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XIMB JOURNAL OF MANAGEMENTVolume IV Issue No. 2 September, 2007

ILAKSHAN

Xavier Institute of ManagementBhubaneswar - 751 013

ISSN 0973 -1954

ArticlesEvolution of Citizen Charter led Rural e-Governance: A Livelihood Security Approach to

Information Systems Planning in Indian ContextHarekrishna Misra & B. N. Hiremath

Analysis and Development of A Concept Level Framework on Corporate Social ResponsibilitySom Sekhar Bhattacharyya

Public Expenditure on Health and Health Outcomes: The Experience of the Indian StatesBiswa Swarup Misra & Akshya K. Panda

Internationalization of Indian Pharmaceutical Industry : A study on the determinants of export stimulationSrikant Panigrahy, P.Mishra & B.P.Patra

Competencies Necessary for Technology Transfer from Home to Host Country Companies: A Case StudyKiran J. Desai & Harsha Desai

Measuring Critical Factors in Safety Management - A Survey Based ApproachM.N. Vinodkumar & M. Bhasi

Consumer Rights Protection and Regional Co-operation among SAARC CountriesBasant Kumar & Brajaraj Mohanty

Factors Blocking the Implementation of Retailing TechnologyA. Veena & H.R. Venkatesha

Continuous and Sustainable Improvement through Supply Chain Performance Measurement- A Case Study of an LCV Manufacturing Company

Ashwani K. VarmaTrade Protection Measures (TPM): Issues and Perspectives

Sridhar Panda & Rajiv AroraPerspective

Shaping the Moral Foundation for Globalization: Lessons from Indian and Western PhilosophyBibhu Prasan Patra

Demand Estimation – Some Empirical Observations and their ImplicationsP.Mishra

Management CaseSuhas Gopinath

Brajaraj Mohanty & Rajeev RoyRural Women’s Marketing Association (RWMA)

Debasis PradhanA Tale of Two Samitis

Niraj KumarReliable Iterative Testing Environment (RITE) -a Case of Software Development Model

Sanjay MohapatraGram Utthan - From Micro Credit to Micro Enterprise

S.P. Das & Alok PattanayakBook Review

Outsourcing : the Definitive View, Applications and ImplicationsShiva Kumar Srinivasan

Total Relationship ManagementJaydeep Mukherjee

EDITORIAL BOARD

EditorBrajaraj Mohanty

Professor, Xavier Institute of ManagementBhubaneswar

Members

John C.Camillus, Donald R.Beall Professor of Strategic Management,University of Pittsburgh, Pittsburgh,U.S.A.

S.K. Chakraborty, Founder- Convenor, Management Centre for Human Values,Indian Institute of Management, Kolkata

Keith D’Souza, Director (Organizational Effectiveness), Pfizer Limited, MumbaiJ.M. Denton, Professor & Head of International Affairs, University of Stellenbosch

Business School, Bellville, South AfricaRanjan Ghosh, Director, Goa Institute of Management, Ribandar, Goa

M.G. Jomon, Associate Professor, XLRI, JamshedpurJerome Joseph, Professor, Indian Institute of Management, Ahmedabad

Oswald A. Mascarenhas, s.j., Kellstadt Professor of Marketing,University of Detroit-Mercy, Detroit

Sasi Misra, Distinguished Fellow, Entrepreneurship Development Institute of India,Ahmedabad

Amar KJR Nayak, Associate Professor, Xavier Institute of Management, BhubaneswarGopal Krishna Nayak, Director, International Institute of Information Technology,

BhubaneswarH.K. Pradhan, Professor, XLRI, Jamshedpur

V.Ranganathan, Professor, Indian Institute of Management, BangaloreLatha Ravindran, Professor, Xavier Institute of Manavement, Bhubaneswar

Subhash Sharma, Dean, Indian Business Academy, BangaloreW.S. William, Professor & Dean (Academic), Xavier Institute of Management, Bhubaneswar

For inquiries, subscriptions and contributions, please write to

Editor, ILAKSHAN

XIMB Journal of ManagementXavier Institute of Management

Xavier Square, Bhubaneswar - 751 013, IndiaPh. : 91-674-3983893 (Direct), 3012345 (Pilot) Fax : 91 674-2300995

E-mail : [email protected]

XIMB JOURNAL OF MANAGEMENTVolume IV Issue No. 2 September, 2007

Xavier Institute of ManagementBhubaneswar - 751 013

ILAKSHAN

September, 2007

ISSN 0973-1954

Regd. No. : ORIENG/2006/18251

PublisherDr E. Abraham s.j.DirectorXavier Institute of ManagementBhubaneswar

PrinterDr E. Abraham s.j.DirectorXavier Institute of Management,Xavier Square, Bhubaneswar - 751013

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© Copyright with Xavier Institute ofManagement. No part of the publication may bereproduced in any form without prior permissionof Director, Xavier Institute of Management,Bhubaneswar. However, the views expressed inthe papers are those of the authors and not ofthe Editoral Board or Publisher.

ARTICLES

1. Evolution of Citizen Charter led Rurale-Governance: A Livelihood SecurityApproach to Information SystemsPlanning in Indian Context

2. Analysis and Development of A ConceptLevel Framework on Corporate SocialResponsibility

3. Public Expenditure on Health andHealth Outcomes: The Experience of theIndian States

4. Internationalization of IndianPharmaceutical Industry : A study onthe determinants of export stimulation

5. Competencies Necessary for TechnologyTransfer from Home to Host CountryCompanies: A Case Study

6. Measuring Critical Factors in SafetyManagement - A Survey BasedApproach

7. Consumer Rights Protection andRegional Co-operation among SAARCCountries

8. Factors Blocking the Implementation ofRetailing Technology

9. Continuous and SustainableImprovement through Supply ChainPerformance Measurement - A CaseStudy of an LCV ManufacturingCompany

10. Trade Protection Measures (TPM):Issues and perspectives

Contents

Harekrishna Misra & 01B. N. Hiremath

Som Sekhar Bhattacharyya 25

Biswa Swarup Misra 43& Akshya K. Panda

Srikant Panigrahy, 61 P.Mishra & B.P.Patra

Kiran J. Desai & Harsha Desai 85

M.N. Vinodkumar & M. Bhasi 95

Basant Kumar & 109Brajaraj Mohanty

A. Veena & H.R. Venkatesha 121

Ashwani K. Varma 133

Sridhar Panda & Rajiv Arora 155

PERSPECTIVE

11. Shaping the Moral Foundation forGlobalization: Lessons from Indian andWestern Philosophy

12. Demand Estimation – Some EmpiricalObservations and their Implications

MANAGEMENT CASE

13. Suhas Gopinath

14. Rural Women’s Marketing Association(RWMA)

15. A Tale of Two Samitis

16. Reliable Iterative Testing Environment(RITE) -a Case of Software DevelopmentModel

17. Gram Utthan - From Micro Credit toMicro Enterprise

BOOK REVIEW

18. Outsourcing : the Definitive View,Applications and Implications

19. Total Relationship Management

Bibhu Prasan Patra 167

P.Mishra 179

Brajaraj Mohanty & 189Rajeev Roy

Debasis Pradhan 203

Niraj Kumar 211Sanjay Mohapatra 217

S.P. Das & Alok Pattanayak 233

Shiva Kumar Srinivasan 245

Jaydeep Mukherjee 249

Evolution of Citizen Charter led Rurale-Governance: A Livelihood Security

Approach to Information SystemsPlanning in Indian Context*

Harekrishna Misra1 & B N Hiremath2

* Received June 23, 2007; Revised August 22, 2007. Authors gratefully acknowledge the assistanceprovided by Gramin Vikas Trust, Dahod, in conducting PRA exercises and for providing logisticsupport. Our special thanks are due to Mr. Arun S. Nathan and Mr. Kalpesh Soni of GVT fortheir support.

1. Professor, Institute of Rural Management Anand, email: [email protected]. Professor, Institute of Rural Management Anand, email: [email protected]

Abstract

Indian rural e-governance initiatives face many challenges. This is not because it involves the ruralinfrastructure, but the complex process of involving the rural citizens. Rural citizens, who lack basiclivelihood opportunities, are laden with survival threats and for them, everything leading to livelihoodsprospects matter much. It is often argued that creation of “services on demand” and “stakeholder-ownership oriented development” initiatives may lead to success. In order to make the interventionssuccessful, it is essential that the citizens themselves identify their issues, prioritize their needs, andmanage their infrastructure and services. In this paper we discuss issues related to stakeholder-ownershiporiented e-governance, design process and its effect on ICT planning for e-governance. We illustratethrough a case about the utility of participatory rural appraisal (PRA) as a tool to involve rural citizensin planning and elicit their priorities for ICT options.

1.0 INTRODUCTION

Information and communicationtechnology (ICT) projects require properidentification of users’ needs. ICT is abundle of hard and soft components,where hard components are technologydriven (system software,communications and power) and the

users do not have any control. Soft issuesrelate to understanding processes,modeling and their automation.Managing the soft issues and technologyenabled processes depend on the users’capability. A synergic effect is possiblewhen the soft issues are supported by theright kind of infrastructure in the supply-

2 Vilakshan, XIMB Journal of Management ; September, 2007

chain. These require a rigorousinformation system (IS) planning (Wardand Peppard, 2002). Identifying the righttypes of services with users’ perspectiveis important to make an ICT initiativesuccessful (Jokela, 2002). While there isphenomenal growth in ICT-enabledprocesses, decrease in cost of computing,increase in acceptability of e-business, e-commerce and m-commerce activities;failures plague the projects. Despitehaving a good method, many projects faildue to its less usability. There is agrowing concern over evaluating,managing, and measuring effectivenessof ICT infrastructure created (Lycett,Macredie, Patel and Paul, 2003).

Indian rural e-governance initiatives aremore complex but face analogoussituations. This is not because it involvesthe rural infrastructure, but the complexprocess of involving the rural citizenswho are expected to be the largerbeneficiaries. Rural citizens, who lackbasic livelihood opportunities, are ladenwith survival threats and for them,everything leading to livelihoodsprospects matter much. Alike e-business,e-commerce applications, e-governancerural initiatives need to be citizen-centric.It is important for the policy makers todirect the ICT initiatives for addressingnot only the feasible business practices(e-business, e-commerce etc.), serviceoriented opportunities (e-governance, e-government etc.), but also integrate the

demand based services for these citizenwith focus on livelihoods opportunities.Unless directed towards creating“services on demand” and “stakeholder-ownership oriented development”initiatives, the projects taken up forintervention may not guarantee success.In order to make the interventionssuccessful, it is essential that the citizensthemselves identify their issues, prioritizetheir needs, and manage theirinfrastructure and services. The supportof government, non governmentalorganizations (NGOs), etc., shouldmonitor the infrastructure set up for thepurpose. However, these projects needto evolve through demand-drivenapproach.

Evolution precedes revolution and inrural development/ governanceinitiatives, evolution is possible throughcitizens’ participation. ICT basedgovernance/development paradigmsrecognise citizens’ participation to bemore important and in Indian context itis very relevant. (Prabhu, 2004;Bhatnagar, 2004; Satyanarayana, 2004).

In this paper we discuss the concept andimportance of user-led IS planning,design process and its effect on ICTplanning. We consider rural citizens tobe the end-users. We illustrate the utilityof participatory rural appraisal (PRA) asa tool to involve rural citizens in planningIS and elicit the prioritsed demands onICT options. Various IS metrics are

3Misra et.al, Evolution of Citizen ...

accentuated to enumerate these ICToptions. Through a case, we discuss howmigration information centres (MICs)could be planned through the PRAtechniques which support the livelihoodperspectives of the citizens. We alsonarrate how these centres cater to theirlivelihood security, purposeful IS plancould be initiated an a simple ICT optioncould be adopted to help implement theIS planned. Moreover, we also discusshow this exercise could bring in thecitizens’ perspectives and transform themto action. We conclude the paper with ananalysis of the findings and provide anindicative direction to further research.

2.0 CITIZEN-LED ICT INITIATIVES

Rural ICT initiatives based on variousbusiness and governance models, are stillevolving (Bhatnagar, 2004; Misra andGachhayat, 2004; Prabhu, 2004;Satyanarayana, 2004). These initiativesare critically influenced by poor ICT andrelated infrastructure such as electricity,education, transport etc. It is therefore,essential that any rural ICT initiative inIndian context should primarily be ledby the rural citizen (the user) with theactive support of agencies involved.

3.0 CITIZEN-CENTERED DESIGN PROCESS

User-centered designs (UCD) is onemajor area of current research and in thispaper the rural citizens are defined to bethe end-users. UCD practices are aimedat understanding the users, theirperception and incorporating them in theproduct/service delivery.

5. Evaluate against User requirements

1. Plan User centered Processes

2. Specify the context of Use

3. Specify User Requirements

4. Produce solutions

User Acceptance

Exhibit 1 UCD Framework

ICT initiatives for rural developmentcan also therefore, be mapped with thisperspective. Normally, UCD (Jokela,2002) practices are described throughISO13407 as shown in Exhibit-1. Theexhibit suggests that any ICTapplication should be user centered andfor effective utilization theirperspectives need to be mapped. Thisis possible if users demand theirservices and make useful contributionsduring design and development. Itwould ensure an effective solution tothe user expectations leading to itseffective use.

Citizens’ acceptance is a major concernfor success of rural ICT initiatives. Thecitizens neither have exposure nor abilityto evaluate any attribute described inExhibit-1. Presently the initiatives areconceptualized, put as pilots and then


used without citizens’ activeparticipation. Innovations are necessaryfor harnessing experiences gathered, andthen evolving initiatives to scale up. ICTinitiatives need careful consideration ofthe factors responsible for successfulscaling-up and one of these is “UserAcceptance” (Lamb and Kling, 2003).The user acceptance model forinformation technology (Venkatesh,Morrish, Davis and Davis, 2003) ispresented in Exhibit-2.

Individual reactions to

use ICT

Intention to use ICT

Actual use of ICT

Exhibit 2 Concept of User Acceptance

It is essential to understand citizens’needs to consider ICT options for incomegeneration and other desired services.The chosen ICT options should showcasethe possibility of scaling up. Presently,Indian rural ICT interventions arefocused on e-governance, and e-government perspectives (Satyanarayana,2004; Bhatnagar, 2004) with a view toproviding citizen centered services.There are also other models withbusiness perspectives like ITC e-Choupal(Sivakumar, 2004), and composite kioskbased services (Misra and Gachhayat,2004). However, moderate acceptance ofthese models is due to lack of concertedeffort to map the citizen prioritiesrendering these initiatives to remainsupply-driven. Without a strategy toconvert these supply-driven projects todemand-driven it is unlikely that suchprojects would succeed during scaling-up.

Citizen-Led IS

Projects

Agency-Led IT

Projects

Exhibit 3 ICT Projects for Rural Development

Demand on Supply ofICT Services ICT Services

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Citizens’ acceptance determines the scopeto transform the initiatives to be“demand driven” (Bhatnagar, 2004).Citizen-led IS planning has potential tocreate a good demand for ICT services(Exhibit-3) as compared to agency-ledinititaives. Effectiveness of projects/programmes is determined byresponsiveness, community-rootedness,frontline acceptability, respectful trust,relationship, and usability. This willhappen only if the projects are citizen-led.

4.0 ICT AND DEVELOPMENT INITIATIVES

Rural ICT initiatives, especially throughe-governance, e-government, and e-business models, have hastened thedevelopment process (Bhatnagar, 2004).There is evidence that ICT can be appliedfor enhancing opportunities for rurallivelihood, generating employment,provide business opportunities andrendering ICT enabled services such ase-health, e-education etc. (Prabhu, 2004;Misra and Gachhayat, 2004). However,these ICT initiatives are not free fromchallenges. The digital-divide syndrome,which was primarily perceived as aproblem rather than one of the symptomsled to poor design of the ICT initiativesacross the world (Greenberg, 2005). InIndia, despite having ICT policies, theproblem is still mounting and there is nosign of a sustainable solution to thecomplex problem of rural development(I4D, 2005). The challenge to garnerbenefits of ICT as a tool for developmentprocess is not by its automaton, but by

aiding the process - since automationmight lead to unemployment (Greenberg,2005). Besides, deployment of ICTinfrastructure in rural areas is notcommensurate with the perceivedbenefits (Bhatnagar, 2004), thusrestricting their usability in the rightcontext (I4D, 2005). Another set ofchallenges that Indian ICT initiatives face,are organizing an affordable, scalable andself-sustaining ICT infrastructure toprovide services for income generation,e-government and conducting businessin a convergent manner. The challenge istherefore, to revisit the developmentprocess in the context of ICTinterventions and explore possibility ofcitizens’ participation (Misra, Hiremath,and Mishra, 2006). The UN global e-government readiness survey 2005 (UN,2005) and National e-governance plan(Kochhar and Dhanjal, 2005) recommendactive participation of rural citizens witha view to improve the e-governmentservices and their acceptance.

5.0 CIT IZENS’ PARTICIPATION FORSUSTAINABLE LIVELIHOODS BASEDICT INITIATIVES

There have been two distinctiveapproaches to citizens’ participation indevelopment projects; one is the classicaltop-down approach where thedevelopment agency identifies projectsand invites the community to participateand the other is for the citizens to identifyprojects and invite a development agencyto form an equal partnership with it todevelop the project. ICT projects use

Misra et.al, Evolution of Citizen ...


these approaches sparingly. However, itis felt that techniques like ParticipatoryRural Appraisal (PRA) are dependablemeans of generating data for gaining anunderstanding of needs, preferences andpriorities within rural communities(Suresh, 2002). They contribute toimproving thinking, analysis, anddecision-making processes related to theproduction, dissemination, and efficientuse of lessons learned from participatorydevelopment experiences.

What is ‘Sustainable Livelihood’?

Livelihood security is yet anotherimportant issue that is likely to influencethe success of rural ICT projects. Thisaspect is very critical for sustenance ofrural citizens and needs some discussion.Sustainable livelihood is a way ofthinking about the objectives, scope andpriorities for development in order toenhance progress in poverty elimination.It is a holistic approach that tries tocapture and provide a means ofunderstanding the vital causes anddimensions of poverty withoutnarrowing the focus on just a few factors.It also tries to delineate the causes andsymptoms of poverty, allowing for moreeffective prioritization of action at anoperational level.

The sustainable livelihoods approachesaim to help people achieve stablelivelihood improvements that theythemselves define. It recognises thatpeople have certain rights andresponsibilities towards each other andto society. Sustainable livelihoods

approaches rest on core principles thatthe activities should be people-centred,responsive and participatory, conductedin partnership with both the public andthe private sector including civil society/non-governmental organizations,sustainable and dynamic.

The sustainable livelihoods approachesdraw on the changing views of poverty.In particular, participatory approaches todevelopment have highlighted greatdiversity in the goals to which peopleaspire and in the livelihood strategiesthey adopt to achieve them. Povertyanalysis has highlighted the importanceof assets, including social capital, indetermining well-being. The importanceof the policy framework and governance,which have dominated muchdevelopment thinking since the early1980s, are also reflected in sustainablelivelihoods, as is a core focus on thecommunity. Community-levelinstitutions and processes have been aprominent feature of approaches tonatural resource management and arestrongly emphasised in sustainablelivelihoods approaches, though the stressis on understanding and facilitating thelink through from the micro to themacro, rather than working only atcommunity level.

A livelihood intervention is a consciouseffort by an agency or an organisation topromote and support livelihoodopportunities, usually for a large numberof people. Livelihood intervention ismore than income enhancement. It is

7

about increasing economic power of thepeople. It is facilitating asset creation,capacity building, and access toopportunities. It is building securities. Inshort, livelihood interventions aim atreducing their vulnerabilities andpromote livelihood security.

Food and Livelihood Security

Livelihood security has to be understoodfrom the people’s perspective. This iscrucial, as people’s own perception oftheir food and livelihood securitydetermines their decision-makingbehaviour. People’s perception of theirfood/livelihood security provides a one-to-one correspondence with technologyadoption, participation in communitybased organisations, health, educationalprogrammes, etc. Therefore, foodsecurity is a subjective concept; definedby an individual farmer’s own perceptionas to whether he/she has been able tosupport the family’s food and fodderrequirements for a year from all resourceshe/she owns, controls and manages.

For most households, the food producedon their land does not feed the familyfor the entire year for many reasons. Themagnitude of food shortage varies fromfamily to family in a given year and fromyear to year for a given family.

Social and Cultural Aspects of LivelihoodSecurity

Other than food, households have toprovide for social and culturalexpenditure. Many of these expendituresare either associated with celebrating

several transition stages in the life of anindividual or with the transition stagesin natural climatic seasons that determinefarming operations. Marriage is one ofthe major social events and involvesconsiderable expenditure. Dowry iscustomary among many social groupswhile ‘bride-price’ is common amongsome tribes. This is seriously erodingfamilies’ ability to make productiveinvestments in many cases and adverselyaffecting attainment of livelihood securityin quite a few cases. How do we accountfor the importance given to dowry/bride-price often at the cost of other‘productive investments’ in agriculture orjeopardising their livelihood security? Itsimply means the cultural and socialaspects at times assume far moreimportance than their concerns for food.Thus, livelihood security ismultidimensional that encompasses foodand nutritional security, financialsecurity, social, and cultural security, andemotional security, among others.

6.0 PARTICIPATORY RURAL APPRAISALAND LIVELIHOOD SECURITY

Each village and household has itsproblems, preferences, strength as wellas priorities and PRA exercise capturesthese in a participatory mode asexplained in previous section. Throughthe PRA exercise, various common issuesrelated to village, household andindividuals are listed. These abstractedversions are the metrics and they formas the basic input for measuring thedeliverables of the IS planning process.



The metrics are supported bymeasurement criteria set by the citizenthemselves to determine its criticalsuccess. Metrics developed by thevillage, household and individuals in avillage are studied by agencies involvedin addressing the issues gatheredthrough PRA. While exploring options,the critical success factors are listed forconsideration. During PRA exercise aseries of options are generated forinterventions and providing services tocitizens as well as augment infrastructure.Besides, measurement criteria are alsoindicated by citizens. Agencies involvedin development process therefore, areequipped with the required indicators forinterventions, and measuring the possibleoutcomes. ICT enabled services at thisstage are selected and provided. PRAexercise is a continuous process (Suresh,2002). The feedback is therefore, animportant factor for evaluating theinterventions and this needs anotherpossible PRA exercise.

There are several constraints inconventional methods of gatheringneeds. These constraints are high cost,time consuming, questionable accuracy,and lack of stakeholder participation.Often quantitative information generateddoes not explain real life situations andthe local knowledge is not utilized ininformation processing. PRA methods areessentially a process of learning aboutpeople’s conditions in an intensive,iterative, and expeditious manner(Chambers, 1992). These techniques areadopted to achieve increased accuracy at

low costs both in terms of time andmoney to identify the citizens’ needs.

Development projects need relevant andgood quality information. By definition,development interventions are orientedto changing people’s lives. They attemptto target those who are marginalized andvulnerable to disruptions. Projects aredesigned based on information about thepeople in question, their needs,conditions, and concerns. Whenorganizations base their actions oninsufficient or faulty information, theresult is a misplaced intervention that haslittle correspondence to the needs thepoor. Such projects may actually have anegative effect on poor as they underminetraditional practices or cause localcommunities to invest their scarceresources in unviable activities.Vulnerable populations may actuallybecome more destitute as a result of suchpoorly informed interventions.

Until recently, top-down methods weredominant in which most essentialdecisions were made by “specialists” (asopposed to community members) aboutwhat issues to be addressed and how theinformation will be used. The localpeople’s role is generally limited toanswering questions that are designed byoutsiders. Today, the methods havebecome more participatory as local peopleplay a greater and more active role in theinformation gathering process.Responding to a questionnaire is one ofthe most limited forms of “passive”participation. A more active type of

9

participation involves diagramming orparticipating in more open endeddiscussions. Both of these types ofinteraction allow local people to expresstheir own concerns rather than merelyresponding to outsiders’ questions. A stillhigher level of participation is attainedwhen villagers set the agenda for thestudy, define the questions, gather theinformation, and are integrally involvedin the analysis and use of the information.If, the objective is getting the local peopleto become more involved in decisionmaking, then the participatory aspectbecomes vitally important. The more thatcommunity members are activeparticipants the more likely that they willfeel a stake in the process and, the morethey feel a stake in the process, the morethey will be motivated to take on greaterresponsibilities in decision making andleadership.

Thus, people’s participation is vitalrequirement in improving the quality ofrural service delivery. But where qualityis perceived simply in terms of technicalfeasibility, financial viability, riskassessments and managerial complexity,ignoring direct and serious peoples’participation in the planning process, thequality of rural service delivery becomesdoubtful. Competent decisions andaccountable performance is required froma range of stakeholders, some of whomhave been systematically alienated in thepast by conventional approaches toplanning. The main concern ofparticipatory approach is to facilitate rural

service users identify their needs, rankoptions among competing possibilities,and assemble these in the form ofcommunity plans for action and thinkingthrough solutions.

Participatory approaches address someof the lacunas of the past and assist ineliciting people’s own analysis of theirpoverty and wellbeing provides a deeperunderstanding of dimensions of povertyother than mere income and consumptionindicators. They are useful inunderstanding complexity andmultiplicity of peoples’ livelihoodstrategies, barriers to their participation,social exclusion, and assessing socialcapital of different groups differentiatedby gender, age, caste, ethnicity andliteracy. One of the key expressed goalsof such techniques was to make PRAaccessible to the illiterate and others whomight be left out of traditionalinformation gathering processes. PRArelies, to a great extent, on mapping,diagramming and public dialogue aboutcommunity problems and issues. An in-depth and situation bound nature ofparticipatory approaches can provideinsights for policy and practical actionswith high benefits for poor people intheir own terms. The process ofparticipatory approach emphasizes thelinking of information from communitiesto broader policy dialogue withcommunity based organizations (CBOs),NGOs, local and national governmentofficers, academics, donors, among otherstakeholders.



PRA tools and techniques are extensivelyused by development practitioners andaction researchers. In this paperhowever, we have made use ofparticipatory tools and techniques tomake the IS planning process demand-driven (thus evolving). This also has beenused for ranking the livelihood securityoptions which helps in assessing the ISmetrics.

7.0 CITIZENS’ INFORMATION SYSTEMSPLANNING: THE CAUSAL FRAMEWORK

In this paper we consider PRAmethodology, with livelihoods securityperspective as discussed in previoussection, a tool to initiate rural citizencentered design process. A priortisedcitizen charter at village level isconsidered as a foundation to IS planningprocess and this evolves dynamically.Through the PRA exercise we expectinvolvement of rural citizens in elicitingtheir view points leading to a metricsbased measurement system which is animportant stage for ICT acquisition lifecycle (Pandian, 2003). The goal-question-metrics (GQM) methodology (Basili,Caldiera, and Rombach, 1994) stronglyfits into the deliverables of PRA exercisesince it quantifies appropriatedeliverables through metrics and thesemetrics are related to the long termaspirations of the rural citizens. Aframework is presented in Exhibit 4,which discusses the causal flow amongvarious stages of the developmentprocess involving stakeholders andeliciting various ICT options that can be

generated for interventions. This exerciseis termed to be evolutionary since themetrics are generated and prioritised bythe citizens themselves.

As explained in exhibit 4, PRA based ISplanning exercise needs to be conductedthrough the active participation ofcitizens. Usually in Indian context,villages are taken up for PRA exercisesince villages provide common resourcesfor livelihood, agriculture, irrigation,education, communication, power,transport etc to the rural citizen. Besides,each household also owns its resourcesin the villages for sustenance. Eachhousehold and village receivesinfrastructure oriented benefits andservices from the government. All theseresources form the basis of support forthe village and household. IS planningexercise therefore, is aimed to elicitresponses from the citizens fordevelopment of these resources,providing access to information andsupport services available foraugmentation of these services andprioritizing them.

Resource PRA

Exercise

Citizen Metrics

IS Planning

Interventions and

Measurement ICT Options

Intervening Agencies

Exhibit 4 PRA Based IS Planning Framework

11

PRA Tools and Techniques for IS Metricselicitation

PRA tools as discussed above are usedfor involving rural citizen to shareinformation on common as wellindividual resources, their problems,expectations, and limitations in earningtheir livelihoods which is the mostimportant issue before them. Theydepend mostly on resources available in

the village, support received fromagencies like government, NGOs andCBOs. In most cases these supports arenot commensurate with theirexpectations leading to deprivation inearning a sustainable livelihood. Theirexpectations are captured through PRAprocess which attempts to deliver certainmeta-measurable indicators the citizensconsider to be important.

Exhibit 5 Citizen Metrics Elicitation through PRA Tools

Inputs PRA Process PRA Deliveries Remarks

Delivery Metrics

• Village Resources

• Individual Resources

• Agency Supporto

• Governmento

• NGOo

• CBOs

Focus GroupDiscussions

T i m e - L i n eAnalysis

• CommunityResourceMap

• VillageResourceMap

• FoodSecurity

• EducationSecurity

• HealthSecurity

• Infrastruc-ture andService

D e s c r i b e sp r e s e n tscenario of thec o m m u n i t ydevelopmentplan and itsimpact

Venn Diagram

Problem Tree

Social Map

MappingLivelihoodDeprivationCauses

• SocialSecurity

• EmotionalSecurity

• Develop-mentMetrics

D e s c r i b e sprioritization ofthe socialproblems ands o c i a lstress.OrganizingDevelopmentOptions andPrioritization

In exhibit 5, we have consideredresources available to villages as inputssince these provide a guiding conditionto the villagers to determine theirlivelihood options. Through PRAmethods we have adopted various

processes such as focus groupdiscussions, time-series analysis, Venn-diagram and problem-tree analysis toelicit various attributes of themanagement of village resources, socialfabric of the village. Mostly these factors



contribute to the livelihood securitymetrics such as food, education, healthas well as related infrastructure. Throughthis table we align livelihood metrics withthe deliverables of PRA methods. Wethen consider all these metrics as a vitalinput to the IS metrics which can be usedin IS planning process.

IS are logical reflections of the physicalprocesses and their behaviour (Fentonand Pfleeger, 2002). It also advocates foran ownership. Behavioural analyses areimportant characteristics of any processand they are mostly measured throughagreed attributes. Understanding of theattributes is initiated through certainmeasurable terms which are identified asmetrics. The metrics normally evolvewith the process and their maturitybrings in a measurable behaviour of theprocess thus leading to measurablemetrics. IS practices with metrics providean interface between the physical processand information communicationtechnology (ICT) orientated processes(Kan, 2002). Options for ICTinterventions need to be carefully chosenon the basis of their strength andweakness. ICT as a technology is seen asa process improvement tool and this ispossible through an IS-ICT alignmentexercise (Weill and Broadbent, 1998;Lamb and Kling, 2003). The alignmentexercise looks for the requirements of aprocess (process metrics), lists possibledeliveries through the systemic approachbeing made (IS metrics) and provides ascope to leverage the strength of ICToptions through an analysis of each

option (ICT metrics) (Pereira and Sousa,2005).

Strategic IS-IT alignment modelsadvocate a metrics based approach forsuccessful alignment among processesand IS; IS and IT (Henderson andVenkatraman, 1993; Luftman, 2003). ICTinterventions effectively contributetowards managing transactions,organized process, and bringing anoverall improvement in informationdissemination (Bergero, Raymond andRivard, 2004; Pereira and Sousa, 2005).Therefore, it is imperative that prior toorganizing ICT resources, informationsystems with feasible demand drivenmetrics are developed.

In exhibit 6, three metrics drivendimensions of alignment exercise arediscussed. We consider livelihood metricsas an important factor in the lives of ruralcitizens which are very critical for theirexistence. Any IS-IT alignment exercisethat ensures a support to their livelihoodprospects would eventually attract theirattention leading to acceptance andeffective use. In exhibit 6, we haveconsidered the goal of rural citizens tobe “sustainable livelihood security”which is influenced by various securitymetrics to include food, education,health, infrastructure, social andemotional and their overall development.These largely contribute to their qualityof life and livelihoods prospect which canbe verified through PRA exercise. Themetrics thus developed (exhibit-5) areused in exhibit 6. The IS metrics consider

13

“transactions”, “processes” and“information elicitation” to be majorattributes to its success. For example,food security is the most valuable metricfor rural citizens. It leads to transactionsin “financial” and “labour” markets. Theprocess is “income generation” since itsupports the food security. Informationrequired to carry out the process areopportunity, policy, market, agenciesinvolved and cost of access to suchinformation. Thus in all ICT options needto support these IS metrics. Each factorof IS metrics is explained below withrespect to ICT metrics.

Transactions and Rural Citizen

In the context of feasible and dynamicrural livelihood options, the rural citizensare subjected to transactions with variousmarkets such as labour, land, water,financial (institutional and non-institutional), input and output,information etc. These dynamic sets of

transactions make their informationsystems complex. Two of the majorattributes of a transaction are its “life-cycle” and “mode”. These two attributesprovide an indication as to how effectivethe transactions are and therefore, helpin considering ICT options. Besides theseattributes, the interfaces between thetransaction owner (the rural citizenwhose literacy level determinesappreciation of the technology) and theprocess(es) through which thesetransactions are carried out providechallenge to make a transactionsuccessful. Though there are enough ICTtools to make this interface happen, it isdifficult for the rural citizen to appreciateif the transactions do not directly benefittheir livelihoods. It is therefore, essentialthat the transactions are demanded bythe citizens and served by the agenciesas per agreed terms. These demands canbe effectively elicited through PRAexercises.


Exhibit 6 Metrics Based IS-IT Alignment Strategy

Demand Driven Goal IS Metrics ICT MetricsCitizen Metrics

Trans Process Infor Trans Process Infor actions mation actions mation

Food Security • Finan-cial

• Labour

• Incomegenerations

• Oppor-tunities

• Policies• Market• Agen-

cies• Cost

• Modes• Time• Loca-

tion

• Qual-ity

• Inter-faces

• AccessCost

• Agen-cies

• Poli-cies

• Mar-ket

• Cost

Sust

aina

ble

Live

lihoo

dSe

curi

ty


Demand Driven Goal IS Metrics ICT MetricsCitizen Metrics Trans Process Infor Trans Process Infor

actions mation actions mation

EducationSecurity

• Finan-cial

• Knowl-edgeShar-ing


• Lit-eracy

• Oppor-tunities


cies• Cost


tion

• Qual-ity

• Inter-faces

• AccessCost

• Agen-cies

• Poli-cies

• Mar-ket

• Cost

Health Security • Finan-cial

• ExpertSer-vices


• Mor-tality

• Oppor-tunities


cies• Cost


tion

• Qual-ity

• Inter-faces

• AccessCost

• Agen-cies

• Poli-cies

• Mar-ket

• Cost

Infrastructureand Services

• Finan-cial

• UtilitySer-vices

• In-comegenerations

• Con-ver-gence

• Oppor-tunities


cies• Cost


tion

• Qual-ity

• Inter-faces

• Agen-cies

• Poli-cies

• Mar-ket

• Cost

Social Security Subjective Assessment of IS Subjective Assessment of ICTMetrics Obtained Metrics Obtained

Emotional Subjective Assessment of IS Subjective Assessment of ICTSecurity Metrics Obtained Metrics Obtained

Development Evaluation of IS Metrics, Citizen Evaluation ofMetrics Options and its Prioritization ICT Metrics, Options and its

by Rural Prioritization by ServiceProviders/ Agencies

Processes and Rural Citizen

In order for having effective transactions,processes with certain measurable metrics

need to be in place (Ould, 1995; Weill andBroadbent, 1998). These processes beingcitizen-centric, need to be well defined

15

with their deliveries. For example,income generation is a process andvarious options do exist before the ruralcitizen. However, success of incomegeneration process should be evaluatedwith possible metrics such as incomelevel, migration, expenditure oneducation, health, socio-cultural events,etc. It is possible to generate thesemetrics through a PRA exercise as wellsince it recognizes the role of eachidentified process through the goalsetting exercise.

Information and Rural Citizen

Rural citizens face myriad of problemsassociated with poverty, deprivation andrelated socio-economic issues. One of themajor attributes for such problems is“lack of information”. Information onresources, support services related tolivelihood goal and goal related citizenmetrics (vide exhibit 5) is essential for therural citizen. Accessing information withminimized constraints is a problem thatrural citizens encounter. ICT helps inminimizing these constraints throughright sizing the information-processingenvironment with a proper informationstructure (Bergero, Raymond andRivard, 2004). PRA helps in recognizingthe demand for information andtherefore, provides a support forpreparation of information structure. Forexample, income generating option forsupporting livelihood needs a complexand dynamic approach such as tracingvarious markets, locating demand, andreaching these sources. Collating these

options with a right context and makingit available to the rural citizen in theirown understandable terms are easier saidthan done. Here, ICT options can beevaluated depending on theinfrastructure available such ascommunication, data transfer, dataaccess, power, applications such asinformation portal and maintaining thesesources on a sustainable basis.

8.0 LIVEHOOD SECURITY MANAGEMENTTHROUGH ICT: A CASE STUDY

The natural, physical, and social assetsplay a vital role in people’s livelihoods.Yet, there has been a steady erosion ofthese assets. In rural areas, ecologicalproblems such as deforestation haveplayed havoc in peoples’ livelihoods inmany ways. Climate change, soil erosion,water depletion, habitat loss, energyoveruse and species extinctions are allsymptoms of economic process thatdepletes resources. With increasingpressure on land, individual householdshave exploited their resources leading tounsustainable livelihoods. If the goal ofdevelopment is to build sustainablelivelihoods, the very people whodepleted the resource base have to beinvolved in problem identification,analysis, prioritization, planning,implementation, monitoring, andevaluation of development projects. Thiscalls for the bottom-up participatoryapproach.

Dahod district in Gujarat State isinhabited predominantly by the tribalpopulation. Agriculture is their main



source of their livelihoods. Majority ofthe farmers belong to the small andmarginal category. The average landholding is 2.12 acres per household,which is extremely low considering thefood requirement of a household. Nearlyall farmers grow a single crop of maizeduring Kharif season. The rains areinadequate in two out of five yearsleading to food insecurity. Withincreasing population pressure on landand land degradation over time, it hasnot been able to provide food andlivelihood security to rural households.Whatever food they produce, feeds thefamily for 8-9 months of the year.

We took a case study based on theframework and explored various ICToptions through the PRA exerciseconducted by Gramin Vikash Trust(GVT), an NGO, in this district. Duringthis exercise it was evident that“sustainable livelihood security” is amajor concern for the rural citizens in thearea. Based on the application of GQMprinciples on the PRA exercise conductedin the village provided an insight to thepreferences of the citizen services. Thegoal of most of the citizen in the villageis “sustainable livelihood security”. Weanalyzed the goal and understood thatcitizen have their measurable preferencesto meet their goal. These are termed asthe “metrics” and listed as “foodsecurity”, “health and sanitation facility”,“education facility”, “financial security”,“social security”, “cultural security”.Among these metrics we took two mostimportant metrics as chosen by the

citizen which are “food security” and“health security for them as well as theiranimals”. In exhibit 7 we discuss variousmeasurements that citizen attached toeach metric to understand the existenceof these facilities to verify these metrics.Further, all these measurements areexamined with possible ICT options thatcan be used for interventions so as tomeasure the metrics identified. Forexample our observation that “foodsecurity” is the first priority among therural citizens followed by “live stocksecurity” and the last in the scale is“health security”. Food security as perthe rural citizens is characterized throughmeasurements of “self-sufficiency onfood”, “migration for supplementingfood”, “availability of work opportunitylocally” and “access to input and outputmarket”. These measurements indicatethe possible IS metrics and ICT metricsas explained in exhibit 6 throughtransactions, processes and information.These also explain that e-governmentapplications would carry great deal ofacceptance to enhance their livelihoodwhich can facilitate “transactions”,“processes” and “information”.

Exhibit 7 illustrates our observation that“food security” is the first priorityamong the rural citizens followed by“live stock security” and the last in thescale is “health security”. Food securityas per the rural citizens is characterizedthrough measurements of “self-sufficiency on food”, “migration forsupplementing food”, “availability ofwork opportunity locally” and “access

17

to input and output market”. Thesemeasurements indicate the possible ISmetrics and ICT metrics as explained inexhibit 6 through transactions, processesand information.

It was understood during study thatscanty opportunities in the village,inability of available village resources aswell as poor government support, mostof the villagers face very low “incomegenerating opportunities” leading to

“migration”. Migrants faced manyhardships including humiliation and lossof self esteem. Further investigationswith the people revealed that for majorityof the poor who migrate in distress, thereis very little assurance of employment forthey are unskilled workers. Theyundergo interim periods ofunemployment during their stay in theurban areas, which deplete their meagresavings.


Exhibit 7 Identification of PRA Based ICT Options

Goal Metrics Measurements Demand on ICT Options Remarks ICTOption

Ranking1

Selfsufficiencyon food

Migration forsupplementingfood

Availabilityof workopportunitylocally

Access toinput andoutputmarket

FoodSecurity

Income GeneratingOpportunities

Demand for Informationon employmentopportunities

Demand for Informationon employmentopportunities fromgovernment and otheragencies

Opportunity onmarketing

Kiosk basedservices forcitizene-Governmentapplications

e-Governmentapplications

e-Businessapplicationsand services

Ia

Ib

Ic

Id

Sustain-able

L i v e l i -hood Se-curity

HealthSecurity(Human)

Public HealthService

TraditionalHealthService

HealthEducation

Providing opportunitiesin the village

Rendering services toother Villages

Creating Opportunitiesin the Village;Maintaining Records

e-HealthServices

Nil

e-HealthServices

IIIa

IIIe

IIIb


The poor migrants are also perceived asthieves in the urban areas and so are theyare unnecessarily harassed by the policeand others. Frequently the migrants arecheated at the worksite by contractorswhere and suffer losses of wages due tothe lack of awareness of legal recourse,mechanisms of redress and lack of

documents of the work in which theywere engaged. Migrants lack knowledgeabout travel routes, modes of travel,timings and other details oftransportation increasing their cost interms of time, money, and effort. Themigrants do not have risk compensatingmechanisms like insurance and therefore

Goal Metrics Measurements Demand on ICT Options Remarks ICTOption

Ranking1

ImmunizationServices

Accessibilityto HealthInfrastructure

Providing Informationon Immunization detailsand history

Providing Informationon Doctors, Interactionwith Doctors, Receivingadvice from Doctors

e-HealthServices

e-HealthServices

IIIc

IIId

LivestockSecurity

ClinicalService

Selfsufficiencyon fodder

ArtificialInsemination

Availabilityof Medicine

DairyCooperative

Maintaining HealthRecords

Least Demand

Providing facilities inthe village, access toinformation onavailability

Providing facilities inthe village, access toinformation onavailability

Providing facilities inthe village, access toinformation onmarketing inputs,pricing

e-HealthServices

Nil

e-HealthServices

e-HealthServices

DairyInformationKiosk

IIa

IIb

IIc

IId

IIe

1 Suffix a, b, c, … denotes intra-group prioritization

19

they are deprived of the benefits in caseof an accident.

Therefore, a holistic approach isnecessary to address this critical issue ofmigration. It may not be feasible to stopthe migration entirely because of itscritical support to the socio-economicstructure of the rural citizens. It wouldrather be feasible to look for theopportunities where ICT as aninfrastructure could facilitate migrants interms of establishing a mechanism toprovide information and communicationservices through e-governance networks.

Village Jadha: Embracing Feasible ICToption for Migrants

It is in this context that the study of GVTfound the income through migrationconstituting 65 percent of the householdincome in Jadha village in Dahod district.A group of 22 migrants came forward tosupport idea of GVT to form a“mahamandal” (federation) to addresstheir problems. In consultation with thepeople and mahamandal, GVT envisagedthe formation of Migration InformationCentre (MIC - locally known as PalayanaSuchana Kendras). GVT provided supportfor housing and operating the centre.

Telephony - The Link: Jadha village ispoorly connected by road and is situatedin hilly terrain. GVT therefore, had achallenge to establish a telephone link forthe MIC. The land line option was ruledout because of the topography andwireless in local loop (WLL) wasprocured for the purpose.

The Ground-Work for MIC: GVT thenstarted a multi-pronged approach toaddress the problems faced bymigrants by organizing and increasingtheir awareness of their rights. Itstarted enrolment of migrants,prospective migrants with MIC at anominal fee in order to meet theoperation and maintenance expenses.The MIC provides employment to two“jankaars” , round the clock. GVTconducted exercises for skillidentification of migrants andvillagers; identification of contractorsand possible locations where migrantswork and distributed identity cards tothe members. The basic philosophybehind the formation of MIC was toreduce the costs of migration byproviding communication servicesthrough telephony, loans, informationon jobs, increase the returns frommigration by skill training, easiertransfer of funds; tackling non-payment cases, influence theperceptions of government officialsand urban communities about migrantworkers. MIC therefore, acted assupport for establishing a social andeconomic safety network for thesemigrants. Now, the MIC has addedvarious government related services toits network and provides informationon government supported schemes.

Results of MIC: The MIC in Jadha startedin the year 2000 and its effect on the Jadhahouseholds is noteworthy. Some of theachievements appear in Table-8 throughTable-10.



Exhibit 8 Total Participation and Revenue Generated through MIC

Participation in MIC As on 23/01/06

Total Household/ Population 392/3030Total Registration 461Total Identity Card Issued 509Activities Unit RateRegistration Fee Rs. 5.00 every two yearsIdentity Card Rs. 5.00Message sending / delivery / message through Jankars Rs. 2.00Telephone Call Rs. 2.00Negotiation of Wage 5% of total increased valueWage Realisation 10% of recovered amountExposure visit Rs. 250.00Remittance 2% value remitted (2%)Govt. links 2%Insurance claim 5% of Value

Exhibit 10 Wage* Recovery from Contractors (Case solved as on 23/1/06)

Place of Work Amount Recovered No. of Migrants involved

Baroda Rs. 15,500 36Ahmedabad Rs. 15,000 40

* It is noted that total amount of benefits due to wage negotiations to the migrants is Rs. 3,80,000as on date

Opportunity Ahead

This MIC was introduced and supportedby GVT on a pilot basis to understand

Exhibit 9 Use of Telephony (as on 23/1/06)

Description Total till last month In the month of January 2006 Total

Incoming calls 963 23 986Outgoing calls 651 20 671

the effects and its scope for replication.Today it has spread to nearby 10 villageswith high success rate.

21

This MIC was introduced and supportedby GVT on a pilot basis to understandthe effects and its scope for replication.Today it has spread to nearby 10villages with high success rate. Thesuccess has been noticed by thegovernment of Gujarat and these MICsare now being transformed to clusterresource centers (CRC). Various e-government applications such as “e-Gram” are planned for providingsupport to the villagers through theseCRCs.

9.0 CONCLUSION

MICs have brought in many tangibleand socio-economic supports to theprospects of livelihood security torural households. It is evolutionarysince it is based on participation ofrural citizens; it is sustainable througha transaction cost sharing basis. Theseinclude reduction in migration costs;better communication, networking,employment opportunities; providingemotional, social, cultural, food andfinancial security; resolving conflictwith contractors and bringing inoverall livelihood security. This casedescribes the benefit of a demand-driven model through which a criticalissue like migration could benegotiated and a simple ICT option(WLL connectivity) could provide abetter opportunity to the migrants. Italso described how the supportstructure could be related to the e-government opportunities that

national e-governance plan extends. Itis evolving through demand generatedby rural migrants.

While a supply-driven service throughe-government can be made operationalbecause of the obvious support structureprovided by the government andvarious funding agencies, it isimperative for the policy makers toextensively make use of participatoryrural appraisal techniques to understandand prioritize the demands of ruralcitizens to augment their own livelihoodsecurity through a rightly sized ICTarchitecture.

ICT is strongly believed to be a serviceenabler tool in development process andit is advocated that ICT acts as amedium to poverty alleviation(Greenberg, 2005). In Indian context thepolicies for poverty alleviation areplanned with a top-down strategymaking it “supply driven”. As discussedin exhibit 3, supply driven projects donot generate much demand unless theplanning process involves the citizen.Creating an atmosphere for eliciting therequirements and prioritizing the needsof citizens is a complex phenomenonbecause of the spatial, political, social,religious and cultural dynamics. It istherefore, necessary to balance thesystem that encourages availability ofthe supply driven services with activecitizens’ participation. As illustrated inexhibit 11, the projects need to capturepriorities of the citizens through PRA



exercises leading to a comprehensive ISand ICT plan for the village. All thesupplies need to meet the demands aselicited through this exercise. However,the demands elicited are illustrative in

Exhibit 11 An Assessment Model

Programme, Policy and Schemes

Social and natural

resource in the village

National E-Gov. Plan

VILLAGE

RESOURCES

EVALUAT-ION

PRA

House Hold livelihoods Plan

Demand on village resource

Village IS Plan

Village ICT Plan

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Analysis and Development of A ConceptLevel Framework on Corporate Social

Responsibility*

Som Sekhar Bhattacharyya1

Abstract

Corporate Social Responsibility (CSR) has become a very popular field of enquiry in managementresearch and an equally celebrated piece of action in management practice over the last few decades. CSRhas won a favourable place in the hearts and minds of management researchers and practitioners. But ata very fundamental level, the very term CSR has raised more dust than it has settled. There have beenvarious views on what the concept of CSR stands for. A clear understanding on definitional aspects onCSR is yet to be achieved. For research on CSR to move forward, the chaotic situation on definitionalaspects of CSR should be settled in firm ground. In an attempt to do so, this study reviews the variousconcepts on CSR and synthesizes these to arrive at a simple but holistic framework.

1.0 INTRODUCTION

The institution of business resides in thebroader society and nature. Since timesimmemorial business (dominantlytraders in ancient time) had economicsuperiority over other institutions insociety. So this economically rich sectionof society has always been expected totake care of the poorer sections of society.There have been numerous examples ofbusiness and traders doing social goodby involving in charity and philanthropy.In the last few centuries because oftechnological and managerial progress,

business has become a very dominantinstitution in society (Dicken, 2003).Overthe years the interface between businessand society has been dynamic andevolving. The concept of Corporate SocialResponsibility (CSR) captures the variousthoughts and action on the equationbetween business and society. Thejourney of CSR, in modern daymanagement started in the early 1950swith the protagonist writings of Bowen(1953). The concept of Corporate SocialResponsibility (CSR) has been extensivelydiscussed from 1950s (Carroll ,1999).But

* Received July 3, 2007; Revised August 31, 20071. FPM Researcher, Management Development Institute, Gurgaon, email: [email protected]


since these early days, antagonisticwritings on CSR by none other thanLeavitt(1958 )and the noble laureateFriedman(1970) have raised conceptualquestion on what is CSR.

This paper in the first few sectionsdiscusses the state of confusion in CSRterminology. In the subsequent sectionsvarious concepts on CSR are withmultitude of thoughts are reviewed andthen synthesized to bring out the coreand essential themes on CSR. Finally, thispaper comes up with a simple yetcomprehensive conceptual framework onCSR.

2.0 UNDERSTANDING CSR

The concept of CSR has been debated anddeliberated upon, right from the verybeginning of the concept itself (Carroll,1999; Meehan et al., 2006). A look backat the last forty years of CSR literaturereveals a fierce contest on the issue ofarriving at definition on CSR (Meehan etal., 2006; McWilliams et al ., 2006 ;Windsor, 2006 Leisinger,2005 ; Valor,2005; Acutt et al., 2004; Munshi, 2004;Young 2004; Hill et al., 2003; Ka¨rna et al.,2003; Keay, 2002; Frankental, 2001;Shrivastava and Venkateswaran ,2000 ;Willums, 1998; Pinkston and Carrol,1996). The uncertainity regarding whatCSR stands for transcends the academicboundary and is even present in the realmof management practice (Altman, 1998).Further, there is a clash between themanagement practitioners and theacademic world on CSR. What is CSR asviewed by firm managers might not be

seen as a CSR initiative by the researchers(Leisinger, 2005). Thus, there has beenrise in literature dwelling upondefinitional debates on CSR (Mohr, 1996).

Pinkston and Carrol (1996) had theopinion that since the belief and attitudediffer across societies and further as therelevance of issues in society change intemporal dimension, a singular definitionon CSR could be difficult to arrive at(Shrivastava and Venkateswaran, 2000).Frankental (2001) had even argued thatbecause of the intangible and vaguenessattached to CSR it is actually devoid ofany standard meaning. Thus, sometimesthe definition has been even antagonisticto one another (Hill et al., 2003).This lackof tangibility in CSR has posed difficultyin measurement of CSR actions (Munshi,2004) as well specially in measurementof CSR financial performance (Ullmann,1985; Carby- Hall, 2005; Moir, 2001;Munshi , 2004; Waddock ,2004; Hill et al.,2003; Valor, 2005; Mohr et al.,2001;Zenisenk, 1979; Bowman and Haire,1975;Gavin and Maynard, 1975; Boel andPerry, 1985; McGuire et al.,1988) . Onepopular way is to use financialperformance as a proxy for socialperformance (using social reports). Buteach of the measures developed byresearchers has certain limitations. Eachof the measures developed introducescertain biases and hence causesinconsistencies, while others suffer fromlack of generalization characteristics(Aupperle et al., 1985; Graves andWaddock, 1994; Miles, 1987; Wolfe andAupperle, 1991; Wood, 1991). So there are

27

no absolute, well accepted measures ofCSR output (Munshi, 2004). Thus CSRresearchers and practitioners agree on thepoint that CSR is an extremely difficultconcept to measure.

Thus, one can very well conclude that thedefinitional aspect on CSR still needs tobe settled since due to the definitionalconstraints theoretical progress has beenimpeded (McWilliams et al., 2006).Besides, answers to definitional aspectswould also help in developing validmeasurement instruments on CSR.Accordingly, this study has becomerelevant.

3.0 CSR AND MANY OF ITS SIBLINGS(TERMS).

The lack of a singular universal definitionon CSR is further complicated by the factthat the canvas of Business and society ispainted with various other terms!(Waddock, 2004; Munshi, 2004). Theseterms like Corporate social responsibility(CSR,CSR1) ,Corporate socialresponsiveness (CSR2) , Corporate socialperformance (CSP) ,Corporatecommunity involvement (CCI) ,Corporate community relations (CCR),Corporate citizenship (CC),Businesscitizenship (BC) , Global BusinessCitizenship (GBC) etc (Waddock, 2004;Munshi, 2004) have flooded business andsociety literature.The number of terms inthis relatively new field is amazing (Valor2005). This has also created ambiguity inits own way. It has been seen thatsometimes the same authors use the termwith various meanings in different

studies or in the same study (Carroll,1998; Valor 2005). CSR has been equatedwith terms like CC and sustainability(Young 2004), and often these terms havebeen used interchangeably with eachother (Acutt et al., 2004). Thus CSR is oneof the many terms though it is thepreeminent one.

So one can be certain that not only thereis no one definition of CSR but there is apresence of many sister terms to defineand explain the philosophy CSR attemptsto portray. Further, authors use theseterms often interchangeably. The realityis that all these terms attempt to dealwith the construct of business and societyin their own way, each being littledifferent from one another. The CSRconcepts domain is like a battlefield withmany sisters and similar terms posingagainst each other to grab the sacredpiece of land (hearts and minds ofresearchers). In this study only thepreeminent term CSR will be reviewednot the other terms. This review is donein the next section.

4.0 ANALYSIS OF THE CONCEPTS ON CSR

Business responsibility towards thesociety is an important theme in thecontext of business and society. In thepresent day scenario the importance ofcorporate responsibility towards societyfurther increases as nationalgovernments are playing an increasinglyrole towards community problems,social ills and environmental challengesfacing society (Cooper, 1998).Sethi andSteidlmeier, (1994) had viewed a pivotal

Bhattacharyya, Analysis and Development ...


role of CSR in the socio- economicprogress of society and they had alsoexpected that both business and civilsociety institutions agree on the socialchallenges to be addressed and cooperateto attain the same for a better world fortomorrow. CSR comes at many levels.Wood (1991) had analyzed CSR at threelevels

• Institutional social responsibility ( forprofit organizations to earn profit asits primary duty)

• Organizational social responsibility(firms to take responsibility for socialand environmental wellbeing).

• Individual social responsibility(individual firm managers to actmorally).

The level of analysis adapted in thisstudy is primarily at the organizationalsocial responsibility level, but shades ofother levels are also present as it isdifficult to segregate the three levelsentirely because of the associatedinterdependence amongst the three levels(Wood, 1991).

4. 1. CSR and Ethics

One of the earliest thoughts on businessand society came from Bowen in 1953.Bowen had prescribed that managers offor profit organizations should framesuch policies (and decisions), andundertake such actions which are withinthe boundary of the norms and values ofthe society (Bowen, 1953). One of the bigimpact conceptualization of CSR came in1979 from A. B.Carroll in the seminal

paper “The Pyramid of Corporate SocialResponsibility” .He conceptualized CSRas encompassing four responsibilitieseconomic, legal, ethical, andphilanthropic. The economicresponsibility expectation tells businessesto be productive and thus be profitable.The legal responsibility of businessesexpects that firms perform the businessactivities within the legal and regulatoryframework. The third responsibility ofbusiness captures the notion of ethics. Asviewed by Bowen, Carroll alsoprescribed to run business within the setof socially allowed set of values andnorms(depending upon cultural andreligious setting). The fourth and the lastresponsibility, philanthropicresponsibility deals with the expectationthat businesses proactively address andsolve the problems and challenges facedby society (Carroll, 1979).Thephilanthropic responsibility can also beseen as a discretionary expectations of thesociety from business (Schwartz andCarroll 2003).Another eminent businessand society scholar Prakash Sethi (1979)around the same time had alsoconceptualized CSR along ethical , legaland social responsiveness dimensions.Social responsiveness is the proxy to thephilanthropic or discretionaryresponsibility of Carroll ( 1979). Thisaspect will be discussed little later in thisstudy.

According to the view of Andrews(1971), one of the first strategyacademicians, social responsibility isdemonstrated by corporate action which

29Bhattacharyya, Analysis and Development ...

doesn’t harm or hurt others regardlessof how profitable that activity can be forthe firm. This explanation by Andrewshighlights that those corporate activitieswhich are profitable but injures societyare not to be tolerated. Sandra Waddock,(2004) viewed corporate responsibility asthe extent and nature of firm (ir)responsibility reflected by a firm’sstrategies and operations.

Firms have responsibility towards itsstakeholders for any of its actions (goodor bad). Waddock (2004) is of the viewthat a firm cannot ignore itsresponsibilities. So if a firm in the nameof even CSR harms any stakeholder itwill represent irresponsibility, notresponsibility. On similar lines anexhaustive explanation of CSR wasprovided by Frederick and hiscolleagues in 1978. According to them,a firm ought to be held responsible forany of its action that affects communitiesand environment. CSR represents thevery essence of this. CSR implies that thenegative impacts of business on peopleand society should be acknowledged andcorrected. CSR calls for sacrificingprofits, if the very nature of earningprofit injures other stakeholders(Frederick et al., 1978). The ethical wayof conducting business is also echoed bythe Prince of Wales Business LeadersForum which describes CSR as businesspractices based on ethical values andrespect for society and environment(Aaronson, 2003). Similarly Business forSocial Responsibility (BSR) declares CSRas doing business which is not only

linked to social and ethical values butto exceed it (Aaronson 2003). Thusrepeatedly the ethical dimension of CSRhas been championed and ethics has beenseen as the backbone of CSR activities.

So the normative school can be satisfiedif we say that any firm activity shouldnot break a legal framework or shouldnot harm any stakeholder intentionally.The moment the firm management comesto know that by a business activity evenone stakeholder is injured and harmed,the firm management should stop theactivity or modify the activity in such amanner that the harm impact componentis addressed and mitigated. This ethicaldimension of CSR has been a dominantdimension and fundamental feature ofCSR.

Another point which needs to bementioned here is that from early daysin CSR researchers had agreed that CSRactivities to be within the boundary oflegal requirements (which seems quiteobvious) .Both Sethi’s (1979) and Carroll’s(1979) conceptualizations on CSR had alsoindicated that any firm activity (includingCSR activities) should comply to legalrequirements (law of the land). BSR alsoin its statement on CSR talks not only oflegal compliance but also to promote suchpractices, which exceeds beyond legalcompliance (Aaronson 2003). Thus CSRis something, more than just complyingwith regulatory bindings (Ka¨rna et al.,2003). So ethics has an integral andfoundational root in CSR, while legalcompliance is a necessary though not a


sufficient condition for an activity tobecome a CSR activity.

Way back in mid 1970s Ackerman andBauer (1976) had seen CSR as firmdecisions and subsequent actions whichthe firm had thought as its sociallyresponsible activity. Similarly, Carroll(1979) and Sethi (1979) whileconceptualizing CSR, had included theaspect of discretionary or responsiveness.The discretionary nature of the CSR hasalso been emphasized by Kotler andLee(2005).In other words VanMarrewijk(2003) had seen CSR asvoluntary business practices foraddressing stakeholder concerns. ThusCSR is a voluntary, discretionary activity(not an activity done to comply with legalor regulatory demands forced upon thefirm). This is an important feature of CSRinitiatives. Thus CSR is what a firmassumes to project as CSR. Academicresearchers should not necessarily contestthe CSR thematic claims made by firmmanagers.

4. 2.CSR dominant goal to benefit society

The foundation of CSR is built upon thelegal and ethical building blocks. But thedirection in which the discretionary/voluntary CSR activities are directedneeds to be explored. Steiner (1972) hadviewed social responsibility of thecorporate as a ‘‘social contract’’ (emphasisadded) between the business and thebroader society. Steiner (1972) hademphasized the notion of CSR as apositive, social welfare of businessseeking business attitude towards

society. While Wood (1991) had pointedout the fact that society has anexpectation that business firms havesocial performance (emphasis added) likeits existential economic performance. Thissocial expectation or social performancewas further advocated upon by Buchholzand Rosenthal( 2002).They describedcorporations as more than economicinstitutions. They opined that it is thestakeholders that firm should beaccountable to not just towards theshareholders alone. This notion of largersociety was getting accommodated asstakeholders in management literature(Freeman, 1984). Stakeholder’s weredefined by Freeman as “any group orindividual who can affect or is affectedby the achievement of the organization’sobjectives” (1984: p-46).This broaddefinition generated a wide range ofstakeholders. So stakeholders were seenas parties who can affect the firm or isaffected by the firm activities (Evan andFreeman, 1988). On similar lines Hopkins(2003) wrote of stakeholders of a firm ashaving concern, interest and power toinfluence a business organization.Clarkson (1995) added a temporaldimension to the stakeholder concept bysaying that the stake could be in past,present or future of the firm. Thus thestakeholder concept made certainsegments of the society relevant(emphasis added) for a firm and CSR wasdirected to take care (emphasis added)of these stakeholders. In fact Hopkins(2003) grounded his definition of CSR onstakeholder care married to the concept

31

of ethics. Stakeholder concept generatesa wide range of stakeholders and as theexpectation that a firm should to cater tothe demands and expectations of each ofthe stakeholders’ leads to the genesis ofa wide range of firm CSR activities(Leisinger, 2005).

4. 3. CSR as practice

CSR is not just all words but action. Thegreat management guru PeterDrucker(2001)and later Jones(2005) putforward that firms’ should endeavour toachieve a greater internalization ofnegative externalities(created by that veryfirm) and also a greater generation ofpositive externalities for betterment ofthe society. Buchholz and Rosenthal(2002) also echoed this as they advisedprofit making firms to put resources andmanagement effort to address the socialills that are prevalent, specially the onesthat the firms created because of theirbusiness activities. Thus CSR stands foraction.

The notion of Corporate SocialPerformance (CSP) captures the notion ofCSR activity (action) output .This wasanother major concept in CSR literature.CSP first integrates organizational CSRprinciples, processes, policies andattempts to measure the CSR programmeperformance (good, bad satisfactoryoutcomes) (Wood, 1991).CSP called forbusiness action at the macro-level andmicro- level concerns existing in societyby issues identification, analysis and lastbut the most important, the responsiveaction taken. CSP also entails how

business accounts for the changingsocietal conditions(Carroll ,1979;Sethi,1979; Wood, 1991).Thus the focus of CSPis on outcomes (social impacts) of thesocial policies and initiatives the firmundertakes(Wood, 1991).The output sideof CSR activities is the CSR reportingdimension .Corporate social reporting(CSR) is the process of communicatingthe social and environmental effects oforganizations to particular interestgroups and to society at large (Gray etal.,1987). As such, it involves extendingthe accountability of businessorganizations, beyond the traditionalrole of providing a financial account tothe owners of capital (shareholders). Suchan extension is predicated upon theassumption that companies do have widerresponsibilities than simply to makemoney for their shareholders. Thus, CSRreporting structure is a CSR activitycommunication output mechanismkeeping stakeholders in mind.

4. 4. CSR and Community Involvement

CSR action is being increasinglyrecognized as a collaboration betweenbusiness firms and other socialinstitutions (Burke, 1999; Osborn andHagedoorn, 1997).This cooperativearrangement has been viewed asbeneficial to both business firms as wellas the society (Boatright , 2000; Pava andKrausz, 1997; Garone ,1999; Steiner andSteiner, 1991). Philanthropy was seen asa top-down (corporate to community)one-way relationship, whereas CSR isviewed as a socio- economic collaborative



effort between the business firm and thecommunities (Osborn and Hagedoorn,1997).This feature of CSR is importantbecause the expectations and aspirationof the communities are often differentfrom that of the firms performing theCSR (Burke, 1999).This clash ofexpectation between the two also changeover time. As the times are changing,firms are not able to just adopt a top downapproach (corporate to community).Firms have to adopt an approach in whichthe stakeholders’ views are heard andaccommodated in the CSR initiatives(Burke, 1999); Burke(1999) termed thisinclusive approach as CorporateCommunity Relationship (CCR). Thesetypes of CSR initiatives provide firms thesocial license to operate in its businessinterests with the local communities in abetter manner. Thus if business firmengage in partnership with a stakeholder(like a local community, villagers, farmerswomen’s groups etc) and does work tonurture the relationship, this can beviewed as a community relationsintensive CSR initiative. The longer theduration of this type of CSR the better itis.

Waddock( 2004) had also talked aboutCommunity Relations (CCR) orInvolvement (CCI) where firms areexpected to move from just one pointfragmented interaction between businessand the relevant stakeholders to a longterm, trustworthy relationship based onpartnerships/ collaboration withstakeholders. This has become aprevalent and preferred way of

engagement between business andcommunities (Brugmann, and Prahalad,2007)).Similarly, Altman( 1998) had alsocalled for a business and stakeholderrelationship where the interests of boththe company and the local communitiesare promoted. But these partnershipswith communities should not necessarilybe mainly driven with an economicagenda in mind (Fig, 2005).Thus CSR asa concept calls for means establishmentof a long term (longitudinal) interaction,intense, meaningful, need based andtrustworthy relationship (among equals)between the firm and the relevantstakeholders in the society.

4. 5. The economic angle to CSR

There is no doubt that firms are expectedto be profitable first and then think of itssocial responsibilities. Drucker (2001)among others had proclaimed that if abusiness organization is not able to earnprofit (for stockholder) it can never takecare of the society or any otherstakeholders. It is important to note thatCSR proponents never pressed the ideathat business has to undo its economicresponsibility and overdo its socialresponsibility. Being socially responsibledoes not mean that a company abandonits primary economic mission (economicresponsibility in Carroll’s (1979)pyramid. Nor does it mean that sociallyresponsible firms cannot be as profitableas other less socially responsible firms.But at one level it does mean thatcompanies need to do a cost benefitanalysis for undertaking a CSR initiative.

33

This kind of analysis can help bothbusiness and society gain from the CSRprogramme (Frederick et al., 1992),asthere is no point for profit organizationsto drain its valuable resources.

Increasingly, scholars have advocatedthat CSR should make business sense(Porter and Kramer, 2006 ; Crawfordand Scaletta, 2005; Salzmann et al., 2005;Porter and Kramer,2002 ; Meehan et al.,2006; Friedman ,1970 ; Kotler and Lee2005 Windsor, 2006; Altman ,1998;Waddock, 2000; Ricks,2005;Perrini,2005; Stead, and Stead,2000; Lewis, 2003; Bhattacharya et al,2007). Bhattacharya, Craig Smith andVogel commenting on the internationalconference, held in September 2003 on“Integrating Social Responsibility andMarketing Strategy” wrote that adominant theme emerging out was thatCSR has shifted from being in the outerring of business activities to being ainner ring (core) business activities(Bhattacharya et al, 2004). Altman(1998) had found that many businessfirms were discovering benefits to firmand its strategic business objectivesbecause of the firm CSR initiatives.

Ellkington (1994; 1997) had championedthe seminal concept of Triple Bottom Line(TBL). TBL represents the philosophyand action in which businesssimultaneously creates the trio ofeconomic, environmental and socialvalue. Thus, this encompasses Win- Win–Win situation benefiting business,society and environment (People, Planet,

Profits, 3 P) (Henriques and Richardson,2004).

New terms like Corporate SocialOpportunity (CS0) (Grayson andHodges, 2004) also reflect thisphilosophy. CSO describes those socialand environmental projects which havecommercial viability. Grayson andHodges( 2004) commented that only suchsocial and environmental initiatives willbe sustainable in the long run. Theconcepts like TBL, 3 P and CS0 bring inthe important perspective of corporatebenefit and business opportunities fromCSR initiatives. The sanctity of CSR hasbeen redefined. One can start thediscussion on this theme starting withthe duo of M.E.Porter and Mark .R.Kramer, and their articles in HarvardBusiness Review. The authors hadadvised business organizations to alignthe social goals and objectives andactions with the business economic goal,so that long term business interests areserved (Porter and Kramer, 2002; Porterand Kramer, 2006). Porter and Kramer,(2006) had also laid the blueprint forguiding organizations in this directionby describing how firm CSR initiativescan improve the firm and industry levelcompetitive context and /or add valueto the firm business. So the convergenceof social and environmental goals wasemphasized. The case of the sanctity ofCSR generating economic and otherbenefits gets more support if one looksat the interpretation of CSR fromBusiness forums and consultancy firms.These institutions invariably talk about



embedding business benefits in the CSRprogrammes. The elite leagueconsultancy firm PWC acknowledgesthat economic, environmental and socialvalue can be generated and sustainedonly when a firm aligns its products andservices with the stakeholder demands(PWC,2007).The global economicinstitution, World Bank (which has themandate to develop the developingcountries) views CSR as a tool for bothsocioeconomic betterment of the societyas well as providing business withbenefits (World Bank Group,2007).World Business Council forSustainable Development(WBCSD) aglobal level non business organizationchampioning CSR has formulated abusiness agenda for sustainabledevelopment in which the dimensionsor firm competitiveness andprofitability are embedded (Moir, 2001).It talks about operational efficiency andeffectiveness, value creation, riskreduction, protection of resource baseof raw materials, retention of talent andlicense to operate and innovationmanagement as business gains from CSRinitiatives. This is a pragmatic way oflooking at the subject of CSR as the firmis the source of CSR .CSR hinges so muchon the firm that researchers should havebelief and confidence that what a firmclaims as CSR carries noble motives topositively impact the society and a firmhas every right to get benefit (economicas well as non economic) out of CSRprogrammes. So again the discretionarynature of CSR is emphasized.

None less than Peter Drucker hadadvised organizations to do related CSR.Unrelated CSR activities undertaken byfirms might be ineffective and inefficient(Drucker, 2001).Business firms solvingany unrelated social problem can backfireas the business doesn’t have the expertiseto solve these issues and thus the firmcan waste shareholder resources and alsonot solve the social problem Leavitt(1958). Thus, it is beneficial for bothbusiness and society that, business firmsindulge in CSR themes related to itsmainstream business. Here the conceptof Strategic CSR makes its way. In simpleparlance Strategic CSR is those types ofCSR initiatives which are good forbusiness as well as good for society(Lantos, 2001). Strategic CSR provide thescope of bringing significantsocioeconomic good to the society as wellas bring significant business benefits tothe organization (Bruch, 2005; Wertherand Chandler, 2006; Porter and Kramer,2006). By championing Strategic CSR oneis not saying that there is no requirementof philanthropy and charity in thesociety, philanthropy is noble and isrequired by society in its own way(Fulda, 1999).

The concept of strategic CSR brings theCSR initiatives very close to the mainbusiness. Strategic CSR is gatheringmomentum in practice (Lantos, 2001).Thus, it can be difficult in the context ofStrategic CSR to separate a CSR activityfrom the core business activities(Fukukawa and Moon 2004;Porter andKramer,2006).

35

This is the best thing to happen in theentire history of firms (right from 1600s)when the pure business activities aresolving social problems, but it still seemsan utopian statement given the presentstate of affairs in the present world. Butone can on the statue of CSR, emboss withgolden words that business benefits canbe achieved from firm CSR activities.

5. CSR AS A CONTINUUM

By the new millennium scholars felt thatit was extremely difficult to present a


single one point definition of CSR (as onecould have gathered from the discussionso far). CSR represents not one but manythemes varying in both colour as well asshade. Scholars believed and proposedthat firm CSR activities can be bestconceptualized as a continuum (Johnson2003; Miles and Covin ,2000; VanMarrewijk, 2003).These CSR continuumscapture the wide range of socialinitiatives in one platform. H.H.Johnson(2003) provided one CSR continuumwhich has been tabulated in table 1.

Table- 1 : Corporate Social Responsibility continuum (Johnson 2003)

Level Characteristics

*Do not adhere to many rules and regulations.*Exploits workforce.*Misrepresents accounts.*False advertising.*Pollutes Environment.*Does nothing for the society.Etc.

Level-1Illegal/Exploitative/Irresponsible

Level-2Compliant

*Minimum compliance to local, state laws.Regarding work, environment.*Few or no activities for society.

Level-3

Fragmented

*Little more than complying with minimum compliance to local, statelaws regarding work, environment.*Registration to ISO 9000.*Participation in CSR is occasional, fragmented rather than strategic andnon integrated.(CSR is piecemeal, minimal& with mixed motives)CSRmay done with profit motive.

Level-4

Strategic

*ISO 9000, ISO 14000, LCA & Recycling programs, Green certifications.*Very good HRD programs,*Active continual relationship withCommunity.*Varied community programs.

Level-5

Social Advocacy

*CSR is a moral initiative regardless of the financial consequences.*Beliefthat companies are not solely to make profit but to take care of societiesalso.*Innovative ways to do CSR.


At one end of the continuum the badfirms are placed which indulge inunethical and illegal activities (exhibitingno CSR activities). In the middle are firmswhich comply to the laws and regulationsof the land and do fragmented social andenvironmental activities here and there,now and then. The higher level firmsindulge in Strategic CSR as they

proactively engage in social activities tochange the society for the better.Anothercontinuum was synthesized from theworks of Miles and Covin, 2000; Karnaet al., 2003; Day and Wensley, 1988 andHunt, 2000. This CSR Continuum wasconceptualized on the basis ofCompetitive Advantage by the authors.Table -2 depicts this Continuum.

Table 2- The CSR Continuum(from Miles and Covin, 2000;Karna et al.,2003; Day and Wensley ,1988 and Hunt ,2000).

CSRcontinuum Source of competitive Form of competitiveadvantage advantage

Compliance

Strategic

Forced

CSR expenditures perceived as acost of doing business

CSR expenditures perceivedas aninvestment in the ûrm’sset ofdistinctive competencies

CSR expenditures perceived asa”tax” being mandated byNGOsor other externalstakeholdersthat will diminishthe firm’sability to create valuefor otherrelevant stakeholders

Typically a cost-basedpositional advantage,attempting to createsuperior efficiency in valuedelivery

Could take cost and/ordifferentiated position tobe either more efficient ormore effective in creatingvalue propositions for thecustomer.

None

According to this continuum, forced CSRa non proactive approach, brings nocompetitive advantage to the firm.Compliance based CSR brings only costbased competitive advantage. StrategicCSR brings the two types of competitiveadvantage. By doing Strategic CSR,firms’ can pursue either of the two

generic strategies of cost leadershipand/or product differentiation. Itbecomes apparent from the twocontinuums that it is strategic CSR thatfirms should attempt to perform asstrategic CSR lies at higher levels in thecontinuum and represents a desired stateof affairs.

37

6. CONCLUSIONS

This study evaluated various views onCSR without even mentioning any singledefinition at any point in this paper, tostay neutral! The fear and the generalconcern that the debate over what CSRstands for will not be settled in nearfuture has been indeed a genuine one.This attempt was to evaluate the variousexplanations and definition on CSR tosynthesize the key learnings and find outthe basic themes (novelty) projected byeach of the different explanations onCSR. This was done so that a finalunderstanding on the most basic yet vitalquestion on what CSR is doesn’t lingerin the minds of researchers for long. Inmodern day, business as an institution isgrowing as are the problems in societyand natural environment, so the prospectof CSR as a tool for a better future ispromising. Hence once the definitionalaspects on CSR are better understoodfurther research on CSR can beundertaken.

This review story on CSR undertakenright from the Pyramid of CorporateSocial Responsibility to the CorporateSocial Responsibility continuums helpedone to find out the answer to the questionasked at the beginning of this paper (onwhat does the term CSR stand for). Theanswer to the questions posed has beendepicted by two figures (figure 1 & 2).Figure -1 portrays the gray areas whichCSR has. These are -

1. One has to accept that the concept ofCSR has many other similar sister

terms like CC, CorporateSustainability, GBC etc

2. Single point CSR definition isdifficult. CSR measurement is alsodifficult.

3. The concept of CSR can be betterdefined as a continuum rather thanas a single state. This continuum isconceptualized based upon thevarying level of CSR (lower to higherlevel of CSR). The continuum can bebased upon the extent of interactionin the CSR activity (intensity of CSR)with the stakeholder and the timeperiod of CSR intervention(longitude of interaction) with thestakeholder.

Figure -2 provides the conceptualunderpinnings and the ey features of theconcept of CSR which were explored andanalyzed in this paper. For CSR initiativeone has to remember that-

1. A CSR activity if it is not legallycorrect then that activity howevergood it might be for a particular


Many sister terms exists

No single universal Definition

Measurement is Difficult

CSR

Can

be

best

ex

pla

ined

as a

Co

nti

nuu

m

Figure -1, CSR the ambiguity

CSR


stakeholder cannot be termed as aCSR activity.

2. A CSR activity if it harms or injuresany stakeholder but benefits anyother stakeholder then also it cannotbe termed as a CSR initiative as itfails the ethics acid test.

3. CSR is a discretionary activity.

4. CSR is an action centric process.

5. CSR is done with stakeholders withthe dominant objective to benefit thestakeholders and the broadersociety.

6. CSR initiatives stands for acontinuous engagement, relationship(not just an one time acquaintance/act) with the stakeholder concerned.

7. CSR has the dominant goal to benefitthe society but it can also bringbusiness benefits for the firm.

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Public Expenditure on Health andHealth Outcomes: The Experience of the

Indian States*

Biswa Swarup Misra1 & Akshya K. Panda 2

* Received August 23, 2007 ; Revised August 30, 2007. The views expressed are personal views ofthe authors and do not have any bearing with the institutions they work for.

1 Associate Professor, Xavier Institute of Management, Bhubaneswar. e- mail: [email protected] Director. Planning Commission of India, New Delhi. e-mail: [email protected]

Abstract

Public expenditure on health, working through its effect on the quality of human capital has greatpotential in raising labour productivity and in shaping the growth trajectory of a nation. the scope forincreasing government expenditure on health is also much better in a growing economy. However,given the competing claims on government expenditure, one may not find a linear relationship betweenhigher growth and increase public spending on health. Further, how effective would be this higherpublic health expenditure in improving the health status of the population is a matter of empiricalenquiry. This paper employs a two step approach to study the relationship between SDP; public healthexpenditure and health outcomes based on panel causality tests for twenty-three states of India for theperiod 1991 to 2004. The empirical findings suggest that higher growth augurs well for public spendingon health and further, the rise in public spending on health contributes to improve the health status inthe states of India.

1.0 INTRODUCTION

Does growth matter in provision of publichealth services? It makes sense tohypothesise that to the extent it makesroom for additional expenditure onimproving health facilities for thepopulation, growth matters.Nonetheless, it may not be uncommonto find that expanding the reach andscope of public health services may not

be on the priority list of expenditures ina growing economy. Even if additionalhealth expenditure is incurred, it may notbe well designed to have the optimumimpact. Though one of the chief concernsof modern day welfare state is providinghealthcare for all, it has all along been achallenging task in India. Many choicesare involved to improve the situation.These inter alia include preventive care,


curative care, alternative systems ofmedicine and planning for healthcareprofessionals. The emphasis in India hasall along been on curative care. There canbe no argument against it especiallywhen people suffer from pain and agonyof sickness. It would be moremeaningful, however, to give moreemphasis on preventive care, especiallyin a resource constrained economy suchas India. Focus on preventive healthcarecould be useful for a number of reasons.Preventive health care has the scope forbeing cost-effective because of its far andwide reach, it prevents illness andthereby avoids loss of man-days andexpensive treatment. It would further,save on valuable resources for morequality care for the few. Notwithstanding the tilt in favour of curativehealth care provisioning, the overallpublic spending on health has also beenquite low. A couple of factors wereresponsible for the low public spendingon health. Broadly, it was a consequenceof fiscal profligacy coupled withmisplaced fiscal priorities in the 1980s andthe 1990s. Subsequently, there have beenattempts to enforce fiscal discipline bothat the level of the Central and Stategovernments through the promulgationof the fiscal responsibility legislation(FRL), in the year 2003, which prescribesouter limits for government’s fiscaldeficit. In light of constraints posed bythe FRL at one end and government’scommitted administrative expenditure atthe other, concerns have been expressed

that public spending on health in Indiamay not be able to meet the growingneeds of the population not even in theforeseeable future (Panda, 2006).However, in the recent times there hasbeen a surge in growth when the averageGDP growth exceeded 8.5 per cent perannum during the period 2004-05 and2006-07. High growth has madegovernment’s revenue position muchcomfortable and has given theelbowroom to meet the FRLcommitments. Better growth prospects atleast in the medium term combined withfiscal correction in the economy raises thepossibility of a rise in spending on publichealth in India. But to what extent thegrowth performance of the economywould influence public spending onhealth is a matter of empiricalinvestigation. Studying the historicalrelation between growth and publicspending on health would act as a goodpointer in this context. Further, to get anidea of the effectiveness of the publicspending it would be instructive to studythe impact of such expenditure on somebasic health indicators. One obvious andoft used indictor is the Infant MortalityRate (IMR). This paper attempts toexamine the growth dependency ofpublic expenditure on health and whetherthe health expenditure is really effectivein making a dent on the health outcomesmeasured in terms of IMR at the level ofstates in India in the post reform period.The rest of the paper is schematised alongthe following lines. Section II provides a

45

brief review of literature on therelationship between economic growth,health care expenditure and healthoutcomes. Some stylized facts about thebehaviour of output, health expenditureand IMR in the Indian States aredescribed in Section-III. Themethodology used to study the relationbetween output and health expenditureand that between health expenditure andIMR is discussed in section IV followedby a description of the data. The resultsfrom the empirical estimates are outlinedin section V. Concluding observationsfollow in section VI.

2.0 REVIEW OF LITERATURE

Health status of the population can makea difference to the growth prospects of anation. This can be seen from a numberof dimensions. First, a healthyworkforce ensures less absenteeism andthus higher productivity. Second, thereare increased incentives to invest inhuman and physical capital as lifeexpectancy increases. Third, better healthstatus has the potential to augment thesavings rates in the economy as workershave an incentive to save for retirement;and lastly, better health status improveslabour force participation rate as seriousillness forces people to drop out of thelabour market. Health is also importantfrom the perspective of ‘demographictransformation’. As health awarenessimproves, infant morality rate drops,motivating people for smaller families.Seen from another angle, to the extenthealth expenditure can be treated as an

investment in human capital, it has thescope to act as an engine of growth(Lucas, 1988). When it comes to assessthe effect of economic growth on healthstatus of the population, one of the waysis to see what is happening to health carespending. Health expenditure is afunction of total resources available(income or wealth) in the system. Whenincomes are rising, there is scope for arise in both private and public healthexpenditure. As we have discussed, a risein health expenditure makes possiblehigher labour supply and productivity,eventually leading to higher income. Thusruns the virtuous cycle. Barro (1997) hasfound that a 10 per cent increase in lifeexpectancy leads to half a per centincrease in income growth for thedeveloped countries. In case of Britain,Fogel (1994) found that 30 per cent ofBritish economic growth over last 200years could be attributed toimprovements in nutrition. Several otherlongituditional studies also support thisconclusion (Almas Heshmati, 2001).Thus, from a policy perspective, healthis as much an input to economicdevelopment as an outcome.

There have been several attempts tostudy how growth impacts healthoutcome at the empirical plane. Someprominent ones are Newhouse (1977),Leu (1986), Parkin et al., (1987), Hitris andPosnett (1992), Pritchett and Summers(1996), Hansen and King (1996) and Barro(1998). All the cited studies bring out theconsistently strong effect that income has

Misra et.al, Public Expenditure on...


on health outcomes. Bhalotra (2006),however, observed a positive associationof health and income but limitedevidence of an impact of aggregateincome (GDP) on health, from a study ofmacro economic evidence from rich andpoor countries. Anand and Ravallion(1993) in a cross country analysis ofdeveloping country data found noevidence of GDP having effect on healthoutcomes, if poverty and publicexpenditure are held constant. Pritchettand Summers (1996) using panel data for58 developing countries found a robustimpact of aggregate income on healthwith elasticity estimated to rangebetween (-) 0.12 and (-) 0.3, dependingon the estimates used and on whether ornot education is held constant. Bhalotra(2006) found unconditional growthelasticity of ‘under 5’ mortality in Indiaat about (-) 0.7. Controlling for state‘fixed effects’, raise the elasticity up to(-) 1.0. But inclusion of ‘year effects’reduced it to (-) 0.6. Malik (2006)observed that health indicators do nothave a significant effect on Gross NationalIncome. The estimates based on two-stage least squares reduced formequation shows no significant effect ofhealth indicators, such as life expectancy,IMR and total fertility rates on growthin income. As regards developedcountries, Deaton and Paxson (2004) findno effect of income on mortality in theUK and a small effect in the US. Theeffect is considerably diminished whentime dummies and education are built

into the model. Deaton and Paxson (2004)observed that effect of income on healthmay not find full reflection whenmortality risk is concentrated (such as inpockets of poverty) and incomedistribution very much skewed. Apartfrom this variation in evidence, there aredifferences in the evidence depending onwhether it is based on microeconomicdata on health and income or aggregateddata. Deaton and Paxson (2001, 2004)conclude that understanding the effect ofincome on mortality presents manypuzzles, between countries, and betweenanalyses at different levels ofaggregation.

The interest in health expenditureultimatately lies in its potentiality toimprove the health outcomes of anation. A number of studies includingthat of Poullier, Patricia, Kei andSavedoff (2002) and Bokhari, Gai andGottret (2007) bring out the importanceof government spending on health indetermining health outcomes. Bokhari,Gai and Gottret (2007) find that fordeveloping countries, while economicgrowth is an important contributor tohealth outcomes, government spendingon health is an equally important factor.Though government spending isimportant in general, it is very muchpossible that the scope of healthexpenditure may expand in an economywithout significant improvement inhealth outcomes. This point of view issubstantiated by an analysis data onhealth expenditure and health outcome

47

for 150 countries including bothdeveloped and developing andunderdeveloped countries by Poullier,Patricia, Kei and Savedoff (2002) whofind that health spending doesdetermine health outcomes but therelationship is not linear. Poullier,Patricia, Kei and Savedoff (2002) in theirstudy find three broad patterns thatexplain the relationship between healthspending and health outcome. First,countries that to begin with spent lesson health care, higher spending have asignificant impact on health status.Second, public policy makes adifference in the effectiveness of healthspending in determining healthoutcomes in the low spending countries.Third, among high spending countries,additional spending bears littlerelationship to improvements in healthadjusted life expectancy.

In the light of the cross countryempirical findings, it would be ofinterest to examine how public healthexpenditure, growth and healthoutcomes interact in case of India. Asthe aggregate picture often concealsmore than what it reveals, we try toexplore the direction of causation, thestrength of the relationship betweeneconomic growth, public healthexpenditure and health outcomes forIndia at the disaggregated state level.What follows is a discussion on thebroad behaviour of output, publichealth expenditure and IMR in the postreform period before we study thecausality.

3.0 STYLISED FACTS

Health care facilities in India havealways lagged behind demand for suchservices including the availability ofhealth care professionals in the country.Just before India’s Independence, SirJoseph Bhore Committee (1946)prescribed the norm of one doctor per1500 population and one nurse per 500population. Instead, the doctor-population ratio was 1:1800 in as lateas the year 2001. Like the doctor-population ratio, progress in theprovision of important health careinfrastructure has also been tardy. Thisis brought out in Table 1. Further, thedeficiency in health care infrastructurehas been acute in the rural areas.According to RHS Bulletin, June 2000(Ministry of Health and FamilyWelfare), there is huge gap in Specialistdoctors, Block extension educators,Pharmacist, Lab.techinician, X-Raytechnicians etc. Roughly there has been25% deficit in the foreseen requirementin 1991 and availability in 2000 in ruralhealth personnel across categories. Tocite an example, as against therequirement of 22348 specialist doctors,the gap is still 18607. In some categories,the gap is less glaring and in others itis more. Notwithstanding thedeficiency in health care infrastructure,India has made significant strides inhealth outcomes. This has been madepossible by the health care facilitiesprovided by the private sector andpeople’s willingness to pay for privatemedical facilities.



Table- 1: Progress in Health Care Availability in India (1951-2004)(per lakh population)

Health Infrastructure 1951 1981 1991 2000 2004 2005

Sc/PHC/CHC 0.20 8.45 6.73 16.08 15.57 15.56

Hospitals 2.57 3.47 2.77 4.27 3.50 2.52

Beds (Pvt. & Public) 32.65 83.87 66.87 85.75 84.24 82.93

Doctors 17.21 39.57 31.55 49.66 57.58 59.50(Modern System)

Nursing Personnel 5.03 21.19 16.89 72.63 77.01 78.45

Health Outcome

Life Expectancy 36.7 54 57** 64.6 63.3 64

IMR 146 110 80 68 60* 58

Source: National Health Policy-2002*As of 2003** for male

This all India picture subsumes the detailsand regional variations in the healthoutcomes. Federating states of the IndianUnion are in different places of theincome spectrum and have variedachievement in social parameters. Ashealth is a state subject, much woulddepend on the initiative of the stateconcerned in putting health as a priorityin its scheme of resource commitment.

As far as health expenditure in the Indianstates is concerned, some broadobservations follow. First, on an average,health expenditure as proportion of SDPhas seen a sharp decline between the year1991 and 2004 from 1.58 percent to only1.07 percent for all the twenty threestates. The declining trend has been moreacute in the post 2000 period. Second, inthe period under study, the maximum

health expenditure as a proportion of SDPwas noticed for Sikkim in the year 1999at 4.7 per cent and the lowest for Haryanain the year 2004 at 0.4 per cent. Third, ingeneral, spending on health care as aproportion of SDP has been much higherfor the northeastern states of Assam,Arunachal Pradesh, Manipur, Meghalya,Nagaland, Tripura, Sikkim and HimachalPradesh as compared to the major statesof India for most of the years. Higherobserved spending in the north easterncould be to some extent because of theirspecial status in the scheme of resourcetransfer from the center to the states.Fourth, the sharpest decline in the healthexpenditure between 1991 and 2004 isseen for Manipur, Mizoram, Tripura andNagaland. Fifth, despite the decline,these states along with other north

49

eastern states and Himachal Pradesh stillincur the maximum health careexpenditure compared to rest of thestates. Share of health expenditure in theSDP though conveys to some extent theimportance attached to health careservices in the overall scheme ofexpenditure budgeting, the growth inhealth expenditure vis a vis that of theSDP would indicate whether overallresource availability anyway constrainshealth care expenditure. Healthexpenditure grew at a higher pace in 1996-2000 as compared to that in 1991-95 forall states except for Assam, Mizoram,Nagaland, Karnataka, Rajasthan andUttar Pradesh (Table-2). At the same timeexcept for Manipur, Meghalaya. Sikkimand Bihar in all the other states SDP grewat a lower pace in 1996-2000 as comparedto 1991-95. This would give theimpression that most of the states do notwant to comprise their commitment

towards improving the health status ofthe population by increasing their healthexpenditure in the face of a slackening ofSDP growth. However during 2000-04,growth in health expenditure declinedfor all states except for Uttar Pradesh ascompared to that in 1996-2000. It isinteresting to find that except forMizoram, Nagaland and Orissa all otherstates also experienced a decline in theirgrowth of SDP during 2000-04 ascompared to 1996-2000. In fact in boththe sub periods of 1996-2000 and 2001-04SDP has grown at a slower pace ascompared to the 1991-95 period. Thisbehaviour of growth in healthexpenditure and SDP leads one tosurmise that perhaps beyond a pointstates are constrained to increase theirhealth spending in the face of a slowingdown in the SDP growth. The moreimportant question is how the healthexpenditure influences health outcomes?

Table-2: Growth in Health Expenditure and Output(Percent)

1991-95 1996-00 2001-04 1991-04

PHE PSDP POP PHE PSDP POP PHE PSDP POP PHE PSDPa POP

Andhra 13.0 15.6 2.1 15.0 10.9 1.2 4.5 7.5 1.2 9.1 11.8 1.4Pradesh

Arunachal 12.0 14.4 3.3 12.4 6.7 2.3 4.6 6.0 1.5 9.1 8.9 2.4Pradesh

Assam 11.8 10.1 2.2 5.4 9.0 1.7 -0.6 7.2 1.3 5.4 8.8 1.7

Bihar 9.1 9.7 2.3 17.0 10.7 2.7 1.9 7.4 2.2 5.0 7.7 2.6

Gujarat 10.9 18.1 2.3 18.5 8.8 2.1 -0.3 13.7 2.0 7.4 11.0 2.2

Haryana 9.4 12.1 2.8 16.0 9.9 2.8 4.3 8.7 2.1 8.7 10.6 2.7



While growth might be having animpact on health care expenditure, itis also possible that extent of healthcare expenditures by a state amongst

other things is guided by the healthstatus prevailing in the state. Scatterplot (Chart-1) of the healthexpenditure and health status proxied

Himachal 11.4 13.7 1.9 18.0 14.5 2.0 2.9 7.6 1.9 9.6 12.7 1.9Pradesh

Karnataka 14.6 14.5 2.1 14.3 12.8 1.6 -0.4 7.0 1.4 7.9 11.8 1.7

Kerala 11.7 15.9 1.1 13.3 11.7 0.9 6.1 7.8 1.2 9.6 12.8 1.0

Madhya Pradesh 10.8 11.2 2.5 16.0 10.0 2.2 3.3 8.9 2.2 7.9 8.7 2.2

Maharastra 10.3 16.5 2.6 10.4 8.6 2.2 2.1 9.9 1.7 8.1 10.5 2.2

Manipur 9.0 11.8 2.7 15.9 11.8 2.4 -6.3 9.3 2.2 7.3 10.6 2.5

Meghalaya 8.2 10.2 2.9 14.7 10.8 2.9 2.8 6.9 1.7 8.3 10.3 2.8

Mizoram 11.7 13.8 3.2 11.5 7.5 2.6 11.2 10.4 1.8 9.9 11.5 2.7

Nagaland 9.5 14.4 6.2 1.0 3.1 5.7 -1.4 7.9 5.5 4.8 9.8 5.7

Orissa 10.0 14.5 1.9 15.5 9.0 1.5 2.0 9.6 1.4 7.4 9.9 1.6

Punjab 6.5 14.6 2.2 22.8 10.1 2.1 -3.0 4.3 1.1 10.1 9.8 1.9

Rajasthan 13.8 11.3 2.7 12.5 10.6 2.8 0.6 6.1 2.3 6.9 9.4 2.7

Sikkim 11.2 10.2 4.0 18.5 13.3 2.5 5.9 9.0 2.4 9.0 12.0 3.1

Tamil nadu 11.5 17.1 1.5 13.1 12.1 1.1 -0.3 5.2 1.0 7.0 11.9 1.2

Tripura 5.2 7.3 2.5 10.1 17.1 1.3 4.4 12.0 1.2 7.3 14.0 1.6

Uttar Pradesh 9.4 10.7 2.5 5.4 8.7 2.5 10.4 7.9 0.1 4.4 8.8 2.2

West Bengal 4.6 10.6 2.2 18.8 13.6 1.7 -1.2 9.0 1.4 8.8 11.9 1.8

1991-95 1996-00 2001-04 1991-04

PHE PSDP POP PHE PSDP POP PHE PSDP POP PHE PSDPa POP

Note: Growth rates are compound growth rates computed from a semi log specification.Bihar,Madhya Pradesh and Uttar Pradesh are inclusive of Jharkhnad, Chhatisgarh and Uttaranchalrespectively.

PHE=Per capita Health expenditure

PSDP = Per capita SDP

POP=Population in the States

51

though the IMR reveals a negativeassociation between them3. This bringsout the importance of healthexpenditure in the states.

3. The scatter plot shows negative association between health expenditure and IMR. Decline inIMR is indicative of improvement in health status.

4.0 EMPIRICAL METHODOLOGY

To decipher the relationship betweenoutput, health expenditure and IMR, weemploy panel FMOLS tests to study thecausality between output and healthexpenditure and also between healthexpenditure and SDP. The standardapproach to test for causality amongsteconomic variables is the grangercausality. As we have information bothin the time series and the cross sectiondimension, test of cointegration in a panelcontext becomes more useful. A study ofcausality in a panel context would requirean examination of the data at hand forstationarity in the first place, followedby a test of cointegration in the panelcontext. Further, in the event of panelcointegration, we discuss the appropriatemethods that can be employed to studycausality.

There are several techniques which canbe used to test for a unit root in paneldata. Specifically, we are interested totest for non-stationarity against thealternative that the variable is trendstationary. One of the first unit root teststo be developed for panel data is that ofLevin and Lin, as originally circulated inworking paper form in 1992 and 1993.Their work was finally published, withChu as a coauthor, in 2002. Levin, Lin andChu assume that the individual processesare crosssectionally independent. Giventhis assumption, they derive conditionsand correction factors under which thepooled OLS estimate of will have astandard normal distribution under thenull hypothesis. In contrast to the LLCtest, Im-Pesaran-Shin (IPS) propose anestimation framework which presumesthat all series are stationary under thealternative hypothesis. IPS propose theuse of a group-mean Lagrange multiplierstatistic to test the null hypothesis. TheADF regressions are computed for eachunit, and a standardized statistics iscomputed as the average of the LM testsfor each equation. Adjustment factors(available in their paper) are used toderive a test statistics that is distributedas standard normal under the nullhypothesis. IPS also propose the use of agroup-mean t-bar statistic, where the tstatistics from each ADF test areaveraged across the panel; again,adjustment factors are needed to


Scatter Plot of Health Expenditure and IMR

0

20

40

60

80

100

120

140

0.00 0.50 1.00 1.50 2.00 2.50Health expenditure as percentage of SDP

IMR

per t

hous

and

live

birth

s

Chart-1


translate the distribution of t-bar into astandard normal variate under the nullhypothesis. IPS demonstrate that theirtest has better finite sample performancethan that of LLC. The test is based onthe average of the augmented Dickey-Fuller (ADF) test statistics calculatedindependently for each member of thepanel with appropriate lags to adjust forautocorrelation. The adjusted teststatistics, [adjusted using the tables in Im,Pesaran and Shin (1995)] are distributedas N(0,1) under the null of a unit rootand large negative values lead to therejection of a unit root in favor ofstationarity.

For cointegration analysis in a panelcontext, a standard approach is Pedroni’s(1995, 1997) framework, which allows forheterogeneous cointegrating vectors. Thepanel cointegration tests suggested byPedroni (1999) extend the residual basedEngle and Granger (1987) cointegrationstrategy. First, the cointegration equationis estimated separately for each panelmember. Second, the residuals areexamined with respect to the unit rootfeature. If the null of no-cointegration isrejected, the long run equilibrium exists,but the cointegration vector may bedifferent for each cross section. Also,deterministic components are allowed tobe individual specific. To test forcointegration, the residuals are pooledeither along the within or the betweendimension of the panel, giving rise to thepanel and group mean statistics (Pedroni,1999). In the former, the statistics areconstructed by summing both numerator

and denominator terms over theindividuals separately, while in the latter,the numerator is divided by thedenominator prior to the summation.Consequently, in the case of the panelstatistics the autoregressive parameter isrestricted to be the same for all crosssections. If the null is rejected, thevariables in question are cointegrated forall panel members. In the group statistics,the autoregressive parameter is allowedto vary over the cross section, as thestatistics amounts to the average ofindividual statistics. If the null is rejected,cointegration holds at least for oneindividual. Therefore, group tests offeran additional source of heterogeneityamong the panel members.

In the event the variables arecointegrated, to get appropriateestimates of the cointegrationrelationship, efficient estimationtechniques are employed. Theappropriate estimation method is sodesigned that the problems arising fromthe endogeneity of the regressors andserial correlation in the error term areavoided. Due to the corrections, theestimators are asymptotically unbiased.Especially, Fully Modified OLS (FMOLS)is applied. In the model the asymptoticdistribution of the OLS estimatordepends on the long run covariancematrix of the residual process. Theestimates needed for thetransformations are based on OLSresiduals obtained in a preliminary step.The panel FMOLS estimator is just theaverage of individual parameters. The

53

group mean FMOLS test performs bestwhen T is larger than N.

In a panel context, when we findevidence of cointegration, a moot issueis determination of the direction ofcausality. The approach followed bymany authors in the panel context is totest for cointegration between thevariables under study. Oncecointegration is found, a panel OLS isperformed to obtain the residuals of theparametric relationship between thevariables under study.

itit

k

jjtiij

k

jtiijj ecmYXaX ijit 11

1,1

1,11 1 μλβα ++Δ+Δ+=Δ −

=−

=

− ∑∑

(1)

itit

k

jjtiij

k

jtiijj ecmYXaY ijit 11

1,2

1,21 2 μλβα ++Δ+Δ+=Δ −

=−

=− ∑∑ (2)

The lag of the residual so obtainedconstitutes the ECM term in theestimation of (1) and (2). However,constructing the ECM term based on theresiduals from an OLS may not beappropriate as it is FMOLS and not OLS,which is the appropriate estimationtechniques when there is evidence ofpanel cointegration amongst thevariables under study. As such, we haveused residuals from the panel FMOLSestimate to construct the ECM term inthe test for Granger causality in the panelcontext.

We consider per capita SDP, per capitahealth expenditure and the IMR as thevariables of interest for this study.While information on SDP and healthexpenditure for the period 1991 to 2004

is available for twenty three states,information on IMR is available for onlysixteen states for this period. As such,we have used the full information tostudy the health expenditure and SDPrelation, we narrow down the scope ofthe study to sixteen states to capture therelationship between health expenditureand IMR. We use three alternative teststo study the unit root character of thevariables in a panel context. Pedroni’smethod has been applied to studycointegrating relationship between logof per capita SDP (LPSDP) and log ofper capita health expenditure (LPHE)and also between LPHE and IMR. PanelFMOLS estimates are employed todecipher the pattern of elasticityamongst the two set of variable.Subsequently, we look into the causalitybetween LPSDP and LPHE and betweenLPHE and IMR from the panel dataperspective

5.0 RESULTS

The results of the panel unit root testsfor each of our variables are shown inTable-3. In no case the null hypothesisthat every State has a unit root for theseries in log levels is rejected. However,the series are stationary in their firstdifferences. Hence, the variablesconsidered are I(1). Once ascertained thatall the three variables are I(1), we turnto the question of possible co-integrationbetween them. Table-3 reveals theevidence regarding the co-integrationproperty between output and healthexpenditure and also between health



expenditure and IMR for the IndianStates. The panel co-integration tests on

the relation between SDP and healthexpenditure is performed on twentythree states.

Table-3: Panel Unit Root Tests

Variable →→→→→Statistics

↓↓↓↓↓

LPSDP LPHE IMR

Levels First First Levels Levels FirstDifference Difference Difference

Im Pesaran and 2.20(0.98) -11.55(0.00) 1.49(0.93) -5.69(0.00) 3.70(0.99) -11.47(0.00)Shin (IPS) W-stat

ADF- Fisher 29.65(0.97) 187.77(0.00) 23.44(0.99) 113.08(0.00) 12.76(0.99) 160.51(0.00)Chi square

PP- Fisher Chi 47.84(0.39) 236.72(0.00) 30.52(0.96) 235.19(0.00) 15.91(0.99) 193.28(0.00)square

Note: Figures in brackets indicate p- values.Panel unit root test assumes individual intercept andtrend in the SDP equation, only intercept on the HE equation and neither intercept nor trend inthe IMR equation.

However, given the lack of consistentinformation on IMR for a number ofstates, the cointegration relationshipbetween health expenditure and IMR is

Table-4: Panel Cointegration ResultsTest Statistics LPSDP LPHE

and LPHE and IMR

Panel v-stat -0.1297 4.41613

Panel rho-stat -2.5642 -2.15439

Panel pp-stat -4.19653 -2.50135

Panel adf-stat -3.96719 -2.38723

Group rho-stat -0.8643 -0.45579

Group pp-stat -4.84143 -2.12386

Group adf-stat -4.58496 -2.09265

Panel v-stat -0.1297 4.41613

In general, the Pedroni (1999) tests turnout to reject the null hypothesis of no co-integration between both set of variablesunder consideration (Table-4). Havingfound evidence of panel cointegartion,the FMOLS tests are performed whichsuggests that elasticity of output to healthexpenditure is much higher than elasticityof health expenditure to output. Thisbrings out the importance of healthexpenditure in pushing up the growthtrajectory of the states4. Further, healthexpenditure has an impact in reducingIMR. However, it is intriguing to findthat health expenditure declines in theface of rising IMR. Perhaps competing

4 The detailed FMOLS estimates are given in Annex-1 and Annex-2.

confined to only sixteen states, whichcovers all the major states of India.

55

claims in the health expenditure budgetpartly explains this kind of behaviour ofhealth expenditure. The emphasis oncurative rather than preventive healthcare expenditure might be responsiblefor this odd behaviour of healthexpenditure in Indian States. It may alsobe that there are extended lags inresponse of health expenditure to changesin IMR, which the FMOLS estimates arenot able to capture. The residuals fromthe FMOLS estimates are gathered toconstruct the ECM term for doing thenext round of estimation to infer aboutthe direction of causality. The panelcausality tests indicate that outputgranger causes health expenditure bothin the short run as well as in the long run(Table-5). However, health expendituregranger causes output only in the longrun and the causation is rather weak. Asfar the causality between healthexpenditure and the IMR is concerned,

Table-5: Panel Causality Tests

Short Long ShortRun Run run and

Long run

SDP →HE 14.22 138.80 71.91(0.00) (0.00) (0.00)

HE → SDP 0.005 2.90 1.62(0.94) (0.08) (0.19)

HE → IMR 2.82 2.67 3.27(0.09) (0.10) (0.03)

IMR→ HE 1.217 16.98 8.58(0.27) (0.00) (0.00)

Note: Figures in Parenthesis indicate the p-values of the concerned F-Statistics

we find evidence of health expendituregranger causes IMR both in the short runand long run whereas IMR grangercauses health expenditure only in the longrun.

6.0 CONCLUDING OBSERVATIONS

This paper was an attempt to test theefficacy of growth in improving healthfacilities in the Indian States using paneleconometric methods. We have adopteda two step approach to test this. First,we have studied the causal nexusbetween SDP and health expenditure andfound evidence of SDP granger causinghealth expenditure. Further, we find thathealth expenditure granger causes IMRboth in the short run and long run. Theseresults indicate that by pursing a highgrowth strategy, the governmentsacquire greater maneuverability inspending on public health, which in turncontributes to improving the health statusof the population. The increasedspending on health would take output tofurther higher levels as healthexpenditure granger causes output in thelong run. The results point at an optimisticscenario, in which growth, if sustained,creates scope for higher spending onpublic health and which in turn positivelyinfluences health outcome.

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Annex-1

Parametric Relationship Between Health Care Expenditure and SDP(FMOLS Estimates)


State Response of Health Response of SDP to changesExpenditure to changes in SDP in Health Expenditure

Andhra Pradesh 0.782 1.217

Arunachal Pradesh 1.084 0.890

Assam 0.565 1.610

Bihar 0.507 0.927

Gujarat 0.594 1.269

Haryana 0.779 1.147

Himachal Pradesh 0.801 1.240

Karnataka 0.600 1.373

Kerala 0.782 1.243

Madhya Pradesh 0.879 1.043

Maharastra 0.731 1.188

Manipur 0.637 1.202

Meghalaya 0.779 1.150

Mizoram 0.876 1.113

Nagaland 0.537 1.607

Orissa 0.723 1.189

Punjab 1.078 0.833

Rajasthan 0.673 1.290

Sikkim 0.707 1.274

Tamil nadu 0.596 1.550

Tripura 0.571 1.805

Uttar Pradesh 0.508 1.723

West Bengal 0.791 1.185

Note: Bihar, Madhya Pradesh and Uttar Pradesh are inclusive of Jharkhnad, Chhatisgarh andUttaranchal respectively.


Annex-2

Parametric Relationship Between Health Care Expenditure and IMR(FMOLS Estimates)

State Response of IMR to changes Response of Health Expenditurein Health Expenditure to changes in IMR

Andhra Pradesh -0.101 -5.881

Assam -0.215 -2.889

Bihar -0.276 -3.327

Gujarat -0.081 -3.247

Haryana -0.132 -4.371

Himachal Pradesh 1.133 0.497

Karnataka -0.221 -1.982

Kerala -0.314 -2.091

Madhya Pradesh -0.366 -2.533

Maharastra -0.337 -2.538

Orissa -0.327 -2.316

Punjab -0.085 -5.224

Rajasthan -0.219 -2.613

Tamil Nadu -0.294 -1.875

Uttar Pradesh -0.443 -2.039

West Bengal -0.310 -2.864

Note: Bihar, Madhya Pradesh and Uttar Pradesh are inclusive of Jharkhnad, Chhatisgarh andUttaranchal respectively.

Internationalization of IndianPharmaceutical Industry : A study on

the determinants of export stimulation*

Srikant Panigrahy1 , P.Mishra2 & B.P.Patra3

* Received June 26, 2007, Revised September 1, 2007. The paper is based on the thesis of the firstauthor to be submitted to Xavier Institute of Management, Bhubaneswar under the guidance ofthe second and third authors.

1. Scholar, Fellow Program in Management (FPM), Xavier Institute of Management, Bhubaneswar,email: [email protected].

2. Professor, Xavier Institute of Management, Bhubaneswar, email: [email protected]. Associate Professor, Xavier Institute of Management, Bhubaneswar, email: [email protected]

Abstract

In this paper an attempt has been made to study various determinants that have stimulated the Indianpharmaceutical (henceforth pharma) firms to move to overseas market. It is found that motives for Indianpharma firms moving to overseas market was proactive (rather than reactive), and the most importantstimulation was for profit and growth opportunities overseas. Export stimuli of Indian pharma firmswere categorized conceptually into five meaningful groups (viz. overseas market pull motives, localmarket push motives, product superiority, opportunity utilization and growth motives), with a new setof underlying structure of relationships, following the classification of proactive and reactive motives.The implications of the findings for managers, academicians and policy makers are discussed. This studymight yield valuable lessons to other firms for export decision making and policy makers for appropriateexport assistance.

1.0 INTRODUCTION

The Indian pharmaceutical industry isone of the most competitive and highlyfragmented industries in India that hasmade significant progress and witnessedconsistent growth over the past threedecades (Agarwal, 2004). There are morethan 20,000 players, and no singlecompany has a market share greater than

eight percent (ORGIMS, 2006). It playsan important role for the nation as itdirectly deals with health of the people.The Indian Patents Act, 1970, along withDrug Price Control Order and economicreforms, have made the pharma industryself sufficient to meet the domesticdemands (meets around 95% of localdemand) and also establish itself as a


major player in exports obtaining a tradesurplus during 1990’s and performingconsistently (Lalitha, 2002). At presentthe industry market size has increasedfrom Rs. 4 billion in 1970 to Rs. 370 billionin 2004-05, growing at a CumulativeAggregated Growth Rate (CAGR) of13.7 percent (Cygnus, 2005).

Internationalization has been animportant activity carried out by theIndian pharma firms. It is defined as aprocess in which the firms graduallyincrease their international involvement.It can also be defined as the successivedevelopment in a firm’s internationalengagement in terms of geographicalspreading in markets, products andoperation forms, and changes inmanagement philosophy andorganizational behaviour from beginningof process to current situation (Albaumet al 2002). Firms go forinternationalization mainly throughexports/imports and FDI. Excluding theimports route, firms internationalize tovarious international markets dependingupon risk and control undertaken fromexports, joint ventures, licensing, andforeign direct investments (Johanson1990). Out of all the entry modes, exportshave been the traditional method and stillthe most popular route followed by manyof the pharma companies. After Indiaadopted process patents in 1972 (IndianPatents Act, 1970), the exports of Indianpharmaceutical industry has risen fromRs. 373.3 millions in 1973-74 (Agarwal A2003) to Rs.160 billion in 2004-05, growingat a CAGR of 21% compared with

domestic CAGR of 12%(Pradhan 2006).At present, export accounts for 46% oftotal production of pharmaceuticals inIndia. Currently, India exports to around200 countries worldwide including highlyregulated countries like USA, UK andJapan. Seeing the above figures, it isinteresting to find out the maindeterminants which have influencedIndian companies to move to overseasmarkets.

Studies on Indian pharmaceuticalindustry is very rich and have mainlyfocused on origin and history of theindustry, R&D activities, access tomedicines, sustainability of organization.Studies have also been made on TRIPSeffect on the industry with respect tovarious streams like research anddevelopment, price of medicines, patientwelfare, foreign direct investments, etc.However, there are relatively few studieswhich have focused on export behaviourand performance of the industry(Pradhan 2003, Pradhan 2004, Agarwal2003, Chadha A 2005).

Studies on export behaviour have beenin limelight for about four decadesstarting from the pioneer work of Tookey(1964). Although exporting in an era ofglobalization has been wellacknowledged in the academic literature,theoretical developments in the area havenot matched the development in practice(Dhanaraj C & Beamish W P 2003). Forthe past four decades, researchers havepresented various descriptive models ofexport behaviour but still, there lacks thetheoretical developments, and the very

63

reason has attracted a lot of interests onthis topic by the researchers. The reasonattributed for the failure of a specifictheoretical development may be the rapidchanges which occur in the external andthe internal environment for a firm, forexample government regulation andpolicies, industry competitiveness,changes in technology, etc.

The above studies on the exportbehaviour have contributed in manyways to the field of exporting.However most of the studies havebeen in the developed countries (Sousa2004) and have taken all sectors in aparticular country into consideration,creating a question mark on thehomogeneity of the data collected.

The present study contributes to theongoing debate of export behaviour inseveral ways. Firstly, it focuses on aparticular sector, the pharmaceuticalindustry in a developing country, India.Secondly, it is studied in a changedregulatory environment that is afterimplementation of TRIPS in 2005 inIndia. Thirdly, it categorizes thestimulating determinants into groupsthat could be conceptually meaningfuland help in development of theoreticalframework to the ongoing discussion ofexport stimulants. Fourth, it aims athelping managers to know the importantdeterminants for export stimuli, andexport decision making. It may also helppolicy makers to frame appropriatepolicies for Indian pharma firms to moveto overseas markets.

Literature review

Studies on export behaviour have beendivided into two streams. The firststream deals with export behaviour theoriesfor firms moving to overseas market. Thesecond stream deals with identifyingdeterminants which have played animportant role for firms moving tooverseas markets that is, the determinantsstimuli for export behaviour.

Export behaviour theories

Export behaviour of firms is defined asthe process undergone by a firm whileselecting a particular destination and thefurther process carried out to expand inthe foreign markets. Export behaviourtheories attempt to explain why and howthe individual firm is engaged in exportactivities and how the dynamic nature ofsuch activities be conceptualized (Shohamet al 1995). Risk, uncertainty andimperfect knowledge are importantdeterminants in export behaviour and afirm goes though experimental phasegaining experience in each of thesucceeding stages. Export marketingresearchers have often classifiedexporting companies according to theirlevel of internationalization (Bilkey andTesar 1977, Cavusgil 1980, Czinkota andJohnston 1981).

2.0 EXPORT BEHAVIOUR STIMULANTS

The nature of export stimulation has beenshown to affect the internationalizationof a firm (Welch and Wiedersheim Paul1980). Research on export stimulidiscipline started in early 1970’s and since

Panigrahy et.al, Internationalization of ...


then has grown in an accelerating phasemainly due to rapid globalization ofworld economies (Douglas and Craig1992). It is one of the most well researchedtopic and many studies have been carriedout in a very short span of time(Leonidou, 1998). Research ondeterminants of export stimuli firststarted in United States, and then intoother countries around the world.Majority of the work has been carried outin United States and European countriesin comparison to developing countrieswhere these are relatively few(Leonidou, 1998).

A commonly used typology of exportstimuli is to regard them as emanatingeither internal or external from/to thefirm (Brooks and Rosson 1982, Cavusgil1980, Kaynak and Stevenson 1982, Welchand Wiedersheim-Paul 1980). Internalstimuli are those derived from influencesendogenous to the firm, for example,economies of scale, or particular in-housecompetencies (see Table 1). On the otherhand, external stimuli arise from theenvironment in which the firm operates,or may operate, e.g., government exports

promotion programs, or the bankruptcyof a competitor. But this classificationprovides little idea about evidence ofbehavioural pattern which the firmdevelops in its approach to exportmarkets and operations (Katsikeas 1996).

The above issue is taken care by a secondstream of export stimulus studies whichhelps to identify whether or not firmstake the initiative to seek, identify andexploit export market opportunities. Inthis regard, export marketing researchershave made a distinction betweenproactive and reactive exporters(Czinkota and Ronkainen 2004, Piercy1981, Katsikeas et al, 1993) to portrayeffect on export performance. Proactivestimuli are defined as those associatedwith firm’s aggressive behaviour anddeliberate search for export opportunities(pull factors). Reactive stimuli are thoseassociated with firm’s reaction tochanging conditions and reflect a passiveattitude in seeking export opportunities(push factors). These two motivationtypes reflect different types of attitudeand behaviour and are likely to influenceexport performance.

Internal External

Proactive • Managerial urge • Foreign market opportunities• Growth and profit overseas • Change agents• Marketing advantages• Economies of scale• Unique product/ technology competence

Reactive • Risk diversification • Unsolicited orders• Extend sales of a seasonal product • Small home market• Excess capacity of resources • Stagnant or declining home market

Table 1: Proactive and Reactive Stimuli

Adapted from Albaum et al (2002)

65Panigrahy et.al, Internationalization of ...

Barker and Kaynak (1992) studyidentified size of overseas market, searchfor stability through marketdiversification, apparent profit potential,unsolicited foreign orders and physicalproximity of a market as the majormotivators for a firm to move to overseasmarkets. The study listed thesemotivating factors for initiating overseasmarkets involvement in order ofimportance as larger market size, stabilitythrough diversification, profit potential,unsolicited orders, proximity of market,utilize excess capacity, offer by foreigndistributor, increase growth rate andsmoothing out business cycles. Otherempirical studies over years have alsopointed out factors such as saturateddomestic markets, government incentivesto export, tax incentives offered byforeign governments to establishmanufacturing plants in their countries,and competition in domestic market.

Agarwal (2004) had done an extensivestudy on the internationalcompetitiveness of knowledge-basedindustries taking Indian pharma industryas a case study. The determinants forfirms’ decision to start exporting wereR&D capabilities of the firm, equitycollaboration with foreign companies,technology collabouration with foreigncompanies, small domestic markets in theproduct dealt by firm, tax incentives,price control in domestic market,concessional import from exports, andtrade and FDI liberalization policies of1990s. The study showed importance ofR&D and fiscal incentives as major

motives for entering foreign markets. Asfor promoting export competitiveness,the determinants which played a majorrole were size of the firm; R&D effort,indirect tax incentives, and import of rawmaterials were found as majordeterminants. A list of studies conductedby various researchers on the exportstimulants have been provided inAnnexure 1.

From the literature review anddiscussions, it is observed that researchershave found mixed results on variousdeterminants influencing exportstimulation of the firm. The present studyis therefore conducted to identify theimportant determinants which havestimulated the Indian pharma industry tomove to overseas markets and to identifywhether the determinants cluster ingroups giving rise to a few latent factors.

3.0 METHODOLOGY AND OPERATIONALI-ZATION OF DETERMINANTS

To address the above mentionedobjectives, the following methodologyhas been followed. We have divided thedeterminants into two groups. All thedeterminants have been measured onperception of managers about eachdeterminant on a scale of one to seven,one being less important and sevenmeaning most important.

Proactive motives

a. Growth and profit opportunityoverseas

Firms move to international markets forbetter growth and profits. Management


may perceive international sales as apotential source of higher profit marginsor of more added-on profits. There isevidence that desire for short term profitis important to many companies who areat initial stages of exporting (Shoham,and Albaum, 1995). Several studies showpositive correlation of profit and growthwith a firm starting to engage in exports.It is said that growth and profit motivesare linked directly to a firm motivation,the higher the better.

b. Technological advantage

Worldwide, the pharmaceutical industryis known to be one of the most researchintensive industries. Indian pharmacompanies are known to have anadvantage over other pharma companiesworldwide with respect to know- why(reverse engineering) technologicaladvantages. Due to strong chemistry skillsof scientists present in India and lack ofproduct patents, the pharma firms easilyreverse engineer the molecules discoveredworld wide in a very short span of timeand able to launch in domestic marketsand other less regulated markets. So wethink this determinant plays an importantrole as an export stimulus for overseasmarkets. We conceptualize technologicaladvantage as the advantage Indianpharma firms have in terms of technology.

c. Exclusive market information

It is another proactive stimulus. Itincludes knowledge about foreigncustomers, market places or marketsituations that is not widely shared by

other firms. This knowledge may resultfrom particular insights based on firminternational research, special contact, orsimply beginning in right place in righttime (Czinkota and Ronkainen, 2004).

d. Managerial urge/ interest/ aspirations

Favorable attitudes towards foreignactivities are considered an essentialprerequisite before firms get into orexpand in international markets.Managerial urge is said as a motive thatreflects the desire, drive and enthusiasmof management toward internationalmarketing activities (Czinkota andRonkainen, 2004). Decision-makercharacteristics, including cognitive andaffective factors, explain in certaininstances the difference betweenmanagers in attitude and behaviourtoward foreign activity (Shoham, andAlbaum, 1995).

e. Tax benefits

Tax benefit plays an important role ofstimulation to exports. For example, inUnited States, a tax mechanism calledForeign Sales Corporation(FSC) has beeninstituted to assist exporters whichprovides firm with certain tax deferralsthus making international marketingactivities more potentially moreprofitable(Czinkota and Ronkainen,2004). In India, export profits, that isprofits generated from exports areexempted from income tax by Ministryof Finance Tax (Aradhana 2003). So wethink pharma firms to avail this taxexemption would have started moving

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to overseas markets, the more the betterprofits without tax.

f. Economies of scale and scope

By moving to international markets, acompany can achieve economies of scaleand scope by spreading over more unitsand thereby reducing the fixed costsincurred in administration, facilities,equipments, staff work and R&D. Indianpharma companies’ drug prices areknown to be one of the lowest prices inthe world. Although they account for13% of the volume market all over theworld, they only have 1% sales turnover.So due to less profit margins, economiesof scale gives the firms’ more volumeturnover although margins are low andthereby achieving capital efficiencies. Sothis indicator may act as major stimuli formost of the Indian pharma companies asthese depend more on volume generatedfrom unit sales due to low pricing ofmedicines.

g. Possession of special competitiveadvantage

Unique products/ technology/ otherresources advantage are a major drivingforce for moving to internationalmarkets. It is because a firm producingsuperior products is more likely toreceive inquiries from foreign marketsbecause of perceived competence of itsofferings and second due to the uniqueproduct, the company incurs less sunkcosts to develop for foreign markets dueto standardization of the product.Especially in pharmaceutical industry, ifa firm has some patented products, it can

receive huge benefits by moving tointernational markets. Indian pharmaproducts are also known for cheaperprices with good quality. So possessionof some competitive advantage acts asstimuli for many firms to cater intointernational markets.

h. Lower costs of labour, productionand energy

Lower costs of labour, production andenergy help firms price their productslower when compared to otherinternational markets. This may givethe pharma firms a better costleadership advantage (porter strategy)and help compete in terms of price ofmedicines globally. So this advantagemay be one of the determinants forexport stimulus.

i. National export promotion

Policy measures favouring domesticpharma companies for exports may beone of the important stimuli for firmsstarting exports. These may be incometax exemption, subsidies, replenishmentimport license, subsidized export creditand export credit insurance, bondedwarehouses, support on knowledge offoreign markets as well as marketingguidelines (Aradhana 2003), act as astimulus for firm to move to internationalmarket.

j. Unique product advantage

Unique products produced in terms ofintensive technology whether a newmolecule, a new dosage form, few sideeffects or with right combination of drugs



helps a firm get motivated to move tooverseas market in search of additionalgrowth and profits as well as leveragethis advantage. Also, due to cheaperprices with good quality of drugs,pharma firms may look for internationalmarkets to explore.

k. Favourable currency movements

Favourable exchange rates have beendepicted as one of the major stimulus tomove to international markets.Favourable exchange rates give firmbetter profits due to currency advantagein purchase parity (Shoham and Albaum,1995).

l. R&D and technology collaboration

R&D and technology collabouration withforeign players helps a firm to knowabout new technologies and implementin the firm. This helps firm gain newtechnologies to create better productsand have a competitive advantage. So thismay act as one of the major stimulus forpharma firm to move to internationalmarkets.

m. Firm mission and vision

Most of the studies have emphasizedthe importance of mission and visionof company playing an important rolein moving to international markets.Firm whose mission and vision has aglobal approach are found to move tooverseas market faster and establishthemselves as global players ratherthan being focused only on domesticmarket.

Reactive motives

a. Competitive pressures

Due to intense competition frommultinationals and foreign companies, afirm may fear to lose domestic marketshare with these companies who wouldhave benefited from effect of economiesof scale from international marketingactivities.

b. Overproduction

This strategy was used too often bycompanies during downturns of businesscycles which provided an ideal outlet forinventories that were significantly abovedesired levels. These sales werestimulated by short term price cuts andas soon as domestic market demandreturned to previous levels, internationalmarketing activities were curtailed orwithdrawn totally (Czinkota andRoakainen, 2004)

c. Stagnant or declining home market

International expansion for some offirms becomes a feasible strategy if thedomestic market is saturated ordeclining. The reasons maybe likeunused productive resources (likeproduction and managerial slack) whichact as a stimulus to move tointernational markets. Production slackis a stimulus for securing new marketopportunities and managerial slackprovides those knowledge resourcesrequired for collecting, interpretingand using market information (Shohamand Albaum, 1995).

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d. Proximity to customer and ports

Physical and psychological closenessplays an important role in export activitiesof firm. These are simply an extension ofdomestic activities without any particularattention being paid to the fact that someof products are moving abroad.

e. Unsolicited foreign orders

Unsolicited receipt of exports arisingfrom either inquiry of product, price ordistribution information is a verycommon method and found in researchas one of the most important stimuli.These enquiries may result fromadvertising in trade journals which havea worldwide circulation throughexhibitions and by other means.

f. Price control in domestic markets

India has a DPCO policy, which controlsthe prices of all essential drugs. Thisprevents a firm for free market pricingas all these essential medicines have aprice cap and none of the firms can exceedthis price cap. Many of the pharma firmsto charge better margins may find theoverseas market as an opportunity to selltheir products

g. Excess capacity of resources

Firms may move to international marketsto use excess capacity of resourcesavailable in the firm with respect tomanagerial expertise, proprietaryknowledge, financial resources, andproductive capacity more profitably thanalternative domestic markets. In thesecircumstances, firms may well embark on

marginal pricing and sell at lower priceson export markets, seeking only acontribution to their overall costs fortheir home-based market.

h. Small domestic market

Due to small domestic market, firms moveto international markets in aspiration ofmore profits, economies of scale. Many ofthe firms in countries have looked forinternational markets to carry business.As the number of pharma firm in India isaround 20,000 the competition is intense.Many of the people in India are unable tohave access to medicines (still 35-40% ofthe population). This limits the profit fordoing business in the domestic market. Sofirms look for international markets forbetter growth and profits.

Identification of determinants,measurement and tools used

We have identified 21 determinants fromseveral studies which emerged as majorexport stimuli for overseas market. Thesewere measured, as stated earlier, on aseven-point likert scale, indicating thedegree of importance, 1 being leastimportant and 7 being most important.Perceptions of managers were asked onthe importance of each stimulus affect onreasons for internationalization of theirfirm.

The unit of analysis under study wasdefined as the overall firm-level. All theindicators were measured in ordinal scaleof 1 to 7 in order to facilitate the use ofstatistical analyses (Katsikeas et al 1996).Several steps were followed to take care



of question wording, question sequence,questionnaire appearance to make itattractive and maintain better flow withhigh clarity. Content validity (facevalidity), is established by asking expertsopinion in the field to assess whether aparticular measure or question ismeasuring what the researcher isinterested in. The questionnaire wascirculated for a pilot study taking sixrespondents from the pharma sectordealing with international markets toensure that questions were relevant andphrased in a meaningful fashion. Thewhole process undertaken helped todiscard the ambiguity from thequestionnaire and frame the questions ina meaningful manner, which assuredcontent validity.

Data was collected using survey methodfrom Indian pharma companies engagedactively in exports. PROWESS databasewas used to identify only indigenousIndian pharma companies who have anexport sales turnover averaging morethan Rs.10 crores each year for the pastthree years. The total number of pharmacompanies who met the criteria was 87.The objective of the study was addressedwithin the context of indigenous Indianpharma companies actively engaged inexporting. All the firms were firstcontacted by telephone to know theirinterest to participate in the study; ofthese 9 firms were excluded, mainlybecause of wrong address, ceased exportoperations, or closed down due toacquisition. Of the remainder, only 62firms showed real interest in taking part

in the study. Some of the reasons givenfor non participation were lack of time,concerned persons unavailability asalways in overseas tours, and reluctantto provide outsiders with data due tosensitive issues (being pharma industry,the sensitive issues are more).

Personal interviews were carried outusing a structured questionnaire in mostof the cities where cluster of pharmacompanies are located such as Mumbai,Hyderabad, Chennai, Bangalore andDelhi. The reason for carrying personalinterviews is because in most of the caseswe find the top management peoplepassing on the questionnaire to any oftheir associates to fill the questionnaire.Also, during the process of datacollection, emphasis was placed onidentifying most appropriate individualavailable in each case to elicit therelevant information. Importantly, for allthe personal interviews, respondentswere in managerial level and reportedboth familiarity with their firmexporting activities and involvement inrelevant export marketing policydecision making. There were some firmswhich could not be interviewed on theabove locations as well as some pharmafirms which were situated in otherlocations. To these firms, the structuredquestionnaire was mailed, forwardedwith a letter from the institution citingthe purpose of the study. Also, anotherdraft was prepared citing the objectiveof the study and the definitions withoperationalization measures of each ofthe independent variables what they

71

denote in our present study. A note waswritten to the firms that only managerswith an experience of atleast four yearsin handling international markets in theirorganization was eligible to fill thequestionnaire. Knowingly, the name ofthe person, age, experience in the firm,designation was added in the last pageof the questionnaire to cross-check. Thisensures the reliability of the informationcollected, as interviewees responded toquestions within their domain area(Kotabe and Czinkota 1992). The draft,forward letter from institute and thequestionnaire were mailed throughinstitute printed envelopes with a selfaddressed return envelope for betterresponse. Additionally to incentivise therespondents, a question was added in thelast page asking the respondents whetherthey needed a personal copy of theresults of this study carried out. Out ofthe 60 responses, it was found that 45interviewee wanted the results of thestudy. This implied the importance of thestudy being carried out. Interestingly itwas found that most of the respondentswho did not want a personal copy of theresults of the study were in the age groupof 48-53. Maybe one of the reasons canbe predicted as due to their longexperience in handling internationalmarkets, they might not find this studyuseful. The data collection was spreadover a period of four months.

To evaluate possibility of non-responsebias in the data, a comparison was madebetween participating firms and non-participating firms with respect to

number of employees, sales volume,export ratio and years of exporting. Suchinformation could be generated fromonly 14 firms out of 27 firms that did notparticipate in the study. Using t-testprocedure under assumptions of bothequal and unequal sample variances, nosignificant differences between groupswere found at 5% level on any of thesevariables taking care of non-responsebias in the study.

The evaluation of responses to thequestionnaire was done by usingdescriptive statistics throughexamination of average responses(mean), frequency and standarddeviation of the respondents for each ofthe determinants.

Categorization of stimulating factors:Exploratory Factor Analysis was usedto analyze the structure ofinterrelationships among the 21 exportstimuli and identify groups of variablesthat can be conceptually useful indescribing export stimulation(Leonidou 1998, Calof 1994). Althoughthe total sample size is small (N=55),but we had no other choice as thepopulation size came to be 87 Indianpharma firms actively engaged inexports. Appropriate tests have beenconducted to test the adequacy of thesample size. Two measures, Bartlett’stest of sphericity and Kaiser-Meyer-Olkin measures were used for themeasure of sampling adequacy.Bartlett’s test of sphericity is used totest whether the variables are



correlated or uncorrelated in thepopulation, in other words, whetherthe population correlation matrix is anidentity matrix (Malhotra, 2004). It isbased on the chi-square transformationof the determinants of the correlationmatrix and large values of the teststatistic show that the variables arecorrelated in the population. KMOindex compares whether the data arelikely to factor well, based oncorrelation and partial correlation.Small values indicate that factoranalysis may not be appropriate. A cutoff of value of 0.6 is used but many ofthe researchers use a more lenient 0.5cut off value (Hair et al 1998, Malhotra,2004). Principal component analysis isused over common factor analysis as wewanted to determine the minimumnumber of factors which will accountfor maximum variance in the data foruse in subsequent multivariate analysis.Varimax rotation procedure was usedover oblique rotation as our objectivewas to minimize number of variableswith high loadings on a factor; therebyenhancing interpretability of the factorsNumber of factors was determinedusing the scree plot and eigenvalues.Eigenvalues for a factor denotes thetotal variance attributed to that factorand only factors with eigenvaluegreater than 1.0 are retained while theother factors are not retained in themodel. Scree plot is a plot of theeigenvalues against the number offactors in order of extraction.Depending upon the shape of the plot,

mostly when the curve makes an elbowtowards less steep decline, the screetest indicates to drop all furthercomponents after the one starting theelbow. Number of factors determinedby a scree plot generally would be oneor a few more than that determined byeigenvalue criterion (Malhotra N K2004). SPSS 11 was used as a dataprocessing tool to analyze the data.

4.0 ANALYSIS AND FINDINGS

The findings related to export stimuli ofIndian pharma firms have been presentedvide Table 2. It is found that seven stimuliwere held in relatively high regard bythe firms (cutoff X>5).

The most important determinant forIndian pharma firms to move tooverseas markets was found to beattractive profit and growthopportunities (x=6.07). This goes inaccordance with many other studies(Leonidou 1995a, Katsikeas 1996) whichhave also found the same determinantplaying a major role for firms movingto international markets. The other mostimportant determinants found weremanagerial urge/ interest/ aspirations(x=5.62), firm mission and vision (5.42),economies of scale (x=5.20), economiesof scope (x=5.11), technologicaladvantage (x=5.07), and lower costs oflabour, production and energy (x=5.09).As per Albaum’s classification ofproactive and reactive stimuli, we findall the seven stimuli are proactive innature.

73Panigrahy et.al, Internationalization of ...

Motive to start exports Mean(X) Std Dev. Frequency

2 3 4 5 6 71

Attractive profit and growth 6.07 0.81 0 0 0 2 10 25 18opportunities overseas

Technological advantage 5.07 0.84 0 0 0 14 26 12 3

Exclusive information about 4.62 1.41 2 1 5 19 17 3 8some foreign market

Managerial urge/ interest/ 5.62 1.15 1 0 3 1 14 27 9aspirations

Tax benefit 4.78 1.37 3 1 6 4 22 19 0

Economies of scale 5.20 1.33 0 2 4 6 20 20 3

Economies of scope 5.11 1.03 0 0 5 7 24 15 4

Speed to reach the market 4.67 1.29 1 0 10 13 16 11 4

Possession of special 4.93 1.07 0 0 5 13 23 9 5competitive advantage

Lower costs of labour, 5.09 1.42 3 0 5 2 21 19 5production and energy

National export promotion 4.96 1.45 3 2 3 4 20 20 3

Unique product advantage 5.00 1.07 0 0 3 15 23 7 7

Favorable currency 4.85 1.47 4 1 2 7 23 14 4movements

Competitive pressures 4.13 1.61 4 8 3 15 15 7 3

Overproduction 2.93 1.48 9 17 11 8 8 1 1

Saturated domestic markets 3.55 1.66 7 12 8 6 17 4 1

Proximity to customers 3.73 1.67 6 10 8 9 15 5 2and ports

Unsolicited export orders 3.27 1.48 7 14 7 14 10 3 0

Price control in domestic 4.04 1.72 6 7 7 8 14 12 1market

R&D and technology 4.47 1.55 1 5 12 7 13 13 4collaboration

Firm mission and vision 5.42 0.83 0 0 0 5 29 14 7

Table 2: Descriptive statistics


Stimuli which were also rated highly bythe respondents in export decisionmaking were possession of specialcompetitive advantage (x=4.93), speed toreach the market first (x=4.67), taxbenefits (4.78), national export promotion(x=4.96), unique product advantage (x=5)and favourable currency movements(x=4.5). All of these stimuli are proactivemotives which shows that Indian pharmafirms moving to international marketswas a proactive approach.

Competitive pressures in domesticmarket, overproduction, saturateddomestic markets, proximity tocustomers and ports, unsolicited exportorders were not found as the majorstimuli to move to overseas markets.These are all reactive motives as classifiedby Albaum.

R&D and technology collaboration(x=4.47) found a mixed response from therespondents for initiating exports. Oneof the reasons may be attributed that notall of the pharma firms have gone forresearch and technological collaborationto overseas markets. Only a few playerslike Ranbaxy, Dr. Reddys Lab, Glenmark,Nicholas Piramal have moved tointernational markets.

Drug price control in domestic markets(x=4.04) also found a mixed response forIndian pharma firms to move to overseasmarkets. Drug pricing policy of India putsa price cap on free pricing of drugs. Theprofits margins of firms are affected aspricing of drugs are fixed by thegovernment. It may be noted that one of

the cheapest manufacturer of medicinesglobally is India and the sales turnoveris solely based on volumes of drug sold.So, this maybe one of the reasons for firmsmoving to overseas markets.

Our study found national exportpromotion policies as one of the highrated indicators for firms moving tointernational markets. This responsecontradicts the earlier studies (e.g.,Leonidou 1988) which have cited nationalexport policies playing limited role inexport initiation. Researchers (Pradhan2004, 2006, Lalitha 2002) have foundpolicies framed by government of Indiahave played a favourable role in makingthe pharma industry a successful one andcompetitive. Indian Patents Act 1972 andliberalization policies taken in 1991 haveindeed been a boost for pharma firms tobe competitive domestically as well as ininternational markets. So our study goesin accordance with finding of the abovestudies that national policies have playedan effective role in shaping the pharmafirms.

Surprisingly, an unsolicited order fromcustomers overseas was not found tobe an important indicator for movingto overseas markets. This reactivemotive of firms was found to be one ofthe important indicators (Bilkey 1978)for stimuli of exports. The reason forsuch a finding may be cited as most ofthe respondents of the firms wouldhave not been there in the firm while ithad started taking decision to export.Also literature supports that

75

as the export experience of the firm rises,the importance of unsolicited ordersdiminishes (Johnston and Czinkota 1982).So this motive maybe not rated higherby respondents.

Proximity to customer ports also didnot find much importance in our study.This variable is based on “psychicdistance”. This concept indicates howfirms find convenient to export inthose countries which arepsychologically close with domesticcountry for having better performance(Johanson and Valhne, 1990). Thiscould be one of the reasons why mostof the Indian pharma firms have beena late mover to overseas markets.After liberalization in 1991, the psychicdistance would not have played amajor role due to globalization andliberalization of the economies, wherebarriers have reduced substantially.But some previous studies have citedpsychic distance had played animportant role for pharma firms whohad started exports in 1970s, as mostof the exports in that period were tocountries l ike Russia, Nepal, andBangladesh.

To summarize, our analysis usingdescriptive statistics finds Indianpharma firms moving to overseasmarkets was proactive approach ratherthan reactive. The most importantstimulant was found to be profit andgrowth opportunities overseas. Firmmission and vision to become a globalplayer and managerial interest/

aspirations also were found equallyimportant stimulations to move tooverseas markets. The study also findsR&D and technology collaboration as astimulant for pharma firms to move tooverseas markets.

Factor analysis results: A visualexamination of the correlation matrixwas carried out to find those that arestatistically significant. It was foundfrom the correlation matrix that out ofthe 210 correlations (21 independentvariables), 112 were statisticallysignificant at 0.05 level showing apercentage of 53.3 percent. Bartlet testof sphericity was found to besignificant at 0.001 level which showsthat correlations exist among thevariables (or non zero correlations).The KMO test (measure of samplingadequacy) (Table 3) was found to be0.732, exceeding the cut off value of0.6, stating that the variablescollectively meet the necessarythreshold of sampling adequacy aswell as fundamental requirements forfactor analysis to be carried out.


Table 3: KMO and Bartlett’s Test

Kaiser-Meyer-Olkin .732Measure of SamplingAdequacy.

Bartlett’s Test of Approx. 834.485Sphericity Chi-

Square

df 210

Sig. .000


Exploratory principal component factoranalysis using varimax rotation (Table 4)

of the 21 export stimuli found fivepossible factor-solutions can be retainedbased on percentage of variance andeigenvalues more than one. The fivefactors together explained 73.859percentage of the variance (Table 4) ofall the variables taken into consideration.It was found there was no significantoverlapping of items among factors.Factor 1, 2, 3 and 4 loaded a Cronbachalpha of more than 0.7, while factor 5loaded 0.495.

All the variables have been groupedunder five factors with a cutoff of +/-0.5 or above. It was found all loadings ofthe variables gelling together havesubstantially fallen above the threshold.

Table 4: Total Variance Explained,Extraction Method: Principal ComponentAnalysis.

Extraction Sums ofSquared Loadings

Component Total % of Cumu-(Eigen Variance lative % value)

1 6.610 31.475 31.475

2 4.655 22.167 53.642

3 1.813 8.635 62.277

4 1.353 6.442 68.719

5 1.079 5.140 73.859

Table 5: Rotated Component Matrix. Extraction Method: Principal Component Analysis.Rotation Method: Varimax with Kaiser Normalization. a Rotation converged in 8iterations.

Variables Components CommunalityFactor 1 Factor 2 Factor 3 Factor 4 Factor 5

PROFIT .620 .656

TECHADV .798 .762

EXCLINFO .866 .828

MGRURGE .748 .601

TAXBENEF .807 .740

ECOSCALE .760 .854

ECOSCOPE .633 .605

SPEEDMAR .636 .668

COMPADVA .762 .722

LOWLABOUR .813 .743

NATEXPO .871 .859

PRODADV .886 .834

77

Factor 1 has five significant loadingsthat are tax benefits, economies ofscale , lower costs of labour ,production and energy, nationalexport policy and favourable currencymovements. These all are proactivestimuli representing export benefit/opportunities and can be classifiedunder one category that is market pullmotives.

Factor 2 consists of seven significantloadings that are competitive pressures,overproduction, saturated domesticmarkets, proximity to ports, unsolicitedexport orders, price control andmission and vision of the firm. It isinteresting to find that mission andvision of firm has a negative sign whichmay indicate when all above variablesof the factor emphasis increases, themission and vision of firm to become aglobal player reduces or doesn’t gel

well with above indicators. Excludingmission and vision (communalityloading of 0.548), all the abovedeterminants are reactive motiveswhich may be looked as domesticmarket constraints for moving tooverseas market. These factors can benamed as local market push motives.

Factor 3 has four significant loadingsthat is technology advantage, somekind of competitive advantage, productadvantage and R&D collabouration.These again represent proactive motiveof the firm to move to overseas market.The technology advantage would be toachieve better product differentiation,competitive advantages maybe withrespect to pricing, promotion,distribution, manufacturing facilities,vertical integration of the organization,product advantage indicate uniquenessof product vis-à-vis competition, and


Variables Components CommunalityFactor 1 Factor 2 Factor 3 Factor 4 Factor 5

FAVCUREN .804 .793

COMPPRES .623 .774

OVERPROD .822 .718

SATDOMES .844 .808

PROXPORT .782 .791

UNSOLICI .678 .650

PRICECON .633 .777

RDCOLLAB .874 .779

MISSVISI -.601 .548

Cronbach’s alpha 0.9137 0.9077 0.8609 0.7723 0.495


R&D collaboration helps to achievebetter products. These all can beclubbed under one factor that is productsuperiority.

Factor 4 consists of three significantloadings that is exclusive informationabout the foreign market, managerialurge or inspiration and speed to reachthe market first. These are again proactivestimuli. The factor explains whenever themanagers get exclusive informationabout some opportunities in the overseasmarkets; they try to reach their first. This

factor can be termed as opportunityutilization.

Factor 5 consists of two significantloadings that are economies of scope andgrowth and profit opportunities. Bothare proactive stimuli for a firm to moveto overseas markets. It is found that firmslook actively for overseas markets forprofits and growth opportunities andeconomies of scope. The economies ofscope give the firm a better growthopportunity and profits. So this factor canbe named as growth motives.

Table 6: Export stimuli factors with variables classified as per proactive and reactivemotives

Factors Proactive Reactive

Tax benefitEconomies ofscaleLower costs of labour, produc-tion and energy National exportpromotion Favourable currencymovements.

Overseas marketpull motives

Local marketpush motives

Competitive pressures Over pro-duction Saturated domestic mar-kets Proximity to customer andports Unsolicited export ordersPrice control in domestic market

Technological advantageUniqueproduct advantageR&D andtechnology collaboration

Exclusive information about somemarketManagerial urge/interest/aspirations

Growth Motives Attractive profit and growthopportunitiesEconomies of scope

Product superiority

O p p o r t u n i t yutilization

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5.0 CONCLUSIONS AND SUGGESTIONS

Our findings and discussions have led tothe following conclusions. It is found thatIndian pharma firms moving to overseasmarkets was a result of not one singlestimulating factor, but a number ofproactive stimulants. Profit and growthopportunities in overseas markets,managerial urge/ interest/ aspirations,firm mission and vision, economies ofscale and scope, technological advantage,and lower costs of labour, production andenergy specific to domestic conditionswere found as the most importantstimulants.

Export stimuli of Indian pharma firmswere categorized conceptually intofive meaningful groups (viz. overseasmarket pull motives, local market pushmotives, product superiority,opportunity utilization and growthmotives), with a new set of underlyingstructure of relationships, followingthe classification of proactive andreactive motives. The findings alsoconfirmed the Albaum classification ofproactive and reactive stimuli. Firmscan look upon the factors for exportmaking decisions by following thestructure framed.

Prior studies conducted in the field havefound that proactive motives help thefirm achieve a better export performancewhen compared to reactive motives. Ourfindings can be compared with the exportfigures which show that Indian pharmaindustry has showed a positive tradesurplus over years from 1990s.

Managers of the firm should take steps tocultivate this spirit among employees fordoing business overseas. This sort ofcompetency building is important as wefound that most of the firms have movedoverseas for growth and enhancingprofits. This paper points the importanceof looking at various stimulants thatpromote exports. Technology and R&Dcollaboration in overseas markets is alsoimportant if firms wish to expand globally.This helps to acquire new technologies andcultivate an innovativeness spirit insidethe firm. This was one of the majorfindings from the study.

Drug pricing policy has acted as aproactive motive for Indian pharma firmslooking abroad. The main reason wasthat firms were unable to get higherprofit margins as the prices of medicineswere fixed by the government. The policymakers should look into this factor andframe appropriate policies to keep abalance between access of medicines topatients and pharma firms’ profitmargins. As pharma industry is highlytechnological intensive, lot of investmentsgoes towards research and developmentto produce new molecules ($800 millionto produce a new drug as per TuftsReport, 2003). Liberal pricing policy aswell as incentives from governmentwould help pharma firms to get funds toinvest in R&D activities for innovationof new molecules.

Understanding the firms’ motivationstructure provides guidelines for thedesign and implementation of effectivemarketing plans and national policy



designs for export promotion. Most ofthe studies earlier were conducted indeveloped countries. The uniqueness ofthis is that it presents a view of the exportmotives of the Indian pharma firms. Twomore new determinants have been addedwhich underlie and support exportmotives of Indian pharma firms. Theseare research and technologycollaboration in overseas and drugpricing policy. Although drug pricingpolicy is specific to pharma sector, thereexist different pricing policies framed bydomestic government which affect thefirms. This may stimulate some of themto look overseas. Researchers may usethese two motives to test across sectorsand countries and find whether anystructural differences exist. This mighthelp them to generalize from suchevidences to build export stimulationframeworks and enhance theorydevelopment of export stimuli.

REFERENCES

Aaby, Nils-Erik & Stanley F. Slater. (1989).“Managerial influences on exportperformance: A review of the empiricalliterature 1978-88”, International MarketingReview, 6 (4): 53-68.

Aggarwal A. (2004) “Strategic approach toStrengthening the International Competi-tiveness in Knowledge Based Industries: TheIndian Pharmaceutical Industry”, RIS-DP 80/2004, RIS Discussion Papers, available atwww.ris.org.in\Dp80_pap.pdf

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Annexure 1

DETERMINANTS OF PROACTIVE & REACTIVE STIMULI


Determinant Authors who have considered such determinants

Attractive profit and growthopportunities overseas

Technological advantage

Exclusive information

Managerial urge/ inspiration

Tax benefits

Economies of scale and scope

National export promotion

Unique product advantage

Possession of special competitiveadvantage

Firm mission and vision

Lower costs of labour, productionand energy

Kaynak and Kothari, 1984; Leonidou, 1988; Pavord andBogart, 1975, Albaum et al 2002, Diamantopolous et al1990, Leonidou 1995a, Ramaseshan & Soutar 1996,Leonidou and Leonidas 1998 Czinkota & Ronkainen 2004

Tesar & Tarleton (1982), Kothari (1989), Koh 1989,Czinkota & Ronkainen 2004, Cavusgil & Nevin 1981

Weaver & Pak 1990, Czinkota & Ronkainen 2004

Cavusgil, 1984a; Katsikeas and Piercy, 1993; Kaynak andStevenson, 1982, Leonidou 1995a, Leonidou andLeonidas 1998, Czinkota & Ronkainen 2004

Leonidou and Leonidas 1998, Baldauf, Cravens &Wagner 2000, Czinkota & Ronkainen 2004

Katsikeas and Piercy, 1993; Kaynak and Kothari, 1984;Sullivan and Bauerschmidt, 1988, Sullivan andBauerschmidt (1990), Leonidou and Leonidas 1998,Czinkota & Ronkainen 2004

Albaum et al., 1989; Bilkey, 1978; Kaynak and Kothari,1984

Cavusgil, 1984a; Cavusgil et al., 1979; Johnston andCzinkota, 1982, Tesar & Tarleton (1982) Karafakioglu(1986), Leonidou and Leonidas 1998, Czinkota &Ronkainen 2004, Cavusgil & Nevin 1981

Tesar & Tarleton (1982), Kothari (1989), jaffee et al (1988),Leonidou and Leonidas 1998, Czinkota & Ronkainen2004, Cavusgil & Nevin 1981

Leonidou 1995a

Zou S et al (2003)

Proactive Stimuli


Determinant Authors who have considered such determinants

Competitive pressures

Overproduction

Declining domestic scales

Excess capacity

Favorable currency movements

Saturated domestic markets

Proximity to customers and ports

Unsolicited export orders

Karafakioglu (1986) , Czinkota & Ronkainen 2004

Czinkota and Johnston, 1983; Leonidou 1988; Pavordand Bogart, 1975, Brooks & Rosson 1982, Joynt 1982,Ogram 1982, Tesar & Tarleton (1982). Kaynak et al 1987Sullivan and bauerschmidt (1990) , Czinkota &Ronkainen 2004

Pavord & Bogart (1975), Kaynak et al 1987, Karafakioglu(1986), Leonidou and Leonidas 1998, Czinkota &Ronkainen 2004

Barker and Kaynak, 1992; Kothari (1989)Diamantopouloset al., 1990, Leonidou and Leonidas 1998, Czinkota &Ronkainen 2004

Katsikeas and Piercy, 1993; Sullivan and Bauerschmidt,1988

Pavord & Bogart (1975), Ramaseshan & Soutar 1996,Leonidou and Leonidas 1998, Czinkota & Ronkainen2004

Baldauf, Cravens & Wagner 2000, Czinkota & Ronkainen1995, Cavusgil & Nevin 1981

Albaum, 1983; Kaynak and Erol, 1989; Piercy, 1981a,Simpson & Kujawa (1974) Tesar & Tarleton (1982),Ghauri and Kumar (1989)

Reactive Stimuli

Source : Collected from various research studies and compiled by the author

1.0 INTRODUCTION

Companies adopt advanced technologiesto simultaneously lower costs andimprove quality of their products and todeliver them to their customers rapidly(Hottenstein, 1997). Process-structurecomplexity, product-line complexity,organizational scope and its marketingstrategies also affect an organization’spropensity to seek technology (Gupta,Lonial and Mangold, 1991; Gupta andLonial, 1998; Kotha and Orne, 1989).Moreover, small and medium sizecompanies are now seeking advancedappropriate technologies to make themmore competitive in the world markets(Grieve, 2004). Scott-Kennel (2004) has

Competencies Necessary for TechnologyTransfer from Home to Host Country

Companies: A Case Study*

Kiran J. Desai1 & Harsha Desai2

Abstract

Effective technology transfer between two organizations is influenced not only by the needs of thereceiving organization, but also by its culture and a match between the cultures and managementprocesses of both organizations.

similarly suggested that foreign directinvestment by the multinationalcompanies into their local partners allowsthe host country partners and subsidiariesto gain a competitive advantage.

2.0 LITERATURE

Balachandra (1996) has identified a newparadigm for technology transferprocess from a developed to adeveloping country. When the transfertypically takes place between smallfirms, there is little governmentinterference, the transfer takes placerather informally, and the technology is“obtained in the best possible manner.”Khosrow and Desai (1982) suggest thata successful technology transfer process

* Received January 2, 2007, Revised June 8, 2007; Both authors contributed equally to the paper.1. Professor, McNeese State University, Lake Charles, Louisiana, USA2. Professor, Loyola College in Maryland, Baltimore, Maryland 21210, USA,

email:[email protected]


across borders involves at least fiveforces: a set of actors who initiate,approve, accept, and adopt newtechnology; several processes includinglicensing, exchange controls andrepatriation issues; the mode oftechnology transfer including jointventures, licensing arrangements, anddirect establishment of subsidiaryoperations; the macro environmentalchallenges including government policyfor exports and ownership; and themicro environment factors that includefinancing of the venture, borrowingrules and regulations, and foreignexchange requirements. Cobb andBarker (1992) have reported that higherthe education level and job skills of theparties involved more effective is thetechnology transfer. Wie (2005)reporting on transfer of technologiesinto Indonesia has suggested thatcompanies acquiring new technologymust “assimilate, adapt and improvethese imported technologies” formaximum benefit.

The managers in a typical companyseeking technology transfer think thatindividuals responsible for this transferwill intuitively think through thechallenges confronting transfer.Unfortunately, this is not true. Theextant literature suggests that for aneffective technology transfer to takeplace between two organizations acrossborders, a process or methodology for

achieving this transfer must exist (Eldredand McGrath, 1997). These authors havesuggested the following process for asuccessful and satisfactory technologytransfer: One, transfer must take placeat the right time – the technology beingtransferred (equipment, process,drawings) and its application must be insync. For example, if the new technologyis being used for product development,then the timing of the transfer mustsynchronize with the new productdevelopment where it will be used. Thenew product development team has tobe ready to accept the technology in thedevelopment process. Two, thesupporting technologies must be available– typically technology transfer requiresadditional work to bring about theinstallation of that technology into anexisting organization. For example, thequestion about how the power needs ofthe new technology will be met and howwill the other infrastructure needs (land,utilities, training requirements to operatethe new technology) of the newtechnology satisfied. And three, themanagement of technology transferprocess – It is important to assure thatthe existing culture and management ofthe receiving organization is capable ofabsorbing the new technology. Griffith,Kiessling and Dabic (2005) describesimilar difficulties experienced by themultinational corporations as theyattempted to transfer technologies totheir Croatian subsidiaries. The local

87Desai et.al, Rural Competencies ...

managers were unable to transfertechnology effectively because of theirlack of skills or unwillingness to acceptthe new technologies. The managerspresumed that these technologies woulddisrupt their current mode of operations.The ‘way things are done around here’may have been the culprit in ineffectivetransfers. The technology transferprocess may face obstacles if theorganization is secretive about itsbusiness practices and one part of theorganization is kept in the dark about therelevant goings on in the other parts ofthe organization. If the incomingtechnology requires cooperation amongthe company’s subunits, it will be difficultto absorb the new technology. Ferdows(2006) discussing appropriate absorptivecapacities of host firms receiving newtechnology from home firms commentsthat often this transfer of technology iseasier if the tacit knowledge of the homefirm is somehow codified (drawings,manuals, skills training); this codificationbecomes difficult and hence the transferbecomes difficult when the know-howchanges frequently. Sacchetti (2004) hasadvocated that unless there is aconsistent part of the population in thedeveloping country (like India) that isliterate and the domestic development ofscientific and technical knowledge isfairly well advanced, it is difficult for ahome country to successfully provide andthen implement advanced technology to

a host country company. James (2006)has emphasized that “concepts designedfor the rich countries may beinappropriate to the conditions prevailingin the majority of poor countries thatcomprise the Third World.” This adviceis especially true of technology concepts,including equipment, that are transferred“as is” from the rich countries to the poorcountries!

As we will see later in the case study,this is exactly what transpired. Acompany’s current manufacturingstrategy defines a company’s inventorymanagement practices as well as the skillsof its workers. It also partiallycircumscribes what the company is or isnot capable of or willing or not willingto do by way of making changes. Thebusiness-market considerations providea company’s long-term strategy definingnot only its current positioning in themarket vis-à-vis its competitors, but alsoits willingness to modify its technologyand modify its present tangible andintangible resources and organizationalcapabilities so as to meet new marketchallenges (Barney, 1991). The business-market strategies also guide a company’smanufacturing strategy. Technologytransfer considerations in this milieuaffect both the manufacturing andbusiness-market strategies. In turn thesetwo strategic issues directly affect thescale and the scope of a company’stechnology transfer activities.


3.0 A CASE STUDY

In the following sections we apply ourtechnology transfer ideas to a gemstonebusiness. The case involves a uniquetechnology, but the lessons of how bestto or not “to do technology transfer”apply equally well to other industries andcases. The gemstone business casedescribes the considerations of a transferof an automated gemstone manufacturingfactory from Europe to India.

The Gemstone Business

In the worldwide precious andsemiprecious stone industry, the currentpractice is for a buyer to approach a sellerto look for what’s available in stock. Thispractice encourages the seller to pursuea manufacturing strategy of producing tostock – build to inventory - and sell fromstock. Unfortunately, there is seldom anattempt made at the producer or thetrader level to forecast the demand; theindustry is driven by “current fashions”making it very difficult to anticipateconsumer preferences for colourgemstones.

Recognizing this continuing difficulty ofresponding with inventory to meet theshifting customer preferences shaped byfashion, a company we worked withdecided to explore possible changes inits manufacturing strategy.

This company’s business strategyenvisioned that the buyer could simplywalk into a shop and ask for certain size

of stones with a given quality and in anyquantity. The business strategy alsoenvisioned that if the pre-shaped stoneswere on hand then the business shouldbe able to deliver the requirement withinthree days. This strategy was thoughtto increase the company’s market shareby providing better value to customersat lower prices that were driven by loweroverall manufacturing cost.

For this business-market strategy tosucceed the company realized that itneeded a new manufacturing strategyand a new method of processing. Anextensive worldwide search led to thehighly mechanized process used inEurope; this process was also suitable forsynthetic stones. However, the newlyfound European equipment was veryexpensive in the Indian context. As luckwould have it, soon an opportunity arosewhen a German company went bankruptand its equipment could be bought in anauction.

In order to transfer this equipment toIndia, with no engineers on thecompany’s staff and little experience indealing with an “integrated plant”,authors had to device a comprehensivetechnology transfer model. Theequipment was purchased at 10 cents onthe dollar. An engineering team spentsix months in Germany; upgraded theautomation technology from electronicto programmable logic controller (PLC);and received the necessary training on

89

the running and maintaining of theequipment. The plant was transferredto India with the German technicians’help to their counterparts in India.Acquisition of this automatedtechnology forced vertical integration -knowing and capability of replacingcutting and diamond coating, polishingsurface, and programming and systemanalysis of PLC. The manufacturing andbusiness strategies were thuscoordinated with the technologytransfer processes.

Transfer of technology benefits for thegemstone business

• Will ensure incompetitiveness inproducing large quantity of highquality standardized colourstones;

• Processes will become more capitalintensive - only 25 people will beneeded to work per 8 hour shift, toproduce between 8,000 to 15,000stones in an automated factory, asopposed to 850 workers in a manualfactory;

• Automation will provide an avenuefor measuring and recording dataand quality; this was difficult inmanual processing.

Challenges faced by the company

Periodically, the company must send themachinery abroad for a new diamondcoating. To get this done, the Indian

government has to give permission toexport the machinery: the cutting andfaceting drum takes many months to berepaired; an import license is needed toimport the drum back to India; thepolishing drum has to be refurbished byeither importing the sleeve of coating orimporting the chemicals to make thecoating; and finally, the polishing drumstake at least two weeks to clear customsin India.

Moreover, there is no maintenanceinfrastructure available in India forsimilar machines. Frequent powerfailures are a part of life as are theunavailability of locally made repairparts for machinery. Since the businessis quite competitive, its manufacturingprocesses need to remain a closelyguarded secret; under these conditions,training provided by outsideindividuals can compromise thebusiness.

Outcome and Conclusions

The German plant was acquired at 10cents on the dollar. The company’sengineers spent six months in Germanyto upgrade to new PLC technology aswell as learning the basics of using theequipment. The plant was imported intoIndia and was installed. It took morethan a year to impart the skill andknowledge to local engineers andworkers. German technicians were calledin for help for a short duration.

Desai et.al, Rural Competencies ...


4.0 TECHNOLOGY TRANSFER ADVICE ANDITS APPLICATION

The table-1 is our attempt to summarizethe advice technology transfer literaturehas to offer for small and medium sizecompanies. The first column shows thevarious author(s) and a brief review oftheir comments. The second column isthe actual advice the article offers, and

the third column is the application wewere involved in. The three columnstogether give a quick overview of themost up-to-date technology transferadvice and its application.

In the following, Host firm is thetechnology ‘receiving’ firm and theHome firm is the technology ‘giving’firm.

Article Advice Application to the GemstoneBusiness

Balachandra (1996)

Transfer takes place betweensmall firms

The host firm has to find andinduce the technicians workingin it to understand thetechnology.

Khosrow and Desai (1982)

Home firm - Originator ofTechnology

The home firm wasbankrupt and unable toprovide help in the transferof technology; eventually,the host firm did send aproject team to the homefirm in Germany to masterthe technology.

Need to assure that drawings,technical manuals and technicalhelp are available at the homefirm for technology transfer.

The home firm wasbankrupt and could notadequately provide thisassistance.

Host firm - Receiver ofTechnology

Need to understand theinfrastructure and technicalrequirements that follow thenew technology.

The host firm had a historyof failures in high-techmanufacturing. The familyownership of the companyhad little formal / technicaleducation. And the host firmhad insufficient infrastruc-ture to support the transferof technology.

Transfer of TechnologyProcess

Mode of transfer of technologymust be determined prior to thepurchase of technology. Both

The host firm had to transfertechnology without thebenefit of the home firm’s

Table 1 : Authors’ Comments, Article advice & Application to case

91


the home and the host firmsshould know how this newtechnology will transfer!

help – since the homecountry firm was no longerin business (the newtechnology was beingobtained via an auction).

Macro environment Indian government liberal-ized the importation of usedfactory/machineries. Thiswas timely for the hostfirm’s acquisition of thenew technology.

The home and host firms needto take advantage of newgovernment policies.

Micro environment Both the home and host firmsneed to take advantage of theprevailing liberal rules forforeign exchange and customduties.

The host firm successfullyobtained the license toimport the new machinery.

Cobb and Barker (1992)

Higher the education andskills of the workers in thehost firm, more effective thetransfer.

The host firm needs toestablish the requirededucation and skills beforecommitting to the acquisitionof the new technology.

Lack of in-house technicalexpertise created delays anddependency on outsidetechnician for timelytechnology transfer.

Eldred and McGrath (1997)

Transfer must take place at theright time; technology and itsapplication must be in sync.

Both the home and host firmsmust scan for businessopportunity.

The host firm recognized apotential threat fromChina; finding a Germanfirm going into bankruptcywas fortuitous, and the hostfirm could acquire Germanplant.

Griffith et.al. (2005)

Host firm's unwillingness toaccept new technology leadsto ineffective technologytransfer.

The host firm needs toestablish the education andskills requirements beforecommitting to the acquisition

Lack of in-house technicalexpertise created delays anddependency from outsidetechnician for technology




of the technology; at the sametime the host firm needs toprepare the existing workforceto accept the new technology.

transfer in a timely manner.Separate plant was createdwith few trusted employeesto assure success.

Barney (1991)

The business-marketconsiderations andwillingness to modifytechnology.

To stay competitive in theworld markets, the host firmneeds to continuously look fornewer technology to adapt tochanging business-marketconditions.

The host firm anticipatedthe threat from China andthe shortage of skilledworkers, hence it looked foran automated plant (alsoimprove the quality of itsproducts) and volumeproduction.

Wie (2005)

The host firm mustassimilate, adapt andimprove the importedtechnology.

The host firm must plan forassimilation, adaptation andeventually improve theimported technology.

This advice was followed:an engineer from the hostfirm was trained in the newtechnology.

Sacchetti (2004)

The host country haspopulation that is literate andhas a fairly developedscientific and technicalknowledge.

Predetermining theavailability of necessary skillsand knowledge in the hostcountry.

It was difficult for the hostfirm to obtain the necessarytechnical assistance.

Pantano (2005)

Continue to work on theknowledge cycle of research,design, development andmanufacture, adapting,adopting and improvingupon the availabletechnology.

In the medium to long run, thehost firm needs to look forfuture expansion and improveon the acquired technology.

The host firm had plannedfor this; no currentinformation is available onits status.

Creating an empoweredworkforce - being able todiscuss and participate indecision making regardlessof the rank and title.

Looking at TQM, Six Sigmaprogram, and ISO 9K-2K, thehost firm should encouragethe participation of rank andfile in the technology transferprocess.

With the nature ofownership at the host firm(family ownership) and itspenchant for secrecy thisopenness will not takeplace at the host firm.

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Bessant and Francis (2005)

Soft technology (manage-ment competencies), continu-ous improvement, compe-tencies of recipient organiza-tion

The host firm cannot import‘management style’; the newmanagement processes haveto be developed internallywithin the host organization.

The host firm managementstyle needed to be changedto adapt the new technol-ogy; but due to family own-ership of the business anda strict requirement formaintaining secrecy, it wasdifficult to adapt the newtechnology.

The most important lesson learned is thatthe technology transfer from the hometo the host firm requires both of thesecompanies to have sufficientunderstanding of each othersmanagement styles, skills and educationlevels and the sufficiency of the hostcompany’s infrastructure. To be able toaccept, adopt or adapt the newtechnology both the home and the hostcompanies must be aware of the nuancesof each others’ cultures!

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Abstract

In recent years there has been widespread acknowledgement of the significance of managerial andorganizational failures in the causation of accidents. The activities and processes involved in managingsafety have come under increasing scrutiny due to development of new approaches for safety management.This paper identifies six critical safety management practices that are relevant in Indian scenario and avalid and reliable instrument is developed to measure the level of these management practices inindustries. This diagnostic tool can be used to identify areas of weakness in safety management programmesand remedial efforts can be designed to improve the safety level in an organization. The study wasconducted in eight chemical industrial units in Kerala, a southern state in India.

Measuring Critical Factors in SafetyManagement - A Survey Based Approach*

M.N. Vinodkumar1 & M. Bhasi2

1.0 INTRODUCTION

Investigations of the major industrialdisasters in last two decades havepointed out that the events leading to theaccidental outcome had their origins inthe organization and management of thesystem. Most of these industrialaccidents are attributable to factors suchas poor management and training andother individual psychologicalcharacteristics, than to unforeseeableweaknesses in technical components(Kennedy and Kirwan, 1998). For thisreason, focus has moved away from a

technical and human error focus ofaccident prevention, to the activities orprocesses that are involved in ‘SafetyManagement’. Safety management can beregarded as a sub-system of the totalorganizational management, speciallydesigned to cater to safety of employeesin an organization. It is the documentedand formalized version of the safetymanagement systems that exist as adocumented system of policy, proceduresand instructions etc. It is an overallsystem for ensuring that safety activitiesare properly planned, effectively

* Received July 21, 2006; Revised July 19, 20071. Reader, Cochin University of Science & Technology, Kochi, Kerala, email:

[email protected]. Reader, Cochin University of Science & Technology, Kochi, Kerala, email: [email protected]


implemented, and that follow up systemis arranged. The primary aim of safetymanagement is to intervene in thecausation process that leads to accidents.

Safety management attained significancein India only after the Bhopal gas tragedyin 1984. Learning lessons from Bhopaldisaster, most of the industrialorganizations in India have madeconsiderable investments in safetyrelated infrastructure, equipment andtraining. Enforcement rules andregulations have also been made morestringent with a number of amendmentsin the Acts and Rules.

Every Indian manufacturingorganization is supposed to prepare a‘Safety Manual’ based on ‘The FactoriesAct, 1948’ and state ‘Factory Rules’ totake care of the health and safety of itsemployees, covering the variousmanufacturing activities employed in thecompany. To what extent these arepractised in reality depends on thecommitment of the top management ofthe organization. Committedmanagements subsequently adoptvarious safety management practices tosafeguard their employees from workrelated hazards whereas others try tomanage safety of employees byencouraging them to work safely. Ascientific investigation into this only canreveal what is happening inside theorganization so that improvementmethods can be suggested.

2.0 SAFETY MANAGEMENT PRACTICES

Earlier investigations into safety inindustries (Cohen and Cleveland, 1983;Cox and Cheyne, 2000; Glendon andLitherland, 2001; Vredenburgh, 2002;Zohar, 1980) have identified variousfactors that influence safetyperformance in industries. The same setof factors were never observed in thesestudies indicating that the factors are notuniversally stable and varies withcultural background of the sample andtype of industry. Along with attitudinal,motivational and behavioural factors, afew management factors were alsoreported to be important in thesestudies.

Different safety management practicesare adopted in industries bymanagements to promote health andsafety of workers. In one of the firstinvestigations of safety climate, Zohar(1980) found that management’scommitment to safety is a major factoraffecting the success of an organization’ssafety programmes. The safetycommitment of the management mustresult in an observable activity on thepart of the management and must bedemonstrated in their behaviour as wellas their words (Hofmann, Jacobs andLandy,1995). Employees’ perceptions willreflect how employees believe that safetyis to be valued in the organization (Griffinand Neal, 2000). In high riskenvironments like chemical industries,

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management commitment has beenrepeatedly highlighted (Cox and Flin1998, Flin et al. 1996, Cox and Cheyne2000).

In order for employees to be activeparticipants in a safety programme, theymust receive occupational safety training.Safety training provides the means formaking accidents more predictable. Toimprove the level of safety and health forall employees, organizations shouldinstitute a systematic, comprehensivesafety and health training programme fornew employees, provide a mentor forthese employees and use a buddy systemto help orient new employees in thesafety, health and quality systems(Vredenburgh, 2002). The studies of Lee(1998), Ostrom et al.(1993), Tinmannsvik(2003), Cohen et al. (1975), Smith et al.(1975) and Zohar (1980) have found thatthose companies with lower accidentrates were characterized by good safetytraining for employees.

Employee participation is a behavioural-oriented technique that involvesindividuals or groups in the upwardcommunication flow and decision-makingprocess within the organization. Theamount of participation can range fromno participation, where the supervisormakes all decisions, to full participation,where everyone connected with, oraffected by the decision, is involved. Sinceemployees close to the work are the best-qualified persons to make suggestions

about improvements, they can beconsulted before making final decisions,especially for those decisions that affectthe employees (Vredenburgh, 2002). Thisempowerment of workers provides themwith authority, responsibility andaccountability for required decisions andensures that both employees andmanagement are involved in setting goalsand objectives. It induces employees todo their best work as individuals and asa team, while relieving the manager toplan, lead and mentor (Cohen andCleveland, 1983). Worker involvementhas been reported as a decisive factor insafety management by Lee (1998),Rundmo (1994), Dedobbeleer and Beland(1991), Shannon et al. (1996) and Cox andCheyne (2000).

Regular communication about safetyissues between management, supervisorsand the workforce is an effectivemanagement practice to improve safetyin workplace. Cohen (1977),Vredenburgh (2002), Cox and Cheyne(2000) and Mearns et al.(2003) includedcommunication and feedback as a factorin their surveys using questionnaireamong various category of workers andshowed that safety performance isinfluenced by the level of communicationin an organization.

Well documented safety rules andprocedures and its enforcement bysupervisors and managers can improvesafety behaviour of workers. Glendon

Vinodkumar et.al, Measuring Critical ...


and Litherland (2001) reported this as areliable factor after factor analyzing thedata collected from constructionworkers. Cox and Cheyne (2000) andMearns et al. (2003) included safety rulesand procedures as a factor in theiroffshore safety studies and showed thatit has significant correlation with accidentrates.

The use of incentives, awards andrecognition to motivate employees toperform safely is an accepted feature ofboth organization behaviourmanagement and total qualitymanagement models (AccidentPrevention Manual for Business andIndustry, 12 ed., NSC, Illinois). They canadd interest to the hazard controlprogramme of an organization andenhance self-protection action on the partof the workforce (Cohen et al., 1979). Awell-designed reward system should becharacterized by high level of visibilityin the organization, offering recognition,which can help modify behaviour(Vredenburgh, 2002).

Recruiting new personnel, who arepredisposed to displaying safetyconscious attitude in their work, is amanagement practice adopted in manydeveloped countries. Turner (1991),Eckhardt (1996) and Vredenburgh (2002)found that the consideration of safetyperformance in the selection ofemployees is a significant predictor ofinjury rates.

3.0 OBJECTIVES OF THIS STUDY

Research in safety all over the world hasproved that quality of a product is closelyrelated safety of work environment.Hence, it has become necessary for thefast growing Indian companies,especially high hazard chemical andprocess industries, that are competingwith reputed multinational companies toimplement effective safety managementpractices to ensure safety of theirworkforce. The level of these safetymanagement practices implemented andtheir effectiveness along with the safetyoutcomes need to be measured forpossible improvements and corrections.Hence, the objectives of this study wereto

1. identify the critical factors ofsafety management relevant toIndian chemical and processindustry, and

2. design and develop an instrumentthat is valid and reliable to measurethe identified critical factors of safetymanagement.

4.0 METHODOLOGY

4.1 Identification of critical factors ofsafety management

Based on survey of literature anddiscussion with safety managers in largechemical industrial units, the followingsix critical safety management practiceswere identified:

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• Management Commitment

• Safety Training

• Worker Involvement in Safety

• Communication and Feedback

• Safety Rules and Procedures and

• Safety Promotion Policies

Hiring practices (recruiting experiencedsafety conscious employees) that is foundin many developed countries is notconsidered in this study since such apolicy is not adopted in industrial unitsin Kerala.

4.2 Measuring critical safetymanagement practices

4.2.1 Instrument

From a review of related literature andtheory, a 44-item questionnaire coveringareas of management commitment, safetytraining, worker involvement, safetycommunication and feedback, safetyrules and procedures and safetypromotion policies was prepared. Theitems included were employees’perceptions of those safety managementpolicies that are found to discriminatebetween high versus low accident-rateorganizations. The content of this draftquestionnaire was discussed with seniorsafety professionals from industries andsenior professors in management toensure validity. The experts wererequested to scrutinize the questionnaire,give their impressions regarding the

questionnaire, and also give objectivefeedback and suggestions with regard tocomprehensiveness and coverage,redundancy level, consistency andnumber of items in each variable. Afterconsidering each item in detail, necessarychanges were made by simplifying,rewording, removing and replacing someof them. A pilot survey was conductedon a selected sample of 100 workers fromfive industrial units to get the feedbackabout the clarity of items. Subsequently,some of the negatively worded itemswere changed to positive wording forsimplicity.

The final questionnaire contained 35 items(Table 1) and it was decided to give thequestions in English as well as the locallanguage Malayalam. The respondentswere asked to give their preference on a5 point Likert scale (strongly disagree,disagree, neither disagree nor agree,agree and strongly agree) in order toevaluate the subject’s agreement witheach item. 28 items were phrasedpositively and 7 items negatively so thatstrong agreement in the former andstrong disagreement in the latter resultedin a higher score in favour of safety forthat item. The questionnaire ready foradministration consisted of two parts.Ten demographic questions about thename of the company, department,designation, qualification, age, sex,number of years of experience, accidenthistory, number of accidents in 2002 while



working in this company which resultedin at least 2 lost working days as perIndian Factories Act 1948 and number ofworking days lost due to above accidentsin 2002 constituted the first part. Thestatements related to safety formed thesecond part. Space was provided besideeach statement to mark the preference inthe 5-point Likert scale. To maintainanonymity, identity of the respondentwas not requested in the questionnaire.

4.2.2 Sampling and Data Collection

Eight large chemical industrial units inKerala were selected for questionnaireadministration. All factories had aworker population of 400-800 withseparate safety departments. From theprevious accident records submitted tothe government, it was observed that twoof them had high accident rates, four

moderate and two low accident rates.After getting permission from therespective managements, thequestionnaire was distributed personallyto all workers present in the general shiftand the morning shift. Completedquestionnaires were personally collectedfrom the participants in the evening and1806 completed forms were received. Outof this, 1566 were from workmencategory and 240 from supervisory levelfirst line officers. The number ofquestionnaires distributed and returnedfrom the eight industrial units withpercentage response rate is shown inTable 2.

Table 2. Sample size and response rate.

Org No. No. Responsegiven returned %

1 342 224 65

2 510 373 73

3 368 243 66

4 231 168 73

5 280 205 73

6 225 171 76

7 245 168 69

8 335 255 76

Total 2536 1806 71

The reason behind opting for a largesample like this was that a smaller sampleselection from various departments ineach industrial unit was looked uponwith apprehension by the workers sincethe matter was related to statutory

Table 1. No. of items in Critical SafetyManagement Practices

Critical safety No. of itemsmanagement practices

Management Commitment 9Safety Training 6

Worker Involvement 5in Safety

Communication and 5Feedback

Safety Rules and 5Procedures

Safety Promotion 5Policies

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requirements of safety of workers. Theyfeared that if the data collected by theresearcher is given to the managementfor any reason, the top management willbe able to identify each respondent andhis answers that might have gone againstthe interests of the company, and mayfinally result in victimization orharassment of those employees. A firstattempt for a smaller sample selection inthe first organization met with failure,as the workers were reluctant to fill thequestionnaire due to these reasons. Theactual reason was identified afterdiscussions with the trade union leaders.Hence, it was decided to give thequestionnaire to all eligible respondentspresent during day time.

4.3 Validity, Reliability andUnidimensionality Analysis

Validity is defined as the extent to whichany measuring instrument measures whatit is intended to measure (Carmines andZeller, 1990). The proposed instrumenthas been tested for validity, so that itcould be used for meaningful analysis.The three aspects of validity, namely,content validity, face validity andconvergent validity, have been tested.

4.3.1 Content Validity

Content validity of an instrument refersto the degree to which it provides anadequate depiction of the conceptualdomain that it is designed to cover (Hair,Anderson, Tatham and Black, 1998). Inthe case of content validity, the evidence

is subjective and logical, rather thanstatistical. Content validity can beensured if the items representing thevarious constructs of an instrument aresubstantiated by a comprehensive reviewof the relevant literature (Bohrnstedt,1983).

4.3.2 Face Validity

Generally, a measure is considered tohave ‘face validity’ if the items arereasonably related to the perceivedpurpose of the measure (Kaplan andScauzzo, 1993). Face validity is thesubjective assessment of thecorrespondence between the individualitems and the concept through rating byexpert judges and can be establishedthrough review of the instrument byexperts in the field (Hair et al., 1998). Facevalidity is also a subjective and logicalmeasure, similar to content validity.

4.3.3 Reliability Analysis

Reliability of an instrument is defined asthe extent to which any measuringinstrument yields the same result onrepeated trials (Carmines and Zeller,1990). Out of many methods, the internalconsistency method is considered to bethe most effective method especially infield studies. The internal consistency isestimated using a reliability coefficientcalled Cronbach’s alpha (a) with the helpof statistical programme SPSS 10. TheCronbach’s alpha value of above 0.6 orabove is considered significant inexploratory research (Hair et al., 1998).



4.3.4 Convergent Validity

The evidence for ‘convergent validity’ isobtained when a measure correlates wellwith other measures that are believed tomeasure the same construct (Kaplan andScauzzo, 1993). Using confirmatory factoranalysis technique, the convergentvalidity of the questionnaire was checkedwith the help of a coefficient calledTucker-Lewis Index (TLI). Statisticalprogramme AMOS-4 was used for thispurpose. A scale with TLI values of 0.90or above is an indication of strongconvergent validity (Bentler and Bonnet,1980).

4.3.5 Unidimensionality Analysis

Unidimensionality refers to the existenceof a single construct/trait underlying aset of measures (Hair et al., 1998).Individual items in the model areinvestigated using AMOS-4 to see howclosely they represent the sameconstruct. A Comparative Fit Index (CFI)of 0.90 or above for the model impliesthat there is strong evidence ofunidimensionality (Byrne, 2001).

4.4 Predictive Validity

To establish the predictive validity of theinstrument, the following hypotheseswere formulated.

H1 : There is significant negativecorrelation between ManagementCommitment and the accident data.

H2 : There is significant negativecorrelation between Safety Training andthe accident data.

H3 : There is significant negativecorrelation between Worker Involvementin Safety and the accident data.

H4 : There is significant negativecorrelation between SafetyCommunication and Feedback andthe accident data.

H5: There is significant negativecorrelation between Safety Rules andProcedures and the accident data.

H6 : There is significant negativecorrelation between Safety PromotionPolicies and the accident data.

H7 : There is significant negativecorrelation between Total SafetyManagement Score and the accident data.

The above hypotheses were tested bycalculating Pearson’s correlationcoefficients. Given two sites withrelatively equal hazard risks, the one withthe better safety management scoreshould have fewer accidents and lostworking days. First, the means of thesummated scores of each of the sixfactors of safety management, self-reported accidents and number ofworking days lost for each of the eightchemical companies were calculated(Table 4). These means were thencorrelated with the accident rates and lostworking days in the year 2002 in each ofthese companies. It was found that thereported accident frequency ratessubmitted by the companies to the stategovernment were not reliable due to

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various reasons. Therefore, self-reportedaccident rates and working days lostcomputed from the responses to aquestion asking the participants to givethe number of accidents and workingdays lost in the year 2002 was used forthis purpose.

5.0 RESULTS AND DISCUSSION

The objective on the first part was toidentify critical safety managementpractices that influence safetyperformance in industries. Even thoughsafety management is gaining importancein India, it is yet to completely break freefrom the shackles of “Traditional SafetyManagement”. Because of this, mainsource of information was internationalstudies and discussions with safetyprofessionals.

The present instrument has beendeveloped based on a detailed review

and analysis of the prescriptive,conceptual, practitioner and empiricalliterature, so as to ensure the contentvalidity. Face validity was assured in theinitial stages of questionnairedevelopment itself.

The reliability of the scale developedwas tested by computing Cronbach’salpha (a) value for all the factors. Thisprocedure resulted in removal of 6items from the instrument. Sufficientcare and judgement were used to seethat the content validity of each scalewas not lost while removing items. Theresults are presented in Table 3. It canbe seen from the table that all thefactors have Cronbach’s alpha valueabove 0.6, which testifies the reliabilityof the instrument.

Results of Confirmatory Factor Analysis(Table 3) show that Convergent validitycalculated using Tucker-Lewis Index

Table 3. Results of Confirmatory Factor Analysis: Unidimensionality, ConvergentValidity and Reliability coefficients for safety management practices.

Sl. Safety Management Practices No.of Comparative Cronbach’s Tucker –No items Fit Index Alpha Lewis

(CFI) (ααααα) Index (TLI)

1 Management Commitment (MC) 8 0.963 0.8632 0.948

2 Safety Training (TR) 5 0.993 0.8173 0.986

3 Workers’ Involvement (WI) 4 0.953 0.6924 0.948

4 Communication (CO) 4 0.980 0.7043 0.940

5 Safety Rules & Procedures (SR) 4 0.998 0.8078 0.994

6 Safety Promotion Policies (SP) 4 0.940 0.6346 0.920

Overall fit - 0.914 - 0.903



Table 4. Mean values of safety management practice scores, self - reported accidentsand days lost in 8 industrial units along with Pearson’s Correlation Coefficients.

Org. Accidents Days lost MC TR WI CO SR SP Total

1 0.0670 0.6295 27.49 19.05 13.06 13.22 14.05 12.87 99.75

2 0.0912 1.2091 26.23 17.44 12.35 12.45 13.56 13.39 95.42

3 0.0988 0.8601 26.79 18.29 13.08 13.11 13.40 12.79 97.47

4 0.0595 0.8333 25.29 15.46 12.97 12.42 12.56 12.08 90.77

5 0.1422 1.7598 23.16 15.86 11.72 11.36 11.32 10.80 84.22

6 0.0643 0.6433 23.63 15.86 12.35 11.91 12.23 9.99 85.98

7 0.0298 0.1429 31.89 21.18 15.65 15.71 15.96 14.44 114.84

8 0.0039 0.0588 31.09 19.66 14.64 15.00 15.42 13.91 109.72

Correlation with accidents -0.78* -0.59 -0.81* -0.80* -0.79* -0.55 -0.74*

Correlation with days lost -0.81* -0.70 -0.86** -0.85** -0.83* -0.56 -0.79*

* P< 0.05, ** P< 0.01

(TLI) of each of the constructs as well asthe overall instrument are greater than0.90, thereby demonstrating strongconvergent validity for the instrument.

Unidimensionality of the instrumentdeveloped was tested by computingComparative Fit Index (CFI) for all thefactors. Results (Table 3) for each of theconstructs as well as the overall CFI aremore than 0.90, thereby demonstratingstrong unidimensionality of theinstrument.

Results of investigation of predictivevalidity of the measuring instrument arepresented on Table 4. Pearson’sCorrelation Coefficient show that four outof six management practices(Management Commitment, Worker

Involvement in Safety, Communicationand Feedback and Safety Rules andProcedures) and the Total SafetyManagement Score are significantlynegatively correlated to mean values ofself-reported accidents and working dayslost supporting the respectivehypotheses. For Safety Training andSafety Promotion Policies, even thoughPearson’s Correlation Coefficients are inthe direction consistent with thehypotheses, they failed to attainsignificance. Hence, those twohypotheses are partially supported.

Worker Involvement in Safety is foundto have the highest negative correlationwith self-reported accident rates and isin tune with the findings reported fromadvanced countries. When company

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MC1 Safety is given high priority by the managementMC2 Safety Rules and procedures are strictly followed by the managementMC3 Corrective action is always taken when the management is told about unsafe

practices.MC4 In my workplace managers/supervisors do not show interest in the safety of

workers.MC5 Management considers safety to be equally important as production.MC6 Members of the management do not attend safety meetings.MC7 I feel that management is willing to compromise on safety for increasing

production.MC8 When near-miss accidents are reported, my management acts quickly to solve the

problems.MC9 My company provide sufficient safety equipments for the workers..TR1 My company gives comprehensive training to the employees in workplace health

and safety issues.TR2 Newly recruits are trained adequately to learn safety rules and procedures.TR3 Safety issues are given high priority in training programmes.TR4 I am not adequately trained to respond to emergency situations in my workplace.TR5 Management encourage the workers to attend safety training programmes.TR6 Safety training given to me is adequate to enable me to assess hazards in workplaceWI1 Management always welcome opinion from employees before making final

decisions on safety related matters.WI2 My company has safety committees consisting of representatives of managements

and employees.WI3 Management promote employees’ involvement in safety related matters.WI4 Management consults with employees regularly about work place health and

safety issues.WI5 Employees do not sincerely participate in identifying safety problems.CO1 My company doesn’t has a hazards reporting systems where employees can

communicate hazard information before incidents occur.CO2 Management operates an open door policy on safety issues.CO3 There is sufficient opportunity to discuss and deal with safety issues in meetings.CO4 The targets and goals for safety performance in my organization are not clear to

the workers.

CO5 There is open communications about safety issues in this work place.

SP1 In my company safe conduct is considered as a positive factor for job promotions.



SP2 In my company employees are rewarded for reporting safety hazards (thanked,cash or other rewards, recognition in news letter etc)

SP3 In my company safety week celebration and other safety promotional activitiesarranged by the management are very effective in creating safety awarenessamong the workers.

SP4 There exists very healthy competition among the employees to find out and reportunsafe condition and acts.

SP5 Our supervisor becomes very unhappy and angry when employees find out andreport unsafe conditions and acts in our section.

SR1 The safety rules and procedures followed in my company are sufficient to preventincidents occurring.

SR2 The facilities in the Safety department are not adequate to meet the needs of myorganization.

SR3 My supervisors and managers always try to enforce safe working procedures.

SR4 Safety inspections are carried out regularly.

SR5 The safety procedures and practices in this organization are useful and effective.

management encourages workerinvolvement in safety related activitiesand decision-making, the sense ofbelongingness and responsibility ofworkers increase resulting in bettersafety performance.

6.0 CONCLUSION

Safety management has been identifiedas a six-construct system and a valid andreliable instrument is designed tomeasure the important safetymanagement practices in industries. It isfound that when organizations takeproactive measures to protect theiremployees, the company derives financialbenefits in reduced lost time and workerscompensation expenses. Hence,

practitioners can use this instrument tomeasure the level of safety managementin their organization and provideinformation to the decision-makers fordeveloping their management strategiesto enhance their safety standards.

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Consumer Rights Protection and RegionalCo-operation among SAARC Countries*

Basant Kumar1 & Brajaraj Mohanty2

Abstract

The issue of consumer rights protection has gained importance and received international recognitionafter the United Nations promulgated the basic guidelines on consumer rights protection in 1985. Sincethen, consumer protection legislations have been passed in many countries to ensure fair trade practicesand to prevent consumers from exploitation. However, among the SAARC countries, only in India andSri Lanka such legislations have shown some teeth in protecting consumers’ interests. In view of therecent developments of consumer leaders being associated with the achievement of MDGs in the Asianregion, there is a need for addressing the issue of consumer protection in the SAARC forum.

* Received August 10, 2007; An earlier version of this paper was presented at the AnnualConvention of AMDISA held in Dhaka during February 24 & 25, 2007. The Authors arethankful for various suggestions made by the discussants during the convention.

1. Reader & Placement Officer, Department of Business Administration, Utkal University,Bhubaneswar, email: [email protected].

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

1.0 INTRODUCTION

The modern approach to consumermovement can be traced to the formationof the Consumer League of New Yorktowards the turn of the 19th centurywhich provided the platform to fight forthe protection of consumer rights andsovereignty and gradually the consumermovement grew across the US. Followingthe establishment of the InternationalOrganization of Consumers Unions in1960, known today as ConsumersInternational (CI), the movementextended into Asia, Latin America, and

Africa in the 1970s and 1980s andthroughout the former Soviet Union inthe 1990s.

In the USA, for the first time in 1962, theconsumer’s sovereignty and their rightswere constitutionally recognized in theUS by US President John F Kennedy whoequated the consumer rights withnational interest. He provided fourbasic rights: right to safety, right tochoose, right to information and rightto be heard. After thirteen years,president Gerald Ford added the rightto education to the existing list. The


Consumers International (CI), theumbrella body for 250 organizations inover 115 countries, expanded thecharter of consumers rights containedin US bill from five to eight. The otherthree rights are right to basic needs,right to representation and right tohealthy environment. On the basis ofthis charter, the United Nationsadopted its guidelines for ConsumerProtection in April 1985. Gradually, inthe process of economic liberalizationand globalization, these landmarkguidelines have opened the eyes ofmany national governments, consumerassociations, activists and socialscientists resulting in formulation andintroduction of progressive legislationsin their respective countries.

Considerable progress has been madein the implementation of the guidelinesat the national level and instrengthening cooperation at theregional and international levels.There has been a surge in publicawareness of consumer issues. Theconsumer movement is gainingmomentum and public policy is beingstrengthened. With the global ITrevolution, the power has shifted fromsellers to buyers. The new consumerpower has given consumersunprecedented strength to getinformation. In competitive marketswith high transparency with regard toprice, quality and choices, consumersare getting the treatment as kings(Rice, 1998; Cunniff , 1999; TheTribune, 2003).

Against this backdrop, this paper aims(i) to discuss the trends in consumermovements and relevant legislations toprotect consumer interests in the SAARCnations; and (ii) to assess the need forregional dialogue on consumer protectionin SAARC forum.

2.0 CONSUMER PROTECTION LEGISLA-TIONS IN SAARC COUNTRIES

Consumer protection legislation is anintegral part of the consumer protectionframework in any country. The AsiaPacific region has seen a wide diversityin consumer protection legislation.While in many countries, consumerprotection law and redressalmechanisms are still rudimentary, insome others significant and spectacularprogress has been made. Among theseven members SAARC countries,India, Sri Lanka, Pakistan, Nepal,Maldives have enacted their respectiveconsumer protection legislation.Bangladesh and Bhutan are yet to enactany legislation. The emerging trends ofconsumer movements and legislationsin these countries are presented inTable-1.

2.1 India

‘Consumerism’ began to dominate theIndian market towards the end of the20th century following the economicreforms and various agreements thatwere signed under the World TradeOrganization. It meant the realizationof the rights of the consumer asenvisaged in the Consumer Protection

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Table 1 : Consumer Protection Act in SAARC Countries

Country Relevant Act Year Amended/Repealed/Remarks

India Consumer Protection Act 1986 Amended in 1991,1993,2003

Sri Lanka Consumer Affairs Authority Act 2003 Repealed Control of Prices Act 1950,Consumer Protection Act 1979, & FairTrading Commission Act 1987

Nepal Consumer Protection Act 1999 Operational but ineffective due topolitical instability and poor literacy

Pakistan Islambad Consumers Protection North Western Frontier ProvinceAct 1995 (NWFP) Consumer Consumer activists and NGOs areProtection Act 1997Baluchistan crying for its implementationConsumer Protection Act 2003Sindh Consumer ProtectionAct 2003Punjab ConsumerProtection Act 2003Non-operational

Maldives Consumer Protection Act 1996 Operational with limited scope

Bangladesh Not yet enacted Obstacles are being created bypowerful lobby of vested interests forenactment of specific legislation.Persisted demand for legislation byNGOs and consumer activists is on.

Bhutan Not yet enacted ———-

Source: Kumar and Mohanty, (2006), updated

Act 1986 (COPRA 1986) and ensuringright standards for the goods andservices. One of the greatestachievements of the Indian consumermovement is the enactment of thisdynamic law. This is a significantacknowledgement of extreme of therampant consumer abuses includingparticularly the public utilities liketelephone, transport, power etc.

Prior to the enactment of COPRA 1986,several statutory measures forconsumer protection have existed in

India for a long time. These measuresdealt with only certain aspects ofconsumer protection and were mainlypunitive and preventive in nature. Theconsumer could not seek remedy orredressal against the offending trader,manufacturer and service providers.The enactment of Consumer ProtectionAct, 1986 by Parliament was amilestone in the history of consumerprotection movement in India. This hasbeen further strengthened by the latestadditions to the lists of legislations

Kumar et.al, Consumer Rights Protection ...


such as Competition Act, 2002 andRight to Information Act, 2005. In themean time COPRA 1986 had beenamended three times during 1991, 1993and 2002 to further guarantee safeconsumerism.

The special feature of this Act is toprovide speedy and inexpensiveredressal of the grievance of theconsumer and to provide him specificrelief or award of compensationwherever appropriate. It recognizes sixof the eight rights of the consumer asprovided in the UN charter, viz. theright of choice, safety, information,redressal, public hearing and consumereducation. The other two rights aredealt separately by other Acts. Aseparate Department of ConsumerAffairs was also created in the Centraland State Governments to exclusivelyfocus on ensuring the rights ofconsumers as enshrined in the Act. Aconsumer can file his complaint withoutassistance of any advocate and saveunnecessary litigation expenses.

The most important feature of the Actis the provision for setting up three-tierquasi-judicial machinery popularlyknown as “consumer courts” at national,state and district levels. The apex court,National Commission functions in Delhi.Every State Government has a StateCommission. At present there are 35state Commissions. The third tier is ineach district and is called district forum.Till date there are 605 district forums,out of which 569 are reported to befunctioning. It can be seen from Table 2that all these courts have handled nearly2.8 million cases, of which about 2.5million cases have been disposed of(www.ncdrc.nic.in). The disposal of 88per cent of the cases is a significantachievement in the prevailingconditions.

This Act has been regarded as the mostprogressive, comprehensive and uniquepiece of legislation. The strengths of theconsumer after amendment of COPRA1986 can be best understood from someof the latest landmark judgments of theConsumer Courts. National Consumer

Table 2: Performance of Consumer Forums as on September 7, 2007

Agency Cases filedsince inception

Cases disposedof since

inception

CasesPending

% ofDisposal

National Commission (1) 48,931 39814 9117 81.37

State commission (35) 4,13,377 3,02,072 1,11,305 73.07

District Forums (570) 24,06,009 21,78,103 2,27,906 90.53

Total 28,68,317 25,19,989 3,48,328 87.86

Source: www.ncdrc.nic.in/statistics_files/sheet005.html/10/07/2007

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Disputes Redressal Commission in 2003allowed for early hearing of a medicalnegligence case, pending for adjudicationover three years, in which a US citizen ofIndian origin sought a whopping Rs.770million compensation-highest in thecountry’s medical history- for the deathof his wife (Times of India, June 3, 2003).The multinational corporate giant Pepsiwas slapped a fine of Rs. 10 million by aDistrict Court in Delhi in April 2006 forthe presence of a foreign object in a Pepsibottle. Pepsi’s spokesman however saidthat bottles might have containedspurious products. Similarly at the sametime, another District Court punishedCoca Cola with a fine of Rs. 1, 20,000 forthe presence of a dead insect floating ina sealed bottle (Indian Express, April 29,2006).

However, in spite of such examples, ingeneral the consumer interests areaffected by several weaknesses in ourregulating mechanisms due to prolongedprocess, in some cases for more than fiveyears, inadequate time being given bythe judges who are retired judges andadjournments of hearing dates by thelawyer for his pecuniary interest.Consumer movement in India has alsobeen accused of being elitist and mostlybenefiting urban, not the ruralconsumers.

2.2 Sri Lanka

Sri Lanka’s legal system has protectedconsumer rights through executive powerand various acts. An early legislation goesback to the Food Control Act of 1939. But

it was only in 1975, in the face of scarcitiesand queues before government shops thatthe Government felt the need for aregulation and established the NationalPrices Commission. One of the latest isthe Consumer Affairs Authority Act No.09 of 2003, which brought together theFair Trading Commission, Department ofInternal Trade and Department ofWeights and Measures under oneumbrella to facilitate more effectiveaddressing of consumer needs. Thislegislation repealed three basic lawsnamely; (i) The Control of Prices Act No.29 of 1950 (ii) The Consumer ProtectionAct No. 1 of 1979, and (iii) The FairTrading Commission Act No. 1 of 1987.The new law is intended to promoteeffective competition and protectconsumers’ interests as well as regulateinternal trade and anti competitivepractices. The most important feature ofthe Act is the creation of a ConsumerAffairs Authority (CAA) and aConsumer Affairs Council (CAC), thelatter functioning as a higher body withpower to review the decisions of theformer.

Among several organizationssafeguarding the consumers’ interests inthe country, CAA, Sri Lanka StandardsInstitution, Department of Weights andMeasures and TelecommunicationsRegulatory Commission play veryimportant roles. But CAA is the only suchorganization which handles all types ofconsumer problems, be it goods orservices. The government presently hasidentified 54 product varieties to be



under retail price marking by CAA.Essential consumer products such as LPgas, milk powder, mosquito coils, matchboxes and wheat flour are covered in thiscategory. Offenders of price violation aresubject to trial and fine up to Rs 1 million.It is reported that recently CAA hasconducted two hundred fifty successfulraids and collected fines to the tune ofmore than Rs.2 million(www.dailynews.lk/2006/04/06).

The review of Sri Lankan News Paperslike ‘Daily News’ (www.dailynews.lk)and ‘Sunday Observer’(www.sundayobserver.lk) reveals thatthe consumers of Sri Lanka lack propereducation about their rights and theyvery often are not provided with correctinformation regarding products andservices. In addition, there is a totalabsence of consumer representation inthe process of decision-making. Somecritics allege that due to the corrupt legaland political system and a lethargic publicservice due justice can not be given inmany cases.

2.3 Nepal

The Consumer Protection Act, 1998 ofNepal came into force in 13 April 1999. Itrecognizes six basic consumer rights viz.right to be protected, right to beinformed, right to choose, right to beredress grievances, right to be heard andcompensated and right to consumereducation. It has provided for theestablishment of the Consumer ProtectionCouncil under the Chairmanship ofMinister for Supplies to advise the

government on matters relating toconsumer protection, prices, quality andpurity of consumer goods and services,disseminating information andconducting studies. The Act alsoregulates the powers given to InspectionOfficers to inspect, investigate or searchany place where there are reasonablegrounds to believe that consumer goodsor services which are not safe, efficaciousor of the prescribed standard are beingproduced, sold or supplied. Theoffenders, who influence the demand,supply and price of any consumer goodsor services by unscrupulous means arepunished with fine ranging from Rs 30,000to Rs 500,000 or imprisonment up to 14years or both. The CompensationCommittee at district level investigatesthe complaints and awards compensationin deserving cases. Appeal against thedecision of the Compensation Committeelies with the Appellate Court (NepalReporter, March 22, 1998).

The political instability of Nepal coupledwith very high degree of corruption andmassive poverty with common peoplehaving no or little access to developmentalcake has caused the administrationineffective (www. nepalvista.com/April26, 2006). In this backdrop, the ConsumerProtection machinery in Nepal has failedto deliver the results. In view of thisfailure, recently, senior officials andexperts have asked the government toenact new laws including competition lawand to set up new institution to overseeconsumer related issues (ekantipur.com/March 15, 2006)

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2.4 Pakistan

The law in Pakistan provides for partialaccommodation of the consumers interestin the legislative scheme. However,consumer concerns are marked by theirabuses in the juridical debates.Furthermore, no effectiveimplementation and enforcementmechanisms of these laws are available.Besides, consumers are also largelyunaware of their rights and possible legalremedies. This is evident from the reportin print media in March, 2005 and 2006on the eve of World consumers’ DayCelebration that many consumers inPakistan remained disillusioned with therights and privileges enjoyed by them(www.jang.com.pk/thenews/daily,www.pakistantimes.net)

Consumer protection groups in Pakistanwon a small but significant victory in 1995when the government enacted theIslambad Consumers Protection Act, 1995for the federal capital territory. Duringthe last decade similar laws have beenenacted in other provinces viz. NWFPConsumer Protection Act, 1997,Baluchistan Consumer Protection Act,2003, Sindh Consumer ProtectionOrdinance, 2004 and Punjab ConsumerProtection Act, 2005. All these lawsrecognize basic consumer rights, providefor the establishment of consumerprotection courts and consumerprotection councils in the respective areasof enforcement, and assert to protectconsumers from unfair trade practiceswith penal provisions of fine or

imprisonments or both. But these lawsare not yet operational as the rules ofbusiness for their full operationalizationhave not been framed.

Consumer protection movement inPakistan has got a boost with theregistration of Consumer RightsCommission of Pakistan (CRCP) in 1998.CRCP is an independent, non-profit, andnon-governmental organization. Itlargely works through local fund-raisingand engaging volunteers. It is notsupported by any industry or commercialsector. Its vision and strategies havesignificant cross linkages with bothmarket practices and issues ofgovernance. It is the first nationalconsumer organization in the country,which approaches the issue of consumerprotection in comprehensive and holisticterms.

CRCP has established ConsumerComplaint and Redress Forum (CCRF)for handling consumer complaints. TheCCRF handles complaints according tothe policy devised by CRCP and extendslegal advice to its members and citizens,who have some grievance against the civicagencies and market practices. During thepast three or four years, CRCP along withdifferent regulatory bodies has beenactively engaged in protecting andpromoting consumer interests. Theseregulatory bodies include, amongstothers, National Electric PowerRegulatory Authority (NEPRA), PakistanStandards and Quality Control Authority(PSQCA), Pakistan Tariff Commission



(PTC), Pakistan TelecommunicationAuthority (PTA) and Monopoly ControlAuthority (MCA).

2.5 Maldives

Maldives with a chain of about 1200 smallislands covering 300 sq km and havingpopulation of little over a quarter millionhas a strong central Government. It hastraditionally been a subsistence economywith few resources and low per capitaincome (GDP per capita US$ 2,261). Mostof the GDP comes from fishing andtourism. The expanding tourism industryunderpins economic growth and is theMaldives main employer and source ofrevenue. The country’s economy isdominated by annual imports of oil,textiles and yarn, rice, cigarettes, cement,engines for boats, television, aircraftparts, prefabricated buildings andvegetables worth more than US$ 500million. Against this socio economic andpolitical background, the ConsumerProtection Act, 1996 has attempted toprotect the basic rights of the consumer.This Act mainly focuses on checking ofhoarding of goods, price manipulationand misleading advertisements for saleof goods and provision of services. Sinceit is a small and peaceful society undereffective central ruling, there is hardlyany exploitation of consumers. Hence,except the administration, control andsupervision of the Ministry of Trade andIndustry, there is no other mechanism toredress the grievances of consumers.However, three is a penal provision inthe Act to punish the offender with a fine

between Rf 500 to Rf 1,00,000 on the firstinstance and by an amount between Rf5000 to Rf.1,00, 000 where such offenceis repeated.

2.6 Bangladesh

Consumer protection is virtually non-existent in Bangladesh. No specific lawhas been enacted in the country. In effect,there is no comprehensive law that canprotect the interests of consumers. Lawsenacted during British rule in India andthereafter in Pakistan are still in force.None of these are appropriate andapplicable in the context of present-dayconsumers’ society. Some of these lawsinclude Trade Mark Act, 1940;Unadulterated Food Ordinance, 1959;Standard of Weights and MeasuresOrdinance, 1961; Drugs ControlOrdinance, 1982; and Breast Feeding anAlternative to Child Food Ordinance,1984. The regulatory agencies of thegovernment designed for monitoringproduct standards and market ethics areineffective or non-functional. Hence, themarket is dominated by black money andsmuggled goods by beleagueredmanufactures or stealthy shopkeepers(SOS-arsenic.net).

Due to the dearth of proper and effectiveimplementation of existing laws onconsumer rights, millions of people in thecountry are being exploited by a groupof unscrupulous and profit-mongerbusinessmen. As a result, consumers arenot able to free themselves from thevicious circle of adulterated goods,incorrect weights and measures. A recent

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survey conducted by the ConsumersAssociation of Bangladesh (CAB) hasrevealed that more than 50 percentproducts in Bangladesh market,especially food items, are adulterated. Soit is very easy to guess what people areconsuming as food. Selling adulteratedfood is a punishable offence, but the sadtruth is, those dishonest groups involvedin this practice have never been broughtto justice (www.thedailystar.net/law/2004/03/02).

The CAB being the lone suchorganization of any significance in thecountry has been the pioneer in consumermovement and education in Bangladeshsince its inception in 1978. It has beenorganizing meetings, seminar,workshops, and conducting surveys tofurther consumer movement andpressure the government to come with acomprehensive Act to protect theconsumer interests. In view of thepersistent demand from CAB, the civilsociety members and the media, thecabinet approved in principle the draftlaw in September, 2004. But, since then,nothing has been heard about the fate ofthe proposed law. The main obstacle is apowerful lobby of vested interests whichhas been active against enactment of thislaw (www.thedailystar.net/2006/01/14).

The survey conducted by CAB during2005 reveals that 53 per cent of the city’sconsumers are aware of their rights asconsumers (www.consumersbd.org).The movement is picking up and thepublic opinion is growing for enactment

of a comprehensive consumer protectionAct. Enactment of such law in theneighboring countries has also createdpressure on Bangladesh to have a similarlaw.

2.7 Bhutan

The awareness on consumer protectionin Bhutan is not fully developed andthere is no specific legislation forconsumer protection. However,discussions, meetings, workshops andseminars at higher level in thegovernment have been going on sinceJune 1999 to frame simple rules and actto protect consumers’ rights and interestsfrom unfair and unscrupulous tradepractices. But there has not been anyconcrete outcome.

3.0 CONSUMER MOVEMENT AND REGIOALCOOPERATION

With globalization, there is increasedinternational trade. The trade amongIndia, China, Pakistan and otherneighboring countries have vastlyincreased. This has made it essential tohave common laws and multilateralagreements in an environment of mutualcooperation. A beginning has been madeby some governments and consumerorganizations to evolve such co-operations. Consumer protectionmovement in Asian countries has furtherbeen strengthened with the economicintegration of countries in the region viz.Association of South East Asian Nations(ASEAN), Asia Pacific EconomicCooperation (APEC), South Pacific Forum



(SPF) and South Asian Association forRegional Cooperation (SAARC).

Consumer organizations includinggovernments around the world holdmarches and rallies, seminars andworkshops, and produce leaflets,publications, radio and televisionprogrammes to celebrate March 15 as theWorld Consumer Rights Day. This allowsthe consumer movements to educate theconsumers, remind them about theirduties and responsibilities and influencethe policy makers to adopt changes in thelegislations, if required. FollowingWorld Consumers’ Day 2002, theNational Consumer Council (NCC), UK,with the help of CI and its regional offices,is publishing the summary of case studiesof consumer involvement from aroundthe globe. The cases highlight successfulconsumer campaigns with an ongoingpublic impact. They show the importanceof effective consumer representation andinvolvement, and the variety of methodsfor ensuring involvement(www.ncc.org.uk). For example, in Indiathe Consumer Education and ResearchSociety (CERS), Ahmedabad successfullylobbied and promoted consumer rightsover a period of 24 years. This workculminated in the Freedom ofInformation Bill which was finally passedin 2002. Later the Act, which was notoperational, has been replaced by Rightto Information Act, 2005 and the latter isoperational.

Consumer movement world wide, now,has extended its wing to embrace the

Millennium Development Goals (MDGs).The consumer leaders from Asiancountries have recognized in the “AsianConference on Millennium DevelopmentGoals and the Consumer Movement”held in Kuala Lumpur on August 23, 2005that the people of Asia who account for63 per cent of the world population areamong the most deprived of humanityon this earth (living on less than US$1 aday). Thus, they resolved many actionplans to address the MDGs which wouldultimately further the consumermovements in the region. They wouldnot be confined to the legal definition of‘consumer’ defined in many of the AsianConsumer Protection Statutes. Theywould serve the needs of all consumers,including those unable to consume andliving below the poverty line as well asconsumers who are victimized by theinequality of bargaining power in themarketplace. They have vowed to call onthe respective governments to providethem an enabling environment i.e rightto information, democratic, legal andjudicial space and support to worktowards the achievement of the MDGs(Asia Pacific Consumer, 2005).

The Asian consumer leaders have soughtfor the cooperation of UNCTAD andConsumer International which jointlyorganized the conference to integrate theMDGs and the theme “Pro-Poor, Pro-Rural, Pro-Women” into its workprogramme. They have also urged toemphasize beneficial outcomes for allconsumers particularly in food, health,education, water, energy, housing,

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transport, telecommunication, wastemanagement, and intellectual propertyrights sectors. They have called on allconsumer organizations in the region toredesign their national and regional workprogramme towards the theme andsought for better cooperation.

4.0 FUTURE AHEAD

Globalization has brought a greaterchoice of products and brands in manyareas, and increased qualityconsciousness among consumers. It hasurged consumers to become moredemanding. The good experience in Indiaand Sri Lanka is likely to percolate toother countries also. The countries likePakistan which has Consumer ProtectionActs for each province cannot neglect theoperation of these Acts any longer. Oncepolitical stability prevails in Nepal, theConsumer Protection Act may sharpen itsteeth to protect consumer interests better.In Bangladesh, people mostly suffer fromadulterated foods which are matters ofserious concern. The consumerorganizations like CAB and UBINIGsupported by intelligentia and mediahave toughened their stands throughmobilizing and leading a countrywidecampaign to get the Consumer ProtectionLegislation adopted by the Parliament (Jatiya Sangsad) and it will see the light ofthe day soon. The Sri Lanka Act, whichis in place, needs to be more effective andnot merely confining to some raids onthe World Consumers Day. Bhutan maytake advantage of the landmarkdevelopments in Indian consumer

movements. India is the leading countryamong SAARC nations where COPRA isenforced in right perspective. However,it needs improvements in administrativeframework to expedite and delivertimely justice.

In this direction the SAARC assemblyshould actively play a pioneering role forcontinuous dialogue in association withthe Consumers International and UN forformulation and effective implementationof Consumer Protection policies andlegislations in its member countries. Themovement will get its full force if SAARCalso considers this issue as a prime themefor deliberation as an agenda in one ofits forthcoming Summits. SAARC forumsince its birth in 1985, has already dealtwith important matters concerning drugabuse and drug trafficking, girl child,shelter, environment, disabled persons,youth, poverty eradication, literacy,participatory governance, biodiversity,contribution of youth to environment,awareness of TB and HIV/AIDS andtourism. These interventions are likelyto promote consumer rights. With theimplementation of the Agreement onSouth Asian Free Trade Area with effectfrom January 2006, a common agenda onconsumer protection by the SAARC willundoubtedly help in furthering themovement and setting up a regionalconsumer protection platform.

REFERENCES

Consumer International, (2005), Asia PacificConsumer: Millennium Development Goals,Vol. 41



Consumer Protection Act, 1979, Srilanka,(www.ciroap.org)

Consumer Protection Act, 1986 (Amended), India

Consumer Protection Act, 1995, Islamabad,(www.ciroap.org)

Consumer Protection Act, 1996, Maldives,(www.ciroap.org)

Consumer Protection Act, 1998, Nepal,(www.ciroap.org)

Consumer Affairs Authority Act, 2003, Sri Lanka

Cunniff John, (1999), The Consumer is King,(www.bouldernews.com), October 18

Indian Express (2006), After condom, it’s insects,April 29

Kumar, B and Mohanty, B (2006), “ConsumerProtection Legislations in SAARC Countries:The Emerging Trend”, Global Business &Economic Anthology, Vol.1, December, PP 461-472

Nepal Reporter, March 22, 1998

Rice Andrea Williams, (1998), The Consumer isKing, (www.perspectives.com), Dec 17

Times of India, (2006), Pepsi fined for Rs. 1lakh for ‘Condom’ in cola, New Delhi, April28

The Tribune, (2003), Consumer is the King,Saturday, March 22, India

www.consumersbd.org

www.dailynews.lk

www.ekantipur.com/15.3.2006

www.jang.com.pk/thenews/daily,

www.ncc.org.uk

www.ncdrc.nic.in

www.nepalvista.com/26.4.2006

www.oneworld.net//26.4.2006

www.pakistantimes.net

www.sundayobserver.lk

www.thedailystar.net/2006/01/14.

www.thedailystar.net/law/2004/03/02

Factors Blocking the Implementation ofRetailing Technology*

Veena. A1 & H.R. Venkatesha2

* Received December 26, 2006; Revised September 12, 20071. Assistant Professor, Department of MBA, PESIT, Bangalore; email: [email protected]. Head of the Department and Professor, Dayananda Sagar College of Engineering, Banglaore,

email: [email protected]

Abstract

Retailing has become a pivotal point of discussion due to its role in economy, employment and indistribution of goods and services. Technology, capital, human and managerial resources can be used tomake retailing more efficient and consumer friendly. Organized retailing is an emerging sector in India.Competition intensifies with organized retailing. In this environment, if one has to survive and grow inthe industry, it is necessary to increase the efficiency, reduce the cost of operation and increase thecustomer delivered value. Technology gives competitive edge to retail organizations. Technology providesretailers with more, better, and timely information about their operations. However, technology is notlimited to process information; it is also used to prevent theft, promotion, and to create a better shoppingatmosphere.In today’s real time retailing world, everyday of lag results in loss of sales, margin andcustomers. Retailers have to update their technology. Automatic Identification and Data Capture (AIDC)is one of the important technologies for retail management. The important technological tools that havemade difference to the retailing are Bar Coding, Radio Frequency Identification, Electronic DataInterchange, and Point of sale System, Electronic Article Surveillance, Video Cameras, Silent Alarmsand Tunnel Scanning. The revolution in Information Technology has immensely contributed to theeffective management of supply chain. Bar Code is one of the important and simplest technologiesintroduced in retailing. This article analyses the factors, which block the implementation of Bar code inapparel retailing.

1. 0 INTRODUCTION

Today Retailing has become ‘dear’ toIndian corporate houses, multinationalcompanies, government, political parties,media, and of course to the consumers.Indian corporate houses are showing

unprecedented interest in organizedretailing. Multinational companies likeWal-Mart and Metro are already inIndian market in different ways. Wal-Mart is procuring more than 0.5 billiondollars worth of goods from Indian


market for its world operations. Wal-Mart is also trying to enter Indian marketthrough its Indian partner, Bharati.Metro a German retailer has started itswholesale operations in India, with itstwo outlets in Bangalore. The UPAGovernment and its partners have beendebating and taking sides on pros andcons of FDI in retailing. Media beingmirror of what is happening around ushas been deliberating both in its news andviews versions on developments inretailing. Rapid growth of organizedretailing is a clear indication ofconsumers’ interest in retailing and itsdifferent formats.

Retailing in the Indian economy, is thesecond largest employer, next only toAgriculture. According to Bhargav andAnand (2005), India’s retail trade employsfour crore people and is the main sourceof income for over 18 million non-agricultural small and family enterprises.In India, nearly 97 per cent of retailing isin unorganized sector. A.T.Kearney Inc.places India in the 6th position on a globalretail development index. The countryhas the highest per capita outlets in theworld (5.5 outlets per 1000 population).KSA technopak, a retail research andconsulting firm estimates that the averageper capita retail space in India is 2 sq.ftwhereas it is 16 sq ft in US. It is estimatedthat there are nearly 12 million retailoutlets in India. Majority of these outletsare very small and are in rural /semiurban area. Organized retailing is asunrise sector. Organized retailing inIndia has a huge scope because of the vast

market and the growing consciousnessof the consumer about the productquality and services. Reach of satelliteT.V. channels is helping in creating moreawareness about global products andglobal retailers to consumers. ManyIndian companies have diversified intoretail sector. The Reliance, the Bharathi,the Piramals, the Tatas, the Rahejas, ITC,S.Kumar’s, RPG Enterprises, the Munjalsand many others are taking retail as apriority sector. Many of them havealready invested or about to invest in abig way. Tatas, Reliance, Big Bazar, FoodWorld, Shoppers Stop have already madetheir mark in Indian retailing sector.Multinational retailers are planning toenter Indian retail sector in differentways. Wal Mart, Tesco, Metro are almoston their way. The share of organisedretailing in India, at around 3 per cent, isvery low, compared to 80% in the USA,40% in Thailand and 20% in China, thusleaving the huge market potential stilluntapped (Murali, 2006). With majorplayers making the retail pitch, hopes arethat the modern retail sector will addfrom ‘1 million to 2.5 million new jobs by2010’.

Competition intensifies with organizedretailing. In this environment, if one hasto survive and grow in the industry, it isnecessary to increase the efficiency andreduce the cost of operation. Technologygives competitive edge to retailorganizations. The retail organizationshave to continuously upgrade or adaptto the changing technologicalenvironment. Technology has provided

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retailers with more, better, and moretimely information about theiroperations. However, technology is notlimited to increasing information; it isalso used to prevent theft, promote thestore’s goods, better inventorymanagement, quick billing service, easybilling, speedy accounting procedures,and create a better shopping atmosphere.

Technological innovations offerproductivity and efficiency benefits toretailers. In this fierce competitive era, ifretailers have to survive and grow theyhave to implement technology. Whenretailers like Wal-Mart are entering India,their most important success modelwould be technology based back andfront-end operations. As estimated byKSA Technopak, majority of 12 millionoutlets in India are very small. If theseoutlets have to survive, they have toundergo technological, structural andfunctional changes. Technology adoptionis absolutely essential for these retailersto remain competitive.

In the retail business modern technologyhas made it possible to use Bar codes.Bar code (also known as UniversalProduct Code) is a printed code thatconsists of a series of vertical bars, whichvary in thickness. Barcodes are capableof being ‘read’ and decoded by bar codescanners. Barcodes benefit retailers toreduce inventory and other supplyrelated costs. Bar coding is not just anidentification tool but also an efficiencytool. Bar coding helps to detect shortagesor excess of goods supplied by different

suppliers. Bar coding system helps toreduce storage and handling cost. Thisimmensely helps in warehousemanagement. At the point of sale, barcoding facilitates automated billing,which means faster customer checkouts.

2.0 LITERATURE REVIEW

The retail technology has undergone aphenomenal development over a periodof time. New technologies like RFID(Radio Frequency Identification), EDI(Electronic Data Interchange) and host ofInformation Technological developmentshave added value to Retailing. RFID haspotential to increase the efficiencythroughout the supply chain. Retailer isa crucial link in the chain of distributionof goods and services from producers toconsumers. RFID tag carries informationabout the product. This information canbe regularly updated so that anyparticipant in the supply chain can findout, not only where product is but alsowhere and when it was manufactured,what type of product it is and the expirydate of the product. EDI (Electronic DataInterchange) is one of earliest uses ofinformation technology for Supply ChainManagement. EDI involves the electronicexchange of business transactions over theinternet and other networks amongretailers and their customers andsuppliers. EDI is a B2B tool.

Even in India, lot of research anddevelopment is going into the retailtechnology. For example, Tesco openedHindustan service center, a softwaredevelopment and financial services

Veena et.al, Factors Blocking the ...


office in Bangalore. With a staff of nearly800, the Hindustan service centerperforms retail back office operations,such as pay roll, billing and answeringtechnology related query (Hindu, 2005).Even Indian companies are investingheavily in developing retail relatedtechnologies. For instance(www.retailforward.com), Trent Ltd.,Shoppers’ Stop, Madura Garments havespent huge resources-in enterpriseresource planning (ERP) packages toimprove inventory management. TheInformation Technology has immenselychanged the potential of retailtechnologies. It all started in a big wayfrom 1980s. As per Achabal and Shelby(1987), advances in Information Systemand communication technology aresignificantly enhancing the prospects forretail productivity improvements andpromise to change the face of retailing.Implementation of Technology is a verycomplex issue. According to Raymond(1990), both individual andorganizational factors are important forthe success of Technology in retailorganizations. As per the study ofThong and Yap (1995), on individual andorganizational factors within smallbusiness in Singapore, the threecharacteristics of Chief ExecutiveOfficers (attitude towards adoption ofIT, IT knowledge and innovativeness)and three characteristics oforganizations (business size,competitiveness of environment, andinformation intensity) were found verysignificant.

Ogden and Ogden (2005) have definedRetail Information System (RIS) as “ amethod for systematically gathering andanalyzing, storing and utilizing valuableretail information and data gathered inthe market research process”. Brown(1997) and Aguirregabaria (1999) haveshown that, information technologiesthat provide real time information onspecific products at the store, region, andcompany level help retailers reduceinventory levels by substitutinginformation for inventories. (Fisher andRaman 1996) It is found that, retailerswho have accurate and timelyinformation on sales, order morefrequently, in smaller quantities, anddemand faster order fulfilment. Thisimmensely reduces the cost to retailers.

Apparel retailing is a major segment inretailing industry. As per the study ofSmith and Weil (2005), apparel industrydata indicate that because of the closelinks between the suppliers and retailers,there was a ratchet- up adoption ofcomplimentary information technologiesat global level. Due to small-scaleoperations, low investment, andresistance for change (both fromconsumers and retailers) technologyadoption has not happened in a big wayin Indian apparel retailing. Hence, we canfind large chunk of apparel retailers whohave not even adopted simple Bar CodeTechnology in their shops.

Harris and Mills (1981) have shown that,the labour cost associated with check outoperations, product handling and price

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marking account for more than 50 percent of store’s total expenses, use ofscanners have been a primary focus ofefforts to increase productivity. Theinformation would allow firms better toreact to changes in consumer demand,with a subsequent lowering ofproduction and inventory carrying costsand improved product availability to theconsumer. Systems based on UPC codesalso provide the manager with the abilityto know instantaneously what is sellingand what is not, making it possible tobetter adjust assortment and inventoriesto market demand. Achabal and Shelby(1987) have shown that, UPC is makingcheck out faster, more error free andlowering labour costs. That means bettercustomer satisfaction at a lower cost tothe retailer. According to Crossley (1995),“Bar coding is the basis for automatingmany functions surrounding themovement of merchandise, includingshipping, receiving, ordering, inventorymanagement, and point of sale datagathering”. Bar coding has become a keyaspect of overall profitability, service andsuccess of the wide variety of companiesthat have implemented it into their quickresponse system. Lebow (1998), in hisstudy, finds ‘considering how mucheffort it takes to handwrite informationthen go back after the fact and manuallykey the data entry, it is obvious howmuch faster the bar coding really is’.According to Bartko (1996), bar code anautomated process referred to as ‘keyless data entry’ is one of the most popularand cost effective methods of data entry.

When used in conjunction with scanninghardware, bar code system can processenormous amount of data to reduceerrors, increase speed, improveinventory management and enhancecommunication. According to a recentstudy (Holmes, 2001), there arecomplementarities between the newinformation technology and frequentdeliveries. This is consistent with therecent move in the retail sector towardhigher-frequency delivery schedules. Thesame study also reveals that the newtechnology tends to increase store size.This is consistent with recent increasesin store size and the success of thesuperstore model of retail organization.

Since Bar Coding is interdepartmentaland inter disciplinary, all functions in theorganization will be affected. Therefore,(Lebow, 1998) it is found that it is criticalto get the commitment of managementduring the earliest possible stages of theproject. The best way to secure thiscommitment is to identify operationproblems that the system will solve anddocument the benefits the company willreceive. In a study on factors that affectsthe implementation of barcode (CEST,1995), the main barriers to technologyuptake by small retailers include lack ofrelevant information about the keybenefits of retail technology. There arealso concerns about productobsolescence. Some retailers believe thatthe products available have littlerelevance to their business, or thatequipment is too expensive to justify apurchase.



3.0 OBJECTIVES

Food and Grocery and Apparel retailingare two major segments in Indianretailing. Branded apparel retailing hashigh potential for organized retailing. Withphasing out of Multi Fibre Agreement,India is emerging as a world leader inapparel and garment sector. Domesticmarket is also important for any industryto grow and stabilize. As in othersegments of retailing, the share oforganized retailing in apparel segment isalso growing day by day. (AEPC Report),Garment is one of the sectors, which canalso absorb sizeable portion of suchunemployed. The industry presentlyemploys approximately 5.5 million personsdirectly and indirectly and 35-40 percentof these are women. The growth rate inthis industry during 2005-06 has beenapproximately 25 percent. However, tocontinue the growth the apparel sectorwould need a capacity expansioninvolving Rs 1940 billion (US$ 43 billion)and a workforce support of 14 millionpeople over the next five years. Suchgrowth would need technology supportand Bar code is one of the most importantand elementary technology which wouldbe used extensively in the sector.

The objectives of the study are mainlyfocused on factors blocking theimplementation of Bar Code Technologyin apparel retailing. This would helpstechnology providers, government,retailers and other stakeholders toaddress this issue. The main objectivesof the study are:

1. To study the Bar Codeimplementation scenario in apparelretailing industry.

2. To study the factors which block theimplementation of Bar code inapparel retailing.

4.0 METHODOLOGY

The study required both primary andsecondary data. The primary data arecollected with the help of a surveyconducted in Bangalore. Since themain objective of the study is to knowthe factors that block theimplementation of Bar Code inApparel Retailing, the respondentswere apparel retai lers . Init ial ly,sample size of 150 had been planned,but responses were received finallyfrom 100 samples which were fromMalleshwaram 22, Jayanagar 26,Banashankari 19, M.G.Road 17, andRajajinagar 16. Questionnaire wasadministered on the owner or theManager of the shop. Among therespondents, 21 were ladies wearretailers, 03 were kid’s wear retailers,39 Men’s wear retailers and 37 wereretailers in all category of apparelproducts . Ownership profi le ofrespondent retailers is skewed moretowards sole traders (46), followedby partnership (24), company showroom (20) and Joint family (10).

Formulation of Questionnaire

The survey questionnaire hadseventeen statements for non-

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implementation. The responses werecollected on a five point Likert Scaleranging from 1 (Strongly Agree) to 5(Strongly Disagree). Five point Likertscale being the simplest and easy tounderstand, is suitable for thiscategory of respondents. Factoranalysis was used as the statistical toolfor analysis.

5.0 RESULTS OF ANALYSIS

Out of the total respondents, 55respondents have not implemented BarCoding in their shops. The rest haveimplemented the Bar coding.

From the above, it can be concludedthat the percentage of nonimplementation of Technology byapparel retailers is about fifty-fivepercent. Bar Coding technology is oneof the elementary technologies inRetailing. When this is the scenario forBar Coding, it can be concluded thatimplementation of high-endtechnologies like RFID in retailingRFID and Tunnel scanning may have towait for long time in India.

The factors with factor loadings > 0.60were considered as significant undereach dimension. The Cronbach ávalues were calculated for logicalgroup of factors with factor loadings> 0.60 in each component. The Eigenvalues of selected factors were greaterthan 1. The individual percentages ofvariances for the factors are 27.760,13.260, 12.245, 9.173, and 8.849 and

their total variance explained by fivefactors is 71% as in Table- 1. Resultsof the exploratory factor analysisrevealed 12 significant items in fivefactors (see table – 2). Cronbach ávalues are as shown in table -3. Thereliability test indicates that, á valuesare highly significant (> 0.7) for twodimensions ( factors) namely, NoValue addition and Not Operationfriendly and moderately significant(>0.5) for one dimension namely ,acceptability.

The analysis revealed the followingdimensions:

Factor 1 : No Value addition

Factor 2 : Not Operation friendly

Factor 3 : Less Turnover

Factor 4 : Acceptability

Factor 5 : Rigidity

Factor 1: No Value addition

The factor 1 stands for the commonperception of the respondents aboutthe value addition. This dimensionincludes ‘doesn’t help to avoid theft’,‘doesn’t facilitate to maintain errorfree account’, ‘doesn’t add any valuein bill ing’, ‘doesn’t enhance thecustomer satisfaction’, ‘doesn’tfacilitate in fixing accountability’, and‘doesn’t facilitate better inventorymanagement’. This reveals that theapparel retailers who have notimplemented Bar Code in their shops



Table - 1 : Total Variance Explained

Com Initial Eigenvalues Extraction Sums of Rotation Sums ofponent Squared Loadings Squared Loadings

Total % ofVariance

Cumu-lative %

Total % ofVariance

Cumu-lative %

Total % ofVariance

Cumu-lative %

1 5.435 31.970 31.970 5.435 31.970 31.970 4.719 27.760 27.760

2 2.464 14.496 46.467 2.464 14.496 46.467 2.254 13.260 41.020

3 1.654 9.731 56.198 1.654 9.731 56.198 2.082 12.245 53.264

4 1.390 8.174 64.372 1.390 8.174 64.372 1.559 9.173 62.437

5 1.175 6.914 71.286 1.175 6.914 71.286 1.504 8.849 71.286

6 .964 5.673 76.959

7 .877 5.160 82.119

8 .730 4.296 86.415

9 .588 3.458 89.873

10 .454 2.668 92.542

11 .380 2.236 94.778

12 .291 1.713 96.490

13 .227 1.337 97.827

14 .157 .921 98.748

15 .106 .623 99.371

16 .061 .361 99.732

17 .046 .268 100.000

Extraction Method: Principal Component Analysis.

perceive that the use of Bar code donot add any value in security, accountsor in customer perception.

Factor 2: Not Operation friendly

The two significant items in this factorare ‘Our present operation systemdoesn’t require Bar Coding’ and‘Willn’t enhance the image of the shop’.

The retailers perceive that the BarCoding neither enhances the operationefficiency nor enhances the image of theshop.

Factor 3: Less Turnover

For the third dimension, ‘Shop’sTurnover is not sufficient for Bar Codeimplementation’ is only the significant

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item. For implementation ofTechnologies turnover of the shop is asignificant deciding factor.

Factor 4: Acceptability

The Acceptability factor includes ’Doesn’tattract additional customers’ and ‘All myproducts do not facilitate use of barcoding’ are the two significant items. Ifany technology is to be acceptable to theretailers it has to result in increased salesand it has to suit the products the retailers

Table - 2 : Rotated Component Matrix (a)

Component

1 2 3 4 5

not sufficient turnover -.088 .105 .872 -.080 .017operation .028 .911 .088 -.118 -.140not enhancing the image .045 .826 .114 .248 .255attraction of customers -.101 .057 -.166 .697 .112inventory management .529 -.362 -.331 .014 .205value in billing .720 .181 .295 .185 -.187error in billing .583 .316 -.058 .071 -.365reduce no of employees .552 -.130 .129 .227 .486matching ambience .358 .385 .432 -.034 -.123avoid theft .881 .007 -.031 -.185 .134error free account .892 .226 -.102 -.074 .081customer satisfaction .766 -.058 .253 .159 .177fixing accountability .615 .185 .438 .213 .394better inventory man .647 -.151 .539 -.044 -.065flexibility in selling price .374 .429 .556 -.220 .187rigidity in accounting -.057 -.063 .038 -.023 -.833do not facilitate bar coding .172 -.023 .038 .860 -.036

Extraction Method: Principal Component Analysis. Rotation Method: Varimax with KaiserNormalization. a Rotation converged in 7 iterations.


deal with. Big chunk of retailers feel theother way for implementation of BarCode Technology in their shop.

Factor 5: Rigidity

This dimension includes the item ‘BarCoding leads to rigidity in accounting’.This item got a negative response, whichimplies that the retailers who have notimplemented bar coding have aperception that favours theimplementation of Bar Coding. They


Table –3 : Factors that Blocks the implementation of Bar Code

Sl. Dimension Perception item CronbachNo alpha

1 No Value addition a. Doesn’t help to avoid theft. 0.890

b. Doesn’t facilitate to maintain error free account

c. Doesn’t add any value in billing

d. Doesn’t enhance customer satisfaction

e. Doesn’t facilitate in fixing accountability

f. Doesn’t facilitate better inventory management

2 Not Operation a. Our present operation system doesn’t require 0.789

friendly Bar Coding

b. Will not enhance the image of the shop

3 Less Turnover a. Shop’s Turnover is not sufficient for Bar

Code implementation

4 Acceptability a. Doesn’t attract additional customers 0.552

b. All my products do not facilitates use

of bar coding

5 Rigidity a. Bar Coding leads to rigidity in accounting

opined that Bar coding doesn’t lead torigidity in accounting.

6.0 DISCUSSION

The factors that block theimplementation of Bar CodeTechnology become relevant to addressthe problem of Technologyimplementation in retail sector. Thongand Yap (1995), in their study havehighlighted that, attitude of theindividual who takes major decisions,technological awareness andinnovativeness becomes important inimplementation of technology. As per

the findings of this study, the retailersperceive that, bar code doesn’t add anyvalue and bar code is not operationfriendly. Again, the retailers perceivethat, the bar code doesn’t attractadditional customers. Retailers alsoperceive that all products in their shophave to be bar code implementationfriendly. All these factors are relatedto the perception of the retailers. Thishas to be addressed by educating theretailers. Many of their apprehensionsare due to lack of their exposure to barcode product and its benefits. Properexposure and training on the usage and

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benefits of bar code would help toovercome these factors which blocks theimplementation of bar code technology.According to CEST, the main barriersto technology uptake by retailersinclude lack of relevant informationabout the key benefits of retailtechnology. According to acceptabilityfactor from our study, retailers havemental blocks towards bar codetechnology due to lack of information.This can be addressed by circulatingproper literature regarding bar codetechnology among retailers. Achabaland Shelby (1987) have shown that BarCode (Universal Product Code) makescheck out faster, more error free andhelps in lowering the labour cost whichleads to better customer satisfaction ata lower cost to the retailer. On thecontrary our study finds that, Bar Codedoesn’t attract any additionalcustomers. This is mainly due to lackof awareness about the benefits of Barcode technology. This has to beaddressed. Turnover is a factor whichblocks the implementation which cannotbe addressed; to that extent bar codeimplementation would be limited.

7.0 LIMITATIONS OF THE STUDY

Apparel retailing has its presence bothin urban and rural markets. This studyis restricted to sample drawn only fromBangalore city. The study can be donein different regions and differentdemographic areas, say urban, sub-urban and rural. The study has notcovered apparel retailers who operatefrom make shift arrangements. The

study covers the factors, which blocksthe implementation of Bar codeTechnology.

8.0 CONCLUSION

Technological implementation isinfluenced by many factors like scale ofoperation, competitive level, type oforganizations managing retail stores,customers’ technology acceptance level,and whether retail is organized or not.In India, unorganized retailers play amajor role in retailing as a vast majorityof retailers are unorganized. Indianretailers are highly dispersed anddivergent as their customers. Hence,there cannot be any technology, whichmatches the requirement of all retailers.A simple technology like Bar Code hasnot been accepted in general. Retailershave the perception that bar codedoesn’t add much value to theirbusiness. Proper education, trainingand information would help toovercome the factors which block theimplementation of Bar CodeTechnology.

REFERENCES

Achabal, Dale D. and Mclnytyre, Shelby H.(1987), “IT is reshaping retailing”, Journal ofRetailing, 63(4).

Apparel Export Promotion Council( AEPC)Report, Government of India November,2006.

Aguirregabaria, Victor. (1999), “The Dynamicsof Mark-ups and Inventories in RetailingFirms.” Review of Economic Studies 66(2),275–308.



Bartko, P.W. (1996), “EDI and Bar Codingconverging”. EDI World, 6 (10), 6.

www.Bharattextile.com

Bhargava, Anjuli and M.Anand, (2005),’Is the leftright?’, Business world, June, 40-41.

Brown, Stephen. (1997), “Revolution at theCheckout Counter: The Explosion of the BarCode” Harvard University Press,Cambridge, MA.

CEST (1995), “Small retailers and technology - aresearch study into the views of smallindependent retailers”, European RetailDigest, Center for Exploitation of Science andTechnology, Autumn

Chieochan and Lindley and Dunn. (2000),“Factors affecting the use of InformationTechnology in Thai AgriculturealCooperatives: A work in progress”,Electronic Journal on Information Systemsin Developing countries, 2 (1), 1-15.

Crossley, J.(1995), “Quick responses system:Four essential elements”. EDI Forum 8 (1),55-58.

Fisher, Marshall, and Ananth Raman. (1996),“Reducing the Cost of Demand UncertaintyThrough Accurate Response to Early Sales,”Operations Research 44(Jan–Feb), 87–99.

Harris, Brain F., and Michael K. Mills. (1981),”Theacceptance of Technological change inretailing: The case of scanners and Item PriceRemoval ,in the changing marketingenvironment: New theories andapplication”, series no.47,Chicago, IL:American Marketing Association, 66-69.

Holmes, Thomas J. (2001), “Bar codes lead tofrequent deliveries and Superstores”, RANDJournal of Economics, 32 (4), Winter 2001,708-725.

Lebow, Jeff. (1998), “Planning and implementingthe successful bar code system: a projectprimer”, IIE Solutions.

Murali.D. (2006), “wanted, retail-specificcurriculum with IT edge”, The Hindu, Eworld.

Narayan,Tarun. (2005), “call of the mall”, IndianManagement, June. 18-28.

Ogden R. James and Denise T. Ogden. (2005),Integrated Retail Management, Biztantra,New Delhi.

Raymond. L. (1990), “Organizational context andInformation System success, A ContingencyApproach”, Journal of ManagementInformation System, 6 (4), 5-20.

Smith, Margaret Hwang and David Weil. (2005),“Ratcheting Up: Linked TechnologyAdoption in Supply Chains”. 44(3), July,Regents of the University of California,Published by Blackwell Publishing, Inc.,Oxford, OX4 2DQ, UK.

The Hindu (Bangalore), Business 07th Januaray,2005

Thong, J.Y.L and Yap C.S. (1995), “CEOcharacteristics, organizational character andInformation Technology, adoption in smallbusiness, Omega-International Journal ofManagement Science”, 23(4), 429-443.

www.google.com

www.retailforward.com accessed on 12/06/2006

Continuous and Sustainable Improvementthrough Supply Chain PerformanceMeasurement - A Case Study of an

LCV Manufacturing Company*

Ashwani K. Varma1

* Received June 8, 2007; Revised September 12, 20071. Lecturer, Government Bikram (PG) College of Commerce, Patiala;

email: [email protected]

Abstract

Supply chain performance measurement system is an entirely new category of applications in the areaof supply chain management. It provides performance monitoring of supply chain processes. To addressthe issues of continuous and sustainable improvement, a comprehensive performance measurementsystem is needed. At times of growing pressure in terms of e-commerce, just in time and flexiblemanufacturing and deregulated logistics the traditional methods of performance measurement sometimesare abound with limitations and do not deliver the goods properly. Therefore, it requires holistic methodsof measurement, though isolated attempts have already been made in the form benchmarking, balancescore card (BSC) and supply chain operating reference model (SCOR). However, such a system musthave the ability to define matrices, key performance indicators (KPIs) and exception conditions besidesupdating such definitions when the environment changes.

The present paper is an attempt in such a direction. The primary data for the study has been collectedfrom an LCV manufacturing company

1.0 INTRODUCTION

Firms never survive in isolation and haveto rely on other firms to accomplish acomplex chain of interdependentactivities from source-of-supply to theend-user. Therefore the success dependson the combined capabilities of

integrated firms to achieve a competitiveadvantage in the market. Managers mustextend their ‘line of sight’ to understandsystem-wide performance and thecontribution of each firm (Lummus andVokurka, 1999). They subsequently needto develop measures for meeting end-


user requirements and aligning firmbehaviour with supply chain objectives(Pohlen, 2003). Developing andmaintaining a Supply Chain PerformanceMeasurement system represents one ofthe most significant challenges faced inSCM initiatives. The importance ofperformance measurement in SCM cannotbe exaggerated. Timely and accurateassessment of the whole system and itsvarious elements is very essential. Aneffective performance measurementsystem (1) provides the basis tounderstand the system, (2) influencesbehaviour throughout the system, and (3)provides information regarding theresults of system efforts to supply chainmembers and outside stakeholders. Ineffect, performance measurement is theglue that holds the complex valuecreating system together, directingstrategic formulation as well as playinga major role in monitoring theimplementation of that strategy(Handfield and Nicholas, 2005). A goodperformance measurement system also isactionable. It allows mangers not only toidentify but also to eliminate causes ofsupply chain operational problems so thatrelationships with customers are notpermanently harmed (Stank and Lackey,1997).

2.0 CURRENT SUPPLY CHAIN PERFOR-MANCE MEASUREMENT SYSTEMS

There is a variety of SCM performancemeasurement systems prevailing in thebusiness world but some importantsystems are as follows:

2.1 Benchmarking

An increasingly popular approach forestablishing performance standards,processes, measurements, and objectivesis ‘benchmarking’. A benchmark is astandard of performance. Benchmarkinghelps organizations to identify standardsof performance and adopt themsuccessfully, which assists them to targetproblem areas, set levels of performance,and identify solutions to improve results(Cook et al., 2001). It is the continuousmeasuring of products, services,processes, activities and practices againstthe firm’s best-in-class companies,determining how the best-in-class achievetheir performance levels, and using thatinformation as the basis for establishinga company’s performance targets,strategies, and action plans (Lawrence,Jenning and Reynolds 1989).

2.2 The Supply Chain OperatingReference Model (SCOR)

SCOR modeling is today the mostpopular methodology to analyze theSCM performance of an organization.The area of supply chain performancemeasurement had been neglected for along time, whereas in supply chainmanagement, timely and accurateassessment of overall system and itsindividual components is veryimportant. The SCOR model wasdeveloped in November 1996 by SupplyChain Council, organized by PittiglioRabin Todd and McGrath (PRTM) andAMR research. It focused on supplychain process improvement planning,

135

implementation and measurement.Primarily, it defined common supplychain management processes andbenchmarked these processes againstavailable ‘best-practices’. It has beenrecognized by the 8000 membercompanies of the SCC as an effective‘toolkit’ for companies wanting toupgrade their supply chains for strategicadvantage. Thus, it has proved to be across industry standard in SCM. Thefollowing is the simple representation ofSCOR model:

• Capture the “as-is “state of a processand derive the desired “to-be”future state (Business ProcessEngineering).

• Quantify the operationalperformance of similar companiesand establish internal targets basedon “best-in-class” results(Benchmarking).

• Characterize the managementpractices and software solutionsthat result in “best-in-class”performance (Best PracticesAnalysis).

The SCOR model adopts the followingfour-level pyramid, which providesguide for integrative processimprovement.

Level 1 (Top level) gives definition of thefive key supply chain process types (plan,source, make, deliver and return). At thislevel a company makes basic strategicdecisions regarding its operations in thefollowing areas:

• Delivery performance

• Order fulfillment performance

• Fill rate

• Order fulfillment lead time

• Perfect order fulfillment

• Inventory days of supply

• Warranty cost or returns processingcost

• Asset returns

• Supply chain response time

• Production flexibility

• Value added productivity

• Cash-to-cash cycle time

These metrics are used in conjunctionwith performance attributes such assupply chain reliability, supply chainresponsiveness, supply chain flexibility,supply chain cost and supply chain assetmanagement.

Level 2 (Configuration level) defines the26 core supply chain process categoriesestablished by the supply chain council.

Level 3 (Process element level) providesinformation in planning and goal settingfor supply chain process improvement.It also defines a company’s ability tocompete successfully in the chosenmarkets and consists of:

• Process element definitions

• Process element information inputsand outputs

• Process performance metrics

Verma, Continuous and Sustainable ...


• System capabilities

• Systems/tools

Level 4 (Implementation level) focuses onimplementation of supply chain processimprovement efforts.

The major benefit of this model is that itprovides inter-organizational supplychain partners a basis for integration. Themodel is given as follows:

Figure 1: The SCOR SCM Model The SCOR Model identifies four

Main processes S U P P L I E R S

C U S T O M E R S

Plan Supply Chain

Source Make Deliver

2.3 Balance Scorecard

Balance Scorecard (BSC) is an‘instrument’ to measure the performanceof the overall supply chain to meet therequirements of end customer. It notonly operates at different levels but alsointegrates the different levels to meet theobjectives of the supply chain. Thisapproach, given by Kaplan and Nortonincorporates both financial and operatingperformance measures to be used at alllevels of the supply chain. The BSCformally integrates overall objectives andthe strategies undertaken to meet theseobjectives with supply chain-wideperformance measures. In other wordsobjectives, strategies, and performancemeasures at the supply chain level arelinked to the organizational level. At each

level the BSC addresses four keyperformance areas: (1) financial, (2)customer, (3) business process, and (4)learning and growth. Within each ofthese areas, key objectives are identifiedthat are driven by the objectives andstrategies of the next higher level in thescorecard hierarchy; specific performancemeasures associated with the objectives,performance targets, and initiatives toachieve the targets are then developed(Kaplan and Norton, 1996). The specificmeasures necessary to manage supplychain performance will vary according tocustomer type, product line, industry andother factors.

3.0 BRIEF LITERATURE REVIEW

According to Lummus and Vourka et al.(1999), since performance measures arecritical to the success of the supply chain,companies can no longer focus onoptimizing their own operations andmanagers across an entire supply chainmust collaborate to improve performanceand obtain the greatest mutual benefit.Van Hoek (1998) is also of the view thateffective supply chain managementrequires measures capable of capturinginter-firm performance and integratingthe results to depict overall supply chainperformance. Ellram and Liu (2002) saythat supply chain performance measuresmust translate non-financial measuresinto financial terms and shareholdervalue. Similarly, Kallio et al. feel thatSCM affects more than costs, andmanagers must be able to sell the valuecreated to senior executives, tradingpartners, and shareholders. Pohlen and

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Coleman (2005) have applied a generalframework employing a dyadic economicvalue added (EVA) and activity basedcosting (ABC) to show how operationsperformance can be evaluated with amulti-firm supply chain perspective. Theframework can help operations managersachieve supply chain objectives such as‘increased shareholder value’ and‘improved customer service’ byproviding a concrete roadmap. The focusis on increasing shareholder value foreach firm in the supply chain byestablishing within company and cross-company links between actions andprofits. Juan Jose et al. (2007) present amethodology for measuring collaborativesupply chain business processperformance, which aims to complementthe existing frameworks and overcometheir loopholes. They discuss the basicsof the methodology defining the mainelements of performance to be developed.Finally, a practical approach is introduced

that shows the results of applying themethodology by taking into accountintangible aspects such as coherence, trustand visibility, equity to a collaborativesupply chain business process called“Forecast Demand Visibility for Suppliers”.

Supply Chain Performance Measurementin Swaraj Mazda limited

Supply Chain Performance Measurementin Swaraj Mazda limited (SML) is acombination of various above saidperformance measures. It has beenbenchmarking with the industrystandards. The performance measuresinclude not only the financial measuresbut also the non-financial ones directingtowards maximum customer satisfaction.

4.0 BRIEF OVERVIEW OF SML

Swaraj Mazda limited (SML) is a lightcommercial vehicle (LCV) manufacturingcompany located in Punjab with the sizeand operating information as follows :

a. Company production 40 vehicles a day

b. Models offered 10 models with 79 variants

c. Manufacturing sequence Based upon demand (Flexible manufacturing)

d. Number of zonal offices 10

e. Number of dealers 130

f. Order receipt and shipment Firm orders are received from the zonal offices once a weekand shipments are made on the same day based on thefactory stocks and shipment date schedule.

g. Demand variation Customer demand is assumed to be normally distributed.

h. Backordering Backordering is allowed but returns to the factory are notallowed.

i. Transport lead time 2-3 days (depending upon the location of zonal office/dealer.



Foreign Suppliers

Local Supplier

SWARAJ MAZDA LIMITED

Zonal Office

C U S T O M E RS

Zonal Office

Zonal Office

Zonal Office

DEALERS NETWORK

F A C T OR Y S T OC K Y A R D

Physical Flow of Goods

Cash Flow

Information Flow

The abovesaid information has taken theshape of supply chain in SML as shownin (Figure 2). This supply chain startswith 1st tier suppliers consisting offoreign suppliers and local suppliers.Since SML imports various enginecomponents in complete-knocked-downcondition (CKD), they constitute 1st tiersuppliers. These components in rawmaterial form or sub-assemblies reach thefactory stores for assembly.

Figure 2: Supply Chain Model of SML

After manufacturing/assembly thefinished vehicles reach the factorystockyard for dispatches to zonal

offices. Then zonal offices send thevehicles to the dealers. Customers placethe orders and get the delivery from thedealers only and not from the zonaloffices or the company directly. Thewhole supply chain involves the flow ofgoods, cash and information and sometime reverse logistics in the form ofreturned defect and damaged vehicles.

General Performance Evaluation

General Performance Evaluation of SMLhas been made with reference to thefollowing performance Parameters:

1. Market share %

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Table 1: General Key Performance Indicators of SML

1995 3.7 7.21 6.6 1.5 .018 7.2 .29 5.36 34.21

1996 3.9 7.89 7.7 1.03 .023 4.7 2.78 5.12 39.28

1997 4.1 8.51 6.9 1.12 .021 6.4 3.02 4.89 41.04

1998 4.5 9.59 5.0 1.29 .022 5.79 4.57 5.21 40.33

1999 5.2 13.37 4.9 .52 .021 2.44 2.26 5.16 40.56

2000 6.6 17.37 6.9 .64 .023 2.70 1.99 6.67 42.02

2001 8.0 21.2 8.7 1.08 .022 3.8 2.75 5.89 40.54

2002 13.1 27.34 10.5 1.73 .026 6.46 3.49 6.17 39.13

2003 13.5 34.74 11.06 1.98 .025 13.7 6.04 6.49 41.23

2004 14.8 42.29 12.91 2.01 .024 20.03 6.78 7.36 40.89

2005 16.7 41.07 12.54 2.13 .032 23.13 6.41 7.33 41.27

2006 18.1 42.1 13.14 2.19 .035 16 4.13 6.42 41.69

Year % Mkt.Share

ADP(No)

VP/Emp(PA)

NP/Emp(Rs)ml

OP/Veh(RS)ml

EPS(Rs) PBT/TO%

ITR MH/Veh

% Mkt. Share : Percentage Market shareADP (No) : Average Daily ProductionVP/Emp (PA) : Vehicle Production per EmployeeNP/Emp (Rs) ml : Net Profits per EmployeeOP/Veh (RS) ml : Operating Profit per EmployeeEPS (Rs) : Earnings per Share in RsPBT/TO (%) : Percentage of Profit before Tax to TurnoverITR : Inventory Turnover RatioMH/Veh : Man hours per vehicle

2. Average daily production (No. ofVehicles)

3. Vehicle Production per Employeeper annum

4. Net Profit per Employee (Rs inmillions

5. Operating profit per vehicle (Rs inmillions)

6. Earnings per Share (Rs)

7. Percentage of Profit before Tax toTurnover

8. Inventory Turnover Ratio

9. Man Hour per vehicle

Table 1 depicts some general performanceparameters of SML over the years.

Performance and trends in variousgeneral performance indicators havebeen briefly described below:



Market Share: LCV industry in India haseight active players. While two arealmost fully in the below 5 ton segment,5 cater to the higher payload segmentand 1 spans all segments. Thus there ishuge competition in LCV industry.Although the demand of light commercialvehicles had reduced in the mid ninetiesdue to volatility of fuel prices, low rateof industrial growth, stagnant freightrates, tapering of import/export activityand lack of infrastructural investment,the company has been successful inkeeping its market share rising. Asshown in Figure 3 the market shareincreased from 3.7% in the year 1995 to3.9% in 1996, 4.1% in 1997, 4.5% in 1998,5.2% in 1999, 6.6% in 2000, and 8.0% in2001. In the new millennium, thecompany widened its dealers’ and

service network across the country, themarket share of SML reached doublefigure i.e. 13.1% in 2002, 13.5% in 2003,14.8% in 2004, 16.7% in 2005 and 18.1%in 2006.

Average Daily Production: Averagedaily production as shown in Figure 4,which was meagre 7.21vehicles in 1995,7.89 in 1996, 8.51 in 1997 and 9.59 in 1998and started galloping in 1999 by touching13.37. Introduction of new technologyand models, collaboration with vendorsand infrastructural development furtherboosted the production to 17.37 in 2000,21.2 in 2001, 27.34 in 2002, 34.74 in 2003,42.29 in 2004, 41.07 in 2005, and 42.1 in2006.

Vehicle Production per Employee:Vehicle production per employee

Fig. 4: Trends of Avg. daily Production

Fig. 3: Trends of Market Share

Fig. 6: Trends of Net Profit per Employee

Fig. 5: Trends of Vehicle production per empolyee

141

increased from 6.6 in the year 1995 to 7.7in 1996. (The trends have been shown inthe Figure 5). Then, because of suddenheavy rush of employees due to creationof more infrastructure, vehicleproduction per employee registered adecrease in the coming years. It was 6.9in 1997, 5.0 in 1998, 4.9 in 1999, and 6.9 in2000. Later on with the new industrialpolicy and introduction of new variants,it started picking up and increased to 8.7in 2001, 10.5 in 2002, 11.06 in 2003, 12.91in 2004, 12.54 in 2005, and 13.14 in 2006.

Net Profit per Employee : Figure 6depicts the trend of profits earned peremployee. SML registered Rs 1.5million net profits in 1995, 1.03 in 1996,1.12 in 1997 and 1.29 in 1998. However,with additional import duty, modvatallowance and devaluation of rupee inthe international market, and therecruitment of more employees, profitper employee reduced to Rs.0.52million in 1999 and Rs.0.64 million in2000. After the year 2000, SML broad-based its product range and redressedfor a wider market segment, thus profitper employee recovered and reachedRs 1.08 million in 2001, Rs 1.73 millionin 2002, Rs1.98 million in 2003, Rs 2.01million in 2004, Rs 2.13 million in 2005and Rs 2.19 million in 2006.

Operating Profit per Vehicle: Trendsof Operating profit per vehicle havebeen shown in Figure 7. Rise inmanufacturing costs and industrialrecession directly affects the operating

profits of SML. Profit per vehicle wasRs.0.018 million in the year 1995. Itincreased to Rs.0.023 million in 1996.From the year 1996 to the year 2001 itremained almost constant. From theyear 2002 it again started picking updue to more demand of products andwith the introduction of cost controland inventory control measures. SMLstarted using information technology,CPFR and vendor managed inventoryresulting into higher profits. In theyear 2005 and 2006 it was remarkablyhigh with Rs.0.032 million and Rs.0.35million. SML also obtained more exportorders during this period.

Earning per Share: EPS has registeredfluctuations (see Figure 8) from the year1995 to the year 2001. It decreased fromRs.7.2 in 1995 to Rs.4.7 in 1996. Itincreased slightly to Rs.6.4 in 1997 butagain dropped to Rs.5.79 in 1998. Years1999, 2000, 2001 showed depression inEPS. Realizing a threat to its survival,the company adopted new businessstrategies such as getting vehiclesfinanced to its customers, andmanufacturing customized vehicles. Asa result of the efforts, EPS rose to Rs.6.46in 2002, Rs.13.7 in 2003, Rs.20.03 in 2004,Rs.23.13 in 2005 and Rs.28.16 in 2006.

Profit before Tax to Turnover: This ratiowas a meagre .29 in 1995 but in the nextthree years it increased manifold to 4.57in 1998. Next four years (As shown inFigure 9) saw this ratio declining due tothe economic recession and high



competition with other LCVmanufacturers. This necessitated theintroduction of strict control measures.With this result, the ratio has seen therise since 2002. The increase has beenmore than double the figure of 2001. in2006, the ratio has again gone down to4.13 because the increase in sales is morethan the increase in profits.

Inventory Turnover ratio: Since aconsiderable amount of company’scapital is tied up in the financing of rawmaterials, work in progress and finishedgoods, it is important to ensure that thelevel of stock is kept as low as possible.There has been a considerable increasein the ITR over the period 1997 to 2006as shown in Figure 10. The ratio has

Fig. 9: Trends of % of PBT/ TO

Fig. 10: Trends of ITR

Fig.7: Trends of Operating profit per Vehicle

Fig. 8: Trends of EPS at SML

increased from 4.89 in 1997 to 7.33 in2005. However, it reduced to 6.42 in 2006due to the introduction of new variantsto compete in the national andinternational market. This shows thatSML is keeping its inventory low withthe use of latest inventory controlmeasures such as CPFR, VMI and ABCanalysis.

Man Hour per vehicle: Figure 11 showsthe trends of this ratio. In order tocompete in the market and theintroduction of new variants of vehicles,the productivity of labour is slow duringthis phase. Moreover new skilled labourhad to be recruited to meet therequirements. These factors forced toincrease the man-hours resulting in the

143Verma, Continuous and Sustainable ...

increase of this ratio. The ratio was only34.21 in 1995 and the next five yearswitnessed the increase to 40.54 in 2001.Except in the year 2002, when the ratiowas 39.13 it has been constant afterwardsfrom the year 2003 to the year 2006.

the input resources that gives rise to theoutput performance level. The supplychain performance makes use of thecomparisons made between ten yearsfrom the year 1997 to the year 2006 alongwith company standard and the industryaverage.

Performance and trends in variousperformance indicators are brieflydescribed below:

Performance for on-time Deliveries : Thecompany used a control chart for on-timedeliveries. The system of calculatingUpper control limit (UCL) and Lowercontrol limit (LCL) has been discussedlater. The graphic performance chart forsuch control is shown in Figure - 12.

0

1 0

2 0

3 0

4 0

5 0

1 3 5 7 9 1 1 1 3

Y e ar

Man

ho

ur

pe

r V

eh

i

Fig. 11: Trends of Man Hour per Vehicle

Productivity Performance Measures

SML is following a management strategythat helps the organization to optimizetheir performance in those areas that re-ally matter, achieve preferred LCV sta-tus and survive in extremely competitivemarket. This management philosophy isknown as “Operational Excellence”, whichmeans ‘consistently doing the right thingswell’. It requires new solutions that focuson key business issues, continuously mea-sure performance and drive the organi-zation towards continuous improvement.Some of the measures that are importantin supply chain operational excellence aregiven in Table 2.

Productivity Report

The productivity report in Table 2attempts to put activity performance in arelative perspective. In other words, aratio is formed of output performance to

Freight cost as a % of distribution costs:Freight cost ratios measure the logisticalperformance of the firm. SML has beencontinuously engaged in reducing thefreight cost of the finished vehicles, be-cause freight paid is added to the cost ofthe vehicle to the customer. Figure 13

1.00 .99 .98 .97 .96 .95 .94 .93 .92 .91 .90 .89 .88 .87 .86 .85

Upper Control Limit (.98)

Lower Control Limit (.88)

Process Average (.928)

O n t i m e d e l i v e r y

Years (1997-2006)Figure 12: Graphic Performance Chart for

On-time Deliveries


Tabl

e 2:

Pro

duct

ivity

Per

form

ance

Mea

sure

sPr

oduc

tivity

Mea

sure

sT

rans

port

atio

nFr

eigh

t co

st a

s a

% o

f di

stri

butio

n co

sts

Dam

age

and

loss

cla

ims

as a

% o

f fr

eigh

t co

sts

Frei

ght

cost

s as

a %

of

sale

sIn

vent

orie

s In

vent

ory

Turn

over

Obs

olet

e st

ock

to s

ales

Ord

er P

roce

ssin

gO

rder

s pr

oces

sed

per

labo

ur h

our

% o

f or

ders

pro

cess

ed w

ithin

24

hour

sO

rder

proc

essin

g cos

ts / t

otal

num

ber o

f ord

er pr

oces

sed

Fact

ory

stoc

kyar

d/w

areh

ousi

ng%

of

stoc

kyar

d ut

ilize

dV

ehic

les

hand

led

per

labo

r ho

urC

usto

mer

ser

vice

Stoc

k ava

ilabi

lity (

% of

orde

rs fi

lled

from

prim

ary s

tock

)%

of o

rder

s de

liver

ed w

ithin

24

hour

s of

rec

eipt

Back

ord

ers

and

split

del

iver

ies

(a)

Tota

l nu

mbe

r(b

)Pe

rcen

tage

of

tota

l or

ders

Tota

l O

rder

cyc

le t

ime

(a)

Nor

mal

pro

cess

ing

(b)

Back

ord

er s

plit

deliv

ery

proc

essi

ng (

%)

Ord

er f

illed

com

plet

e (P

erce

ntag

e)Li

ne it

em fi

ll ra

te*%

of

Cus

tom

er r

etur

ns**

% o

f av

aila

ble

prod

uctio

n tim

e sh

utdo

wn

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Co.

Std

Ind.

Avg

4.25

4.01

4.23

4.36

4.01

4.26

4.67

3.49

3.61

3.89

3.75

3.75

0.64

0.59

0.63

0.61

0.59

0.57

0.58

0.57

0.54

0.52

0.50

%0.

50%

0.53

0.51

0.51

0.53

0.52

0.49

0.5

0.47

0.45

0.41

0.4

0.4

4.89

5.21

5.16

6.67

5.89

6.17

6.49

7.36

7.33

6.42

6.5

6.5

0.1

0.12

0.11

0.09

0.14

0.12

0.13

0.11

0.1

0.14

0.1

0.15

2419

2327

2826

2731

2930

3540

85%

89%

91%

94%

96%

95%

93%

96%

95%

94%

95%

94%

22.5

23.4

20.9

18.9

18.3

18.1

17.6

17.2

16.5

15.9

1515

74%

79%

81%

84%

82%

85%

87%

91%

93%

90%

90%

85%

22.

11.

92.

32.

42.

32.

12.

72.

42.

52.

53

91%

92%

94%

95%

96%

97%

95%

94%

96%

95%

97%

95%

72%

75%

79%

76%

81%

79%

91%

82%

81%

80%

85%

90%

184

167

145

186

193

189

145

137

158

164

160

200

3.50

3.80

4.10

3.97

4.23

3.52

2.98

2.14

3.12

2.15

2.50

2.50

7±2

6±2

7±2

7±2

7±2

6±2

6±2

7±2

7±2

7±2

7±2

7±2

10±3

10±3

10±3

10±3

10±3

10±3

10±3

10±3

10±3

10±3

10±3

10±3

100

100

100

100

100

100

100

100

100

100

100

100

95%

96%

94%

92%

91%

93%

95%

92%

95%

96%

95%

95%

0.10

0.14

0.11

0.14

0.12

0.12

0.17

0.11

0.13

0.08

0.10

0.15

NIL

NIL

N

IL

NIL

N

IL

NIL

N

IL

NIL

N

IL

NIL

N

IL

NIL

* D

ue t

o da

mag

e, d

ead

stoc

k, o

rder

pro

cess

ing

erro

rs a

nd la

te d

eliv

erie

s**

Due

to

supp

ly o

ut-o

f- s

tock

145

shows the trends of the ratio. From theyear 1997 to the year 2003, the freightcost as a % of the distribution cost washovering above 4.00 %. But since 2004,the outsourcing of distribution hasproved profitable. The ratio has comedown to 3.41 in 2004, 3.61 in 2005 and3.89 in 2006. This has been compatible tothe company standard and industry av-erage of 3.75.

Damage and loss claims as a % offreight costs: Figure 14 shows the trendsof damage and loss claims as a % offreight costs. Outsourcing of distribu-tion has also resulted in decreased dam-age and loss claims against the firm. Ithas come down sharply from .64 in 1997

to .54 in 2005. In 2006 again it decreasedto .52 and is gradually inching towardsthe firm standard and the industry aver-age of .50. SML has also been successfulin reducing this rate due to the strict to-tal quality management (TQM) intro-duced in the organization. TQM is notconfined to one section of the supplychain rather it has been widely usedthroughout the supply chain.

Freight costs as a % of sales: As shownby the trends in Figure 15, freight costsas a % of sales was .53 in 1997, .51 in1998 and 1999, but decreased graduallyto .49 in 2002. From the year 2004 to2006, it has been well under control andalmost equivalent the firm and industryaverage of .4.


Fig. 13: Trends of Freight cost as a % ofDistribution Cost

Fig. 14: Trends of Damage and Loss Claims asa % of Total Freight cost

Fig. 15: Trends of Freight Cost as a % ofTotal sales

Fig. 16: Trends of ITR


Inventory Turnover: Since a consider-able amount of company’s capital is tiedup in the financing of raw materials,work in progress and finished goods, itis important to ensure that the level ofstock is kept as low as possible. Therehas been a considerable increase in theITR over the period 1997 to 2006 asshown in Figure 16. The ratio has in-creased from 4.89 in 1997 to 7.33 in 2005.However, it reduced to 6.42 in 2006 dueto the introduction of new variants tocompete in the national and internationalmarket. This shows that SML is keepingits inventory low with the use of latestinventory control measures such asCPFR, VMI and ABC analysis.

Obsolete stock to sales: The componentsand the sub assemblies have very lesserchances of becoming obsolete, exceptwhen the technology changes. When evernew variant is introduced it is generallyimprovised to the old one. Due to thisreason, SML has been keeping very lowlevel of obsolete stock. As shown by thetrends in Figure 17, the ratio has beenaround 0.1 in all the ten years from theyear 1997 to the year 2006 with marginalchanges. Though the industry average is0.15, SML is maintaining lesser than that.

Orders processed per labour hour: Theintroduction of EDI and Internet has fa-cilitated the receipt of orders from thezonal offices on daily basis. Earlier theorders were consolidated by zonal officesafter three days and transmitted throughspeed post. But now the orders are trans-mitted instantly. This has increased this

ratio over the years as per trends shownby Figure 18 It was only 24 in the year1997and 19 in 1998, but it has improvedto 30 orders in the year 2006. SML hasset the standard of 35 orders per labourhour to benefit from more automation incoming years. The industry average isaround 40 orders per labour hour.

% of orders processed within 24 hours:SML has the tradition of processing theorders within 24 hours of receipt. But theprocessing depends upon the inventorykept in stores. The company is maintain-ing an inventory of five days dependingon the lead time. With the introductionof information sharing through CPFRand VMI, it is trying to come closer toJIT concept. As shown by the trends inFigure 19 the ratio was only 85% in 1997,89% in 1998 and 91% in 1999. The intro-duction of technology has increased it upto 96% in 2001 and 2004. With this rea-son, the company has set the target of95% as compared to an industry averageof 94%.

Order processing costs/total number oforder processed: Leveraging the informa-tion technology has reduced the orderprocessing costs in SML. Figure 20 exhib-its the trends of this ratio. It was 22.5 in1997, when the orders were consolidateddelivered manually once or twice a week.But gradually, the use of Internet and EDIhave reduced this to 17.6 in 2003, 17.2 in2004, 16.5 in 2005 and 15.9 in 2006. SMLis targeting it to 15 at par with the indus-try average.

147

% of stockyard utilized: On the down-stream level side of SCM in SML, theefficiency has been measured in termsof % of FSY utilized (Figure 21). SML isfollowing a combination of push-pullbased production system. In this sys-tem the company does not keep inven-tory of finished vehicles, rather stockof semi-finished vehicles is kept. Thissystem keeps the stockyard unutilized.Even then the ratio has been closer tothe company standard and the indus-try average of 93% and 90 % respec-tively. SML has been successful in in-creasing this ratio from 74% in 1997 to91% in 2006. An experimental track hasalso been established for trial purposesin FSY.

Vehicles handled per labour hour: Asshown by Figure 22, the ratio has in-creased close to the company standardof 2.5 and industry average of 3 vehicleshandled per labour hour. Though the pro-duction of vehicles have increased mani-fold from 1997 to 2006, at the same time,the number of persons employed has alsoincreased in the same ratio.

Stock availability (% of orders filledfrom primary stock): SML maintains aninventory of 3-5 days of ‘A’ class items.The lead time of ‘B’ and ‘C’ class items isless. This has proved to be profitable forthe firm. As shown by the trends in Fig-ure 23, the ratio has always been morethan 90%. Because the lower ratio leads

Fig. 20: Orders Processing Costs/ TotalOrders Processed

Fig. 19: Trends of % of Orders processedWithin 24 hours

Fig.18: Trends of Orders ProcessedPer Labour hour

Fig.17: Trends of Obsolete Stock to sales



to back orders and lowering of the ratiomeans losing the business to competitors.In the vicinity of the firm, daily milk runsof vehicles is maintained to bring thestock to the firm. The ratio has improveda lot from 91% in 1997 to 96% in the year2001, 97% in 2002. In 2003 and 2004 de-creased, but in 2005 and 2006 it has againrecovered and matched with the indus-try average.

p = Total number of on-time deliveries

Total number of deliveries

= 928/10x100 = 0.928

The standard deviation of thesampling distribution for a sample sizeof n = 100 is

The upper and lower control limits (UCL,LCL) on this process for a z = 1.96 at 95% confidence are:

UCLp = p + z (δp) = 0.928 + 1.96 (0.0258)= 0.978 = 0.98

LCLp = p – z (δp) = 0.928 – 1.96 (0.0258)= 0.877 = 0.88

δp = √p(1-p)/n = √.928(1- .928)/100

= .0258% of orders delivered within 24 hoursof receipt: Since SML keeps an inventoryof 3-5 days; therefore it tries to disposeoff the orders received within 24 hours.As per Figure 24 it was 72% in 1997. SoonSML realized that that in order tocompete in the market and to stop backordering, it was essential to execute theorders within 24 hours. The inventorypolicy was changed and gradually itincreased to 81% in 2001, 79% in 2002 and91% in 2003. In order to increase this ratioSML had to keep excessive inventory,which proved detrimental for theprofitability of the company. In 2004, itwas repaired to 82% and 81% in 2005 and80% in 2006.

Total number of on-time deliveries

Total number of deliveries

= 928/10x100 = 0.928

Practically the company wants at least90% of the vehicles to be delivered withinthis time period. A data of last ten yearsdeliveries have been collected. Theprocess can be represented by a p-chartas shown in Figure 23. The processaverage (p) is found by

Back orders and split deliveries (Totalnumber): it represents those orderswhich were not accomplished out ofcurrent stock. The more the back orders,the more are the chances of losing thebusiness to competitors. As shown inFigure 25, the total number of backorders and split deliveries were 184 in1997, 167 in 1998 and 145 in 1999. Themarket recession and the introduction ofnew variants again increased it to 186,193 and 189 in the year 2000, 2001 and2002 respectively. Pull system ofproduction and the JIT concept helpedSML to achieve 145, 137, 158 and 164 inthe year 2003 to 2006. SML has set the

149

target of 160 with an industry averageof 200 orders.

Back orders and split deliveries(Percentage of total orders): the ordersreceived by the dealers and zonal officesare first set off against their own stock.The balance of orders is sent to thefactory stockyard for replenishment.SML tries to fill the orders immediatelyor within 24 hours of receipt of orders.The percentage of such orders as perFigure 26 was 3.50% in 1997, 3.80% in1998 and 4.10% in 1999. in the year 2001,it again went up to 4.23%. Thereafter, thestrict inventory control andmanufacturing planning and controlmeasures reduced this percentage to

Fig. 22: Trends of Vehicles HandledPer Labour hour

Fig. 23: Trends of % of Orders filled FromPrimary Stock

Fig. 21: Trends of % of Stockyard Utilized

Fig. 24: Trends of % of orders deliveredwithin 24 hours of receipt

2.15% in 2006. The tolerance limit is 2.5%as per company standards and theindustry average.

Total Order cycle time Normal processingand Back order split delivery processingare based on the distribution of ordercycle times at the 95th percentile.

Order filled complete (Percentage): Asper trends shown by Figure 27, thepercentage of orders filled complete hasalways been 100%. Though thepercentage of orders filled during 24hours of receipt may vary, but thecompleted orders is always cent percent.Since lowering of this ratio means losingthe business to competitors, thereforeSML will never afford lower this ratio.



Fig. 26: Trends of Back Orders and SplitDeliveries as % of Total Orders

Fig. 27: Trends of % Order Fill Rate

Fig. 28: Trends of Line Item Fill Rate

Line item fill rate: It is the mostimportant component of customerservice showing the number ofcustomer orders filled within 24 hoursdue to the availability of line items. Thatis why SML is maintaining an inventoryof 3-5 days of line items. As per Figure28, the rate was 95% in 1997 and 96%in 1998. In the year 2000, and 2001, dueto the introduction of new variants, theratio dipped to 92% and 91%respectively. However, later in the year2005 and 2006 the ratio became equalto the company standard and theindustry average of 95%. On timedeliveries to customers increase thetotal revenue because satisfiedcustomers buy more products.

Fig.25: Trends of Back orders and Split Deliveries

Customer returns: Customer returns inSML usually arise due to the colorcombinations, seating arrangements,enhancement of capacity and insignificantcomponent defects. Returns have alwaysbeen very less due to manufacturing/assembly defects due to strict qualitycontrol systems. The ratio as shown inFigure 29 was 0.10% in 1997, 0.11% in1998. It went up in 2003 due to theintroduction of new variants, but againit came down to 0.11% in 2004, 0.13% in2005 and 0.08% in 2006. The companystandard has been set at 0.10% againstthe industry average of 0.15%.

% of available production timeshutdown: Strict inventory control,manufacturing planning and control and

151Verma, Continuous and Sustainable ...

total quality management measuresadhered by SML has kept this ratio asNIL (Figure 30) from the year 1997 to theyear 2006. Company has never faced anyproduction time shutdown due to thenon- availability if raw material, laborunrest, or machine break-downs.

5. 0 STRATEGIC PROFIT MODEL

The most popular tool for measuringoverall supply chain performance is theStrategic Profit Model (similar to DuPont’s Chart). The main advantage of thismodel is that it aggregates many othermeasures into one common measure ofreturn on assets (ROA). The followingFigure 31 shows the Strategic ProfitModel indicating the calculation of returnon assets. ROA indicates how well eachpart of the supply chain, and the entiresupply chain itself is using its resources.This model indicates the relationshipsamong various measures.

Rationale of using ROA as PerformanceMeasurement Tool

Effective supply chain management hasfundamental impact on the financial

Fig.29: Trends of % Customer Returns Fig. 30: Trends of % of Available ProductionTime Shutdown

status of the firm. Inventory is consideredan investment because it is created forfuture use having opportunity value.Managing the supply chain so as to reducethe aggregate inventory investment willreduce the total asset portion of the firm’sbalance sheet. An important measure isreturn on assets (ROA), which is netincome divided by total assets.Consequently reducing aggregateinventory investment will increase ROA.

Inventory turnover is also reflected inworking capital, money used in financingongoing operations. Increased inventorycost requires increased payments tosuppliers. Increased inventory turnoverreduces the pressure on working capitalby reducing inventories. It can beaccomplished by improving orderplacement, order fulfillment. Reducingsupplier lead times ahs the effect ofreducing weeks of supply and increasinginventory turnover. Matching of inputand output flows of material is easierbecause more reliable demand forecastscan be used.

Production and material cost can bereduced through effective supply chain


difference between the sales and variablecosts. Reducing production and materialcosts, and quality defect costs, increasethe contribution margin and producegreater profits.

Analysis and Interpretation of ROA:Based on the elements of Figure 31 thefollowing (Table 3) are the results of ROAcalculated for the last twelve years.

The individual figures of Sales, NetProfits, and Total Assets may be

management. Costs of material aredetermined through the financialarrangements with suppliers. Andproduction costs are a result of the designand execution of the internal supply chain.In addition, the percent of defects,internally and externally also affect thecost of operations. Improvements inthese measures are reflected in the costof goods sold and ultimately in the netincome of the firm. They also affectcontribution margin, which is the

Figure 31: Return on Assets

Table 3: Trends of ROAYear 95 96 97 98 99 2K 01 02 03 04 05 06

ROA .0123 .0155 .0173 .0179 .0153 .0163 .0171 .0177 .0265 .0297 .0305 .0215

Sales

Cost of goods sold

Variable expenses

Inventory

Accounts receivable

Other current assets

Gross margin

Total expenses

Fixed expenses

Current assets

Fixed assets

Net profit

Sales

Net profit margin

Total

Sales Asset turnover

153

increasing or decreasing over the period,but the ultimate effect is to be seen onthe ROA. The trends given in Figure 32indicate that ROA has increased from theyear 1995 till 1998. In the year 1999, ROAdecreased sharply due to additionalimport duty, modvat allowance and


devaluation of rupee in the internationalmarket. Then from the year 2000 to 2005it has improved a lot and almostdoubled. Due to consistent efforts of themanagement with strict inventory andproduction controls, TQM andintroduction of new variants in thecompetitive market have contributed tothe improved ROA. During 2006, a newvariant of LCV has been introduced, SMLhad to import the technology and costlycomponents from Japan in CKD (completeknocked down) condition. Therefore theprofits suffered in 2006, dipping theROA.

6.0 CONCLUSION

Previously each company would oftenfocus on measuring its performance interms of its own objectives without

Figure 32: Trends of ROA

regard to the rest of the supply chain.However, one parameter for one partof the supply chain is not good for theentire supply chain. Therefore,performance measurement should focuson the entire supply chain. Keeping thisin view, a comprehensive supply chainperformance evaluation method hasbeen adopted by SML

REFERENCES

Cook J S, DeBree, K and Feroleto, A (2001). FromRaw Materials to Customers: Supply ChainManagement in the Service Industry”, SAMAdvanced Management Journal, 66(4): 14-21.

Ellram, L M and Liu, B (2002). “The FinancialImpact of Supply Management”, SupplyChain Management Review, 6(6): 30-37.

Handfield, Robert B and Nicholas, Ernest L(2005). Introduction to Supply ChainManagement, India: Pearson Education,

Jose, Juan; Saiz, A and Raul, Rodriguez (2007).“A Performance Measurement Model forMeasuring Collaborative Supply ChainProcess”, The Icfai Journal of Supply ChainManagement, IV(1): 49-64.

Kaplan, R S and Norton, D P (1996.) “TheBalanced Scorecard- Measures that drivePerformance”, Harvard Business Review, 70(1):71-79

Lawrence, Jennings and Reynolds (1989).eDistribution, Thomson South-western.

Lummus, R R and Vokurka, R J (1999).“Managing the Demand Chain throughManaging the Information Flow: CapturingMoments of Information”, Production andInventory Management Journal, 40 (1): 16-20.


Lummus, R R, Vokurka, R J and Alber, K L(1998). “Strategic Supply Chain Planning”,Production and Inventory Management Journal,39(3): 49-58.

Pohlen, T. L. (2003) A Framework for evaluatingsupply chain performance, Journal ofTransportation Management, 14(2): 1-21.

Pohlen, T L and Coleman, B.J (2005). “EvaluatingInternal Operations and Supply Chain

Pperformance using Eva and ABC”, SAMAdvanced Management Journal, 21(2): 45-58.

Stank and Lackey. (1997). “Strategy, Structure,and Performance: A Framework forLogistics Performance”, The Logistics andTransportation Review, 31(2): 285-297.

Van Hoek, R I (1998). “Measuring theImmeasurable-Measuring and ImprovingPerformance in the Supply Chain”, SupplyChain Management, 3(4): 187-192.

Trade Protection Measures (TPM):Issues and perspectives*

Sridhar Panda1 & Rajiv Arora2

Abstract

The liberalization, privatization and globalization (LPG) wave of early nineties and emergence of WorldTrade Organization (WTO) in 1995 has changed the dynamics of conduct of international trade acrossthe globe. While tariffs are no doubt getting lowered, WTO’s cherished objective of ensuring free and fairtrade is adversely affected by unfair trade practices including application of non-tariff barriers (NTBs).The resultant distortion in “Terms of Trade” is eroding the level playing field for various tradingpartners. Today governments are mandated to intervene only to regulate the distorted market by the useof legitimate Trade Protection Measures (TPMs) such as Anti-Dumping (AD) measures, countervailing(CVD) measures and safeguard (SG) measures provided under the WTO framework. Amongst thesethree TPMs, AD is most widely and frequently used as it is indeed a potent instrument to addressunfair trade practice of dumping. However, while use of TPM on the one hand is essential for domesticprotection, its over and frequent use on the other hand could provide a continued and over protection toDomestic Industry, thereby adversely impacting the other stakeholders in the value chain. The frequentuse of AD is also generally counter productive as it erodes efficacy of the measure by encouraging theadversely affected stakeholders to circumvent the applicability of such measures. In this paper, theauthors have examined the rationale and the overall economic impact of such TPMs, especially of Anti-Dumping, to some extent with reference to India.

1.0 INTRODUCTION

The emergence of World TradeOrganization (WTO) in 1995 heralded anew era in the global trading system.The deficiencies of its predecessor, i.e.,General Agreement on Tariffs andTrade (GATT) led to non-adherence to

* Received August 6, 2007; Revised September 1, 20071. Director (PGP & Academics), Fortune Institute of International Business, New Delhi;

email: [email protected]. Director (International Relations), Ministry of New and Renewable Energy, Government of

India, New Delhi, email: [email protected]

the multi-lateral rules enshrined in theGATT Treaty. The basic objective ofpromoting and facilitating free andmulti-lateral trade therefore remainedonly a cherished goal. With theemergence of WTO, the issuesconcerning free and fair trade have been


addressed in a much moreinstitutionalised manner especially withthe setting up of dispute settlementbody (DSB). While no doubt free tradeis the most cherished goal, the fairnessin conduct of trade on the other hand isalso essential for the gains of trade tobe equitably distributed.

2.0 THE EMERGENCE OF ANTI-DUMPINGLEGISLATION

Dumping is defined as exports below thenormal value of sales in domestic marketin ordinary course of trade. Thecomparison of the export price and thenormal value is carried out on an appleto apple basis, i.e., either at ex-factorylevels or at the consumer price level.Articles on antidumping in WTOillustrate various methodologies oncomputation of normal value andcomparison of export price with normalvalue.

It may please be recalled that tariffswere slashed to unprecedented levelsafter various rounds of negotiationsunder the auspices of GATT in its first25 years of existence. However, withthe lowering of tariff wall, theprotectionist lobby in the developedworld especially US and Canadabecame powerful since 1970s especiallyafter the oil shock. This led toincreasing use of administeredprotection like countervailing duties(CVD), Anti-Dumping (AD) andnegotiations for voluntary exportrestrains (VERs) which were permittedwithin the GATT and WTO framework.

The first AD legislation was adoptedby Canada in 1904 and subsequently byother countries viz., New Zealand(1905), Australia (1906) and USA (1916).Canada initiated first Anti-Dumpingcase on steel being imported from US.According to Hufbaur (1999) in theUnited States, however, the 1916 Anti-Dumping Act was narrowly aimed atpredatory pricing by foreign exporters.In 1921, the US adopted an amendedAct, which closely resembled Canada’santi- dumping law. It was a civil statuteto assess penalty duties to compensatefor price differentials. In the same year,the UK also adopted its firstantidumping legislation while Canada,New Zealand and Australiasubstantially amended their Acts.Notwithstanding these developments,Anti-Dumping remained a relativelyinfrequently used instrument. In theimmediate post-war period only SouthAfrica, Canada and Australia wereusing anti-dumping as an importanttrade instrument. The anti-dumpinglaw was not regulated underinternational law until the adoption ofGATT 1947.

In the Kennedy Round (1963-67),regulation of anti-dumping rules wastaken up in earnest and an internationalcode on antidumping procedures wasadopted. This went into force in 1968and was named Agreement on theimplementation of Article VI of GATTor in short ‘Antidumping Agreement’.This formed the basis for the firstEuropean Community anti-dumping

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legislation adopted in 1968. However,the use of anti-dumping remained verylimited among the contracting parties.The Uruguay Round more preciselydefined the rules and procedures ofantidumping measures. The newAgreement introduced more detailedprocedures for initiating andconducting anti-dumpinginvestigations and reduced discretionwith respect to methods used todetermine dumping and injurymargins, sun set clause, and particularstandards for dispute SettlementPanels to apply in anti-dumpingdisputes. It was expected that higherstandards of initiations of anti-dumping cases would restrain its useby member countries by making itmore difficult to file complaints and toprove dumping and injury, and bystrengthening the dispute settlementsystem according to Krishna (1997)and Roitinger (2002). However,contrary to the expectation, there wasa dramatic increase in the use of anti-dumping activity by developingcountries in the post Uruguay Round.Antidumping has now evolved into aglobal phenomenon with an increasingnumber of developing countriesadopting these laws and making useof them. Out of the total of 2675 cases,which were initiated in the 1990s, 1335cases were filed in the post WTOperiod of the late 1990s (Gupta,2003).Almost all WTO member countrieshave now adopted or amended theiranti-dumping legislation. Some of the

countries that are not members ofWTO (such as Russia) have alsoacquired their antidumping legislation.

2.1 Countervailing and SafeguardMeasures

Besides Anti-Dumping, the other twoTrade Protection Measures whichcould be resorted to are anti-subsidyand safeguard investigations. Theapplication of subsidies andcountervailing measures is regulatedby the SCM agreement under WTO.Prakash (2005) argues that the aim ofthis agreement is not to restrainunduly the right of Governments togrant subsidies but to prohibit ordiscourage them for using subsidy thathave adverse effect on trade of othercountries. The agreement includes twocategories of subsidies, viz., prohibitedand actionable. A category of non-actionable subsidies have since beenscrapped . According to WTO tradereport t it led “Exploring Links ofSubsidies, Trade and the WTO”(2006),the prohibited subsidies include bothexport subsidies that are contingent onexport performance and subsidies thatare contingent on use of domestic overimported goods. It is on account of theabove principles that countervailingaction on exports of products fromIndia has been initiated. Most of theexport promotion schemes includingDuty Entitlement Pass Book (DEPB),Export Promotion Capital Goods(EPCG), Duty Free ReplenishmentCertificate (DFRC) (now Duty free

Panda et.al, Trade Protection ...


Import Authorization), tax holidays onexports, and preferential export creditsubsidies have attracted countervailingmeasures. The effort of Governmenttherefore has been to put in place a taxneutralization system, which has thedirect nexus between exportedproducts and inputs that go into it sothat the Indian exports could beprevented from the application ofcountervailing measures. While theIndian exports have faced more than100 CVD investigations on its exports,no anti-subsidy investigation has beeninitiated by India on imports intoIndia. However, the major gray areaof subsidies has been the agriculturepolicy of developed countries such asthe EU, US and Japan. These countrieshad agreed in Uruguay round toreduce the subsidies in their agri-sector which was never respected. Therecent ministerial conference at HongKong in 2005 addressed it again whichresulted in some modest attempt.According to Panda (2006) theagricultural sector is being protectedin developed countries throughdomestic support and export subsidies.Domestic support measures wereclassified on the basis of the extent towhich they ‘distort’ product markets,into amber box (e.g. input subsidiesand price support), blue box (e.g.deficiency payment – an incentive notto produce, as a supply sidemanagement measure) and green box(e.g. rural infrastructure services,environmental protection and

decoupled income support) and targetsto reduce the amber subsidies, resultedin subsidies being shifted from one boxto the other. As the modalities are tobe established India along with otherdeveloping countries cannot takecounter actions against such unfairpractices of developed countries. Theother Trade Protection Measure,which has also been used somewhatsparingly in India, is the safeguardmeasure.

While the anti-dumping andcountervailing measures address unfairpractices of dumping and subsidizationrespectively and are discriminatorymeasures imposed on company andproduct specific basis, ‘safeguard’measures are targeted against increasedimports, which, may enter in thedomestic market of an importingMember as a result of its commitmentto liberalise and are applied on a nondiscriminatory basis on specifiedproducts irrespective of their source oforigin.

Ordinarily, no prohibition or restrictioncan be maintained on importation andno WTO Member can impose duties orother charges on imports of any productfrom the territory of other WTOMembers, in excess of those set forthand provided in its Schedule ofConcessions. These obligations can,however, be suspended in whole or inpart or the concessions can bewithdrawn or modified by way of asafeguard measure, which may be

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imposed in the form of either safeguardduties levied over and above thecommitment made in the Schedule ofConcessions or in the form of importquotas.

According to Prakash (2005) theAgreement on Safeguard authorizesimporting countries to restrict importsfor temporary periods if , afterinvestigations carried out bycompetent authorities, it is establishedthat imports are taking place in suchincreased quantities (either absolute orin relation to domestic production) asto cause serious injury to the domesticindustry that produces like or directlycompetitive products. It furtherprovides that such measures, whichcould take the form of an increase intariffs over bound rates or theimposition of -quantitativerestrictions, should normally beapplied on an MFN basis to importsfrom all sources.

The investigations for the impositionof such measures can be initiated eitherby the government itself or on thebasis of a petition from the affectedindustry. In practice, however, theinvestigations are generally initiatedon the basis of petitions from theaffected industry.

The Agreement lays down the criteriawhich investigating authorities mustconsider in determining whetherincreased imports are causing seriousinjury to the domestic industry. It alsosets out basic procedural requirements for

the conduct of investigation. One aim ofthe procedural requirements is to provideforeign suppliers and governmentswhose interests may be adverselyaffected by the proposed safeguardactions with an adequate opportunity togive evidence and to defend theirinterests.

The primary purpose of providing suchtemporary increased protection is togive the affected industry time toprepare itself for the increasedcompetition that it will have to face afterthe restrictions are removed. TheAgreement seeks to ensure that suchrestrictions are applied only fortemporary periods by setting amaximum period of eight years for theapplication of a measure in particular.

According to annual report byDirectorate General of Anti Dumpingand Allied duties (DGAD: 2004-2005),in India about 12 safeguardinvestigations have been conducted, butwhich safeguard duties have beenimposed in 8 cases only. In 4 cases, thesafeguard duties were not imposed onaccount of consideration of publicinterest. It may be noted that sincesafeguard measures are applied underunforeseen situation of flooding ofimports and consequential serious injuryand are not per se redressal against anunfair trade practice, their applicationrequires reciprocity in concession toaffecting trading partners andrestructuring of domestic industry asper a time bound restructuring plan.



Also addressal of public interest issueis extremely stringent unlike in theother two Trade Protection Measures,which are invoked on account of unfairtrade practices. On account of theseaspects the safeguard measures aredifficult in terms of relief to domesticproducers. This therefore placeenormous burden on the usage of Anti-Dumping measures.

3.0 DESIRABILITY AND EFFICACY OF ANTI-DUMPING MEASURES

The case for anti dumping laws was firstmade authoritatively in 1923 by JacobViner (1923), who argued that dumpingdid occur, that it was an economic threatand that national laws to counterdumping were appropriate anddesirable. However, a large number ofeconomists such as Finger (1993) andBhagwati (1988) have ‘questioned theuse of anti dumping laws by thecountries. It has been argued that inpractice AD duties have been used togive undeserved protection to domesticproducers and it ‘has become a threatto the system of free trade and needs tobe abolished. The most appealing optionis to get rid of anti dumping laws andto put nothing in their place. They werejust ordinary protection in that theyserved the national economic interest ofneither the victim nor the regulatorcountry. The logic behind this is theusual logic of economic: a traderestriction harms the overall economicinterests of the country that applies it,just as it harms the country which

exports. Therefore, the policy objectivethat follows from this isstraightforward: to convince the usercountries to apply antidumping actionsless frequently. Further, legal analysissupports that recent expansion ofnational definitions of dumping,subsidization and injury are within thelimits of the GATT specification, so it isprobably safe to assume that the unfairtrade cases and actions do not violatethe GATT.

On the other end of the spectrum arethe lawyers, trade administrationofficials and politicians who aresupportive of mechanism of traderemedy laws and have ensured theircontinuance. They consider those traderemedy laws as safety valves forrecourse against unfairly tradedimports and thus a price to be paid forpublic support for free and open tradesystem. According to themantidumping laws have helped tosupport the creation and continuedoperation of the world trading system.It is not an accident that most of thefrequent users of antidumping laws -the US, the EU, Canada and Australiahave been historically the supporters ofopen trade and the world tradingsystem. Their logic is simple: countriesthat practice protectionism do not needantidumping laws; barriers that keepout imports, by definition also keep outdumped imports. It is only thosecountries that open their market thatfind the need for some recourse againstunfairly traded imports. In addition,

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assurances that imports are fairlytraded support a domestic politicalconsensus in favour of open markets.Mastel (1998) is of the view thatcountries like Mexico, South Africa,Korea, India, etc. have increased use ofanti dumping laws coinciding with theirplans for liberalization of trade policy,strengthens this premise.

A computable general equilibriummodel has been used in a studyconducted in USA in 1995 to measureeconomy wide effects of AD measuresin USA in specific sectors/products viz.frozen concentrated orange juice, lambmeat, EPROMS, colour picture tubes,solid urea, brass sheet and strip andwelded steel pipes and tubes. Thestudy also covers the trend analysis ofAD/CVD measures since 1980 andtheir effects on producers andconsumers and upstream anddownstream linkages. The domesticmarket effects are examined withrespect to price, output, revenue andemployment, while imports areanalyzed with respect to price, volumeand revenue. The effects l ike FDIinflows to cope with AD measures,emergence of aggressive competition,trade diversion and limited priceincrease were reported. There existsinherent tension between the ADmeasures and competition policy.Effects of AD measures viz.misallocation of resources,subsidization in home market, exportof unemployment and predation incircumstances of sales below cost is

reported. According to Steele (1996)AD measures are a political balancingof trade liberalization objectives underWTO and member nations concern fora level playing field for their domesticindustry. AD measures though legallymandated by WTO are not goodeconomics. In a case of cut flowerindustry in Colombia, the noncomputation of net economic benefitsof impact have not highlighted thegains in terms of employment by theimports which were a positive effectand opposes attempts to levyantidumping.

In a critical evaluation of antidumpingmeasures, a favourable treatment hasbeen meted out to dominant producersand that there are reasons other thandumping for imposition of ADmeasures. According to Banik (2001)the AD measures are NTBs and it isthe loopholes in the AD code whichleads to such an use. The effects ofdumping include cost to society andconsumers, distortion in bilateral traderelations, effect on exports, tradediversion, and erosion of country’simage and credibility. A log linearmodel evaluates negative effect onIndia’s exports due to AD measures.Banik further argued that irrationalimposition of AD measures,undermining of the spirit and rationaleof AD measures from the initial setobjective, pressure by lobbies, andauthority caving in to the demand ofthe lobbies. AD measures do not standthe tests of sound economic rationale



models viz. Consumer welfareargument, strategic trade policyargument, or optimal tariff argumentwhile imposing an AD measure. It isconcluded that even the politicaleconomy argument does not pass thetest of Predation. The methodologicaland institutional aspects of the ADmeasures also make the AD regimeprotectionist and arbitrary. Aggarwal(2003) is of the view that thecompetition policy is an appropriatesubstitute to AD measures or use ofAD measures be restricted only insituations of Predation with injury testas stringent as antitrust laws

Debroy (2006) mentions that free tradeis only a myth under WTO/GATTsystem. The author argues that Anti-Dumping agreement is an exemptionto free trade principles enshrinedunder WTO. The author furtherelucidates specific aspects of the Anti-Dumping articles, which bring insubjectivity and a bias leading toprotectionist tendencies and thusproviding overprotection to thedomestic industry. Raju (2006) arguesby highlighting problems with theAnti-Dumping agreement that suchAnti-Dumping duties ignore costssuffered by consumers and protectdomestic industry even though theyrepresent monopolies. It has furtherbeen argued that in the years to comeAnti-Dumping initiations will not bereduced as the political reasons in bothdeveloped and developing countrieswill compel member countries to resort

to the Anti-Dumping measures.Lindsey and Ikenson (2006) arguethrough concentrating on the rhetoricand reality of US Anti-Dumping Lawthat lobbying for ensuring protectionto domestic industry plays a vital role.The flaws in the Anti-Dumping Lawsalso support the cost for protectionism.Erixon (2006) also underlines that thefactors of political economy explainmuch of the use of Anti-Dumpingmeasures. Although EU favours areform of Anti-Dumping permissionsand WTO reform but it also continuesto be an user of Anti-Dumpingmeasures especially against China. Li(2006) argues that the treatment ofnon-market economy during 2016 andlack of adequate legal capacity has ledto Anti-Dumping cases against China.Similarly arguing an Indian case,Chakraborty (2006) highlights theprotectionist bias and loopholes inAnti-Dumping agreement and the in-compatibility of Anti-Dumpingpractices viz-a-viz WTO by variousindividual countries. The ambiguity inWTO articles has in fact led tomushrooming of disputes under WTO.Most of the aforementioned authorshave stressed the need to dump theAnti-Dumping measures and that asubstitute needs to be found out.

4.0 THE INDIAN EXPERIENCE: ISSUES ANDPERSPECTIVES

India as a developing country hasapplied TPM whenever the trade hasbeen distorted by unfair trade practices

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like dumping. As per DGAD’s annualreport 2005-06, between 1992 and 2005,about 300 Anti-Dumping investigationsincluding reviews have been conductedon imports into India of which only 5%of the cases have been closed withoutrecommendation of any Anti-Dumpingduty. About 60% of these investigationshave been on imports from China PR,EU and Korea. As regards nature ofproducts, 50% have been chemicals andpetrochemicals, 10% on textile fibres,9% on steel products and raw materialsand only 8% on consumer goods. Outof the cases which have been appealedbefore various authorities includingCustoms, Excise and Service TaxAppellate Tribunal (CESTAT), HighCourt and Supreme Court in about 50-60% of appeals, the judgments has beenin favour of the designated authority.Thus, one notices that theinvestigations have been more on rawmaterials and intermediates rather thanon consumer goods. As per the DGAD’sstatistics as mentioned above, between1995 and 2005, more than 120 Anti-Dumping cases have been initiatedagainst India of which in more than 50%investigations definitive measures havebeen imposed. EU, US and South Africahappen to be the major action takersagainst India. India’s share in terms ofimposition of Anti-Dumping measureson its exports is about 3.6%. Most ofthe cases have been initiated againststeel products, engineering goods,chemicals and pharmaceuticals. About45 anti-subsidy cases have been

initiated against Indian exports ofwhich 95% are initiated by EU, US,South Africa and Canada. 60% of thesecases have resulted in definitivemeasures.

Thus, India has been both an active userof Anti-Dumping measures and anadversely affected victim of Anti-Dumping and countervailing measures.However, there is no correlation in thetwo phenomena, which could implyretaliation or trade war situation. Furtherthe raw materials and intermediates havemostly attracted Anti-Dumpingmeasures.

5.0 CONCLUSIONS

The basic objective, regarding conductof international trade under the WTOframework is to ensure free and fairtrade and not simply the free trade. Noextent of free trade can be equitablybeneficial to all stakeholders until andunless trade is also conducted fairly.The unfair conduct of trade needs tobe regulated by interventionistmechanisms like TPM, and more so byAnti-Dumping in the Indian context. Nodoubt some of the disciplines of WTOlike evaluation of dumping marginwould require tightening so as toreduce ambiguity and to take care ofthe dynamic structure of relativecompetitiveness. Dumping of Anti-Dumping and other Trade Protectionmeasures is certainly not the solutionas it would then be an era of free butnot fair trade with developing countrieshaving no recourse to safety valves to



vent out unfair trade pressures. Theapplication of Anti-Dumping duties issubjected to various reviewmechanisms, with appeals at variousnational levels and thereafter finally atthe Dispute Settlement Body (DSB).Therefore elaborate redressalmechanisms exist for taking care ofabuse of Anti-Dumping measures. Thefact that about 60% of the appeals havebeen upheld before various appellate/judicial bodies and some of the findingsbeing modified only partially, it is areasonably good indicator of a fairconduct of investigations by thedesignated authority in India. No doubtcost incurred in such transactions couldhappen to be a non-tariff barrier andtherefore over use and misuse of Anti-Dumping can be detrimental to the freeflow of trade in this context. However,no member country can afford to abusethese priorities for long and escapecriticism. The user/consumer industryis a significant and a strong voice tocheck abuse of such a policy. Also ajudicious and rule-bound application oflesser duty rule which prevents levy ofAnti-Dumping duties to the full extentof dumping margin can check overcompensation to domestic producersdue to Anti-Dumping measures. Thetightening of disciplines of Anti-Dumping could be through relookinginto the threshold of 2% dumpingmargin and 3% dumped imports whichdo not trigger AD action also termedas de minimis limits of dumping marginand the volume of dumped imports.

There is also a need to harmonizevarious Anti-Dumping practices indetermining the extent of dumping. Thestrengthening of causal linkdetermination through a rigorousimplementation of non-attributionanalysis can further enhance credibilityof Anti-Dumping measures. Theargument that Anti-Dumping dutiesaffect the export competitiveness is notjustified since the taxes/duties on rawmaterials that go into exportproduction are refunded back toexporters. In a study titled “EconomicImpact of Trade Protection Measures;A Systems Approach for Anti-DumpingMeasures in India” Arora (2004) whileevaluating overall economic impact ofAnti-Dumping measures, hasconcluded that while there has been apositive volume and price effect withenhanced profitability as far asdomestic industry is concerned, therehas not been any adverse impact onexport competitiveness of the userindustry due to levy of Anti-Dumpingduty. It is further concluded that eventhough the application of Anti-Dumping measures may lead to bothtrade chilling and trade diversioneffect, the high rate of Anti-Dumpingduty does not necessarily lead to highersales realization by the domesticindustry as a high level of Anti-Dumping duty is generally counter-productive and invariably leads tocircumvention of Anti-Dumping dutiesthus severely undermining the efficacyof Anti-Dumping measures. The study

165

also brings out that repeated andrenewed Anti-Dumping measures areoften affected by circumvention ofAnti-Dumping measures. The needtherefore is to strengthen thedisciplines of Anti-Dumping measuresby eliminating subjectivity in variousarticles which lead to abuse and misuseof Anti-Dumping measures rather thandumping this agreement as advocatedby various authors. Further, the criticsthemselves observe that the maindriver of usage of Anti-Dumpingmeasures is the political economy andits usage in days ahead is not likely todecline. International trade is a dynamicprocess and as the cost structure ofindustries in developed and developingcountries would keep changing, thetechnical disciplines of the Anti-Dumping act would also require to bere-engineered and tightened keeping inview such changes. It is therefore feltthat harmonization of Anti-Dumpingpractices, tightening rules of origin toprevent circumvention, strictimplementation of non-attributionanalysis and adherence to the rules ofthe game with no intent of protectionistbias could go a long way in checkingoveruse, misuse and abuse of the TradeProtection Measures primarily Anti-Dumping measures.

REFERENCES

Aggarwal, A (2003), ‘Anti Dumping code: Issuesfor review in Post negotiations’, Workingpaper, ICRIER, Delhi.

Arora, Rajiv (2004), “Economic Imapact of TradeProtection Measures: A system Approach forAntidumping Measures in India”, M PhilDissertion, Punjab University, Unpublished.

Banik, Nilanjan (2001), ‘Anti Dumping Measures:A critical Evaluation’ India biz news andresearch services limited.

Bhagwati, Jagdish (1988), Protectionism, MITPress: London

Chakraborty, Debashis (2006), ‘Time to Dumpcertain Anti Dumping Provision: Lookingthrough the Dispute Settlement MechanismProceedings’, in Bibek Debroy and DebashisChakraborty (eds.), uses and misuses of Antidumping: Provisions in World Trade, A crosscountry Perspective, academic Foundation,New Delhi.

Debroy, Bibek (2006), “Introduction” in BibekDebroy and Debashis Chakraborty (eds.),uses and misuses of Anti dumping:Provisions in World Trade, A cross countryPerspective, academic Foundation, NewDelhi.

Directorate General of Antidumping and AlliedDuties (DGAD), Department of commerce,New Delhi, 2004-2005, Anti dumping casesin India: Products & Profiles, Annual Reports,2004-2005.

Erixon (2006), ‘Political Economy ofAntidumping’, in Bibek Debroy andDebashis Chakraborty (eds.), uses andmisuses of Anti dumping: Provisions inWorld Trade, A cross country Perspective,academic Foundation, New Delhi.

Finger, J.M. (1993), Antidumping: How it worksand who gets Trust, University of MichiganPress: Ann Arber, Michigan.



Haufbauer, G. C. (1999), ‘Antidumping a lookat US experience – Lessons for Indonesia’,Institute of International Economics,Washington, D.C.

Krishna Raj, (1997) ‘Anti-dumping in Law andPractice’, World Bank Working Paper, 1823

Lindsay, Brink and Ikenson, Deniel (2006), ‘TheRhetoric and Reality of US Anti DumpingLaw’, in Bibek Debroy and DebashisChakraborty (eds.), uses and misuses of Anti

dumping: Provisions in World Trade, A crosscountry Perspective, academic Foundation,New Delhi.

Li, Yuefen (2006), ‘Why is China the world’snumber one Anti Dumping Target’, in BibekDebroy and Debashis Chakraborty (eds.),uses and misuses of Anti dumping:Provisions in World Trade, A cross countryPerspective, academic Foundation, NewDelhi.

Perspective

Shaping the Moral Foundation forGlobalization: Lessons from Indian and

Western Philosophy*

Bibhu Prasan Patra1

Abstract

In this paper an attempt has been made to examine some of the unambiguous universal norms developedby the Indian and western philosophers and the important role these may play in shaping the moralfoundation of global business practices. The growth and development of global business and its impacton economic, social and cultural life need to be based on a moral foundation that not only ensures goodbusiness but also contributes towards the development of a socially and economically just world. Themain contention of the paper is to show that a better living and good life in a global village would bepossible if multinational corporations hold on to these values. The value system of both the host and homecountry has to be properly handled and the ethical prospective has to be properly reviewed in order tomaintain a moral standard which is rationally acceptable across the cultures. In order to resolve thedilemma of culture specific value system the idea of transcultural ethical universalism has been developedin this paper. Two models (i) Kant’s Deontological method (Western philosophy) and (ii) the concept ofDharma (Indian philosophy) and the learning from the Upanishads have been used to resolve thechallenges of cultural relativism.

* Received August 28, 2007; Revised September 5, 20071. Associate Professor, Xavier Institute of Management, Bhubaneswar, email:[email protected]

1.0 INTRODUCTION

Globalization has been commonlyunderstood as a process of free flow ofgoods, services, technology and otherassets across national boundaries. Theprocess of globalization is facilitatedthrough the market system, whichdetermines quantity, quality and price bythe participants of market. All of us takepart (knowingly or unknowingly) in themarket exchange system that is no more

confined to one nation state. This newglobal economic order is mainlyfacilitated by “Global Business“(henceforth GB). GB is thought to be themost effective way of creating wealth andenhancing economic growth. It is veryclosely connected to its sister concepts,globalization and global capitalism(Dunning, 2003).

GB without doubt is the main driver ofglobal economic order. But diversity of


economic and political policy matters,conflicts of values, and differences innormative standards have direct impacton commercial transactions and economicinteractions. The major challenges to theorganizational system of GB originatefrom cultural diversities. All theseproblems are understandably therebecause there are significant differencesin culture, economic equality and socialstatus among the nations and also withina particular nation. The problems are offar greater dimension while designingmanagerial strategies at the global level.What is necessary, therefore, is a two foldtask:

First, a sensitive, informed investigationinto the range of norms and valuesinvolved in commercial transaction aswell as a comparative understanding ofcultural socio-historical and politicalfabrics of both host and home countries.

Second, a judicious, imaginativecomprehensive and operationalnormative framework which caneffectively deal with problematic issuesof GB in the spirit of maintaining areasonable balance that fulfills thedemand of all the stakeholders like

(a) Commercial stakeholders, such as,suppliers, competitors, distributorsand retailers;

(b) Host country stakeholders, such as,local employees and theirorganizations, pressure groups, hostcountry government and hostcountry community;

(c) Domestic or home countrystakeholders, such as, home countryemployees, shareholders, homecountry customers and the domesticgovernment.

No doubt these stakeholders put variouspressures on the global firm. Finding outreasonable solutions to satisfy a range ofstakeholders sometimes becomes verydifficult. So GB is tantamount to pressurefrom a triangle of stakeholders. Whilesafeguarding the interest of homecountry stakeholders imply obliging thecultural standards and values of thedomestic soil, attending to the demandsof the host country stakeholders requiresthe firm to oblige the cultural values andstandards of the host country. And thesetwo obligations may not be fullycompatible with one another.Appropriate solution depends on properunderstanding of how radicallydivergent the cultures are and the legaland moral codes of the two countriesinvolved. Understandably then, there isa triangular tension that GB experiencesin its effort to survive and prosper in theglobal market place. And surely, thistension cannot be eased merely byadopting a descriptive or non-evaluativemeasure, which takes no note of theseriousness of the normative dimensionof GB.

When different countries have differentethical standards relating to businesspractices, there are two types conflictsthat commonly arise; i) The level ofdevelopment, i.e. the different stages ofsocio economic progress in host and the

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home country, and ii)the conflict of moralstandards; because of cultural traditions,employment policy the problem ofbribery, gift etc. These issues require acritical culture-sensitive handling. Forexample; while very low wages may beconsidered unethical in developedcountries, developing nations may be saidto be acting ethically if they encourageinvestment and improve living standardsby accepting low wages. Besides, whilechild labour may be deemed unethical ina developed country and it may even becondemned by the United Nation’sCharter of Labour Laws, there may stillbe the ethical dilemma whethercompulsory withdrawal of all childlabourers from a firm is to be strictlyordered even if that inevitably leads tostarvation in a developing nation. Onemajor differentiating factor is the effectof cultural differences on the acceptabilityof business practices.

The context-relativity of the above kindmay be mistaken for full-scale ethicalrelativism, denying any kind ofuniformity of ethical values altogetheracross humanity. A common problem forGB is whether to adopt the motto “whenin Rome, do as the Romans do”, or tostandardize the system of values used inthe home country throughout theorganization and impose them on the hostcountry operations. Between these twoextremes, there may be a reasonablemiddle path, which could lay down theparameters that make global businesspractices good. One can always identifya common set of core value, which would

categorically govern GB under anyparticular circumstances anywhere in theworld. My contention here is that culturaland ethical relativism poses only anapparent conflict for GB. Admitting thefact that norms and outlook vary fromone place to another and all questions ofmoral differences among cultures can besolved by measuring them against ayardstick of morality has great relevancefor stability of GB.

We will now look into both Western andIndian philosophical traditions that rejectany form of relativism and give moralsupport to GB. In what follows we shallexamine the philosophical foundationsthat transcend the narrow issues ofcultural and ethical relativism andfacilitate smooth progress of the globalmarket. The efficiency requirements of theglobal market ought to be supported byfairness that is based on universal moralprinciple of what is just and proper.

2.0 WESTERN PHILOSOPHY: KANT’SETHICAL UNIVERSALISM

Kant’s moral theory provides a moralstandard, which can be applieduniversally across the border.Respecting the other person is the mostbasic thing, and for which societal andnational boundary is not a hindrance.Kant in his “Ground Work of Metaphysicsof Moral” expounded that “don’t treatother individuals as means to an end”i.e. all rational beings are members ofthe kingdom of ends. The basic freedomof the individual person has to berespected. Once you care for the human

Patra, Shaping the Moral ...


dignity and treat others as a member ofthe kingdom of ends, the controversythat arises between unequal economicdevelopment and cultural difference willbe resolved.

Kant unambiguously refer to someprinciples which are of unconditionalworth in human life, such as, self-legislation, (independence of all naturaldesires), principle of autonomy, theprinciple of being a universal legislatorin a kingdom of ends (all ends combinedin a systematic whole). In theGroundwork, he contends that thesupreme principle of morality iscommitment to doing only whatautonomous reason permits us to do. Itis self-evident that a rational beingnecessarily has insight of what is morallypermitted and accordingly set goals andpurposes, which are morally worthy.Because human beings are rationalbeings and have the capacity to set anend by choice and deliberation (whichdistinguished them from other animals).His argument is that rational beings,having autonomy of will, nurture theirnatural perfection and are willing toperform fully rational action. He saysthat this autonomy or the freedom ofthe will actually guide all actions anduniversally govern human conduct. Thatis why he considered all rational beingsas ‘kingdom of end’ or ‘end inthemselves’. The capacity for theingenious pursuit of purposes and thecreative ability, give rise to actions thatare unconditionally good (that is theonly end-in-itself).

He writes that ‘morality, and humanityas capable of it, is that which alone hasdignity’. And again, ‘respect for aperson is properly only respect for thelaw ….’ ‘Nothing can possibly beconceived in the world, or even out ofit, which can be called good withoutqualification, except the ‘Good Will’; thatis, the disposition always to do whatpractical reason enjoins or permits,because it enjoins or permits it. ‘Thecultivation of one’s will [moral attitude]to fulfill every duty as such’ is the dutyof moral perfection according to him.The supreme principle of morality, theprinciple of autonomy, is the onlyintrinsically worthwhile value, for allpossible purposes of human endeavour.Kant’s conception of treating humanityas an end-in-itself also includes perfectduties to oneself and duties of respectto others. Here Kant holds thatarrogance, defame, contempt andphysical injury are prohibited, ascontrary to the dignity of others. Hesays we are also obligated toacknowledge ‘the dignity of humanityin every other man’. One must creativelypursue all permissible purposes(including the economic or businesspursuit) as fully as possible. But one mustdo this because one has a naturalinclination to do so. Moral perfection isto do one’s duties (to be perfect) fromthe motive of duty (‘duty for duty’ssake’). This absolute freedom from thepressures of inclination is involved inautonomy, which gives man his inherentdignity.

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It is rather irrelevant to talk of culturalrelativism so far as human dignity isconcerned. Kant’s CategoricalImperative requires us to treathumanity, whether in our person orthat of any other, never merely asmeans but as ends in themselves. Wemust not for instance coerce or deceiveothers anywhere nor must we fail inour duty of benevolence towards them.In the modern world what we lack is asincere effort to care for humandignity. This in fact is creating confusionin the present day human society andproblems for GB.

Once we realize that all rational beingsare free beings and have the capacity toexercise their autonomy of will, it will giverise to a world order which is morecosmopolitan. This deep-rooted ethicalphilosophy if cherished will contribute tobetter living and good life in a boundaryless world. Of course while applying themoral theory, one may face some practicaldifficulties, because sometimes it isdifficult to grasp complexities of thesituation and one’s finite ability to judgethe ethical context. But so far as corehuman values and individual freedom isconcerned, context complexity will not bea hindrance. It only depends upon one’sattitude to accord equal dignity to eachhuman person, i.e., universalizability(human beings must be treated withdignity)and reversibility, (what you do notwish to do to yourself do not do to others).Universal principles are formulated on thefoundation of these basic values, whichare present everywhere in the world.

John Rawls’ Theory of Justice representsthe Kantian conception of morality. Rawlstheory of justice focuses on social justice,which he regards as a feature of a well-ordered society. In such a society, eachentity pursues its interests in accordancewith moral maxim(rights and duties)based on the rational free will anddistribute the benefits and burdens onmutual cooperation. Rawls holds thatinstitutions as part of a well-orderedsociety should choose the principles ofjustice without knowing any facts abouttheir stations in life, such as social status,natural ability, intelligence, strength, raceand sex. His approach is that a rationallyself-interested person harmonizeshimself or herself with the society byrecognizing the fact that behind a veil ofignorance each individual is equal. Thesocial order is ensured by offering to itsmembers an equal opportunity.According to him elimination ofdifference caused by accidents of birthor social condition is the only way toachieve economic justice.

Donaldson and Dunfee’s (1999) idea ofhypernorms is also rooted in Kant’smaxim. Hypernorms are second-ordermoral concepts because they representnorms sufficiently fundamental to serveas a source of evaluation and criticism ofcommunity-generated norms. Once werespect the hypernorms we will rejectcultural relativism and pave the way fora transcultural ethical universalism. Thiscosmopolitan, world view defends theuniversal character of human ethicalexperience. This amounts to recognizing



the diverse communities and rejecting thefact that one -size -fit-all, but at the sametime evolving universal principles andvalues that is common to all people andbased on the deepest sources of humanethical experience.2

No doubt the foundation of theseethical standards normally lies in majorreligious and philosophical precepts,and human rationality. If corporationsand other business organizationsnurture proper respect for othercultures, employees, shareholders,customers, suppliers, naturalenvironment and the immediatesurrounding of their business firms(both in the home and the hostcountry), that will enable them toaccomplish their goals more efficiently.

3.0 DHARMA (THE BINDING PRINCIPLE):THE INDIAN TRADITION

The word ‘dharma’ comes from the rootdhr meaning to ‘to support’ or ‘tosustain’. It is the common principlesthat show the way to people of the timeto move on the path of righteousness(dharma). Dharma does not refer tosome rigid and stagnant principles butis an active power that directs andpreserves the interests of the individualand the society irrespective of caste,creed, religion and socio-economiccondition. ‘Just as the water helps the

2 . Different global fora (e.g. Human right, civil rights, employee right, child protection, and theenvironment protection groups) are making significant contribution to improve quality of lifein the global society. Action of these fora for a have been giving authentication to consensusmorality and the concept of ethical universalism or universally accepted ethical norms.

fish to move about, so dharma makesthe movement of soul and matterpossible.’

The characteristic of Dharma is that of aregulatory principle. It is the guidingprinciple of all action and tells us whatought to be done. That is whydharmasastras (ethical treatises) take intoaccount the conditions prevailing (i.e.keeping in view the need andrequirement) in desa (space) and Kala(time). Adherence to dharma putemphasis on one’s duty and it entailsthat each one (which encompasses everything and being) should be treated withrespect irrespective of position andplace. Secondly dharma guides, everyaspect personal (personal hygiene, civilawareness, polite behavior, considerateand gracious ways of dealings etc.) andpublic life (social, policatical, economic,religious, and spiritual matters etc.).There are diverse communities, andcustoms that differ from places to place,and families to families (desa, jati, andkula), and the peculiarity too is takencare of by concept of dharma. Everyactivity of life is coordinated bydharma.

In Indian philosophical system theconcept of Dharma (the cosmic moralprinciple) encompasses the religious andsocial understanding of the humansituation. It is the binding principle and

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universally applicable to the differenthuman activities (i.e. social, economic,political etc.). The question of moralrightness and wrongness or moralworthiness of an action is embedded inthe concept of dharma. Dharma isconsidered to be the rule of law. It isabove everything. Dharma acts as decisionprocedure for determining the rightaction in any particular situation. Theconnection between the metaphysical andthe material world view of Indian ethicalthought is unique.

Let us elaborate this moral fibre for thesake of clarity. In Indian value systemthere are four aims or goals of humanlife, viz. artha (wealth), Kama (desire),dharma (moral principle), moksa(salvation).These four purusarthas, arecalled caturvarga (the four principles ofliving).

In the caturvarga classification the four areequally important for leading meaningfullife. Only the Carvaka school (thematerialist) considered kama (desire) asthe only goal of life (kama evaikahpurusarthah), the artha being merely themeans of instrument for realizing kama.From this standpoint, treated as bothdharma and artha are merely treated asthe means and kama as the end. I wouldlike to mention here that those whorelinquish the world and decline to takepart in worldly transaction set moksa astheir ultimate goal (the paramapurusartha);and do not pose any problem to thesociety (Manusmriti 2.224). The otherthree purusarthas artha, kama and

dharma constitute the bed rock of thesocio-economic living. Prosperity orwelfare consists in giving importance tokama and artha, but these should beachieved only by adopting the path ofdharma.

Of all the purusarthas, dharma isconsidered to be of the greatestimportance because dharma is the solemeans of attaining social and economicjustice. It is through dharma the objectiveof artha and kama should be fulfilled(dharmadarthasaca kamasaca sa kim artho nasevyate, The Mahabharata 5.122.32).So itasserts that all business enterprisesshould be unfailingly based on dharma.Dhrma gives direction to artha (creationof wealth). So, when there is no clashbetween dharma and artha; it providesthe self-discipline essential for thebeneficial pursuit of artha (wealth). InCanakyasutra it is stated that sukhasyamulam dharmah; ‘dharma is the root ofhappiness.’

It is thus dharma that leads to thebehaviour which supports harmony insociety, facilitates its economic growth,and ensures good life in the society. Herewe can see the similarity between Kant’sprinciple of universalizability andreversibility and the Mahabharataconcept of whatever one desires foroneself one should desire the same forothers (yadyadatmani iccheta tatparasyapicintayeta the 12.251.21).

These maxims declare offences againstpersons and property to be violations ofdharma. Commonly it refers to the codesof duties of social, political, economic



institutions and individuals. Manu clearlystates various feature the dharma (duty)for better accomplishment of individual,social, political, and economic goals oflife. Thus Manusmriti maintains: acarahparamo dharmah: good conduct is theexcellent dharma – (Manusmriti 2.12).

4.0 THE UPANISHADIC MODEL

In the Upanishads Indian thinkershave described the human race asAmritasya Putrah (children ofimmortality) and the whole world isdescribed as Vasudhiva Kutumbakam(the entire world is one family). Theconcept of Global society has existedin the Indian Philosophical traditionfrom the very beginning. The wholeof mankind was considered as the partof the divine (Atmabat Sarva Bhutesu)and the Divine is all pervasive(Ishabasyam Idam Sarvam). There wasequal respect for life of both humanand non-humans (i.e. lives of animals andplants, Atmabat Sarva Bhutesu).Cherishing these values positivelycontribute towards a better form oflife.

Upanishidic vision envisages thatdharma is identical with satya (truth).It is the basis of all good practices. InBrhadaranayaka Upanishad it is clearlystated that there is nothing greater than

dharma; dharma is considered to bestronger than any other power since itis possible for a physically weak, butrighteous person to defeat a physicallystrong person. In the Rg-Veda dharmais akin with the concept of rta, theMoral Order. The reverence for dharmaby any individual or society ultimatelygets its reward by dharma protectingthat individual and society (dharma evahato hanti,dharmo raksati raksitah). Whenthere is a comparison between the Artha-sastra and the Dharma-sastra, the lattertriumph over the former.

Deliberately I have not discussed therelation of dharma to moskha.The basicpurpose of this paper is to affirm thepositive role dharma plays in regulatinghuman conduct that ultimately helps theindividual and society to grow. GB willcertainly attain the greatest good for themankind if devoid of prejudice againstcaste, creed, religion, country etc. Iforganizations accommodate thisphilosophical thinking and practise suchuniversal value system, (See Table- 1 fordetails), they will definitely do well inboth the home and in the host country.It will also provide a philosophicalbackbone to some recent empirical studiesdone by Hofstede (1980,1983,1991) andTrompenaars(1997)3 on culturaldimensions .

3 . Hofstede has specified four dimensions of culture, such as; i) Power Distance, ii) Masculinity-Femininity, iii) Uncer-tainty Avoidance and iv) Individualism-collectivism to indicate culturaldifference among different countries of the worlds. Trompenaars and Hampden provide aseries of bipolar dimensions of culture i) Universalism versus) particularism, ii) Communitarismversus individualism, iii)Neutral versus emotional, iv) Specific versus diffuse, v)Achievementversus ascription.

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Table-1: Universal Human Values

Common Understanding Western Philosophy

Kant’s Ground work ofmetaphysics of Morals (1785)

Indian Philosophy

Upanishads and Concept of Dharma

Dignity and Respect

Every human being must betreated with equal dignity andhonor without any distinctionof nationality, race, cast, creed,sex, age, language, religiousaffiliation (faith), and politicalaffiliation. There should beconscious effort to protecthuman dignity by individualsand political and economicpowers.

Dignity and Respect

The rational being is “the basisof all maxims of action”. “Therational being, is an end initself, and must treated inevery maxim as an ends.” and“must be treated never as amere means”.

Dignity and Respect

The Upanishads depict all menand women as “children ofimmortality” (AmritasyaPutrah).We should do goodto others, respect othersbecause ‘we are all one’ inhelping others, we helpourselves; and in hurtingthem, we hurt none butourselves.

Freedom

There should not be anycompulsion, no should actunder duress, no exploitationshould take place in the workplace (particularly women andchildren),

Freedom

Freedom of the will is not thecapacity of the will to makechoices on the basis ofsubjective feelings, but is thecapacity to choose actions onthe basis of objectiveprinciples of reason.

Freedom

In the Upanishads Freedom isconceived as internal force thatexit in every individual Thisimmutable aspect ismanifested by the practice ofgood work and satisfaction of.One’s own conscience.

Reversibility

Do not do on to others whichyou do not wish to be done toyourself. This should be thebinding, unconditional normfor all areas of life, (frompersonal, social toprofessional life).

Reversibility

Every rational being whetheryourself or another has strictobligation towards him-selfand others. “Do not do it toothers which you do not wantto do on to yourself”.

Reversibility

There was equal respect for lifeof both human and non-humans(i.e. lives of animals and plants,Atmabat Sarva Bhutesu).Whatever one desires foroneself one should desire thesame for others( y a d y a d a t m a n i i c c h e t atatparasyapi cintayeta theMahabharata 12.251.21).



Justice

What is needed is a sociallyand economically justsociety. Unlimited,unjustified use of resources(human, natural, andfinancial) by few causessocial disharmony in theworld. Conflicts should beresolved with non violentmeans and with the supportof justice. This is applicablein every human endeavorpersonal or professional.All economic and politicalactivity should operatewithin a global order toenhance peace andharmony.

Justice

The moral value of an actionis determined not by howeffective the action is inachieving its object, but by theprinciple of volition.according to which it isperformed. What Kant istelling us is knowledge of justand unjust, and treat peoplewith due respect to theirrights, wcich he calls the‘positive right’ of anindividual.

Justice

The highest goal, thesummum bonum is not onlythe well being, of humanbeings but of all the livingcreatures. Sarve bhabantusukhinah sarve santuniramayahSarve bhadranipasyantu makaschitdukhabhagabhavet.‘Mayall be at ease; may all besinless; may all experiencehappiness; may noneexperience suffering.’

Univesalizability

Human beings have a uniquecapacity called reasoning.We depend on each other andthink of the welfare of all.All people have a right to life,safety and free to developtheir individuality insofar asthey do not harm the rightsof others. No should cheat,deceive, lie, torture, injure,kill any other human beingbecause these can not beaccepted as universalprinciple, violate humanright, destroy social fabric.As Thomas Hobbes said:“life will become nastybrutish and short.”

Univesalizability

Act only according to thatmaxim by which you can alsowill that it would become auniversallaw. “Always actaccording to that maximwhose universality as a lawyou can at the same timewill”, and is the “onlycondition under which a willcan never come into conflictwith itself…”

Univesalizability

Indian thinkers have describedthe human race as AmritasyaPutrah (children ofimmortality) and the wholeworld is described asVasudhiva Kutumbakam (theentire world is one family,Upanishads)

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Truthfulness

All communication shouldbe clear and transparent.Everyone should speak thetruth, and act truthfully.All of us depend onauthentic information tomake decisions that shapesour lives. So, truthfulnessshould be cultivated in allour relationships.

Truthfulness

The value of truth out ranksthe value of combination ofhealth, wealth, andhappiness, etc.

Truthfulness

satyam bruyat priyambruyat na bruyat satyamapriyamPryyam cananrtambruyat esa dharmahsanatanahOne should speakthe truth, but with givingoffence, although one shouldnever compromise truth forbeing nice.

The table-1 represents the universalhuman values that are common in bothIndian and western philosophy.

5.0 CONCLUSION

In the conclusion, I would like to suggestthat the universal values like; dignity andrespect, freedom, justice truthfulness,universalizability and reversibility are thebasic principles of human living. Theseprinciples determine the moral worth ofany action. If these basic moral principles,presented in both the Indian and westernphilosophy are perused seriously, thiswould provide a solid moral foundationto GB.

REFERENCES

Bhattacharya, Haridas ed. (1953) The CulturalHeritage of India, Vol. I & II, (The Philosophies)Rama Krishna Mission Institute of culture,Calcutta

Donaldson, Thomas, and Dunfee Thomas W.,(1999) Ties that Binds, Harvard UniversityPress, Baston, MA.

Dunning, John H. (ed). (2003), Making GlobalizationGood, Oxford University Press, New York.

Hofstede, G. (1980a) Culture’s consequences:international differences in work-related values,sage, Beverly Hills, CA.

Hofstede, G., (1983) The cultural relativityof organizational practices and theories,Journal of International Business Studies,Fall, 75-90.

Hofstede, G. (1991) Cultures and organizations:so f tware o f the mind, McGraw-Hil l ,London.

Kant, Immanuel (1785) Ground work of themetaphysics of Morals, Translated with anIntroduction by Lewis white Beck, Thelibrary of Liberal Arts. 1959.

Lal, Deepak, (2006), Reviving the Invisible Hand,Academic Foundation, New Delhi.

Lowe, Robin (1996) “Ethics in InternationalBusiness” in Business Ethics and BusinessBehavior (ed). Keen Smith and PhilJohnson, Thomson Business Press,. pp.243-272.

Rawls John,(1971)A Theory of Justice, HarvardUniversity Press.



Singh Karan, (1995) “Transit ion to theGlobal society: Towards a Dharma forthe New Mil lennium” in the IndianJournal of Public Administration, July- Sept.pp. 613-613.

Sri Aurobindo, (1972), The Upanishads, Renderedinto simple and Rhythmic English(comprising six Upanishads, mainly the Isha,Kena, Katha, Mundaka, Prashna and

Mundukya), Sri Aurobindo Ashram Trust,Pondichery 1972.

Stiglitz, Joseph E. (2002.)Globalization and itsDiscontent, W.W.Norton, New York andLondon.

Trompenaars, F. and Hampden-Turner, C.Response to Geert Hofstede, International Journalof Intercultural Relations, 1997, 21.1, 149-159.

Demand Estimation – Some EmpiricalObservations and their Implications*

P.Mishra1

Abstract

Demand and sales forecasting have gained importance in the recent time due to their relevance inplanning process. There is a variety of methods for forecasting demand or sales. Different methods havedifferent assumptions, limitations and implications. In the present paper two methods viz, explanatorymethod and consumer anticipation survey using probability have been used. It is observed in the firstmethod that the use of only one strategic variable such as price sometimes does not result in goodestimate unless it is associated with other important determinants of demand in short run estimation. Inthe second method, when cross section data are used in the consumer’s anticipation survey method, theestimates may vary unless the number of options (or price levels), the sampling type and sample sizealong with assignment of probability to different responses are given adequate importance and properlyarticulated as they involve subjectivity. The two methods and observations are independent of oneanother although they are related to demand estimation.

* Received July 24, 2007; Revised : September 10, 2007. The author sincerely thanks an anonymousreferee for his valuable comments on an earlier draft.

1 Professor of Economics, Xavier Institute of Management, Bhubaneswar,email: [email protected].

Perspective

1.0 INTRODUCTION

Estimation and forecasting methodshave found importance in the recenttimes in several fields including salesand demand forecasting and otherbusiness related variables since it isbelieved that educated guesses aremore valuable than uneducatedguesses for decision making (Hanke,2002). Researchers have studied andexperimented with various methods ofdemand or sales estimation and

forecasting (Hardie et al ,1998,Hassens,1998, Chen,2000, Steffens,2001). It may not be out of place hereto mention that strategic corporateplanning operates in an environmentof uncertainty. Statistical andeconometric methods for salesestimation and forecasting attempt toreduce some of these uncertainties bypredicting and estimating the volumethat will be sold in the market. Thisinformation regarding which product


or services to be produced, to whomand to which market segments theseare to be sold and when to be sold is anecessary input for planning variousfunctions in a firm.

To estimate or forecast company salesor demand, one needs to know theimpact of its product’s price, itsadvertising expenses, personnel, sellingexpenses and strategies along with othervariables. Hassens (1998) has examinedthe problems of estimation of ‘ongoingfactory orders’ and monitoring ‘retaildemand’. There are views that, differentdata sources and models could be usedto increase prediction accuracy of theestimates or forecasts. Based onassessment of the relative efficiency ofdifferent statistical or econometricmodels, it is observed that extrapolativemethod with time series data could bemost befitting for such exercises.Besides, marketing mix data forimproved retail demand trackingmethod and use of conjointmeasurement data to simulate aproduct’s utility over time withinclusion of the information in thedemand model, have also beensuggested.

Similarly, some have advocated that animportant phenomenon often observedin supply chain management, known asthe bullwhip effect, implies that, demandvariability increases as one moves upthe supply chain, i.e., as one movesaway from customer demand (Chen,

Ryan & David Simchi ,2000). They havetried to quantify this effect for simple,two-stage, supply chains consisting ofa single retailer and a singlemanufacturer. They have consideredtwo types of demand processes, acorrelated demand process and ademand process with a linear trend.Such studies put emphasis on the useof specific variables in the models forestimation and forecasts.

Researchers have also put emphasis onthe use of moving average methodsand more sophist icatedautoregressive methods using timeseries data for short run forecasts.However, the most frequently usedapproaches for forecasting sales anddemand are extrapolative methodsand probabilistic models. Besidesthese, explanatory method using thedemand and sales determinants havealso gained importance in demandand sales estimation and forecastingin the recent time. The determinantsof demand, mostly the strategicvariables l ike price, advert is ingexpenditures, personal sel l ingexpenses and income of theconsumers are used in the estimationof demand and forecasting.In thiscontext, it may be pointed out that oneof the diff icult ies in using theexplanatory method is data limitation.For example, while using cross sectiondata for demand estimation it will beeasy to get the demand or sale

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volume of a product and the pricesprevail ing in different marketsegments, but it may not be possibleto have a breakup of the advertisingexpenditure of the product for thesemarkets. Therefore, there wil l belimitation in using the explanatorymethod for demand estimation sincedata limitation will be encounteredwith respect to some of the strategicvariables l ike advert is ing andpersonal selling expenses. Moreover,it is an accepted fact that in the shortrun there wil l be hardly anyvariability in the prices in differentmarkets al though there wil l becomparatively more variability in thedemand depending on the influenceof some other variables like incomeof the consumer and otherdemographic features.

In view of the above, an attempt hasbeen made, in this paper to evaluatetwo methods of demand estimation –(i) explanatory method usingdeterminants of demand and (ii)probability method using consumeranticipation survey and then discuss theissues and implications.

The specific objectives of the presentpaper, therefore, are as follows:

1. To evaluate the explanatory methodwith special reference to theselection and use of variables andidentify issues involved inestimation and implication of thefindings, and

2. To identify issues involved in theconsumer’s opinion survey methodwith assignment of probability toresponses for demand estimationusing only cross section primarydata.

2.0 METHOD

For the explanatory method, a multipleregression has been used where as forthe consumers’ opinion survey a twovariable regression has been used. Forthe first method, a demand functionusing a set of three strategic variables,namely, price of the product,advertising expenses and personalselling expenses have been used anddemand estimation has been doneusing the said three variables. Therelative importance of the variablesused has been examined from thestandardized coefficients and also fromthe scatter plots. Estimates of Demandusing each variable in the equation andcombination of variables have beenexamined and compared using thestandard method through errors in theestimates. This has been done by usingsecondary data.

For the second method, i.e. opinionsurvey method, a live example of OrtelCommunication Ltd Bhubaneswar(Mishra, P, 2006) was considered andprimary data were collected from sixcities/towns namely, Bhubaneswar,Cuttack, Paradeep, Rourkela,Sambalpur and Balasore with the help

Mishra, Demand Estimation –Some ...


of a questionnaire. Fifty prospectivecustomers have been included in thesurvey for each of the abovementioned places and usingprobability method for consumers’anticipation demand has beenestimated. Equations for theconventional demand curves as well asmarginal revenue curves have beenestimated and the revenue maximizingprice for the company has beensuggested. Issues and implication ofthe method have also been discussed.

3.0 FINDINGS AND DISCUSSION

The findings relate to the empiricalobservation using two methods ofdemand estimation (Case I and Case II).The first relates to the use ofexplanatory method whereas thesecond relate to the use of consumer’santicipation survey.

Case I

The findings presented in Table 1,Graphs 1, 2 and 3 and output - 1 relate toestimation of demand using time series

TABLE – 1 : ESTIMATED EQUATIONS FOR DEMAND ESTIMATION & MEAN SQUAREERROR (MSE) Dependent Variable : Units Sold (Proxy for Quantity Demanded : Qx)

1. Qx = f(X1 X2 X3) – 117.5 -0.296 -0.296 -0.296 0.96 10587 102(0.02) (0.02) (0.02)

2. Qx = f(X1) 2096.22 -0.0237 — — 0.0003 338021 581

3. Qx = f(X2) 154.801 — 0.0934 — 0.88 38591 196(0.00)

4. Qx = f(X3) – 1292 — — 0.0929 0.88 41370 203(0.00)

5. Qx = f(X1 X2 ) – 117.5 -0.0884 0.0937 — 0.86 37394 193(0.60) (0.00)

6. Qx = f(X1X3) – 270.032 -0.396 — 0.0995 0.93 18750 136(0.00) (0.00)

7. Qx = f( X2 X3) – 706.137 — 0.0514 0.0477 0.92 21060 145(0.01) (0.02)

Equations Constant Slope Coefficients ofIndependent Variables

R2/Adj R2 MSE S.D ofEstimates

Price X1Advertis-

ingExpenses

X1

SellingExpenses

X3

TE : Figures in the parenthesis refer to the significance levels of the slope coefficient

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data for three independent variables viz;price, advertising expenses and sellingexpenses for twelve months of ElectronicData Processing (EDP) Corporation, Inc.USA(2001). Estimation has been donetaking the three variables at a time, oneeach at a time and three differentcombinations of the variables in order tocompare the results and identify the mostimportant one for estimating thedemand.

It may be mentioned that anexamination of the scatter plots is astarting point of exploring arelationship between two variables. Anexamination of the scatter plotsbetween quantity sold, proxy fordemand, and price see Graph 1,2 and3) suggests that price does not seem tohave a negative relationship with theunits sold. The points are scattered onthe graph without showing any pattern.It may be observed that for lower pricesthe units sold is less in some caseswhereas more in some others.Moreover, at the same price the unitssold are also different Thus, theassociation between price and unitssold cannot be used for estimation ofdemand and forecasting of demand fora future period. The insignificantassociation is confirmed by the lowsignificance level of the slope coefficientand the coefficient of determination(R2) when price alone is considered tobe the explanatory variable. Although,a negative sign precedes the coefficient,


Graph 1 : Adv. Expolr

Graph 2 : Selling Expenses

Graph 3 : Price


combinations of variables are used (i.e.addressing remedial measure formulticollinearity and modelmisspecification).The estimates,themean square errors and the standarddeviations for all the equations havebeen computed (see Table 1). It isobserved that the mean square error isthe least when we are using the threevariables in the equation rather thanusing only price or any other variablesor the combination of two out of thethree variables. This implies that thedemand function when all the threevariables are used is the mostappropriate one.

Case II

Consumer’s opinion survey usingprobability (consumer’s anticipation)

Demand estimation of OrtelCommunication Ltd has been done usingconsumers’ anticipation survey. Thecompany was founded in 1995. In a shortspan of time it has emerged as one of thefew companies in the country to providethe “Triple Play of Video, Data Voice”. Sofar as the state of Orissa is concerned, itis the only company giving these servicesto many cities. The company isoperational in the towns in Orissa viz;Bhubaneswar, Cuttack, Sambalpur,Rourkela, Paradeep, Berhampur andBalasore and is providing cable net work(CTV).

The economy of Orissa has been growingfast. In view of this fast growth, Ortel

it is not statistically significant.Moreover, the coefficient ofdetermination is almost zero. This maybe wrong a priori. This warrants us touse other variables in the estimation.In the present exercise it is observedthat the other two variables (advertisingexpenditure and selling expenses) arehaving significant relationship with thedependent variable i.e. units sold andthe signs are also a priori correct.However, when all the three variablesare included in the model all of themare having correct signs, (interestinglyincluding price) and are statisticallysignificant but price becomes the leastimportant variable looking at thestandardized coefficients (see Output -1). Obviously therefore, one will betempted to reason out to drop ‘price’from the equation. But theoretically, itis not advisable to drop a strategicvariable like price. Moreover, thecorrelation matrix suggest thatadvertising expenses and sellingexpenses are highly collinear with acorrelation coefficient of 0.89.Therefore, we have estimated theequations taking price and each of theother two variables individually. Thetwo variables excluding price have alsobeen used in the equations. It is foundthat the coefficient of determination (R2)is relatively less but the coefficients ofthe variables are statistically significantat less than 5 % in all the cases. This isdone in order to examine how much theestimates are affected when different

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register different options with respectto price (See Table – 2) has been usedto quantify the consumer’s anticipation.The prospective consumers were askedto tick the relevant box with respect totheir opinion on whether they wouldgo for the services or not at the givenprices. Probabilities were assigned toeach of the responses. The expectednumber of buyers were determined bymultiplying the number of responses ineach row with the respectiveprobabilities and taking the sum of eachrow. Thus, the table provides theexpected number of buyers of theservice at different prices. Theconventional demand curve (DC) i.e.Px=f(Qx) along with the marginalrevenue curve (MR) were estimatedusing the data. The results have beensummarized in Table No 3. The revenuemaximizing price has also been includedin the table which was derived from theMR Curve. This has given the companyto compare their market price and withthe use of the elasticity coefficients thecompany may take a decision either toincrease or decrease their prices.

Table 3 shows that there aredifferences in the slopes of theestimated demand curves thus givingrise to differences in the revenuemaximizing prices.

It is observed that the revenuemaximizing prices for Cuttack andBhubaneswar are 167 and 174respectively. But the actual prices whichis charged in these two cities are more


Communication Ltd, Bhubaneswardecided to look into businessopportunities with special reference to thegrowth of demand for the cableconnections in the economy of Orissa.Accordingly the company decided toestimate the demand of the servicesprovided by it in different towns inOrissa with respect to the different pricelevels.

A sample survey was used to quantifythe consumer’s anticipation of buyingthe service provided by the OrtelCommunication, Ltd Bhubaneswar.Different price levels and space to

Table No 2 : Please Specify Your ChoiceIn The Following TablePrice 0 0.2 0.4 0.6 0.8 1.0 Ex-

(a) (b) (c) (d) (e) (f) pect-ed no.

ofbuy-ers

300

275

250

225

200

175

150

125

100

a = definitely no; b = not likely;c = perhaps (may be); d = quite likely;e = very likely; f = definitely yes;


which suggest that the company couldincrease revenue by lowering the pricesand thereby widening the customer basein these two cities. But coming to theother towns in the state, it is observedthat the company is intervening in thesemarkets and charging a lower price thanthe revenue maximizing one.The issues which concern the researcherhere relates to the number of options tobe given to the respondents relating tothe price and the assignment ofprobabilities to different options. Theslope of the demand curve will dependon the probabilities to be assigned to theresponses on the basis of which therevenue maximizing price is worked outand the elasticities are calculated whichin turn may influence the decisionmaking. The assignment of probabilityto the response category is determinedsubjectively by the researcher.

Table – 3 : Estimated Demand Equations & Revenue Maximisation Price

Places DC and MR Estimated Demand Revenue MaximizingPrice

Bhubaneswar DC P = 348.619 – 3.569 X 174

MR MR = 348.619 – 7.138 X

Cuttack DC P = 335.308 – 3.550 X 167

MR MR = 335.308 – 7.100 X

Paradeep DC P = 282.054 – 2.896 X 141

MR MR = 282.054 – 5.792 X

Rourkela DC P = 327.347 – 3.210 X 163

MR MR = 327.347 – 6.420 X

Sambalpur DC P = 252.470 – 3.498 X 126

MR MR = 252.470 – 6.996 X

Balasore DC P = 341.364 – 3.635 X 170

MR MR = 341.364 – 7.270 X

4.0 CONCLUDING OBSERVATIONS

The exercises presented here relate totwo methods of demand estimationusing both time series short run dataand cross section data. Using short runanalysis (time series) a researcher mayestimate or forecast demand by usingstrategic variables. In the presentanalysis income of the consumers wasnot included although it is a strategicvariable. However, a caveat is in orderhere which concerns the explanatory andpredictive efficiency of the model used.Theory of demand suggests (and it is apriori correct) that price is consideredto be the most important determinantof demand for normal goods, but pricesdo not change in the short-run in themarket nor the income of the consumersparticularly when time series data areconsidered (may be weekly, fortnightly,

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for estimation and for the short termforecasting which may be necessary formanagerial decision making such as fixingtargets for a monthly, quarterly or yearlysale volume. Therefore, a demandfunction with the relevant determinantsmay be used in place of a simple demandcurve for demand estimation.


monthly or quarterly). Therefore, whenprice is used as the only determiningfactor for variation in demand and onetries to estimate, he may end up withlarge errors and will significantly losepredictive efficiency of the model.Therefore, it is better to use the strategicvariables including price in the model

Output 1Regression

Variables Entered/Removedb

Model SummaryModel R R Square Adjusted R Square Std. Error of the Estimate1 .985a .970 .958 123.92241a. Predictors : (Constant), SELEX, PRICE, ADVEX

ANOVAb

Model Sum of Squares df Mean Square F Sig.1 Regression 3934437.5 3 1311479.183 85.401 .000a

Residual 122854.12 8 15356.765Total 4057291.7 11

a. Predictors : (Constant), SELEX, PRICE, ADVEXb. Dependent Variable : SOLD

Coefficientsa

Unstandardized StandardizedCoefficients Coefficients

Model B Std. Error Beta t Sig.1 (Constant) -117.531 333.526 -.352 .734

PRICE -.296 .102 -.200 -2.908 .020ADVEX 3.598E-02 .014 .362 2.579 .033

SELEX 6.621E-02 .014 .668 4.607 .002b. Dependent Variable : SOLD

Model Variables Entered Variables Removed Method11 SELEX, PRICE, ADVEXa Entera. All requested variables entered.b. Dependent Variable : SOLD


Secondly, when we use cross sectiondata and estimate the consumerdemand, particularly for new products,one may use the consumer’s anticipationsurvey. It can also be used forestimating the demand for a productafter product renovation/changes in thequality or any such changes in theproduct. The issue which needs to beaddressed is the number of options (orprice levels), the sampling type andsample size and assignment ofprobability to different responsecategory. More number of options forprice levels will increase the degrees offreedom while calculating thecoefficients of the demand curve and therepresentative sample will have moregeneraligeability. However, the mostimportant aspect is the assignment ofprobabilities to the answer categories.For example, we have used probabilitiesof 0.2 difference for the successiveanswer categories in our exercisereported here (following a conventionalusage). But this is quite subjective. Forexample, one may argue that for anoption in the answer category like ‘verylikely’ (i.e. the consumer is very likelyto buy the product at a particular price),the probability could be 0.9 or o.85instead of 0.8 (as we have used in ourexercise) and for an option like ‘notlikely’ the probability could be 0.1 andnot 0.2. A subjective assessment of theresearcher is involved here to assign theprobability. In such cases the expectednumber of persons willing to buy theproduct at different prices will vary.This will, in turn, affect the slope of thedemand curve as well as the marginalrevenue curve which will affect therevenue maximizing price for the

company. Therefore, much caution hasto be taken while assigning theprobabilities to the different options ofthe consumers/respondent. A brainstorming between the researchers andthe experts in the relevant field forassignment of probability could help insuch a situation to have a good judgmentin assigning probabilities which mayresult in a reasonable estimate of thedemand curve. This will haveimplications on the revenue maximizingprice and price elasticities.

REFERENCESChen, Frank, Ryan, K. Jennifer and Simchi, David

(2000), “The impact of exponential smoothingforecasts on the bullwhip effect”, Naval ResearchLogistics, USA.

Douglas, E.J., (1992) Managerial Economics,Prentice Hall Inc., N.J.

Hanke ,J.E. et al Business Forecasting, (2002),Prentice Hall, India, Private Ltd. SeventhEdition, New Delhi

Hardie, G.S., Bruce, Fader, Peter, S. andWinneiwski, Michael, (1998), “An empiricalcomparison of new product trial for forecastingmodels”, Journal of Forecasting, Vol-17, Issue- 3-4.

Hassens, M. Dominique, (1998), “Order forecasts,retail sales and the marketing mix for consumerdurables”, Journal of Forecasting, Vol-17,Issue - 3-4

Mishra,P., Business Demand Forecasts andDemand Estimation, (2006) An UnpublishedProject Report ,Xavier Institute ofManagement, Bhubaneswar

Paul, Steffens R. (2001), “An aggregate sales modelfor consumer durables incorporating a timevarying mean replacement age” Journal offorecasting, Vol-20

Management Case

Suhas Gopinath*

Brajaraj Mohanty1 & Rajeev Roy2

* Received August 20, 2007; Revised September 12, 2007. The case is based on published materials,website information and personal experience of the authors with Mr. Gopinath

1 Professor, Xavier Institute of Management Bhubaneswar. email: [email protected] Assistant Professor, Xavier Institute of Management Bhubaneswar. email: [email protected]

1.0 THE WONDERKID

On March 1, 2006, CBS News Agencymade the headlines about the Indianwonderkid, Suhas Gopinath. As its ChiefForeign Correspondent Lara Loganreported, six years back, Suhas at the ageof 14 had become the World’s youngestChief Executive. By 2006, he was the bossof a global software company thatspanned over 11 countries including theUnited States. It was a remarkableachievement by any standard. In India,a developing country saddled with thelargest number of the world’s poor, itwas nothing short of a miracle.

Suhas was inspired by none other thanMicrosoft’s Bill Gates. He had set up hisIT Services Company, Global Inc., whilesimultaneously studying in a school atBangalore in India. The Company in itsfourth year employed 600 persons – theyoungest of them was a 10- year old andan advisor on web design. Age was nota barrier for employment in his company.The maximum age of an employee in thecompany was 32 and the average wasaround 21.

2.0 HOW IT STARTED

Suhas wanted to be a veterinarian. Achance visit in mid 1990’s, when he was12, to an internet café, which openednext door to his house, changed his life.His elder brother Shreyas took him thereand he was fascinated at the internet.“He explained me how the internetworks and also opened my email id. Thenext day, I went to school to find that Iwas the only one in the class to have anemail id but I was not satisfied with justthat….. Somehow I liked the touch ofthe mouse and wanted to play with thekey board. I used to sit in the cybercentre all the time. I used to get Rs.30 aspocket money at that time and I usedthe entire money in the cyber café. Whilean hour at cyber café would cost meRs.120, I requested the cafe owner toallow me to work for him after my schoolhours and let me use internet for free.Luckily, he agreed. For the next sixmonths, I learnt how to make web-sitesand was introduced to manytechnologies. I learnt HTML, ASP andevery possible software at the Cyber


Café. I opted for self- learning insteadof going to an institute”, says Suhas. “Ihad no knowledge of the Internet. Butwhen I was browsing the internet in acyber café I stumbled on a source codeof a web site. I was fascinated andthought long and hard. I soon launchedmy own website,www.coolhindustan.com,” he adds.That had happened when he was noteven 14 years old. The site was launchedin May 14 2000 and two friends CliffordLeslie and M.N. Vinay helped him inthis effort. “I didn’t have the money tolaunch the website. So I wrote toNetwork Solutions Inc. in the US andthey readily agreed to host the site freeof cost.” Network Solutions also invitedSuhas to its headquarters in San Jose,California. It was the first time he hadboarded a plane and also the first timethat he had gone outside India.

In the US, Network Solutions evenasked him to maintain their website asChief Web Developer at $2000 per weekwith a chauffeur driven car and anapartment. It was quite attractive butSuhas turned down the offer. Hewanted to start his own company ratherthan be employed by a Fortune 500company.

Suhas spent hours at the local cyber caféfiguring codes, reading books on BillGates and Michael Dell and preparing tostart an IT company. He had fortunatelyand accidentally an encounter on aninternet discussion board with a USuniversity student in 2003 who was

interested to join Suhas. Two teenagefriends from Bangalore from his middleclass neighbourhood were also willing tojoin him.

However, his attempt to launch a privatelimited company ran into difficulty, as thelaws in India did not allow a kid of 14 tostart a company. Suhas decided to turnto US where such a law did not exist.Thus, Global’s Inc was set up in Californiaand registered online in San Jose. Suhasinitially planned that his company shouldbe named Globals Solutions but thatname was already taken. He opted forGlobals with himself as its founder, CEOand president. Two years later, it hadoffices in 11 countries and employed over600 people. In the year 2004 – 05 thecompany notched up an earning of IndianRs.2.5 crore.

Suhas always thought that he should starthis company in Bangalore but wasdisappointed. In a meeting with PresidentAbdul Kalam he requested for relaxationof this age limit so that other youngentrepreneurs could easily set up theircompanies. The President promised hissupport.

Initially Suhas faced many obstacles. Themost important of them being from thepotential customers. When they learn thatSuhas was barely 14, they cancelled theirorders and refused to take him seriously.To overcome this difficulty he startedgrowing a moustache as soon as he begansprouting facial hair, but this also didn’thelp much. Soon on the advice of thefriends he shaved it off.

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Word gradually spread around about theability of the Globals Inc. and as Suhashired more and more people and openednew offices, potential customer startedcoming back to Globals and for Suhasthere was no time to look back.

3.0 ABOUT BUSINESS

For Suhas IT was a pastime, which turnedinto an obsession. It was because of hisinterest that he worked on it and laterother friends joined him. Initially it wasa team of four. At the beginning theywent to the extent of offering theirservices free of cost. As most of themwere studying and were interested in thework, they did not mind. Howevergradually they realised that in order tosustain they had to charge the clients. Atthe same time their service charges werequite competitive vis a vis others in thebusiness.

Globals Inc. offered cost effectivesolutions in web, software, mobile andmultimedia. The company designed anddeveloped B2B portals, B2C portals andcorporate websites. In the words ofSuhas “ We aim to bring out robustservices within a mouse click and webelieve in teamwork. Projects areundertaken by Globals to build the skillsof the team members. Most of themembers work from cyber cafes.” By2005 it had established offices in morethan 11 countries and served more than200 clients world wide. Globals alsooffered IT consultancy involvingpractical jargon free advice to clients tocope with first changing and often

complex business. The portfolio ofproducts and services comprise thefollowing:

1. IT strategy.

2. Procurement and partnership

3. Business Process Improvement

4. Information Management

5. Contract Development

6. Web Designing

7. Web Development

8. Content Management System

9. Internet Marketing

10. Media Streaming

11. Custom Application Development/Custom Software Development

12. Industry Solutions

13. WAP

In developing cost effective, innovativeworld class solutions and productsGlobals has made a name for itself andcarved out an enviable place for itself inthe industry. Its has as clients, a numberof companies from small and mediumsized to fortune 500 companies. Everycompany is treated uniquely, taking intoaccount its distinct needs. Its clientsincluded the following well-knowncompanies:

1. Verisign Inc., USA

2. Edunar UK

3. Government of India

4. Opalesque.com, Germany

Mohanty et.al, Suhas Gopinath ...


5. VC4G.com

6. Jain Group of Institutions, India

7. Deepti Electronics and Electro –Optics Pvt. Ltd., India

8. Childern Services Inc., USA

9. Maso Automotives, India

10. Greys Exim, India.

Globals operated on a world wide basiswith offices in 11 countries includingUSA, India, Canada, Bahrain, Italy, UK,Germany, Spain and Australia and inaddition there were operations inSingapore, Norway, Switzerland, SouthAfrica etc.

4.0 WORK CULTURE

Globals is not only a young organisationbut majority of its employees in India andabroad are also young college goingstudents. Many of these are part timersand the average age in Globals is 21 years.

Joining Globals Inc. is open to studentsin the age group of 17 – 22. In order toavoid employment of such young peoplebeing termed as ‘child labour’, Globalsensures that such people worked only onpart time basis from their home wherethey are provided with internetconnections and PC. They are giveninstructions through a message board.Their membership to the Globals networkis free of cost and based on their skill setand not qualifications. Once a candidateis selected he is put on to a project andbecomes a member of the Globals family.Any candidate can apply online if he is

convinced that he can bring in somerelevant skills to Globals.

About the age of employees, Suhas says“the upper limit is 25 years and we arebasically looking for people in their teensor twenties. Enterprise is more importantthan high academic qualifications.” Aboutthe age of Vice President of operations,V.N.D Manohar, Suhas says that he is theoldest member of the team, but Manoharsays “ I may be older but Suhas is moreexperienced. He is the boss.”

During a conversation, Suhas says thathe does not treat his colleagues asemployees. There in a friendlyenvironment just like in a family.

Suhas is also concerned that theemployees who work with the companyget an excellent environment to work andhave adequate opportunities for sports,leisure and relaxation. During a visit toBhubaneswar for an entrepreneurshipseminar, where he was talking to a youngaudience, he explored the possibility ofsetting up a research and developmentcentre in Bhubaneswar. He visitedNandankanan (a zoological park), Puri,Chilka and several other places of interestto find out that, in the event of a R & Dcentre coming up, his employees wouldget sufficient avenues in and aroundBhubaneswar to keep themselvesengaged.

5.0 ORGANISATION STRUCTURE

Globals already has a managementstructure in place. There is a ChiefOperating Officer, Chief Information

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Officer, Chief Technology Officer,other department heads and severalregional heads in USA, Spain, Italy,Australia, Bahrain, Canada and

Germany. The names of themanagement team members regionalheads and members of Board byDirectors are given below:

Chief Executive Officer & President Suhas Gopinath

Chief Operating Officer & Senior Vice President, Finance Vinay M.N.

Chief Technology Officer and Vice President, Software Solutions Samuel S Carre

Senior Vice President, e-Commerce & Web Solutions Vantt Chris

Executive Vice President, Worldwide Human Resources Micheal Vaughan

Executive Vice President, Strategy and Marketing Amruta Desai

Management Team


Regional Heads

Regional Head – Dulles, USA Paul Samberg

Regional Head – Madrid, Spain Alberto Sanchexz Plaza

Regional Head – Milan, Italy Giancarlo Ambrosini

Regional Head – South Australia, Australia Abhishek Devraj

Regional Head – Manama, Bahrain Titus Varghese

Regional Head – Quebec, Cannada Manjesh Muthapa

Regional Head, Cologne, Germany. Ehsan Rehman

Chairman of the Board (CEO Deepti Marketing Services) Mr. M.R. Gopinath

Vice Chairman of the Baord (CEO, Globals Inc.) Mr. Suhas Gopinath

Executive Director (COO, Globals Inc.) Mr. Vinay M. N.

Non-Executive Director (Chairman, Jain Group of institutions). Mr. R Chenraj Jain

Non – Executive Director (CEO Deepti Electronics and Dr. Sheshadri M.R.Electro-Optics Pvt. Ltd.)

Executive Director (Legal Counsel, Globals Inc.) Mr. Joshi D.N.

Non-Executive Director (NASA – Washington DC. Dr. Narayan Rao

Board of Directors


6.0 FINANCE AND COST

Globals strategy was to have steadygrowth, low cost pricing and a focus onsmall and medium enterprises. It alsoworked in products like schoolinformation management system whichhas a great potential in the third worldcountries. “While a competitor offers thisproducts at the cost of Rs. 2 lakh we offerit around Rs.15,000/- . We are aiming atsmaller schools,” says Suhas. This is tosome extent explained by the costcompetitiveness of Globals.

One of the other cost aspects was relatedto the setting up of the company. “I didnot register my company in India as onehas to pay taxes and there are otherhassles,” he said. “The rates we chargeare very cheap. If you want to set up yourown site we charge only 300 rupees.”Infact for a client in Frankfurt, Globalsdesigned a corporate website andcharged only about this much.

Speaking about the way that Globalskeeps its cost down, Suhas mentionedabout the salary of talented programmersin the US versus India. In the US, theprogrammers were paid a higher salarybut the actual cost to the company wasmuch higher. In addition to the salarythere were statutory payments to eachemployee. Besides infrastructure costsuch as hardware, software, utility andspace cost got added to the overheads.On the whole, while a twelve man monthproject which took approximately a yearfor a programmer in US and costed aboutone lakh dollar, the same could be

completed in about six months in Indiaand at an approximately cost of Rs.25, 000.

In case of team programmers Suhas gavethe component of cost estimate andefforts required for the typical project asfollow:

Activity Percent of Percent ofComponent total cost total effort

Analysis of 20 15Architectureand Design

Project 28 20Management

Development 52 65& testing

When asked about the general orientationtowards profit, the response was “ thecompany is not a money making machine.Students below 22 can becomeemployees. The aim as of now is to getmore and more students to join. Theywork out of cyber cafes in India wherethey have to pay Indian Rs.15 (1/3 rd of aUS dollar per hour) which is cheap bythe world standards. When Suhas startedout, the rates at cyber cafes were muchhigher but since then rates have droppeddrastically.

About the earnings of Globals’employees it was observed that theemployees in India earn between Rs.20,000 to 25,000 a month. (approximately equal to US $ 550 to 650)which is considered as a good wage inIndia but is about one third of what theGlobals employees get (approximately

195

US $1500) in the western countries.Commenting on this the Head ofFinances, Globals says “For us, moneyisn’t why we work for Globals. Theatmosphere and the fun are much moreimportant to us. There aren’t anyhierarchies here.”

About growth and investment in thecompany, Suhas clarified “Now as mycompany grows, I invest all the profitback into the future of my company. Iwish I could provide employment to allthe talent in our country,” says Suhas. Nowonder many of his classmates are hisemployees.

7.0 UNUSUAL EXPERIENCES

Being a Chief Executive at the age of14, and still not 21, Suhas had his shareof weird experiences – sometimesamusing and pleasant and at othertimes painful.

In 2004, at a seminar on “EducationSystem in India” at Indian Institute ofScience, Bangalore, he was stopped bythe security persons at the gate. “Youare a school boy, this event is for theCEOs.” He picked up his cell phone andcalled the organisers, who rushed to theentrance to usher him in. Everyone wasamused. Suhas knew that it wasnobody’s fault. The security personnel,who has been instructed to allow onlythe CEOs, could hardly know that thisyoung man in jeans and T shirt, lookinglike a college boy, was a CEO of a Globalcompany.

Suhas also had some experiences at hiscollege and with his classmates. Itbothered him, to his embarrassment thathis fellow students called him ‘Sir’, tookpictures of him on his cell phones andasked for autographs.

Suhas cannot forget one of his bad timeafter launching of his first websitewww.coolhindustan.com. The web sitewas to provide Indians all over theworld with a forum to post publicevents, tips for eating out and otherprogrammes which would be ofinterest to overseas Indians. Thewebsite became very popular.However, a hacker in Pakistanattacked the website and replaced thewebsite logo with “Cool Pakistan”.That was a terrible experience andSuhas abandoned the project.

Suhas owns a car, bought out of hisearnings, but doesn’t have a license todrive it around the city as he is too youngto get a license!

As a CEO, he wraps up mega deals,but he couldn’t sign on the dotted lineas legally he was not an adult whenthe Singapore based company, SingT,a Business Process Outsourcingcompany was offering a contract to setup web sites with e-librarycapabilities. This could have given anearning of $22000 but the contract fellthrough because he could not sign thecontract under the Indian law as hewas underaged.



Suhas says that he likes his casual wear,jeans and T- shirts, but most of the timehe is forced to wear blazers. He alsowanted to be himself – never wanted tobe a star.

8.0 EXPERIENCES WITH PAKISTAN

The first experience with his website‘coolhindustan.com’ which washacked by a hacker in Pakistan andmade into ‘coolpakistan.com’ wasquite disheartening to Suhas. Heabandoned the website but he didn’tabandon the idea of opening an officein Pakistan.

Speaking about the Pakistan ITcompanies, he states “There are onlyfive to eight IT companies in Pakistan.A lot of the packages for thegovernment and private sector areoutsourced to the middle east. Thereis great potential in having a base inPakistan.”

While pursuing the idea of setting upa branch in Pakistan, there wereobjections from the CommerceMinistry that no Indian company couldset up office on Pakistan soil. Theobjection faded away when it wasexplained that it was not an IndianCompany but a company set up inCalifornia. The branch office was tofunction under the control of Pakistan’sIndustry Department and theemployees were to be sourced fromPakistan itself. There was a discussionwith the Pakistan Prime Minister Shri

Shaukat Aziz who had promised toallot land near Lahore. Suhas was alsoconsidering Karachi as an alternativelocation. If his dream of setting up aoffice in Pakistan comes true it wouldbe one of the rare achievements whichmany Indians would not dare todream.

9.0 PARENTS’ CONCERNS

Suhas’ father, M.R. Gopinath, aScientist with the Defence Ministry,was happy that his son had chosenwhat he liked and done well duringthe seven years. At the same time hedoes not want Suhas to neglect hisstudies. “To us, it’s important that hegets a degree, education is the mostimportant thing in India” the fathersays. His parents first thought that hewas spending hours just goofing off atcyber cafes and were worried abouthim. “We were very worried about himearlier. Things had changed in the lastthree to four years, his luck haschanged. He still spends too much timeon work and little on studies,” says hismother.

Kala Gopinath, the mother,disapproved that he spent every rupeein the internet café. She was worriedthat Suhas had been a good student butafter discovering the internet he hadbecome an average student. In theBoard examination he secured poormarks in mathematics. She lecturedhim on the importance of doing wellin studies. His parents put pressure on

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him to finish school and studysomething practical to get a secure job.Later of course the parents reconciledwhen Suhas was doing well. But hismother was worried that her son ateand slept too little. She put more ofidlis and vegetables on his plate. “Thiscan’t be healthy. Today he lay on thesofa until 4 a.m. working on his laptop.Then at 8:00 he went into the Office”,she complained.

The mother also insisted that Suhas shallhave his office only at a walking distanceso that without using car he can comefor lunch. Accordingly, his office islocated at a five minutes walkingdistance. Suhas enjoys the affectionateinsistence of his mother.

His mother always wanted that Suhastakes his studies seriously, studiesmanagement and like his elder brother,becomes a Vice President in a companywith a good salary. In this contextSuhas mentions, “Initially when mymom used to scold me, I used to giveher Bill Gates’s example. He is my rolemodel.” “My ambition is to set upanother Microsoft” he adds.

Suhas was asked to deliver talks atseveral top management institutes inIndia, including the Indian Institute ofManagement, Ahmedabad. When hismother tells him to studymanagement, he replies, “why studythere? I have been invited there asvisiting faculty.”

10. TIME MANAGEMENT

In the second year of his engineeringprogramme at MS Ramaiah EngineeringCollege in Bangalore, Suhas works forabout 18 hours every day, partly for hisstudies, and mostly as CEO of hismultinational company. In an interviewto Time Magazine he said, “Most of ourbusiness comes from the US market.When the day’s work in done here, byaround 6 pm, I get a couple of hours restand then video conference with clientsand staff in the US working till around 3am”.

Knowing the importance of his job, themanagement of the college has waivedthe attendance requirement for him.Suhas uses this waiver to his fulladvantage. While other kids skip lecturesto watch movies, Suhas misses lecturesto attend seminars and conferences.Unlike other students who believepartying and spending time in Cafes,restaurants and multiplexes, he studiesfor engineering and works for the growthof his company.

When asked about leisure and enjoymentSuhas says, “Whatever little time I get, Ispend it with my family. I cannot affordto watch movies or go for holidays….(of course) one should also make time toenjoy other things in life. With work youget too busy to repent.”

When asked about how he manages histime and what is his inspiration, hereplied, “My role model is Microsoft



Promoter–Chairman Bill Gates. I wantmy company to become anotherMicrosoft. Attending college and runninga company at the same time is not easy.But I’ve learnt to divide and manage mytime well,” says Gopinath.

11. LIFE STYLE, COMMITMENT ETC.

Suhas feels happy about his company. Heseems to be quite attached to it. In 2005when an investment firm from Hustonoffered 100 million dollars for a majoritystake in the company, Suhas refused. Thereason was “Why should I sell my baby”.

In the initial years he had a hard time.Apart from the teething troubles insetting up the company he was too youngto run it. Many clients were not keenabout the company. But after seeing thequality of work they delivered, many ofthem came back.

When asked about how he got some restand leisure, his response was “When Ilook around I see a lot of guys of my agehanging out with their girlfriends. I donot feel bad as I have a mission to makemy company another Microsoft,”Gopinath said “Bill Gates is my rolemodel.”

Suhas could have a Chauffeured drivencar and live in a penthouse or buy abunglow for his parents in a posh localityof Bangalore, but he lives with his parentsin a medium size house and drives a smallcar. He doesn’t wear designer clothes.Ordinary jeans and T-shirts were hisfavourites.

Apart from Business for which he spends18 hours a day, he spends some of hisspare times with his family and to someextent with his dog names Bushy. Hehas no time to go to a cinema hall towatch a movie or to watch cricketmatches.

12. AWARDS & ACCOLADES

Suhas employs about 600 persons aroundthe World and was the youngest ChiefExecutive of any Company. The LimcaBook of Records – the Indian Version ofthe Guinness Book of Records – lists himas the “World’s Youngest ChiefExecutive”. He was, at the age of 14, theChief Executive of Globals Inc., and noone else had become Chief Executive ofany Company at that age.

Suhas also got the recognition of beingone of the youngest certified web-developers. After seven days of hisputting up the webpage,“coolhindustan.com”, the US basedNetwork Solutions Inc., a companyowned by Nasdaq-listed Verisign, whichdevelops internet services,acknowledged his ability and certifiedhim as one of the world’s youngest webpage developers.

Suhas has been a model for the youngmen and women, not only India butoutside. Politicians and youngprofessionals have celebrated him as anachiever and as an inspiration. He alsohad meetings with the Indian President,Dr. APJ Abdul Kalam at New Delhi and

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Pakistan’s Prime Minister, Mr. ShaukatAziz in Islamabad. The Indian PresidentDr. Kalam and the HRD Minister, ArjunSingh also felicitated him.

In 2004 Gloals Inc. also launched threeunique software products and the BBCand Washington Post acknowledged himas the ‘world’s youngest CEO’.

In 2005, Suhas Gopinath was one of thefinalists of the Infosys EducationWorld Young Achievers Award. In2005, he was also the youngest amongthe 175 recipients of the KarnatakaState Government’s RajyotsavaAward.

In December, 2006, Suhas at the age of20 was selected by the Times of Indiaof Time Group as one of the Youth Iconsfor the year 2006. The other Youth Iconsfor the year 2006 included IndianTennis player Sania Mirza, BollywoodActor Hrithik Roshan, IndustrialistSunil Bharti Mittal, etc. Suhas Gopinathis also a brand ambassador for thePeople for Ethical Treatment of Animals(PETA).

13. SOCIAL PROJECTS

Globals Inc. has been in a position toidentify unfilled market niches. Itdeveloped a software product forschool that allows teachers to easilyenter grades and attendance, whichparents could access electronically andknow whether their children areshowing up to class. Attendance statusand marks could also be seen on a

virtual notice board. The system alsosent SMS alerts to the parents’ cellphones in case of continued absence orpoor performance of a student. Thissoftware was installed in hundredschools in Nigeria and nearly hundredin European countries. It has also beenaccepted by the Kendriya VidyalayaSangathan in India for introduction inall its 870 schools across the country andalso in Mosco and Dubai. Suhas has agrand plan of selling the software tothe private schools also in India wherethere lie a great potential.

Besides the Student ManagementSystem, Suhas is taking initiatives todevelop a GPS based low cost vehicletracking system which would be tailormade for Indian automobiles and forIndian road conditions. He hopes to selleach unit of the tracking system forRs.5000 whereas the cheapest availablesystem now in Indian market costsaround Rs.20,000 and upwards. Thissystem is also likely to have a bigpotential in the third world countries.

14. THE FUTURE

For Globals initial teething troubles werealmost over. But Suhas felt that thoughinitial interest and dedication had madeit successful and he had become the chiefexecutive officer, what mattered was theability to expand the company. The jobof managing the company had becomeeasier because he treated his employeesas family members and friends thanacting like a boss.



Suhas was planning to start managementconsultancy for the industry sector as welland expand services to non-IT areas.

The general thrust in the company wasplaced on quality over quantity, mindover machine and unity overuniopinion. There was no question ofegoistic thought. Everyone workedwith lot of enthusiasm. The work wasmore streamlined and solutions wereachieved within prescribed timeboundary.

Suhas always thought of having hiscompany as an Indian company andlooked forward to shif t theheadquarters in due course to India.However on crossing the 18 year agemark, which entitled him to registercompany in India, he has registered acompany in Bangalore as GlobalsITES.

Suhas has his own dreams for becomingthe Bill Gates in India and setting up acompany, which in due course would belike Microsoft. At an age when otherteenagers are whiling away time in gamesand other pastimes, Suhas was occupiedin drawing a road map for his youngcompany.

Globals Inc. is small but Suhas looksforward to achieve a turnover of Rs.8crore in the next five years. He looksforward to have many more youngtechnical people and expand his businessinto networking solutions andembedded software. At a personal level

he was planning to go to StanfordUniversity and study artificialintelligence.

Globals HR strategy of recruiting skilledlocal youngsters, who would be happyto work part time, is key to theirexpansion plans. Domestic expansion forGlobals is guided by the concentrationof engineering and managementcolleges. In places with a highconcentration of such educationalinstitutes, it was felt easy to find localstudents to join Globals as part timeemployees.

It is also in the news that he wished tomove from service based company intoa products based one for which theCompany needed funds. These fundswere proposed to be utilized to openmarket offices and onsite centre inEurope, which had largely remaineduntapped by Indian IT companies.

Keeping with its plan to expand inEurope, Globals has already opened inFrankfurt an R&D businessdevelopment sector. Frankfurt beingthe most important commercial centrein Europe, is likely to become a goodhub for Globals in the Europeanmarkets. The company has some clientsin Germany including the prestigiousaccount of Mercedes Benz for whomGlobals is executing a web applicationproject.

There is also a proposal and talks are inprogress in this regard with a London

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based financial institution to sell 20 to25% stake in Globals Inc. to this financialinstitution to fuel the expansion plans.If this happens, expansion could befaster. And later the company can makepublic offerings through which funds canbe raised and the London basedfinancial institution would then be paidoff. Suhas is also actively exploring thepossibility of floating an IPO on theNasdaq.

Simultaneously, there were also otherreports that Suhas was considering apossible takeover of a Chinese firm tomake an entry in the Chinese IT sector.This could be a merger or an acquisition.This would give Globals a foothold alsoin Singapore and Korea.

15. TOWARDS ENTREPRENEURSHIP

Suhas Gopinath is a motivator for youngentrepreneurs. In course of his travellingand lecturing in India and abroad he says“For the economies of third worldcountries to grow, job seekers have totranscend into job creators. Whenever Iaddress the youth, I try to encouragethem to take up entrepreneurship as anadventure. There are a lot of hurdles butthe satisfaction of providingopportunities is huge”.

Balancing work and studies was not aneasy job for Suhas. He admits that lifehas been stressful for him. “As I got moreinterested in the company, my studieswent for a toss. In my Class X exams Iscored 80 per cent, but in I PUC could

barely get 65 percent. Even I try and notbunk too many classes, but clients cannotbe given lame excuses. When I haveexams, I tell them I am unwell….”

In India Globals sti l l faces someproblems when it comes toGovernment projects. Sometimespeople in Government argue thatprojects can be given only to thosecompanies, which fulfil the pre-bidqualification norms and Globals moreoften doesn’t qualify. Suhas is reticenton the approach of Governmentofficials but says, “We too will be aCMM level 5 company soon.”

On the general approach towards workSuhas makes a cryptic statement “Irrespective of success or fame, we needto be down to earth and humble.”

REFERENCES

Times News Network, August 30, 2005, Tuesdayposted at 7:16 pm

Teen Tradegies: Acne, Dating, $22,000 loss,November 11, 2003.

Business Standard “Suhas Gopinath may sellstake to London FI”, Tuesday, September 11,2007.

Sify Business, “20 year old Suhas wants to buyChinese Firm”, Friday, November, 10, 2006.h t t p : / / s i f y . c o m / f i n a n c e / m t /fullstory.php?id = 14328392

http://www.business -standard.com/common/storypage_c_online.php?leftnm = 11& 6 KeyFla…..9.11.2007

“Gopinath, world’s youngest CEO has bigplans”, Rediff News; Nov 10, 2006



“I can’t afford to watch movies”, Times of India;January 11, 2007

“Dares to dream, strives to realise it”, The Hindu;January 13, 2007

“Teenager hopes his firm will become anotherMicrosoft”, Sydney Morning Herald,Australia, November 10, 2003

“17-year-old tipped to become IT tycoon”,Independent Online, South Africa;November 15, 2003

“Indian company loses deal because 17-year-oldCEO is too young”, Daily Excelsior, India;November 3, 2007

“17-year-old CEO a problem”, Taipei Times,Taiwan; November 7, 2003

“He’s 17, single and a CEO !”, CIOL.com, USA;November 10, 2003

“Another Gates in the making! Founder at 14,CEO at 17, what next”, Indian Express, India;November 6, 2003

Rural Women’s Marketing Association(RWMA)*

Debasis Pradhan1

Abstract

The Rural Women’s Marketing Association (RWMA), an association of 6,00,000 poor, self employedwomen workers of Gujarat was registered as a trade union in 1972. Rural Women’s Haat (RWH) waslater formed as an apex organisation to help RWMA members in marketing their local produce. RWHmainly worked with local producer groups through district level associations, as a marketing organizationto facilitate various forms of intervention to strengthen rural producer groups in nine districts ofGujarat. Mrs Sujata Mahapatra, Director of RWMA had some important decisions to make regardingthe path ahead. She was considering the alternatives keeping in mind the physical, locational andinfrastructure constraints in the areas where a new system/model in marketing was to be instituted.She was aware of the fact that consumers were variety seeking and hence they might not accept thelimited choice available at the village retail outlet. She was also thinking about the replicability of thismodel of distribution in other areas.

* Received September 5, 2006 ; Revised March 7, 20071. Assistant Professor, XLRI ,Jamshedpur, e-mail: [email protected]

1.0 RURAL WOMEN’S MARKETINGASSOCIATION (RWMA)

Mrs. Sujata Mahapatra, Director, RuralWomen’s Marketing Association(RWMA) is embroiled in a real decision-making situation which was first of itskind in her long career so far. She has toconsider her future course of actions andits repercussions. This has assumed moreimportance in the wake of expansionplans and plans to scale up the operationsof Rural Women’s Haat (RWH). Hermajor concern has been to find a right

Management case

distribution channel for various productsmanufactured by rural producers andmarketed by RWH.

2.0 GENESIS OF RWMA AND RWH

The Rural Women’s MarketingAssociation (RWMA), an association of6,00,000 poor, self employed womenworkers, was registered as a tradeunion in 1972. RWMA has two maingoals, such as, to organize women forfull employment and make them self-reliant. In 1999, RWMA, with the full


cooperation and support of the RuralDevelopment Committee of theGovernment of Gujarat, establishedRural Women’s Haat (RWH) as an apexorganization for marketing various localproduce. Rural Women’s Haat (RWH)mainly works with local producergroups through district levelassociations, as a marketing organizationto facilitate various forms ofintervention to strengthen ruralproducer groups in nine districts ofGujarat. One member from each districtlevel group is an executive member ofRWH. All the members of RWMA areprimary members of RWH .

3.0 CURRENT ACTIVITIES

Currently, RWH is into the marketingof cereals (wheat and bajra), salt, spices(chilli, cumin, mustard, sesame), potatokatri, isabgol, white gum, handloom(napkins, towels and bed sheets) andhandicraft items (cane basket and footmats). Producers of these productsconstitute a large proportion of RWMA’smembership. Specifically, 65% ofRWMA’s members are employed in theagriculture sector, 15% in handicrafts,5% in salt, and 1% in gum. Together,these four sectors account for more than85% of RWH members. Moreover, RWHfocuses on these sectors as these havebeen identified as the ones in whichbackward and forward linkages areextremely critical. (Backward linkagesrefer to connections with rural

producers whereas forward linkagesrefer to connections with the marketplace). RWH identified these above-mentioned sectors as the ones in whichrural producers were experiencingsubstantial difficulties in connecting withlocal, national, and internationalmarketplaces. While RWH has focusedon these four product categories in itsfirst three years, there is potential toexpand to other product categories inthe future.

In its first three years, RWH hasworked in nine districts withapproximately 55,000 members in about3,500 groups. Its main objectives havebeen: (1) to provide marketing facilitiesand services to the district associations;(2) to provide managerial and technicalsupport services to the districtassociations; (3) to enable the ruralproducers to earn a regular minimumincome of Rs. 3,000 per month andfinally, (4) to facilitate the producers tobecome owner managers of theircollective enterprises.

RWH has a three-tier structure. Atthe village level, are the Self-HelpGroups (SHGs) comprising of womenproducers. At the middle level arethe dis tr ic t associat ions whichmonitor the work of SHGs, trainthem and assist them when required.The apex body is RWH, whose coreactivity is to market the produce byprocuring through the dis tr ic tassociations.

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4.0 IN PURSUIT OF THE OBJECTIVES

To achieve these objectives, RWH offerstechnical services, financial services, andmarketing support to its village basedrural producer. Technical services areintended to improve the productivity andquality of production. Financial servicesare intended to help producer groupsenter new markets by offering capitalloans at fair rates. Moreover, RWH buysproduct and holds stock until fair ratescan be negotiated, which womenthemselves are unable to do, as they donot have adequate cash supply. Lastly,marketing services are intended to helpRWMA members understand the detailsof their markets better. Specifically,RWH also offers information aboutprices, branding, promotion etc.to theRWMA women.

RWH’s main goal is to provide marketingand other support services to ruralproducer groups. Prior to theintroduction of RWH, RWMA had a longhistory of working with the StateGovernment of Gujarat to implementneed-based programmes for ruralwomen below the poverty line. This workwith rural producer groups revealed thatthese groups were removed from themarket for their products and wereforced to rely on traders or middlemen,who often exploited them by offeringprices, which were less than the marketprices. To reduce these groups’dependence on middlemen, RWH was

established to provide market as well astechnical and financial services to ruralproducer groups through district levelassociations. It aims at helping the poorto reach markets and increase hisbargaining strength through organizinga large base of members.

“Moreover, RWH’s formation furtheredRWMA’s objective of self-reliance, bylinking rural producer groups directly tolocal markets through establishingbackward and forward linkages” saysMrs. Mahapatra. “By doing this, RWHhas been able to educate rural producergroups about the markets for their goodsand has also been able to providefeedback to the rural producer groupsabout the viability of their products. Withthis knowledge, the rural producergroups expect to have the capacity tomanage the marketing of their productsindependently” , She continues.

In this context, RWMA also wishes toexplore the possibility of a reverse supplychain, by which the rural producersthemselves will be rural consumers also.With this in mind they aim to establish adistribution system for the RWMAproducts in the rural villages of same ninedistricts. RWMA is quite aware that thisrequires firstly evaluation of thepotential of such an implementation interms of demand for RWMA products,secondly, finding an appropriatedistribution system and finally,arranging the proper human resources.

Pradhan, Rural Women’s Marketing ...


Mrs. Mahapatra admits that the majorproblems experienced by the consumersin both Vadodara and Sabarkanthadistricts, irrespective of incomesegments, is the lack of availability ofthe products in the villages. From theconsumer survey, it has been found thatapproximately 50 percent of therespondents have to go to Taluka shopto buy the products. Non-availabilitywas found to be the second most commonproblem expressed by the consumers.

5.0 PHYSICAL DISTRIBUTION SYSTEM

The components of physical distributionsystem are mainly transportation,warehousing and inventorymanagement. RWH has got its fixed plansfor these three components. The physicaldistribution is to be directly from theproduction centre to the demand centrebased on the orders placed by thedistribution centres. The proposed“Distribution Network” will be demanddriven. RWH would handle thetransportation on the basis of ordersreceived. The cost of transportation willbe borne by the distribution centres.Warehousing will be done at the districtlevel, which will be treated as thedistribution centre. The rental costs forthe warehousing can be met out of thecommission retained by the DistrictOffice. The inventory maintenance is tobe demand driven and replenishment ofstocks will be done on the basis of ordersreceived from village-based demand

centres. The inventory rotation will bedone on the basis of 10-15 days creditgiven to the village retailer members. Therespective margins for RWH, districtassociation and the village based retailerare 12%, 5% and 15%. Retailers are givena lot of importance as they directly dealwith the consumers and can assess thedemand.

6.0 ALTERNATIVES

Mrs. Mahapatra was seriouslycontemplating that the best alternativeshould give the best returns to themembers of RWMA and should also becompliant with the vision and objectivesof the organisation, while providingsustainability over a period of time andstrength to the organisation. Thealternatives must be consideredkeeping in mind the physical, locationaland infrastructure constraints in theareas where the system is to beinstituted. She was aware thatconsumers were variety seeking andwondered if the product portfolio wastoo narrow to offer the customers suchvariety in the the choices. She was alsothinking about the replicability of thismodel of distribution in other areas ofoperation.

Alternative-1

The level of intervention can be seen attwo levels, such as, village level anddistrict level. As per the RWMAprocedure for starting any new activity

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a committee can be formed by the savingsgroup coordinator, the additional staffmembers hired for the purpose of thedistribution network and the localcoordinator. The committee can thenconstitute Spear Head Teams, which willtake up the distribution network invarious RWMA villages. Training can begiven to the members involved in thedistribution network for purposes ofinventory maintenance and strategies tobe adopted for marketing of theirproducts, maintenance of accountingrecords etc. At the village level, twokinds of members of RWMA can beinvolved in the distribution network.These are primarily RWMA Self HelpGroup members and adolescent girls ofKishori Mandals2. The requirements atthe village level are mainly as follows :

Alternative 1 (A): Provision of credit toSHG members is one of the majorrequirements for the establishment of aretail business. The members can be givenloans for starting up the business if theycontribute at least 50% of the totalinvestment on their own. This helps inensuring the stake of the members in theeffective running of the business. For thispurpose the District Association, ifwilling, can provide assistance, or it canbe done through the savings of thegroups themselves. Will this provision of

credit provided by District associationdecide success of RWH? What if theDistrict association is not in a position toextend the credit support and there is alot of potential for marketing of itsproducts? Is it worthwhile for RWH togive a bank guarantee to village basedretailer for the loan, provided the retaileris dealing exclusively with RWMA’sproducts? This will mostly give RWH astronghold in the villages with anestablished distribution channels.Without sufficient experience, can theretailers make it sustainable withchanging choices and preferences of thecustomers?

Alternative 1 (B): The mode of sellingto be adopted by the village based retailmembers could be either pheri (like ahawker) from village to village, in groupsor by setting up of retail establishmentsin villages. The first option can bepromoted in Sabarkantha where it ismore socially acceptable for women tobe able to move out of houses andvillages. This will save the cost ofestablishing an outlet and also give awider market access. But Mrs. Mahapatrais having some reservations about thismode of selling. her concerns are : Canall the products of RWH be sold in thisway through pheri? Can this “pheri”mode of selling be there to supplement


2 Groups of adolescent girls undergoing livelihood training programmes such as sewing,embroidery etc.


the established retail store? What will bethe replicability of this mode of sellingin other areas?

Alternative 1 (C): In the Kishori Mandals,mostly the members are school goingadolescent girls who get married in 2-3years and move out of the villages. Inthis case the shops would go over to theirfamilies who would not necessarily beRWMA members. Hence, preferenceshould be given to those Kishoris, whohave already finished schooling or theones who have been married into thevillage. There may be some problems inthe former case, where the Kishoris mayget married in some other village. Butthis also must be considered that, withthis RWMA as an organisation willincrease its reach with increasingmembership. So is it a risk worth takingand handing over the retail business tothe Kishoris? How will it benefit RWHin the long run? Again Mrs Mahapatrawonders if it will be sustainable.

Alternative 1 (D): The other membersthat RWMA could involve in the retailingchain are Shanta Bens’. These are thewidows of the victims of the Gujarat riots.RWMA is providing them support withfinancial assistance from the GujaratGovernment. They are given livelihoodtraining in form of stitching andembroidery classes etc. Retailing ofRWMA products could be another suchactivity in which they could be involved.The Shanta Bens’ can be evaluated on a

case-to-case basis on the basis ofindividual interest and personalcircumstances. Since they are mainlylocated in urban areas in Vadodara andModasa, they basically sell spices andhandloom products, which have got gooddemand in these areas. Will it be possibleto monitor them and will this channel beefficient? Mrs. Mahapatra worries as thewomen are mainly from the minoritycommunity and are constrained by socialnorms which prevent them from movingout of their houses. They can sell onlyfrom their residence. Those withadequate family support can also put upstalls in the marketplaces.

Alternative-2

Here Mrs. Mahapatra looks at two phasesfor this alternative. While talking to thecase writer, this comes out clearly. Boththe phases comprise an initial stage ofpilot testing and subsequent expansionplans.

Phase-1: In the first phase, RWH caninitiate the marketing of products in 8-10 villages on a pilot basis. Initially in thefirst phase, members can start thedistribution system with existing shopsin the villages belonging to RWMAmembers who own retail establishmentsat village level. The Spear Head Teammembers also can be involved by givingthem samples of products when they goto various villages. RWMA SavingsGroup members who are interested inopening shops or direct marketing at

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village level can also be involved on apilot basis. The criteria for selection ofvillages where the system will be initiatedon a pilot basis can be based on retailer’spositive response, the demand potentialof the village, distance from the Taluka,size of the village, existing number ofretail establishments in the village andmore importantly, The RWMA’s imagein the village. On the basis of feedbackreceived regarding sales growth andconsumer response from the first phaseof implementation, the marketingstrategies can be modified. MrsMahapatra is worried about how tosupply these retailers regularly. She isalso worried that the pilot villages maynot be similar to the other targetedvillages which were to be covered underthe expansion plan?

Phase-2: In the second phase ofimplementation, RWH can expand thedistribution network by involving moreand more members at village level. TheGram Sabhas can be called in variousvillages to encourage women to comeup and open retail establishments withthe permission of the village elders andthis would also be an effectivepromotion channel for the products. Forthe purpose of establishment of thedistribution network a critical mass ofconsumers is essential. This is howeverpossible only if a contiguous area iscovered. RWMA villages however arescattered and this constaint limits the

potential for marketing of the products.Will it be really a limitation? Can theconcept like satellite retailer, be appliedto the retailers of the RWMA villages?This limitation can be overcome eitherby direct marketing by RWMAmembers or by marketing throughexisting village based retailers in non -RWMA villages. The possibility of Pherimode of selling can also be exploredhere.

Alternative-3

Institutional marketing

Banas Dairy, the milk union ofBanaskantha district wants to start retailoutlets in its village level milk cooperativesocieties. For this purpose it wishes toprocure items of household consumptionfor selling through their establishments.A marketing arrangement for RWMAproducts in Banaskantha can be exploredthrough this channel as the pilot projectfor RWH rural distribution network isnot to be initiated in the Banaskanthadistrict initially. It may be worthwhile touse the channels like Banas dairy but thismay not promote RWH as a separateentity. Though it may lead todependency on an external channelmember, this is compliant with the visionand objectives of RWH. Mrs. Mahapatrais also open to any new marketingchannel not included in the above threealternatives, provided that is insynchronization with the objectives ofRWH.



Though Mrs. Mahapatra is closelylooking at the alternatives, the issue ofsustainability, richness of productportfolio and replicability of this modelof distribution would eventuallydetermine her decision. “As RWH iscompeting in the market with numerousplayers with varying ethos, the strategyshould be concrete and there should be

no gap in the structure”, feels Mrs.Mahapatra. She is also trying to make theretailing strategy right so that thedistribution can end with perfection.“Finally, a value proposition needs to beprovided both to the rural consumers andthe producer as well as retailer membersto see this venture successful” hurriedlyadds Mrs. Mahapatra.

A Tale of Two Samitis*

Niraj Kumar1

* Received June 28, 2007; Revised August 24, 2007; The case is the outcome of project work doneby Amaninder Kaur, Nikhar Ganesh, and Salil Mahajan (PGPRM students of batch 2005-07)under the course "Community Mobilsation and Institution Building". Author acknowledgestheir respective contributions.

1. Associate Professor, Xavier Institute of Management, Bhubaneswar, email: [email protected].

Management case

Abstract

The paper presents a case study involving two village based institutions, namely Sarvodaya VikashSamiti (SVS) and Mahamaya Mahila Samiti (MMS). SVS, a grass-root NGO, is not only known amongthe villagers but also commands respects in local media. MMS, one among seven self-help groups(SHGs) promoted by SVS in the village Hirapur, of Khurda district of Orissa, is engaged in appliquébased activities and said to be meeting it’s objectives. The case explains the process of institutionbuilding, its various stages, and roles of various players in its building and functioning of this communitybased institution. It also explains various roles of a community mobiliser (in this case SVS) in institutionbuilding process, and various characteristics of the mobiliser which had affected the development andsustainability of MMS. Characteristics of SVS and various efforts made by it have facilitated thedevelopment of an only women based village institution and have helped its members to add in theirincome. However, the case also brings some questions forth related to the sustainability of the institutionand also on the true objectives of the mobiliser.

1.0 PROLOGUE

Sarbodaya Vikash Samiti (SVS), anNGO, has been working in Khurdadistrict of Orissa since 1995. It operatedin eight Gram Panchayats having 64villages. The NGO has done very goodwork of community mobilization byorganizing people and is among one ofthe known organizations in the district.SVS received an award from UN forworld leaders in 2001. Also, from theGovernment of Orissa they received the

award as “Best SHG Organising Agencyin Khurda” under the governmentprogramme named ‘Mission Shakti’.

The major interventions of SVS arerelated to self help groups (SHG)development and management, microcredit, support to self motivated microenterprises, natural resourcemanagement. Under Mission Shakti, SVShas formed around 312 SHGs having 3865members, and has helped in the


formation of a federation of women’sSHGs named as ‘Aanchalika MahilaMahasangha’. It has disbursed about 1.14crores of rupees under the micro-creditscheme with the recovery rate of 80-90%.With the expectation of a major policychange, when NGOs will be allowed toundertake micro insurance business, SVShas tied up with Oriental InsuranceCompany. The NGO has collaboratedwith Emami India for the distribution ofits consumers’ products in rural Orissawith the help of women SHGs. SVS hasformed various women SHG groupswhich are working on differentlivelihood activities such as dairy,terracotta, fisheries, appliqué, brass andbell metal and flour mill. It has alsoundertaken projects related to naturalresource management with specialemphasis on water resources, formationof Pani Panchayats, special task forces fordisaster management and developingvillage contingency plans. Activities ofSVS are funded by various internationalorganizations and local level partnerorganizations and have got very goodcoverage by local media.

2.0 SVS IN VILLAGE HIRAPUR

The village Hirapur is located at adistance of about 24 kms fromBhubaneswar, the state capital ofBhubaneswar. There are around 45households and the village population is200. Eighty per cent of the villagepopulation is composed of OBCs (otherbackward castes), and rest are SCs(schedule castes) and of general catgory.

The scheduled caste and the general castepeople reside at different areas separatelyin the same village. The village hadagriculture based economy, although notall, particularly those from the schedulecaste, had sufficient landholding. So theywere also involved in manual labour andsome other activities.

SVS started working in this village in1995. It worked on various issues relatedto natural resource management andinfrastructural development of thevillage. In the year 1998, it startedforming women SHGs based on variousdemand based livelihood activities andconvinced village women to take upthose activities in groups. The financialconditions of these villagers were alsonot very good. The women in villagewere not directly involved in any incomegenerating activity and were mainlyinvolved in household work. So, SVSmobilized these women and formedSHGs. Seven SHGs were formed by(SVS) in the village. Out of seven SHGs,five were functioning and two, whichwere composed of scheduled castewomen members, had become defunct.They were not able to generate enoughcash surplus from the livelihood activityundertaken and hence they were notable to pay back the loans extended bythe banks. Out of these five operationalgroups, three were into hand bagmaking, one each in appliqué work andflour mill business. The number ofmembers in each SHG did not varymuch after they were formed and the

213

NGO was guiding almost all the SHGsin their respective works.

3.0 MAHAMAYA MAHILA SAMITI

After the initial discussions with womenvillagers, the head of SVS held a meetingwith few selected members and informedthem about the potential of appliqué craftworks in the village. Although most ofthem most were not too convinced aboutthe idea of appliqué craft, a fewreluctantly agreed as they realized thatthey did not have to lose any thing atleast during the early phase of theirwork. All the members, who agreed,were explained about the concept ofSHG, its objectives, formation, andfunctioning.

Appliqué work is a handicraft,created by sewing of patches ofcoloured clothes onto a largecanvas, also made of cloth. Theseare generally of pure bold coloursin floral and animal shapesemerging from a background ofcontrasting colour. The workranges from the items crafted intraditional forms, such aschanduas (canopies), chhatri(umbrella), Tarasa, Jhalar (frill)and Batua (pouch) that are usedin religious functions, to the morepopular umbrellas, bags, ladies’hand bags, wall hangings, lampshades, bed covers, pillow covers,letter holders etc.

The SHG, named as Mahamaya MahilaSamiti became functional in the year 1998.Out of a total 10 members, eight memberswere from other backward class andwere below the poverty line, whereastwo members were from generalcategory and were above poverty line.SVS helped them streamlining theirfunctioning. It explained them aboutvarious aspects of SHG management like,conducting meetings, loan financing,undertaking monthly monitoring, andalso informed them about potentialbusiness ideas. In a few weeks of time,SHG was able to decide about its normsand rules for its functioning. Some of theimportant rules were:

- SHG was to have an election processto select the president and thesecretary. The women interested tobecome the president and secretarywere asked to contest the electionsin which all the members were toraise their hand to show theirpreference.

- Secretary was to be responsible ofmaintaining all accounts andpresident of overall managementand day to day working of thegroup.

- Registers related to members’profile; saving details; internal andexternal loans; members’ demand,collection, balance, overdueregisters; cash book; general ledger;minutes of meetings; and loan andsavings pass books were to bemaintained.

Kumar, A Tale of Two ...


- All the members of the SHG wereeligible to get loans. They were tocontribute Rs. 50 per month and thisfund was to used for internallending. They were allowed to haveloan through internal lending ofaround double the balance of anindividual account. Over and abovethis internal lending, these SHGmembers could also borrow frommicro finance institutions amountingto Rs. 20,000 to 25,000, at an interestrate of 15-20% p.a. as a part of theirSHG linkage scheme. For internallending, the loan amount was to begiven to a particular member andfixed along with the rate of interestto be charged. Loans given by thegroup could be for differentpurposes such as business, health,agriculture, house construction etc.

- Meetings were to be held everyfortnight, the date and timings ofwhich were to be decided by thesecretary. In this meeting, variousgroup activities and performancesuch as total sales, money input andoutputs, profits for the month, loanstatus etc. were to be discussed.

- Decision about sanctioning of theloan to particular member was to bedecided in the meeting by secretaryin consultation with president andother group members. This was tobe done on the basis of member’scontribution to the group. Thoughthe amount of loan available to themembers was twice the savingbalance of the member, still the

group was to decide about the exactamount payable to a member basedon her capability to repay back theloan on time.

None of the members or their familymembers had any experience of appliquéworks and the art was totally new tothem and to their social culture. Bothpresident (Mrs. Snehlata Rautrai) andsecretary (Mrs. Prabhati Pahari) werefrom general category, and had been attheir respective positions since theformation of the group. SVS, realizing thepotential of this livelihood optionarranged training in appliqué craft forpresident and secretary of SHG. Both, inturn, trained rest of the group members.The group started working with the twosewing machines belonging to secretaryand president. SVS on behalf ofMahamaya Mahila Samiti purchased rawmaterials from Pipli, a nearby town andalso the centre of appliqué crafts, anddistributed among the members of theSHG. The members took their time toprepare items and then gave it to thepresident. President sold those items tothe businessmen from Bhubaneswar aftershe negotiated the price of each item.Members were then given their sharetaking out the cost price of the rawmaterials. Members shared their profitson an equitable basis, wherein themembers got their share of profit on thebasis of their contribution i.e., appliquéthey prepared. A single piece of appliquéart took around 3-4 woman-days tocomplete and fetched around Rs. 70-80which they felt was very less vis-à-vis the

215

time it took to prepare and whencompared to other activities. Memberswere of the opinion that this optionwould not be sustainable in the long runas it required lot of funds to purchaseindividual sewing machines. They alsocompared themselves with other fellowvillagers attached with the SHG workingon hand bag making, who were earningmuch higher profits. And so, they wantedto get into hand bag making.

SVS, the patron NGO, requestedmembers to continue as the activitywould attract major support fromgovernment and would be beneficial inthe long run. They were also remindedof the religious importance of theappliqué art. Designs on the crafts aregenerally the depiction of the religiousfestival or of their local deities. The themeand colours used in the crafts reflectedtheir mythological beliefs. In response tothe requirement of capital, SVS madethem aware of the availability ofsubsidized loans from government andMFIs. The group agreed to continue withappliqué work.

All the members in the group gotstitching machine which they bought outof a loan of Rs. 2100 from MFI, whichthey later paid back. Each member of thegroup worked for around 5-6 hours perday and profits were distributed on thebasis of their contribution as per thepieces made by particular member. The

money per piece was fixed by the groupconsistent with trader’s price. On anaverage, SHG earned around Rs.3,500 -4,000 per month (Rs. 350-400 per womanmember). In the initial stages, theseprofits were considered as low but afterthe schematic lending and with anincrease in group’s fund, the scale ofoperations increased leading to a sharpincrease in group profits. There was noloan in the either against SHG or againstany of its members. The group had a totalworking capital of sixty thousand rupees.“Earlier we used to request our husbandsfor money; now we give them moneywhen they require” was the comment ofone of the members.

Mahamaya Mahila Samiti was led bymembers of the upper caste, with boththe president and the secretary belongingto the elite forward caste and the othermembers belonging to the OBC group.Initially, there were inhibitions amongstthese two functionaries the President andthe Secretary and they looked upon thesemembers as inferiors. However, with thepassage of time, things changed and theystarted considering the other eightmembers as part of their institution andreservations based on caste totallyvanished.

4.0 FIVE YEARS LATER

In 2003, after 5 years of smoothfunctioning of Mahamaya Mahila Samiti,

Kumar, A Tale of Two ...

2 Under Swarnajayanti Gram Swarozgar Yojana (SGSY), a central government sponsored project,schematic loan is provided to SHG’s after monitoring their performance for 3-4 years. This loanis highly subsidized subject to the condition that about 70% of the SHG members should beBelow Poverty Line.


they received a schematic loan2 Rs 2 lakhunder SGSY scheme and out of thisaround Rs. 80 thousand was the subsidycomponent and rest Rs. 120 thousandwas the loan component. SVS assistedthem in getting the sanctions of the loanof Rs. 200 thousand under SGSY andthen facilitated the construction of ‘SHGhouse’ out of the subsidy amount of Rs.80 thousand. President and secretarywho had been managing the funds andday to day activities of the SHGproudly shared their register showingthat they had already repaid theamount with interest.

Members decided to use this subsidyamount to construct a SHG house in thevillage and they looked for communityland for the purpose. Villagers objectedto this construction as they said that thevillage land belonged to 200 residentsof village and the land could not begiven to a group having only 10members. As this opposition against theSHG increased, the SVS intervened inthe matter and explained the benefitsof such infrastructure in the village tothe objecting villagers, and alsoconvinced the members of SHG thatinstead of calling it a SHG house, itwould be called as community house.This ended the stalemate and every oneagreed to have the community hall inthe village on the community land.

Mahamaya Mahila Samiti preparedvarious items in appliqué and sold themin the Bhubaneswar market throughmiddlemen. In the absence of a marketingnetwork, SHGs largely depended onmiddlemen, and in the process, theirmargins got eroded. The challenge,therefore, in front of them was to selltheir crafts directly in the haats (urbanretail outlets) so that they could get betterprices, compared to middlemen’s prices.Realising the problem, the SVS againcame forward and helped the SHG to sellproduct in the state level sales centre(Ekamra Haat) in the state capital,Bhubaneswar. The organization alsobecame the part of networks supportedby agencies like ORMAS (a state runmarketing agency) and CAPART (aGovernment of India agency), whichprovided opportunity to sell theirproducts in different cities in the countrywhere exhibitions of handicrafts wereorganized by the government and non-government agencies. Smilingphotographs of president and secretaryat their stalls in various cities like NewDelhi, Calcutta, Bhuabneswar, nowhanging in the village community houseand also in the album of NGO chief arethe testimonies of accomplishments ofMahamaya Mahila Samiti (MMS) andSarvodaya Vikas Samiti. Now, theyintend to take up the activity of hand bagmaking!

Reliable Iterative Testing Environment(RITE) -a Case of Software Development

Model*

Sanjay Mohapatra1

* Received August 20, 2007; Revised September 10, 2007. This is based on the experience of acompany which prefers to remain anonymous. 3IS is used as the name of the company, but it isnot the real name.

1 Associate Professor in Xavier Institute of Management, Bhubaneswar; email:[email protected]

Management case

Abstract

During the last fifty years software development as a business has seen phenomenal growth. Differentmodels have been developed to streamline and codify the developmental process. There are differentmodels such as applicable to different situations. The processes can be different for products, servicesand solutions. In the present case an innovative method of software development applicable to productparticularly with insight and offshore teams has been suggested. This method lays emphasis on iterativetesting environment to achieve high quality and time bounded software delivery by using a repeatablepacket of software components. The model is also dynamic in terms of accommodative, change requestwithout affecting the timeline for delivery. The case is based on the experience of a fortune 500 companybut the name is disguised. Using predetermined performance indicators it is found that the new modelshows better result.

1.0 THE COMPANY AND THEBACKGROUND

3IS Software is a leader in providingsoftware products for use in remittanceand payment processing industry and hasbeen in existence for last 25 years. It hadrevolutionized the image based paymentprocessing industry by providing simple-

to-install and easy-to-maintain coreapplications that are capable of meetingspecific customer needs. The customerprofile of the company includes regionaland money-centre banks, insurancecompanies and mutual funds, credit cardand student loan processors, telecom,utilities, government and non-profitorganizations.


3IS has been a dominant player insoftware products business (the othertwo software businesses are known assoftware solutions and services). Thecompany has been in development ofsuch products particularly for verylarge organizations. In fact, as of March2007, eighty-eight Fortune 500companies have been in its list ofclients.

From the beginning 3IS has not beenquite satisfied with the various modelsof software development practised byother competing companies and alsowith the models as available in thepublished materials. A brief review atthe company from time to time hasshown the relative strengths andweaknesses of various models basedon which the company has concludedthat direct applications of such modelswill not adequately fulfil its softwarequality and efficiency goals. Theexisting models and their deficiency asanalysed by the company have beenbriefly narrated in the followingsection.

2.0 MODELS OF SOFTWARE DEVELOPMENT– A REVIEW

Software Engineering projects followdifferent lifecycle models. These modelsare waterfall model, iterative model,spiral model, agile software developmentmodel, prototype model, chaos model,and rapid action development model.These models can be used for developingsoftware products.

Royce (1970) proposed waterfallmodel in which software developmentfollows a sequential order of life cyclestages. These life cycle stages are:requirement specification, design,construction, integration, testing,installation and maintenance.However, this model is flawed as inthe real world of softwaredevelopment, there is a need forflexibility to accommodate any changein requirement and thus in followingthe stages sequentially suchaccommodation may not be possible.

Royce (1970), Boehm (1970), Mills(1973) came up with a model calledIterative model, which can be used fordeveloping applications for customerswho are not clear about theirrequirements. In this model, the projectteam goes back to earlier stage fromthe present stage repeatedly till thedesign specifications match withchanges made in the requirements bycustomer. The model can be used forbuilding large projects for whichdomain competency is not adequateboth with the customer as well as withthe development team.

Aydin (2005), Abraham (2003), Scrum(1986), and Curt Sampson haveproposed agile methodology as a modelfor software development. In thismethod the entire project teamnecessary for completing the projectincluding customers is located inbullpen and face to face communicationis encouraged for discussion instead of

219

depending on written documents. Thebullpen2 also includes testers, designers,managers and technical writers. Thismethod involves preference for face-to-face communication, and very littlewritten documentation relative to othermethods. Therefore the method iscriticized as lacking discipline. Also thismodel is difficult to use in large projectsand cannot be used where offshoredevelopment is preferred to takeadvantage of highly skilled and lowcost professionals. One of the wellknown agile methodologies is ExtremeProgramming (XP) (Kent Blanc, WardCunningham and Jeffries Ron, 1996 andMcBreen, P 2003; in whih software isdeveloped in small packets and lot ofimportance is given to testing andwriting test cases even before coding.This method has a lacuna that it canbe used only at customer site and forsmall applications and it cannot be offshored.

In Prototype model (Haag, S , etal . ,2006; a prototype or workingmodel is developed first to checkdesign and feature aspects of theapplication to be developed and toget user feedback so that risk and costassociated with the final applicationis reduced. Prototyping is part ofdesign process and after incorporatingfeedback, the product is ready forproduction. However, performance

related to stability and reliability of thefinal production cannot be tested inprototype as prototype may not bescalable at all times. This again can beused for small to medium sizeapplications and is not feasible with largeproduction requirement.

Spiral Model (Boehm, 1988; Belz, 1986and Livary, 1987) combines prototypeand waterfall model. This model isfavoured for large projects. In Spiralmodel, requirements are gathered indetails and a prototype is developed afterpreliminary design. Feedback is obtainedfrom customers on this prototype and ifrequired a second prototype isdeveloped which is an improved versionof the first prototype. In this approach,risk factors would include developmentcost overruns, operating costmiscalculation, or any other factor thatcould, in the customer’s judgment, resultin a less-than-satisfactory final product.Hence this is used for mission criticalapplications (for defence applications)and will be overkill for softwaredevelopment.

There are also other development modelssuch as Chaos model (Raccoon, 1995), andRapid action development (RAD) model(McConnell, 1996; and James,1980). InChaos model, projects can be thought ofin pieces. Nobody writes tens ofthousands of lines of code in one sitting.They write small pieces, one line at a

Mohapatra, Reliable Iterative Testing ...

2 Most agile teams are located in a single open office sometimes referred to as a bullpen. At aminimum, this includes programmers and their “customers” (customers define the product;they may be product managers, business analysts, or the clients). The office may include testers,interaction designers, technical writers , and managers.


time, verifying that the small pieceswork. Then they build up from there.The behaviour of a complex systememerges from the combinedbehaviour of the smaller buildingblocks. RAD projects are typicallystaffed with small integrated teamscomprised of developers, end users,and IT technical resources which arecombined with short , i terat ivedevelopment cycles optimizes speed,unity of vision and purpose, effectiveinformal communication and simpleproject management. An important,fundamental principle of RAD is thateach iteration delivers a functionalversion of the final system. Thesemodels are used for developingapplications where requirements arefair ly stable and the s ize of theapplication is small. Also handlingcomplex applications and changerequests during development l i fecycle becomes difficult in both thesemodels.

These models represent softwaredevelopment models that have beenin practice for long time. However,for software product development,where the development team islocated at offshore locations, thesemodels do not help in addressing theissues faced by the offshore team. Anoffshore-onsite model is used whenthe company wants to leverage onhighly skilled workers available inoff-shore locations at low cost. Thecustomers are based at onsite and the

requirements are gathered at onsite.The requirements are then passedonto offshore team to develop, testand then deliver them to the customer.In the course of developing theserequirements, the customer changesthe requirements also and thesechanged requirements need to bedeveloped and del ivered as pernegotiated schedule. The existingsoftware development models are notin a position to take care of suchdynamic situation and often lead todelay in time schedule and spendingmore t ime while developing theproducts than agreed upon earlierwith the customer. Inadequaciespresent in the existing models areshown in table 1.

3IS develops software products inoffshore-onsite business model. Theorganization structure for executingprojects in 3IS has project committee,product committee and productdevelopment teams that are based atheadquarter in USA. However, theproject team is housed at offshore inChennai, which uses low cost, highlyskilled personnel to develop theseproducts. To be successful in thisoffshore-onsite business model, it hasbeen observed that the following pointsbecome critical:

1. Excellent communication protocolbetween offshore-onsite teams;

2. Availability of domain knowledge atoffshore with the project team;

221

Tabl

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Com

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.


222 Vilakshan, XIMB Journal of Management ; September, 2007A

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223M

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3. Availability of expertise for carryingout requirement analysis and designwith offshore project team;

4. Continuous interaction withcustomers from offshore team (bothoral and written communication);

5. Availability of iterative testing skillsin the project team and at low cost;

6. Ability to deal with small, mediumand large customers using the samedevelopment model;

7. Ability to accommodate changerequests during development lifecycle without affecting timeline asnegotiated with customers.

To address these teething problemswhile developing products forsoftware applications, 3IS softwarecame up with a product developmentmodel called RITE model. This modelhas taken care of the issues faced byexisting models while being able toproduce high quality of deliverables.Also the organization in study (3ISSoftware) gets repeat business as wellas good reference points3 from itsexisting customers which means thecustomers are satisfied with theproducts supplied by 3IS Software.

3.0 THE RITE MODEL

RITE model against other softwaredevelopment models lays emphasis oniterative testing. This means that“packets4“ are tested even duringrequirement phase. As the the projectprogresses in its life cycle phase, thetesting of packets continues till theproducts are delivered to the customer.Using this methodology, products aredeveloped in packets. After buildingthese packets, not only each packet istested thoroughly, but also these areintegrated and testing is carried out foreach new product. The entire product isdeveloped and delivered through an“integrated team” approach. Themethodology has four phases. In phase1, contract is signed with the customer,and based on contract an integratedteam is developed. Contract is quitesignificant in RITE model as the entirescope is determined at this stage. Eventhough change requests areaccommodated later on, the contracthelps 3IS to track extra effort requiredto develop these change requests. Thisalso helps in billing accurately to thecustomer. After contract is signed andpurchase order is received, requirementgathering and analysis of requirements

3 When the customer is willing to be cited as a satisfied customer in the marketing prospectusprepared by the vendor organization, then the customer is known as reference point.

4 A packet consists of already developed functionalities that have been tested and ready to beused. These packets are designed and developed in such a manner that these packets areindependent of each other. Similar requirements received from different customers are groupedtogether and formed into these packets. This helps in reducing time required to develop theserequirements again.

225

is carried out. In phase 2, detailed designspecifications and test scripts are writtenbased on requirement analysis. Phase 3primarily takes care of packetsdevelopment and testing. And finallyinstallation, user training, useracceptance testing and transition tosupport happen in phase 4. Each of thesephases is described here and a schematicdiagram is given in figure 1.

4.0 THE INTEGRATED TEAM APPROACH

The RITE methodology framework alsoaddresses how 3IS puts together a projectteam to deliver a product. This conceptis called the Integrated Project Team

* The figures in the brackets indicate the phase to which the life cycle belongs

Approach. The Integrated Team consistsof Project Committee, ProductCommittee, Product team (all these arebased in USA) and Project team based inChennai. Project committee works withmarketing team in pre sales activities; ithelps the marketing team to clarify anydoubts that a prospect will raise duringthe initial discussion period. Once aprospect is turned into customer, it is theresponsibility of product committee toprovide a detailed estimation, negotiatewith the customer and then enter into adetailed contract. The contract, apartfrom other things, will highlight scope,timeline of delivery and the total effort


Pre-Sales (1)

Requirement Definition (1)

Project Plan (1) Testing (2)

Design (2)

Develop (3)

Implement (4)

Acceptance Test (4)

Go Live (4)

Support Transition (4)

Testing (3)

Phase 1 Phase 2: Design

Phase 3: Construction

Phase 4: Deployment

Figure 1:* Phases in RITE model

INTEGRATED TEAM


that would be spent while executing theproject. The offshore project team reportsto this committee. The project committeereports to solution director who is overallresponsible for providing the productsto customer.

The product committee largely consists ofdomain experts, who based on marketresearch, interaction with customers andindustry experts, would design different‘packets’. The packets, as explained earlier,will be independent of each other andwould be integrated by offshore projectteam. These integrated packets would bedelivered to the customer. The productcommittee would also define what isknown as road map for each product. Theroad map for products consists of timelinefor developing different features. Thesefeatures would be part of the packets andwould be developed by the product team.The product team directly reports to thisproduct committee. Both productcommittee and product teams are basedin USA.

Project offshore team is based in Chennaiand has a primary responsibility ofintegrating packets, iterative testing anddelivering the final integrated productsto the customers. The team has expertisein testing and integration of packets. Aschematic organization structure isshown in Figure 2.

Phase 1: This phase deals with contractand requirement analysis. The Projectteam starts with requirement analysis atthe customer site. Requirements aregathered and business analysts make

Solution Director

Project Committee

Product Committee

Project Team Product Team

Figure 2 : Integrated Team Structure

analysis. Based on analysis, gaps are foundbetween customer’s “As Is” system anddesired “To Be” system. Based on this gapanalysis, a solution is designed which isto be delivered to the customer. Thesolution would be based on combinationsof available products and customizationrequirement to take care of special needsof the customer. This special requirementor customization would be specific to thecustomer and hence is not required to bepart of product road map. Timeline fordelivery of these products are matchedwith respect to the road map so that finalproject delivery schedule can be adheredto.

Phase 2: This phase deals with designactivities. Once the gap analysis is done,the complete solution is divided intopackets; some of these packets would bein the form of available products whilethe customization packet has to bedeveloped specific to the customer needs.Each packet is designed in such a mannerthat they become stand alone componentsthat can be integrated with each other.

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Detailed specifications are prepared inline with the requirements analysis donein phase 1. Test cases are prepared in thecurrent phase with test scenarios so thatall the functionalities required can betested.

Each life cycle stage has deliverables andoutput from one stage is fed into the nextstage. At the completion of all LC stages,software is delivered to customer. So ifone stage has a faulty output it will onlyhave a cascading effect on the next stageand the faults will get compounded.These faults are issues, as they are calledin software development projects, andare injected into the software during thecourse of project execution. The causesfor injecting these issues could be lack ofcomplete understanding of thecustomer’s requirements, andcommunication gap between thedevelopment team and the end users.These deficiencies would lead tospending effort for reworking theapplication later on. Also the customermay not like the look and feel of thesoftware that will be developed resultingin rework of the software. All these aretermed as issues in software parlance andthey need to be reworked by thedevelopment team as per customer’sspecifications and requirements. Theserework not only lead to extra amount oftime needed for completing the projectassignment which delays schedule ofdelivery of the application, it also resultsin development team spending extraefforts than initially estimated and itmeans extra cost of software

development. As a result it is necessarythat the team take initiatives to preventthese issues well in advance. Duringphase 2, lot of emphasis is given onupfront activities such as design and testcase preparation. Domain experts toreduce rework effort by preventingdefect injection at earlier stage reviewdesign specifications and test cases.

Phase 3 : This phase deals withconstruction activities. A project shouldstart with purchase order being awardedto the vendor organization. A customerwould typically provide a statement ofauthorization where he (customer) wouldauthorize the vendor organization todevelop software as per his (customer’s)requirement. The vendor would also beasked to provide estimation for theproject. To arrive at the final estimation,vendor would gather requirements fromthe customer and get details onfunctionalities that need to be developed.For estimating total effort and schedulerequired to complete the project,standard estimation techniques areavailable. Some of the techniquesavailable are Function Point Delphi,COCOMO and Simple Medium andComplex (SMC) classification technique.However an organization, which has welldefined, processes and has achievedmaturity in implementing processes willhave approved and documentedpredefined estimation technique. Usingapproved predefined estimationtechnique, a project should calculateeffort and time period required forcompleting the project.



Before entering into a contract with anycustomer, a detailed estimation is carriedout. This estimation is then sent to thecustomer for approval. Enclosed in table 2

a sample estimation method used at 3ISsoftware where the requirements areconsidered at micro level and then classifiedas Low/Medium/High/Very High

Table 2 : Estimation MethodReq# Description L/M/H Hrs Comment

001.008 Same Day Effective Dating - L 5 add another screen toAdd Group Node same day effective dating

003.010 Virtual Cutoff Notification H 30 Change to Cust Prof - newevent type (4) profile XML(3) cut-off administrator(4)cut-off scheduler (3)cut-off executor (3)Manualprofile export (1)cut-offmonitor, (3)EOC Report(2)Trigger XSD (1)ProfileXSD (1)

015.013 Send Notification to Edge on H 30 the interval to retry mustDays Final Batch be configurableProfile

Option (3)Script to setoption (2)Profile Export(3)Cut-off Scheduler (4)Endof Day (3)Toronto EOD(3)Box Complete Stager (20)

018.058 Fixed Message To Mail Out L 5 Change to mail outInstructions Page

018.059 Delphi Software Upgrade VH 60 018.067 Batch Maintenance L 5 batch maintenance

Module Header utlity(5)menufile (1)

019.071 Eliminate Blank Field For M 15 DDE/EDE (7)Key Verify Envelope (3)Batch Edit (7)TFC Batch

Export (2)

018.020 Government Flip Checkbox L 5 Template Script update

019.054 Forced Match Report M 15 Force Match App (7)ForceMatch report (5)Menu file (1)

99.001 TMS Data base update L 5 documentation

99.002 Import/Export updates L 5

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001.008 Same Day Effective Dating - L 5Add Group Node

99.003 Eliminate system use of user H 30 approx 17 apps @ 2 daysfields each

Mitek 3.1 Car upgrade M 15

Scale L=1-10 hrs 6*5 30

M=11-20 hrs 3*15 45

H=21-40 hrs 3*30 90

VH=41-80 hrs 1*60 60

Total 3IS 225

Each life cycle stage in RITE model hasdefined deliverables. These deliverablesensure that proper and effectivedocumentation is carried out withoutmaking these activities as overhead.Quality System Documentation, aninternal system that details all theprocedures and processes, is used as

reference while developing softwareusing RITE model. QSD is internal toorganization and is used as inductiontraining material to new entrants at alllevels. This ensures that employees at alllevels are familiar with deliverablesexpected out of them. Table 3 lists keydeliverables in RITE model.

Table 3: List of key deliverables in RITE methodology

Life Stages in RITE Required Deliverables

At contract/project initiation Statement of Work/Contract

Project start-up, ongoing revisions Project Plan and Iteration Plan to the project plan

Client sign off on RD Requirements Definition

Following RD delivery Detail Design Document

Logical Day Test Plan at project initiation, Test Plan and Scripts test scripts at Design

Upon completion of each iteration Test ResultsOngoing throughout the testing process Issues ListUpon client delivery Training MaterialsUpon client delivery Customer/User DocumentationUpon transition to support Project Transition Documentation

Lessons Learnt Documentation



The figure 3 depicts the relative amountof time spent on each of the variousprocess workflows during the projectphases. For example, analysis and designtakes place primarily at the end of therequirements phase, throughout thedesign phase, and decreases during theconstruction phase (please see figure 3).

It is important that within the initialphase of the project, the project teamreviews, assesses, and incorporates thedeliverables and activities that areappropriate for that project into theproject plan.

Figure 3 : Software Development LifecycleFramework

Phase 4: In this phase, deployment of theproducts are carried out at the customersite. Once all the packets are designedand developed, they are integrated witheach other. These packets include standalone components from differentproducts and the customized componentto meet special requirement for thecustomer. On completion of each packet,it is tested with packets developedearlier. As a result, testing happens at

each stage of packet development whichis one of the unique features of thismethodology. Thus each packet goesthrough repetitive testing process whichis quite different than other softwaredevelopment models (as discussed inIntroduction section). After testing iscompleted, User Acceptance Test iscarried out at the customer site. Onsuccessful completion of testing, thesolution is then implemented at thecustomer location.

5.0 BENEFITS OF RITE METHODOLOGY

Using RITE, 3IS Software has achievedcustomer satisfaction as issues werereduced and all functional requirementswere met. The end deliverables wererobust as the packets were tested inevery iteration of development. Eventhough at the outset it might seem thatit would take more time to deliver theproduct compared to other softwaredevelopment models, still at the end,rework is reduced as the team was ableto capture issues earlier through testing.This not only helps to foster a goodrelationship with the customer, but alsoensures that we receive good referencefrom our customers. The RITE modelthus ensures that all the issues aredetected and fixed before each build sothat the final delivery have less issuesand are more robust and also ensuresthat all the functional requirementsincluding change requests of thecustomer are incorporated into thesystem, tested comprehensively andfinally released as a robust system.

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Being compliant to RITE model hasalso ensured that quality processesare compliant with SEI CMMIprocesses. Compliant to SEI CMMImodel is an indicator thatorganization processes are maturedand are performed consistently.When the organization decided to gofor assessment for SEI CMMI, internalprocesses were assessed at level 3indicating that processes are stable.An indicator cal led processcompliance index (explanation beyondthe scope of this paper) which is usedto indicate the level of compliance toCMMI processes s ignif icantlyimproved (by 50%) over a period of 3months after adopting RITE modelwhile meeting business goals. Otherbenefits obtained from RITE modelwere reduction in issues related tosoftware configuration management.Number of issues relatedconfiguration reduced by 30%. Thesetwo benefits are tabulated in Table 4.

Table 4 also indicates processcompliance benefits that were achievedover a period of time. The benefitsindicate that apart from meetingbusiness goal, we were also compliantto CMMi processes. In May ’06, 3ISSoftware was assessed at SEI CMMilevel 3 at their Chennai location whereRITE methodology is adopted fordevelopment (please see table 4). Theseresults are available in companyinternal documents and available forverification.

Table 4: Benefits obtained through RITE

Jan - Apr –Mar ‘06 Jun ‘06

Process Compliance 2.3 3.38 Index

Configuration Issues/ 3.32 2.2person hour

Thus, RITE model is different fromknown software models practised inother development organizations. RITEmodel is used for any size of theapplication development. The effort spentis optimized as there is no need to spendtime on developing a prototype; whiletaking advantage of features of iterativemodel, this model (RITE) accommodateschange requests. The difference is insaving time as change request can beaccommodated at later stages in thismodel while meeting all functional andperformance requirements of thecustomer. Thus, while effort overrun isminimized, solutions are delivered as perschedule. As a result the customer is ableto use the delivered solution for hisbusiness processes while keeping the totalcost of ownership (cost of buyingsolution, hardware cost and cost formaintenance of code) at the lowest levelwhich result in customer satisfaction.Customer satisfaction ensures furtherbusiness growth potential for the vendororganization as well as become areference for prospects also.

6.0 FUTURE CONCERNS

3IS management has a concern that RITEmethodology has not been used by other



development organizations. The conceptis new and can be tried out in otherorganisations that have off-shore onsitebusiness model. It will also be interestingto see how this model is applicable forsolutions and services. Taking feedbackfrom all these practitioners, RITE can befine tuned.

REFERENCES

Abrahamsson, P., Salo, O., Ronkainen, J., &Warsta, J. (2002). Agile SoftwareDevelopment Methods: Review andAnalysis. VTT Publications 478.

Abrahamsson, P., Warsta, J., Siponen, M.T., &Ronkainen, J. (2003). New Directions onAgile Methods: A Comparative Analysis.Proceedings of ICSE’03, 244-254.

Barry Boehm, (1970), “Build it twice”,Proceedings ICSE9.

Barry Boehm,1986, A Spiral Model of SoftwareDevelopment and Enhancement, ACMSIGSOFT Software Engineering Notes (SEN),August 1986

Barry W. Boehm, 1996, Anchoring the SoftwareProcess IEEE Software, July 1996, pp.73-82.

Boehm, B, 1988,A Spiral Model Of SoftwareDevelopment And Enhancement IEEEComputer.

Boehm, B., 1981, Software EngineeringEconomics Prentice-Hall. ISBN 0-13-822122-7 (pages 41-2, 254).

Boehm, B., 1985, A Spiral Model Of SoftwareDevelopment And Enhancement, 2nd.

International Software Process Workshop.Coto de Caza, Trabuco Canyon, USA 1985.

Boehm, B.; R. Turner (2004). Balancing Agility andDiscipline: A Guide for the Perplexed. Boston,MA: Addison-Wesley. ISBN 0-321-18612-5. Appendix A, pages 165-194

Bohem B.W., and Belz F.C., “Applying ProcessProgramming to the Spiral Model,”Proceedings Fourth Software ProcessWorkshop, IEEE, May 1988.

Cohen, D., Lindvall, M., & Costa, P. (2004). Anintroduction to agile methods. In Advancesin Computers (pp. 1-66). New York: ElsevierScience.

James Martin, 1980, Rapid ApplicationDevelopment, Macmillan Coll Div, ISBN 0-02-376775-8 .

Larman, Craig and Basili, Victor R. Iterative andIncremental Development:A Brief HistoryIEEE Computer, June 2003

Larman, Craig; Victor R. Basili (June 2003). “Iterativeand Incremental Development: A BriefHistory” (pdf). Computer 36 (No. 6): pp 47-56.DOI:10.1109/MC.2003.1204375.

Livary, J., “ A Hierarchical Spiral Model for theSoftware Process,” Acm SoftwareEngineering Notes, Jan 1987, pp. 35-37.

Raccoon (1995) The Chaos Model and the ChaosLife Cycle, in ACM Software EngineeringNotes, Volume 20, Number 1, Pages 55 to 66,January 1995, ACM Press.

Royce, Winston (1970), “Managing the Developmentof Large Software Systems”, Proceedings of IEEEWESCON 26(August): 1-9.

Management case

Gram Utthan- From Micro Credit to Micro Enterprise*

S.P. Das 1 & Alok Pattanayak 2

* Received February 27, 2007 ; Revised September 14, 2007. The authors would like to thank ananonymous referee for his comments on an earlier draft.

1 Associate Professor of Economics, Xavier Institute of Management, Bhubaneswar, email:[email protected]

2 Project Officer, Center for Development of Small & Micro Enterprise (CDSME), Xavier Instituteof Management, Bhubaneswar, email: [email protected]

Abstract

Since its inception in the year 1990-91, Gram Utthan, which started as an NGO and extended its microfinance support to SHGs and other members, went into setting up a packaging unit. Mr. Govind Dash,the Secretary of Gram Utthan was happy that the organization has made substantial progress. Thoughhe was sure that the organization was moving on the right track and fulfilling the socio-economic needof the communities for which it was set up, he was keen to do more and looked forward to advice fromcompetent professionals.

1.0 GRAM UTTHAN: THE NEED ANDINCEPTION

Self Help Groups (SHGs) are now-a-daysinvolved, among other activities, inmoney lending activity, both internallyand externally. This has become abusiness for them, providing a regularsource of additional income to them.Possibly due to such reasons many of theSHGs have started doing the moneylending business. They borrow moneyfrom bank at 1% per month and lend itto group members and others at a muchhigher rate. This rate goes up to even10% per month in some cases creatingopportunities for the NGOs to earn high

profit. This had also created an interestamong rural women to form groups.

Gram Utthan is a non-profit, non-politicaland non-governmental organization. Itwas established in the year 1990-91 by theinitiative of Mr. Govind Dash with a groupof dedicated energetic professionals. Ithas its registered office at village Pimpuri,Rajkanika block of Kendrapada district,at about 150 kilometers away from thestate capital in the northeastern direction.Initially, it started developmentalintervention in Pimpuri village ofKendrapada district with various activitieson rural technology, sanitation,community health, non-formal education


and formation of youth clubs, farmersclubs, SHGs, etc, but, in the year 1995 ittook a strategic decision to adopt microfinance as its core programme. Today,after one and a half decade, it has becomeone of the major developmental agenciesrecognized by national as well asinternational development partners. Atpresent it covers six different districts ofOrissa namely, Kendrapada, Jajpur,Bhadrak, Dhenkanal, Cuttack andKhurda. It covers a customer base of morethan sixty thousand in more than 25blocks of these districts and in more than1000 villages. It operates through 15different branch offices, whichaccumulates a loan outstanding of aroundRs.30 crore. Most of its customers arewomen who have come together to forma group of 10-15 members each. Besidesthese groups, it also gives loan to JointLiability Group (JLG). JLG is a group of4-5 members who come together to availloan and become jointly liable for eachother.

With the increase in the customer base,Gram Utthan has become more concernedfor its portfolio and the customers.Besides providing mere loans to them, ithas started thinking for the economicupliftment of its customers. Then came intothe picture the growth of Microenterprises in a sustainable manner. Withthis objective it has started one packagingcentre, which will act as a marketingsupport for various products produced bythe SHG members. This project waslunched on January 20, 2006 with thename of Kalyani Packaging Centre (KPC).

The details of status of Gram Utthan andits Micro Finance activities are given inTable -1

Table 1: The Status of Gram Utthan & itsMicro Finance activities as on 31stDecember 2006

Status Item Units

No. of SHG formed 3503No. of JLG 1533No. of Members 53262No. of village covered 991No. of panchayats covered 238No of Blocks covered 25District covered 6No. of Branches 15No. of staffs 157No. of Community Organizers (CO) 96External Fund leveraged 305(Rs. In Million)No. of Cumulative loan disbursed 59032No. of Active Borrowers 28513Amount of Loan Disbursed 411.7(Rs in Million)Amount of Loan Outstanding 226.96(Rs in Million)Average Loan size per SHG 6847members (in Rs)Average Loan size per JLG 11403members (in Rs)Portfolio Outstanding per Co. 1.88(Rs. In Million)No. of members per Co. 592No. of Borrowers per Co. 359Portfolio Outstanding per 18.91branch (Rs. In Million)On time Repayment rate 98.5Portfolio at Risk (PAR) 1.72

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The year 2006 was a turning point in thehistory of Gram Utthan. It took a newturn from its main activity of microfinance to micro Enterprise by startingone Packaging Unit at Pimpuri in thename of Kalyani Packaging Center(known as KPC). The details of thefunctioning of this unit are elaboratedfurther in following paragraphs.

2.0 EVOLUTION OF KPC

2.1 Early Stage

In the early stage Gram Utthancollaborated with Hindustan LeverLimited (HLL), a leading FMCGmarketing company in India, to sell itsproducts. This collaboration created abase for KPC. HLL did a consumersurvey for 100 different households in theoperation area of Gram Utthan. Besides,HLL gave the technical inputs andtraining to all the staff of Gram Utthaninvolved in this activity. But this modelclicked only for two months. There aroseconflicts between HLL and Gram Utthanon which products are to be sold. HLLdid not agree with Gram Utthan to sellproducts other than HLL products. Thisrestricted Gram Utthan to achieve thedesired objective. Then, it was thethought of the organization’s secretaryto go for an alternate model for this. Hechose SHG to be the best one as therewere many SHGs involved in its microfinance activity. After several rounds ofdiscussion among all the staffs and SHGmembers, the concept wasoperationalised on May 1, 2006. Theinitial investment in KPC was Rs. 4.65

lakh. At the time of writing this case, thefigure has increased to R. 10 lakh. All theinvestment is made by Gram Utthan asthe promoting organization.

2.2 KPC Mission & Objectives

The Mission of KPC has been succinctlyput as “empowering the poorest of thepoor in the society by creating financialself-sufficiency for them and preparingthem to face uncertain future throughSHGs under KPC network.”

The objectives of KPC are similarly toachieve market penetration, employmentto local rural women, higher profitmargin, good quality products,reasonable price and effective marketingof SHG products.

2.3 KPC Managing Committee

There is a managing committee for thesmooth operation of KPC. The committeeacts according to the operational policyof KPC. The members of the committeeinclude Manager KPC, Manager(Finance), Manager (Accounts),Administrative coordinator andProgramme associate. The administrativecoordinator heads the ManagingCommittee. The committee is the finalauthority to take any decision in respectof KPC.

3.0 OPERATIONS OF KPC

3.1 The Business of KPC

KPC bought the products, packed theseand sold these through various channels.The products were dal, atta, sugar, salt,tea, dry pea, edible oil, chilli, incense

Das et.al, GRAM UTTHAN From Micro ...


sticks, cumin seed, mustard and phutan.The products were packed in sizes asshown in table – 2.

support is provided by the promotingorganization, Gram Utthan to make it aself-dependent business entity. Till thatday, a full time manager is beingappointed to look after the day-to-dayaffairs of this unit.

3.3. Present status of the processing unit

The processing unit is located atKothasahi about 1 Km away fromRajkanika. At present there are 20processing members representing 10different groups from two clusters.They are employed on daily wagebasis (@ Rs. 30 per day) with aminimum 25 working days in a month.The unit is run in a rented house, whichis taken on lease for two years. Thereare three different sections forcleaning, weighing and packaging.Different processing members areallotted different works as per theirskills. The whole process is beingmonitored by one supervisor selectedfrom these processing members and hedirectly reports to KPC Manager. Atpresent the customer base for KPCcomprises of 5 wholesalers and 130retailers.

With regard to selection of members whowork in KPC, two members arenominated from each group. The basiccriteria for group selection were traveltime from their villages to the center,need of the group members and theirskill level. The table - 3 explains the aboveinformation about the present processingmembers working in KPC.

Table – 2 : Products and Size of packsProducts Type of Pack

Turmeric 50 gm, 100 gm & 200 gmpowder

Tata tea 100 gm & 200 gm

Dal 100 gm, 200 gm, 500 gm and1 kg

Sugar 200 gm, 500 gm and 1 kg

Salt 500 gm and 1 kg

Jira 50 gm, 100 gm and 200 gm

Ata 500 gm and 1 kg

Mung dal 200 gm, 500 gm and 1 kg

Chilli 50 gm, 100 gm, 200 gm, 500gm and 2 kg

Sorisa 50 gm, 100 gm, 200 gm and500 gm

Phutana 50 gm, 100 gm and 200 gm

These were airtight polyethylenepackets, carrying the brand name(Kalyani) name, name of the product, netweight of the item, price and date ofpacking of the item.

3.2 Role of Clusters

As per the present system, about 15-20village level SHGs are required to formone cluster. The cluster operates at Blocklevel and 10-15 clusters together form onefederation at district level. Thisfederation and its representativesmanage the entire KPC operation.Adequate managerial and technical

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Table – 3 : Village-wise grouping ofmembers working in KPC and distanceof the village from the packaging unit

Village Distance Members(in km)

Tarassa 7 6

Bharigada 7 2

Kanjighai 10 1

Ayatana 3 1

Giria 3 7

Pimpudi 2 1

Sirisa 6 1

Achutpur 8 1

Total No. of Members 30

Initially, HLL gave the training to theseKPC members on packaging, cleaning andweighing. Initially those SHGs, who wereinvolved in some group enterpriseactivity were selected. Later, these SHGswere brought together to form clusters,which took a leading role in KPCmarketing.

3.4 Business statistics

As stated earlier, KPC purchased itsmaterials and did the packing. Materialsof 30 quintals were procured once in aweek for Rs.60,000. These were deliveredby the suppliers at KPC by a pick up van.The whole stock after processing weresold in the market at Rs.65,000, giving aprofit of Rs.5,000.

About the work distribution in KPC thefollowing system was followed. Onemember cleaned around 10-12 Kg of raw

Table – 4 : Suppliers of various materials

Raw material Name of Suppliers

Harad dal/ Ishari general store/matar/ sugar mohd. Faruque/ Debi

Bhandar – CuttackAta Madan Mohan supplier/

Bal Dev Jew flour mill –Kendrapada

Haldi Roshan store – CuttackMalgodown

Tea Raja Babu – CuttackChilli A.K. Roy – Cuttack, own

SHG production –Jarimul

Agarbati Own SHG production –Bharigada

Polythene Nilachala printing –Bhubaneswar, localmarket

Salt Prithvi Dairy – JagatpurOil (Ruchi) Utkal traders – Cuttack

materials daily, which was convertedinto 400-500 packets. The daily turnoverof KPC is around Rs.8,000, out of whichitems worth of Rs.3,000 were sold oncredit which were collected after a weekand before the delivery of the next stock.This accumulated to around Rs.2-2.5 lakhturnover per month for KPC. But, tomaintain the order-supply flow, stock offinished goods worth of Rs.40,000 is beingstored always in the storeroom of KPC.The materials were bought from varioussources as shown in Table – 4.

During the production process, the losspercentage, which comes in terms ofdamaged / rejected items, comes to bearound Rs.4,000. This was again sold in



the market at one-third of the actual price,i.e. Rs.1,330, which is shown under otherincome for KPC. It also got some incomefrom other sources by selling the emptybags in which raw materials were stored.

3.5 Machine / tools used

The Table – 5 briefs about variousmachines and Tools used in theprocessing unit, along with theirspecification details and price.

Table – 5 : Machines/Tools used in the Processing Unit

Name of the machine Specification Price in Rs.

Weighing machine • Sansui – 6V / 2 Q capacity (20 gm accuracy) 11000• 30 kg (2 piece) 8000• 7 kg (1 piece) 7000

Seal machine • 12" plain (3 piece) 1200• 8" plain (2 piece) 850• 10" spice Aluminum (1 piece) 1400

Sticker gun 450Printing machine medium (3 line), 3 mm 3000Plastic tray 40 piece 450/ pieceProcessing accessory • 6 piece tray 130/ tray

• Palettes (15 piece) 200/ piece1 generator 2 kilowatt – Honda 30000

3.6 Records maintained

The following records/ books aremaintained at KPC to have updatedinformation about its business. Yet, thereis no record for keeping track of theorders received and delivered.

4.0 FINANCES

4.1 Cash Flow Analysis

The inflow of cash to KPC is done byits promoting organization GramUtthan through its Micro Finance

Daily activity registerSalesregisterCredit registerLoanledger (HO)

Stock register – raw material /finished goodsCashbookVehiclelogbook

Generator logbookSalaryregisterPass book –transaction with HO

activity. KPC borrows money fromGram Utthan in the beginning of themonth by giving its Business planproposal. At the end of the month,KPC returns the money earned out ofits business transaction after deductingall the expenses and payments. Themajor expenses for KPC is towards thetransportation cost, which comesaround Rs.50 per quintal. The Laborcost comes to about Rs.5 per quintal.The next major cost is towards the cost

239

of grinding the raw material toproduce powders. As of now, KPC isnot having its own grinding unit.Hence, they are doing it in an outsideunit by giving a price of Rs.4 per kg.The high administrative cost is still aconstraint for KPC to retain maximumprofit margin for its members. Thevarious expenses incurred by KPC,along with revenue in a singleprocessing day is elaborated in theTable - 6. Basically, all the expenseshave been divided into following fourcategories.

Administrative Loss / damageWage payment Marketing

Heads of Amount (in Rs.)

expenditure Fixed Variable

One Day’s Revenue 8000

Wage 500

Machine 5

Electricity 6

Packaging 300

House rent 104

Printing 5

Salary 700

Asset maintenance 2

Wastage 100

Fuel 350

Marketing cost 35

Incidentals 100

Table – 6 : Revenue & Major heads ofexpenditure for KPC

5.0 PERFORMANCE ASSESSMENT OF KPC

5.1 Salient Achievements

To assess the performance of theprocessing unit of KPC, the performancereports of KPC were collected from theorganization, and summarized in table -7 below.

5.2 Value Addition

In the process of making good qualityproducts and adding value to it to attractmore customers, the following majorsteps were followed by the processingunit, KPC.

• The processing unit used variousmodern tools and machines forpackaging, weighing and filtering theproducts. This ensured the packetsto be stored for a longer periodwithout being damaged.

• Utmost care was taken during theprocess of filtering of waste anddamaged material before going forthe packaging of final product.This ensured the quality of theproduct.

• The waste material thus collected outof this process was againreprocessed to make other by-products like making fodder forcattle, which gave additional revenuefor the unit.

• All the processing staff were trainedon packaging and filtering, thusminimizing the waste materials andmaximizing the cost of production.



5.3 Other Quantitative Indicators

The following parameters have been usedin quantifying the success of the KPC.

a) Incremental income accrued to themembers

b) Benefit to consumer through lowerprice

c) Quality of product as reflected byincrease in consumer base

d) Better recoverythrough ensuringhigher income to women members

The details on these quantitativeindicators are explained below:

Incremental income received by KPCmembers

A comparative study on income levelof members associated with KPC wasdone to find out their monthly incomebefore they were associated with KPCand after that. The data is given in thetable - 8.

The table contains the monthlyindividual income figure of KPCmembers from the 8 villages, ascontributed to their overall familyincome. Before KPC, these womenmembers were involved in some or theother activities to earn their ownincome. This income source was also notcertain and depended on the availabilityof work opportunities. But, after joiningKPC the members got secured earningtowards their labour charge everymonth from KPC. This additional income

Table – 8 : Average monthly contributionof members to family income Name ofthe Village Average monthlycontribution of the members to family

Before KPC After KPC

Tarassa 400 700

Bharigada 500 750

Kanjighai 400 600

Ayatana 600 750

Giria 300 600

Pimpudi 600 750

Sirisa 300 700

Achitpur 300 600

Average 425 681.25Income

significantly contributed towards theincrement in family income with morethan 60 % increment in their averageincome.

Price comparison chart

A comparative analysis of variousproducts sold by KPC in the market incomparison to those products sold byother major competitors in the samemarket was attempted. Here, the datafrom one competitor, who comes in thesecond position in terms of price andquality in comparison to that of theKPC products, have been consideredwhich has been reflected in thefollowing table – 9.

The above table gives the data on 11different products largely sold in themarket by KPC. Then, the price of theseproducts was compared with that of the

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Table – 9 : Comparative Price ListList of Items Market KPC

price price

Turmeric powder 62 58Tata tea 132 120Dal 36 33Sugar 25 19.75Salt 9 4.80Jira 110 96Ata 1520 1510Mung dal 50 44.50Chilli 90 85Sorisa 30 27Phutana 45 38

second most competitors in the marketfor that particular product. In all the casesit was found that KPC price was cheaperthan that of its competitor.

Marketing strategy for increasingCustomer Base

The marketing of KPC products is mainlydone through their Hubs. Hub is astrategically located shop to which KPCsupplies most of its stock. It is basically awholesale shop situated in and around amain market of an area. At present KPC

Stock of Rs.20-30 Larger Marketthousand customer location

base

Good Regular Storage Transactionretail sales facility capacity

operates with its 5 Hubs located in 5different market places. The selection ofHub is based on the following criteria.

KPC is being provided with one jeep bythe promoting organization, GramUtthan, for the marketing of theirproducts. Daily a stock of rupees 8000 isbeing marketed with this jeep. But, dueto heavy fuel consumption and expensestowards driver salary, it is not becomingeconomically viable for KPC. Besides this,KPC hires one auto rickshaw @ rupees300 per day, which covers 30 kms andtwo markets, doing a business of aroundrupees 30000 a day.

The table – 10 tells about the presence ofthese Hubs with distance from KPC,number of agents working for that Huband their respective market shares.

Table – 10: Hubs and their distance from KPC

Sl. Name of Distance from Number Market share (%)No the Hub KPC (in KM) of Agents

1 Patamundai 33 6 20

2 Madanpur 40 4 22.5

3 Chandbali 8 8 20

4 Matto 28 6 25

5 Adhajodi 38 5 12.5

The table summarizes the customer baseof KPC in 5 different locations, where themarketing Hubs are located. It was



clearly indicative from the above tablethat, irrespective of the distance from themain processing unit, the market shareof KPC products increased from 0 to 20% on an average within a span of oneyear.

In order to increase the customer base,KPC used 9 different marketing channels.Out of this, more than 50% of businesswas done through retail sales. The secondhighest business came from all the hubs.These two together gave around 80% ofbusiness. The rest 20% were gatheredfrom 7 other channels; out of which againorder sales and direct marketingcontributed 15%. The table – 11 explainsthe details of it.

It was tried to analyse various marketingchannels used by KPC to market theirproducts. All together these 9 marketingchannels explained in the above tablecontribute towards marketing of KPCproducts in the market. These diversified

Table – 11 : Marketing Channels andpercentage of Shares

Channel Share percentage

Hub 25Retail sale 55Order sale 10Direct marketing 5Seasonal 2Festive / fair sales 1Counter sales 1Mobile selling unit – Van 0.5Other sales 0.5

Table – 12 : Recovery Status of KPC

Village Total no. ofmembers taken

loan before KPC

Total no. ofmembers takenloan after KPC

Recovery %before KPC

Recovery %after KPC

Tarassa 130 157 96.6 97.3

Bharigada 116 135 94.6 97.6

Kanjighai 15 28 99.2 100

Ayatana 56 79 93.7 97.5

Giria 34 68 92.8 93.6

Pimpudi 31 46 98.6 100

Sirisa 13 31 94.5 100

Achitpur 56 83 93.4 97.4

marketing channels ensure the marketingof the products of the members.

Recovery status

The status of monthly recovery in 8 majorvillages was collected, where themembers of the Micro Finance activityare also the members of KPC, from wherethese members received incrementalincome on a regular basis, because of theentrepreneurial activity and among

243

whom the profit of the business is shared.The better recovery rate also justifiestheir increment in monthly income. Thetable – 12 below gives information on theoverall recovery status of the villagesbefore and after the KPC came intoeffective, taking into account all the liveaccounts in those villages.

An attempt was made to find out theeffect of KPC on the recovery rate forthe loans taken by the KPC membersfrom Gram Utthan, the original MFI.Interestingly it was found that for allthe KPC members from these 8 villagesimproved their recovery status withthe organization. In other wards, withthe additional income they receivedfrom KPC, the members were able torepay their loan more on time. Theabove table highlights two majorthings. The second and third columnexplains about the customer base in thevillage. The last two columns explainsoverall recovery rate of all the loaneemembers from these villages. In boththe cases, the figure is in increasingmode.

5.4 Qualitative Indicators

Besides the above quantitative indicatorsa few qualitative aspects of success havealso been used in the present study.These are explained below.

To assess the product quality and itsimpact on customer retention strategy,the authors visited two different Hubsof KPC and interacted with the Hubowner. The table – 13 & table - 14

highlights the interaction and thefeedback received from the Hub owner.

Owner – Ramakant ParidaActivity – grocery shopExperience in business – 18 yearsBefore KPC: His daily business was less thanRs. 1000/- with a profit of Rs.100/-After KPC: His daily business is more thanRs. 2500/- with a profit of Rs. 300/-Benefits• Increase in Profit margin• Expansion of Customer base• Available of Quality products• Free from packaging problem• Less hassles from weight and measures

department• Lease rent from the House

Table 13: Visit to the oldest Hub atChandbali market

Owner – Samar BehuraActivity – variety storeExperience – 3 yearsBefore KPC: He was an employee gettinghis salary irregularly and was staying awayof homeAfter KPC: His daily business is more thanRs. 1000/- with a profit of Rs. 250/-Benefits• Regular Cash flow• Giving time to his family• Gets Quality products for his own

consumption• Less hassles from weight and measures

department• Income from the contract of Gram Utthan

Mess

Table 14: Visit to the new Hub at PoroloNahulia Chowk, Rajkanika



6.0 ISSUES & CONCERNS

While KPC was doing well in theperception of management, Mr.GovindDash felt that there were several issuesand problems to be sorted out. Some ofthese are presented below:

A. Motivation for KPC members

Due to some important issues like travelinglong distance from villages and insufficienttime for family works, most of themembers of clusters were not willing tobe KPC members. But, seeing the morebusiness opportunity and demand in themarket, KPC is trying a number ofmethods, as sorted below, to attract moremembers in its processing unit..

• Insurance coverage for the memberand her family, which includes deathclaim, partial disability claim andmedical claim. For this KPC is tiedup with Royal Sundaram.

• Staying arrangement for memberswho come from long distances.

• Exposure visits to other units and areas

• Training on Various skilldevelopment

The effectiveness of these methods is yetto be ascertained.

B. Limitations for KPC

KPC is still to be a registered entity. Alsothe legal status of the promotingorganization does not allow it to run thisbusiness. Hence the following threethings are equally important for KPC tocontinue with its business.

• Registration under VAT• Obtaining Food license• Legal entity to conduct the business

(under SSI or DIC)

Unless these were done, KPC could facelegal hurdles.

C. The road ahead

KPC was still at its infant stage and therewas a long way to go for its sustenance.It was planning to increase its customerbase and capture more markets in termsof business. But, they urgently neededfew things to upgrade their businessvolume and hence the profit.

• Set up of their own grinding unitwhich will minimize their grindingcost

• Power connection to the processingunit that will minimize the fuelconsumption expenses by thegenerator.

• Replacement of the Jeep with a pickup van to supply finished goods,which will minimize the fuelconsumption substantially.

• Training on skill upgradation to salesexecutives and processing members

• Bringing the cluster federation intoexistence to take charge of KPC

But all these meant that Gram Uthan willgo more and more into directmanufacturing/process, instead ofengaging itself in the original task ofencouraging members to beentrepreneurs.

Nicholas C Burkholder, (2006) Outsourcing:The Definitive View, Applications and Implications; Hoboken,

NJ; John Wiley & Sons, pp.274*

Reviewer : Shiva Kumar Srinivasan1

* Received July 16, 20071. Associate Professor, XLRI, Jamshedpur, email: [email protected]

Book Review

Theoretical accounts of outsourcinggenerally begin with the implicitassumption that there is a fundamentaldifference between the ‘core’ and‘peripheral’ activities of a firm. Firms aretherefore advised to concentrate on theformer and outsource the latter. The casestudy on outsourcing with which thisbook begins however is not of the privatesector, but the U.S. federal government.Traditionally, a number of blue collar jobshave always been outsourced by thefederal government albeit withoutinvoking the term ‘outsourcing.’ Federalagencies continue to outsource workquietly and in small batches in order totake advantage of government-wideacquisition contracts (GWACs).According to a survey carried out by theGeneral Services Administration (1998),the reasons cited for outsourcing by bothfederal and private sector managers aremore or less the same. In other words,outsourcing has always been there insome form or the other in both the publicand private sectors and is very much inkeeping with the ethos of the free

enterprise system in the United States.As President Eisenhower put itcategorically: ‘the federal governmentwill not start or carry out any commercialactivity to provide a service or a productfor its own use if such product or servicecan be procured from private enterprisethrough ordinary business channels(p.8).’

The conceptual origins of outsourcinghowever can be traced to the work ofthe Scottish economist, Adam Smith.Outsourcing, argues Burkholder, is justpushing the division of labour to itslogical conclusion in order to harness thecomparative advantages enjoyed byglobally distributed vendors. The processof outsourcing however is clouded bynumerous controversies andmisconceptions because we haveforgotten this simple fact. Outsourcing ofperipheral and sometimes even coreprocesses makes it possible to not onlyget a handle on costs, but enables theproduction of goods and services atpredetermined prices provided a firm


understands the modalities involved indeploying technology effectively.Burkholder sets out the basic modalitiesof outsourcing in this book beforemaking the argument that ‘outsourcingis really sourcing.’ But, interestingly,Burkholder does not advocateoutsourcing under all circumstances sinceit ‘doesn’t always work (p.30).’ Thesuccess, if any, of an outsourcing venturedepends on whether a firm is clear aboutits mission, objectives, and strategy.Furthermore, the firm should rememberto approach all ‘resourcing decisionsholistically (p. 38).’ The quality of therelationship and the expertise demandedfrom the venture can make or mar anoutsourcing contract and must thereforebe approached with due caution. The firmmust also understand which of the topten drivers of outsourcing discussed hereare relevant to the business and/or thecircumstances in which it finds itself. Inother words the choice between verticalintegration and outsourcing is by nomeans easy or pregiven.

A good test case for outsourcing, arguesBurkholder, is to use a hospital ‘as thebasic unit of analysis’ since health care ischaracterized by a high degree of verticalintegration for a complex set of reasons(p.61). The most important of these is thathospitals are judged by ‘patientoutcomes’ rather than efficiency per se(p.74). So unlike the hypothetical firmthat is preoccupied with the possibilityof cost savings, the hospital is anorganization that has an additional set

of burdens which arise from ‘industry-specific considerations’ including the factthat it is a ‘quasiresidential’ unitrequiring support systems (like cateringand laundry) on a daily basis. Thehospital must also be able to cope withchanges in medical technology,diagnostic systems, pharmaceuticalbreakthroughs, regulatory structures,insurance and payment modalities, ethicaland ontological questions on whatconstitutes life, illness, recovery, and soon (p.61). Burkholder’s wager istherefore theoretically very interesting:if a hospital can stand in effectively forwhat economists identify as a ‘firm,’ thenit will either substantiate the generalargument in favour of outsourcing mostnon-core processes (and at least a few coreclinical processes) or serve as a powerfulcounterexample. In either case, thecomplexity of a hospital’s mission makesit necessary to ask whether it is possibleto define the circumstances in whichdoctors can focus on the core problem ofhuman illness and the implicit model ofhealth that this presupposes andoutsource everything else. What wouldsuch a hospital be like? What would bethe implications of such a structure onpatient outcomes? Would they befavourable or unfavourable?

In other words, if it turns out thatoutsourcing is not a good idea inhospitals, this will not necessarily haveany major implications on the strategicdimensions of outsourcing in a theory ofthe firm. But, should it turn out that

247

outsourcing has a positive impact onpatient outcomes after all then thepossibility of outsourcing can be definedas structurally inherent to a theory of thefirm. As a reality check, Burkholderexamines both a core clinical process likeradiology and a non-clinical process likecatering in order to generate learningson how outsourcing can be linked to atheory of the firm. His conclusion is thatvertical integration is not necessarily the‘optimal’ solution, but appears to be sobecause it represents the defaultassumptions about how hospitals handlethe ‘make-or-buy’ decision in order toincrease positive ‘patient outcomes.’ Ifhospital administrators want an optimalsolution, they will have to be willing tosuspend these default assumptions aboutvertical integration and attempt instead‘a careful evaluation of the cost andcapability dynamics of each functionalarea…in order to facilitate effectivedecision making about the verticalintegration versus outsourcing decisionsundertaken by hospitals today (p. 83).’

There are of course no guarantees that adecision to outsource will be successfuland, interestingly enough, firms failbecause they focus on the contract itselfrather than on managing relationshipswith vendor(s). According to the findingsof The Concours Group, a research firmbased in Houston, the principal mistakesthat firms make include the following:uncertainty on matters pertaining todecision rights, lack of trust between thefirm and the vendor, lack of clarity on

expectations pertaining to outsourcing,and the inability to anticipate what theother party will do. Concours thereforedecided to translate a set of best practicesinto the Sourcing Management Model tohelp a firm manage life after offshoring.The model is of use to both companiesthat have started to outsource and thosewhich want to try it for the first time. Itcan be applied to not only outsourcing,‘but to many kinds of labor sourcing.’ Itseeks to ‘ensure that the strategic intentsand outcomes of both parties in theoutsourcing relationships are achieved’and ‘that the results expected are theresults realized (pp. 89-90).’ If, inaddition to having such a model, a firmcan develop the competencies needed tomanage relationships with vendors thenit ‘can leverage the power ofspecialization, globalization, andvirtualization’ to derive competitiveadvantage (p. 90). The differentcomponents of the model are describedin detail - they include ‘strategy,governance, supply management,program management, operationsmanagement, and demand management’(p.90). The model as a whole seeks to‘integrate’ these components, but willwork effectively only if it is implementedin totality rather than in parts. As a partof the outsourcing strategy, the firm musthave ‘a clear exit strategy,’ participate in‘detailed scenario planning,’ and have ‘aclear set of core values (92-93).’Outsourcing of governance howevercontinues to be a problem; it is, quite

Burkholder, The Definitive View ...


simply, ‘the Achilles’ heel of outsourcingactivity (p.93).’ This is because the terms‘governance’ and ‘management’ areroutinely conflated. Governance,according to Burkholder, ‘is theframework of decision rights thatencourages desired behaviors in both theoutsourcer and the client company’whereas management ‘deals with makingdecisions and executing a set of processesor activities’ (p.94). When outsourcingfails, more often than not, it isgovernance modalities that are at fault.It is therefore important to work outthese modalities and have a formal‘decision rights matrix’ in place (p.99). Inother words, ‘sourcing is a relationship,not a piece of paper or a commodity tobe purchased.’ It is therefore importantto treat the vendor as a partner who isthe subject of a relationship rather thanan object to be managed. Only then canthe vendor ‘deliver results that exceedthe contract expectations and addconsiderably to the intellectual capitalavailable’ to the outsourcing firm (p.129).

The book concludes with a collection ofbrief articles by experts on the economicand strategic dimensions of outsourcingalong with specific instances. There is also

an interesting ‘glossary of outsourcingterms’ and a list of ‘outsourcingcompanies and services.’ Burkholder’sadvice to firms is that outsourcing is hereto stay, but the inevitability of it as asocio-economic trend does not guaranteesuccess for firms that try to outsource.Those who are serious about coming toterms with the changes that outsourcingrepresents should focus more onobjectives and less on strategy, developbetter performance metrics, adopt aholistic model for all forms of sourcing,get HR to accept responsibility whenhuman capital is outsourced, and, finally,make sure that resourcing decisions aremade on a platform of performance(p.247). Outsourcing, as Scott Gerschwer,one of the experts featured in this volumepoints out, is ‘merely smart business’ andit is only a matter of time before thishonourable tradition becomes routinebusiness. In Gerschwer’s formulation, itwas none less than George Washingtonhimself who set the precedent foroutsourcing in America when hedelegated the training of his troops tothe French general, the Marquis deLafayette, during the revolutionary war(p.149).

Marketers have to find buyers for theiroffer (product or service). There arefundamentally two broad options, eitherto acquire new customers or retain theexisting ones. Customer relationshipmanagement was there in thepreindustrial revolution period, whenthe marketer was the producer of thegoods and services. The marketer knewand understood the individualconsumer’s needs and was able toprovide customized solutions (by acombination of product and service) tothe specific requirements of the customer.Business thrived primarily on one to onerelationship between the buyer and theseller. There was an intuitiveunderstanding that the interaction withthe customer would continue even afterthe transaction was completed, not onlyfrom the marketer’s perspective but alsopossibly the buyer. Since the productioncapacity was limited, the distributionsystems were not developed, customerbase was local; customer retention wasthe key to the survival of business. Thebasis of the business was theunderstanding of mutual dependence,

Mosad Zineldin, (2006) trm: Total Relationship Management, OverseasPress India Private Limited, New Delhi, pp 296, Price Rs 325/-, soft *

Reviewer : Jaydeep Mukherjee1

need fulfilment and long term orientationor in short - relationship.

Industrial revolution and the advent ofmass production separated the producerfrom the marketer. It was more costeffective to produce large quantities ofstandardized products, making thoseproducts affordable to larger consumerbase. It was important to get customersfor the standardized products rolling outof the factories. Thus, the business focusshifted from customer retention to newcustomer acquisition. It was also verydifficult to practically engage inmeaningful one to one relationship withthe large number of existing customers.However, there was more focus onimprovements in marketing infrastructurelike distribution networks, specializedtechniques namely advertising, salespromotion etc. The mass produced,product centric approach focused onincreasing the consumer base remainedthe predominant paradigm of marketingpractice till late twentieth century.

With the development of informationand communication technology (which

* Received June 25, 20071. Associate Professor, Management Development Institute, Gurgaon. Email: [email protected]

Book Review


gives tremendous reach and informationprocessing capability at an affordablecost), it is once again possible to havecustomized one to one interaction witha large number of customers.Development in manufacturingtechnology and distributioninfrastructure is increasingly making itpossible to provide customized productand service to smaller groups ofcustomers. With increasing competitionin the market, the CustomerRelationship Management (CRM)paradigm has once again gatheredmomentum as it is easier (or costeffective) to retain an existing customerthan to acquire a new one.

Thus, the interaction with the customeris increasingly viewed not as atransaction but as a long termrelationship. The lifetime economic valueof the customer is estimated and basedon that, marketing initiatives areformulated to retain the customer. TotalRelationship Management (TRM), asadvocated by the author is an attempttowards extension of the relationshipmanagement paradigm across all thebusiness processes in the organization andthe customer interfaces.

The starting point of the TRM paradigmis the criteria for enduring successful re-lationship management. This includes thewillingness and motivation of the cus-tomer and the marketer, their interde-pendence, cultural fit, organizational ar-rangements and institutionalization,which create and del iver value

greater than what the competitorscan.

The author has tried to develop thenotion of “TRM” by incorporating theelements of relationship paradigm in theexisting well established managementconcepts like marketing mix, total qualitymanagement and new productdevelopment.

The concept of “Total Relationship Mix”charts out the seven basic managementissues faced by the marketer or businessorganization, which are integrated by theinformation technology. It includesmanaging the communication,expectation, resources, responsiveness,location, motivation and innovationprocess of the organization.

The author has tried to fit in the idea of“total” in the product developmentprocess by two means. The first is bytrying to incorporate the notion of“Prodserv” which is essentially based onthe premise that notion of product isalways accompanied by some servicecomponent and hence should beappropriately called “Prodserv”. Thesecond is to add the strategic aspects ofproduct development in a typical linearnew product development model.

The establishing of relationship isconsidered to be about giving promisesand fulfilling them while the developinga relationship is considered to be offeringnew set of promises – where fulfilmentof earlier promises is a prerequisite. Thisis an interesting way to set operating

251

guidelines for the relationshipmanagement function and the key tosuccess is to identify the right set ofcustomers who would provide a steadystream of cash flow and profitablebusiness.

Satisfaction is an emotional response tothe difference between what customersexpect and what they receive. Sincesatisfied customers are desirable formeeting the objective for the loyalty andretention, understanding customerexpectation is vital. The use of QualityFunction Deployment (QFD) isrecommended. The author highlightsthat, not all customers are appropriate forlong term relationships. Closerelationships accrue benefits, but requirecooperation and sharing burdens also,thus there is need to understand therealities of long term relationships beforeselecting the customers. It should be builton four generic factors; interdependence,adaptation, flexibility, trust andcommitment. The possible problems tobe avoided are the failure to identifycoordination and monitoring cost, loss offreedom and flexibility, overdependenceetc.

Though total satisfaction is the objective,it is difficult to achieve and requires acomplaint management process in place.Complaint management processsuggested by the author is conceptualizedas a two-step process. First, the natureof complaint is classified using a two bytwo matrix of frequency of complaint andimpact of complaint; then solve the

compliant by employing suitableresources. The resource allocationdecision is made on the basis of anothertwo by two matrix, comprisingimportance of complaint andeffectiveness of resolution mechanism.

Today’s customers are not onlydemanding, they expect to be treated asindividuals with their own needs, wishesand concerns. TRM is conceptualized asa combination of strategy (defensive) aswell a philosophy. The application of theconcept is expected to reduce the risk ofloss due to inadequate marketinformation, customer knowledge andmisreading of market. It is to be managedby aligning the internal organizationalactivities, processes and decisions to theexternal political, legal, economic,technological, ecological and physicalrealities of the customer. Buildingrelationship is viewed as social andeconomic process, requiring interaction,communication, mutual trust, respect,benefits, interdependence, commitment,innovation, cooperation, competition andcommon values.

Overall, the book tries to provide acomprehensive account of the possibleapplication of the different perspectivesof customer relationship managementunder different business processes. Ittries to integrate the process ofrelationship management withcustomer (both for internal to theorganization and external ones in themarket) into the various functionaldomains. It uses the existing literature

Mukherjee, Total Relationship Management ...


very well and can be considered a goodattempt at consolidating the existingbody of knowledge but doesn’t reallyadvance the notion of customerrelationship management significantly.Though the book is segregated intoeleven chapters, those are not reallyinterwoven into a whole, making thereading a bit difficult and in some casesrepetitive also.

For a general reader interested inmarketing, there are considerablereferences given in the book for the

academics. However, these referencescould have been possibly supportedwith relevant examples from themarketing practices to demonstratethe lacunae with the existing systemof relationship management as well asshowcase the efficacy of the notion ofTRM. For a scholarly reader, the bookis not able to bring in fresh newconcepts or insights. Many of the pointsadvocated are essentially cosmeticchanges in the existing understandingof CRM, mostly additions from somerelated topics in marketing.

ILAKSHAN is a bi-annual journal. The paperspublished in the journal go through blind peer-review. It publishes original research-based articles,perspectives, cases on topics of current concernand book reviews in all areas of Management. Ageneral guideline for contributors is given below.1. Manuscripts should be of approximately 10,000

words (20 to 40 A-4 size pages, typed in doublespace). Manuscripts should be submitted alongwith a soft copy or by e-mail with the coverpage bearing only the title of the paper andauthor’s names, designations, official address,e-mail and phone/fax numbers.

2. Article should accompany an abstract of about150 words.

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Table-1 about here

4. Endnotes : All notes should be indicated byserial numbers in the text and literature citedshould be detailed under reference inalphabetical order of the surnames followed byyear of publications immediately after theauthor’s name.

5. References :The list must mention those sourcesactually cited in the text or notes and to theextent other sources possible which are essentialfor understanding the topic. Author’s nameshould be the same as in the original source.

a) In the text, the references should appear asfollows : Dayal (2002) has shown.... or Recentstudies (Ramnarayan 2002; Murthy, 2001)indicate...

b) Journal references should be listed as follows:Khandwalla, P. N., (2001). “CreativeRestructuring,” Vikalpa, 26(4), 3-18.

c) Books should be referred to as follows :Sugandhi, R. K., (2002). Business to BusinessMarketing, New Delhi : New Age International.

d) References from Internet should be referred to asfollows : Hesterbrink, C., E-Business and ERP :Bringing two paradigms together, October 1999;Pricewaterhouse Coopers., www.pwc.com.

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For more than one publication by the sameauthor, list them in chronological order, with theolder item first. For more than one publicationin one year by the same author, use small (lowercase) letters to distinguish them (e.g., 1980a,1980b).

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