

Jewelry products with special reference to Ahmedabad city. Thus the study is focused on the

following objectives:

1. To identify factors affecting buying behaviour related to Jewelry items,

2. Identify preferences, brand awareness and buying attitude of women consumers in

purchasing Jewelry at various Jewelry retail stores,

3. Study consumers’ preferences among branded and non-branded Jewelry items,

4. To identify frequency, place and time of purchase, payment methods and other factors

influencing the purchase decisions.

216

Data analysis, Interpretation and Hypothesis Testing

1: Various Occasions for purchase of Jewelry by the women.

Ho: There is no difference in occasion of purchase of Jewelry by the women

H1: There is difference in occasion of purchase of Jewelry by the women

Occasion Of

Purchase Mean

Standard

Dev.

Std. Error

Of Mean Z Cal Null Hypo Significance

Festival 3.730263 1.41407583 0.114697 6.366907 Rejected Important

Birthday 2.552632 1.25020774 0.101405 -4.41169 Accepted Not Important

New-Year 2.276316 1.3678516 0.110947 -6.52277 Accepted Not Important

Marriage 3.697368 1.22495689 0.099357 7.018806 Rejected Important

Investment 2.967105 1.36891122 0.111033 -0.29626 Accepted Not Important

To Give Gift 2.565789 1.26007024 0.102205 -4.24842 Accepted Not Important

Interpretation: From the above table it is concluded that at Marriage and festival are the

occasion when Jewelry is purchased by the women.

2: Various kinds of Jewelry purchased by the women

Ho: There is no difference in preference of purchase of different kinds of Jewelry by the women

H1: There is a difference in preference of purchase of different kinds of Jewelry by the women

Kind Of

Jewelry Mean

Standard

Dev.

Std. Error

Of Mean Z Cal

Null

Hypothesis Significance

Gold 4.210526 0.907799 0.073632 16.44016 Rejected Important

Silver 3.269737 0.938717 0.07614 3.542643 Rejected Important

Platinum 1.657895 0.881873 0.071529 -18.763 Accepted Not Important

Diamond 2.361842 1.085486 0.088045 -7.24812 Accepted Not Important

Gem 1.427632 0.870586 0.070614 -22.2671 Accepted Not Important

Kundan 1.506579 0.910442 0.073847 -20.2233 Accepted Not Important

Interpretation: It is concluded that women give preference to the Gold and Silver from various

kinds of Jewelry while purchasing.

3 : Outlet preference for purchase of Jewelry by the women

Ho: There is no difference in Outlet preference for purchase of Jewelry by the women

H1 : There is difference in Outlet preference for purchase of Jewelry by the women

217

Outlet

Preference Mean

Standard

Dev.

Std. Error

of mean Z Cal

Null


Family

Jeweler 4.539474 0.992615 0.080512 19.12112 Rejected Important

Local Jeweler 2.276316 1.220426 0.09899 -7.31071 Accepted Not Important

Branded

Outlet

3.690789 1.382378 0.112126 6.160853 Rejected Important

Online

Purchase

1.5 0.895897 0.072667 -20.6422 Accepted Not Important

Interpretation: It is concluded that women give preference to the family jeweler and Branded

Outlet for purchase of Jewelry.

4 : Important factors while buying a piece of Jewelry by the women

Ho : There is no difference in importance of factors while buying Jewelry by the women

H1 : There is difference in importance of factors while buying Jewelry by the women

Factors Mean Standard

Dev.

Std.

Error of

mean

Z Cal Null


Purity 4.644737 0.884128 0.071712 22.93522

Rejected Important

Design 4.651316 0.641338 0.052019 31.74426

Rejected Important

Workmanship

3.828947

1.005094

0.081524

10.16815

Rejected Important

Comfort Of

Wearing


Price 4.375 1.056387 0.085684 16.04728

Rejected Important

Variety 4.440789 0.817035 0.06627 21.7411

Rejected Important

Information

Provided


Brand Name 3.756579 1.235424 0.100206 7.550227

Rejected Important

Antique Value 2.934211 1.50294 0.121905 -0.53968

Accepted Not Important

Counrty Of Origin 2.875 1.452369 0.117803 -1.0611


Economic Making

Charge


Interpretation: It is concluded that all the above mention factors are considered important by

the women while buying Jewelry except Antique value and country of origin.

218

5: Factors in selecting a retailer for Jewelry purchase by the women

Ho: There is no difference in factors for selection of retailer by the women

H1: There is difference in factors for selection of retailer by the women

Factors Mean

Standard

Dev.

Std.Error

of mean Z Cal

Null


Variety Of Stock 4.769737 0.62271 0.050508 35.0384 Rejected Important

Physical Comfort 4.25 0.882953 0.071617 17.4539

8

Rejected Important

Providing

Various Services

3.453947 1.351601 0.109629 4.14074

6

Rejected Important

A

Games/Playroom

For Children


Easy Parking 3.177632 1.328345 0.107743 1.64866 Rejected Important

Price Of Jewelry 4.605263 0.75357 0.061123 26.2630

2

Rejected Important

Making Charges 4.381579 0.924336 0.074974 18.4275

5

Rejected Important

Payment Options 4.217105 0.909871 0.0738 16.4918

8

Rejected Important

Proximity To

Home/Work

3.684211 0.962597 0.078077 8.76328

8

Rejected Important

Professionalism

Of Staff

3.828947 1.092898 0.088646 9.35124

1

Rejected Important

Store Credit And

Return Policies

4.171053 1.005094 0.081524 14.3645

3

Rejected Important

Location 3.901316 1.080691 0.087656

10.2824

7

Rejected Important

Latest Design

Available

4.703947 0.647249 0.052499

32.4568

5

Rejected Important

Discount Scheme 4.190789 1.062108 0.086148

13.8225

5

Rejected Important

Certified Jewelry 4.506579 0.903187 0.073258 20.5653 Rejected Important

219

5

Investment Plan 3.980263 1.161161 0.094183

10.4081

1

Rejected Important

Resale Value 3.960526 1.196935 0.097084

9.89374

4

Rejected Important

One Who Does

Maximum

Promotion


Long Relation

With Jeweler 4.144737 1.304889 0.10584

10.8156

8

Rejected Important

Interpretation: It is concluded from the above table that all the factors are the considered

important for selection of retailers by the women, except A games/Playroom for children, One

who does maximum promotion.

6 : Preference for the brand by the women

Ho: There is no difference in preference of brands of Jewelry purchase by the women

H1: There is difference in preference of brands of Jewelry purchase by the women

Brand Mean

Standard

Dev.

Std.Error

of mean Z Cal

Null


Tanishq 3.815789 1.56197 0.126693 6.43913 Rejected Important

Gili 2.223684 1.225805 0.099426 -7.80798 Accepted Not Important

Asmi 2.269737 1.229946 0.099762 -7.32007 Accepted Not Important

Nakshatra 2.578947 1.536941 0.124662 -3.37754 Accepted Not Important

Agni 2.414474

1.344795

0.109077

-5.36799


Ddamas 2.697368 1.513272 0.122743 -2.46558 Accepted Not Important

Kiah 2.289474 1.280582 0.103869 -6.84061 Accepted Not Important

Sangini 2.407895 1.324641 0.107443 -5.5109 Accepted Not Important

Diya 2.263158 1.27081 0.103076 -7.14851 Accepted Not Important

Parineeta 2.434211 1.374921 0.111521 -5.0734 Accepted Not Important

Interpretation: It is concluded that Tanishq brand is given preference in all the brands for

purchase of Jewelry by the women.

220

7: Payment methods employed by the women for purchasing Jewelry

Ho: Various payment methods is not employ by the women for purchasing Jewelry

H1: Various payment methods is employ by the women for purchasing Jewelry

Methods

of

Payment Mean

Standard

Dev.

Std.Error of

mean Z Cal

Null


Cash 3.815789 1.56197 0.126693 6.43913 Rejected Important

Credit

Card

3.532895 1.39037 0.112774 4.725338 Rejected

Important

Debit Card 4.144736842 0.989470185 0.08025663 14.26346 Rejected

Important

Cheque 2.578947368 1.536941237 0.124662396 -3.37754 Accepted Not Important

Voucher 2.414473684 1.34479542 0.109077312 -5.36799 Accepted Not Important

Installment 3.638157895 1.290396421 0.10466497 6.097149 Rejected

Important

Store

Credit

Card

2.289473684 1.280581585

0.103868882

-6.84061 Accepted Not Important

Interpretation: From the table it is concluded that Cash, Credit Card, Debit Card and

Installment are the important Payment methods employ by women for purchasing Jewelry.

8: Problems encountered by the women in acquisition of Jewelry

Ho: No problem are encountered by the women in acquisition of Jewelry

H1: Various problems are encountered by the women in acquisition of Jewelry Problems

Encountered

Means

Std.

Deviation

Std. Error

Z. Cal

Null

hypothesis

Significance

Lack of money 1.868421053

1.190335

0.096549

-11.7203


Lack of Time 3.967105263

1.216216

0.098648

9.803584

Rejected Important

Lack of Good

Design

4.144736842 0.98947

0.080257

14.26346

Rejected Important

Lack of Trust

on Retailer

2.578947368

1.536941

0.124662

-3.37754


Lack of

information on

purity

3.703947368

1.250467

0.101426

6.940482

Rejected Important

High labour

charge

3.638157895

1.290396

0.104665

6.097149

Rejected Important

Lack of

availability of

stock

2.289473684

1.280582

0.103869

-6.84061


Interpretation: From the table it is concluded that High labour charge, Lack of information on

purity, Lack of Good Design, Lack of Time are the various problems encountered by the women

221

Graphical Representation:

Question 1. Who usually does Jewelry shopping at your home?

Interpretation: From the Graph it is

concluded that 57% of the women purchase

Jewelry with their family member/Friends.

Question 2. How frequently do you go for Jewelry shopping?

Interpretation: From the graph it is

concluded that mostly women purchase at

the time of marriage or other occasion

Question 3: Awareness of the branded

Jewelry available in Market


concluded that 91% of the women are

having awareness regarding branded Jewelry

available in market

Question 4: Women Awareness towards branded Jewelry


concluded that 49% of brand awareness is

for Tanishq, It can be said Tanishq is more

popular than other brands

43%

57%

Jewelry Shopping

Selfpurchased

2% 5%

8%

34%

8%

43%

frequency for Jewelry

shopping Every month

Once in threemonths

91%

9%

Awareness of the branded

jewellery

Yes

No

49%

10% 7%

6%

14%

3%

3%

3% 2% 3%

Branded Jewellery

Tanishq

Gili

Asmi

Nakshatra

Agni

Ddamas

222

Question 5: Prefer to Purchase Branded Jewelry


concluded that 89% of the women don’t

prefer to purchase branded Jewelry and 11%

of the women prefer to purchase branded

Jewelry

Question 6: Awareness of Branded Retail Jeweler


concluded that from the Branded Retail

Jeweler Tanishq is popular

Question 7: Branded Jewelry Purchased.


concluded that though women are aware of

various brands available in the Jewelry but

only 5 % of the women purchase branded

Jewelry

Question 8: Knowledge about purity is important


concluded that 93 % of the women are

concern for knowledge regarding purity

Question 9 : Influential agents to purchase branded Jewelry

Interpretation: From the graph it is concluded that major influential agents are Friends, Media,

Advertisement, and Fashion, Internet/Catalogues, Resale value and Status Value for the

purchase

11%

89%

Prefer to purchase branded jewellery

Yes

No

47%

3% 2% 3%

8%

7%

8%

7%

6% 5% 4%

Branded Retail Jeweler Tanishq

Gitanjali

TBZ

Nakshatra

PC Jeweller

5%

95%

Purchase of branded jewellery

Yes

No

93%

7% Purity Knowledge

Definitely

Definitelynot

223

Demographic information of respondent:

1. Age of the respondent


concluded that maximum respondent falls

under age group of 30-39 yrs. i.e. (56%)

2. Occupation of the respondent:


concluded that 64% of the respondent are

doing service, 23% Enterpreneur and 13 %

House wife

3. Family income per month :


concluded that 37% of the respondent family

income per month is 40 K and above, 27%

of the respondent family income per month

is 31-40 K

16%

56%

28%

Age of the respondent

21-29 yrs

30-39 yrs

64%

23% 13%

Occupation

Service

Enterpreneur

12%

14%

10%

27%

37%

Family income per month

Below 10000

10-20 k

21-30 k

31-40 k

40 and above

224

Findings

1. Marriage and Festival are the important occasion when purchase of the Jewelry is done by

the women.

2. Gold and Silver are the two kind of Jewelry mostly preferred by the women from various

kind of Jewelry.

3. Mostly Jewelry is purchased by the women from the family jeweler and Branded Outlet.

4. Women considered various Attributes like Purity, Design, Workmanship, Comfort of

Wearing, Price, Variety, Information Provided, Brand Name, Economic making charges

while buying a piece of Jewelry.

5. Variety of stock, Physical comfort, Providing various services, easy parking, Price of

Jewelry, Making Charges, Payment options, Proximity to home/work, Professionalism of

staff, Store Credit and return policies, Location, Latest Design Available, Discount

Scheme, Certified Jewelry, Investment Plan, Resale value, Long relation with jeweler are

the factor which are considered by the women in selecting a retailer for the purchase of

Jewelry.

6. Tanshiq is given preference by the women from all the brands for purchase of Jewelry.

7. Cash, Credit Card, Debit card and Instalment are the various payment methods employed

by the women while purchasing Jewelry.

8. Lack of Time, Lack of Good Design, Lack of Trust on Retailer, Lack of information on

purity, High labour charges are various problems encountered by the women.

9. 57% of the women purchase Jewelry with her family member or friends.

10. 91% of the women are aware regarding the branded Jewelry available in the market.

11. In branded Jewelry women are having more awareness towards Tanishq.

12. 89% of the women don’t prefer to purchase branded Jewelry.

13. From Branded Retail Jeweler Tanishq is popular among the women.

14. Though awareness regarding branded Jewelry is there among the women but only 5% of

the women purchase the branded Jewelry

15. For 93% of the women, it is important to have knowledge regarding purity of the Jewelry.

16. Friends, Media, Advertisement, Fashion, Internet/Catalogues, Resale Value and Status

Value are the influential agents for the purchase of the branded Jewelry.

Implications of the Study

In this study women encounter problem like Lack of Good Design, Lack of information on

purity, High labour charges, which jeweler have to take into consideration and can also imply

following solution.

Lack of Good Design: Jeweler should Keep various type of Design, latest Design and

should Keep a Designer to prepare the customize design for the customer.

Lack of information on purity: Jeweler should provide proper information on the purity of

the Jewelry so that customer can develop trust on jeweler and can purchase the Jewelry

without any doubt.

High labour charges: Jeweler should not charge very high labour charge from the

customer. In order to keep customer loyal toward its retail outlet and to develop trust,

economic labour charges should be charged.

Usually women in this study make use Cash, Credit Card, Debit Card and Installment to pay

money to the jeweler. Jeweler should also motivate a customer to purchase Jewelry by

employing various other payment modes.

Mostly women purchase Jeweler from Tanishq. Other retailer should identify the reasons that

why consumer are more attracted towards Tanishq and what type of strategies and scheme

Tanishq is using in order to attract the customer.

225

Though A game/Playroom for children is a place where children can play and meanwhile a

women can do shopping then why it is not considered as an important factor which is the

matter of concern. Jeweler shall conduct small survey to know the reason behind it and what

are the consumer expectations in this regards.

Local Jeweler shall try to win the trust of the customer who enter their door step once, by

providing them quality product, providing proper information on purity and by satisfying

various other need of the customer. Online Purchasing for value based product is still very

minimal in India, as customer doesn’t have trust and they basically prefer to purchase from

family Jeweler and the Branded Outlet.

From the study it is concluded that the women purchase Jewelry at the time of the marriage

and festival. Keeping this in view jeweler should develop various scheme to attract the

customer to purchase Jewelry at the time of the festivals, as in India there are many festivals

of various communities and all are celebrated with the keen interest. Secondly in India there

is a great importance of real Jewelry and it is a cultural value to make use of the real Jewelry

at the time of the marriage, so jeweler should do maximum promotion in order to attract the

customer at this time.

From this study it is concluded that though there is an awareness regarding the branded

Jewelry but very few women prefer to purchase the branded Jewelry. Mostly they prefer to

purchase from the family jeweler. Branded Jeweler must find out the reasons and work on it

in order to execute the same type of strategies as family jeweler which can fulfill the customer

needs and which can able to divert customer from family jeweler to the Branded Outlet.

For the researcher working in this area ,very few researchers have done research in this area

so very limited resources are available. Researchers can do in-depth study from the consumer

and retailer perspective.

References

1. AshwinShah(2008)GoldJewelryBecomesdiamond”http://www.diamondworld.net/

contentview.html,02nd September,2008

2. FICCI Report (2013), AT Kearney, “All that glitters is Gold: India Jewellery

Review

3. K. Balanaga Gurunathan & S. Muniraj(2012), Project on Consumer Awareness

and buying behaviour in Gold and Gold Related Products

4. Kumar, K. V. (2013), A study on consumer preference on branded Jewelry in

Hyderabad, International Journal of Sales & Marketing.

5. Natarajan, D. S. (2013), Customer attitude towards purchase of gold ornament,

International Journal of Research in Commerce & Managment .

6. Neeru Jain(2013)Consumer Buying Behaviour With Regard To Branded and

Traditional Jewelry (With Special Reference To Jaipur Jewelry Market), The Iis

University, Jaipur

7. Report: Accelerating Growth in Gujarat-A Discussion note KPMG in India

8. Shanoo Bijlani and Regan Luis Special report on Study Thinks Indian Industry

Could Reach $100 Bn by 2015

226

A study on customer’s opinion about influence of brand equity

dimensions for cell phones - A pilot Study

Anupama C Dave

Research Scholar – Gujarat University

Mamta Brahmbhatt

Associate Professor, B.K. School of Business Management, Ahmedabad

Abstract

___________________________________________________________________________ Purpose: Brand equity has been a topic of research since long, empirical data has suggested various

methods of measuring brand equity. This paper aims at gauging respondent’s opinion about influence

of brand equity dimensions (brand awareness, perceived quality, and brand personality and brand

loyalty) in case of cell phones.

Methodology: Data used in this study was gathered for pilot study of PhD thesis, wherein 105

responses were received. Analysis of the data has been done using Excel and SPSS.

Findings: Results of the analysis revealed that company name, word of mouth publicity, after sales

services, guarantees and price as brand awareness activities that influence buying behavior of cell

phone. ‘Sincerity’ was one of the major dimensions influencing the buying decision as per PCA

conducted on BPS. While perceived quality and loyalty also has a significant influence.

Keywords: Brand awareness, Brand loyalty, Brand personality, Cell phone, Perceived quality

__________________________________________________________________________________

Introduction

Cell phone industry has observed a remarkable increase in its usage and adoption rate over

the period of time; there are 900 million cellphone users in the country. Handsets that were

luxury once upon a time have become a basic necessity and have penetrated well in urban as

well as rural India. This industry has turned-out to be very dynamic in nature due to the

increased competition and entry of new players in the industry. May Chinese players have

entered the market in the year 2014 and grabbed nearly 18.5 % market share while Samsung

continued to occupy the top spot, followed by India's Micromax with 12.1 percent and

Microsoft with 9.6 percent. Thus, the industry has seen a remarkable growth in terms of

number of manufacturers. The world market has observed a declining trend during 2011 i.e.

the value of market deteriorated from £1.71 billion in 2011 to £1.62 billion in 2013 but in

2014 the value was £1.66 billion which means a growth of 3 %. According to the analysis of

research firm Mintel the market is predicted to growth in the next five years and will reach

£1.75 billion by 2019. Besides all these aspects the attitude and perception of buyers in the

market towards this product has changed, this research aims at identifying the opinion of

customers pertaining to brand awareness, perceived quality, brand personality and brand

loyalty.

Literature review

Aftab Uddin, M., Xu, H., & Tahlil Azim, M. (2015) explored the factors that were affecting

mobile handset buying pattern among 21 items that were identified from previous literature.

Factor analysis was performed on 21 items, through factor loading it was found that seven

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features were having impact on buying behavior they included physical attributes, brand

image, uniqueness, emotional appeal, ease of operation, social identity, and price.

Faryabi, M., Fesaghandis, K. S., & Saed, M. (2015) created a model to examine impact that

brand name and sales promotion has on online purchase intention via mediating variables

such as perceived quality, perceived value and store image. The result of SEM reveled that

store image had the highest impact on purchase intention as per the coefficient value.

Besides that it reveled that brand name had highest impact on perceived quality while their

was a medium impact of promotion on store image. The research highlighted that price

discounts leads to attraction of customers to a specific store and purchasing from the store,

in comparison to the time when no discount had been offered

Mramba, N. R. (2015) examined influence of brand name on buying decision of consumers

in cell phone category. Data for research was collected via interview and structured

questionnaire and for analysis 160 responses were received. Descriptive statistics was used

to analyze the raw data and it reveled that consumers’ are not loyal in single brand name and

their judgment in a purchase decision on the mobile phone is influenced by three factors; the

need, country of origin, and the durability.

Bhattacharya, D., & Saha, D. (2015) undertook a research on ‘Impact of different facets of

product involvement and consideration set on teens family purchase decision making: A

multivariate analysis’ wherein the objective was to measure impact of product involvement

and consideration set on purchase decision. Data was collected from 447 respondents on

which factor analysis was performed along with multivariate analysis and regression. The

results reveled that consideration set had a get impact on cell phone category, among the

major criterion that were identified: pleasure and sign value had great impact on brand

loyalty in case of cell phones.

Ahmad, F., & Sherwani, N. U. (2015) undertook a study on ‘An Empirical Study on the

effect of Brand Equity of Mobile Phones on Customer Satisfaction’. The main objective of

the study was to examine relation between dimensions of brand equity with overall brand

equity and satisfaction level of customers. Data was collected using convenience sampling

technique with the help of a structured questionnaire wherein the response rate was 83.5 %

i.e. 205 responses were received. Cronbach's alpha was applied to measure the inter-item

consistency of the research constructs, all had alpha more than 0.80. Exploratory factor

analysis was performed on the data with respect to individual dimensions of brand equity

and hypothesis was tested using multiple regressions. The results of the research reveled

that their existed significant relationship between brand awareness, perceived quality, brand

association, and brand loyalty with brand equity. Besides that their was significant

relationship between brand equity and customer satisfaction.

Mostafa, R. H. (2015) measured the influence of country-of-origin of a brand (COB) and

country of manufacture (COM) on the overall brand equity (OBE) in his research titled

‘The Impact of Country of Origin and Country of Manufacture of a Brand on Overall Brand

Equity’. Data was collected from 600 respondents who owned mobile phone, reliability test

was one using cronbach alpha wherein all variables had alpha value more than 0.70.

Regression analysis reveled that their existed a positive and significant relationship between

country of origin of brand and all dimension of CBBE, while it was a bit weak in case of

country of manufacture. The study highlighted that among the four dimensions, perceived

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quality had the highest impact on brand equity, indicating the importance of quality in

building mobile phones brand equity.

Nath, S. D., Saha, A. K., & Hossain, M. A. (2015) aimed at measuring factors that impact

satisfaction level of users for smart phone, in the survey five independent variables i.e. basic

service; value added service; technical service; physical service; user related service and two

dependent variables - customer satisfaction & customer loyalty were incorporated.

Reliability test was done on the data and hypothesis were tested using multiple regression

and bivariate correlation analysis. The analysis reveled that two independent variables i.e.

technical and value-added services had significant impact on customer satisfaction. Value-

added service (44. 9%) has most influence on creating satisfaction for smart phone users,

followed by technical service (28.9%).

Uddin, M. R., Lopa, N. Z., & Oheduzzaman, M. (2014), undertook a research with an aim

of uncovering the underlying factors those affect customers decision while choosing mobile

phone. Data was collected from 160 respondents and principle component analysis (PCA)

was performed on those factors. The test of KMO for factor analysis was - 0.877 which

means that the sample was adequate to perform factor analysis. Results reveled that physical

attributes were the most prominent one which influences the buying decision of

respondents. Some other factors that influenced decision to buy cell phone were pricing,

charging and operating facilities, size, weight and recommendation by friends’ colleagues’

and neighbors’.

Trivedi S. (2013), studied the influence of brand recall through TV commercials on

consumer buying behavior. Data was gathered from 150 respondents and reliability was

calculated using ‘Cronbach alpha’ (loyalty = 0.74, brand image = 0.60, service quality =

0.60 and brand recall = 0.61). The results reveled that advertisements with humorous appeal

had impact on buying behavior for cell phones.

Khani S. (2013), tried to examine the adaptation of the customer personality and brand

personality and the effect of it on attitudinal and behavioural loyalty and brand equity in the

mobile phone industry in Tehran. Sample size for the study was 400 respondents and multi-

stage cluster sampling was used to collect data. Structural equation modeling was performed

on the data. Study concluded that brand personality was not having direct impact on loyalty

but brand loyalty influenced brand equity.

Objectives of study: This paper aims at examining the respondents opinion about

importance of brand equity dimensions i.e. brand awareness, brand personality, perceived

quality and brand loyalty for cell phones.

Research Methodology: Data was collected from both primary and secondary sources.

Secondary data was collected from sources such as past literature and empirical data . On

basis of literature, a structured questionnaire was framed to collect responses. Responses have

been gathered from 105 respondents using convenience sampling method. Factor analysis was

applied with SPSS to identify principal component among the 33 variables of brand

personality and descriptive statistics has been found for remaining variables.

Reliability Statistics - Pilot Study: Reliability test can be used as a measure that signals the

consistency and stability of the instruments used in the survey. A popular approach to

measure reliability test is to use Cronbach alpha. The value of Cronbach alpha with the range

of greater than 0.70 is considered acceptable and good (Cavana et al., 2001). Results from the

Table 1 point out the Cronbach alpha for the variables that have been considered in the study.

In conclusion, the outcome concluded that the measurement scales of the constructs were

stable and consistent in measuring the constructs.

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Table 1 - Reliability of the Variables

Variables Cronbach's Alpha

Brand Awareness activities influence on buying behavior 0.847

Brand Personality

Sincerity - Buying behavior 0.952

Excitement - Buying behavior 0.938

Competency - Buying Behavior 0.888

Sophistication - Buying Behavior 0.918

Ruggedness - Buying Behavior 0.815

Perceived Quality 0.920

Brand Loyalty 0.733

Source: Develop for this research

Data Analysis: The data presented in the Table 2 - indicates demographic profile of the

respondents. Age analysis of respondents indicates that most of the respondents fall in the age

group 25-35, number of males and female in the survey was almost equal and occupational

bifurcation shows that majority of them belonged to service category followed by

professional category. Most of the respondents were post graduate and maximum respondents

were having income of more than 40,000 p.m.

Table 2: Demographic characteristics of respondents

Age of respondents

Gender of respondents

Occupation of respondent

Educational Qualification of respondents

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Family income (p.m.)

Number of cell phones

used by respondents: 71

respondents of 105 were

such who were using only

one cell phone while 32

used two cell phones

(Refer chart:1). This

analysis supports the fact

that usage pattern of cell

phones is changing among

the Indians.

Brand of cell phone preferred by respondents: Analysis was done to gauge idea about the

brand of cell phones preferred by respondents, chart 2 - highlights the results. Multiple choice

question was asked considering the fact that their may be respondents who would be using

more than 1 cell phone. From the analysis it was observed that majority of them preferred

Samsung followed by Nokia, Micromax and Sony.

Chart: 2 - Brand of cell phone used

Chart: 1: No. of cell phones used by respondents

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Response about cell phones

used by family members:

Now-a-days it has been

observed that family member

may have individual mobile

phones (refer chart 3). The

idea was the get details about

the ownership of cell phones

by family members. It was

observed that around 99

respondents were such who

said that every member of

their family carries an

individual cell phone. The

result suggests that over

passage of time even changes

have been observed in ownership pattern of cell phones.

People who influence the

buying decision of cell

phones: From marketers

perspective it is very vital to

know ‘who influences the

buying decision of cell

phones’. Study pointed that

‘Friends’ played a major in

influencing the decision to

buy cell phone followed by

‘Family members’ (refer chart

4).

Chart: 3 Cell phones of family members

Chart: 4 People influencing buying decision of cell phones

Chart: 5 Place of purchase

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Place from where they buy

cell phones: This analysis

aimed at getting information

about their preference for

place of buying. Analysis

showed that majority of

respondents preferred buying cell phones from ‘Mobile shops’ followed by ‘online portal’.

Brand awareness activities influence on buying behavior: Aaker (1991) has suggested

various factors that need to be considered by marketers to increase brand awareness i.e. recall

and recognition. From his proposition 12 items were identified and included in the

questionnaire to get idea about respondents opinion. From the analysis, it was found that the

following factors play an important role in increasing the brand awareness in case of cell

phones:Company name, Word of mouth publicity, after sales services, guarantees and price

(refer chart 6)

Chart: 6 Opinion of respondents about brand awareness activities - Important factors

While chart 7 highlights the parameters that are not very important for creating brand

awareness according to these respondents. They included brand awareness activities such as :

Logo, tagline, jingle, advertisement campaign and celebrity endorsing the product.

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Chart 7 : Opinion of respondents bout brand awareness activities - Unimportant factors

Factors that have influence on perception of quality in case of cell phones: According to

Aaker D. (1991) perception about quality is associated with price premiums, price elasticities,

brand usage, and, remarkably stock return. Based on various empirical research and literature

10 items on the basis of which perception of quality can be affected were identified. The

analysis found that for respondents all these elements were important in creating perception.

Chart 8 shows the factors relevant to product and prices on the basis of its importance.

Chart: 8 Factors influencing perception about quality (Product & Price)

Chart 9 shows importance given to factors related to services offered by company and its

influence on perception about quality of cell phones. While chart 10 highlights aspects related

to publicity, which has influence on perception about quality.

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Chart : 9 Factors influencing perception about quality (Services)

Chart : 10 Factors influencing perception about quality (Publicity)

Opinion of respondents towards brand loyalty: Literature suggest that as per Aaker D.

(1991) loyalty can be measured using factors such as satisfaction, switching behavior of

respondents and recommendation brand to others. Based on this few questions were

incorporated which had the following results:

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Respondents opinion about

recommendation of brand to

others: The analysis found that

majority of respondents were ready

to recommend their brand to others

(refer chart 11). This result points

that people are brand loyal if

satisfied with the brand.

Respondents opinion about

buying same brand of cell

phones: Findings of the

study shows that majority of

respondents were interested

in buying same brand of cell

phones. Which points the

fact that loyalty can lead to

repeated purchase behavior.

Respondents switching

behavior for cell phones: The aim was to know switching behavior of respondent to measure

loyalty towards the brand used by them at present. The results of analysis found that results

were almost equally distributed i.e. Half of the respondents were ready to switch the brand if

their brand was not available in

stores.

Importance of brand personality

in case of cell phones: Factor

analysis was applied using SPSS to

identify principal component

among the 33 variables of BPS

(brand personality scale).From the

Principle component analysis

(PCA) the following results were

reveled.

KMO and Bartlett's Test: The

KMO measures the sampling

adequacy which should be greater

Chart 11: Recommending brand to others

Chart: 12 Buying same brand in future

Chart 13: Switching behavior for cell phones

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than 0.5 for a satisfactory factor analysis to proceed. From the table 2 value of KMO has

been obtained as 0.933 which is acceptable. Barlett’s test result is significant (P<.0001)

represent that factor is acceptable.

Table: 2 KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.933

Bartlett's Test of Sphericity Approx. Chi-Square 3771.159

df 528

Sig. .000

Table: 3 Total Variance Explained

Compo

nent

Initial Eigenvalues

Extraction Sums of Squared

Loadings

Rotation Sums of Squared

Loadings

Total

% of

Variance

Cumulati

ve % Total

% of

Variance

Cumulati

ve % Total

% of

Variance

Cumulati

ve %

1 17.73

3 53.735 53.735

17.73

3 53.735 53.735

11.24

6 34.077 34.077

2 4.050 12.274 66.009 4.050 12.274 66.009 6.183 18.737 52.814

3 1.669 5.056 71.065 1.669 5.056 71.065 4.926 14.929 67.743

4 1.325 4.014 75.079 1.325 4.014 75.079 1.734 5.255 72.998

5 1.019 3.088 78.167 1.019 3.088 78.167 1.706 5.169 78.167

Extraction Method: Principal Component Analysis.

The table of total variance explained (Table 3) shows all the factors extractable from the

analysis along with their eigenvalues, the percent of variance attributable to each factor, and

the cumulative variance of the factor and the previous factors.

Five major factors have been identified wherein first factor accounts for 53.735 % of

variance, second factor contributes 12.274 % of variance, third contributing 5.056 % of

variance in mobile purchasing decision. The first component consisted of 16 items the

bifurcation of those is as under:

Componen

t

No

Dimension No. of items

in Original

Scale

Extracted in

principle

component

(No. of items)

Items extracted

1 Sincerity 9

8

1. Fulfilling promise

2. Trusting its quality & Price

3. Use of original parts

4. User friendly

5. Originality

6. Reasonably charge

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7. Ease of usage

8. Decent

2 Excitement 9

3 1. Latest technology

2. Present day image

3. Independent functioning

3 Competency 5

3 1. Reliability

2. Technical support

3. Make you feel confident

4 Sophisticati

on 6 1

1. Keypads - smooth

5 Ruggedness 4

1 1. Sturdy

Source: Developed from analysis

Thus, majority of factors i.e. 8 items belonged to the component of Sincerity as per the BPS

of Aaker J. (1997). All together these factors were representing 53.735 % of variance in

buying behavior of cell phone. These results suggest that while devising strategy managers

must consider these factors so as to be successful.

Managerial Implication

According to literature, creation of brand equity can be beneficial to manufacturers in

financial terms. This study gives an insight to readers and marketers about opinion of

customers for various dimensions of brand equity. Thus, based on the findings of this research

strategies can be devised.

Conclusion

Analysis revealed that in case of brand awareness activities done by cell phone manufacture

company name, word of mouth publicity, after sales services, guarantees and price played a

vital role in influencing their buying decisions. Perceived quality was influenced by all the

factors that were suggested by Aaker D (1991,1996) hence manufacturers must consider it

very carefully while devising the strategy. Brand personality scale as suggested by Aaker J

(1997) consisted of 42 items of which 33 items were considered for study and PCA reveled

that the first principle component represented 53.735 % of variance. In the principle

component majority of parameters i.e. 8 items belonged to the component of Sincerity as per

the BPS of Aaker J., 3 each from Excitement and Competency and 1 each from Sophistication

and Ruggedness.

References:

1. Aftab Uddin, M., Xu, H., & Tahlil Azim, M. (2015). Factors Affecting Mobile Handset

(MH) Buying Decision: An Empirical Study. International Journal of Management and

Business Research, 5(3), 225-236.

2. Faryabi, M., Fesaghandis, K. S., & Saed, M. (2015). Brand Name, Sales Promotion and

Consumers’ Online Purchase Intention for Cell-phone Brands. International Journal of

Marketing Studies, 7(1), p167.\

3. Haverila, M. J., & Haverila, K. C. (2015). Brand Satisfaction and Repurchase Intent in the

Cell Phone Product Market. Academy of Marketing Studies Journal, 19(1), 197.

4. http://timesofindia.indiatimes.com/city/bengaluru/Shetty-turns-to-cellphone-users-for-

health-scheme/articleshow/48849539.cms

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Personality, Brand Loyalty and Brand Equity in the Mobile Phone Industry’, IJFPSS, Vol

3, No.4, pp. 63-70 ,Dec , 2013, ISSN:2231-9484

6. Mostafa, R. H. (2015). The Impact of Country of Origin and Country of Manufacture of a

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Brand on Overall Brand Equity. International Journal of Marketing Studies, 7(2), p70.

7. Nath, S. D., Saha, A. K., & Hossain, M. A. (2015). Identification and Measurement of the

Factors Affecting Satisfaction Level of Smart Phone Users: Empirical Evidence from

Bangladesh. International Journal of Business and Management, 10(4), p166.

8. Rezvani, M., Hoseini, S. H. K., & Samadzadeh, M. M. (2012). Investigating the Role of

Word of Mouth on Consumer Based Brand Equity Creation in Iran’s Cell-Phone Market.

Journal of Knowledge Management, (8).

9. Trivedi S. (2013), ‘Would Brand Recall Impact the Custom Buying Behavior of

Mobiles’, Global Journal of Management and Business Studies. ISSN 2248-9878 Volume

3, Number 10 (2013), pp. 1129-1134

10. Uddin, M. R., Lopa, N. Z., & Oheduzzaman, M. (2014). Factors Affecting Customers’

Buying Decisions Of Mobile Phone: A Study On Khulna City, Bangladesh. International

Journal Of Managing Value And Supply Chains (IJMVSC), 5(2), 21-28.

239

Medical Tourism Development in Gujarat: Progress and Prospects

Maulik C. Prajapati

Assistant Professor, Dairy Business Management Department

SMC College of Dairy Science, Anand Agricultural University, Anand

Ashish K. Makwana

Associate Professor, Dairy Business Management Department

SMC College of Dairy Science, Anand Agricultural University,Anand

Abstract

_____________________________________________________________________ Presently is the largest and most extensively developing industry. World tourism is considered as a

significant factor in the economy of many nations. Gujarat is an emerging as a key destination for

health and contributing a lot towards the social-economic development of the society by increasing

employment opportunities and an increase in foreign exchange earnings.

Gujarat is unique as it offers holistic medicinal services for various types of patients. Often referred

to as one of the most popular destinations for medical treatment, Gujarat not only has some of the

higher quality medical tourism destinations, but also has one of the lowest costs for medical

treatments around the world.

Present paper focus on the potential of Medical Tourism industry in Gujarat. It also helps in

examining the role of Government in promoting infrastructure for Medical Tourism and analyzing

the latest trend to increase the flow of Medical tourism in Gujarat. For examining the potential and

significance of medical tourism in Gujarat, the data has been gathered through secondary sources.

After analyzing all the facts it can be concluded that Gujarat is in an advantageous position to tap

the global opportunities in the medical tourism sector.

Keywords: Medical Tourism, Social-Economical, Tourism

_____________________________________________________________________

Introduction According to World Bank assessment, presently tourism is the largest and most extensively

developing industry. World tourism is considered as a significant factor in the economy of

many nations. Tourism has emerged as a key sector of the world economy and has become a

major workforce in global trade. It has been making a revolutionary and significant impact on

the world economic scenario. Tourism has been identified as the major export industry in the

world (Gosh Viswanath, 1998). Tourism industry acts as a powerful agent of both economic

and social change. It stimulates employment and investment, modifies economic structure and

makes positive contributions towards balance of payments.

According to Medical Tourism Association, “medical tourism refers to people who live in one

country and travel to another country in order to get medical, dental and surgical care while at

the same time receiving equal to or greater care than they would have in their own country,

and are traveling for medical care because of affordability, superior access to care or a higher

level of quality of care.

According to Deloitte (2008) “the industry of medical tourism may be categorized into

following three groups:

Outbound: patients travelling to other countries for medical care.

Inbound: patients travelling into the same country, but in different regions for medical

care.

Intrabound: patients travelling from other countries for medical care.

India ranks second for medical tourism in the world. Though it spends less than 1.2% of its

GDP on medical services but makes extra efforts to provide extra care and services to the

foreign tourist while dealing with them. Medical treatment in India is very cost effective as it

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charge 20% less than any other foreign country for providing health facilities. It has been seen

in the recent past that patient from US, UK, and other foreign countries in a maximum

number are coming to India for their treatment.

Medical tourism has emerged as the most promising and fast growing sector in Gujarat. The

most prominent city of Gujarat, Ahmedabad has earned the unique distinction of being the

most prominent place for medical treatments and medical tour in the country. The world class

facilities, super specialty hospitals, excellent doctors, affordable price and other

infrastructures have made this place one of the most preferred medical tour destinations of the

world. The highlight of the medical facilities is the 108 Service with the slogan ‘Medical at

doorstep’.

Medical tourism is focused as potential growth sector in Gujarat. Gujarat’s leading city,

Ahmedabad is a fabulous place for medical tour or medical treatments venue for India’s

leading exhibition for the travel and tourism industry. Ahmedabad is a preferred medical

tourism destination all over the world. With world class health facilities, zero waiting time

and affordable

Cost, Ahmedabad is becoming one of the most sought after medical tourism destination in

India. Apart from the world class amenities, Hospitals offer pick up and drop service and

ambulance services also. The 108 Service is the highly appreciated ‘Medical at doorstep’

Service.

The main cause that people travel outside their home country is usually superior quality of

medical treatment, technology or care offered in another country. However, respondents from

the US also identified cost as a main driver for both elective and necessary surgery and those

from Canada identified long waiting lists for necessary care (Deloitte 2011). In general, Voigt

et al. (2010) noted that the main cause for patients travelling to obtain medical care include

(not in order of importance):

Cost savings;

Quality of healthcare;

Unavailability of services, drugs and surgery methods in the home country;

Long waiting lists associated with suitable medical treatment;

Cultural similarity in terms of language, food and religion etc.;

Geographical proximity;


Following are the main objectives of the research study.

1. To explore the potential of Medical Tourism industry in Gujarat

2. To study the cost- effectiveness of Medical treatment in Gujarat.

3. To examine the role of Gujarat Government in promoting Medical Tourism and

Medical Tourist inflow.

Research Methodology:

For this study Secondary data and information has been is accumulated through different

sources like internet, newspaper, reference materials, magazines, report etc.

Analysis and Discussion The heavily subsidized treatment costs are a big reason why people are considering travelling

overseas to avail the best medical services at only a fraction of what they have to pay in their

home countries. Countries like India are able to afford world class medical treatment at very

cheaper rates.

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As per a cost comparison study by the American Medical Association, a knee replacement

surgery will cost $40,000 in US, $10,000 in Thailand and $13,000 in Singapore, but $8500 in

India. Similarly, in the US for a bone marrow transplant you will have to pay

around $400,000, in UK $150,000 but in India it will cost just $30,000. Below is the chart for

the cost comparison:

Treatment Cost Comparison

Procedures US ($) Costa

Rica ($)

India

(Gujarat)

($)

Korea ($) Mexico

($)

Thailand

($)

Malaysia

($)

Heart Bypass $144,000 $25,000 $5,200 $28,900 $27,000 $15,121 $11,430

Angioplasty $57,000 $13,000 $3,300 $15,200 $12,500 $3,788 $5,430

Heart Valve

Replacement $170,000 $30,000 $5,500 $43,500 $18,000 $21,212 $10,580

Hip Replacement $50,000 $12,500 $7,000 $14,120 $13,000 $7,879 $7,500

Hip Resurfacing $50,000 $12,500 $7,000 $15,600 $15,000 $15,152 $12,350

Knee Replacement $50,000 $11,500 $6,200 $19,800 $12,000 $12,297 $7,000

Spinal Fusion $100,000 $11,500 $6,500 $15,400 $12,000 $9,091 $6,000

Dental Implant $2,800 $900 $1,000 $4,200 $1,800 $3,636 $345

Lap Band $30,000 $8,500 $3,000 N/A $6,500 $11,515 N/A

Breast Implants $10,000 $3,800 $3,500 $12,500 $3,500 $2,727 N/A

Rhinoplasty $8,000 $4,500 $4,000 $5,000 $3,500 $3,901 $1,293

Face Lift $15,000 $6,000 $4,000 $15,300 $4,900 $3,697 $3,440

Hysterectomy $15,000 $5,700 $2,500 $11,000 $5,800 $2,727 $5,250

Gastric Sleeve $28,700 $10,500 $5,000 N/A $9,995 $13,636 N/A

Gastric Bypass $32,972 $12,500 $5,000 N/A $10,950 $16,667 $9,450

Liposuction $9,000 $3,900 $2,800 N/A $2,800 $2,303 $2,299

Tummy Tuck $9,750 $5,300 $3,000 N/A $4,025 $5,000 N/A

Lasik (both eyes) $4,400 $1,800 $500 $6,000 $1,995 $1,818 $477

Cornea (both eyes) N/A $4,200 N/A $7,000 N/A $1,800 N/A

Retina N/A $4,500 $850 $10,200 $3,500 $4,242 $3,000

IVF Treatment N/A $2,800 $3,250 $2,180 $3,950 $9,091 $3,819

(Source: http://www.medicalindiatourism.com/treatment-cost/)

The cost of treatment in India is much lower, almost three times less expensive in comparison

to a number of western countries such as the United States and United Kingdom. Just opt for

health tourism services through medicalindiatourism.com and get the best of healthcare

services. We, at Medical India Tourism have been offering excellent assistance to foreign

patients who visit India to avail advanced surgery treatments at low cost operations. Lower

cost does not mean any compromise in quality. We are dedicated in offering the most

advanced treatments in the world at reasonable costs so that you can fulfill your dream of

leading a healthy life.

Advantages of Gujarat state for Medical Tourism

The Gujarat state has various advantages and the large NRG population living in the UK and

USA is one of the major ones. Out of the 20 million-plus Indians spread across the world,

Gujarati's boasts 6 million, which is around 30 per cent of the total NRI population.

Nonresident Guajarati’s or popularly known as NRG's coming to India for personal and

medical visits are also marketing the health services available in the Gujarat. The specialized

clinics and hospitals especially in the private sector is gaining popularity through word of

mouth, and this is contributing to the inflow of medical tourists are continuously increase in

Gujarat . Among the other advantages are the highly qualified specialists in the field of

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Cardiologist, Urology, Embryology, Orthodontics, Oncology and Orthopedics. The facilities

and medical equipments available at the hospitals are comparable with the best hospitals in

the country and even the world.

Key drivers for Medical Tourism in Gujarat

Gujarat is poised to be a leader in the medical tourism development of India.

Gujarat offers tremendous potential to develop medical tourism particularly in its

major cities like Ahmedabad, Baroda, Surat and Rajkot

State has world class medical facilities in its various hospitals, which have set new

standards of health care in all disciplines of Modern Medicine

Health care is available at very competitive charges so Gujarat has become a lucrative

destination for people wanting to undergo the best medical treatment at cost-effective

rates

Excellent multi-specialty hospitals with ultramodern infrastructure are available in

Gujarat, which offer attractive options for foreigners.

Government Initiatives to promote Medical Tourism in Gujarat:

To help health providers to prepare package deal that includes flights, transfers,

hotels, treatment and often a post-operative vacation.

Harness the direct and multiplier effects of medical tourism for employment

generation and economic development of Gujarat.

Focus on NRG as a major driver of medical tourism growth.

Position Gujarat as a global brand to take advantage of the burgeoning world class

medical facilities and the vast untapped potential of Gujarat as a destination for

medical treatment.

Create and develop integrated medical tourism circuits based on Gujarat’s specialty

hospitals, unique civilization, heritage and culture in partnership with states, private

sector and other agencies.

Provide fiscal incentives to hospitals treating foreign patients.

Emphasize certain procedures that are in demand but not paid by insurance

companies in the develop countries, namely – plastic surgeries.

Consider establishing a separate section in the health ministry to promote medical

tourism.

Play active role in evolving uniform price band in major specialties acceptable to

listed hospitals.

Subsidize and support participations of healthcare providers in exhibitions of tourism

inland and abroad.

Key findings

Gujarat state offers tremendous potential to grow medical tourism, particularly in its

major cities like Ahmedabad, Vadodara, Surat, and Rajkot.

Gujarat offers world class medical facilities which have set new standards of health

care in all disciplines of modern medicine.

There are excellent multispecialty hospitals which offer attractive options to

foreigners and non-resident Indians for medical treatments.

Gujarat offers a wide range of breathtaking sites and scenic landscapes. It is also the

centre of several civilizations resulting in a vibrant culture and rich heritage.

Special privilege status packages (SPSP) including easy custom clearances, easy

immigration procedures, international and local ticketing and travelling, comfortable

stays, sightseeing, etc. may be designed to attract medical tourists in Gujarat.

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The Government of Gujarat has taken the opportunity to promote its world-class

medical facilities towards making Gujarat a destination for medical tourism for Non

Resident Indians.

Conclusion

Medical tourism in Gujarat has emerged as the fastest growing segment of tourism industry

despite the global economic downturn. Gujarat is offering very low cost treatments not only

to Indians but also to the foreign patients. Patient from USA and UK, are coming to India to

look for alternative and cost-effective destinations to get their treatments done. Various

factors like cost effectiveness, safety and security, tourism opportunity, accessibility etc. are

important factors for attracting medical tourist to come in Gujarat for medical treatment. The

specialized clinics and hospitals especially in the private sector is gaining popularity through

word of mouth, and this is contributing to the inflow of medical tourists are continuously

increase in Gujarat . Among the other advantages are the highly qualified specialists in the

field of Cardiologist, Urology, Embryology, Orthodontics, Oncology and Orthopedics.

Recommendations

Hospital should formulate transparent cost policy so as to attract more and more medical

tourist across the world. Policy maker (Government) also introduce special packages for

NRG.

Government should controlled the incidents of crime and terrorist attack. This will

enhance confidence of medical tourist which will have positive impact of in the mind of

patients.

Policy maker should think of formulating policy of immigration process to make it highly

streamlined. Apart from this there has to be a system of arrival on visa for medical tourist.

So as to attract sizable tourist across the world counter parts.

Hospitals should ensure that they cover all kinds of health insurance provided in different

nations, and encourage customers to take up health insurance, as this will simplify the

transaction process.

References

1. Connell, J. (2006), “Medical tourism: sea, sun, sand and y surgery”, Tourism

Management,Vol. 27 No. 6, pp. 1093-1100.

2. Deloitte (2008), Medical Tourism: Consumers in Search of Value, Deloitte Centre for

Health Solutions,Washington, D.C.

3. Deloitte 2011, Survey of Healthcare Consumers Global Report, Washington,

http://www.deloitte.com/assets/Dcom‐UnitedStates/ Local%20Assets/ Documents/

US_CHS_2011 ConsumerSurveyGlobal_062111.pdf

4. Ghosh Viswanath. (1998), Tourism and Travel Management, Vikas Publishing House,

New Delhi, 1998.

5. GMTP (2006), “Gujarat Medical Tourism Policy 2006–Draft,”

http://www.gujhealth.gov.in/Medical Tourism/Medical per cent20Tourism per

cent20Policy-Draft.pdf

6. Horowitz, M. D., and J. A. Rosensweig (2008). "Medical Tourism vs. Traditional

International Medical Ttravel: A Tale of Two Models." International Medical Travel

Journal 1-14.

7. Lee, C. (2007). Medical Tourism, an innovative opportunity for entrepreneurs. Journal of

Asia Entrepreneurship and Sustainability.

8. Voigt C, Laing J, Wray M, Brown G, Howat G, Weiler B, Trembath R 2010, „Health

tourism in Australia: Supply, Demand and Opportunities‟, CRC for Sustainable Tourism

Pty Ltd.

http://www.deloitte.com/assets/Dcom‐UnitedStates/Local%20Assets/Documents/US_CHS_2011ConsumerSurveyGlobal_062111.pdf

http://www.deloitte.com/assets/Dcom‐UnitedStates/Local%20Assets/Documents/US_CHS_2011ConsumerSurveyGlobal_062111.pdf

http://www.gujhealth.gov.in/Medical%20Tourism/Medical%20per%20cent20Tourism%20per%20cent20Policy-Draft.pdf

http://www.gujhealth.gov.in/Medical%20Tourism/Medical%20per%20cent20Tourism%20per%20cent20Policy-Draft.pdf

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Election Tourism in India

Dr. Vilas Kulkarni

Assistant Professor,

B K School of Business Management, Gujarat University

Mr. Suhag Modi

Manager, Akshar Travels Pvt. Ltd.

_____________________________________________________________________

India is a country where elections are held every year. The structure of the country is

divided into panchayats, districts, states and then center at the top. The elected

representatives of each of these bodies have a term of almost five years and their term may

start and end at different time. Therefore elections are held almost every year. Being the

largest democracy, it would be interesting to know how elections are held in India and

managed. India has almost 814 million eligible voters and therefore elections have to be on

a large scale.

Election System in India

Types of Elections in India

Following are the major types of elections in the country:

Elections to Lok Sabha, Rajya Sabha, State Assemblies, Legislative Council, Elections to

the posts of President, Vice-President. Elections to Local Bodies like Municipal

Corporation, Gram Panchayat Elections, Zila Panchayat Elections, Block Panchayat

Elections.

Generally elections in India are at large scale. There are different forms taken by different

political parties for meeting/luring people. Some of them are as follows:

Public Rallies: Political parties hold huge public rallies to share their point of view to mass

in one shot. This is also a way of showing influence and popularity in the area, when

political leaders of high rank are present in the rally.

Poll campaigns: Apart from the public rallies political parties try to use movable vehicles,

loud speaker, hoardings to mark their presence in the minds of the voters.

Door to door campaign: Many parties use a one-to-one concept of meeting the people.

This has proven as a very effective tool in recent elections.

Media: Almost all the parties use all sorts of media channels like social sites, televisions,

radio, video conferencing etc. for getting connected with the voters.

Concept of election tourism

The concept of election tourism was developed by Mr. Manish Sharma, chairman of the

Tourism Development Society and managing director of ‘Akshar Travels Pvt. Ltd.’ EC has

launched an election tourism programme for 50 foreigners from 20 countries. Election

tourism was launched before the 2012 Gujarat Assembly elections with a humble visit of

125 international tourists visiting the state. However, around 800 tourists had committed to

watch the election process in the Loksabha elections. The fact that there was a steady

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increase in foreign tourists footfall, 30,960 (January), 32,273 (February) and 41,593

(March) 2015 justifies that elections tourism can be a concept of future. Notably this was

the time when the Lok sabha elections were scheduled in India.

Reasons for tourists to watch election in India

Initiatives by government: Election Commission of India and UNDP has launched

'Election visitors programme' under which around 50 officials from Election management

bodies of 20 countries will be touring the country to understand how EC micro-manages the

election process. The United Nations Development Programme (UNDP) has signed an

agreement with the Election Commission of India, allowing officials from 17 countries to

visit India during the elections. The countries from where the representatives will arrive

include Nigeria, Namibia, Lesotho, Malaysia, Mauritius, Nepal, Uganda, Kenya, Bhutan,

Syria, Egypt, Tunisia, Saudi Arabia, Tunisia, Morocco, Somalia, Palestine, Palestine, Iraq and

Oman.

Education: Since every election is different and ‘experience’ of officials counts a lot in

managing them properly, many young countries may like to learn lessons from the elections

of largest democracy.

Sense of suspense: Since India is a large country with diversity in religions, languages,

castes, creeds etc. there is always a sense of suspense in all the elections. Even a veteran who

is winning since long cannot be sure of winning the next election. Watching the mood of the

voters can be one of the exciting reason to visit the place of election personally.

Contest between multiple parties: Although mainly two political parties context in the

‘Lok Sabha’ polls, other parties also play a major role in deciding the government. India is

probably few countries in in world where such a huge number of political parties context

against each other is various polls. This phenomenon may also be attracting the visitors.

A festival like atmosphere: Elections in India are like festivals. Political parties organize

mass food occasions, dramas on various development themes, community get to etc.

Everywhere people will find hoardings, lightning, posters of the political leaders and vehicles

moving the loud noise asking vote for their candidate.

Said Jennifer during her visit to the western city of Jaipur,

“I have never seen such a sign anywhere in the world. Whichever place that I am

visiting during this trip of mine, I am seeing huge hoardings, banners, posters and mega

rallies to attract voters. Both the public and the leaders seem to be in a frenzy and that’s

incredible,”

Exploring something new: Many frequent travelers who have seen most of pilgrimage

places, natural beauty, shopping centers would like to explore something new and exciting.

Since elections are full of suspense it would attract tourists.

Factors deciding election tourism

The place of poll: If the place of polling/contest is a historical/religious than the chances of

inflow of tourist is likely to be more. For example tourists coupled their trip to the holy city of

Varanasi with the elections fight between Mr. Narendra Modi and Mr. Arvind Kejriwal in

2014.

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The stature of the contesting candidate: Elections tourism will also depend upon the

place of polls and the candidate who is contesting. Usually this concept is more suitable for

places from where well known national leaders are contesting.

Contest between two well know leaders: The inflow of tourists also depends upon

between whom is the fight. If there is a close fight is between two well-known leaders people

may like to visit that place inspite of adverse conditions.

Season when the elections are held: If the elections are held during winters, local tourist

from hotter places of the country will visit the colder places. If they are held in summer,

international tourist from colder countries will be willing to visit during elections.

Impact of election tourism on economy

Increase in inbound tourists: Election tourism different from other modes of tourism by

the way of fact that elections dates are declared quite early and tourists may visit these places

in bulk at one time. This may not happen in other modes of tourism since tourist may plan

their holidays/trips accordingly to their own convenience. A large group of such tourist may

include journalists, researchers, diplomats, students who otherwise may not come for a

common purpose.

Impact on rural economy: The impact of election tourism is significantly seen on the

isolated villages since rallies and functions are held in most remote villages too. This gives

impetus to the local handicraft and village industry which at least for a short period of time

increases their revenue. This normally does not happen in general tourism since tourist may

visit only the well-known places.

Connection villages with the world: Since India is a country with more than five million

villages, connecting each one it with the outside world is near to impossible. However, since

media is very active in election times, many unknown leaders become famous overnight and

many villages also get highlighted.

Response of tour operators/companies to election tourism

Travel operators are at present offering customized packages for their customers. They are

making arrangements for attending rallies, meetings with the political leaders, local

communities in the states they have chosen to visit.

Some are offering a seven day package which includes, accommodation, local travel,

attending rallies and small meetings etc. Many of them are coupling the elections with other

sight-seeing places to provide value for the money.

Challenges

The new concept is however, not without challenges.

Security: One of the main concerns about elections tourism is the security of the tourists.

Unlike in non-elections times, the climate of the place of poll is vibrant. Since election times

are filled with rumors, rivalry among the political parties, a small incident can light the fire

and the law and order situation may detoriate. In such cases, the security of the tourist may be

at a risk. Although security arrangements are made by the concerned authorities, the number

of security personnel is quite less compared to the number of people visiting. Actually this

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may discourage many tourists to postpone their trips, for example many Buddhist1 from

countries like Thailand postponed their trip due to Bihar state assembly elections in 2015.

Cost: Since many people from different places visit the polling place from far distances to

cast their vote, the costs of accommodation and travel may rise for that period.

Wrong image of the country: Tourists may carry wrong images of the country related to

mis-

management of rallies, false promises made by the political leaders, security arrangements

etc. which can play a negative role in encouraging tourism.

Conclusion:

This paper gives an overview of the concept of ‘Election tourism in India’ and issues

associated with it. It concludes that though the concept is in the nascent stage, it has a chance

of developing into a full-fledged business if the challenges are tackled properly.

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Emerging Tourism Areas: A Case Study of Gujarat State

Digesh Patel

Research Scholar, B.K. School of Business Management, Gujarat University

Abstract

___________________________________________________________________________ The purpose of this paper is to uncover, unfold and explore the emerging and prospective areas of

tourism in Gujarat. It is an exploratory type research and a case study. The literature review of earlier

research related studies to explore further room for identifying emerging areas of tourism in Gujarat.

Gujarat, located on the western-most part of India, has one-third of India’s coastline (1600 km). The

state is bestowed with beautiful beaches, mountains, vast sand deserts, a thick forest cover and rich

wildlife. Historically, the state of Gujarat has been one of the main centers of the Indus Valley civiliza-

tion. It has innumerable monuments of architectural and archaeological importance, as well as temples

and shrines of great religious significance. The state is rich in cultural, religious, historical and

natural resources. Gujarat has lavish potential to be a resourceful tourism brand.

The Emerging Tourism Areas which possesses great potential to develop are: Spiritual tourism, Nature

Tourism , Architectural & Heritage Tourism , Event Tourism, Recreational & Leisure ,Eco Tourism

and Event tourism. A good attempt is made by state government to develop and promote state tourism

via optimistic tourism policy. The research is purely exploratory in nature. Primary database is not

generated through survey and field work, however through review of literature the past research

findings are explored along with present scenario. The research findings will definitely extend to foster

tourism prospectus in Gujarat to new arena.

Keywords: Tourism, Tourist flow, Tourism areas, Tour destination, Marketing

_____________________________________________________________________

Introduction

Tourism has evolved from just exploring new places into opportunities for fostering

international relations, expanding business boundaries and appreciating cultural diversities. It

extends help to bring different countries, peoples and cultures together along with

significantly contributing towards economic and social development. It is perhaps the only

sector which has a very elaborate and multiple backward and forward linkages with other

segments of the economy like infrastructure, transport, construction, environment, water

resources etc.

As per the ministry of Tourism, government of India 2014 Report, the number of foreign

tourist arrivals in India is 7.68 million and that of domestic tourist visits to all states/Union

territories is 1282 million. The foreign earnings from tourism were approximately USD 20.24

billion during the same period.

In the context of India, during year 2014, tourism contribution to GDP was 6.7 % also

contribution to employment was 36.7 million people .Whereas for Gujarat tourism estimated

contribution to GDP was 2.7 % also estimated contribution to employment was 0.95 million

people . (Source: Economic impact,2015-World Travel and Tourism Council, Tourism policy

for the state of Gujarat-2015-2020)

The abundant growth opportunities in this sector, the increasing consumer expenditure on

travelling and the government’s increasing investments in the tourism industry make it worth

studying.

http://www.gujaratindia.com/about-gujarat/nature-tourism.htm

http://www.gujaratindia.com/about-gujarat/nature-tourism.htm

http://www.gujaratindia.com/about-gujarat/heritage-tourism.htm

http://www.gujaratindia.com/about-gujarat/event-tourism.htm

http://www.gujaratindia.com/about-gujarat/eco-tourism.htm

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Gujarat is perceived as the land of the Mahatma Gandhi and Sardar Vallabhbhai Patel, people

with extraordinary business insight, rich culture, handicrafts, festivals’, ‘Atithi Devo Bhav’

culture and so on. Gujarat is well known for its industrial and agricultural growth.

Gujarat is one of the few places in India with tremendous potential to become a tourist

destination.

The diversity in tourism assets is matched by a robust infrastructure base. Gujarat is

strategically located on the west coast of India and is connected to the major cities of the

world by air and sea. It has one of the highest number of airports and strong port

infrastructure backbone. It has some 42 ports along a 1600 km coastline over 5000 km rail

network and 77,000 km of motorable roads, 24*7 power supply and above well maintained

law and order situation

Exhibit 1: Particulars of Tourists flow

Particulars Number of tourists (in crore)

Growth

over 2009

(In

Percentage)

All India Ranking

(December 2013)

2009 2010 2011 2012 2013 % Domestic Foreign

All India 68.32 75.81 88.4 105.71 116.52 70.55

Gujarat 1.6 1.9 2.12 2.46 2.76 72.5 8 16

Maharashtra 3.31 5.35 6.01 7.15 8.69 162.54 5 1

Rajasthan 2.66 2.68 2.85 3.01 3.17 19.17 7 5

Madhya Pradesh 2.33 3.83 4.44 5.35 6.34 172.1 6 12

(Source: Tourist data compiled by GITCO)

Exhibit 2: Tourists flow in Gujarat Nos.(in Lakhs)

(Source: http://www.gujarattourism.com/downloads/Statistic)

61.65 79.81

76.12 107.03

123.43 141.19

158.07 170.1

198.12 223.64

254.06 287.88

2002-03

2004-05

2006-07

2008-09

2010-11

2012-13

Tourist flow in Gujarat Nos.(in Lakhs)

Tourist flow in Gujarat Nos.(in Lakhs)

http://www.gujarattourism.com/downloads/Statistic

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Tourists groups in to explore its unique development, join in the festive seasons, and enjoy

the originalities of the performing genius of the folk art, music and dances. all, the Historical

Places that dates back to the time of Indus Valley Civilization and Mahabharata times to the

existence of Vedas. It is one of the most popular tourist regions in the country, and was

visited by 32.7 million tourists. Gujarat offers scenic beauty from Great Rann of Kutch to the

hills of Saputara. Gujarat is the one and only place to view pure Asiatic lions in the world.

Review of Literature

The factors which draw tourists to Gujarat are wide and varied. People visit this part of

country laden with an ancient and rich cultural heritage for engagement complied with

curiosity. The people of Gujarat who are by and large hospitable have a rich tradition which is

a major tourist attraction. Their lovely and pleasant nature, mode of attractive dressing, house

decoration which is distinct from other parts of the country. Dance, music and food all attract

tourist in a major way to Gujarat. ( Jasbirsingh et al.,2014)

The factors which draw tourists to Saurashtra are wide and varied. People visit this part of

country laden with an ancient and rich cultural heritage for engagement complied with

curiosity. The people of Saurashtra who are by and large hospitable have a rich tradition

which is a major tourist attraction. Their lovely and pleasant nature, mode of attractive

dressing, house decoration which is distinct from other parts of the country. Dance, music and

food all attract tourist in a major way to Saurashtra. But problems are plenty mainly

transportation, accommodation availability of guides knowing English who could guide

national and international tourist are lacking. Since India is hoping itself to become a major

tourist attraction, the government has to pay immediate attention to these problems. The

policy declaration of Gujarat government is a major step in this direction. Voluntary agencies

could be roped in to assist the government to promote tourist. .The government should set up

tourism information centers in major cities. Tax holiday may be offered to hotels and tour

operators who invest in the development of tourism in Saurashtra .All the benefits available to

industries should be offered for the development of tourism. (Thaker Manisha, 2004).

The main reason for tourism arrivals in Gujarat is business activity. Being a business

industrialized state it is a leading business hub of India. During seasons, the overcrowding of

tourists sometimes opens up the loopholes of government policies and implementations.

Major constraints are poor quality of infrastructure, malpractices by operators, manpower not

being qualified resulting in poor quality of service, absence of a diversified value bundle as a

product offer (Pawan k. Shukla, 2013).

Gujarat has immense potential to become a good tourism brand. The state is rich in cultural,

religious, historical and natural resources. A good attempt is made by state government to

develop and promote state tourism. Public sector invested in various project for promoting

state tourism such as developing and maintaining fair and festival premises, accommodation

facility, wayside amenities, museums, temples, tourist information centers, parking and bus

stations, road surfacing, street light, public toilet and arrangement of drinking water etc.

Gujarat government made policies to attract investment from private sector in this industry.

The state government gets success in joining hands with private sector and develops a model

of public private partnership (PPP). Private sector take responsibility to provide

accommodation facilities (3/4 star rated leisure hotels, economic hotels and resorts) and

developing eco-tourism attractions. Private players are contributing a lot for maintenance of

historical resources and developing wayside amenities. Private players also play an important

role in marketing and promotion of state tourism. Private players invest money in those

projects from where they can generate large revenue such as accommodation, theme park and

parking etc. and a little contribution in non-revenue generating projects. Tourism industry has

great potential to generate large revenue for private sector. If private sector wants to reap

benefits from this industry to the full extent, they should participate in development and

251

maintenance of basic infrastructure and various tourism products for positioning the state as

tourism destination.(Rajeev kumar , Dahiya, 2015).

Gujarat state has emerged as an attracting tourist place and TCGL is progressively looking

towards marketing of tourism in Gujarat. Tourists require new certain activities to be

introduced for tourism promotion. (Viramgami, Patel,2012).

Gujarat bears a huge potential for tourism development. Still the potentialities of natural and

cultural resources remain untapped. There is a positive relationship between the year wise

number of tourist arrivals and the length of transport infrastructure in Gujarat.

Comparatively, the percentage totals of local tourist arrivals are extraordinary high, which is

followed by tourists from other Indian states, NRI’s and foreigners. The 3rd and 4th quarter of

the year is the peak season for the arrival of overall tourist. Event base short term tourism has

been given more preference since the realization of tourism proved as a ‘economic growth

engine’ for Gujarat. Dwarka, Ambaji, Kutch/Bhuj, Palitana, Sasan Gir and Somnath are the

most popular tourist destination in Gujarat. They have strong potentiality of attract more

investment and to be developed as a world class tourist sites. Gujarat tourism is highly

influenced by European and UK origin tourists while from East, West and SE Asian countries

the state is not able to fetch significant number of tourists. Educational purpose tourism is not

much advertized. The main motivational factors behind their choice of Gujarat is to enjoy

post monsoon season that is cool winter weather, fairs and festivals, entertainment

(sports/pleasure), site seeing & conventional and religious (Christmas) sites. Cultural variety,

cheap and easy transportation availability, climate and historical monuments are the most

potential factors for their visit. Higher and middle income groups are more enthusiastic to

travel to Gujarat. Positive change in increasing workforce in tourism observed. Income level

also has improved. Overall the negative responses were noticed in terms of quality of physical

environment due to tourism. Overall tourism development in the state has got positive

responses while in particular the tourism development progress is just an exaggeration

nothing else but none the less, initiatives taken by the Government to put the Gujarat on the

world tourists map as one of the strong contender, is perceptible and appreciable. (Paawan

Shukla, 2014).

The growth of economy generated by tourism industry would affect positively to all levels of

people, not only at higher level but also to local level, which may help in improving their

social economic conditions & will results in balance growth. The proper planning and

management techniques definitely will play a key role in improving the standard of living of

people who are dependent on the tourism. The Gujarat endowed with plenty of resource (both

physical & human resource), which must be utilized in a sustainable manner. The state should

give importance to the concept of eco-tourism & development of nature based tourism rather

than setting up the environment exhaustive economic activities. The Gujarat being a

sovereign of almost all type of potential resource, it has great future prospect in the tourism

development. (Paawan Shukla, 2013).

Gujarat has tourist flow for religion purpose and also for business purpose. The state can

there for concentrate on providing infrastructure facilities in order to attract and promote

tourism in the state. The state can also provide training facilities so that the local employment

can increase in this sector. Tourism should be developed in order to maintain and preserve the

local traditions and culture. By providing the local people with alternative source, eco-tourism

would drastically reduce the biotic pressures in the region which would automatically lead to

greater habitat improvement. Other habitat improvement work such as clearing weeds for

making view lines, creating salt pits for wildlife etc. Would be mutually beneficial for both

the forest and the eco-tourists. Gujarat has tribal belt that can we developed as eco-tourism

centre. The Dangs district of Gujarat has attracted tourist for the purpose of locating herbal

medicinal plants. The government can develop this Dangs district as eco-tourism spot.

(Vansiya, Raghothaman, 2012).

252

That there is a concrete relationship between the factors “Image, perception, Attribute and

experience ” of a destination on “Satisfaction” of the tourists and is favoring “Loyalty”.

(Vishal Rajan, 2015)

The proper planning and management techniques definitely will play a key role in improving

the standard of living of people who are dependent on the tourism. The Gujarat endowed with

plenty of resource (both physical & human resource), which must be utilized in a sustainable

manner. The state should give importance to the concept of eco-tourism & development of

nature based tourism rather than setting up the environment exhaustive economic activities.

The encouragement of private sectors to enter in this field would definitely make a lot of

difference in managing the available tourism resource. Only just capital investments will not

help in development but the local people participation is also required. The various

institutions working in this field should undertake the long term planning methods to develop

the region.(Pandey. et al.,2014).

Gujarat is well known as better business place in India as giant businessmen are attracted to

have their best business with best projects in Gujarat. This was come of mind of CM and

other senior officials in regarded of up gradation of tourism in Gujarat and they tried their

level best, to do needful in the matter, accordingly various tourists place have been renovated

very well with best infrastructure facilities. Moreover other new best projects in tourism have

been place in better way and fulfilled like anything. As a result tourism has been the wide

spreader business. Gujarat is now identified as tourism hub in all types of entertainment like,

reverse, mountains, wild animals, and so many others. Since, inception tourism corporation of

Gujarat Ltd. have done lot of activities, but there are some points to be noted during the years

above as indicated about up to the year 2006 as the total command of CM and in the absence

of net teamwork and officials their created financial losses and ultimately the other investors

could not take any interest in the business of tourism which is the minus point. This point

should be taken care of by the corporation as name itself reflects the nature of working as well

as their activities as stated about the famous businessmen attracted in Gujarat with the or best

new projects. The other investor must take more interest in the activities of Gujarat, but when

the team officials started working deeply and with special interest with the help of grants the

situation went in the better way after the year 2006. Naturally the change was necessary with

the new generation and it was totally done in way. Moreover, other investors have are keenly

interested in tourism business getting way progressive margin year to year. It is being

observed that growth of tourism industry and the growth of Gujarat state economy are being

hand to hand. Every day innovative and creative transformations in the industry are uplifting

the level of industry. New policy framework will be enabling in the near future to make.

Gujarat state distinguish tourism hub and state will have a remarkable stand in terms of

tourism and tourist. (Maheshwari , et al,2015).

The major factors that are considered by tourists for selecting a tour destination are the

distinctiveness of the place, their budget for the trip, their family’s choices and preferences,

etc. The factors that are important for one group of respondents may or may not be of

significant importance for another group of respondents.(Bhatt,Pandya, 2015).

Tourism is today emerging as a leading sector in the world and is now considered by some as

the number one industry. Demographic, socio-structural and socio-cultural developments

have always led to changes in tourist demands, and service providers in tourism are faced

with a substantial need to adjust. These constant challenges have expanded and intensified

considerably in the first few years of the new millennium. The survival of the tourism

industry depends decisively on recognizing the relevant trends and allowing for them in good

time. Consumer trends in tourism, which are gradually changing, require an appropriate

response in terms of both policy formulation and investment and the survival of the tourism

industry depends decisively on recognizing the relevant trends and allowing for them in good

time. (Rupal Patel, 2012).

253

Social Media is an extremely effective form of marketing which can be used to increase brand

awareness, brand loyalty, customer service, and lead to increased sales. It can be used to

present a business brand to millions of people worldwide. As social media continues to grow,

so will the importance of harnessing it as a marketing tool for all industries. The tourism

industry is primed to take advantage of social media outlets, as the industry has long relied

largely on destination reputation, consumer opinion, spread of information, and positive

word-of-mouth advertising. (Niraj Gohil,2015).

A clear branding strategy is critical for the success of tourism Industry. It is therefore required

to understand their needs so that proper allocation of limited resources (Marketing/Branding

Budgets) can be made. Destination marketing campaign should follow the marketing strategy

for right positioning to the target markets. Projected Images in broachers, magazines and

media should reflect the diverse interests of each market. Prospective visitors from Asia are

more likely to come for History & Culture and Spirituality & Natural beauty. Majority of the

tourists are Spiritual and Nature Lovers from all the parts of the world. In targeting this

segment, branding campaigns that include Natural beauty along with religious attributes

should be made. In terms of destination marketing, the six factors and four segments

identified provide guidelines for the formulation of marketing objectives related to attracting

prospective tourists. (Sunayna Ahuja, 2014)

The tourism industry is dependent entirely on environmental quality and the natural resources

that are still in a relatively pristine state and so environmental concerns are few. (Reddy et

al.,2013)

Objectives of the study

To uncover, unfold and explore emerging prospective tourist areas in Gujarat in concatenation

with tourism policy of Gujarat.

Gujarat— A Tourist destination journey

Gujarat, located on the western-most part of India, has one-third of India’s coastline (1600

km). The state is bestowed with beautiful beaches, mountains, vast sand deserts, a thick forest

cover and rich wildlife. Historically, the state of Gujarat has been one of the main centers of

the Indus Valley civilization. It has innumerable monuments of architectural and

archaeological importance, as well as temples and shrines of great religious significance.

Spiritual tourism. Since ancient times Gujarat is famous for its temples. The temple of

Somnath is one of the Dwadash Jyotirling in India. Also Dwarkadish temple at Dwarka is one

of the religious place for tourists. Ambaji, Dakor, Palitana, Girnar, Pavagadh , Sun temple,

Akshardham temple are also other legendary spiritual places for tourist.

Forest and Natural Ecosystem tourism. Gir National park is well known for Asiatic lions.

Ratanmahal wildlife sanctuary is place of attraction for tourist having maximum population of

sloath bears in the entire state. The pristine beauty of forests in this small tract with rugged

topography gives the feel of a hill station to wildlife enthusiasts. Little Rann of Kutch

supports a variety of wildlife including Ghudkhur(Asiatic wild Ass) that is not found

elsewhere, the elegant blackbuck, Nilgai and Chinkara. Dry deciduous forests-Gir, Majestic

Grassland-Velavadar,Vast landscapes-Little Rann Of Kutch,Wetland Habitats-Nalsarovar,

Marine Ecosystem-Pirotan Islands, Rich moist deciduous forests-Dense forests of Dangs.

Architectural & Heritage tourism. Gujarat is rich in archaeological sites including

Modhera Sun temple, Adalaj ni Vav-Gandhinagar, Rani ki Vav –Patan, Idar Gadh-Idar-

Himmatnagar, Kirti Toran Or Narsinh Mehta’s Chori-Vadnagar, Polo mountain and Forest-

Vijaynagar- Sabarkantha, Rudramahalaya-Sidhpur Patan, Dutch Tomb-Surat

254

Adventure and sports tourism. Adventure and sports enthusiasts would be attracted by

Mandvi Beach-Kutch ,Chorwad beach near Somnath, Dumas Beach-Surat, Thithal Beach-

Valsad. Water bodies like Kevadia colony,Narayan Sarovar,Unai Hot springs-Waghai.

Recreational and leisure tourism.

1. Various place for tourists

2. Saputara hill station.

3. Shankuk water park, Mehsana

4. Science city.

5. Sakkarbaug , Junagadh.

6. Kankaria lake ,Ahmedabad.

Medical tourism. According to ministry for health and tourism, during 2012, 450,000

tourists visited the state for medical treatment.

Business tourism. Gujarat is becoming a major attraction amongst businessmen and

investors. The state offers a model for economic progress and development to other

developing nations. Vibrant Gujarat Summits provides various business MOUs.

Event tourism. The Gujarat government is promoting tourism in the state through its many

fairs and festivals, such as:

7. Navratri –Vibrant Navratri

8. International Kite Festival at Sabarmati river front

9. Rann Utsav - which has been running since 2006.

10. Modhera dance festival

11. Tarnetar Fair

Tourism Policy Of Gujarat(2015-2025)

Tourism policy of Gujarat is framed with objectives stated in the draft papers broadly,

To make Gujarat one amongst the top five tourist states of India in terms of local, national

and international tourist arrivals by 2025.

To leverage innovative forms of tourism.

To create convention/exhibition facility and support infrastructure.

To Promote tourism for all segments of the societies and promote employment opportunities

for additional 2 million persons by 2025.

Initiatives already taken to boost tourism

1. A dynamic tourism policy with an aim to make Gujarat a prime attraction for

international tourists. The policy promises long-term investment and business

opportunities for national and international corporate bodies and private enterprises.

2. The state government is also working on developing 11 new airports in the state. The

state already has the largest number of airports.

3. The Rann of Kutch is to be developed as an active rural tourism destination, by

involving the local community. In order to develop this destination, subsidies and

manpower training are also being provided.

4. Gujarat Tourism Corporation has tied up with IL&FS to set up the Gujarat Tourism

Opportunity (GUJTOP). Under this JV, GUJTOP will oversee 50 tourism projects.

255

5. The state has developed 41 large and small ports. And it has worked to lay out a road

network that exceeds 74,000 km.

6. Encouragement for private-sector participation in building large tourism-related

infrastructure projects.

7. Since January 2010, TCGL has signed on Amitabh Bachchan a megastar of

Bollywood to promote the state. Amitabh Bachchan’s credibility as a brand

ambassador is very strong. Amitabh Bachahan promoted places like Kutch, Dwarka,

Somnath and Gir National Park. All these destinations are seeing double-digit growth

in tourist arrivals, including a 30 per cent increase in the number of foreign tourists

Niche tourism products

The ministry has taken the initiative of identifying, diversifying and promoting niche products

of tourism industry. This is done in order to overcome the aspect of season and to promote

India as a 365 days’ destination, attract tourists with specific increase and to ensure repeat

visits for unique products in which India has comparative advantage

Intensive marketing

‘Khushboo Gujarat Ki,’ has generated a lot of interest in the tourists. The statistics published

in Economic Times - Aug 17, 2013 the total no of tourists in Gujarat in FY2013 touched 2.54

Crores which was 13.62% higher than 2012 Today, the unique White Rann attracts a variety

of tourists including the widely travelled tourists. Economy in Kutch has boomed and local

artisans have benefited due to the festival The Khushboo Gujarat ki campaign not only

created a solid awareness for the campaign but today Gujarat's tourism has grown.

Also it has contributed 32.7 million in 2014-15, which is higher than that of the previous

year(Source: Tourism policy Gujarat state, 2015-2025)

Even TCGL’s logo design was changed to feature the Gir (Asiatic) lion. The logo currently

features the profile of a saffron-coloured lion, beside a traditional textile block printing

design.

Media—Television, Radio, Print and Outdoor advertising

“Whether it is TV, radio, print or outdoor, one can’t simply miss the campaign.

Other marketing strategies

Apart from television, radio, outdoor advertisements, other marketing strategies like joint

promotions, road shows were adopted.

In case of Metro train branding, Tourism Board take over an entire Reliance Metro Airport

Express train, Gujarat Tourism ads covered these coaches for a period of three months,

spreading the flavours of Gujarat across Delhi.

Findings

Pilgrim spots like Somnath, Dwarka, Pavagadh and Palitana are a gaining popularity amongst

tourists, as the state records a nearly 35 per cent rise in tourist flow to pilgrimage destinations

in Gujarat in the last two years indicates that Tourism department should focus on offering

theme base package such as a package of Religious tourism-a package covering major

religious destinations of Gujarat i.e. Dwarka, Dakor, Ambaji, Palitana, Mahudi,

Somnath,Pavagadh,Kabirvad which is mentioned in Tourism policy Of Gujarat (2015-

2025).

256

The tourism industry is dependent entirely on environmental quality and the natural resources

that are still in a relatively pristine state and so environmental concerns are few. (Reddy et

al.,2013). Which indicates Ecotourism to be promoted as both tourism activity and a product

in close collaboration with the forest and environment department and the climate change

department. Developement of camp sites and various activities like tracking, nature walks and

heritage walks should be actively promoted and attractive tour packages should be offered.

Dedicated wildlife tourism should be developed covering places such as Gir National

Park,Vansda national park, Marine National park and other sanctuaries of the state.

Prospective visitors from Asia are more likely to come for History & Culture and Spirituality

& Natural beauty. Majority of the tourists are Spiritual and Nature Lovers from all the parts of

the world. (Sunayna Ahuja, 2014). Theme-based tour package for religious tourism

covering major religious destinations like

Dwarka,Dakor,Ambaji,Palitana,Mahudi,Somnath,Pavagadh,Kabirvad alongwith A tour

through Historical places covering Sun Temple-Modhera,Adalaj Ni Vav-Gandhinagar, Rani

Ki Vav-Patan, Sabarmati Ashram-Ahmedabad should be offered in order to extend tourist

choices and facilitation.

Tourists require new certain activities to be introduced for tourism promotion. (Viramgami,

Patel,2012). Which indicates that more thrusts to be given to areas like recreation and leisure

tourism and Event tourism.Rann Utsav, Vibrant Navratri, International Kite Festivals Tarnetar

Fair tour packages to be made more attractive for fostering tourist flow.

According to data from the Gujarat Industrial and Technical Consultancy Organization

Limited (GITCO), which manages the Tourist Flow Information System (TFIS) for the

Tourism Corporation of Gujarat Ltd (TCGL), during 2009-10 religious destinations saw 29.29

million tourists, which grew to 39.44 million tourists in 2013-14, up by 34.6 per cent which is

a result of well aligned tourism policy.

The state should give importance to the concept of eco-tourism & development of nature

based tourism rather than setting up the environment exhaustive economic activities which is

well taken care in tourism policy.

Conclusion

Broadbasing the existing tourism with tourist centric approach through new areas

encompassing mainly Spiritual tourism, Ecotourism, recreational & leisure tourism,

Architectural & Heritage tourism and Event tourism, sustainable competitive advantage for

the development of tourism in Gujarat is not far to achieve.Tourism policy of Gujarat (2015-

2025) is in well synchronism with the findings of the research.

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Realistic study of tourism scenario with special reference to Gujarat

Milind Vora

Research Scholar, PAHER University, Udaipur

Abstract

________________________________________________________________________ Tourism is a basic and most desirable human activity deserving the praise and encouragement of all

people and all government across the world. Tourism varies from local and general to international

and customized. Today, when all the states of India promote their tourism by using different unique

selling propositions, it is important to understand how one time Tourism department has now become

an organized tourism industry. Gujarat is no exception to this. For past few years, the Tourism

Corporation of Gujarat Limited (TCGL) has become highly aggressive in promoting various tourist

destinations of Gujarat by introducing Mr. Amitabh Bachchan as a brand ambassador of Gujarat

Tourism. This study paper is an honest attempt of researcher to thoroughly justifying the realistic

scenario of Gujarat Tourism by quoting useful statistics based on secondary data available.

Keywords: Tourism, Instrument to Economic Growth, Culture, GDP, Foreign Tourists

___________________________________________________________

Introduction

After the Second World War the tourism emerged as an industry worldwide and demand-

pushed by advancements in the field of communications and transport and absence of

industries in select regions. This industry is totally smoke-less industry that acts as a catalyst

for socio-economic cultural development of a nation. Tourism Industry also encourages and

reciprocates understanding by bringing into its fold numerous types of activities.

With the economic growth, the tourism industry faced many challenges. Both governments

and private sectors of many developed as well as developing economies, try to reduce their

financial obligations and with annual global oil and other commodities price rise, so the

Tourism sector is expected to be one of the world’s fastest growing industry . Travel and

Tourism’s role is an important role as an engine of economic growth is being increasingly

recognized, especially by developing nations like India. Tourism not only generates

employment but it also helps ensure sustainable development and alleviation of poverty by

spreading the socio-economic benefits more equitably across population.

Reviews of Literature:

Tourism is evidently a large industry with potential for growth. Rising income also has

increased the demand for environmental amenities (Randall 1987)1. Touted as a low-impact

alternative to traditional tourism (Eadington and Smith 1992, Roxe 1998)2, ecotourism has

been called “responsible travel that conserves natural environments and sustains the wellbeing

of local cultures” (Ecotourism Society in Wheat l998:10). The stated purposes of ecotourism

are to raise the public’s awareness of the environment, to sensitize travelers to nature and its -

processes, and to reduce negative impacts of human activities on natural areas (Sirakaya and

McLellan 1998)3.

Recreation is one of the benefits of protecting natural areas. Others include habitat protection,

biodiversity preservation, soil formation, nutrient recycling, and control of water and air

pollution (Dixon and Shennan 1991)4. Protected areas can provide resilience and stability in

ecosystems and maintain numerous natural services (Heywood and Watson 1995, Perrings

1995, Tumer et al. 1995)5. The values of these amenities must be weighed when considering

actions that affect the conservation of natural areas (Weisbrod 1964, Knltilla 1967, Dixon and

Sherman 1991)6.

259

Batra and Kaur (1996)7 in their paper made an attempt to describe conflict between tourism

and environment with the help of environment audit approach. They highlighted that there

were two types of relationships between tourism and environment i.e. coexistence and

conflicting. Coexistence relationship presented harmony between tourism and environment.

However, conflicting relationship between tourism and environment caused huge problems

like visual pollution, sewage problem, water and air pollution, and lastly ecological problem.

They viewed that social costs in tourism industry were much more than any other type of

industries but these costs were not included in financial report of the tourism industry.

Boyd and Butler (1996)8 in their study highlighted eight factors i.e. accessibility, relationship

between eco-tourism and other resources, attraction, tourism infrastructure, skill and

knowledge, social interaction, degree of acceptance of impacts and type of management for

the development of eco-tourism opportunity spectrum (ECOS).

Brohman (1996)9 in his study highlighted the main problems like increasing crime,

overcrowding, overloaded infrastructure, pollution and environmental degradation etc. faced

by the third world countries due to tourism.

Gupta (1999)10 in this study praised Indian religious tourism which grew for many years

without causing negative environmental, cultural and social impacts. The author viewed that

pilgrimage had less burden on environment, benefited local communities, was seasonal and

provided economic benefits to the local community.

Mehta and Arora (2000)11 in this study appraised tourism promotion activities adopted by

tourism ministry in Punjab. The study highlighted that the share of advertisement expenditure

to total management expenses also decreased in the state.

Biju (2002)12 in his study made an attempt to explain evolutionary process of global tourism.

He viewed that the main reason behind tremendous growth of travel industry was emergence

of railways, shipping, motor car and airplane.

Caprihan and Shivakumar (2002)13 in their article observed that tourists’ decisions

worldwide were negatively influenced by unfavourable conditions like terrorist attacks, war,

epidemics and calamities etc.

Singh (2002)14 in his paper gave a brief overview of tourism policy in India. The author

highlighted that traditional tourism policies in India were neither elaborate nor appropriately

executed.

Gujarat is a state of India, geographically situated in the western tip of India and surrounded

by Arabian Sea coastline. This is the only state that has longest coastline. Pakistan to the

north-west borders, Arabian Sea to the southwest, Rajasthan state to the northeast and

Madhya Pradesh state to the East. People of the state and the local language are known as

Gujarati. The state has some of largest businesses of the India such as diamond, cement,

denim cloth manufacturing, grassroots oil refining, agriculture etc. World's largest ship

braking yard at Alang existed in the Gujarat near Bhavnagar district. Major cities of the state

Ahmedabad, Surat, Baroda (Vadodara), Rajkot, Jamnagar, Bhavnagar are playing main roles

to grow the economy rates and increasing name and fame for the various businesses in the

world. Gujarat state has various factors to attract foreigner as well as national and local

tourists. History tourism, Medical tourism, Business tourism, Culture tourism, Adventure

tourism and many more are most attractions.

Gujarat state has different mode of transportations such as buses, railway, auto and taxies,

aeroplane, boat, ship. Above all transportations is easy, cheaper and faster in compare to other

states of India.

Gujarat have different festivals and they play an important role to call foreign tourists, major

of the festivals are Diwali, Navratri, Raksha Bandhn, Janmastmi, Holi, Kite Festival and

many more. Diwali is the festival of light, on that day lot of sweets are cooked and at the

evening people enjoy with fireworks. Navratri is the longest festival of the India and the

260

world as well. It is a nine nights dancing festival, it is called Dandia or Garba. On the festival

of Rakshabandhan, sister tie a band on the right hand of her brother, that is a holy band, belief

is like the band will defence of the brother. Janmastmi is one of the holiest festivals, because

it is the birth day of lord Krishna, the most worshiped god of India. Holi is called a festival of

colours, on that day people spoil one to another with different colours. Every 14th of the

January is celebrated as a Kite festival, international kite flying contests is also organized in

the Gujarat. Most of the contestants are foreigners. These all festivals are big attractions for

foreign tourist.

Food, festivals and lifestyle are famous of Gujarat state. Local people are used to eat spicy but

very tasty food. Simply thinking and high living is the basic life slogan of them; they are

enthusiastic, active, and adventurous. Gujarat is having different communities, such as

Hinduism, Islam, Jainism, Sikhism, etc. Different religions have different food, belief and

lifestyle, tradition and god.

Gujarat state is famous for various kind tourisms, such as

A) Medical Tourism

B) History and Heritage Tourism

C) Cultural Tourism

D) Business Tourism

E) Recreational Tourism

F) Spiritual Tourism

Genesis of Gujarat Tourism

According to the first Declaration of the United Nations Manila Conference on World

Tourism, 1981, “Tourism is considered an activity essential to the life of nations because of

its direct effect on social, cultural, education and economic sectors of national societies and

their international relations.”

An attempt is made to evaluate the genesis of Gujarat. The main purpose is to bring out in one

place the immense potential of present day Gujarat as a great tourist destination. The study

took help of past records to assess the history of present day Gujarat. The study in its stride

will briefly review the past history of Gujarat, its historical and cultural heritage of the state,

major and minor tourist centers of importance, tourist facilities available and about tourism

promoting agencies and their role in the process of tourism development in Gujarat.

The name Gujarat is derived from Gurjaratra, that is, the land protected or ruled by the

Gurjars/Gujjars. The origins of the Gujjars are uncertain. The common belief is that the

Gurjars/Gujjars or Gujjar clan appeared in northern India. Over the period the name of the

tribe was Sanskritized to “Gurjarat”. The Gurjars or Gujjars believe that they have descended

from Suryavanshi Kshatriyas, belonging to “Sun Dynasty”, and historically they were Sun-

worshipers.2

Ancient History

Historically, Gujarat has been one of the important centers of the Indus Valley Civilization

(IVC) (also known as Harappan Civilization). It embodies major ancient metropolitan cities

from the Indus Valley such as Lothal, Dholavira and Gola Dhoro. It has now scientifically

established that the ancient city of Lothal was the place where India’s first port was

constructed. Dholavira, another ancient city, is one of the largest and most prominent

archeological sites in India, belonging to the Indus Valley Civilization. The most recent

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archeological site discovered was Gola Dhoro, which lies near Bagasra in modern Amreli

District. Altogether, about 50 Indus Valley settlements have been excavated in the State.

The ancient history of Gujarat was enhanced by commercial activities. There is ample

historical evidence of trade and commercial ties with Sumer in the Gulf of Persia during 1000

to 750 B.C. There was succession of Hindu – Buddhist states such as the Gupta Empire,

Rashtrakuta Empire, Pal Empire and Gurjara – Pratihara Empire3.

There were also local dynasties like Maitrakas and then the Solankis. In the 11th century,

Gujarat saw the arrival of Muslims in the political theater of the State. Mahmud of Ghazni

(971 – 1030 CE), the first Muslim conqueror, whose conquest and plunder of Somnath

resulted in ending the rule of the Solankis.

International tourism has been described by Louis Turner as “the most promising complex

and under-utilized industry impinging on the Third world”4. The statement penned some 60

years ago is still true for India in general and Gujarat in particular. Tourism as we understand

today has started in India in a small way in the early 1950’s5. In Gujarat, the modern concept

of tourism – planning, marketing and management was adopted by the State Government in

1973. It was for the first time a separate Tourism Department was established to identify and

help promote the tourist destinations of the State. In 1978 “Tourism Corporation of Gujarat

Limited” (TCGL) was formed and the corporation was entrusted with the task of undertaking

and developing tourism related activities in the State.

Analysis and inferences

Table: 1 Important Facts Regarding Forests and Wildlife Sanctuaries/National

Parks of India & Gujarat: 2011-12

Unit

INDIA GUJARAT

Area % of Total

Geographical Area Area

% of Total

Geographical

Area

Total

Geographic Area Sq. kms 3,287,240 - 1,96,022 -

Total Forest

Area Sq. kms 6,92,027 21.05 14,619 7.46

National Parks

Numbers 103 - 4 -

Sq. kms 40,333 1.23 480 0.24

Wildlife

Sanctuaries

Numbers 515 - 23 -

Sq. kms 1,17,231 3.57 16,618 8.48

Source: Ministry of Environment and Forest

Table: 2 FOREIGN TOURIST ARRIVALS (GUJARAT) (in lakhs)

Year India Gujarat Gujarat as % of India

2003 27.30 0.69 2.53

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2004 34.60 0.62 1.79

2005 39.20 1.26 3.21

2006 44.50 2.07 4.65

2007 50.80 2.20 4.33

2008 52.80 2.79 5.28

2009 51.70 2.90 5.61

2010 57.80 3.84 6.64

2011 63.10 4.31 6.83

2012 65.80 5.17 7.86

Source: (1) Indian Tourism Statistics at a Glance, 2013 (2) TFIS Annual Report, 2011-12; GITCO

Table 2 shows total flow of foreign (Foreigner/NRI) tourists in India and also in Gujarat

during the years 2003 to 2012. The Table also shows what percentage of foreign tourists visit

Gujarat vis-à-vis India. The Table gives quite a grim picture. Only 7 percent of the total

foreign tourists.

TABLE: 3 PURPOSE OF TOURIST VISITING THE STATE (GUJARAT)

Source: (i) TCGL, Annual Report 2006 – 07 for 2004 – 05 & 2005 – 06 periods, and

(ii) TFIS Annual Report, 2011-12; GITCO, for rest of the years

Pur

pose

2004 -

05 2005 - 06

2006 –

07

2007 –

08 2008 - 09

2009 –

10 2010 - 11

2011 –

12

Gro

wth

(%)

201

1 –

12

ove

r

201

0 –

11

No

. % No. % No. % No. % No. % No. % No. % No. %

Busi

ness

40

.7

0

53

.4

7

58.

72

54.

86

65.

29

52

.9

0

77.

58

54

.9

3

88.

01

55

.6

8

92.

41

54

.3

2

111

.85

56

.4

5

123

.46

55

.2

0

10.3

8

Leis

ure

3.

90

5.

12

5.1

0

4.7

6

9.5

8

7.

76

10.

35

7.

33

8.4

2

5.

33

7.6

1

4.

47

10.

89

5.

50

12.

16

5.

44

11.6

6

Reli

gion

28

.1

2

36

.9

4

38.

41

35.

89

43.

30

35

.0

8

47.

41

33

.5

7

56.

17

35

.5

3

66.

05

38

.8

3

70.

67

35

.6

7

82.

18

36

.7

5

16.2

9

Oth

ers*

3.

40

4.

47

4.8

0

4.4

9

5.2

6

4.

26

5.8

9

4.

17

5.4

7

3.

46

4.0

4

2.

38

4.7

1

2.

38

5.8

4

2.

61

23.9

9

Tota

l

76

.1

2

10

0

107

.03

100

.00

123

.43

10

0

141

.23

10

0

158

.07

10

0

170

.11

10

0

198

.12

10

0

223

.64

10

0

263

In Table 3, we observe tourist’s purpose of visiting Gujarat and their proportion in total. In

order to narrate the matter, visiting purpose has been categorized into four broad heads viz.,

Business, Leisure, Religion and Others. It is clear from the Table 3.5 that majority of tourist

visits are for Business purpose. In percentage terms, the share of tourist flow for Business

purpose fluctuated between 52.90 percent (2006 – 07) and 56.45 percent (2010 – 11) during

the period 2004-05 to 2011-12. Subsequently, Religious visit fluctuated between 33.57

percent (2007 – 08) and 38.83 percent (2009 – 10) in the same period. For Leisure purpose, it

was between 4.47 percent (2009 – 10) and 7.76 percent (2006 – 07). Tourists in “Others”

category which consists of non-surveyed destinations fluctuated between 2.38 percent (2009 –

10 and also in 2010 – 11) to 4.49 percent (2005 – 06) during the periods 2004-05 to 2011-12.

However, if one takes into consideration the last two years of the study period i.e., 2010 – 11

and 2011 – 12, the share of Business and Leisure tourists flow fell by nearly 2 percent and 1

percent respectively while the share of Religious and “Others” tourists flow increased by 1

percent each, when compared with the previous year. Business, Leisure, Religion and

“Others” escalated by 10.38 percent, 11.66 percent, 1629 percent and 23.99 percent respectively when the periods 2010 – 11 and 2011 – 12 are compared.

Table: 4 TOURIST FLOW AT INDIVIDUAL DESTINATIONS (GUJARAT)

Destination

2008-09 2009-10 2010-11 2011-12 Growth

(%)

2011-12

over

2010-11 No. % No. % No. % No. %

Business

Centers

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Ahmedabad 1895777 11.99 2213750 13.01 2689971 13.60 3100558 13.86 15.26

Anand 75404 0.48 26157 0.51 109071 0.55 136093 0.61 24.77

Ankleshwar 125245 0.79 105840 0.62 111621 0.56 112713 0.50 0.98

Bharuch 224376 1.42 194068 1.14 207355 1.05 198278 0.89 (-) 4.38

Bhavnagar 241441 1.53 233455 1.37 253921 1.28 283296 1.27 11.57

Bhuj 132362 0.84 148709 0.87 217364 1.10 255222 1.14 17.42

Gandhidham 327567 2.07 231101 1.36 262243 1.32 253729 1.13 (-) 3.25

Gandhinagar 330928 2.09 381211 2.24 399291 2.02 458840 2.05 14.91

Jamnagar 213978 1.35 164039 0.96 184617 0.93 187419 0.84 1.52

Junagadh 385944 2.44 328829 1.93 352438 1.78 388013 1.73 10.09

Mehsana 106952 0.68 101052 0.59 121500 0.61 139115 0.62 14.50

Morbi 47179 0.30 58482 0.34 98472 0.50 118376 0.53 20.21

Mundra 39932 0.25 29541 0.17 66907 0.34 65641 0.29 (-) 1.89

Patan 108447 0.69 89301 0.52 108818 0.55 109165 0.49 0.32

Porbandar 232260 1.47 228399 1.34 238157 1.20 277385 1.24 16.47

264

Rajkot 744516 4.71 755200 4.44 816998 4.12 896763 4.01 9.76

Surat 680763 4.31 765473 4.50 1333123 6.73 1410563 6.31 5.81

Vadodara 621640 3.93 641053 3.77 838849 4.23 1008320 4.51 20.20

Valsad 132663 0.84 141656 0.83 207357 1.05 220372 0.99 6.28

Vapi 206030 1.30 254167 1.49 255388 1.29 259382 1.16 1.56

Veraval 180931 1.14 173376 1.02 242857 1.23 278518 1.25 14.68

Sub Total 7054335 44.62 7324859 43.06 9116318 46.00 10157761 45.42 11.42

Religious

Centers

Ambaji 1487978 9.41 1735313 10.20 1783824 9.00 2032310 9.09 13.93

Bahucharaji 308658 1.95 294454 1.73 340849 1.72 388200 1.74 13.89

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Chotila 240597 1.52 254518 1.50 290793 1.47 294097 1.32 1.14

Dakor 149527 0.95 224630 1.32 252127 1.27 255822 1.14 1.47

Dwarka 847234 5.36 1048918 6.17 1210900 6.11 1436488 6.42 18.63

Girnar 299749 1.90 533780 3.14 492517 2.49 629704 2.82 27.85

Palitana 605429 3.83 549146 3.32 611582 3.09 712080 3.18 16.43

Pavagadh 133527 0.84 139427 0.82 145431 0.73 153593 0.69 5.61

Somnath 387328 2.45 381854 2.24 400477 2.02 500562 2.24 24.99

Virpur 109270 0.69 142175 0.84 130320 0.66 133866 0.60 2.72

Sub Total 4569296 28.91 5304215 31.18 5658820 28.56 6536722 29.23 15.51

Leisure

Centers

Dumas 5223 0.03 5644 0.03 5534 0.03 5621 0.03 1.57

Mandvi 64153 0.41 69942 0.41 93205 0.47 99675 0.45 6.94

Saputara 193339 1.22 168577 0.99 186610 0.94 204366 0.91 9.52

Sardar

Sarovar 29020 0.18 18877 0.11 18981 0.10 24956 0.11 31.48

Sasan 77532 0.49 83386 0.49 150182 0.76 172531 0.77 14.88

Tithal 61723 0.39 64288 0.38 87318 0.44 92138 0.41 5.52

Ubharat 20335 0.13 24661 0.14 22070 0.11 26573 0.12 20.40

Sub Total 451325 2.85 435375 2.56 563900 2.85 625860 2.80 10.99

265

Non-

Surveyed

Destinations

3732579 23.61 3946798 23.20 4472898 22.60 5043609 22.55 12.76

Gross Total 15807535 100 17011247 100 1981193

6 100 22363952 100 12.88

Note: Figures in the individual percentage columns may not exactly add up-to the total due to

round-off

Source: TFIS Annual Report, 2011-12; GITCO

If we take into consideration the annual growth of tourist flow for the State as a whole,

between 2010–11 and 2011–12 it was 12.88 percent. In absolute terms the tourist flow was

198.12 lakhs in 2010 – 11 which increased to 223.64 lakhs in 2011 – 12 (Table – 3). Center

wise analysis shows that “Business centers” continues to remain top draw tourist destination

for all the four years, i.e. 2008 09 to 2011 – 12. If last two years are taken into account then it

could be seen from the Table 3.6 that little more than 91 lakh persons (46.01 percent) in 2010

– 11 and about 102 lakh persons (45.42 percent) in 2011 – 12 visited “Business centers”.

Though in absolute terms the tourist flow increased, but in percentage terms a decline is

noted.

“Religious centers” comes at a distant second position with 28.56 percent and 29.23 percent

of the total tourist flow for the year 2010 – 11 and 2011 – 12 respectively, followed by

“Leisure centers”. However, if one considers the shifts, the share of “Business” and “Leisure

purpose” tourists flow fell by 0.49 percent and 0.05 percent respectively when 2010 – 11 and

2011 – 12 periods are compared. The share of “Religious purpose” tourists increased by 0.67

percent or by about 1 percent in 2011 – 12, when compared to previous year, i.e. 2010 – 11.

Discussions:

From the analyzed statistics we can see that Gujarat tourism is an emerging Industry post

campaign.

Business purpose visits could be serving more developmental opportunities in future so the

government should encash it by providing more useful tourism products.

There is a strong need to Niche Marketing in Tourism as Gujarat has many such customized

destinations to promote.

In some select areas we observe negative growth in tourist’s visits. A serious concern should

be shown by the TCGL to improve the performance of such weak performing destinations.

We see a continuous rise in visitors’ inflow in Gujarat but the growth is not yet satisfactory.

The government should explore tourism under “Swachh Bharat Abhiyan” by considering

many aspects and also considering local needs.

There should be skill development programs for local villagers residing nearby some

unexplored tourist places.

266

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the environment: an environment audit approach. Managerial Auditing Journal, 11, 3-10.

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pp. 144-147.

3. Brohman, J. (1996). New directions in tourism for third world development. Annals of

Tourism Research, 23(1), 48-70.

4. Butler, R. (1980). The concept of a tourist area cycle of evolution: Implications for

management of resources. Canadian Geographer, 24, 5-12.

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July- December, pp.139-143)

6. DIXON, P., AND J. SHERMAN. 1991. Economics of protected areas. Ambio 20: 68–74

7. Eadington and Smith 1992, Roxe 1998: Touted as a low-impact alternative to traditional

tourism, ecotourism has been called “responsible travel that conserves natural

environments and sustains the wellbeing of local cultures” (Ecotourism Society in Wheat

1998:10).

8. Gupta, V., (1999) ―Sustainable Tourism: Learning from Indian Religious Tradition‖,

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9. HEYWOOD, V.,AND R. WATSON. 1995. Global biodiversity assessment. Cambridge

University, New York, New York, USA.

10. Mehta, A. and Arora, R.S. (2000), “Tourism Industry in Punjab – An Appraisal of

Promotional Activities”, Indian Management Studies Journal, Vol.4, No.1, pp.91-102.

11. RANDALL, A. 1987. Resource economics. Second edition. John Wiley and Sons,

New York, New York, USA

12. Singh S. (2002), "Tourism in India: Policy pitfalls", Asia Pacific Journal of Tourism

Research, Volume 7, Issue 1, pp. 45 - 59

13. Sirakaya and McLellan, R.W. (1998) modeling our tour operators’ voluntary

compliance with eco-tourism principles: a behavioral approach. Journal of Travel &

Research 36, 42-55.

14. WEISBROD, B. A. 1964. Collective consumption services of individual consumption

goods. Journal of Economics 7:71–77.

267

Tourism Indicators: Tool for Sustainable Development

Rahul Singh Shekhawat

Assistant Professor

Vivekanand Institute of Hotel & Tourism Management, Rajkot

Abstract

___________________________________________________________________________ The nature of tourism industry has been positive for all the countries of the world. The initial results

were exciting for many countries and some countries depended on it for its needs. The problem started

to begin with the rise in number of tourist arrival and limited resource to cater them. Then countries

came with wave of development in tourism infrastructure and facilities. The results were soon seen on

the countries’ ecology, society, culture and to some extend on economy also. The destinations were

becoming unsustainable and tourists were not also getting the same satisfaction.

There was need of sustainable development of destination with proper planning and care for all the

stakeholders of industry. But sustainability is a qualitative or perception based concept. It depend from

destination to destination, therefore it become hard to measure it. Mowforth and Munt (1998) have

proposed that estimation of sustainability could be done through indicators. Indicators are developed

by analysing the current state of the destination and the future expectation out of destination.

Indicators can be grouped in themes and sub-themes as statements. They indicators are continuously

monitored, altered and re-defined.

The paper will first make clear understanding of the two terms sustainable development and indicators.

Then it will focus on developing the relationship between these two concepts.

Key Words: Indicators, Sustainable development, Tourism, Destination

_____________________________________________________________________

Measuring the performance of tourism sector at local, national or global level has

traditional confined to economic, socio-cultural or environmental. However, tourism

infrastructures, facilities, activities of tourist have a much wider positive and negative

impact on the destination. The impact ranges from environmental issues, the

protection and management of cultural heritage, operation of transportation,

accommodation facilities, etc. There is another important aspect of impact and that is

socio-cultural character related to the interaction between tourist and the host

population on the destination.

Sustainable development can mitigate the current challenge of negative impacts arise

from rapid growth of tourism. Therefore, R. Butler has rightly said about sustainable

tourism, “Tourism which is in a form can maintain its viability in an area for an

infinite period of time” (Butler, 1993). But, measuring tourism impact can become

difficult because it is qualitative or perception based aspect. This cannot be quantified

for the measurement purpose. It is due to this reason researchers have suggested

indicators which eases the measurement of tourism impact at the destination. The

indicators for sustainable tourism development have become an intrinsic component

of tourism planning process. The indicator study commences with the knowledge of

present state of tourism at the destination, then impact analysis of tourism and finally

formulation of sustainable tourism indicators. So, identification, monitoring and

control of such indicators will assist in great manner towards more sustainable

tourism and in promoting this objective in public and private sector decision-making.

268

Rationale of Paper

In the present scenario both emerging and established economies of the world are

finding it hard for inclusive and sustainable growth. Tourism plays a great role in the

economy of country and for the inclusive growth of the destination. So, these

countries are promoting tourism for its benefits. But growth of tourism leads to

unremitting and irreversible changes, which can be seen majorly on the society,

culture, economy and environment. The study will primarily focus on the

understanding of the two terms sustainable development and indicators. There after

study will develop relationship between the two term sustainable development and

indicators. Thus it will open up many avenues if the concepts developed here are

applied correctly. It focuses on how destination will develop with present tourism

recourses.

Sustainable Development Tourism is multi-dimensional industry and affects the life of many people at a same

time. There has been growing concern of unplanned and rapid growth in the number

of tourist. As a result of this growth there is visible degradation of the destination

culturally, socially, economically and environmentally. Even the tourist doesn’t have

the same experience which was there on the same destination earlier. What is that

element missing here?

The element missing here is sustainability and lack of planning. Sustainability means

using of the resources at the destination like attractions or facilities in such a way that

it could last longer. The future generation should also be part of planning activity. So,

they can also enjoy these resources at the destination in future.

Sustainable Tourism Development and its Definitions

The definition of sustainable tourism has given many authors and no definition is

widely accepted. One of the widely-used definition focuses on “leading to

management of all resources in such a way that we can fulfil economic, social and

aesthetic needs while maintaining cultural integrity, essential ecological processes,

biological diversity and life support systems.” (Diamantis and Ladkin, 1999)

“Sustainable tourism development meets the needs of the present tourists and host

regions while protecting and enhancing the opportunity for the future. It is envisaged

as leading to management of all resources in such a way that economic, social and

aesthetic needs can be fulfilled, while maintaining cultural integrity essential

ecological processes, biological diversity and life support systems” (WTO, 1996)

“Sustainable tourism is about managing tourism’s impacts on the environment,

communities, and the future economy to make sure that the effects are positive rather

than negative for the benefit of future generations. It is a management approach that is

relevant to all types of tourism, regardless of whether it takes place in cities, towns,

countryside or the coast.” (English Tourism Council, 2002)

“Tourism that takes account of its current and future economic, social and

environmental impacts, addressing the needs of visitors, the industry, the environment

and host communities” (CNPA, 2005)

“if tourism is to be truly beneficial to all concerned and sustainable in the long-term, it

269

must be ensured that resources are not over-consumed, that natural and human

environments are protected, that tourism is integrated with other activities, that it

provides real benefits to the local communities, that local people are involved and

included in tourism planning and implementation, and that cultures and people are

respected.” (Eber, 1992)

The concept of sustainability can be implemented through assessment, planning and

implementation of right policy at right place. No two destinations have same situation

or criteria to replicate the planning. The common concept which is feasible at all

places is carrying capacity and should be part of planning. In Butler’s ‘tourist-area life

cycle’ (TALC) model of the evolution of tourism development, Butler introduces this

notion of ‘carrying capacity’, proposing that at any tourist destination there is a ‘limit’

to tourist numbers, beyond which they are a detriment to the future viability of the

area as a tourist attraction. Many of the critics of Butler’s model have questioned the

interpretation of carrying capacity and the fact that it is limited to the destination area.

Carrying capacity, in the context of tourism in general, refers to the ability of a site or

region to absorb tourism use without deteriorating (Cooper, 1998). However, “there is

still neither a universally accepted definition nor a standard systematic procedure for

assessing it” (Saveriades, 2000).

O’Reilly describes the various carrying capacities as follows:

Physical carrying capacity – the limit of a site beyond which wear and tear

will start taking place or environmental problems will arise.

Psychological (or perceptual) carrying capacity – the lowest degree of

enjoyment tourists are prepared to accept before they start seeking alternative

destinations.

Social carrying capacity – the level of tolerance of the host population for the

presence and behaviour of tourists in the destination area, and / or the degree

of crowding users (tourists) are prepared to accept by others (other tourists).

Economic carrying capacity – the ability to absorb tourism activities without

displacing or disrupting desirable local activities.

Attempts to quantify carrying capacity thresholds face a number of difficulties. There

will be differences for example, in acceptable levels of crowding and changes in area

management may alter carrying capacity through time (Pearce, 1989, cited in Hunter,

1995). The existing view point is that although tourism carrying capacity is a useful

concept to help us understand sustainable tourism theoretically, its practical

application as a management tool is very limited (Hunter, 2003).

Indicators The aim of sustainable tourism in general is to upgrade residents’ quality of life and

tourists’ experience and to support the environmental resources on which the tourism

system is based. So, “achieving sustainable tourism is a continuous process and it

requires the constant monitoring of impacts, introducing the necessary preventive

and/or corrective measures whenever necessary.” (UNEP, 2009). In this respect, “one

of the problems that arise when applying the concept of sustainability to tourism is

that there is not any exact and accepted methodology for measuring it. One of the

tools recently proposed for measuring sustainability is the estimation of indicators.”

(Mowforth and Munt, 1998).

270

To estimate whether tourism development at destination level is sustainable or not,

and to what extent, there is a need to make a set of indicators that measure progress in

achieving sustainable development. In this respect, it “measures the existence or

severity of current issues signals of upcoming situations or problems, measures of risk

and potential need for action, and means to identity the results of our actions.”

(Griffin, 2011). Indicators for sustainable tourism may exist at national, regional and

destination level and they have socio-cultural, economic and environmental

dimension (Ceron, 2003; Gebhard, Meyer & Roth 2007). Each dimension has one or

more themes (issues). Also there are indicators developed from these themes.

Some of the baseline issues and indicators for tourist destinations Baseline Issue Suggested - Baseline Indicator (s)

Local satisfaction Local satisfaction level with tourism (Questionnaire)

Effect of tourism on

communication

Ratio of tourists to locals (average and peak period/days)

% who believes that tourism has helped bring new services or

infrastructure(questionnaire based)

Number and capacity of social services available to the community (% which

are attributable to tourism)

Sustaining tourist

satisfaction

Level of satisfaction by visitors (questionnaire - based)

Perception of value for money (questionnaire - based)

Percentage of return visitors

Tourism seasonality Tourist arrivals by month or quarter (distribution throughout the year)

Occupancy rates for official accommodation by month (peak periods relative

to low season) and % of all occupancy in peak quarter or month

% of business establishments open all year

Number and % of tourist industry jobs which are permanent or full – year

(compared to temporary jobs)

Economic benefits Number of local people (and ratio of men to women) employed in tourism

of tourism (also ratio of tourism employment to total employment)

Revenues generated by tourism as % of total revenues generated in the

community

Energy management Per capita consumption of energy from all sources (overall, and by tourist

sector-per person per day

Percentage of businesses participating in energy conservation programs, or

applying energy saving policy and techniques

% of energy consumption from renewable resources (at destinations

establishment

Water availability Water use: (total volume consumed and liters per tourist per day)

and conservation Water saving (% reduced, recaptured or recycled)

Drinking water

quality

Percentage of tourism establishments with water treated to international

portable standards

Frequency of water – borne diseases: number/percentage of visitors

reporting water – borne illnesses during their stay

Sewage treatment Percentage of sewage from cite receiving treatment (to rimary,

secondary,tertiary level)

(wastewater Percentage of tourism establishments (or accommodation) on treatment

system (s)

management)

Solid waste

management

Waste volume produced by the destination (tones) (by month)

271

(Garbage) Volume of waste recycled (m3)/total volume of waste (m3) (specify by

different types)

Quantity of waste strewn in public areas (garbage counts)

Development Control Existence of a land use or development planning process, including tourism

% of area subject to control (density, design, etc.)

Controlling use

intensity

Total number of tourist arrivals (mean, monthly, peak periods)

Number of tourists per m2 of the site (e.g., at beaches, attractions), per

square kilometer of the destination, mean number/peak period average

Different authors had different explanations for indicators, “Indicators provide critical

information about current trends and conditions and help to track progress toward the

goals” (Gahin, Veleva & Hart 2003). “Indicators quantify change, identify processes

and provide a framework for setting targets and monitoring performance” (Crabtree

and Bayfield, 1998);

It is important to note that indicators are not intended to accomplish the required

change, but rather they act as catalysts for change, providing an ‘early warning

system’, flagging up areas of concern thus enabling decision-makers to initiate the

necessary policy changes and remedial measures. Indicators of sustainable

development should provide a continual assessment of the overall sustainability of a

system and the indicators themselves will require constant review and updating over

time, as changes occur; implementing indicators is a dynamic process.

Indicators are for analysing the current situation and monitoring progress, the same

indicators become useful tool for communication: “Communication is the main

function of indicators: they should enable or promote information exchange regarding

the issue they address.” (Smeets and Weterings, 1999). The process of identification

of indicators has been complex with high level of detailing and transparency should

be maintained. Data required to reach consensus or to make decision should be simple

enough to be comprehended. The indicators devised after this exercise should be

useable by all and must not confined to researchers. Public consultation and

stakeholder participation throughout the indicator development process can play a

significant role. Some argue that an indicator should measure what those concerned

are interested in and must provide meaningful information, enabling action to be

taken.

There were a large set of 96 core sustainable development indicators and these were

revised to a set of 50 Community Sustainable Development (CSD) indicators recently.

The arrangement of indicators into different core set makes it easy to manage them.

Whereas the large set allows the inclusion of additional indicators that enable

countries to do a more comprehensive and differentiate assessment of sustainable

development. The core set of indicators fulfil three basic criteria:

1. They should cover the relevant sustainable development issues in most

countries.

2. They must provide critical information about the current position of tourism in

the countries where assessed.

3. They must be easy to calculate by most countries with the data available to

them or can be easily gathered in reasonable time and costs.

272

But on the other hand the indicators that are not part of core set don’t follow above

mentioned criteria. Either the indicators are applicable to particular region and

provide complementary information to core indicators or they are not easily available

for most countries.

The indicator set retains the thematic/sub-thematic framework. In doing so, it remains

consistent with the practice of most countries applying national sustainable

development indicator sets and it is directly relevant to the monitoring of national

sustainable development strategies. At the same time, it is noted that there is

important work going on elsewhere on alternative frameworks, and these will

continue to be considered in future revisions of the CSD indicators.

CSD indicator themes

Poverty; Natural hazards; Governance; Atmosphere; Health; Land; Education;

Oceans, seas and coasts; Demographics; Freshwater; Biodiversity; Economic

development; Global economic partnership; Consumption and production patterns

The indicators have been put on four pillars of social, economic, environmental and

institutional these are much clear in revised set. This change emphasizes the multi-

dimensional nature of sustainable development and reflects the importance of

integrating its pillars. Consequently, new cross cutting themes such as poverty and

natural hazards were introduced and existing cross cutting themes such as

consumption and production patterns are better represented. Since poverty covers a

broad range of related issues, it was conceptually limiting to keep it as a sub-theme

under equity. Consequently, it is now a separate theme that includes sub-themes

related to income, sanitation, drinking water, energy access and living conditions.

Natural hazards were a sub-theme of the now dissolved theme ‘institutional capacity’,

which did not reflect the cross cutting nature of the topic. Other new themes include

global economic partnership and governance. Global economic partnership includes a

number of new indicators that capture key issues such as trade and development

financing. The indicators for the theme ‘governance’ are largely undeveloped; only

crime related indicators are currently included. Significant methodological work is

needed to develop good, measurable and inter-nationally accepted indicators on other

aspects of governance.

What makes a good indicator?

There are many examples of indicator criteria in the literature stating what an

indicator should be, from short, concisely coined acronyms (such as ‘RACER’-

Relevant; Acceptable; Credible; Easy to monitor and Robust to manipulation)

(European Commission, 2005) to lengthy, all-encompassing lists. Criteria for

indicators, as follows: community involvement; linkages; validity (relevance);

available and timely; stable and reliable; understandable, responsive; policy relevant;

representative; flexible and proactive (provides a warning). Waldron and Williams

(2002) suggest indicators must have stakeholder involvement; be adapted to suit the

local needs; consist of both objective and subjective data and make links between

different issues. Kelly and Baker (2002) agree with the last two criteria and add the

following: validity (acceptable, believable; related to a higher order theme, related to

theory); reliability (can be used over time, and across space but only within the

273

region); data(available and accessible; objective and subjective; qualitative and

quantitative; not easily misrepresented/misinterpreted); method (timely, uses existing

data, considers scale/level; considers capacity to collect and use) and relevance (to

objectives; beneficial to investors/taxpayers; links to other indicators).

Characteristics of a good indicator

Measurable – necessary data available/ can be collected

Sensitive- to spatial and temporal change

Economically viable- cost effective

Acceptable and accessible

Useable and easily interpreted

Reliable and robust

Verifiable and replicable

Participative process- meets the needs and interest of target audience

Specific- clearly relate to outcomes

Timely- show trends over time

Transparency in methodology and selection

Relevant- to local, regional, national policy and to local concerns

Scientifically well-founded

(Reed and Doughill, 2003; Waldron and Williams, 2002; Bells and Morse, 2003;

Harger and Meyer 1996, in Bell and Morse 1999; Gallopin, 1997; Hughes, 2002;

Gabrielsen and Bosch, 2003)

How many indicators? The number of indicators adopted seems entirely arbitrary and examples range from

as few as ten to one hundred, or more. The European Commission advocate that a

“large number of indicators are needed to properly assess the multidimensional nature

of SD” (European Commission, 2005), but there arises again the need for compromise

between maintaining a sufficient level of detail whilst achieving simplification for

‘manageability’ (Bell and Morse, 2003). Bell and Morse (2003) note that 20 appears

to be the ‘magic number’ in reviews of local SD strategies, but the real trade off is to

have as few as possible, whilst as many as necessary.

The European Commission adopts a hierarchical approach to developing sustainable

development indicators, based on policy documents, with a set of ten headline themes,

further divided into sub-themes followed by areas to be addressed, “The sub-themes

usually monitor the progress towards the headline objectives while the ´areas to be

addressed` facilitate a more detailed and diversified analysis of background factors in

each theme” (European Commission, 2005). The indicators are also structured into

three layers, pyramid style, to facilitate communication with each level assumed

appropriate for different stakeholder needs and corresponding to the related theme.

Thus, at the top of the pyramid are 12 headline indicators, corresponding to the

priority policy themes and assumed useable by policy makers and the public; the

second level of 45 core policy indicators relates to the sub-themes and is assumed to

provide the necessary tools for monitoring level 1; finally at the third level are 98

analytical indicators relating to the areas to be addressed, assumed to provide more

detailed analysis of intricate and complex issues, aimed at a more specialised

audience.

274

Similarly, the OECD describes a pyramid of indicator sets (Bell and Morse, 2003)

from numerous data for scientists and technical experts; through indicators for policy

makers and managers to condensed indices for the public and Kelly and Baker (2002)

provide a further example of a tiered approach between spheres, domains and themes,

which echoes the UK approach of domains, families and themes (Morrey, 1997).

Conclusion

The sustainable development and indicators for sustainable development are

complimentary to each other for the balanced and inclusive growth of destination

without any degradation. The tourism has grown in past without proper planning,

stakeholders were never consulted and lot of issues of socio-culture, economic and

environmental were there. The factor missing in this growth is sustainable

development, which is based on principle of planning, carrying capacity, management

of resources. Whereas indicators help in assessment of situation that how much

damage to the destination is made due to tourism activity and monitor the changes at

the destination. Therefore indicators are classified into various themes and sub-

themes. It is good to have many themes and sub-themes for clearer and better idea

about the destination. The simple relation between sustainability and indicators is

established by the fact that sustainability describes the situation and indicators

quantify it. Organisation like UNWTO, Governments (National, Regional and

Destination), NGOs are working world over to bring harmony through tourism. Since

tourism can bring economic stability with peace. These organisations are not leaving

any stone unturned to make destination sustain to the present level.

References

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immeasurable. London: Earth scan Publications.

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London: Earth scan Publications.

3. Butler, R. (1993) Rural Recreation and Tourism. In: Ilbery, B. (Ed) The

Geography of Rural Change. Harlow: Addison Wesley Longman, 211-232.

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Mountain Ecosystems: A Study of the Cairngorms, Soctland. Journal of

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between Theoretical Demands and Practical Achievements”. Current Issus in

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European Commission.

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the three Biosphere Reserves Aggtelek, Babia Gora and Sumava”, Ecological

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Recreation and Tourism Management”, Springer.

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Unpublished.

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measures for the sustainable regions programme. Final Report to the Department

of Transport and Regional Services, Canberra.

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In: Moldan, B., Billharz, S. and Matravers, R. (Eds) Sustainability Indicators: A

report on the project on Indicators of Sustainable Development, John Wiley and

Sons, Chichester, 318-327.

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Third World, London: Routledge, xvii, 363.

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21. Reed, M.S. & Doughill, A.J. (2003). Facilitating grass-roots sustainable

development through sustainability indicators: a Kahalahari case study. Presented

at ‘Frontiers 2: European Applications in Ecological Economics’ 12-15 February

2003, Tenerife, Canary Islands: 1-19.

22. Saveriades, A. (2000). Establishing the social tourism carrying capacity for the

tourist resorts of the East coast of the Republic of Cyprus. Tourism Management

21, 147-156.

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Overview. Technical report no. 25. Copenhagen: European Environment Agency.

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Integrated Planning and Management Approach”.

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case of the resort municipality of Whistler. In: Harris, R., Griffin, T. and

Williams, P. (Eds) Sustainable Tourism: a global perspective, Oxford: Elsevier

Butterworth-Heinemann, 180-194.

26. Sustainable Measures: Indicators of sustainability (website accessed 01/12/15)

276

Trend and Investment Preference Scenario of Commercial Real

Estate

Devendra Lodha

Research Scholar, Gujarat University, hmedabad.

Dr.Narayan Baser

Associate Professor, Shri. Jairambhai Patel Institute of Management Studies,

Gandhinagar.

Abstract

___________________________________________________________________________ The Growth or Development of any of the nation has been reflected by the infrastructural facility

development of that nation. Like Housing, Commercial Infrastructure and Public Infrastructure. So in

brief It can be concluded that real estate market plays a vital role in the growth and development of the

nation as it reflect the living slandered of the nation. Commercial real playing the dominant role in the

development of the Market Space in the nation and also contributing to the growth of the nation in

terms of Trade of Goods and services. This Paper mainly focuses on Trend and Investment preference

scenario of the Commercial Real estate segment of the Ahmedabad. Real Estate market now a day’s

refers as one of the secure and fast growing market in India in comparison to the past several years. It

has got the remarkable growth in the past decades. Also it indicating the continuous future growth

align with the growth and development of the nation. So in this era it becomes the popular investment

destination in comparison to the other investment destinations. This research observes the trend and

Investment preference towards the Commercial real estate segment as Commercial real estate playing

a vital role in the development of the market space. And dominate to the growth of the nation as well.

For the purpose of this research Primary data of 250 respondents were collected from the Different

regions of the Gujarat those, who are connected to the commercial real estate segment. Data have

been collected from the Commercial Real estate Agents, Brokers, Investor, Builders and Real Estate

Advisors to know the investment preference and Trend Going on in the commercial real Estate

Segment.

Keywords: Commercial real Estate, Investment Preference , Trend, Real Estate Agents, Builders

and Real Estate Advisors.

___________________________________________________ 1. Introduction

The Real Estate Industry is one of the Growth and Development engine of the nation. As it

construct the shelter facility and Commercial platform of the nation. The construction

industry ranks third among the 14 major sectors in terms of direct and indirect effects in all

dominant sectors of the economy, according to a study done by ICRA. The industry’s

growth is linked to developments in the retail, commercial, hospitality and entertainment

(hotels, resorts, cinema theatres) sectors, economic services (hospitals, schools, markets)

and information technology (IT)-enabled services (like call centres) etc. and vice-versa. The

major portion of this sector consumed by the housing segment and Commercial real estate

segment which includes Retail Shops, Shopping Malls, and Corporate houses.

The sector in India is being recognised as an infrastructure service that is driving the

economic growth engine of the country, according to industry experts. In fact, foreign direct

investment (FDI) in the sector is expected to increase to US$ 25 billion in the next 10 years,

as per a latest industry body report. FDI inflows in real estate in 2011-12 (April-January)

Government Initiatives:- In the Union Budget 2012-13, Rs 10,000 crore (US$ 1.80 billion) is allocated for the

development of National Highways. In the next five years, the total investments in the real

estate will be US$ 1 trillion. Government of Gujarat plans to build a 600-hectare township

277

near the proposed Maruti Suzuki India Ltd's (MSIL) manufacturing factory in Hansalpur

near Mehsana. The cost of development is estimated to be about Rs 8,000,000 (US$

143,647.89) to Rs 1 crore (US$ 179,551.44) per hectare. (US$ 493.80 million). In May

2012, FDI inflows in real estate were Rs419.87crore (US$ 75.39 million) as compared to Rs

321.35 crore (US$ 57.70 million) during the corresponding month in 2011. Indian real

estate emerged as the popular sector for private equity (PE) funds investing around US$

1,700 million in this sector during 2011. PE in real estate projects will fetch considerable

returns by next year-end or early 2013, according to Vikram Hosangady, Partner, and

KPMG. India needs to invest US$ 1.2 trillion over next 20 years to modernise urban

infrastructure and keep pace with the growing urbanisation, as per a report released by

McKinsey Global Institute (MGI)–India's urban awakening.

Commercial Real Estate Segment in Gujarat:- The last decade has seen Gujarat transform into an urban landscape with international

standards. The real estate scenario has become very impressive in the state and is likely to

increase even more in the near future. A few factors which have contributed to this growth

is the expansion of the Gujarat Municipal Corporation limits, increasing connectivity, robust

development of other basic infrastructural utilities and the growth of Gujarat as a notable

commercial and industrial hub. Key projects in the form of SEZs, hotels, integrated

townships; gated communities as well as specialty townships such as financial products

townships and IT corridors have come up in a big way in the state. Third, the favourable

FDI policies have also proved beneficial for the realty sector in Gujarat. Talking about the

commercial real estate market in Gujarat, then it has also shown tremendous development in

the last few years. Being a trade hub, the state has proven to be one of the most sought-after

locations for commercial investment. Analysts agree that Gujarat has grown enormously

over the past decade, due to ultra-progressive policies and intelligent development

governance. The state is providing extraordinary and unprecedented returns on real estate

ROI, and has proven to be one of the most exciting investment destinations in India today.

All this collectively ensures the continuity in the boom of property market in Gujarat.

Aakash Tomar, a senior officer from Bakheri Group, says, "Due to huge influx of migrant

population in the state, the realty market is poised to prosper. Further, as compared to any

other state, the infrastructure is very good in Gujarat as compared to other states like

Rajasthan, Madhya Pradesh etc. One of the other but important reasons for the growth of

Gujarat realty market is good governance, policies and leadership".


The real estate segment has grown to such a monetary size that even minute variations have

significant effect on the country’s economic development observed in the research done by

Dikmen S.U., Saraç E. (2012).These variations are dependent on the value of property and

various Country specific factors e.g. extrinsic and intrinsic factors affecting the same. Land

and property are the two main components of real estate sector whose value changes due to

demand and supply fluctuation. Studied by French N. (2004). Most real estate purchases and

leases would be considered high involvement of money and investment that would require

complex decision-making. The three major comprehensive models of this type of consumer

decision making (Engel, Kollat and Blackwell, 1968; Howard and Sheth, 1969; Nicosa

1966). Which trace the psychological state for decision making and investment behavior of

individual purchasers from the point at which they perceive a need through the search for

information, evaluation of alternatives, purchase, and final evaluation of the consequences.

The assumption is that a purchase act is preceded by a sequence of mental information

processing. This involves a cognitive function in forming beliefs, an emotional component

in developing positive or negative attitudes, and a reaction through being motivated to select

and buy. In the research by Shim, Lee, & Kim (2006), Yang (2002) quoted that the rationale

of real estate investment is to create more profit in future when forgoing the present

278

consumption by taking into the consideration of uncertainty and risk. Also, he categorized

investment patterns based on the earning rate, stability and liquidity into cash deposits,

securities and or securities by examining the behavioral patterns of real estate investors.

The time series properties of price changes in the commercial property sector also are quite

similar to those previously reported for owner-occupied housing. There is persistence in

price appreciation over short times periods, so that growth begets growth (and decline

begets decline) from year-to-year in commercial properties, just as Case and Shiller (1989)

documented for housing. However, there is substantial mean reversion over longer horizons

that are similar to what Glaeser and Gyourko (2006) report for housing.

Commercial real estate maintained an upbeat pace of sales during the second quarter, with

REALTORS® reporting continued improvement in fundamentals and investment sales.

REALTORS® indicated a pick-up in the direction of commercial business opportunities

during the second quarter 2015, with a 6.4 percent quarterly increase, following a 3.8

percent rise during the previous quarter. Sales of commercial properties rose 9.1 percent on

a year-over-year basis as published in the Reports by National Association of Realtors.

Vandna Singh and Komal (2009), In their research observed when the GDP increases the

real estate prices also increases because there is a high degree of Positive correlation

between the real estate prices and GDP. The Real estate prices also increases with increase

in the per capita income as there is high degree of positive correlation between these two.

The FDI into the country affects the real estate FDI and real estate having a positive

correlation leads to the boom in this sector. FDI was increased from 2006 to march 2007 is

10%. Earlier it was 16% and in 2008 it is 25%.The interest rate also affects the real estate

Research Gap

There are various studies done in the area of the commercial real estate segment, amongst

which some study done on the price and real estate market sales volume and other were on

the linkages between economic factors and behaviour of the investors but there were lesser

study seen on the consumer preference and investment trend in the commercial real estate

market. So in this situation this study will reflect some vital factors which are responsible to

build a preference towards the commercial real estate market and also this study will

identify the investment trend going on in the current commercial real estate segment.


This study carried on the Commercial Real estate Investor like Real estate agents, Advisors,

Brokers and Other Commercial Real Estate Participants of different cities of Gujarat to

know the current Investment Trend and Preference of Investment. Moreover to that research

also clarifies several factors that have been considered by the Commercial real estate

participants to know the impact on the commercial real estate investment.

3.1 Objective of the Study: The main objective of the study is to identify Trend and

factors that affecting the preference of the Commercial real estate investor while making an

investment decision.

Also Study represents the several behavioural and personal traits that affect to the

investment decision in the Commercial real estate at the view point of Real Estate

participants.

3.2 Research Design: This study reveals the different characters and factors that, affects the

investment decision in the commercial real estate segment and also explain behavioural traits

of the investors. So study follows the descriptive research design.

3.3 Data Collection:

3.3.1 Primary Data – Primary data have been collected through the close ended structured

questionnaire from Commercial Real Estate Investors and other commercial real participants

279

3.2 Secondary Data – Secondary data have been collected through the different sources like

Websites, newspapers, Real estate magazines, Real Estate articles and other published Real

estate researches and Report from the Different governing bodies.

3.4 Research Approach: For the purpose of the primary data Investors approached

personally and collected information through the questionnaire. So it is survey approach

followed in this research

3.5 Population: Commercial Real Estate Participants E.g. Commercial Real Estate Investors,

Advisors, Brokers, Builders and such other Commercial Real Estate participants of Gujarat

3.6 Sampling:

Sampling Unit:Commercial Real Estate participants

Sample Size:250

Sampling area:Major cities of Gujarat E.g. Ahmedabad, Gandhinagar, Rajkot & Surat

3.6.1 Sampling Technique:

Convenience sampling: As data have been collected as per the convenience of the

respondents so Convenience sampling method has been collected for the collecting data from

the Respondents.

Key Data Analysis of the Respondents:-

Particulars Number of Respondents Tota

l

Age Group Less than 30

Years 31-40 41-50 51 – 60

61 Years

and above

Respondents 53 70 60 35 32 250

Participation

As

Real Estate

Broker/Agent

Real

Estate

Analyst

Property

Expert

Real Estate

Advisor

Commercial Real

Estate Investor

Respondents 45 57 30 28 90 250

Years of

Engagement

of

Commercial

Real Estate

Less than 4

Years 4 – 8 8 – 12 12 – 15

More

than 15

Years

Respondents 55 80 38 32 45 250

Current Reality

Market Opinion Recession

Market

Boom

Stable Market

Situation Speculative Bubble

Respondents 68 65 67 45 250

Perception

towards Current

market Situation

Positive Negative Moderate Can’t Predict

Respondents 70 135 23 22 250

280

Best Destination

of Gujarat for

Commercial

Property

Western

Gujarat South Gujarat

North

Gujarat Surashtra

Central

Gujarat

Respondents 48 63 20 37 82 250

The above analysis shows the respondents basic profile and information and their view point

about the Commercial real estate investment and Trend of the current commercial real estate

sector. From the analysis it has been clearly come out that, maximum 28% real estate

participants belongs to the age group of 31-40 Years. Majority respondent of the survey are

Commercial real estate investors which are counted to 36% of the total respondents. Out of

the total participants 18% participants having a more than 15 years of experience in the

commercial real estate segment and maximum 32% participants having the market experience

of 4 -8 years. Maximum 27% participants think that current commercial real estate segment

facing the recession effect while another 27% participants thinks that it’s a stable commercial

real estate segment. 54% participants having the positive perception towards the growth and

development of the current commercial real estate segment. And 9% indifferent to their

opinion. As per the participants best destination of Gujarat for the commercial real estate

investment is Central Gujarat which counts to 33% of the respondents and the next

investment destination as per the 25% participants view point is south Gujarat.

Analysis and Discussions:-

There are several key aspects behind the preference of the commercial real estate which are

discussed as under

H0 = Selection of the Commercial Real Estate is Independent to the Nature of

Business

H1 = Selection of the Commercial Real Estate is not independent to the Nature of

Business To test the above hypothesis Chi Square Test performed

Case Processing Summary

Cases

Valid Missing Total

N Percent N Percent N Percent

Nature of Business * Selection of

Commercial Real Estate 250 100.00% 0 0.00% 250 100.00%

Chi-Square Tests

Value df Asymp. Sig. (2-

sided)

Pearson Chi-Square 13.781a 15 0.542

Likelihood Ratio 14.438 15 0.493

Linear-by-Linear Association 1.861 1 0.173

N of Valid Cases 250

a. 13 cells (54.2%) have expected count less than 5. The minimum expected count is 1.68.

The Calculated Chi Square Value 0.542 which is more than 0.05, so the alternate hypotheses

gets accepted and concluded that Selection of the Commercial Real Estate Location is

Independent to the Nature of Business.

281

Availability of nearby market place is one of the important factor to be considered while

buying the commercial property because in maximum cases its purely for the business

purpose so the following hypotheses test the Availability of nearby market place and

Selection of the Commercial Real estate

H0 = Selection of the Commercial Real Estate is Independent to the Availability

of nearby Market Place

H1 = Selection of the Commercial Real Estate is not independent to the

Availability of nearby Market place Case Processing Summary

Cases

Valid Missing Total


Availability of nearby Market* Selection of the Commercial Real Estate

250 100.00% 0 0.00% 250 100.00%

Chi-Square Tests


sided)





a. 4 cells (25.0%) have expected count less than 5. The minimum expected count is 1.26.

The Calculated Value of Chi Square is 0.000 which is less than 0.05 so here alternate

hypothesis selected and concluded that selection of the commercial real estate is not

independent to the Availability of the nearby market place.

Intention behind the investment also considered to be the one of the most important factor in

the real estate also. So this hypothesis tests the Intention behind the investment in commercial

real estate and Price level prevailing in the current market.

H0 = Investment in Commercial Real Estate is Independent to the Price Level

H1 = Investment in Commercial Real Estate is not independent to the Price Level

The following Chi Square Result Produced while testing the above hypothesis

Case Processing Summary

Cases

Valid Missing Total


Investment in Commercial real Estate* Price Level

250 100.00% 0 0.00% 250 100.00%

Chi-Square Tests


sided)


282




a. 5 cells (41.7%) have expected count less than 5. The minimum expected count is .35. From the above table it can be clearly observed that the calculated chi square value arrive at

0.000 which rejects the Null hypothesis and accept the Alternate hypothesis which proves that

Commercial real estate Investment is not independent to the Price level in the current real

estate market.

Preferable factors while choosing an Investment in the Current Real Estate

market:-

As preference towards the real estate investment depends upon the variety of factors and that

are very important to consider while taking the investment decision. As it plays a vital role in

the investment portfolio of a typical investor and which should be properly cared by the

investor while taking the investment decision.

Observed Factor in the Interview with the Above Participants

There are several important factors that has been discussed by the various participant’s during

the interview mentioned herewith

Real Estate Broker: - As per the Real estate Brokers View point most important factor to

give preference towards the commercial real estate is the Locality and Access to the Local

Market along with that they also consider the Location also.

Real Estate Analyst: - As per the Real Estate Analyst views it is necessary the locality in

which an investor is going to purchase the commercial property along with that growth and

development of that region also equally important

Builder/Managers in the Real Estate Firm: - Builder and Mangers of the Real estate

firm observed that there is a Pricing which makes a crucial Role while selection of the

commercial real estate property and also the location also the equally important factor to be

consider in reality decision.

Commercial Real Estate Investor: - Commercial Real Estate Investor detected the

several vital factors while making the commercial property investment like. Location, Pricing,

Market Availability, Reach, Basic Necessity and Transportation facilities to reach the place

Property Expert: - Property Expert takes the Bird eye view on their own personal

observation and detected several factor like Ease of Reach, Market Availability, Pricing and

Availability of the Clint as the most important factors in the commercial real estate

preference.

8% 2%

2%

30%

5% 3%

50%

Real Estate Participants

Real Estate Broker

Real Estate Analyst

Builder/Manager of RealEstate Firm

283

Real Estate Advisors:- Real estate Advisors observation tells that there are several

marginal factors like Pricing , Rent level of the location, business Opportunity at that location,

Business supply etc. are the considerable factors while investing in the commercial real Estate

Segment.

On the bases of the survey of the Commercial Real Estate Investors and Interview with

several other connected people to this segments variety of factors have been come to noticed

which could bring the indication of the Trend and also the People’s Preferences to the current

Commercial Real Estate Segment.

Factor Analysis to know the Preference and Investment Trend:-

From the Kaiser-Meyer-Olkin test it has been clearly observed that the data which collected

from the respondents have Adequacy. Because it shows the test value 0.554. Which is

adequate to perform the further factor analysis. Moreover to that another test

Bartlett’s test which is the Indication of Association between the factors taken for the

study. The test value for the Bartlett Test arrives at 0.001, which also indicates that there is an

association between the factors taken for the study so further factor can conclude some

meaningful factors which have an impact.

The Communalities Table Represent the how much of the variance in each of the original

variables is explained by the extracted factors. Higher communalities are desirable. The

variables containing communalities value less than 50% (0.5) considered as a less correlated.

Communalities

Initial Extraction

Nature of Business 1 0.425

Location 1 0.457

Nearby Market Availability 1 0.598

Locality 1 0.601

Transportation 1 0.815

Basic Necessity 1 0.328

Ease of Reach 1 0.499

Business Opportunity in Region 1 0.487

Rent Level 1 0.375

Availability of Clients 1 0.600

Growth and Development 1 0.497

Availability of business supply 1 0.618


Form the above table it can be clearly observed that there are certain factors which are having

the Communalities value less than 0.5 which can be considered as the least association with

the other factors to build a preference towards the Commercial real estate segment.

The following table showing the total variance Explained by the, factor which is the clear

indication of the effect of the particular factor. Eigenvalue score represent the variation

KMO and Bartlett's Test

Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.554

Bartlett's Test of Sphericity

Approx. Chi-Square 105.841

df 66

Sig. 0.001

284

caused by the particular factor. From the following table It has been clearly seen that there are

5 factor

Total Variance Explained

Compone

nt

Initial Eigenvalues Extraction Sums of Squared

Loadings

Rotation Sums of Squared

Loadings

Tota

l

% of

Varianc

e

Cumulati

ve %

Tota

l

% of

Varianc

e

Cumulati

ve %

Tota

l

% of

Varianc

e

Cumulati

ve %

1 1.55

7 12.977 12.977

1.55

7 12.977 12.977 1.55 12.951 12.951

2 1.46

1 12.175 25.152

1.46

1 12.175 25.152 1.39 11.556 24.507

3 1.16

9 9.738 34.891

1.16

9 9.738 34.891 1.15 9.602 34.109

4 1.09

7 9.139 44.03

1.09

7 9.139 44.03 1.13 9.416 43.525

5 1.01

6 8.464 52.494

1.01

6 8.464 52.494 1.08 8.969 52.494

6 0.95

2 7.934 60.428

7 0.93

6 7.796 68.224

8 0.88

8 7.397 75.621

9 0.82

8 6.896 82.517

10 0.81

2 6.767 89.284

11 0.68 5.67 94.954

12 0.60

5 5.046 100


Which cause the highest variation because their Eigen values score is higher than the other

factors so the further analysis of component matrix shows the 5 factors which can be

extracted from the above mentioned factors and the least effective factors could be removed

The Scree plot of Eigen value also represent that there are 5 factor extracted further as they

explain the maximum variation in the construction of the preference towards the commercial

real estate segment.

285

Component Matrixa

Component

1 2 3 4 5

Nature of Business -0.008 0.217 0.206 0.542 -0.203

Location -0.529 -0.12 0.237 -0.124 0.304

Nearby Market Availability 0.718 0.049 0.135 -0.128 0.211

Locality 0.771 -0.035 0.049 -0.036 0.025

Transportation 0.063 0.285 0.39 0.241 0.721

Basic Necessity -0.193 -0.502 0.025 0.041 0.189

Ease of Reach -0.228 0.54 -0.212 -0.326 -0.06

Business Opportunity in Region -0.158 0.664 0.023 0.127 0.068

Rent Level 0.024 -0.289 -0.128 -0.47 0.231

Availability of Clients 0.02 -0.267 0.59 0.118 -0.408

Growth and Development -0.135 -0.418 -0.231 0.448 0.224

Availability of business supply -0.171 0.004 0.658 -0.389 -0.057


a. 5 components extracted.

The above table represents the un-rotated factor solution which shows the five components to

be extracted which brings the highest variation in the preference towards commercial real

estate segment. So the factor explain causes the highest variation. From the above un-rotated

factor matrix it can be concluded that there are five factors which bearing highest impact in

the preference towards the commercial real estate investment E.g. Nearby Market

Availability, Locality, Transportation facility of that place, Business opportunity in the

region, Availability of the Business Suply. For more accurate solution there is one more table

shows the out put of effective factors if factors are rotated This table contains the rotated

factor loadings (factor pattern matrix)

Rotated Component Matrixa

Component

1 2 3 4 5

Nature of Business -0.012 0.015 0.024 0.649 0.061

Location -0.505 0.108 0.216 -0.207 0.318

Nearby Market Availability 0.735 -0.016 0.046 -0.129 0.197

Locality 0.772 0.06 -0.003 -0.03 -0.006

Transportation 0.097 0.003 0.013 0.112 0.890

Basic Necessity -0.211 0.489 0.021 -0.203 0.047

Ease of Reach -0.207 -0.657 -0.095 -0.119 -0.031

Business Opportunity in Region -0.135 -0.535 -0.106 0.305 0.281

Rent Level 0.027 0.091 0.018 -0.605 -0.015

Availability of Clients 0.043 0.286 0.622 0.312 -0.178

Growth and Development -0.185 0.559 -0.372 0.082 0.072

286

Availability of business supply -0.106 -0.106 0.746 -0.135 0.144


Rotation Method: Varimax with Kaiser Normalization.

a. Rotation converged in 7 iterations.

The above table shows the rotated factor matrix which indicate the more precise and accurate

result for the factors which are explaining the more variation in the investor preference

towards the commercial real estate sector

So finally there are several key factors which is to be indicated and treated as the important to

maintain the preference of the commercial real estate investors. E.g. Nearby Market Space

availability, Locality, Availability of the Clients at the location, Availability of the business

supply, Nature of Business and Transportation Facility to the Location.

Conclusion

Current Real estate segment seems to be an unpredictable move in this period its necessary

for the variety of the real estate participants to take care of what investor want. So this study

concludes several variables which can construct the preference of the investors in the current

fluctuating market.

The Primary data analysis shows maximum 28% real estate participants belongs to the age

group of 31-40 Years. Majority respondent of the survey are Commercial real estate investors

which are counted to 36% of the total respondents. 18% participants having a more than 15

years of experience in the commercial real estate segment and maximum 32% participants

having the market experience of 4 -8 years. 27% participants think that current commercial

real estate segment facing the recession effect while another 27% participants feels it’s a

stable market. 54% participants having the positive perception towards the growth and

development of the current commercial real estate segment. Central Gujarat which come out

to be the first choice as counts to 33% of the respondents and the next investment destination

as per the 25% participants view point is south Gujarat.

As there are several factors on which current market of Real Estate dependents but most

important and critical factor of the real estate market is the preference of the people and the

parties to the real estate because Real estate market considered as one of the purely demand

driven market and there are variety of factors which build the investors preference when

investment in the commercial real estate market This research analysis shows there are

several factors which drives the selection of the commercial real estate market like chi square

static shows that Selection of the commercial real estate is not independent to the Availability

of the nearby market place moreover to that it have also been observed that Investment in the

commercial real estate is driven by the price. As price is one of the important factor which

can play a crucial role in the commercial real estate preferences. Factor Analysis concluded

with the key variables which are bearing highest weightage in the construction of the

preference towards the commercial real estate investment E.g. Availability of the Clients at

the location, Nearby Market Space availability, Locality, Availability of the business supply,

Nature of Business and Transportation Facility to the Location.

287

References

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International Research Journal of Finance and Economics, Issue 24, pg.242-253.

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York: Holt, Rinehart and Winston, 1968.

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Wiley, 1969.

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revised February 2008.

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of Urban Economics, Vol. 64, no. 3 (2008): 198-217.

288

Dimensions of Digital Divide: Study of Gujarat

Kamal Kapoor

Joint Controller of Communication Accounts, Gujarat Telecom Circle, Ahmedabad, Gujarat

Abstract

___________________________________________________________________________ The term Digital Divide refers to a difference in the take-up and effective use of ICTs among various

social groups in a society. The Digital Divide is of great interest to all stakeholders as existence of

such divides based on gender, caste or economic strata could hinder the emergence of an equitable

information society. This paper provides an overview of the concept of Digital Divide in terms of

physical accessibility of ICT services as well as e-readiness of society. It also explores the important

dimensions of Digital Divide in the Indian state of Gujarat. The research findings indicate presence of

a serious Digital Divide along gender fault-lines. There are also indications of widening of Digital

Divide if suitable policy interventions to mitigate the problem are not taken.

Keywords: Digital Divide, Digital India, e-readiness, Gender Divide, Rural Wireline Broadband

Subsidy Scheme, Universal Service Obligation Fund

___________________________________________________________________________

1. Introduction

It is an accepted fact that telecommunications can increase the efficiency of economic,

commercial, and administrative activities; improve the effectiveness of social and

emergency services; and distribute the economic benefits of development more equitably

throughout a country (ITU, The Missing Link, 1984). More importantly, it could serve as an

economic leveler for the poor and the disadvantaged. The contribution of

telecommunications towards an increase in human capital and quality of life thus, cannot be

underestimated.

The telecommunications is also growing in importance because of the increased economic

value now placed on information. Information is considered a ‘techno-economic key factor’

- an input into a wide range of products and systems which permits a quantum jump in

potential productivity in almost all of the economy and creates a wide range of new

investment and profit opportunities (Flynn, 1996).

In recent years, many countries have implemented reforms in their telecommunications

sectors. In developed countries, the primary goal of these reforms has been to foster

competition in domestic telecommunications markets. In developing countries, the primary

goal has been to increase the availability of telecommunications services across a greater

percentage of the population. However this has resulted in the emergence of Digital Divide.

Digital Divide refers to a difference in the take-up and effective use of ICTs among various

social groups in a society. The Digital Divide is of great interest to all stakeholders as

existence of such divides based on gender, caste or economic strata could hinder the

emergence of an equitable information society.

2. Digital Divide

The term Digital Divide is used and defined in many different ways in the research. It is

often defined as a result from differential access to telecommunications comprising the

289

accessibility and availability of communications infrastructure, technologies, applications

and services.

However, some studies also focus on accessibility and availability of appropriate content

and/or on the availability of the knowledge and skills required to develop and use the

services. Thus, a large group of publications related to the Digital Divide focus on the

availability and accessibility of the telecommunications infrastructure, in particular the basic

telephone service. Most recent publications assess these issues not only on the basis of

teledensity, but also of Internet penetration, and access to computers and data services by

households, public institutions, private sector, etc. They see the limited availability of

information and communication infrastructure as the most crucial barrier in many

developing countries (Gourova et al., 2001).

However, there is growing recognition that physical access is not the only obstacle faced by

developing countries in their attempts to join the global information society. The economic

conditions in which the relevant systems, networks and services may be put to use are also

an important factor. These can differ greatly from country to country. In many cases, high

access and usage costs and other price structures appear as a self-inflicted barrier hindering

developing countries’ abilities to compete in global markets (ITU, 2003).

The other major problems or challenges of a more generic nature include:

the low level of economic development and small per-capita incomes;

the limited skills base with which to build new services;

the number of Internet users needed to build a critical mass of online consumers;

a lack of familiarity with the use of ICT-based services.

Following this line of thinking, there are also attempts to analyze the Digital Divide in terms

of “e-readiness attributes” – connectivity, e-leadership, information security, human capital,

e-business climate (Gourova et al., 2001).

3. Digital Divide and Economic Development

A review of the literature on the relation between telecommunications and economic

development reveals that there is strong evidence that development of telecommunication

services has a positive impact on economic development.

Tangible evidence about the benefits of telecommunication service can be of immense value

in various ways (Ramirez & Richardson, 2005). It could aid as a planning tool in facilitating

decisions to build telecommunications infrastructure. It can also help to corroborate the

benefits of an investment, and thus act as an evaluation tool. Finally, as a process

documentation tool, it can provide lessons for improved replication of pilot experiences.

The studies on relation between investments in telecommunications and economic

development can be broadly categorized into Macroeconomic studies and Microeconomic

studies. Macroeconomic approaches make use of correlation, decision modeling or

econometric modeling techniques to indicate the impact of telecommunication on

macroeconomic indicators. Both the macro-economic as well as micro-economic

approaches have their advantages and disadvantages. While a macroeconomic approach

provides an overview of the basic economic indicators, it often fails to establish a causal

relationship. The microeconomic approach is of immense use in substantiating the positive

effects of telecommunications in a specific situation, industrial sector or region. However,

such an approach is dependent on the small sample size analyzed and thus suffers from the

limitation that its findings cannot be generalized.

A pioneering study by Hardy (1980) based on macroeconmic approach estimated a

significant positive impact of teledensity on GDP. Alleman et al. (1994) studied the

290

Southern African Development Countries (SADC) and observed a positive relationship

between telecommunications infrastructure investment and economic investment. However,

based on the varying strength of that relationship in different economies, they concluded

that other conditions such as presence of sufficient human and capital resources as well as

other infrastructure investments also need to be fulfilled, in order to obtain greater benefits

from telecommunications infrastructure investment.

Dholakia and Harlam (1994) concluded from their study in USA that teledensity was an

important predictor of average annual pay and per capita income. Madden and Savage

(1998) analyzed the relationship between economic growth and telecommunications

infrastructure and concluded that telecommunication investment, especially when measured

by main telephone lines, is related to economic growth. They suggested that improving

chronic underinvestment in the telecommunications infrastructures of Central and Eastern

European economies would serve to improve the channel between aggregate investment and

growth.

Roller and Waverman (2001) used data from 21 OECD countries over a 20-year period to

examine how telecommunications infrastructure affects economic growth. They found

evidence of a significant positive causal link, especially when a critical mass of

telecommunications infrastructure is present. Forestier et al. (2002) examined the

relationship between poor’s access to telecommunications (measured by teledensity) and

inequality. They found a strong correlation between telecommunications rollout at a point in

time and growing inequality of income in the following period. The concluded that

countries with high initial teledensity (allowing for income) and countries that have high

growth in teledensity (allowing for growth in income) over the decade see significantly

higher growth in inequality. Countries with one standard deviation higher teledensity than

average at decade start will see a 6.5% increase in inequality over the decade, and countries

that see a one standard deviation higher than average teledensity growth will see a 6%

increase in inequality over the decade. These findings are significant, keeping in view the

equity related aspects of telecommunication rollout in a country.

Mbarika et al. (2003) examined telecommunication investments in low and middle-income

developing countries and found a positive relationship between teledensity and GDP per

capita.

Some researchers have tried to estimate the rate of return in rural telephony. Saunders

(1982) demonstrated that the World Bank’s teledensity investment project brought an

average financial rate of return of 18% and economic rates of return ranging from 20% to

50%. Saunders et al. (1994) estimated that investments in telecom tend to generate internal

rates of return of approximately 20%.

There are many micro-studies that suggest increased access to telecommunication services

increases the income levels of poor their access to government services. However, efforts at

quantifying impact of telecommunication services fail to capture the complexity of multiple

social and livelihood dimensions that are affected by telecom services. With an objective to

capture the impact at its different levels, several frameworks have been proposed which

organize the multiple dimensions and issues, keeping in view the diverse perspectives of the

stakeholders involved. Accordingly, Ramirez and Richardson (2005) propose that a

framework to measure the impact should take into account diverse themes such as –

a. Community involvement in planning infrastructure and services,

b. Organizational dimensions, measuring the capacity of the organizations to evolve

and adapt to change,

c. Individual skills and capacities, focusing on the individual issues of acceptance,

integration, and familiarity, and;

291

d. Limited predictability of the telecommunication services that emerge, since

Information and Communication Technology may lead to unexpected outcomes in

terms of new telecommunications services.

It can be concluded that there is overwhelming evidence that there is a positive impact of

telephony on economic growth. However, demonstrating the causality and delineating the

reasons for variations in the strength of the relationship has been a challenging proposition

for researchers.

4. Beyond Teledensity

It has been observed that too often Universal Service programs measure their success only

on dimension of teledensity. Policies and schemes focused on increasing teledensity have

demonstrated a poor track record in responding to the economic and social development

priorities of rural communities. Teledensity measures can lead toward ‘‘line dumping’’

where operators and governments seek to meet teledensity targets regardless of the needs of

specific locations, the commercial viability of service in those locations, and the needs of

users in those locations (Ramirez & Richardson, 2005).

In recent times researchers have focused on assessing the impact of Universal Service

policies on the lives and livelihoods of rural communities. The underlying assumption

behind such studies is that if the goal of Universal Service policies and programs is, in fact

to improve social and economic development, then there is a need to consider and review

processes for selecting goals, objectives and measurement targets. The notion of effective

use has begun to emerge as an additional metric that goes beyond teledensity to address the

extent to which people have access to the infrastructure and can put it to work in practical

ways (Gurstein, 2003).

Gomez and Martinez (2001) opine that the Digital Divide is not only about physical access

to phone lines and computers, it is also about becoming aware of the potential values of

telecommunication services, having access to training on a range of computer and

information-related skills, and to having an occupation where the relevant uses for the

technology yield added value or savings.

Ramirez and Richardson (2005), contend that while access to telephony remains a key

economic and infrastructure dimension, the impact of telecommunication services is far

more complex. In fact, from the conceptual side, researchers and practitioners are yet to

fully grasp the fact that telecommunication services contribute to multiple social, economic,

and livelihood dimensions that are interrelated in complicated ways.

5. Digital Divide and Gender Issues

The Digital Divide along gender fault lines has been of great interest to researchers. Huyer

and Carr (2002) consider, illiteracy to be the number one barrier around the world to women’s

access to most ICTs as women constitute a majority of the illiterate adults globally. Socio-

cultural barriers to the education of girls and women further hamper their interaction with

technology. Huyer and Carr (2002) have listed out following other barriers:

Availability of lesser cash resources with women than men.

Availability of lesser time with women than men. As a result of their reproductive

and productive responsibilities, women generally do not have the time to use ICT.

Various cultures impose restrictions on social interaction of women with the world

outside.

Traditional cultural assumptions consider women to be less capable of

understanding or operating technologies. Most of the technology development

interventions overlook the perspectives of women, thus reinforcing the cultural

assumptions already in place.

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6. Digital Divide in Gujarat

Gujarat has a relatively developed telecommunications network compared to other states of

the country. With 60.12 million subscribers (Table 1) it accounts for 6.03% of total

subscribers in India though its population is about 4.99% of country’s population. Its overall

teledensity of 95.61% as on 31st March 2015 is above the national teledensity of 79.38%.

Table 1: Gujarat – Number of Subscribers, 31st March, 2015

Rural Subscribers Urban Subscribers Total

Wireline Wireless Total Wireline Wireless Total

0.30 22.42 22.72 1.26 36.14 37.40 60.12

Source: Performance Indicator Report, 2015, TRAI (In million)

The Table 2 reveals that the growth in teledensity has come due to phenomenal growth in

mobile connections. In fact the wireline teledensity is decreasing in rural as well as urban

areas.

Table 2: Gujarat – Growth in Rural and Urban Teledensity

As on Rural Teledensity Urban Teledensity Total

Wireline Wireless Total Wireline Wireless Total

31.3.2010 1.43% 32.09% 33.52% 6.69% 89.13% 95.82% 58.46%

31.3.2011 1.23% 45.45% 46.68% 6.28% 127.72% 134.00% 81.90%

31.3.2012 1.05% 52.84% 53.89% 5.91% 139.60% 145.51% 91.14%

31.3.2013 1.00% 52.12% 53.12% 5.69% 130.70% 136.39% 87.23%

31.3.2014 0.89% 56.55% 57.44% 5.33% 132.30% 137.63% 90.54%

31.3.2015 0.80% 61.06% 61.86% 4.81% 138.20% 143.01% 95.61%

Source: Performance Indicator Reports, TRAI

The Table 2 reflects a definite shift in consumer preferences towards wireless telephony.

(i) Rural-Urban Divide

The Table 3 presents rural-urban teledensities of different service areas as on 31.3.2015.

Table 3: Service Area-wise Rural and Urban Teledensity

Service Area

As on 31st March, 2015

Rural Teledensity Urban Teledensity Total Teledensity

Andhra Pradesh 49.04 174.94 84.15

Assam 39.18 132.25 53.95

Bihar 33.14 164.13 51.17

Delhi 237.94

293

Gujarat 61.86 143.01 95.61

Haryana 59.62 124.23 82.66

H.P. 84.88 340.57 114.52

J & K 55.85 132.02 76.93

Karnataka 49.02 174.88 97.52

Kerala 67.18 179.09 95.57

Madhya Pradesh 36.85 123.16 60.36

Maharashtra*

61.07 128.37 93.41 Mumbai*

North East 50.32 153.95 76.18

Orissa 44.46 172.11 66.85

Punjab 71.96 145.38 103.78

Rajasthan 53.55 153.93 77.76

T.N.(incl Chennai) 82.75 141.81 117.52

U.P. (E)*

40.7 127.71 60.51 U.P.(W)*

Kolkata*

50.19 140.4 76.05 W.B.*

All India 48.37 148.61 79.38

Source: Performance Indicator Report, 2015, TRAI

The rural teledensity of Gujarat is 61.86% (national average 48.37%) and urban teledensity

is 143.01% (national average 148.61%) as on 31.3.2015. Thus the state fares better than

other states of the country in terms of relatively lesser Digital Divide on rural-urban fault

lines (Table 3).

Gujarat with 19.44 million Internet subscribers is among top six states in terms of Internet

subscriptions.

Table 4: Service Area-wise Rural and Urban Internet Density, 31st March 2015

Service Area Internet Subscribers (in million)

Internet Subscribers per 100

population

Rural Urban Total Rural Urban Total

Andhra Pradesh 8.15 13.97 22.12 12.88 57.10 25.22

Assam 3.25 2.23 5.47 12.03 43.70 17.05

Bihar 7.94 8.64 16.59 6.77 46.15 12.19

Delhi 18.50 89.24

Gujarat 7.07 12.37 19.44 19.26 47.31 30.93

Haryana 3.67 3.47 7.14 21.04 35.88 26.33

H.P. 1.64 0.94 2.59 26.37 115.61 36.71

J & K 1.79 1.56 3.35 20.17 45.83 27.27

Karnataka 6.69 13.41 20.10 17.59 56.27 32.50

Kerala 6.14 6.82 12.96 23.12 75.61 36.44

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Madhya Pradesh 6.51 10.12 16.63 8.74 36.28 16.24

Maharashtra 9.12 16.40 25.53

14.95 52.84 33.16 Mumbai 0.25 14.25 14.50

North East 1.92 1.65 3.57 18.50 48.03 25.87

Orissa 3.52 3.77 7.30 10.13 51.03 17.30

Punjab 5.23 7.65 12.88 30.16 57.68 42.09

Rajasthan 7.31 8.47 15.79 13.38 48.75 21.91

Tamil Nadu 6.52 17.62 24.14 22.41 42.33 34.14

U.P. (E) 10.66 9.73 20.38

9.60 34.81 15.34 U.P.(W) 6.06 8.14 14.19

Kolkata 0.42 7.59 8.01

10.89 44.14 20.42 West Bengal 6.88 4.31 11.19

Total 111.76 190.60 302.35 12.89 49.07 24.09

Source: Performance Indicator Report, 2015, TRAI

The Table 4 suggests that the difference between urban and rural internet subscribers as

percentage of population in Gujarat is less than national average. This indicates a narrower

Digital Divide in Gujarat on the rural-urban axis.

(ii) Digital Divide along Gender Fault-lines

A field survey was conducted by the author on the impact of Rural Wireline Broadband

Subsidy Scheme (RWBSS) of Universal Service Obligation Fund of India (USOF) in the

rural areas of Gujarat. This scheme involved provision of fixed line Broadband in rural areas

on subsidized basis. In this survey, conducted in 2012-13, data on 200 beneficiaries (Users)

as well as 211 non-beneficiaries (Non-users) of the scheme was collected using two survey

instruments. The analysis of this data revealed following aspects of Digital Divide on

gender fault-lines.

(a) Primary User of Broadband Services

In overwhelming majority of cases the primary user of Broadband services were males. In

53.55% of the households, ‘Son’ was the Primary User of the Broadband services. Among

‘Other’, most respondents cited ‘Nephew’ (18) and ‘Niece’ (3). Only 4.27% of the

respondents cited ‘Daughter’ as the Primary User of Broadband services. Table 5: User of Broadband

Primary User of Broadband Frequency Percent

Self 60 28.44%

Son 113 53.55%

Daughter 9 4.27%

Brother 6 2.84%

Father 0 0.00%

Sister 1 0.47%

Mother 0 0.00%

Spouse 0 0.00%

Other 22 10.43%

Total 211 100.00%

The gender classification of Users is presented in Table 6.

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Table 6: Gender Classification of User

Gender of User Frequency Percent

Male 196 92.89%

Female 15 7.11%

Total 211 100.00%

The above tables immediately highlight the existence of a serious Digital Divide along

gender fault lines with reference to usage of Wireline Broadband in rural areas of Gujarat.

(b) Association between Gender and Intention to Use Broadband

The following hypotheses were tested:

Null Hypothesis: There is no association between Gender and the intention to use

Broadband in future.

Alternate Hypothesis: There is an association between Gender and the intention to use

Broadband in future. Table 7: Crosstabulation - Gender and Intention to Use

Crosstabulation

Would you like to use the Broadband in future? Total

Yes No

Gender

Male Count 111 36 147

% within Gender 75.5% 24.5% 100.0%

Female Count 4 6 10

% within Gender 40.0% 60.0% 100.0%

Total Count 115 42 157

% within Gender 73.2% 26.8% 100.0%

Symmetric Measures

Value Approx. Sig.

Nominal by Nominal Phi .196 .014

Cramer's V .196 .014

Number of Valid Cases 157

Since the probability value is 0.014, at 5% level of significance, the Null hypothesis is

rejected. This implies that there is some association between gender and the intention to use

Broadband in future. The Crosstabulation table shows males (among present Non-users) are

more likely to use Broadband as compared to females (among present Non-users). This

implies that there is likelihood of increase in Digital Divide along gender fault lines.

(c) Association of Gender with Reasons for Not Using Broadband in Future

The survey also enquired into the reasons for not using Broadband among present Non-

users. The Table 8 presents Cross tabulation of Reasons for not using Broadband with the

gender of respondents. Table 8: Cross tabulation – Reasons and Gender

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Cross tabulation

Gender

Total Male Female

Reasons for Not

Using

Not much knowledge Count 30 3 33

% within Gender 20.4% 30.0%

No Telephone Connection Count 4 1 5


Not Affordable Count 31 1 32


Non-availability of any

relevant services / content

Count 58 6 64


Non-availability of content

in Gujarati

Count 64 6 70


Did not feel any need Count 61 5 66


Others Count 38 0 38

% within Gender 25.9% .0%

Total Count 147 10 157

The Table 8 suggests that the reasons of (a) Non-availability of any relevant

services/content, (b) Non-availability of content in Gujarati, and (c) Did not feel any need;

are more important barriers for women than men.

(d) Association between Gender and Location of Public Broadband Facility

As part of the RWBSS some public Broadband facilities (Kiosks) were installed in villages

so that people who could not afford individual access may get public access. The survey

ascertained the preference of Non-users as regards location of public Broadband facilities.

The Table 9 shows that Schools / Colleges with mean of 2.28 and median of 2 is the most

preferred location for locating public Broadband facility. Schools / Colleges are followed by

Post offices as the preferred location for installation of public Broadband facilities. The

Telephone Exchange with mean of 4.99 and median of 6 is the least preferred location for

installation of public Broadband facilities. The reasons for low preference for Telephone

Exchanges could be their relatively inaccessible location, the time of day during which

Exchanges are open to public, the behavior of staff, etc.

297

Table 9: Preferred Location of Public Broadband Facility

Location of Public Broadband Facility Mean Median

Post Office 2.82 3

Panchayat Office 4.19 4

Telephone Exchange 4.99 6

Cooperative Office 4.88 5

PCO 4.63 5

School/College 2.28 2

Village Shop 4.65 5

Other 5.10 6

Note: Lower the number, higher the preference for location

In order to understand the effect of gender on the preferred location of public Broadband

facilities the following hypothesis was tested.

Null Hypothesis: There is no association between Gender and the preferred location of

public Broadband facility.

Alternate Hypothesis: There is an association between Gender and the preferred location of

public Broadband facility. Table 10: Gender and Preferred Location

Ranks

Gender N Mean Rank Sum of Ranks

Post Office Male 146 78.67 11486.50

Female 10 75.95 759.50

Total 156

Panchayat Office Male 146 76.90 11227.50

Female 10 101.85 1018.50

Total 156

Telephone Exchange Male 146 79.79 11649.00

Female 10 59.70 597.00

Total 156

Cooperative Office Male 139 76.22 10594.00

Female 10 58.10 581.00

Total 149

PCO Male 145 77.39 11222.00

Female 10 86.80 868.00

(Contd.)

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Ranks

Gender N Mean Rank Sum of Ranks

Total 155

School/College Male 146 77.96 11382.50

Female 10 86.35 863.50

Total 156

Village Shop Male 142 76.02 10794.50

Female 10 83.35 833.50

Total 152

Other Male 28 15.88 444.50

Female 3 17.17 51.50

Total 31

Test Statistics

Post

Office

Panchaya

t Office

Telephone

Exchange

Cooperati

ve Office PCO

School

/College

Village

Shop Other

Mann-Whitney

U 704.500 496.500 542.000 526.000 637.000 651.500 641.500 38.500

Wilcoxon W 759.500

11227.50

0 597.000 581.000 11222.00

11382.5

00 10794.500 444.500

Z -.189 -1.709 -1.385 -1.325 -.649 -.603 -.516 -.238

Asymp. Sig. (2-

tailed) .850 .087 .166 .185 .516 .546 .606 .812

Exact Sig.

[2*(1-tailed

Sig.)]

.826

The Null hypothesis is not rejected at 5% level of significance. This implies that there is no

association between gender and the preferred location of public Broadband facility.

However, as Table 10 shows, Panchayat Offices are least preferred amongst women. This

low preference for Panchayat Office among women for using Broadband facility indicates

the importance of taking gender issues into consideration while designing and implementing

public access schemes.

7. Conclusion

The above findings indicate that there is serious Digital Divide in Gujarat especially along

gender fault-lines. In fact the findings also indicate that there is likelihood of widening of

this divide unless significant course correction in policy formulation and implementation

299

takes place. The policy makers need to recognize the gender related barriers in adoption of

ICTs and make provisions for non-discriminatory access to ICTs so that the Digital Divide

can be effectively bridged. A truly inclusive Digital India can emerge only by addressing the

problem of Digital Divide.

8. References

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Wide Telecommunications Development, The Missing Link, ITU, December 1984. (The

Maitland Report)

2. Flynn, L. (1996) European Union Regulation of the Telecommunications

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3. Gourova, E., Hermann, C., Leijten, J., & Clements, B. (2001). The Digital Divide: A

Research Perspective, A Report to G-8 Opportunities Task Force. Retrieved on May 27,

2013 from http: //ftp.jrc.es/EURdoc/eur 19913en.pdf.

4. International Telecommunication Union. (2003). Trends in Telecommunication Reforms

2003: Promoting Universal access to ICTs - Practical Tools for Regulators.

5. Ramirez, R., & Richardson, D. (2005). Measuring the impact of telecommunication

services on rural and remote communities. Telecommunications policy, 29, 297-319.

6. Hardy, A. (1980). The role of the telephone in economic development.

Telecommunications Policy, 4, 278-286.

7. Alleman, J., Hunt, C., Michaels, D., Mueller, M., Rappoport, P., & Taylor, L. (1994).

Telecommunications and Economic development: Empirical Evidence from Southern

Africa. 10th Biennial International Telecommunications Society Meeting. Sydney,

Australia.

8. Dholakia, R., & Harlam, B. (1994). Telecommunications and economic development:

econometric analyses of the US experience. Telecommunications Policy, 18(6), 470-477.

9. Madden, G., & Savage, S. (1998). CEE Telecommunications Investment and Economic

growth. Information Economics and Policy, 10, 173-195.

10. Roller, J., & Waverman, L. (2001). Impact of telecommunications infrastructure on

economic growth and development. American Economic Review, 91(4), 909-923.

11. Forestier, E., Grace, J., & Kenny, C. (2002). Can information and communication

technologies be pro-poor? Telecommunications Policy, 26, 623-646.

12. Mbarika, V. W., Kah, M. M., Musa, P. F., Meso, P., & Warren, J. (2003). Predictors of

Growth of Teledensity in Developing Countries : A Focus on Middle and Low-Income

Countries. The Electronic Journal on Information systems in Developing Countries,

12(1), 1-16.

13. Saunders, J., Warford, J., & Wellenius, B. (1994). Telecommunications and Economic

Development. Baltimore, MD: John Hopkins University Press.

14. Saunders, R. J. (1982). Telecommunications in developing countries: Constraints on

development. (M. Jussawala, & D. M. Lamberton, Eds.) Communication Economics and

Development, 190-210.

15. Gurstein, M. (2003). Effective use: A community informatics strategy beyond the digital

divide. Retrieved on May 28, 2007 from http:/ /www. firstmonday.dk /issues/ issue8_12

/gurstein /index. html.

16. Gomez, R. and Martinez, J. (2000). Beyond Connectivity: New information and

communication technologies for social development. Retrieved on March 29, 2007 from

http://www .acceso. or.cr/publica/telecom/refl5-pppp-eng.shtml.

17. Huyer, S., & Carr, M. (2002). Information and Communication Technologies: A Priority

for Women. Gender, Technology and Development, 6(1), pp. 85-100.

18. TRAI. (2014). The Indian Telecom Services Performance Indicators, January - March

2015. Retrieved September 20, 2015, from www.trai.gov.in:

http://www.trai.gov.in/WriteReadData/PIRReport/ Documents/Indicator-Reports-

Mar12082015.pdf

http://ftp.jrc.es/EURdoc/eur%2019913en.pdf

300

Emerging market perspectives with neighboring countries: Awaiting

Development of North - East states of India

Satinder Singh

Dy. General Manager (Drilling), Oil and Natural Gas Corporation Ltd, Tripura Asset,

Agartala

Abstract

_____________________________________________________________________ In present scenario of globalization; India has emerged as a perspective market. However, on another

way, India has to grab this opportunity to promote exports with the neighbouring countries connected

with North East States of India. To boost an international trade, with the countries like Bangladesh,

china, Myanmar, Bhutan and Nepal, Government of India has to initiate effective development policies

for North Eastern states for its infrastructure, Road, Rail, Banking Sector and other retail sectors in

line with the development of rest of India. This paper reveals the import commodities of neighbouring

countries verses perspective exports from India and emphases towards fast-track development of

Northeast states which would not only improve the social-economic scenario of Northeast states but

would also promote an international trade with neighbouring countries.

Key words: International Trade, Northeast India, Emerging Market, Economic Growth, Economic

development, Globalization

_____________________________________________________________________

Introduction

Indian economy has undergone many ups-and-downs since last 3 decades; mainly because of

various changes done in the policy reforms. Globalization, the impact of which has increased

than ever before, has connected countries and business sectors via markets, trade, finance,

transport, information, and communication (Pooja and Phadke, 2013).

This is 21st century and we are living in 21st century. It started cause of shortening of

geographical distance and bringing the nations closer. When the nations came closer they

developed their policy to more interact with each other for development and partnerships

(Singh, 2014). However, the Northeastern states of India have a strategic advantage of sharing

the international borders with some of the SAARC members such as Nepal, Bhutan, and

Bangladesh (Pooja and Phadke, 2013). India as an emerging global power and a responsible

stakeholder in the peace, stability and progress of south Asia, has initiated fresh moves in the

region. The new neighbourhood policy of India articulated in 2005, pleads for developing

connectivity and people to people contacts with her neighbour (Singh, 2014).

India has been growing rapidly in the last decade and has emerged as the third

largest economy (in PPP Gross Domestic Product terms) in the world after the USA

and China. Unfortunately, the benefits arising out of this high growth have not

percolated down to the entire country equally (D’souza and Ray, 2014) and the North

Eastern States of India, commonly referred to as “Seven Sisters” comprises of the states of

Assam, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, and Tripura.

Geographically, these states together encompasses 255,089 square km approx. with total

population of 44,980,294 (Pooja and Phadke, 2013). These states are only connected to

the “mainland” of India through the so-called chicken neck. This small channel

constitutes only about 1% of the region’s borders, thus, the region is surrounded by

thousands of kilometers of international border(Anne-Sophie Maier, 2009). However,

301

Bhuimali and Saha (2015) revealed that “all the states of India are not developed equally.

There are differences in the levels of development in the different sectors of the Indian states.

Some states like southern and western states are relatively developed if compared with east

and north-east states”.

In case of economic development North East India is still in back compared with other states

of India (Krishnankutty, 2011) whereas North eastern states are basically depending on

agriculture and small and village industries. Bhuimali and Saha (2015) also revealed that

[there are] lack of infrastructural facilities like proper land, transport and communication,

power, banking, absence of proper investment climate, technology appropriate to the local

conditions have been very limited. The state [Northeast] has failed to translate the vast

resource base of the region into productive industrial activities. Resource-industry interlink

age has been found to be weak. Singh (2014) revealed that “When we talk about the

developed and developing states we can say development and partnerships is [an] easy way to

get wider existence and stability for developing states in international level. Development and

partnerships between the nations it could be economic, political, social-cultural etc. The

Union Minister of State (Independent Charge) of the Ministry of Development of North-

Eastern Region (DoNER), MoS PMO, Personnel, Public Grievances, Pensions, Atomic

Energy and Space, and Chairman NEC, Dr. Jitendra Singh during second day of 64th Plenary

Meeting of North-Eastern Council (NEC) at New Delhi on Apr 10, 2015 revealed that [it is]

one of the best times for India, particularly for the Northeast which was part of Prime

Minister, Shri Narendra Modi’s “India vision”. The Minister was addressing Governors and

Chief Ministers of the eight States. He further revealed that “it is a golden opportunity when

on the one hand, the entire world is looking up to India as a place of happening and on the

other hand, Prime Minister, Shri Narendra Modi, who has emerged as a world leader of

international reckoning, inspires a renewed feeling of national esteem through his concept of

“Make in India” which is envisaged to be achieved through “Make in Northeast”. In this

context, he referred to Prime Minister’s original description of eight States of Northeast as

“Ashta Lakshmi”, which not only symbolizes a historic but also a perspective connotation for

growth, development and economy”.

The North Eastern Region (NER) of India is pivotal to India’s growing economic and

strategic partnership with Southeast and East Asia. The NER is also central to India’s Look

East Policy (LEP), and acts as a land-bridge between South and Southeast Asia. Not only

natural resources, the NER also enjoys greater geo-economic space over other Indian regions.

For example, about 4 per cent of India’s population lives in the NER, which is spread across 8

per cent of India’s geographical area. However, in relative terms, it is one of India’s most

economically laggard regions, contributing only 3 per cent of the country’s gross domestic

product (GDP). At the same time, no other region in India can outperform the NER in terms

of availability of natural resources and in benefitting from its location as the international

border. About 98 per cent of the NER’s borders form India’s international boundaries; on one

hand, it shares borders with South Asian countries like Bangladesh, Bhutan, and Nepal, and

with Southeast and East Asian countries like Myanmar and China, on the other (Table 1).

Map 1 presents the geographic location of the NER and its eight states (De and Majumdar,

2014).

Table 1: International Borders of the Northeastern States of India

State Bangladesh Bhutan China Myanmar Nepal Total

International Border connected with North East States (in Kilometers)

Arunachal

Pradesh 217.0 1080.0 520.0 1817.0

Assam 263.0 267.0 530.0

302

Manipur 398.0 398.0

Meghalaya 443.0 443.0

Mizoram 318.0 510.0 828.0

Nagaland 215.0 215.0

Sikkim 32.0 220.4 97.8 350.2

Tripura 856.0 856.0

Total 1880.0 516.0 1300.4 1643.0 97.8

Source: Government of India

Figure 1: Geographic Location of the NER and Its Eight States

Map courtesy: www.mapsofindia.com Retrieved from http://tawangmonastery.org/reach.php

India’s Socio- Economic Relations with Neighbouring Countries In 21st Century

Singh (2014) revealed that “Some important initiatives need to be taken to improve the

business and investment climate in the Bangladesh. In particular we need to reform the

existing foreign exchange regulations, in line with some of our neighbours in the region, most

notably Bangladesh, which could help in doubling our exports within the next 4-5 years.

INDIA’s relation with Bangladesh reflected a continuity of policy and approach in the

development of close understanding and active collaboration in mutually beneficial

development efforts”.

“India shares a boundary of more than 1600 km with Myanmar. The historical and geo-

political frontiers of both the countries have a common thread buried deep in cultural,

religious and even socio-economic facets. Both the countries realize how powerful a force

they can become if they work towards regional integration, fostered largely by trade and

investment. Myanmar is the only land bridge between ASEAN and India. Hence, the country

has a great potential to be an important player in shaping future economic, political and

security environment in this region. The border states of Kachin in the north, Sagaing in the

http://www.mapsofindia.com/

http://tawangmonastery.org/reach.php

303

middle and China in the south of Myanmar are the ones directly linked to the borders of

Northeast India and Bangladesh and consequently they share a similar topography,

horticulture- vegetables and fruits, bamboo and medicinal plants(India Calling India –

Myanmar Business Conclave November 2013, Myanmar kpmg.com/in, Pg. 27).

India has not recognized the potential of the Indian diaspora in the neighbouring nations of

Bhutan, Nepal, and Myanmar. There is a misperception that the Indian diaspora in the West is

more valuable than the diaspora in the East. Many people do not realize that the Indian

diaspora in the East is much larger than that in the West (Keynote address of Mr. Kiren Rijiju

Honourable Minister of State for Home Affairs, Government of India on IRC 2014 Pg. 41).

However, Mr. Madan Prasad Bezbaruah Member, North Eastern Council also pointed out that

the North Eastern region of India bears many similarities with South East Asian countries and

that this can go a long way in the realization of opportunities for partnerships.(IRC 2014, Pg.

62).

H. E. Major Gen.Vetsop Namgyel Ambassador of Bhutan to India revealed in his key note

during the conference (IRC 2014) held at Symbiosis, Pune that “Bhutan shares borders with

Sikkim, Assam, and Arunachal Pradesh. Bhutan and the North Eastern states have very

similar ecological systems as well. The two also have close collaborations in many projects

related to hydro power, tourism, horticulture, floriculture, and farming. With a population of

600 million and GDP of 2.55 trillion, the South East Asian region is a very dynamic region.

India’s North Eastern states are strategically placed as the gateway to South East Asia through

Myanmar, an ASEAN member country. Therefore, it is no surprise that Bhutan is

appreciative of India’s “Look East” policy and is hopeful of its successful outcomes” (IRC

2014, Pg. 65).

Lt Gen M. Harun-Ar-Rashid Former Chief of Staff of the Bangladesh Army and a Former

High Commissioner of Bangladesh to Australia, New Zealand and Fiji and also the Secretary

General of the ‘Sector Commanders Forum’ established in 2006 by the surviving Sector

Commanders of the 1971 Liberation War stated that “India and Bangladesh are two close

neighbours of South Asia sharing almost 4096 km of land boundary. India surrounds

Bangladesh on three sides. Bangladesh has an outlet to the Bay of Bengal, which is also

shared with Myanmar and India. India-Bangladesh relations since the establishment of

Bangladesh as an independent country in 1971 have gone through many ups and downs. They

have moved from cordial to strained, depending on change of government and administration

in both countries. After the Awami League came to power in Bangladesh in 2009, things have

started looking up and a new phase has begun.

Munshi Faiz Ahmad, an Ambassador and Chairman, Bangladesh Institute of International and

Strategic Studies (BIISS) revealed in the conference (IRC 2014) held at Symbiosis, Pune that

“Bangladesh’s strategic location necessitates India to pass through Bangladesh over land to

reach Myanmar and to other South East and East Asian nations. Also, Bangladesh could be an

appropriate link to make connectivity overland between North East India and the rest of India

easier and cheaper. As a result, Bangladesh’s contribution in establishing connectivity is of

paramount importance to India. Incorporation of Bangladesh into the ambit India’s LEP

would, in turn, benefit India as well” (IRC 2014, Pg.37). However, India and Bangladesh

opened their first Border Haat, or a common market place after 40 years on 23rd July 2011, in

Kalaichar in Meghalaya (Pooja and Phadke, 2013). Munshi Faiz Ahmad also put forth the

significance of connectivity through rivers. Both India and Bangladesh are crisscrossed with

rivers; therefore, riverine connectivity could play a vital role in India’s LEP. India and

Bangladesh must also try to improve energy connectivity. This necessitates focus on

expansion of the power grid project, which is already in place (IRC 2014, Pg.37).

India worked closely with Bangladesh to strengthen our wide ranging bilateral cooperation in

areas including security, infrastructure, trade, development and people-to-people exchanges.

304

In his meeting with the Speaker of Bangladesh Parliament Dr Shirin Sharmin Chaudhury on

27 May 2014, Prime Minister Shri Narendra Modi noted that India and Bangladesh have

shared stakes in each other’s progress and prosperity. External Affairs Minister Smt. Sushma

Swaraj paid a goodwill visit to Bangladesh from 25-27 June 2014 at the invitation of Foreign

Minister of Bangladesh. The visit provided further momentum to the close and friendly

relationship between India and Bangladesh. (Annual Report 2014-15, Ministry of External

Affairs. Pg.1)

Dr. Ram Sharan Mahat, Finance Minister, Nepal opined that “The trade relations between

India and Nepal got a boost with the introduction of “Rules of Origin” in the 1996 treaty

between India and Nepal. Nepal continues to require India’s assistance because it is a

landlocked country and has no sea port of its own for trade” (IRC 2014, Pg. 9)

Edmund Downie (2015) revealed that “Both Delhi and Imphal have sought over the past few

years to demonstrate a serious commitment to strengthening Indo-Myanmar connectivity via

Manipur. For Delhi, at least, this is a somewhat new development, and certainly not an

uncontested one. For most of the past seven decades, what attention the Northeast has

received from Delhi has mostly come in the sphere of security: The region’s active

insurgencies, and their links with Bangladesh, Myanmar, and China, provoked a policy

framework that prioritized border security and anti-insurgent crackdowns. Since the early

2000s, Union (Central) Government agendas have placed greater emphasis on development

and international connectivity in the region. Prime Minister Manmohan Singh’s 2012 visit to

Myanmar focused on trade promotion, with deals signed to boost air and road links between

Manipur and Myanmar. Manipur Chief Minister Okram Ibobi Singh took a delegation to

Myanmar in May 2013 to liaise with Burmese officials on ways to boost cross-border trade.

Modi’s administration has even put forward the improbably bold idea of developing Moreh as

one of its 100 new “smart cities” around India”.

Edmund Downie (2015) further pointed out that “At Moreh today, the most powerful traders

are businessmen from not India but Myanmar, selling Chinese and Southeast Asian goods.

Dulali Nag’s 2010 report for the Calcutta Research Group describes how the Burmese

military’s establishment of Namphalong market in the 1990s, right by the gate for head load

trade on the border, undid the patterns of trade that had ruled Moreh since the early 1960s.

Historically, imports into India were coordinated by Moreh-based Indian businessmen with

diasporic connections in both Myanmar and India. But wholesale and retail customers now

skip the middlemen at Moreh to purchase directly from Namphalong market, whose shops

stock mostly Chinese and Southeast Asian goods – cheaper, and often of better quality, than

their Indian counterparts across the border. More recent writings on Moreh confirm the

persistence of these basic dynamics”.

We[India] have engaged and cooperated constructively with Myanmar in security, border

issues, trade and transit, power, infrastructure, connectivity projects and capacity-building

with a commitment to provide grant-in-aid assistance of approximately Rs. 3000 crore

(Annual Report 2013-14, Pg. i).

Whereas, General V. K. Singh Honourable Minister of State for External Affairs, Govt. of

India stressed towards the commonalities between the North Eastern region of India and

South East Asian countries are multi-dimensional: socio-cultural patterns, anthropological-

ethnic background, and religious practices to name some. In earlier times, before political

boundaries were drawn by colonial powers, much of the South Asian region was relatively

better integrated in terms of trade, finance, and ecosystem-sharing. The North East region in

India is blessed with natural resources, such as oil and gas, and tea, and this has contributed to

the region’s flourishing trade system and its general prosperity [however] a number of recent

developments in the North East region of India are notable.

http://www.eastwestcenter.org/fileadmin/stored/pdfs/PS033.pdf

http://www.eastwestcenter.org/fileadmin/stored/pdfs/PS033.pdf

http://www.thehindu.com/news/national/in-myanmar-manmohan-to-focus-on-trade/article3461841.ece

http://india.blogs.nytimes.com/2012/05/29/india-reaches-out-to-myanmar/?_r=0

http://e-pao.net/GP.asp?src=5..050513.may13

http://www.mcrg.ac.in/PP31.pdf

http://www.dw.de/of-replicas-and-indias-love-for-cheap-goods/g-17407317

http://www.thehindu.com/todays-paper/tp-national/tamil-businessmen-at-moreh-forced-to-look-for-greener-pastures/article4621810.ece

305

RIS jointly with the Public Diplomacy Division of the Ministry of External Affairs,

Government of India organized the 7th South Asia Economic Summit (SAES) in New Delhi

on 05-07 November 2014. Co-organisers of the SAES include the Centre for Policy Dialogue

(CPD), Bangladesh; South Asia Watch on Trade, Environment and Economics (SAWTEE),

Nepal; South Asia Centre for Policy Studies (SACEPS), Nepal; Sustainable Development

Policy Institute (SDPI), and Institute of Policy Studies of Sri Lanka (IPS) (Annual Report

2014-15, Ministry of External Affairs, Pg. 203).

Shri Nitin Gadkari, Union Minister for Road Transport and Highways revealed that “With the

‘Make in India’ campaign, we can also reduce costs because foreign costs are too high,” he

said. Citing a feasible example of neighbourly collaboration, the Minister spoke of the lower

cost of production of barges in Bangladesh, as a result of which water transportation projects

in Farakka, West Bengal, and nearby locations could be developed in close coordination with

Bangladesh for improved transport and tourism services, which would generate employment

and revenue (IRC 2014, Pg. 8).

Table 2: Major Import Commodities of Neighbouring Countries connected with

Northeast States of India And their major Import partners Neighb

our

Countr

y

Import Commodities Imports - Major Partners Border

Connected With

Myanm

ar

Fabric, petroleum products, fertilizer,

plastics, machinery, transport

equipment; cement, construction

materials, crude oil; food products,

edible oil

China 36.9%, Thailand 20.2%,

Singapore 8.7%, South Korea 8.7%,

Japan 8.2%, Malaysia 4.6% (2012)

(Source:

https://www.gfmag.com/global-

data/country-data/myanmar-gdp-

country-report)

Arunachal

Pradesh,

Nagaland,

Manipur and

Mizoram

Bangla

desh

Its top imports are Wheat, edible Oil,

Crude Petroleum, Pol, chemical,

Fertilizer, plastics and rubber articles,

Raw Cotton, Yarn, Textile, Iron & Steel

and other base metals , Capital

machinery are the major commodities (

Table 3)

China 29%, India 17%, Singapore 7%,

Malaysia 5%, Korea, Rep. Korea 4%

(2013)

(Source:

http://atlas.cid.harvard.edu/country/bg

d/)

Tripura

Nepal

Its top imports are Refined

Petroleum ($809M), Gold ($275M), So

ybean Oil ($272M), Petroleum

Gas ($214M) and Semi-Finished

Iron ($142M).

(source:

http://atlas.media.mit.edu/en/profile/cou

ntry/npl/#Imports)

India 58%, China 15%, United Arab

Emirates 6%, Indonesia 3%, Argentina

3% (2013)

(Source:

http://atlas.cid.harvard.edu/country/npl

/)

Sikkim

Bhutan

Bhutan mainly imports oil and fuels,

base metals, machinery and electrical

appliances, vehicles, wood and food.

(source:

http://www.tradingeconomics.com/bhut

an/imports)

India 59%, Thailand 10%, China 7%,

Austria 4%, Singapore 3% (2013)

(source:

http://atlas.cid.harvard.edu/country/btn

/)

Arunachal

Pradesh, Assam,

Sikkim

https://www.gfmag.com/global-data/country-data/myanmar-gdp-country-report



http://atlas.cid.harvard.edu/country/bgd/


http://atlas.media.mit.edu/en/profile/hs92/2710/









http://atlas.media.mit.edu/en/profile/country/npl/#Imports


http://atlas.cid.harvard.edu/country/npl/


http://www.tradingeconomics.com/bhutan/imports


http://atlas.cid.harvard.edu/country/btn/


306

China

Electrical and other machinery, oil and

mineral fuels, optical and medical

equipment, metal ores, motor vehicles

(Source:

http://www.economywatch.com/world_

economy/china/export-import.html)

Japan 9.8%, South Korea 9.3%, US

7.3%, Germany 5.1%, Australia 4.6%

(Source:

http://www.economywatch.com/world

_economy/china/export-import.html)

Arunachal

Pradesh, Sikkim

Table 3: Major Product - Wise Import of Bangladesh Amounts in Million US$

SL

No

.

Major Commodities

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09

2009

-10

2010

-11

2011

-12

2012

-13

1. Rice 680 115 172 15 211 144 262 117 180 874 239 75 830 288 30

2. Wheat 317 266 177 171 198 287 312 301 401 536 643 762 1081 613 696

3. Milk & cream 56 60 62 59 61 61 86 73 83 137 96 106 161 221 214

4. Spices 27 18 15 13 32 30 42 32 76 80 62 109 127 138 118

5. Oil seeds 100 90 64 72 64 73 86 90 106 136 159 130 103 177 242

6. Edible oil 287 256 218 251 364 471 441 473 583 1006 865 1050 1067 1644 1402

7. Pulses all sorts 71 113 86 88 145 120 159 164 195 327 234 350 292 243 422

8. Sugar 42 30 46 23 104 110 220 124 294 396 413 650 654 1177 731

9. Clinker 38 59 106 150 144 139 170 210 240 347 314 333 446 504 487

10. Crude petroleum 118 232 273 242 267 252 350 604 524 695 584 535 923 987 1102

11. POL 270 406 566 481 620 770 1252 1400 1709 2058 1997 2021 3186 3922 3642

12. Chemical 250 278 339 335 353 406 510 580 668 890 960 972 1254 1210 1302

13. Pharmaceutical products

29 27 33 39 44 45 41 50 49 62 80 103 116 119 119

14. Fertilizer 120 140 129 107 109 150 332 342 357 632 955 717 1241 1381 1188

15. Dyeing, tanning etc.

materials

66 71 91 87 86 109 132 148 161 218 259 275 333 375 399

16. Plastics and rubber

articles thereof

191 230 261 250 281 367 477 523 643 808 840 966 1302 1366 1366

17. Raw cotton 233 277 360 312 393 583 666 742 858 1212 1291 1439 2689 2084 2005

18. Yarn 283 300 322 283 270 323 393 501 582 691 792 718 1391 1384 1356

19. Textile and articles

thereof

1109

1153

1291

1063

1106

1295 1571 1728 1892 1892 2099 1986 2680 3023 3273

20. Staple Fiber 39 43 39 39 41 57 75 76 97 110 112 118 180 428 455

21. Iron, steel and

other base metals

345 393 464 413 455 479 680 980 985 1179 1502 1453 2004 2224 2335

22. Capital machinery 294 314 482 562 568 786 1211 1539 1929 1664 1420 1595 2325 2005 1835

23. Others 2545

2838

3054

2858

3015

2959 2727 2887 3401 4385 5289 5862 7132 7889 6860

24. Subtotal : 7510

7709

8650

7913

8931

1001

6 1219

5 1368

4 1601

3 2033

5 2120

5 2232

5 3151

7 3340

2 3157

9

Imports of EPZ 496 665 685 627 727 887 952 1062 1144 1294 1302 1413 2141 2114 2505

Grand Total : 8006

8374

9335

8540

9658

1090

3

1314

7

1474

6

1715

7

2162

9

2250

7

2373

8

3365

8

3551

6

3408

4

Source: Import Payment, Bangladesh Bank retrieved from http://www.dhakachamber.com/home/Major_Import_Items Prepared by DCCI

Research Cell

http://www.economywatch.com/world_economy/china/export-import.html




307

Figure 2: Concentration and average distance with destination countries for

products imported by Bhutan in 2014

Retrieved from http://www.trademap.org/Product_SelProductCountry_Graph.aspx


products imported by Bangladesh in 2014


http://www.trademap.org/Product_SelProductCountry_Graph.aspx


308


products imported by China in 2014



products imported by Myanmar in 2014



309


products imported by Nepal in 2014



products imported by India in 2014


Fig. 2 to Fig.6 shows that the concentration and average distance with destination countries

for products Import by Bhutan, Bangladesh, China, Myanmar and Nepal respectively had

undertaken in 2014 from the distance of nearly 2000- 6000 KM whereas India (as shows in

Fig.7) have imported products from the distance of nearly 4000-8000KM during the year

2014 which seems that there are sufficient scope to have international trade with neighbouring

countries whereas Fig.8 shows where India’s export were taken place during 1995-2013.



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Figure 8: Where did India export to between 1995 and 2013?

Source: http://atlas.cid.harvard.edu/explore/stacked/export/ind/show/all/1995.2013.2/

Table 4: India Foreign Trade during 2014-15

India Foreign Trade (% Change)

Trade 2014-15 2014 2015

May June May June

Imports 0.6 -11.3 8.6 -16.3 -13.4

Exports -2.8 12.2 7.6 -20.5 -15.8

Source: RBI Bulletin August 2015. Pg. 31

In India, North East Region is recognized as an area with physical and social infrastructure

deficit. Special development efforts are being made to fast track the economic growth of the

region. Since eighth plan period Central Government is devising ways for this purpose

through various policy initiatives (Tyagi, 2014). De and Majumdar (2014) reflected the

creation of Production blocks in NER (Fig.9) emphasizing for the inputs from Govt. Of India

for economic development of the region. North-East India is the least urbanized state of India

with only 18 % of the region’s population living in 414 towns of variable size (Dikshit and

Dikshit, 2013) and table 4 shows India Foreign trade during 2014-15 which reveals that there

are decline in trades (Import and Export) in 2015 and may improve through NER.

http://atlas.cid.harvard.edu/explore/stacked/export/ind/show/all/1995.2013.2/

311

Figure 9: Creation of Production Blocks in NER

Source: De, P., and Majumdar, M (2014). pg. 05

To boost the trade, it is the time to review the International trade practices with neighbouring

countries and start with development of North Eastern States in line with the rest of India to

promote international trades with Myanman, China, Bhutan, Nepal, & Bangladesh as these

neighbouring countries are well connected with North Eastern States of India. Moreover,

Figure 10 reveals that North East Region (NER) are well connected with South Asia Sub-

regional Economic Cooperation (SASEC), Mekong-Ganga Cooperation(MGC), Greater

Mekong Sub-region(GMS), Banglasdesh, China, India, Myanmar Forum on Regional

Cooperation (BCIM), South Asia Association for Regional Cooperation (SAARC), Asia

Pacific Trade Agreement (APTA), Association of Southeast Asian Nations (ASEAN), East

Asia Summit Countries (EAS) and table 5 reveals the comparative status of North East.

Figure 10: North East Region (NER): An Emerging Market Perspectives

Source: De, P., and Majumdar, M (2014). pg. 16

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Table 5 : Comparative Status of North East

Source: http://www.mha.nic.in/northeast_new

However, the recent development of NER as reflected during North-East Summit (2013)

revealed that “The NE region has one international airport in Guwahati, Assam-the Lokpriya

Gopinath Bordoloi International (LGBI) Airport. The Airport Authority of India (AAI) plans

to make it one of the major international airports, connecting Southeast Asia with India.

Besides, Assam has six domestic airports at Guwahati, Tezpur, Jorhat, Dibrugarh, Silchar and

North Lakhimpur. During 2011-12, the Guwahati airport received 2.2 million passengers.

Mizoram has one operational airport at Lengpui where daily air connectivity is available

through multiple air carriers. In 2009-10, Lengpui airport handled 1,790 aircrafts with

120,000 passengers. The Shillong airport (Umroi Airport) is fully-operational, while the

Baljek Airport is under construction and upgradation. In Sikkim, the airport construction is

underway in Pakyong. A greenfield airport has been proposed near Itanagar, for which

environmental clearance has been received in April 2010. The Ministry of Civil Aviation has

also planned to operationalise airports at Daporijo and Tezu in Arunachal. Nagaland has one

operational airport at Dimapur. A second airport is being planned for Kohima (North-East

Summit, 2013 Pg. 10). Moreover, in line with the initiatives towards development of

Northeastern states, Indian Railways commitments to have the connectivity of North eastern

states with rest of the India and as revealed by Northeast Frontier Railway General Manager

(Construction) Rajesh Kumar Singh to PTI, "All capital cities of North East states, including

Sikkim, will be under Indian Railways map by 2020. The railway department has started

'Mission 2020' and it will implement it very strictly within the stipulated timeframe". He

further revealed that Agartala will be under broad gauge connection by March 2016 and by

the next year, that is March 31, 2017, we will have railway connection upto Tupul in

Manipur. Within March 31, 2018, BG line will start up to Sairang, near Aizawl, the capital of

Mizoram, the work for setting up of a new line from Tupul to Imphal will be finished by

March, 2019 and by March 31, 2020, railway lines will be up to Shillong in Meghalaya and

Rangpo in Sikkim . Moreover, Arunachal Pradesh is already connected with a broad gauge

line upto Naharlagun, near Itanagar (http://www.dnaindia.com/india/report-railway-connection-to-most-north-eastern-state-capitals-by-2020-2069227). Under the “Look East

Policy” improved the links with international neighbours is a priority. Bangladesh, Bhutan,

Myanmar and TAR should be connected to Guwahati in addition to Bangkok. Another

International airport for the southern part of NER in Agartala can be Prioritized (North-east

Summit, 2013 Pg. 10)

The connectivity through Road, Rail and Airways would definitely change the scenario of

North- East States of India which further boost the emerging markets right from banking,

http://www.mha.nic.in/northeast_new

http://www.dnaindia.com/topic/indian-railways

http://www.dnaindia.com/topic/tupul

http://www.dnaindia.com/topic/meghalaya

http://www.dnaindia.com/india/report-railway-connection-to-most-north-eastern-state-capitals-by-2020-2069227


313

retails etc. which would obviously improve the social- economic scenario of Northeast and

leads to international trade with connected neighbouring countries.

Conclusion

Prime Minister’s “Make in India” initiative would help in building infrastructure and

developing the entrepreneurial base for India. This initiative is in keeping with the Prime

Minister’s plans of improving business environment in India to attract both foreign and

indigenous businesses (IRC 2014, Pg. 10).

Trade and foreign investment are closely related. From 1990 to 2010, manufactured exports

increased as a result of networks in South Asia. These networks helped many nations that

were members of ASEAN to develop their manufacturing base and export with higher

efficiency (IRC 2014, Pg.10). Prime Minister Shri Naraendra Modi’s recent visits to

European countries links to inviting FDI as prime motto however there are lots of

opportunities available with our neighbouring countries as well which may be promoted by

developing North- East states of India.

With 98 percent of its border with China, Myanmar, Bhutan, Bangladesh and Nepal,

Northeast India has better scope for development in the era of globalization (Thongkholal

Haokip, 2010). This papers invites an attention to highlight the emerging market with

neighbouring countries connected with Northeastern states of India and invites rethinking

towards development of these states where lots of works are still concerned viewing the

DoNER which was established in 2001 and got the status of full-fledged ministry in 2004

with the purpose of facilitating the relations and the work between the central Ministry and

Departments and the State governments of the NER mainly with regard to economic

development including functionality of the infrastructure and the provision of an investment

friendly environment (Anne-sophie Maier, 2009). The development of Northeastern States

would not only boost the economic development but would emerge as an international trade

market being connected with five countries. The commodities imported by neighbouring

countries may be traded through NER with competitive cost considering lower transportation

cost being having lesser distance for its transportation via NER.

Reference

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Government Of India

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Special Reference to North East India The Economic Research Guardian – Vol. 1(2)

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– A New Phase in Bilateral Relations. Indian Foreign Affairs Journal.

Vol. 6, No. 4, October–December 2011, 365-406 Pg.380

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www.pwc.com/in

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India. International Journal of Trade & Global Business Perspectives© Pezzottaite

Journals. Volume 2, Number 2, April-June’ 2013 ISSN (P):2319-9059, (O):2319-9067

24. PTI Article dated Jul 9, 2015: North East state capitals to be connected with rail network

by 2020: Railway Minister Suresh Prabhu. Retrieved from

http://articles.economictimes.indiatimes.com/2015-07-09/news/64243923_1_railway-

minister-suresh-prabhu-railway-projects-passenger-amenities

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capitals by 2020. Retrieved from http://www.dnaindia.com/india/report-railway-

connection-to-most-north-eastern-state-capitals-by-2020-2069227

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– 142. Elsevier

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http://employmentnews.gov.in/Accelerating%20Development%20in%20North%20East.p

df

http://link.springer.com/book/10.1007/978-94-007-7055-3

http://link.springer.com/bookseries/8560

http://link.springer.com/bookseries/8560

http://pib.nic.in/newsite/PrintRelease.aspx?relid=118151

http://thediplomat.com/2015/02/manipur-and-indias-act-east-policy/









http://articles.economictimes.indiatimes.com/2015-07-09/news/64243923_1_railway-minister-suresh-prabhu-railway-projects-passenger-amenities

http://articles.economictimes.indiatimes.com/2015-07-09/news/64243923_1_railway-minister-suresh-prabhu-railway-projects-passenger-amenities



http://employmentnews.gov.in/Accelerating%20Development%20in%20North%20East.pdf

http://employmentnews.gov.in/Accelerating%20Development%20in%20North%20East.pdf

315

Application of Artificial Intelligence for Forecasting of Industrial

Sickness

Dr. Jay Desai

Shri Chimanbhai Patel Institute of Management & Research

Nisarg A Joshi Shri Chimanbhai Patel Institute of Management & Research

Abstract ___________________________________________________________________________________

The motive of this study is to examine the performance of two forecast models: the Altman’s Z-score

model using discriminant analysis, and to propose a new prediction model using artificial intelligence

on a dataset of 30 solvent and 30 insolvent companies. Accounting ratios were acquired from company

balance sheets are used as self-governing variables while solvent/insolvent Company is the dependent

variable. The forecasting capability of the proposed model using artificial intelligence is higher when

compared the original Z-score model of Altman. The research findings institute the dominance of

proposed model over discriminant analysis and validate the importance of ratios in forecasting

solvency/insolvency.

Keywords: solvency, insolvency, discriminant, ratios, artificial intelligence, ANN

Introduction

Each company commences a variety of activities in the business. There are some activities of

the business whose outcomes are random. This launches risk for every business. Among the

different risks that an organization is faced with, default risk is possibly one of the ancient

financial risks, though there have not been many instruments to manage and hedge this type

of risk till recently (Gupta, 2014). Previously, the emphasis had been primarily on market risk

& business risk and bulk of the academic research was determined on this risk. On the other

hand, there has been an increase in research on default risk with increasing emphasis being

given to its modeling and evaluation.

Default risk is spread through all monetary transactions and involves a wide range of

functions from agency downgrades to failure to service debt liquidation. With the

improvement in new monetary instruments, risk management methods and with the global

meltdown, default risk has gained utter importance. Risk of default is at the centre of credit

risk: Credit rating agencies (CRAs) have been the major source for measuring the credit

superiority of businesses/borrowers in developing economies like India. Since improvement

and deterioration of ratings can influence the price of equity and debt which is being traded

in the market, participants are fascinated in developing good models for prediction. As Basel

III norms are implemented globally, banks are gradually developing their own internal

ratings-based models; for development of scores internally. However, a credit rating or a

credit score is does not estimate the probability of default directly.

Though a wide number of analytical/mathematical/statistical models are present, there was a

great emphasis to be given for an emerging economy like India to develop bankruptcy

forecasting model. A bankruptcy prediction model that can measure the credit risk by

forecasting the probability that a corporate default in meeting the monetary compulsion can

be precisely beneficial to the lenders.

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This paper tries to assess the predictive ability of two default prediction models for listed

companies in India: a discriminant analysis using Altman Z-Score and a proposed model

using artificial intelligence.

Literature Review We have reviewed different research studies which were relevant to the current work under

wide areas. The information contained in the financial statements of a company were the basis

for development of accounting-based models. Beaver (1966, 1968) and Altman (1968) had

developed the first set of accounting models to measure the bankruptcy risk for a corporate. A

univariate statistical analysis for the prediction of corporate failure was developed by Beaver

(1966). The model using discriminant analysis famously known as z-score model using

financial ratios to separate defaulting and surviving firms Altman (1968). Later Altman et al.

(1977) developed z-score models called ZETA and another model was developed in the

context of corporations in emerging markets by Altman et al. (1995). A study was conducted

in 22 countries by Altman and Narayanan (1997) where they concluded that the models based

on accounting ratios (MDA, logistic regression, and probit models) can effectively predict

default risk.

Nine ratios or terms were selected by Ohlson’s O-Score model (1980) which should be useful

in predicting bankruptcy. A logistic regression based model was applied by Martin (1977) to

23 bankrupt banks during the period 1975-76. Taffler (1983, 1984) and Zmijewski (1984)

developed accounting-based models. The multiple discriminant analysis technique was

applied by Bhatia (1988) and Sahoo, et al. (1996) on a sample of sick and non-sick companies

using accounting ratios. Default risk to be a function of firm-specific idiosyncratic factors was

identified by Opler and Titman (1994) and Asquith et al. (1994). Lennox (1999) conducted a

study on a sample of 90 bankrupt firms and revealed that profitability, leverage, and cash

flow; all three parameters have a bearing on the probability of bankruptcy. Shumway (2001),

Altman (2002) and Wang (2004) had studied different firms and they emphasized the

significance of financial ratios for predicting corporate failure. Grunert et al. (2005) found

through study that greater accuracy can be provided in default prediction through combined

use of financial and non-financial factors compared to a single factor. The role of financial

risk factors in predicting default was emphasized by Jaydev (2006) while three z-score

models were compared by Bandyopadhyay (2006). A hybrid logistic model was developed

by Bandyopadhyay (2007) which was based on inputs obtained from Black Scholes Merton

(BSM) equity-based option model described in his paper. The predictive ability of Taffler’s z-

score model in the assessment of distress risk was emphasized by Agarwal and Taffler (2007)

spanning over a 25-year period. Two types of bankruptcy models were developed by Baninoe

(2010); a logistic model and an option pricing method and concluded from his research that

distressed stocks generated high returns. Kumar and Kumar (2012) conducted empirical

analysis on three types of bankruptcy models for Texmo industry: (i) the Altman z-score; (ii)

Ohlson’s model; and (iii) Zmijewski’s models to predict the probability that a firm will go

bankrupt in two years.

Recently, Gupta (2014) had developed an accounting based prediction model using

discriminant analysis and logit regression and compared the predictive ability of these

models. For logistic regressions, an attempt was made to combine macro variables and

dummy industry variables along with accounting ratios. The paper had analysed that the

predictive ability of the proposed Z score model was higher when compared to both the

Altman original Z-score model and the Altman model for emerging markets. The research

findings establish the superiority of logit model over discriminant analysis and demonstrate

the significance of accounting ratios in predicting default.

The first attempt to use ANNs to predict bankruptcy is made by Odom and Sharda. In their

study, three-layer feed forward networks are used and the results are compared to those of

317

multi-variate discriminant analysis. Using different ratios of bankrupt firms to non-bankrupt

firms in training samples, they test the effects of different mixture level on the predictive

capability of neural networks and discriminant analysis. Neural networks are found to be

more accurate and robust in both training and test results.

Rahimian et al. test the same data set used by Odom et al. using three neural network

paradigms back propagation network, Athena and Perceptron.

A number of network training parameters are varied to identify the most efficient training

paradigm. The focus of this study is mainly on the improvement in efficiency of the back

propagation algorithm. Coleman et al. also report improved accuracy over that of Odom and

Sharda by using their Neural Ware ADSS system.

Boritz et al. use the algorithms of back propagation and optimal estimation theory in training

neural networks. The benchmark models by Altman and Ohlson are employed. Results show

that the performance of different classifiers depends on the proportions of bankrupt firms in

the training and testing data sets, the variables used in the models, and the relative cost of

Type I and Type II errors. Boritz and Kennedy also investigate the effectiveness of several

types of neural networks for bankruptcy prediction problems.


Research Design

As a part of the research we want to develop a forecasting model using artificial intelligence,

we have used secondary data for the analysis. We had collected the data from the financial

statements of the companies from ACE Equity database. A dataset of 60 companies is taken

from the CRISIL database as the estimated sample which consists of 30 companies rated “D”

by CRISIL (defaulted) and 30 companies rated “AAA” and “AA” (indicating highest safety

thus ‘solvent’). The solvent companies are selected on a basis to match the size and industry

of the defaulted companies. Table 1 provides the industry classification and the number of

companies in each industry.

Table 1: List of Companies in Dataset

Industry No. of Companies

Paper & Paper Products 5

Paints 5

Pharmaceuticals 8

Textile 8

Machinery 8

Consumer Food & Sugar 10

Cement & Metals 10

Others 6

Total 60

The major component involves running discriminant analysis on the 60 companies in the

dataset for estimated sample. We have evaluated two models for their forecasting capability.

The first model is based on the five ratios included in the original Altman model. The second

model is developed in this study based on the artificial intelligence.

Scope of the Study

The scope of this study covers listed companies in India. All the companies from the financial

services sector have been removed from the database. The rationale for removing the

companies in the financial services sector is that their financial statements broadly differ from

318

those of nonfinancial firms. For ratings the focus of the research is on long-term debt

instruments and structured finance ratings and short-term ratings.

Selection of Variables

Since the focus of the present study is to measure the default risk, it is imperative to choose a

set of financial ratios which can be relevant in impacting the default risk of the company. In

assessing creditworthiness, both business risks and financial risks have been factored. The

criteria for choosing ratios are those that:

(i) have been theoretically identified as indicators for measuring default

(ii) have been used in predicting insolvency in empirical work before

(iii) and can be calculated and determined in a convenient way from the databases used by

the researcher

Altman Ratios: The Altman z-score model is the pioneer work in predicting bankruptcy

and distress firms, and thus the original five ratios which constitute the Altman Z score model

are also included. These are:

(i) Net working capital/Total Assets (NWC/TA);

(ii) Retained Earnings/Total Assets (RE/TA);

(iii) Profit before interest and tax /Total Assets (PBIT/TA);

(iv) Sales/Total Assets (Sales/TA);

(v) Market value of equity/ Book value of debt (MVE/BVD)

It is observed that the mean for explanatory variables in the defaulted group shows a poor

performance when compared to the solvent group. The mean of profitability ratios for firms

which are defaulted is with a negative sign whereas the average for solvent firms shows a

higher average margin. Also, for the solvency ratios, namely the Debt/Equity, the ratios is less

than 1 for solvent firms, indicating low leveraging whereas for defaulted firms the average is

significantly higher than 1, interest coverage ratios is negative for defaulted companies and is

greater than 1 for solvent companies.

Multiple Discriminant Analysis (MDA) is a statistical technique where the dependent variable

appears in a qualitative form. The discriminant function takes the following form:

Z = X0 + W1 X1 + W2 X2 + W3 X3 + .......... + Wn Xn

Z = Discriminant Score,

X0 = Constant,

W1 = Discriminant Weight for Variable i,

X1 = Independent Variable i

Artificial Neural Network: Artificial neural networks (ANN) emulates the biological systems in a simplified way

(Bischof et al., 1992). Information processors, which would be the equivalent to biological

neurons, interconnected among themselves and structured in levels of layers made up of many

elements. There is an entry level, which introduces the data to the network, and an output

level that provides the response to the input data, and one or more levels that process the data.

They learn the relationship between the input and output data, therefore, everything you need

to train an ANN with is a dataset containing the input/output relationship.

In reality, the ANN are internally multivariate mathematical models that use iterative

procedures processes to minimize error functions. Artificial neurons, as well as biological

ones, are defined to be in state of activation at all times, which can be expressed by a numeric

value corresponding to the formula:

a = ∑ wixi

n

i=1

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Being xi the value of from each previous neuron activation layer, and wi the weight assigned

to that value. A transfer or output function transforms this value into an output signal that

travels through the connections to other neurons of the subsequent levels, eliminating the

linearity of the network and limiting values within a certain range.

A special type of ANN is the network back propagation, in which the data flow comes from

the input level and spreads to the hidden layer, and finally to the output layer. Learning occurs

in the stage of training and weights will remain constant, during the operation of the network,

when it applies to another set of different data to predict new results. For the creation of a

model, two stages should be established: the design and training of the network with

predictability, and the validation of results.

(Serrano-Cinca, 1997) stated in their research that “originally the neural network does not

have any type of stored useful knowledge. To allow a neural network to run a task, it is

necessary to train it. The training is done by example patterns. There are two types of

learning: supervised and unsupervised learning. If the network uses supervised learning we

must provide pairs of input/output patterns and the neural network learns to associate them. In

statistical terminology, it is equivalent to models in which there are vectors of independent

and dependent variables. If the training is not supervised, we must only provide input data to

the network so that the essential characteristic features can be extracted. These unsupervised

neural networks are related to statistical models such as the analysis of clusters or

multidimensional scales”.

There are a number of ANNs and related constructions. Self-organized Kohonen maps, the

multi-layer perceptron and radial basis function are some of the most important models

applied to solve factual problems.

In this study, the functional form is generated by using a multi-layered feed forward artificial

neural network. Artificial neural networks (ANNs) are simplified models of the

interconnections between cells of the brain. In fact they are defined by Wasserman and

Schwartz (1987) as "highly simplified models of the human nervous system, exhibiting

abilities such as learning, generalization and abstraction.” Hawley, Johnson and Raina (1990)

studied that “such models were developed in an attempt to examine the manner in which

information is processed by the brain. These models have, in concept, been in existence for

many years but the computer hardware requirements of even the most rudimentary systems

exceeded existing technology.”

Recent technological advances, however, have made ANN models a viable alternative for

many decision problems and they have the potential for improving the models of numerous

financial activities such as forecasting financial distress in firms. A general description of

neural networks is found in Rummelhart, Hinton and Williams (1986). The artificial neural

network has been shown to:

Approximate any Borel measurable functional mapping from input to output at any degree of

desired accuracy if sufficient hidden layer nodes are used, Hornik, Stinchcombe and White

(1989, 1990). The Borel measurable functional mapping is sufficiently general to include

linear regression, logit and RPA models as special cases.

Be free of distributional assumptions.

Avoid problems of colinearity.

Be a general model form (or universal approximator).

Consequently, a financial analyst familiar with the structure of the problem selects only the

proper inputs and outputs for an ANN model. The weights assigned to each input and the

functional form of each of the relationships are determined by the neural network, as opposed

320

to the expert's (e.g., statisticians's) explicit a priori assumptions, Caporaletti, Dorsey, Johnson

and Powell (1994).

With regard to the specification of the functional form, the neural network does not impose

restrictions such as linearity. This is due to the fact that the neural net “learns” the underlying

functional relationship from the data itself, thus, minimizes the essential a priori non-sample

information. Indeed, an explanation for the use of a neural network as a totally overall

approximation device is its function approximation abilities. That is to say, its ability to

provide a generic functional mapping from inputs to outputs. This eliminates the need for

exact prior specification. With a neural network, the financial analyst has a tool which can

aid in function approximation tasks, in the same light as a spreadsheet aids "what-if" analysis,

Hawley, Johnson, and Raina (1990). This is a major advantage of ANNs in bankruptcy

applications.

The most commonly cited proof of the function approximation ability of an ANN is the

superposition theorem of Kolmogorov (1957), or its improvements by Hornik, Stinchcombe,

and White (1989), Lorentz (1976), and Sprecher (1965). Hecht-Nielsen (1987) pointed out the

link between these results and ANNs.

Several approximation results related to functions of the ANN were discussed by Hecht-

Nielsen (1990). These results state that one can compute any continuous function using linear

summations and a single properly chosen nonlinearity. In simple form, the organisation of the

nodes in a multi-layer framework produces a representing between inputs and outputs

consistent with any underlying functional relationship regardless of its "true" functional form.

Without the a priori restrictions, the decision-maker is allowed to involve, to a greater extent,

his/her decision making expertise (or intuition) in the analysis of the problem. These proofs

have shown that a neural network as described above can approximate arbitrary nonlinear

functions to any degree of desired accuracy given a sufficiently large number of hidden layer

nodes. The number of nodes need not be very large however. Dorsey, Johnson and Mayer

(1993) and Gallant and White (1992) among others have shown that very complex functions

(e.g., chaotic series) can be approximated with a high degree of accuracy by using five or

fewer hidden nodes.

The function approximation ability of the ANN provides the financial analyst with a method

for making forecasts of future financial events such as financial distress within certain firms.

If properly optimized, the ANN should provide the financial analyst with a more reliable

method for making forecasts of future financial events. A primary difficulty with using the

ANN models has been the lack of a means for correctly optimizing the network. Virtually all

researchers are currently using the Backpropagation algorithm or a variation of it.

It has been demonstrated in current research at the University of Mississippi that the

Backpropagation algorithm is highly prone to stopping at a sub-optimal location. An

alternative algorithm, the genetic algorithm, has been adapted for optimizing the ANN and it

more consistently achieves the global optimum.

Traditionally, ANNs are trained using the models of Werbos (1974), LeCun (1986), Parker

(1985), and Rumelhart et al, (1986a, 1986b) which are called Back propagation training

algorithm. Problems with the Backpropagation training algorithm have been outlined by

Wasserman (1989) and Hecht Nielsen (1990). These problems include the tendency of the

network to become trapped in local optima, to suffer from network paralysis as the weights

move to higher values, and to become temporally unstable –that is, to forget what it has

already learned as it learns a new fact. Since the flexibility theorems (mapping and function

approximation) depend upon the selection of the proper weights, the utility of

Backpropagation as a learning rule for producing a flexible mapping is questionable. Holland

(1975) proposed genetic algorithm which is a global search algorithm that continuously

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samples from the total parameter space while focusing on the best solution so far. It is

loosely based on genetics and the concept of survival of the fittest, hence its name. The

optimization process involves determining the set of weights to be used for the

interconnections. Dorsey, Johnson and Mayer (1994) have demonstrated that the error

surface for the ANN is frequently characterized by a large number of local optima. Thus

derivative based search techniques such as the commonly used back propagation algorithm

are subject to becoming trapped at local solutions. Dorsey and Mayer (1994) have shown that

the genetic algorithm can be used as a global search algorithm on a wide variety of complex

problems and that it achieves a global solution with a high degree of reliability.

Since the genetic algorithm does not use the derivative of the network output to adjust its

weight matrices, as with gradient methods (e.g., the Backpropagation training algorithm), the

derivative (of the objective function) need not exist and thus the network can use any

objective function, Dorsey and Mayer (1994a, 1994b). This also implies that the network

paralysis problem can be overcome. The paralysis problem occurs with Backpropagation as

the node outputs are forced to their extremes, forcing the weight adjustments to become

increasing smaller and thus paralyze the network. Temporal instability is overcome since the

network is trained in a batch mode. That is to say weights are only changed at the end of each

complete sweep through the data. In addition, the network is less likely to become trapped in

a local optimum since the genetic algorithm provides a global search. Dorsey, Johnson and

Mayer (1994) empirically show that the genetic algorithm performs very well on a large class

of problems with generic network architectures. In fact they use one hidden layer and six

hidden layer neurons for each problem. Thus they demonstrate that the genetic algorithm

based training method for the selection of the appropriate weight matrices overcomes the

shortcomings of Backpropagation and can achieve the desired flexibility.

The training of the neural network begins when a population of candidate solutions is

randomly chosen. Each candidate solution is a vector of all the weights for the neural

network. For this study the population consisted of twenty vectors. The weights constituting

each vector are sequentially applied to the neural network and outputs are generated for each

observation of the inputs. Outputs are then compared to known values in the data set and a

sum of squared errors is computed for each vector of weights.

The sum of squared errors represents how well each candidate vector does at modelling the

data and is used to compute its fitness value. A probability measure is then computed for

each vector based on the vector's fitness value. The smaller the sum of squared errors, the

larger the fitness value relative to the other vectors, and the larger the probability measure. A

new population is created by selecting twenty vectors from the former population. The

selection is made with replacement and the probability that any particular vector is selected is

based on its probability measure. Thus, those vectors that generate the lowest sum of squared

errors will be replicated more often in the next generation. The vectors of the new population

are then randomly paired. A point along the vector is randomly chosen for each pair. The

pairs are broken at that point and the upper portion of each pair of vectors is swapped to form

two new vectors, each with elements from the original vectors.

Before applying this new set of vectors to the neural network and repeating the above process

for another generation, the final operation is mutation. Each element of each vector of the

new population has a small probability of mutating. Should mutation occur, the element is

replaced with a random value drawn uniformly from the parameter space? The process of

mutation allows the genetic algorithm to escape a local maximum and move to another area of

the error surface. After mutation, fitness values are computed for the new population of

vectors and the process is repeated. The complete process is repeated for thousands of

generations and terminates when improvement in the sum of squared errors diminishes. This

process can be summarized in the following steps:

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Generate Initial Population: Values are randomly drawn for the weights to be used in the

neural network. Each set of values makes up a single vector. A population of 20 such vectors

constitutes the initial population.

Calculation of Error: For each one of the 20 weight vectors (strings), the training input

(data) vectors are fed into the network and the ANN's corresponding output vectors

(estimates) are compared with the training (or target) output vectors. An error value (sum of

squared errors SSE) is calculated for each one of the 20 strings. Reproduction. Each one of

the 20 vectors is assigned a selection probability which is inversely proportional to its error

value calculated in step 1 above. A new set of 20 weight vectors is selected from the 20 old

strings. Each of the 20 old strings have a probability of being selected (with replacement)

into the new set.

Crossover: The 20 new weight vectors are randomly organized into 10 pairs. For each pair,

one of the elements of the vector are randomly selected. At this element each of the vectors

of the pair are broken into two fragments. The pair then swaps the vector fragments.

Mutation: It is randomly determined whether any element of the 20 vectors should be

changed. For each element of the 20 weight vectors a random number is selected and a

Bernoulli trial is conducted. If the Bernoulli trial is successful (with probability equal to the

mutation rate) then the element is replaced with the random number, otherwise the element

remains unchanged. This is done for every element of every weight vector. With the

resultant 20 weight vectors, or new generation, one returns to the calculation of error.

As in natural systems, the new offspring inherit a combination of the parameters (traits) from

their parents. The key to this process is selectivity. Not all population members from the

previous generation are given an equal chance of producing progeny to fill the pool of the

present or future population of possible solutions. Thus, it is likely that only a select few will

actually contribute. In particular, the population members with the highest probability of

surviving are those possessing parameters favourable to solving for the optimum of the

specific objective function. In contrast, members of the present population least likely to

survive to the next generation are those possessing parameters which yield unfavourable

solutions. In this way, a new population of candidate solutions (the second generation) is

built from the most desirable parameters of the initial population. As iteration continues from

one generation to the next, parameters most favourable in finding an optimal solution for the

objective function thrive and grow, while those least favourable die out. Mutation may also

occur at any stage of the progression from one generation to the next. By randomly

introducing new parameters into the natural selection process, mutation tests the robustness of

the population of possible solutions. As with parameters included in the vectors of the initial

population, if these newly introduced parameters add favourably to the ability of their

recipients to optimize the specific objective function, then the new parameter will thrive and

grow. Otherwise, the effect of the mutation will die out. Eventually, the initial population

evolves to one that contains an optimal solution and the evolutionary process terminates.

Analysis and Findings In this paper, the back propagation ANN algorithm was used where zero based log sigmoid

function was used as the fire function. The structure of the ANN was including 3 layer i.e.

input layer, hidden layer and output layer. In the model structure of ANN, there were 5 input

layers and 5 hidden layers were used. There was one output layer which will be indicating the

Z score. The network was run for 10,000 iterations for making predictions. Total 197

observations were used for training and the prediction was tested on 33 observations out of

sample.

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Figure 1: Artificial Neural Network

Out of the sample tested, the model has predicted industrial sickness with an accuracy

of 67%.

Out of 33 observations, 22 observations have correctly classified and predicted

industrial sickness in the next year.

5 observations out of remaining 11 observations for which the model had predicted

sickness wrongly for the next year went into sickness after 2 years.

Incorporating the two year advance forecast the model achieves accuracy of 81%.

Table 2: Model for Prediction of Industrial Sickness Correct

Classifications –

Insolvent Firms

Overall Correct

Classifications

Correct

Classifications for

next 2 years

Model

1

1.2 X1 + 1.4 X2 + 3.3 X3 +

0.6 X4 + 0.99 X5

57.5% 70% -----

Model

2

ANN 67% 75% 81%

Conclusion

The predictive ability of the proposed model is higher when compared to both the Altman

original Z-score model and the Altman model for emerging markets. The research findings

establish the superiority of artificial intelligence model over discriminant analysis and

demonstrate the significance of accounting ratios in predicting default. Another superiority of

AI based model is that it is able to predict industrial sickness in one year advance and can be

used as a forewarning system unlike the discriminant analysis.

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Annexure 1: Artificial Neural Network Weights