The Journal of Amity Business School

Transcription

Volume 9, No.2, July - December 2008
The Journal of Amity Business School
Empirical Study of Relationship Marketing in Indian Banks (Customers’ perspective)
Anurag Mittal*
1
Impact of Globalization on SMEs
Ashish Bhatnagar*
9
Relationship of Demographic Factors with the level of Job Satisfaction in Employees of
A Garment Manufacturing Unit
Poornima Gupta*
19
Empowerment of Women Entrepreneurs through Micro Financing & Training
Vasanthi Reena Williams*
27
Global Financial Crisis and Its Impact on Indian Economy
P Sivadasan*
34
Role of Securities and Exchange Board of India (SEBI) in Regulating the Stock Market
Manoj Sharma*
42
Factors for Successful ERP Implementation in Indian Scenario - An Employee Perception
Satyendra K Singh*
53
Book Review
Dhason Antony
60
Book Review
Himani Sharma
62
AMITY BUSINESS REVIEW
Vol. 9, No. 2, July - December 2008
Bi-annual Refereed Journal of the Amity Business School
ISSN : 0972-2343
Patron
DR ASHOK K CHAUHAN
Desk Advisor
ATUL K CHAUHAN
Editor-in-chief
DR SANJAY SRIVASTAVA
The Editiorial Board
DR CHANDRANSHU SINHA
MS SOMA ARORA
Copyright @ 2003 by the Amity Business School.
All rights reserved.
The views expressed in the articles are those of the contributors and not necessarily of the Editorial Board or
the Institute.
The Editorial Board invites original, unpublished contributions in the form of articles, case studies or
research papers.
No part of this publication may be reproduced or transmitted in any form or by any means, or stored in any
pieval system of any nature without prior written permission. Application for permission for other use of
copyright material including permission to reproduce extracts in other published works shall be made to the
publishers. Full acknowledgement of author, publishers and source must be given.
Amity Business School, AU,
Amity University Campus, F-3 Block, Sector-125, Post Box-503, NOIDA -201 303 (INDIA)
Tel.: 91-120-4392000, 4392670 Fax: 91-120-2431421
Visit us at: http://www.amity.edu/absau
Although every care has been taken to avoid errors or omissions, this publication is being sold on the condition
and understanding that information given in this journal is merely for reference and must not be taken as
having authority of or binding in any way on the authors, editors, publishers and sellers who do not owe any
responsibility for any damage or loss to any person, a purchaser of this publication or not, for the result of any
action taken on the basis of this work. All disputes are subject to Delhi jurisdiction only.
Published by : Amity University Press, E-27 Defence Colony, New Delhi -110 024
Printed at : Venus Offset Pvt. Ltd., D-7/1, Okhla Industrial Area, Phase-I, New Delhi - 110020
FROM THE DESK OF THE EDITOR-IN-CHIEF
As India moves into the new age, the Indian as a multilayered individual strides along. Our history, our
background, our area of settlement shaped us and made us who we are but standing at the fringe of a world
divided by our thoughts, we now face a new question… OUR IDENTITY ?
The different layers of identity need not be fully transparent to this individual, nor need they carry the same
weight, psychologically speaking, to the individual at time t and time t+1. Psychologically, genetic sameness
as regards particular genes may be more important to the individual at certain times than other kinds of
sameness.
Furthermore, the concept of layer should not be understood as implying that a changed identity in a certain
respect never has an effect on other layers. As an extreme case of changed identity : Michael Jackson changes
his gender with genetic engineering , in certain layers he retains his original sameness or identity, in others he
is a new person with a new identity.
Coming back to the dominating visual exposure of Globalization on the younger generation, the
experiences and viewpoints need to be shared. Imported views, imported ideas, imported goods constitute
the core of our vocabulary today.
As a result The Indian is lost in a whirlpool of new ideas which he does not seem to comprehend completely.
There exists modern intervention on one hand and a history so rich that it is very difficult for an individual to
take decision on the other hand. There is a loss in our contextual identity yet we never feel this because of the
concept of multiple layers. In certain layers we retain our original sameness which lends comfort to the
synchronization with the distant past; in others we are one with current cosmic reality.
Taking account of our glorious past, India has been a ground for intermixing various cultures, traditions and
religions which never gave India one singular identifiable character yet there has never been loss of character.
We have possessed a multi existence of styles and henceforth always possessed a multi-layered identity. So
what is our true identity?
Devoid of any theoretical substance, these thoughts epitomize the individual's mind and leave him in a
confused state. There is need for direction through discussion. The discussion includes practitioners from
different backgrounds, teachers and students with hope to achieve a better understanding and knowledge of
this CHANGE.
Envisaged as an interactive learning experience, for the students and the audience members, the debate is a
mere step in the race just begun towards this CHANGE.
I have an ardent hope that you will enjoy reading all the articles of the present issue. As always, I will look
forward to your valued comments.
Sanjay Srivastava
ABOUT THE CONTRIBUTORS
Anurag Mittal, PhD is Assistant Professor in the area of Marketing and Retail, Guru Nanak Institute of
Management (GNIM), affiliated to Guru Gobind Singh Indraprastha University, Delhi. He has 14 years of
teaching experience & 4 yrs of Professional Experience. His expertise is in the area of Marketing & General
Management. He has published more than 10 Papers/Article published in leading Journals, Conferences
Souvenir, Edited Books etc and has Co-Authored a book titled “Case Studies in Management”. He has
participated in more than 25 International & National Conferences/Seminars/Summits.
Ashish Bhatnagar is Assistant Professor at DCET Business School (International Institute for Special
Education), Lucknow, affiliated to U.P. Technical University, Lucknow (India) since February 2008. He has
rich experience of teaching and research in the management area. He has interest in the areas of Sales & Supply
Chain Management, Production & Operations Management, Materials and Machines Management, Supply
Chain Management; Marketing of Services. He has published a book titled 'Text Book of Supply Chain
Management and papers in journals of national and international repute.
Poornima Gupta is Senior Lecturer, at Fortune Institute of International Business, New Delhi. She has more
than 9 years of experience in industry and academia. She has published and presented nine research papers
and cases in journals of national repute. She has co-authored two books, “Organization Theory and Structure”
and “Family managed Multinationals and Public Sector Enterprises- the Strategic choices for Global
Competitiveness”. She has also authored two chapters in the Capstone case-“ FortCaps Ltd” by Fortune
Institute of International Business.
Vasanthi Reena Williams is Faculty at MAGNUS School of Business, Mysore. She has around 16 years of
teaching and administration experience to her credit. She is also the member of AIMA and HRinIndia. Her
areas of interest include HRM, HRD, OB, Business and Industrial Law. She has presented papers at National
and International Conferences and has received the best faculty award for the year 2007-08 in the college.
Sivadasan P, Ph. D. is Assistant Professor, Guruvayurappan Institute of Management, Coimbatore Education.
He has more than 15 years experience in teaching and research both in India and abroad. He has interest in the
areas of Managerial Economics, Financial Management, and Investment Management etc. He has published
several research papers in journals of repute and has presented many research papers both at national and
international level.
Manoj Sharma, is pursuing his Ph.D., in the faculty of Commerce and Management, Himachal Pradesh
University. He has presented papers at national level
Satyendra K Singh is pursuing his PhD in Human Resources from University of Lucknow. He has over 10
years of academic and industry experience. He has presented papers at national level
1
EMPIRICAL STUDY OF RELATIONSHIP MARKETING IN INDIAN BANKS
(CUSTOMERS’ PERSPECTIVE)
Anurag Mittal*
New age marketing is aimed at winning customers forever, when companies greet the customers, creates the product to suit to their
needs and works hard to develop life time customer. The study determined the application of relationship marketing to banking in
Union Territory of Delhi, Capital of India .It further was directed towards analyzing the customer's opinion about their bank with
respect to the relationship oriented behavior of their bankers towards them. It also compared the relationship marketing orientation in
Public Sector Banks with that of Private Sector Banks. Various barriers to the implementation of Relationship Marketing in Indian
Banking sector has been discussed in the paper The result analysis has revealed many eye-opening facts suggesting that relationship
marketing has to go a long way when it comes to its implementation in the Indian Banking Sector. The survey analysis clearly indicated
that the Customers of Public Sector & Private Sector Banks are of the opinion that there is a difference with respect to the application of
Relationship Marketing Approach in the banks under study. The study into the relationship marketing implementation in Indian
Banking Sector also identified managerial, human resource, cultural, comprehension, communication, strategic, resource and
operational forces impeding the process of relationship marketing, its up-take and the viability of the implementation of its resulting
recommendations. For Relationship Marketing to be more effective in the future, we have to change the attitude of managers to ensure
that customer are properly served.
Key Words : Relationship Marketing, Customer centered approach, Trust , Bonding, Empathy, Reciprocity
INTRODUCTION
New age marketing is aimed at winning customer
forever, when companies greet the customers,
creates the product to suit to their needs and works
hard to develop life time customer through the
principle of “consumer delight”. The success of any
business depends solely on the quality of product
and/or service and customer
organization
relationship. Instead of running after the customer,
there is a need to run with the customer. Customer's
active participation and attitude is also essential to
project success as quality of service depends upon
the customer's disclosure of his/her exact
requirements, cooperation, prompt decisions and
actions at every stage.
While customer's attitude and perceptions have
changed, many organizations are yet to respond to
the change in the desired manner, though, they have
recognized the need to be more relationship
*
oriented. Relationship between customer and
business firms have been consistently encouraged as
successful business practice . According to Gronroos
(1989) , business philosophy has shifted from purely
economic production orientation to a customer
market concept and then to societal orientation.
Now business philosophy is shifting again towards
relationship marketing.
It is this move towards Relationship Marketing that
was the theme of the proposed study. Although
marketing scholars and practitioners have been
examining relationship marketing for more than a
decade (Berry 1995 ) most of the studies were being
criticized because of having uni-dimensional
perspective. One of the greatest challenges for the
top management is to instill among its employees, a
deep sense of commitment towards the customers.
The study aimed at exploring the perception of
Relationship Marketing Orientation that prevails
among the bank's customers.
Assistant Professor (Marketing & Retail), Guru Nanak Institute of Management,
(Affiliated to GGS Indraprastha University) New Delhi, INDIA
2
Amity Business Review
OBJECTIVES OF THE STUDY
The study determined the application of
relationship marketing to banking in Union
Territory of Delhi, Capital of India. It further was
directed towards analyzing the customer's opinion
about their bank with respect to the relationship
oriented behavior of their bankers towards them. It
also compared the relationship marketing
orientation in Public Sector Banks with that of
Private Sector Banks
The study had the following specific objectives:•
To find out whether customers believe that their
banks are relationship centric or not.
•
To compare the relationship marketing
orientation of both private and public sector
banks.
•
To study and compare the customer's
satisfaction of Private & Public Sector Banks.
•
To compare the Culture of Private & Public
Sector Banks.
HYPOTHESES OF THE STUDY
The study seeks to clarify several propositions that
revolves around the central theme of the study, that
is analyzing the application of relationship
marketing in banking sector. The hypothesis was
formulated in synchronization with the purpose &
objectives of the study. Moreover the hypothesis
covered all the dimensions of relationship marketing
that were being considered in the study. The
following set of hypothesis were being formulated
and were being cross examined and tested to draw
certain inferences and conclusion about the study.
1.
There is no significant difference with respect to
trust dimension of Relationship Marketing in
Public & Private Sector Banks.
2.
bonding dimension of Relationship Marketing
in Public & Private Sector Banks .
3.
communication dimension of Relationship
Marketing in Public & Private Sector Banks.
4.
empathy dimension of Relationship Marketing
in Public & Private Sector Banks
5.
reciprocity dimension of Relationship
Marketing in Public & Private Sector Banks .
6.
the culture of Public Sector & Private Sector
Bank
7
Customer's Satisfaction in both Private & Public
Sector banks is same
8.
There is no significant difference in relationship
marketing orientation of private sector banks
and public sector banks from the view point of
customers
REVIEW OF LITERATURE
Jain Rajnish, Jain Sangita & Upindar Dhar,
2002- 03, proposed that Customer Relationship
Management (CRM) has emerged as a core business
process for maintaining and enhancing competitive
edge in the modern business warfare. In spite of
meticulous planning and implementation, a large
number of CRM programs fail to accomplish their
goals. A deeper understanding of the behavioral
dimensions of relationship marketing and careful
evaluation can help organizations to make their
relationship building efforts more effective.. Service
providers need to be customer oriented and trained
in displaying a genuine care and concern for
customer welfare. A relationship based on mutual
trust and faith lasts longer.
Mittal Anuraag, (2006 & 2008), discussed the
evolution of Relationship Marketing Approach as a
evolution of a revolution in the marketing. It was
being proposed that marketing is no longer just
about developing, selling and delivering products. It
is increasingly concerned with development and
maintenance of mutually satisfying long term
relationships with customers. It was asserted that
Relationship Marketing is based upon the premise
that it makes economic sense to satisfy and retain
customers as the strength and duration of
relationship is directly proportional to the resultant
profitability. Moreover this contemporary interest
on retaining customers is reforming marketing with
an emphasis on the creation of value and building
relationships. The new marketing refocusing has
been explored in consumer service marketing. Now
the thrust has been to examine different aspects of
customer satisfaction, relationship strength,
relationship longevity and customer relationship
profitability. The acceptance of Relationship
Marketing is based upon the emerging body of
research which indicates how customer retention
leads to increased profitability. The author asserted
that if a company builds and maintains good
relationships with customers, it cannot be easily
replicated by the competitors and therefore provides
for a sustained competitive advantage.
Shaineesh & Mohan (2001), conducted a survey
among managers belonging to Hospitality, I.T.;
Telecom & Financial Services to understand the
relationship management practices & programs
adopted by them. The research was exploratory in
nature and 77 managers of these service firms
operating in India were surveyed through
respondent administered questionnaires. It
addressed the issue such as quality & customer
centric processes; employee empowerment;
technology selection; customer knowledge
strategies & individualization of market programs.
Rich, Michael K., 2000, highlighted that the
evolution from transaction marketing to
relationship marketing in recent years has resulted
in research indicating the need for more rigorous
databases and greater utilization of current
computerized tracking systems. Relationship selling
has been examined and the results stress long-term
perspectives to the dyadic exchange process to
enhance sales results. Considering the role of trust
and culture in the relationship marketing process
would indicate the need to pursue future research
into a deeper understanding of the customer.
Seeking knowledge of a customer's personal feelings
concerning their comfort level with various
communication approaches could enhance the
reception of messages crafted for them. The
discipline needs to move beyond the numbers to a
more abstract analysis of the customer as an
individual with specific feelings toward various
marketing approaches.
3
Sheedy, Elizabeth 1997, proposed that, Relationship
marketing emphasizes long-term relationships
between providers and customers, rather than
individual transactions. For at least 15 years
commercial banks have pursued relationship
banking programmes to target key corporate and
institutional clients. More recently, the relationship
concept has been adopted in a range of industries
beyond financial services, and extended to other
customer groups including retail customers. The
benefits of relationship marketing are sung by many
marketing academicians and practitioners.
Relationship banking is described as the antithesis of
“transaction banking”. The objective is to increase
long-term profits by maintaining and enhancing
client relationships. It was being examined that the
expected benefits of relationship banking have
remained largely unrealized. It was being concluded
that further work is needed to overcome the
significant impediments to successful
implementation of relationship banking.
Mark Colgate, Nicholas Alexander, 1998, suggested
that Relationship marketing within the banking
industry is becoming increasingly important. In
particular, competition is driving banks to look at
forms of defensive marketing rather than offensive
marketing strategies. Maintaining and enhancing
relationships with personal customers is one way
banks have sought to use defensive marketing and
increase customer retention. However, at the same
time that banks are looking to create more effective
and efficient relationships with their customers,
competitors from outside the industry are seeking to
establish their own financial service relationships
with these customers. The study has used the
relationship marketing paradigm to examine the
changing bank-customer-retailer interface. In
particular the database and interaction marketing
types of relationship marketing were used to
analyze the customer/organization developments
in this area while network marketing was used at the
business-to-business level of analysis. Importantly,
it was highlighted that research has discovered that
customers do have, and value, relationships with
their banks.
4
SURVEY OF BANK CUSTOMERS
Bank of India
The data collected through a well structured
questionnaire, comprised several dimensions of
Relationship Marketing, were analysed (using SPSS
Software), to test various hypothesis of the study.
For this T-Test for Equality of Means & Levene's Test
for Equality Of Variances (F-Test) was used.
PRIVATE SECTOR BANKS
(Including Foreign Banks)
ICICI Bank Ltd.
HDFC Bank Ltd.
UTI Bank Ltd. (Now AXIS BANK)
Standard Chartered Bank Citibank N.A..
RELIABILITY ANALYSIS - SCALE (ALPHA)
QUESTIONNAIRE DEVELOPMENT
The questionnaire was based upon several
dimensions/antecedents of relationship marketing
and these dimensions were adaptation of the few of
the dimensions/antecedents used to measure
Relationship Marketing Application that were
thoroughly examined through the literature review
and probed how customers perceive/ feel about its
implementation in their respective banks.
For the execution of the Bank Customers Survey, the
questionnaire was framed on following dimensionsTRUST
BONDING
COMMUNICATION SATISFACTION
EMPATHY RECIPROCITY CULTURE
SAMPLE PROFILE
The study has been conducted in Delhi, Capital of
India limited to 05 Private Sector Banks & 05 Public
Sector Banks. This study was confined to retail
banking as it constitutes a major portion of banking
business.
The sample under study comprises of Bank'
Customers. For selecting banks “Judgment
Sampling” was used and O5 Banks each from
Private & Public Sector. The top 05 banks (Public &
Private Sector) were chosen on the basis of their
Assets & Deposits value as given in the Reserve
Bank of India Report 2005. The survey was
executed in 2006-07 and findings analysis was
carried out in Oct/Nov 2007.
SAMPLE SIZE: 200 Bank Customers of Private
Banks & 200 Bank Customers of Public Banks under
study
PUBLIC SECTOR BANKS
State Bank of India
Canara Bank
Punjab National Bank
Bank of Baroda
Reliability
Coefficients
N of Cases = 400.0
N of Items = 30
Alpha = 0.8685
As alpha was more than 0.7, the scale constructed
was found to be reliable
SURVEY RESULTS
After analyzing the data generated by administering
survey of bank managers, it was observed that, out
of 08 hypotheses formulated, only 01 hypothesis was
accepted after making use of statistical methods to
test the hypothesis. Following is the summary of
hypothesis testing results from survey of bank
customers. [ Table B ]
1) TRUST : This analysis aimed at testing the
following hypothesisHypothesis No-1 : There is no significant
difference with respect to Trust dimension of
Relationship Marketing in Public & Private
Sector Banks from the view point of their
Customers. After using statistical tests, it was
found that Hypothesis No-1 was Rejected and
hence, we can infer that, there is a significant
difference with respect to Trust dimension of
Sector Banks from the view point of Customers
2) BONDING : This analysis aimed at testing the
difference with respect to Bonding dimension of
Sector Banks. After using statistical tests, it was
found that Hypothesis No-2 was Rejected
3) COMMUNICATION
Hypothesis No-3 : There is no significant
difference with respect to Communication
dimension of Relationship Marketing in Public
& Private Sector Banks . After using statistical
tests, it was found that Hypothesis No-3 was
Accepted and hence, we can infer that, there is
no significant difference with respect to
Communication dimension of Relationship
Marketing in Public & Private Sector Banks from
the view point of Customers
4) EMPATHY : This analysis aimed at testing the
difference with respect to Empathy dimension
of Relationship Marketing in Public & Private
found that this hypothesis was Rejected
5) RECIPROCITY
Hypothesis No-5 : There is no significant
difference with respect to Reciprocity
dimension of Relationship Marketing in Public
& Private Sector Banks. After using statistical
tests, it was found that this hypothesis was
Rejected
6) CULTURE : This analysis aimed at testing the
difference with respect to Culture dimension of
found that Hypothesis No-6 was Rejected
7) CUSTOMER SATISFACTION
Hypothesis No- 7 : Customer's Satisfaction in
both Private & Public Sector banks is same.
After using statistical tests, it was found that
Hypothesis No-7 was Rejected and hence, we
can infer that, there is a significant difference
with respect to Customer's Satisfaction in Public
& Private Sector Banks.
OVERALL RELATIONSHIP MARKETING
APPLICATION (ALL DIMENSIONS)
FINAL HYPOTHESIS No- 8 : There is no
significant difference in relationship marketing
5
orientation of private sector banks and public
sector banks from the view point of Customers.
RESULTS : The analysis of table clearly reveals that
there exist a wide perceptual difference among the
customers of Public Sector Bank and Private Sector
Banks regarding the application of Relationship
Marketing philosophy in the banks. There is a high
mean difference among the perception of customers
of both the categories of banks under study as mean
of Customers of Public Sector Banks is 100.9550,
and that of Private Sector Bank Customer is
152.625. The gap is very high depicting that the
public sector banks are quite ineffective with respect
to implementing Relationship Marketing
Philosophy completely which has lead to the great
deal of dissatisfaction among its customers.
Levene's Test for Equality of Variances indicates
that the variances for the customers of private &
public sector banks also differ SIGNIFICANTLY
from each other at p<0.05, p=0.00[F value]
Moreover the independent sample “t test analysis”
clearly indicates that the means of Customer of
Private Sector Banks & Public Sector Banks differ
very
SIGNIFICANTLY At p<0.05, p=0.00. [t value]
On the whole the gap of perceptions among the
customers of Private & Public Sector Banks is quite
wide with respect to the Relationship Marketing
Implementation with a mean difference of massive
51.67{Table D}, suggesting that Public Sector Banks
have to go a long way towards effective
implementation of Relationship Marketing.
The analysis clearly indicated that the Customers of
Public Sector & Private Sector Banks are of the
opinion that there is difference with respect to the
application/ presence of Relationship Marketing
Approach in the banks under study. Clearly the
relationship marketing approach is not effectively
administered in public sector banks and is quite
evident from a very poor mean score (Table C).
On the whole, Public Sector Banks need to work very
hard to administer Relationship Marketing
Approach. The poor implementation of Relationship
Marketing Approach in these banks also revealed
poor customer satisfaction, poor culture, less score
on reciprocity & empathy dimension
6
BARRIERS TO THE EFFECTIVE
IMPLEMENTATION OF RELATIONSHIP
MARKETING
Clearly, if a bank cannot consistently satisfy
customers' expectations better than the competition,
other aspects of a relationship-building program are
likely to accomplish little. lack of commitment on
both sides. Few of the barriers to the implementation
of relationship marketing are
•
lack of will to accommodate the other party;
•
mutual trust is missing;
•
lack of mutual respect;
•
lack of emotional bonding;
•
poor communications;
•
poor customer service
•
ineffective management support
•
hostility and lack of support, resources and
skills;
•
lack of knowledge and marketing skills;
•
overemphasis on sales
•
indifferent attitude towards customer
•
narrow view of the external environment;
•
poor and inadequate marketing intelligence;
•
little internal sharing of marketing intelligence;
•
inadequate understanding and support from
senior management;
The study into the relationship marketing
implementation in Indian Banking Sector also
identified managerial, human resource, cultural,
comprehension, communication, strategic,
resource and operational forces impeding the
process of relationship marketing, its up-take and
the viability of the implementation of its resulting
recommendations.
b.
Political dynamics
c.
Organizational structuresd. Reward systems
e.
Lack of leadership and executive involvement
f.
Misinterpretation that technology is the
solution
g.
Lack of knowledge and training
h.
Process planning
i.
Inadequate or no change management
methodologies
j.
Weak flow-through after technology
implementation
The above issues tell us that senior leadership makes
tradeoffs with critical resources when determining
what levels of customer relationship they can afford
to sustain. They advocate a core group of analytical
experts that can drive the customer analysis and
establish business rules. Integrators can work across
organizational boundaries. Cross-functional teams
support rapid deployment strategies. Analytics and
customer relationships must be everyone's top-ofmind. Appropriate R.M skill sets must be evaluated
and respective training made available. R.M efforts
must be quantified and measured. Marketing and
technology must be interlinked from a strategic
position.
One Relationship Marketing (R.M) key success
factor is human resources. Too often employees are
asked to take on a R.M initiative in addition to other
activities. Their roles should be redefined. Training
is critical from both a business and technical
perspective. Sometimes people are trained in how to
use a relationship marketing enabling tool well in
advance of its implementation. This is usually a
result of delays. By the time the enabling technology
is available, people have lost their knowledge as well
as momentum, requiring retraining.
Based upon the review of literature and the text
available, few suggestions were being referred to
for the effective implementation of Relationship
Marketing (R.M). The following issues need to be
addressed before the banks implement relationship
marketing approach
The organization must practice relationship
marketing with their own employees first. Failure to
have organization's own members practice
relationship marketing with each other, for example,
as internal customers, is almost certainly an
indication of what will happen when an attempt is
made to practice this methodology with its external
customers.
a.
Relationship Marketing (R.M), helps sustain their
SUGGESTIONS
Internal communications
leadership position as long as they continue to invest
in new ideas. This mode of operation requires
resources, human and financial. The organization
must ensure that it has employees trained in state-ofthe art marketing and technology methodologies.
Risks in testing and implementing these new
methods and impact on the customer relationships
must be assessed. The businesses have a common
problem. Their customer relationships are very
successful and that very success created a bond with
the customer, a bond that the customer held onto so
dearly that any change in the interaction could lead
to dissatisfaction and ultimately a lost customer.
This is a dilemma with no easy solutions.
Organizations must achieve a realistic and workable
balance between customer relationships and their
human resource capacity.
Cooperation across the company is critical. So the
question is how difficult is it to implement and
maintain a R.M mindset within the organization
culture. Organization structures have a certain level
of bureaucracy in order to operate successfully. The
people working within, such as the employees, and
with, such as value chain members, have learned
how to behave and operate within the structure, are
most likely comfortable with it, and being human
beings will have varying levels of resistance to
change. For all intents and purposes it is probably
the right structure for the respective business.
CONCLUSION
Firms wishing to pursue relationship marketing
seriously must redesign and decentralize the
organization. This gives line managers the chance to
respond to customer issues. Firms may have to move
from processing customers in groups to serving
individual needs. Other changes in policies and
procedures to improve the way in which customer
needs are addressed may also be needed. Human
resource policies should focus on encouraging
employees to build relationships. Employees should
be encouraged to consider the long-term effects of
how they treat customers, rather than viewing the
customer as a one-time buyer. Salespeople, in
particular, play a key role in developing customer
service that leads to loyalty.
7
A firm cannot, however, simply tell its employees
that customer service is the goal. The organizational
culture has to support a customer-centred approach.
Top management must be customer-focused and
convey that attitude to employees. They, in turn,
must be trained in customer service. Firms can offer
incentives to encourage good service, but they must
also empower employees to address customer
concerns. This will not only help to improve
customer service, but also make employees more
satisfied with their work.
Companies need to have a customer service system
that not only responds to customer complaints, but
also encourages consumers to complain. A service
quality information system enables managers to
hear and understand consumer complaints, track
performance, reward good service and determine
what is important to customers.
There seems to be widespread agreement that longterm business success depends on organizations'
abilities to build positive relationships with their
customers. However, as
there are numerous
objectives available for specifying one's definition of
“relationship-building” and myriad potential
practices from which service firms can choose and
blend to customize unique customer relationshipbuilding programs for their firms. In much the same
way as a generic marketing mix cannot be justified
for all firms, it would be inappropriate to
recommend a single recipe or “cement mix” for
service organizations to cement relationships with
their customers.
For Relationship Marketing to be more effective in
the future, we may have to change organizational
structure and attitude of managers to ensure that
customers are properly served.. We need to take
that thinking further to consider how the
organization reacts more sensitively to those parts of
the company that serve customers. These touch
points will require more corporate visibility, better
technology, and more say in how relationships are
developed. The organizations that accept change
and use Relationship Marketing diligently will
develop competitive advantages and will be able to
evoke customer's loyalty.
8
BIBLIOGRAPHY
Berry, L.L., Parasuraman, A., 1991, Marketing Services Competing through Quality, The Free Press, New York, NY.
Berry, L.L., Parasuraman, A., "Building a new academic field - the
case of services marketing", Journal of Retailing, 69, 1, 1993, 13-60.
Christopher, M., Payne, A., Ballantyne, D. (1991), Relationship
Marketing, Butterworth-Heinemann, Oxford, .
Grönroos, C. (1994b), "From marketing mix to relationship
marketing: towards a paradigm shift in marketing", Management
Decision, Vol. 32 No.2, pp.4-20.
Jain Rajnish, Jain Sangita & Upindar Dhar, Journal of Service
Research, Vol 2, No 2, Oct 02- Mar 03,
Levitt, T. (1975), "Marketing myopia", Harvard Business Review,
September-October, pp.26-38.
Lindgreen, Adam (2001), A framework for studying relationship
marketing dyads, Qualitative Market Research: An
InternationalJournal, Volume 4 Number 2 2001 pp. 75-88
Mark Colgate, Nicholas Alexander,(1998), “Banks, retailers and
their customers: a relationship marketing perspective”,
International Journal of Bank Marketing, Volume 16 Number 4
1998 pp. 144-152
Mittal, Anuraag, (2006), “Relationship Marketing- Evolution of
Revolution”, Synthesis, Vol 3, No 3, July-Dec 2006, pp. 63-70
Mittal Anuraag(2008)“Relationship Marketing- a bridge through
troubled waters””, Review of Professional Management Jan June
2008, Vol 6, Issue 1, Delhi.
Morris, M.H., Brunyee, J., Page, M.,, “Relationship Marketing in
Practice”, Industrial Marketing Management, Vol 27, No 4, July
1998, pp 359-371
Peppers, D., Rogers, M. (2000), "Build a one-to-one learning
relationship with your customers", Interactive Marketing, Vol. 1
No.3, pp.243-50.
Reichheld, F.E., Sasser, Jr, W.E., "Zero Defections: Quality Comes
to Service", Harvard Business Review, 68, September-October,
1990, 105-11.
Rich, Michael K.(2000), The direction of marketing relationships,
The Journal of Business & Industrial Marketing ,Volume 15
Number 2/3 2000 pp. 170-191
Rosen, E.D, Surprenant, C, 1998, "Evaluating relationships: are
satisfaction and quality enough?", International Journal of Service
Industry Management, 9, 2, 103-25.
Shaneesh,G.& Mohan,R. (2001),” Status of customer relationship
in India,” in Customer Relationship Management- emerging
concepts, tools and application (Sheth, J.N. et. al , ed ) Tata Mc
Graw Hill, pp 349-58.
Sheedy, Elizabeth(1997) , Marketing derivatives: a question of
trust, International Journal of Bank Marketing, Volume 15
Number 1 1997 pp. 22-31
Sheth, J.N., Parvatiyar, A. (1995), "The evolution of relationship
marketing", International Business Review, Vol. 4 No.4, pp.397418.
9
IMPACT OF GLOBALIZATION ON SMES
Ashish Bhatnagar *
Today, globalisation is a major driver that has an impact on nearly every economy. No country can any longer rely exclusively on its
local resources, capacities and capabilities to steer its economic growth. Globalization is leading to the structural transformation of the
firms and nations, and is creating new relationships and new dependencies.
It is an ongoing process that presents opportunities; as well as risks and challenges for the Small and Medium-sized Enterprises SME's
which, although, account for a high proportion of employment in and exports from all countries across the world, are already very
limited in resources.
A major strength for many SME's is their close customer contact and their ability to maintain close customer relationships. However, in
the prevailing business environment even smaller and locally oriented businesses have to see themselves in a global context.
All SME's need to address certain key issues regarding cooperation with international partners and how it can benefit them.
The first section of the paper tries to look into what globalization is. Then we try to analyze the major drivers and consequences of
globalization. what are the major in the light of major constraints faced by SME's and how far this internationalization would help in
addressing their problems.
GLOBALIZATION
Today, globalisation is a major driver that has an
impact on nearly every economy. No country can
any longer rely exclusively on its local resources,
capacities and capabilities to steer its economic
growth. There is a profound need to integrate its
economy with the global economy. It has been the
growth in the world's capacity to innovate new
goods and services, which has provided the main
engine of economic progress. These developments
have been mainly market driven, but the extent to
which they have been translated into welfare
enhancing goods and services has been influenced
by the actions of national governments. As
technological advances continue to push the limits of
growth, firms are forced to look overseas for their
inputs and markets.
The world today is indeed a very different place to
the one into which most of us were born. The
hegemony of UK in the 19th century and the US in
the 20th century has been replaced by a triarchy of
economic power comprising the US, Japan and
European Union. Issues to do with the quality of life
and the structure of governance are in the process of
*
a radical rethinking. It is not just competitiveness
and development which has risen to the top of the
political agenda, but sustainable competitiveness
and development. Anthony McGrew, in a jointly
edited book, writes
“Globalization refers to the multiplicity of linkages
and interconnections between the states and
societies which make up the present world system. It
describes the process by which events, decisions,
and activities in one part of the world come to have
significant consequences for individuals and
communities in quite distant parts of the globe. On
the one hand, it defines a set of processes which
embrace most of the globe or which operate
worldwide; the concept therefore has a spatial
connotation. …On the other hand it also implies
intensification on the levels of interaction,
interconnectedness or interdependence between the
states and societies which constitute the world
community.” (p 23)1
The term 'globalization' became fashionable when it
began to replace words like 'internationalization'
and 'transnationalization' as a suitable term to
denote the ever intensifying networks of cross
(Assistant Professor) DCET Business School, IISE Campus, LUCKNOW
10
border interaction in all domains of human activity:
social, political, cultural, financial and economic.
Globalization is leading to the structural
transformation of the firms and nations, and is
creating new relationships and new dependencies.
The main causes of globalization are well-known.
The first is the pressure on firms- by consumers and
competitors alike- to continually innovate new
products and upgrade the quality and/or reduce the
price of existing goods and services. At the same
time, the escalating costs of research and
development, coupled with ever shortening product
life cycles are compelling firms both to search for
wider markets. The second cause of globalizationwhich in many ways is better described as a removal
of an obstacle- is the renaissance of market
supporting policies pursued by national
governments, and the growth of market led regional
integration.2
Since the mid-1970s, the fastest-growing countries
have been those that have managed to industrialize
by developing a competitive advantage in
manufactured exports to the point where industrial
exports have become the engine of growth. The main
reasons for the growing importance of international
competitiveness are technological. The rapid pace of
innovation
and the resulting promise of
productivity increase makes it more costly to
insulate economies from international trade and
investment. Since new technologies benefit all
activities, traded and non-traded, rapid access to
such technologies in the form of new products,
equipment and knowledge becomes vital for
national welfare. Insulation from global markets and
technologies is no longer a viable option for any
developing country.
Globalization refers also to the increasing mobility of
ideas, information flows and consumer tastes. It is
the corporate business response to the changed and
changing international business environment. The
process has its roots in four key developments, the
first two of which are arguably the most important:
•
Policy changes in the world economy,
specifically the liberalization of trade and
capital flows, the deregulation of markets, and
privatization, which has opened up new
investment opportunities in most countries;
•
Accelerating technological progress that has
changed the rules of the game for both Trans
National Corporations (TNCs) and for host
developing countries and enterprises in these
countries;
•
New organizational structures within
companies, in part made feasible by
technological advances in the information and
communications industries; and
•
The shift of economic power from the north and
west to the developing countries, especially in
Asia - a result, as much as a cause, of
globalization.
MAJOR DRIVERS OF GLOBALIZATION
Globalization implies an evolving pattern of crossborder activities of firms involving international
investment, trade and cooperation for purposes of
product development, production and sourcing,
and marketing. The main driving force behind
globalization strategies of firms is no different from
that which drives international trade. Firms seek to
maximize profits, given the constraints they face.
Changing or vanishing constraints imply new profit
opportunities and thus require new strategies of
firms. In a way, globalization is nothing more than
the entrepreneurial response to a changing
environment, while the prime motive of firm
behaviour - constrained profit maximization remains unchanged. One of the most important
reasons for globalization is that large parts of the
world have become industrialized since the Second
World War. Many Developing Countries (DCs),
especially in East and South-East Asia, have
attained, or are about to attain, the status of an
industrialized country. This successful catching-up
has increased the number of suppliers on world
markets. Global production capacities and
international competition have increased, and so
have the opportunities to exploit market niches. This
process will gain momentum once the large markets
of the People's Republic of China, India and Central
and Eastern Europe, which represent roughly one
half of the world's population, are fully integrated
into the world economy. Put differently, the
constraint of market size, which may have hindered
globalization strategies in the past, has become less
relevant and probably no longer applies at all. At the
same time, other constraints that prevented firms
from implementing globalization strategies have
disappeared. Thanks to the micro-electronics
revolution, communication technologies have
undergone a dramatic change during the last
decade, and new production and organization
technologies such as CAD (computer-aided design)
and CIM (computer-integrated manufacturing)
have evolved. Successive GATT rounds have
substantially reduced tariff barriers to trade, and
capital markets have also been liberalized, especially
during the 1980s. Many business services have
become internationally tradable. As transaction and
communication costs fall, the proximity between
sellers and buyers, which has traditionally been
considered to be essential for many services, figures
less prominently. Most important in this regard is
that financial capital has gone global. The
deregulation of other business services such as
banking and insurance also offers new opportunities
for the tradability of services. Hence, standardized
business services have become available around the
world, which, in turn, has made the international
fragmentation of production feasible. As a
consequence of all this, not only the constraints on
firms, but also on governments have completely
changed.
THE CONSEQUENCES OF GLOBALIZATION
In an increasingly borderless world, where
competitiveness is driven by liberalization and
technological progress, developing countries face
serious threats as well as potential opportunities.
The era of globalization is described as “one of
unprecedented opportunity” for developing
countries, while their successful industrialization is
one of the major reasons for globalization. For
developing countries, globalization comprises both
the participation of local enterprises in international
production of goods and services and increased
exports of goods and services by domestic exportoriented firms to global markets. Unfortunately,
however, there are down-sides to globalization.
There is, in John Naisbitt's words, “a global
paradox” 3 . The most immediate and visible
consequences of the down-side- which all countries
of the world are currently experiencing is, the
increase in unemployment as new generic
11
technologies substitute capital for labour,
competitive pressures, and the introduction of more
market oriented policies. While, innovation-led
production system offers more purposeful,
responsible, and rewarding job opportunities for
those in work; it does not, in itself, help reduce
unemployment-at least not in the short run. This is
because the new system requires a different mix of
labour skills than of the one it is replacing, and to
match these needs, not only do labour markets need
to be more flexible, but quite huge retraining
programmes are needed. Rapidly rising wages, even
under labour surplus conditions, are forcing
management to move up the technology ladder in
search of increased productivity to justify new
investment and retain competitiveness.
If global economic interdependence offers the
prospects of higher productivity and living
standards, it also more closely links national
economies to exogenous financial and other
disturbances. Economic disturbances originating in
any one of the five or six economies are now
electronically and instantaneously transmitted
across the globe, with possibly devastating effects on
nations which may have had nothing to do with the
causes of the shocks.4
If a globalizing economy may lead to greater
economic instability, it may also have unacceptable
implications for national security, social dumping,
environmental erosion, the spread of epidemics,
drug abuse, terrorism and ethnic violence. Bad news
travels just as fast as good news; and crime, disease
and war know fewer territorial boundaries than
once they did.
While the forces of globalisation are leading to
convergence of the spending habits of the world's
consumers, they are also exposing substantial
differences in the way people think and behave.
Indeed, not all countries welcome the effects of
globalisation, as they fear it may erode their
traditional life styles. On the one hand the
universality of such goods as the motor car, the
television set, the Sony music system, Coca Cola,
jeans and pop-music are leading to cultural
convergence. On the other, most people want to
remain loyal to their distinctive customs and
institutions.
12
THE SMALL AND MEDIUM ENTERPRISES
(SME) SECTOR
It has been universally recognized, that SMEs have
become an indispensable segment of every economy
and have been playing an enviable role in generating
new employment, notwithstanding the level of
economic development of a nation. Besides, they
have been contributing substantially to the
manufacturing sector's output and its exports. In
most developing and under-developed countries,
SMEs virtually constitute the entire industrial base.
Of late, SMEs have also emerged as dominant
players in the service sector.
Countries do not use the same definition for
classifying their SME sector. However, the three
parameters generally applied by most countries,
singly or in combination are:
•
Capital investment on plant and machinery.
•
Number of workers employed.
•
Volume of production or turnover of business.
Although, there are no universal quantitative norms
of defining an SME, they can be clearly identified in
any developed or developing country and the
factors setting them apart may be qualitative and
comparative5.
Most SMEs are one-person shows or are run by two
or three individuals, usually relatives, friends or
business partners, who take most of the decisions.
There is usually no distinction between private and
business assets, and subjective and personal factors
play a large role in decision-making. The personal
stakes SME entrepreneurs have in their businesses
are much higher than those of corporate executives
in their companies. This enhances the risk and
commits entrepreneurs even more strongly to the
success of their ventures.
The comparative factors have to do with the way
SMEs are situated vis-à-vis large enterprises in the
corporate sector. They are small and medium-sized
in comparison with the large corporate entities with
which they share a given economic space. SMEs
therefore come in varying sizes and SMEs in one
country may well be larger than the “big” companies
in another. The interesting feature is that,
notwithstanding their absolute sizes, the problems
confronting SMEs appear to be similar in most
countries whether developing or developed.
GLOBALISATION AND THE ROLE OF SMES
IN DEVELOPMENT (THE CHALLENGE)
Generally, SMEs are considered the engine of
economic growth in most Asian economies by their
sheer number and by virtue of their significant
contributions to employment generation, value
added and foreign exchange earnings and savings,
as well as other economic and social contributions.
Hence, the search for national competitiveness and
promotion of SMEs are not a dichotomy, but a
necessary complement.
Many Asia-Pacific countries consider SMEs,
comprising about 95 per cent of all establishments, as
the backbone of their economies and recognize their
important role in socio-economic development.
SMEs are perceived as key players in: a) ensuring
market economy with competition in the market, b)
modernizing industrial structure to penetrate new
markets, c) contributing to the improvement of
balance of payment, d) contributing to socio
economic development of the regions, and e)
creating job opportunities.
SMEs are also promoted as they contribute in the
building up of a middle class group in society,
otherwise known as the missing middle and in
helping to distribute income equitably. They are a
source of innovation and a breeding ground for
entrepreneurs and technopreneurs.
Globalization is the extraordinary explosion of both
technology and information, in ways that have
considerably reduced the twin concepts of time and
space. It refers to global economic integration of
many formerly national economies into one global
economy, mainly by free trade and free capital
mobility propelled by Information and
Communication Technology6.
SMEs are deeply affected by the globalization of the
markets. Globalization has rapidly gained
momentum as a result of certain factors. They are:
•
Rapid technological advances in accessing and
disseminating information have resulted in
reduction of costs and complexities of going
global. The world markets are now open to new
products and services, and the SMEs which
•
•
13
were earlier limited by cost considerations, are
open to export opportunities.
•
Lack of expertise to forge cooperation among
SMEs of different countries.
The protective tariff and non-tariff barriers,
which separated domestic markets from
international markets, are slowly coming down.
This has given the SMEs an option to either
operate in the protective domestic environment
or accept the challenge of facing competition in
the international arena.
•
Problems related to transition such as rigid
mind-set, resistance to change both at
administrative and enterprise levels, etc.
Efficient international division of labour has
now become a necessity leading to outsourcing,
sub-contracting and other cooperative efforts.
It is becoming increasingly necessary for the SMEs to
be internationally competitive in order to function
effectively even in the domestic markets. In a
dynamic environment marked by fast technological
changes, achieving and retaining a competitive edge
are both a necessity and a challenge.
Competitiveness is the key to success and sustained
growth in global operations7.
The SME segment has its strengths and weakness
and therefore created a niche for itself by it's unique
positioning in terms of offering value added services
and being flexible and yet cost effective. Being a
small setup, the decision making process is quicker
and services and products offered are more
customizable. Accessibility is easier and
responsibilities are easily allocated on the hierarchy.
The entrepreneur is ideally the sole decision maker
or at the most a small group of people who reach a
consensus relatively easily. The committee approach
is avoided and the lag time between getting an offer
on business opportunities and grabbing the offer is
kept at a minimum. The cost of operations is lower,
overheads are controlled and therefore the end
product / service is highly price competitive.
When it comes to the question of improving the
competitive strength of their SME sector, the
developing countries, despite realizing the need and
urgency to do so, are constrained to extend the
required kind of support to them because of their
own limitations, some of which could be grouped as
under:
•
Financial limitations
•
Lack of necessary infrastructure
•
Lack of know-how and expertise
A study conducted by the International Trade
Centre (ITC) has shown that the major constraints
faced by SMEs continue to be in the critical areas of
access to finance, technology and markets8. On the
financial front, affordability, accessibility and
timeliness of short-term and export credit are the
major constraints. SMEs have limited access to
capital markets, due to owner-preferences and
minimum requirements of capital markets. Hence,
they rely heavily on bank loans and the often
limitedfinancial means of their owners. In addition,
Hauser (2000) notices, that, although smaller
companies tend to have a higher turnover yield,
larger corporations are in a better position to cover
temporary losses. They normally have much higher
financial and non-operational incomes and a better
equity capitalization. As a result, SMEs tend to have
more difficulties to finance investments or Research
& Development (R&D) projects9.
The relatively small size of SMEs often leads to
disadvantages in economies of scale. Hauser (2000)
points out that this small size leads to the SMEs
greatest strengths their ability to offer customized
and specialized goods and services on the one hand
and on the other; it implies that many SMEs cannot
make use of cost advantages in mass production.
Furthermore, some types of costs are not variable in
relationship with company size. Examples are
devices for environmental protection (e.g. gas
cleaning equipment), which are often underutilized in smaller companies, or R&D costs. R&D as
the basis for SMEs' strength in innovation and
flexibility has to be undertaken on a certain
minimum scale in order to lead to results. As a result
of lower sales and costs, which cannot be further
reduced, SMEs often incur a higher proportion of
fixed costs compared to larger corporations.
SMEs require facilitation in making the right choice
of technology, as well as in locating and acquiring
technology suited to their specific needs and open to
periodic upgrading. Underdeveloped testing
facilities, poor national certification and quality
14
counselling infrastructure and poor quality
commitment of SMEs hinder the entrance of these
companies to internationalization. SMEs are often
poorly placed to deal with technical change and
upgrading. Not only do they lack the information
and resources to access new technologies and skills,
they often do not know how weak they are. They
may be unaware of competing technologies in other
countries. They may not realize the nature of new
skills and techniques needed to keep up. The
problem is much greater for SMEs in the traditional
and rural sectors of developing countries.
Another major constraint faced by SMEs is lack of
entrepreneurial, management and marketing skills.
While most owner-managers and start-up
entrepreneurs are experts in their products and
services, often the lack of managerial skills, hinder
their long-term success.
Small enterprises need a wide range of information
from issues like how to establish own small
company, laws and regulations governing them,
taxation, custom regulations, business advisory
services, training opportunities, financing sources,
local and central tenders, and many others. In many
cases only part of this information needed by
entrepreneurs are available in an orderly form, and
access to this information is difficult and expensive.
Compared to larger enterprises SMEs are also at a
strong competitive disadvantage when complying
with administrative regulations and bureaucracy.
Special constraints are in connection with regulation
on establishment of a company, licensing, taxation
and control of central and local governments.
In analyzing national competitiveness with
reference to SMEs, we can refer to the classic work of
Michael Porter (Competitive Advantage of Nations,
1990). He formulated his “diamond” of four
conditions which affect SMEs and countries,
namely: (a) factor conditions, (b) firm strategy and
structure, and (c) related and supporting industries.
The resource-based and labor-intensive nature of
majority of SMEs in many developing Asian
countries is consistent with the structure of their
comparative advantage. In principle, firms in the
provinces should have an advantage over firms in
the urban areas because of their access to natural
resources and cheap labor pool. However, Porter
suggests that firms employing natural resources
may lack incentives to improve product quality and
to innovate in order to be competitive. Therefore,
they are not well equipped to function within a
dynamic environment. SMEs lack the human
resources, financial resources, knowledge, and
infrastructure available to large enterprises.
In terms of firm strategy and structure, SMEs are at a
disadvantage because of the characteristics of the
entrepreneurs and management. Because of
shortcomings caused by low levels of education,
management by experience, family-type business,
domestic market orientation, and lack of
commitment to improve product quality and
productivity, the development of SMEs has rather
been retarded in several Asian countries.
However, since the new generation of entrepreneurs
is better educated, these conditions are changing.
The new breed of entrepreneurs, including second
generation entrepreneurs, is beginning to operate
their businesses using modern management
techniques.
Related and supporting industries are typically
SMEs. The effect of the crisis on SMEs depends on
the extent of existing backward and forward
linkages with larger companies and foreign
investors. Because linkages are strong with their
mother (contracting) firms in terms of derived
demand, the economic welfare of SME supporting
industries is dependent on the situation of large
enterprises.
On the whole, there are advantages and
disadvantages for the supporting industries. On the
positive side, consolidation and upgrading in the
supporting industries will occur and the more viable
and competitive ones will emerge.
SMEs face a shortage of professional management
capability to improve their efficiency and the quality
of products to meet internationally accepted
standards. Porter advocated that assistance be
provided in terms of long-term capital supply and
low-interest loans, which would help and motivate
SMEs to move and gain a cost advantage by
modifying production processes and relocating
factories, where labor costs are still cheap. As for
long-term planning, he encouraged a larger ratio of
SME run by technical entrepreneurs, or
technopreneurs. Along this line, he commented that
at present educational institutes are places for
teaching, not for learning.
EMERGING ROLES AND POLICIES FOR
SME DEVELOPMENT (THE ROAD AHEAD)
Policy measures in the twenty first century should
include the removal of remaining policy biases
against SMEs in the trade and investment programs
as well as handicaps imposed by the smallness of
their business operation as against large enterprises.
SME development policy should have a new
dimension as SMEs become integrated into the
global economy and have to be part of the quest for
international competitiveness.
Government's role in promoting SMEs will require
some paradigm shift as a desirable response to, and
in anticipation of changes in the national and
international environments. Some of these
environmental consideration include demands for
increasing industry productivity, enhancing
competitiveness locally and internationally; shifting
comparative advantages, technology development
in hardware and software; technology management,
shift from resource and skilled-incentive industries
to knowledge-based industries, reduced
government budget for personnel, and the
implementation of various regional and multilateral trade agreements, etc. Among these
paradigm shifts are:
a. Self-Reliant Policy
Government assistance policies to SMEs will be
characterized by the following principles: (a)
help SMEs to help themselves, (b) extend
assistance, not protection to SMEs, (c) integrate
SMEs in overall economic development, and (d)
maintain a pro-business environment.
b. Stronger Private Sector Empowerment
The private sector, especially membership
organizations like industry associations,
chambers and other interest groups, is
becoming assertive in its advocacy role. They
will require greater role in policy deliberations
and decision making in matters that affect them.
This means that there will be more public-
15
private sector partnerships in government SME
development councils and promotional bodies
as well as joint sponsorship of activities. This
includes empowering membership
organizations to self-regulate their ranks and to
perform regulatory functions usually done by
government at present such as registration and
certification schemes. This trend is also
consistent with government's de-regulation,
outsourcing and decentralization efforts.
c. Private and Non-Governmental
Business Development Services (BDS)
While more SMEs demand better, more efficient,
and timely delivery of services, governments'
ability to achieve greater and wider access of
BDS will be hampered due to plans for leaner
but more effective government machinery.
Governments will surrender some of their
traditional role of providing a wide gamut of
BDS to the private sector.
In the face of reduced personnel, governments
will stop being a supermarket and one-stop
facility for various services, but rather will
become 'godfathers' or sponsors in institution
building and strengthening of private and nongovernmental organizations (NGOs) rendering
BDS. They will facilitate and support the rise of
private and non-governmental business
development services to provide assistance in
management, marketing, technology, finance,
etc.
Governments will also tend to outsource from
the private sector, subcontract services, and
even enter into selective schemes such as
concessions, joint ventures, management
contracts, leasing contracts, and turnkey
projects. This also includes subsidizing services,
at least temporarily, rendered by the private
sector to assist SMEs and implementing grants
scheme such as voucher system and funds
subsidy to stimulate market demand for BDS by
both SME clients and service providers.
d. I n f o r m a t i o n - T e c h n o l o g y D r i v e n
Assistance
Following the wave of information revolution,
16
governments will give emphasis in investing in
information technology infrastructure to raise
the technological and competitive
consciousness of industries and to provide
entrepreneurs with greater access to
opportunities in the domestic and world
markets. It will promote greater use of computer
applications, e-commerce, virtual enterprises,
etc. This thrust will also involve educational
institutions to prepare the students for skills
demanded by the private industry for the 21st
millennium, to produce more local talents in
information technology, and to develop
innovative technologies.
e. Greater Linkage between SMEs and
Large Enterprises
Governments will continue to give greater
emphasis in stimulating greater linkage
between SMEs and large enterprises through
various incentives and services. The direction
will go beyond promotion of existing
subcontracting arrangements and foster
relationship, business matching or need-seed
information exchange. It will move in the
direction of mentoring and incubation system
wherein BDS providers, whether government,
private consulting firms, or large enterprises,
will systematically coach and guide the start-up,
growth, management and technological
upgrading of selected SMEs.
f. Industry Cluster Approach
To achieve positive synergies in quantity and
quality of assistance, governments will move
towards promoting market-driven industry
clusters and networks. Important clusters may
be selected based on geographical
concentration, sectoral specialization, ancillary
relationships, value added as well as suppliervendor value chain contributions. Collective
growth approaches have been proven to help
SMEs in lowering transaction cost, facilitating
mutual learning, sharing best practices and
facilities, as well as in enhancing the beneficiary
industry's domestic and international
competitiveness.
Characterized by high connectivity, industry
clusters have also been known to effect
innovations in production and processes,
product designs, packaging, purchasing, and
distribution.
The impact of globalization and liberalization
can be perceived from two viewpoints. It can
open new opportunities for SMEs in developing
countries to acquire technology from abroad
and that increased competitiveness in
technology markets has made technologies
cheaper and more accessible. This may indeed in
some industries and sectors, while in others
technology remains costly and access is still
difficult for SMEs in the developing world.
Acquiring technologies and the technological
capacities needed to master technologies
involve time, effort, cost and risk, and complex
interactions between firms as well as between
firms and institutions.
However, effective technology transfer does not
depend solely on the accessibility and the terms
and conditions for the acquisition of technology,
but also on the local demand conditions and on
the prior building up of the technical and
managerial capabilities which determine the
ability of firms to absorb and master the
acquired technology.
On the demand side, the inherent smallness of
most SMEs and markets in developing
countries, as well as weak distribution systems
and marketing channels and the lack of support
structures are impediments to obtaining
technology. Other impediments include lack of
capacity and the skills to select, acquire, adapt
and assimilate technologies, financial
constraints and lack of awareness of, as well as
relevant information on, available technologies.
Few SMEs have the networking and monitoring
capabilities that would enable them to access
and evaluate technological information.
SMES AND GLOBAL COMPETITIVENESS
The main reasons for the growing importance of
international competitiveness are technological. The
rapid pace of innovation and the resulting promise
of productivity increase makes it more costly to
insulate economies from international trade and
17
investment. Since new technologies benefit all
activities, traded and non-traded, rapid access to
such technologies in the form of new products,
equipment and knowledge becomes vital for
national welfare. Insulation from global markets and
technologies is no longer a viable option for any
developing country.
research staff. Collaboration with SMEs in countries
which are more advanced technologically can be a
valuable means of keeping abreast of technological
and market trends, and also of acquiring advice on
implementing new technologies, such as the
Internet, and new managerial practices in their
operations.
In reality the globalization of economic activity has a
dual impact on SMEs. For some it provides new
opportunities for expansion and growth by taking
advantage of international market possibilities.
These are able to adapt and become internationally
competitive. For the majority, however, growing
economic globalization is increasing the competition
with foreign enterprises and it is a process that
brings competitive challenges and threats. For these
SMEs, globalization brings risks; as they are unlikely
to survive in their present form without improving
quality, cost competitiveness and management
practices. SMEs are deeply affected by the
globalization of the markets, which is forcing all
firms to act and think more globally. The world
economy, the liberalization, the increasing
globalization, e-commerce, and other such changes
are gradually shifting the behavioural pattern of the
SMEs.
For growth-oriented SMEs, export is an important
strategic option to achieve continued business
growth. Export does not only facilitate sales growth,
it offers a range of other advantages:
An important strategy that the SMEs can use to
improve their competitiveness in global markets
involves the application and adoption of new
technologies that effectively serve to reduce costs. A
number of significant new technologies, which
include the Internet, help, mitigate economies of
scale and the gains traditionally associated with
large-scale production. New web-based information
technologies are enabling SMEs to attain global
marketing capabilities at very low costs. SMEs are
also using electronic commerce and access to
products like financial and accounting management
software systems that enhance organizational and
management capabilities, while at the same time
reduce the high costs associated with managing
SMEs.
Technological capabilities vary enormously across
the developing countries, but, within a given
country, SMEs are often at a technological
disadvantage. Frequently, they cannot afford to
invest in their own research and R&D or to hire
•
Expansion of customer base
•
Reduction of dependence on few major
customers
•
Opportunity to even out regional business
cycle-related demand fluctuations
•
Additional growth opportunities for niche
products, for which the local market is limited.
•
Establishment of a network of contacts and
partners, gain of experiences these can be used
to improve offers to traditional local customers.
Where SMEs cannot individually establish
competitive advantage, they can realize scale
advantages by cooperating with other small
enterprises and subcontract from larger enterprises.
Enterprises can jointly undertake functions where
scale economies arise: for instance, training workers,
designing new products, conducting quality control
or research activity. Saxenian (1990) has argued that
it is the culture of interdependence and exchange
among individuals in Silicon Valley that has
contributed to its superior innovative performance10.
However, finding appropriate foreign strategic
liaisons/partners, who know the domestic
environment, legislative and non-legislative barrier,
language, and the customer requirement, is also
crucial.
Management is science and art. The first can be
acquired; the second one can be developed through
commitment and by “learning by doing”. For many
enterprises, then, venturing into global markets
implies a change in management strategy. There is a
lot of evidence that successful internationalizing
SMEs have a particular management style.
Generally they have a well-structured management,
which concentrates on core activities, often buyingin not only physical inputs, but also business
18
services.
Finally, every SME has to understand that
international activities do mean more than just
finding new customers or suppliers in other
countries. In addition to the key-factors of success, it
is believed that national SME authorities should
initiate measures to support the development of the
SME sector and promote internationalization of
SMEs. The internationalization of a business
involves a process of profound change. This change
requires taking risks, opening up the firm's culture
and a great capacity to learn. None of this happens
spontaneously but requires planning and clear
leadership. Hence, the planning of these internal
changes should be part of the planning for
international activities.
REFERENCES
1.
Mc Grew and Lewis, 1992, Globalization and the Nation
States, (p 23)
2.
Dunning, J.H, 1994, Globalization: The Challenge for
National Economic Regimes, Dublin: The Economic and
Social Research Council.
3.
Naisbitt, J. 1994, Global Paradox, New York: William
Morrow.
4.
Dunning, J.H, 1994, Globalization, Economic Restructuring
and Development, Geneva: UNCTAD.
5.
Hibbert Edgar, The Globalization Of Markets How Can
SMEs Compete?
6.
Bhardwaj Anil, Secretary General of Federation of Indian
Micro and Small & Medium Enterprises (FISME), New
Delhi: Globalization, World Trading System and Indian
SMEs.
7.
Dr Antal Szabo: SMEs in the Third Millennium, International
Conference on “Legal Aspects of SME Development & Best
Practice in Simplification of SME Legal Environment” 6-7
April 2000, Maribor.
8.
“An analysis of Competition Constraints - SMEs and the
Global Market Place”. International Trade Centre
UNCTAD/WTO, Geneva 1996.
9.
Hauser, H.-E. 2000. SMEs in Germany. Facts and Figures
2000. IfM Institut für Mittelstandsforschung Bonn, available
under www.ifm-bonn.de/ergebnis/sme.zip. Kets de Vries,
M.F.R. 1993. The dynamics of family controlled firms: The
good and the bad news. Organizational Dynamics. 21(3) S.
59 ff.
10. Saxenian, A., 1990, “Regional Networks and the Resurgence
of Silicon Valley,” California Management Review, 33, 89111.
19
RELATIONSHIP OF DEMOGRAPHIC FACTORS WITH THE LEVEL OF JOB
SATISFACTION IN EMPLOYEES OF A GARMENT MANUFACTURING UNIT
Poornima Gupta*
Organizations are instruments of conversion. They convert some input into output using a conversion process with the help of the
employees. The main objective of an organization is to reduce its inputs and maximize the outputs. Now as the employees are the main
part of the process, the maximizing of the output can be done by increasing the productivity of the employees which can be done if they
are satisfied. Thus, job satisfaction is an important topic in organizational research because of its many effects on the overall well-being
of the organization. Satisfied employees create a more positive working environment for organizations.
This study examines the relationship between demographic factors with the level of job satisfaction of employees of a garment
manufacturing unit. The results indicate a U-shaped relationship between the age and job satisfaction and a positive relationship
between gender, income with job satisfaction. There is no relationship between the years of experience and the position in the
organisation with job satisfaction.
INTRODUCTION
Organizations are instruments of conversion. They
convert some input into output using a conversion
process with the help of the employees. The main
objective of an organization is to reduce its inputs
and maximize the outputs. Now as the employees
are the main part of the process, the maximizing of
the output can be done by increasing the
productivity of the employees which can be done if
they are satisfied.
Thus, job satisfaction is an important topic in
organizational research because of its many effects
on the overall well-being of the organization.
Satisfied employees create a more positive working
environment for organizations. Because job
satisfaction is important to organizations, it is
beneficial to research the sources of job satisfaction
(Shell & Duncan, 2000). There is a long history of
research into the sources of job satisfaction. Earlier
researchers of employee job satisfaction proposed
the idea that happy worker is a productive worker.
Contemporary theorists have formulated snore
complex explanations to this. Hoppock (1935)
defined the term job satisfaction after reviewing 32
studies on job satisfaction conducted prior to 1933,
*
Sr. Lecturer, Fortune Institute of International Business.
and observed that job satisfaction is a combination of
psychological, physiological and environmental
circumstances that cause a person to say. “I am
satisfied with my job”. Such a description indicates
the variety of variables that influences the
satisfaction of the individual but tells us nothing
about the nature of job satisfaction. Employees may
be satisfied with one aspect of a job while being
dissatisfied with others. Perhaps, one way to define
job satisfaction may be to say that it is the end state of
feeling. It emphasizes the fact that the feeling is
experienced after a task is accomplished or an
activity has taken place whether it is highly
individualistic effort or a collective endeavor. These
task / activities could be very minute or large. They
may be easily observable or could just be
experienced. But in all cases, they satisfy a certain
need. The feeling could be positive or negative
depending upon whether need is satisfied or not and
could be a function of the efforts of the individual, on
one hand, and on the other the situational
opportunities available to him.
In general/terms Job Satisfaction is defined as a
positive attitude of an employee towards his or her
job (Smith, Kendall and Hulin, 1969).
20
Locke (1976) defined job satisfaction a positive
emotional state resulting from the appraisal of one's
job or job experiences. Job satisfaction also has many
effects. Higher job satisfaction is associated with a
lower risk of turnover (Dickter, Roznowski, and
Harrison, 1996).
Job satisfaction is in regard to one's feelings or stateof-mind regarding the nature of their work. Job
satisfaction can be influenced by a variety of factors,
eg, the quality of one's relationship with their
supervisor, the quality of the physical environment
in which they work, degree of fulfillment in their
work, etc.The happier people are within their job, the
more satisfied they are said to be. The degree of
satisfaction may vary with how well outcomes fulfill
or exceed expectations.
Upon further examination of the research of
employee job satisfaction, there appears to be an
underlying assumption that the factors which
determine job satisfaction are primarily within an
organizational context and therefore under direct
control of management (Schwab & Cummings,
1970). But further research indicates that these
organizational forces are only a part of the issue, the
employee's personal values and beliefs also affect
the level of job satisfaction (Kasperson, 1982)
LITERATURE REVIEW
When a person comes to work, he brings with him
his total personality, his attitudes, likes and dislikes,
his personal characteristics and these in turn
influence the satisfaction he derives from work
(Saiyadain, 2003). He says as work is one of the
necessary aspects of the total life experience of an
individual, it becomes important to examine how his
personal characteristics influence his job. Personal
characteristics he referred to were bio-social
variables like education, age, marital status, income,
length of service etc.
Herzberg, Mausner, Peterson, and Capwell (1957)
identified several characteristics of satisfied/
dissatisfied workers. They indicated that morale is
high when people first start their jobs. Morale
decreases during the next few years and remains at a
relatively low level until workers are in their late
twenties or early thirties. At this time, job satisfaction
levels begin to rise and continue to rise through the
remainder of the workers' careers. The same trend is
found in regard to a worker's length of service.
Workers begin with high morale, which drops
during the first year and remains low for a number of
years. Then as length of service increases, job
satisfaction levels tend to rise. Concerning gender,
there are no simple conclusions about the differences
between males and females and their job satisfaction
levels. Some studies reviewed by Herzberg et al.
(1957) indicated that males were more satisfied with
their jobs, while others indicated that females were
more satisfied. Educational level is not clear either.
Furthermore, these studies showed that workers
with more education had a higher job satisfaction
level, while other studies indicated that workers
with more education had a lower job satisfaction
level. Other studies showed no relationship between
the two.
We will look at various studies regarding effect of
these variables such as age, education, marital
status, education, years of experience and income on
job satisfaction.
Brown, Forde, Spencer and Charlwood (2008) in
their study found that there have been significant
increases in satisfaction with the sense of
achievement from work between 1998 and 2004; a
number of other measures of job quality are found to
have increased over this period as well. There is a
weak association between formal human resource
management practices and satisfaction with sense of
achievement. Improvements in perceptions of job
security, the climate of employment relations and
managerial responsiveness are the most important
factors in explaining the rise in satisfaction with
sense of achievement between 1998 and 2004. The
rise in satisfaction with sense of achievement is due
in large part to the existence of falling
unemployment during 1998-2004, which has driven
employers to make improvements in the quality of
work.
Shell & Duncan, 2000 examined the factors affecting
employee satisfaction and found that there were
three major predictors of job satisfaction: thinking all
employees are treated equally by their boss, sex
(females were more satisfied than males), and
employees seeing themselves having a future in
their present job. Factors hypothesized to be
Relationship of Demographic Factors with the level of Job Satisfaction in Employees of A Garment Manufacturing Unit
significant predictors of job satisfaction, such as
education level and age, did not turn out to be
significant at all. Shift was significant, however, in
that first shift workers were more satisfied with pay
than were second or various shift workers.
Gibson and Klein (1970), using a multiple regression
analysis showed that overall satisfaction is different
for employees under 40 than for those over 40. His
study also discloses that in older people, the main
predictors are the peer relations whereas for
younger people, the job itself, perception of
opportunities and more salary are the main drivers
of satisfaction.
Prause and Dooley (1997) found that a larger
percentage of intermittently unemployed and non
full-year poverty wage workers expressed
dissatisfaction with their jobs when compared to the
employed and full-year poverty wage workers. This
suggests superiors and subordinates may tend to
accentuate their differences and be more prone to
stereotype one another.
Iiacqua, Schumacher and Li, 1995 conducted a study
on the faculty of an independent private business
college. The survey revealed that demographic
factors such as age, gender, and degree have little or
no significant impact on job satisfaction; however,
there is a relationship between some of the
demographic variables and job dissatisfaction.
Bulk of the studies in the west indicates that women
were more satisfied with their jobs than males
(Stockford and Kunze 1950; Dunham and Herman,
1975).
Income was positively related to the job satisfaction
in the west (Centres and Cantril, 1946; Mc Donald
and Guderson, 1974).
Low levels of control, poor management, and low
levels of participation in decision making were all
determinants of job dissatisfaction in the Bogg and
Cooper study (1994). Males did not use coping
strategies as often as females, and this influenced
males' job satisfaction along with their mental
health. For males, control was important in
preventing psychosomatic symptoms of ill health.
Personality characteristics played a much more
important role in determining stress outcomes in
males than in females. Overall, females were more
21
dissatisfied with their jobs and had lower mental and
physical well-being scores than their male
counterparts.
HR Focus reported that American employees are
growing increasingly unhappy with their jobs,
according to a report from The Conference Board.
Overall, less than half of workers say they are
satisfied with their jobs. Among workers under the
age of 25, less than 39% are satisfied with their jobs.
But young workers are not the only unhappy ones:
Satisfaction levels among all workers have dropped
in recent years, regardless of age, income, or
residence. The second most dissatisfied group is
workers age 45 to 54.
As per the study conducted by Saiyadain, 1985, there
exists no relationship between sex, marital status,
and annual income and job satisfaction for Indian
and Nigerian people. Age showed quadratic and
linear relationship with satisfaction for Indian and
Nigerian samples respectively. Satisfaction
increased with increasing number of dependents
and work experience and decreased with increasing
years of education for both the samples.
Scott, Swortzel and Taylor (2005) found that
significant relationship existed between the job
satisfaction constructs and the demographic factors
of gender and race. According to Poling (1990), the
best predictor of job satisfaction is when the
employees' personal values match those of the
organization. Study by Shell and Duncan (2000)
showed a moderate relationship between
personality similarity and job satisfaction of the
supervisors and subordinates.
Some studies conducted on Indian samples reveal
that there exists no relation between the education
level and job satisfaction (Sinha & Sarma, 1962,
Natraj & Hafeez, 1965, Sinha & Nair, 1965, Ghosh &
Shukla, 1967, and Vasudeva & Rajbir, 1976) but
Sinha & Agarwala (1971) found a negative
relationship between the two, whereas studies by
Rao (1970), Pandey (1992), Vasagam (1997) and
Nazir (1998) found a positive relationship. Sinha &
Nair (1965) found no relationship between marital
status and job satisfaction but a positive relationship
between years of experience and job satisfaction.
Vasudev and Rajbir(1976) found a positive
relationship of job satisfaction with income but
22
negative relationship with years of experience. Sinha
and Sarma(1962) found positive relationship with
marital status but negative relationship with age in a
study conducted on 100 workers of a
light
engineering factory. Sinha and Aggarwal (1971) did
a study on 60 white collar workers and found no
significant relationship is found between marital
status, income, years of experience and number of
dependents on job satisfaction, but a positive
relationship between age and job satisfaction. They
found a negative correlation between education and
job satisfaction.
INSTRUMENTATION
Employee's job satisfaction was obtained utilizing a
questionnaire.
Based on the literature review on Job satisfaction, the
questionnaire was prepared with thirteen
dichotomous and three open-ended questions along
with a detailed demographic profile. The sample
being both supervisory and lower level employees;
the questionnaire was prepared in both English and
Hindi.
DATA ANALYSIS
PURPOSE AND OBJECTIVES
The purpose of this study was to determine what
demographic factors were related to the level of job
satisfaction of employees of a garment
manufacturing unit. The specific demographic
factors addressed in this study were:
Data were analyzed using the Statistical Package for
the Social Sciences (SPSS® Version 14 for Windows).
Descriptive statistics, including means and standard
deviations, were used to summarize the data.
In an attempt to analyze the impact of demographic
variables on job satisfaction, statistical tests were run
to determine if there was a significant difference
between how males and females felt about job
satisfaction. Similar tests were run to determine
differences in job satisfaction ratings by employees
with different levels of education. In addition, age
and years experience were considered as
independent variables in this section.
•
Gender
•
Age
o Age was measured on a ratio scale by asking
the actual age. The age profile indicated the
employees to belong to the age group of 1949
•
Education
o Education was measured as the numbers of
years of formal education with high school
being 10 years and graduation being 15
years and so on
Frequencies and percentages were reported for the
demographic data. Chi square was used to
determine the relationships between the job
satisfaction constructs and gender, educational
qualification.
•
Income
o Income was taken as actual.
RESULTS AND DISCUSSION
•
total experience
•
Experience in this garment manufacturing unit
RESEARCH METHODOLOGY
A Descriptive research design was adopted for this
study. Survey method was used.
The Sample consisted of supervisors and workers of
the garment manufacturing unit. Sample size was
100, out of which 2 were assistant managers, 16 were
at supervisory level, 50 were operator level workers
and 32 were helpers.
Ho: no difference in level of satisfaction regarding
the gender
H1: There is a difference in the level of job
satisfaction of employees regarding the gender
Chi square analysis was used to test the hypothesis.
The test was found significant at 95% level of
confidence thus rejecting the null hypothesis. (Fig
1.1 in Appendix) We can conclude that there is a
relationship between gender and job satisfaction.
Females were found to be less satisfied (27%) as
compared to their male counterparts (13%).(Table
1.1)
Ho: no difference in satisfaction regarding the age
H1: There is a difference in the job satisfaction of
employees regarding the age
An independent sample t-test was used to test this
hypothesis as the data on these was obtained in ratio
scale.
The result showed that at .05 level of significance job
satisfaction depended on the variables of age.
Further analysis by Chi-square showed that a
significant relationship was found between age and
satisfaction. The Pearson Chi-square coefficient
found to be .014, which shows a significant relation
at 95% Confidence Level. (Fig 1.2 in Appendix)
About 13% of people belonging to age group of 20-25
years, and 32% employees belonging to the age
group 26-35 have low satisfaction as compared to the
age group which is above 36, which shows high
satisfaction. (Table 1.2). These results were in tune
with the findings of the study by Klein (1969), which
showed that overall satisfaction is different for
employees under 40 than for those over 40. This also
follows the U- shape relationship between age and
job satisfaction as first shown by Herzberg et.al.
(1957).
Ho: no difference in satisfaction regarding the total
experience in the organization
employees regarding the total experience in the
organization
hypothesis for the variables years of experience.
The p value was 0.193, which is insignificant at 90
percent level of confidence, thus we are unable to
reject the null hypothesis and come to the conclusion
that there is no relationship between job satisfaction
and the total experience of the employees. (Table 1.3)
Ho: no difference in satisfaction regarding the total
income
employees regarding the total income
hypothesis for the variables income.
The p value was 0.050, which is significant at 90
percent level of confidence, (fig 1.3 in Appendix)
23
thus we are reject the null hypothesis and come to the
conclusion that there is a positive relationship
between job satisfaction and the total income of the
employees with people with income above 3000
being more satisfied as compared to employees with
income less than 3000.
Ho: no difference in satisfaction regarding the
education level of employees
employees regarding the education level of
employees
The Pearson chi-square coefficient is .036, which
shows a significant relation between education
qualifications at 95% confidence level.
Each and every person with low education below 8th
class has high satisfaction, 23% people have low
satisfaction and 77% of people have high satisfaction
among those with medium education that is
between 9th and 12th. All people with high level of
education have high satisfaction.
Ho: no difference in satisfaction regarding the
different grades of employees
employees regarding the different grades of
employees
The Pearson chi-square coefficient is 0.041,
signifying a relationship between department and
satisfaction at 95% confidence level.
All the people with grade1 job (Supervisor and
Assistant Manager) have high satisfaction. In case of
people with grade2 job (Operator, Checker, cutter, in
charge and finisher), 20% people have low
satisfaction and the people with grade3 (alter man,
bundler and helper) job 25% have low satisfaction.
(Table 1.4)
CONCLUSION
The survey reveals that demographic factors such as
gender and experience have little or no significant
impact on job satisfaction; however, there is a
relationship between age and education level and
job satisfaction.
•
Females are more dissatisfied as compared to
the male counterparts. As seen by the comments
made by them, there needs to be more facilities
24
provided to the females to make the workplace
more secure and comfortable.
Hoppock, R. (1935). Job satisfaction. New York: Harper and
Brothers.
•
Young people need to be taken care of by the HR
Dept, they are found more dissatisfied than
those with higher age.
Iiacqua, J. A, Schumacher, P. and Li, H. C. (1995) “Factors
contributing to job satisfaction in higher education” Education,
Fall 1995.
•
Employees with lower income (below 3000)
Kasperson, C.J. (1982). Locus of control and job dissatisfaction.
Psychological Reports, Volume 50, issue 3, 823-826.
were relatively less satisfied as compared to
employees with higher income. Maybe incentive
system should be worked out to increase the
level of satisfaction of the lower income
employees.
•
•
People working in operations are found to have
low satisfaction as compared to those at
supervisory and assistants to those of operations
people.
Also, the people with medium education, that is,
between 9 th and 12 th standard are more
dissatisfied than with low education, that is,
below 8th standard and those with high
education level above 12th standard.
REFERENCES
Brown, A. , Forde, C., Spencer, D. and Charlwood, A. (2008)
“Changes in HRM and job satisfaction, 19982004: evidence from
the Workplace Employment Relations Survey”, in Human
Resource Management Journal;, Vol. 18 Issue 3, p237-256
HR Focus, April 2007 Edition Pg. 8.
Locke, E.A. (1976), The nature and causes of job satisfaction, In
M.D Dunnette (Ed.) Handbook of Industrial and Organisational
Psychology p1297-1349, Chicago, IL: Rand McNally
Mc Donald, B.W. and Guderson, E.K.E. (1974), Correlates of Job
satisfaction in naval environment, Journal of applied Psychology,
59, 371-73
Natraj, C.L. and Hafeez, A. (1965), A study of job satisfaction
among skilled wokers, Indian Journal of Social Work, 26, 9-11
Nazir, A.N. (1988), Perceived importance of job factors and
overall job satisfaction of bank employees, Indian Journal of
Industrial Relations, 33(4), 479-496
Pandey, A. (1992), Employee occupation and age as moderators of
the relationship between absence of job alternatives and job
satisfaction, Indian Journal of Social Work, 1(III), 119-126
Poling, R. L. (1990). Factors associated with job satisfaction of
faculty members at a
land-grant university (Doctoral dissertation, The Ohio State
University, 1990).
Prause, J., & Dooley, D. (1997). Effect of underemployment on
school-leavers' self-esteem. Journal of Adolescence, 20, 243-260.
Saiyadain, M.S. (1985), Personal characteristics and job
satisfaction: India-Nigeria comparison, International Journal of
Psychology, 20, 143-153
Saiyadain, M.S. (2003) (3rd Ed) “Human Resource Management”,
Tata McGraw, India
Bogg, J., & Cooper, C. L. (1994). An examination of gender
differences for job satisfaction, mental health, and occupational
stress among senior U.K. civil servants. International Journal of
Stress Management,1, 159-172
Schwab, D., & Cummings, L. (1970). Theories of performance and
satisfaction: A review. Industrial Relations, 9, 408-430.
Brown A. , Forde, C , Spencer, D. and Charlwood A. (2008).
“Changes in HRM and job satisfaction, 19982004: evidence from
the Workplace Employment Relations Survey” Human Resource
Management Journal, Volume 18 Issue 3, Pages 237 256 June.
Scott, M., Swortzel, K.A. and Taylor, W.N. (2005), The
Relationships between Selected Demographic Factors and the
Level of Job Satisfaction of Extension Agents, Journal of Southern
Agricultural Education Research Volume 55, Number 1, 102-115
Dickter, D. N., Roznowski, M., & Harrison, D.A. (1996). Temporal
tampering: An event history analysis of the process of voluntary
turnover. Journal of Applied Psychology, 81, 705-716.
Shell, M.M. & Duncan, S.D. (2000). The Effects Of Personality
Similarity Between Supervisors And Subordinates On Job
Satisfaction, Department Of Psychology, Missouri Western State
University
Centres, R. and Cantril, M. (1946), Income satisfaction and income
aspiration, Journal of Abnormal and Social Psychology, 41, 64-69
Dickter
Sinha, D. AND Agarwala, U.N. (1971), Job satisfaction and
general adjustment of the Indian white collar workers, Indian
Journal of Industrial Relations, 6, 357-367
Dunham, R.B. and Herman, J.B. (1975), Development of female
faces scaler for measuring job satisfaction, Journal of applied
Sinha, D. and Nair, R.R. (1965), A study of job satisfaction of
factory workers, Indian Journal of Social Work, 26, 1-8
Ghosh, S.N. and Shukla, S.N. (1967), A study of the correlates of
job satisfaction of a group pf telegraphics, Journal of Applied
Sinha, D. and Sarma, K.C. (1962), Union attitude and job
satisfaction in Indian workers, Journal of Applied Psychology, 46,
247-251
Gibson, J. L., And S. M. Klein. “Employee Attitude as a Function of
Age and Length of Service: A Reconceptualization,” Academy of
Management Journal, Vol. 13, 411-425.
Vasudeva, P. and Rajbir (1976), Correlates of job satisfaction
among induatrial workers, Indian Journal of Social Work, 37,
775-779
Herzberg, F., Mausner, B., Peterson, R. O., & Capwell, D. F. (1957).
Job attitudes: Review of research and opinion. Pittsburgh, PA:
Psychological Service of Pittsburgh.
Smith, P. C., Kendall, L. M. and Hulin, C. L. (1969). “The
Measurement of Satisfaction in Work and Retirement,” Rand
McNally, Chicago.
Stockford, L. O. and Kunze, K. R. (1950), Psychology and the
paycheck, Personnel, 27, 129-143.
Wegge, J., Dick, R.V., Fisher, G.K., West, M.A. and Dawson, J. F.
(2006) “A Test of Basic Assumptions of Affective Events Theory
(AET) in Call Centre Work”, British Journal of Management, Vol.
17, 237254
Wiedmer, S. M. An examination of factors affecting employee
satisfaction”, Department Of Psychology
Yaktin US, Azoury NB, Doumit MA (2003) “Personal
characteristics and job satisfaction among nurses in Lebanon”.
The Journal of Nursing Administration Jul-Aug;33(7-8):384-90.
Faculty of Medicine, School of Nursing, American University of
Beirut, Lebanon.
Vasagam, V.M. (1997), Measuring morale of employees in Neyreli
Lignite Corporation, Indian Journal of Public Administration, 4,
921-932
APPENDIX
Table 1.1 Gender of the employees and job satisfaction
Satisfied
Not Satisfied
Male
43
6
49
Female
37
14
51
Total
80
20
100
Fig1.1Chi-Square Tests for Gender and Job Satisfaction
Value
df
Asymp. Sig.
(2-sided)
3.611(b)
1
.057
Correction(a)
2.724
1
.099
Likelihood Ratio
3.702
1
.054
Pearson Chi-Square
Exact Sig.
(2-sided)
Exact Sig.
(1sided)
.080
.048
Continuity
Fisher’s Exact Test
Linear-by-Linear Association
3.575
N of Valid Cases
100
1
.059
Table 1.2 Age Group and Job Satisfaction
Age Group
Satisfied
Not satisfied
Frequency
<20
1
0
1
21-25
13
2
15
26-30
35
17
52
31-35
22
1
23
>36
9
0
9
Total
80
20
100
25
26
Fig 1.2 Chi-Square Tests for Age and Job Satisfaction
Value
df
Asymp. Sig.
(2-sided)
Pearson Chi-Square
10.571(a)
3
.014
Likelihood Ratio
13.396
3
.004
Linear-by-Linear
Association
4.562
1
.033
N of Valid Cases
100
Table 1.3 Years with the Present Organisation
and job satisfaction
Years in the
company
Satisfied
Not satisfied
Total
Less than 5 years
6
14
20
5years or more
34
44
80
Total 40
60
100
Table 1.4 Position in the organization and Job Satisfaction
Position
Not satisfied
Satisfied
Total
Asst Managers
0
2
2
Supervisor
2
14
16
Operators
10
40
50
Helpers
8
24
32
Total
20
80
100
Fig 1. 3 Independent Samples Test - Job Satisfaction and Income
Levene’s Test for
Equality of
Variances
F
income Equal
variances
assumed
Equal
variances
not
assumed
3.968
Sig.
.050
t-test for Equality of Means
t
df
Sig. (2tailed)
Mean
Difference
Std. Error
Difference
95% Confidence Interval of the
Difference
Lower
Upper
-1.282
85
.203
-1169.739
912.433
-2983.900
644.421
-2.379
73.45
0
.020
-1169.739
491.722
-2149.639
-189.840
27
EMPOWERMENT OF WOMEN ENTREPRENEURS THROUGH
MICRO FINANCING & TRAINING
Vasanthi Reena Williams*
Liberalization of the Indian Economy has enhanced the participation of women in different fields like politics, education and business.
This is leading women to play a MAJOR role in the economic development of India .
The main motivating factors for women entrepreneurs are economic compulsions, the presence of knowledge and skills, need for
achievement, inspiration gathered from the success of others and frustration in the present occupation. Women entrepreneurs are
observed to demonstrate psychological characteristics like achievement, motivation, risk-taking preference, problem-solving tendency,
initiative tenacity and perseverance.
The policy initiatives in India have always recognized that SSI's contribute to the material progress of the country. Small firms are capable
of producing a larger quantum of consumer goods than before, to meet the possible increase in demand that would arise on account of the
spurt in incomes, generated by fresh investments in heavy and basic industries.
The paper tries to focus on the following, namely :
a)
Steps taken to boost SME's Women entrepreneurs in India.
b)
Problems and challenges faced by the SME's.
c)
Future action CRISIL, CREED, CGTMSE, RUDSET, AWAKE, GIAN
Conclusion:
•
The need to boost and motivate women entrepreneurs.
•
A separate piece of legislation, exclusively for women entrepreneurs, replacing the generalities with specifics.
•
Council for motivating Women take up Entrepreneurship programmes.
•
Introduction and training, to suit and bring awareness on the global market requirements.
Key Words: Women Entrepreneurship, Micro Finance, SSI ,
Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity
and are able to turn both to their advantage.”
- Victor Kriam ( American Businessman)
INTRODUCTION
Entrepreneurship- The general perception rightly
states that Entrepreneurship draws the attentions of
the ambitious and creative minds, to implement
their ideas into profit-making ventures, which is
nurtured by the entrepreneur's own mental
energies. This in turn helps in enhancing the
entrepreneur's economic and social status and also
provides employment to many, thereby helping in
developing the economy.
* Senior Faculty, MAGNUS School of Business, MYSORE.
Traditional theories of entrepreneurship have
focused on risk-oriented, profit seeking individuals
(Kiezer- 1973, Schumpeter-1947) who identify
market opportunities and exploit them to earn
profit.
The Entrepreneurship Center at Miami University of
Ohio has an interesting definition of
entrepreneurship: “Entrepreneurship is the process
of identifying, developing, and bringing a vision
to life. The vision may be an innovative idea, an
28
opportunity, or simply a better way to do
something. The end result of this process is the
creation of a new venture, formed under conditions
of risk and considerable uncertainty.”
India has seen a volte-face in economic development
of late, thanks to the government and financial
institutions for providing finance and easing of the
licensing processes for entrepreneurship ventures.
Micro-entrepreneurial ventures are considered to be
the most critical factors that helps both urban and
rural masses, by creation of jobs, development of
specific skills, all in all economic development.
Micro financing plays a vital role in accelerating the
rate of innovation triggering economic restructuring
and renewal.
Society is powered by innovative capacity and it is
imperative that effective utilization of existing
knowledge be implemented to create extensive
affluence, thereby improving the quality of life. With
the changing global scenario, women
entrepreneurship has emerged in the forefront.
Women business owners are continuing to
demonstrate economic prowess worldwide.
According to the Global Entrepreneurship Monitor
(GEM), one in eleven (8.9%) woman is involved in
entrepreneurship across the globe and India
occupies the second position among the 22
countries where 14.1% of women have ventured into
entrepreneurship (GEM 2002).
The increase in the level of entrepreneurial activity
among women increases as levels of education rise
especially among those who go beyond secondary
education. Surveys and study on the subject have
also shown that women, especially those belonging
to the low-income strata and who have no other
option for employment, are taking to
entrepreneurship not only to meet the survival
needs of the family but also due to low barriers of
entry and flexibility. Prof. C.K. Prahalad and Prof.
Al. Heymond in their book 'Serving the World's
Poor', discuss about the development of a business
model for people at the 'Bottom of the Pyramid'
(BOP).
The main motivating factors for women
entrepreneurs are economic compulsions, the
presence of knowledge and skills, need for
achievement, inspiration gathered from the success
of others and frustration in the present occupation.
Women entrepreneurs are observed to demonstrate
psychological characteristics like achievement,
motivation, risk-taking preference, problemsolving tendency, initiative tenacity and
perseverance. Empirical evidence shows that
women contribute significantly to the running of
family businesses mostly in the form of unpaid effort
and skills. The value of this effort is underestimated.
According to studies made by Ms. Renuka
Vishwanathan , (IAS officer & writes on women's
issues.), many of the enterprises defined as been run
by women ( that is, enterprises in which women hold
the controlling share) are in fact run in their names
by men who control operations and decision
making. Programmes meant to reach women
entrepreneurs can succeed only if they take note of
this paradox as well as of the familial and social
conditioning that reduces the confidence,
independence and mobility of women. This means
that entrepreneurship programmes should go
beyond subsidies and credit allocation to
attitudinal changes, group formation, training and
other support service.
Through Micro financing, empowerment of women
can be accomplished, job opportunities can be
increased and also employability factor can be
enhanced.
Though many organizations and institutions are
conducting various training programmes and
schemes to boost entrepreneurship, the training
needs should consider the suitability of the women
entrepreneurs like, their preference to work from
their homes so as to help them fulfill their household
responsibilities. However, this should not
discourage them from venturing into hi-tech
functions that would augment their profitability. In
addition to training, additional and appropriate
information and guidance on practical management
implementation is the key to develop
entrepreneurship among women. NGO's &
Organisations like AWAKE, RUDSET, CREED,
SEWA, FIWE. GIAN, etc. have succeeded in
achieving reasonably high success levels , however,
continuous innovations in training procedures, and
closely monitoring these programmes would
definitely help in increasing women's participation
in business.
According to the official definition adopted in India,
since 1998, the investment limit upto Rs 10 million in
the plant and machinery is treated as SSI sector.
However, in respect of certain specified items such
as hosiery, hand-tools, drugs and pharmaceuticals
and stationery items, above investment limit in plant
and machinery has been enhanced upto Rs. 50
million. Since 1967, there is a policy of reserving
selected products in the manufacturing sector for
exclusive production in the SME sector. The list of
reserved items has been revised from time-to-time.
The policy initiatives in India have always
recognized that SSI's contribute to the material
progress of the country. Manufacturing is the
backbone of every economy and its global
competitiveness is important. It is a known fact that
when it comes to delivering consistent quality
goods, and engineering-based manufacturing
products, the preference is for India rather than
China. Small firms are capable of producing a larger
quantum of consumer goods than before to meet the
possible increase in demand that would arise on
account of the spurt in incomes, generated by fresh
investments in heavy and basic industries. It is also
taken for granted that small firms would, in the
process, create additional employment
opportunities. It is also noted that a huge increase in
the manufacturing sector workforce is mandatory
for India's welfare. Agriculture, supporting 60% of
the working population, contributes only upto 22 %
of its gross domestic product. This mismatch
between distribution of workforce and value added
in agriculture is one of the main reasons for the large
percentage of poor population, and this trend is
expected to further widen in the coming decades.
Only a large shift of workforce from agriculture to
manufacturing will help improve rural incomes
and reduce poverty levels. Embedded also, is the
assumption that SME's are less capital demanding
and more labour absorbing. This is regarded as an
important gain of promoting SME's, given the
country's resource endowments, namely labour
abundance and scarcity of capital.
WOMEN ENTREPRENEURS
This paper focuses on the need to motivate women
entrepreneurs and their contribution to the economy
in general. This paper also provides an overview
of important issues related to women
entrepreneurship. Because, despite the rapid
growth of women in professional & managerial jobs,
29
the gender gap in entrepreneurship remains
significant. It is estimated that presently women
entrepreneurs comprise about 14% of the total
entrepreneurs in India and the figure is growing
rapidly.
In low income countries, population growth and
female illiteracy are associated with higher levels of
entrepreneurial activity for both men and women.
Compared to men, women entrepreneurs use
smaller amounts of start-up capital, smaller
proportion of equities and more bank loans. Also,
women-owned businesses tend to be smaller and to
grow more slowly than those owned by men,
suggesting gender based differences in the value
attached to business expansion.
These findings suggest that, while the desire for
creating large ventures may be absent among many
women entrepreneurs, a significant number of them
are interested in achieving growth so long as this is
possible without endangering the balance they seek
to achieve between their business and family
commitments. However, the current study supports
the notion that different types of women
entrepreneurs attach differing levels of importance
to resources for growth. The reasons for slow
growth, and the necessary policy and social changes
that faster growth calls for, cannot be understood
without reference to differences in the types of
entrepreneurs who comprise our target group. Any
attempt to encourage growth in women-run
enterprises needs to take into account variations in
the types of women entrepreneurs and to look at
how the critical resource constraints in each case can
be addressed.
For instance, the need for relational support and time
available after satisfying family demands is more
pronounced in the family oriented groups.
Liberalization of the Indian Economy has enhanced
the participation of women in different fields like
politics, education and business. This is leading
women to play a very important role in the economic
development in India. In India it has been seen
women involving themselves in family businesses
even without formal business education / training
or even remuneration and hence the reason for the
economic contribution going unnoticed or
undervalued.
However looking at the reports and research and
statistical information on enterprises run by women,
30
it has been noticed that the ability of women to
achieve is much higher. They are keen to develop
workforce and are dedicated employers. The studies
also suggest that women have to work harder to gain
credibility. They have to take care of the family and
also raise finance simultaneously. An attempt has
been made to document available information
regarding the status of women entrepreneurs,
against the milieu of the socioeconomic context and
challenges faced. The study tries to compile the
extensive amount of information on various
entrepreneurship and women development
programmed in India. Including the profiles of some
of the major institutions and organizations
established to enhance and empower women
throughout the country.
The Government of India has come up with many
measures to help and encourage women
entrepreneurs .One of them is the Micro Credit
Programme which helps in providing finance for
small businesses. For example, the Karnataka State
Government was offering help to widows to set up
knitting businesses in 1997.
However, entrepreneurs at the grass root level often
do not have access to financial resources for
financing their micro ventures due to hesitation and
uncertainty of the risk attached to the ventures. The
stakes are high at the grass root level because the
product or service is yet to be tested with regard to its
commercial viability.
encourage banks to shift from collateral-based or
security-oriented lending. The CGTMSE is in the
process of developing a Mutual Credit Guarantee
Scheme (MCGS) on the lines of similar schemes in
Italy and other European countries; such schemes
essentially involve a guarantee from industry
associations in which the borrower is also a member
which, in turn, enhances the lender's confidence. The
eligible loan limit has been raised from Rupees 25
lakh to Rupees 50 lakh. The Credit Guarantee cover
has been raised from 75% to 80% for
•
Loans to Micro enterprises upto Rs 5 lakh.
•
Loans to Micro and small enterprises operated
and/ or owned by women.
CGTMSE is established by the Ministry of Micro,
Small & Medium Enterprises (MSME), Government
of India and Small Industries Development Bank of
India (SIDBI).
RBI -The Reserve Bank of India A number of
initiatives have been taken up in this regard and
banks have been advised to provide maximum
support to Self Help Groups (which again in mainly
women focused).
STEPS TAKEN TO BOOST SME'S IN INDIA
CRISIL- Credit Rating Information Services of India
Limited is India's leading ratings, research and risk
and policy advisory company. CRISIL is a part of
Standard & Poor (S&P), a global provider of
independent credit ratings, indices, risk evaluation,
investment research and data. CRISIL helps in credit
rating the SME, thereby facilitating faster sanctions
of financial resources .
The Small Industries Development Bank of India
(SIDBI) was set up in April 1990 In order to boost
investment in SME sector, the benefits of exemption
of capital gains arising from the transfer of long-term
capital assets are allowed if such capital gains are
invested in bonds by the Small Scale Industries
Development Bank of India (SIDBI) with effect from
April 2002.
FITCH - Credit Rating Agency on the 23rd of August
2007, Syndicate Bank has entered into an MOU with
FITCH, a credit rating agency, which would
facilitate access for small and medium enterprises to
reliable rating services,
to enhance credit
acceptance. The rating would be used for evaluating
infrastructure, corporate and other loan exposures
of Syndicate Bank.
A Credit Guarantee Fund Scheme for Small
Industries has been launched and the SIDBI set up
the Credit Guarantee Fund Trust for Small
Industries (CGTSI), now renamed as CGTMSE
(Credit Guarantee Fund Trust for Micro and Small
Enterprises) (2007),to implement the Guarantee
Scheme. The main objective of CGTMSE is to
facilitate hassle-free credit to the SSI sector and
ORGANISATIONS AND CENTRES FOR
DEVELOPING ENTREPRENEURSHIP IN
INDIA
CREED (Centre for Research in Entrepreneurship
Education and Development) The Entrepreneurship
Development Institute of India has set up a Research
Centre at CREED in the year 1977 with the goal of
expanding the boundaries of knowledge and
thereby give an identifiable thrust to the
Entrepreneurship Development Movement.
31
from the regions of West, North-East and North
India, respectively. In addition, GIAN cells are
present at Tumkur and Madurai in South India.
•
Entrepreneurship in Education
PROBLEMS AND CHALLENGES FACED BY
THE SME'S
•
Innovation in Training Technology
i)
•
Voluntary Sector: Issues and Interventions
•
Gender and Enterprise Development
•
Micro Finance and Micro Enterprise
Development
The Focus Areas of CREED
FIWE : (Federation of Indian Women
Entrepreneurs) FIWE is one of India's Premier
Institutions for Women and was established in 1993.
It is a National Organisation which supports women
who are in quest of economic independence and for
the development of enterprise in women.
Services of FIWE include :
•
Business Counselling
•
Entrepreneurship Development
•
Skill Development & Training
•
Providing Technology & Know-how
•
Enabling Marketing & Networking
•
Policies & Issues
•
Information & Research Report
SEWA - (Self Employed Women's Association ): Since
its inception in the early 1970's, SEWA has been
working towards organizing and empowering poor,
self-employed women workers in rural and urban
areas in India.
AWAKE - (Association of Women Entrepreneurs of
Karnataka) : is today one of India's premier
institutions of women totally devoted to
Entrepreneurship Development. Established in
1983, AWAKE's success has been recognized world
wide. AWAKE was an affiliate of Women's World
Banking, New York for Business Development
Services.
GIAN - (Grassroots Innovations Augmentation
Network) : GIAN is an incubator of grassroots
innovations and traditional knowledge. GIANs
have been setup by NIF at Ahmedabad, Guwhati
and Jaipur for providing incubation support to
grassroots innovation and traditional knowledge
Collateral: Many entrepreneurs are facing
difficulties in providing collateral security as per
the requirements of the financing banks. ( The
introduction of the Credit Guarantee Fund Trust
Scheme has helped to some extent.)
ii) Cost of loans: The high cost of borrowings is a
major constraint affecting the growth of the
sector. ( reduction in bank rate and flexibility to
offer lending rates on a fixed rate or on a floating
rate will help SME's to procure funds at lower
costs than was prevailing)
iii) Delayed payments: considerable delay in
settlement of dues / payment of bills by the
large-scale buyers to the SME's adversely
affected the recycling of funds and business
operation of SME's. Though the Government
has enacted the Delayed Payments Act, many of
the SME's are reluctant to pursue cases against
major buyers. The act since amended in 1998
has made it compulsory that the payment of
SME suppliers should be made within 120 days.
To improve the plight of SME entrepreneurs due
to delayed payments, steps for strengthening
and popularizing factoring services, without
recourse to the SME suppliers may have to be
thought of seriously. The banks have also been
advised about sub-allotting overall limits to the
large borrowers specifically for meeting the
payment obligations in respect of purchases
from SSI. It is expected that these measures will
improve the situation of delayed payments.
iv) Marketing : Marketing remains the most critical
area for the SSI Sector as some of the units are
very small and so is their output individually.
Adopting consortium approach could best solve
the marketing problems of the SSI sector.
Besides finance for marketing related activities,
dissemination of requisite information on
demand pattern, futuristic trend, etc, could be
made available by the Development Institutions
/ SSI Associations etc.
v) Sickness
32
FUTURE ACTION
A study by Amar Bhide along with a study team
from IIM Bangalore, on “What Role for
Entrepreneurship in India?” Discusses three issues
on the optimum role for entrepreneurship in the
Indian Economy.
•
First, how and why the optimal role for
individual entrepreneurs is likely to be different
in India than in an advanced economy.
•
Secondly, are Indian entrepreneurs playing
their optimal role?
•
Thirdly, if they are not, what obstacles stand in
their way?
The study emphasizes the development in many
conditions such as the adequate provision of
electricity, water, roads, clean title to land. The study
suggests reforming the system of indirect taxes is
more important than reforming the income-tax and
that preventing the theft of physical goods is more
important than the enforcement of complex
contracts.
In a recent address by Mr. Vepa Kamesam, Deputy
Governor of Reserve Bank of India; at OECD (
Organisation for Economic Co-operation and
Development) workshop on Entrepreneurship in a
Global Economy: Strategic Issues and Policies, in the
panel, Identifying the real policy issues, in the
session on Improving Financing for
Entrepreneurship and SME's, Budapest on 9th of
September 2003, has stated that : In view of the
continuing financing problems of the SME's, at least
two broad approaches have been adopted at the
national level.
i)
Facilitating access of SME's to extant / existing
sources of financing.
ii) Developing newer sources of financing in terms
of venture capital and business angle networks.
The existing sources of financing trend are towards
reduced and more flexible loan schemes as well as
loan guarantees.
INSEAD Knowledge : INSEAD Affiliate Professor
of Entrepreneurship and Family Enterprise Patrick
Turner explains that with the rest of the world
beating a path to India and China to cash in on the
rapid economic growth in these countries and tap
low-cost manufacturing ( China) and services
(India), countless business opportunities have
opened up.
According to the Global
Entrepreneurship Monitor's report for 2003, the
most recent statistics available for India 12.5% of the
total Indian working population was involved in
opportunity-based ventures.
India has an
additional advantage over China in terms of
entrepreneurship-oriented bodies such as the TiE
Network (The Indus Entrepreneurs) or Wadhwani
Foundation, which seek to promote
entrepreneurship by, among other things,
organizing workshops, and seminars nationally.
Founded by entrepreneur Romesh Wadhwani, the
foundation funds various entrepreneurship
education-related projects like the National
Entrepreneurship Network (NEN), which brings
together prestigious Indian higher education
institutions and entrepreneurs.
Turner says nothing even remotely like this exists in
China. However, that said, he expects India to lose
this edge in the coming decade. With the emergence
of companies such as Alibaba.com, which was
founded by entrepreneur Jack Ma in 1999 and in
which Yahoo! Took a 40% stake for $1 billion in 2005
China is already to starting produce its own iconic
role models. It will then be just a short step to
creating entrepreneurship support organisations,
possibly financed by successful entrepreneurs of the
new generation. Consequently both phenomena are
likely to speed up entrepreneurship development in
China and erase the advantage India currently
enjoys. Source- Indian Management Vol 46 Issue 5
May 2007. The journal of The All India Management
Association.
In his address and interaction on the 19th of March
2007, with the students of Shri Ram College of
Commerce, New Delhi , on the topic “ Economic
Development leading to national prosperity with
value system is the real measure of growth” , our
Honorable out going President ,Dr. A.P.J.Abdul
Kalam discussed the linkage between national
economic development and creative leadership in a
very interesting dialogue :
•
A nations economic development is powered by
competitiveness.
•
Competitiveness is powered by knowledge
power.
•
Knowledge power is powered by technology
and innovations.
•
Technology and innovation is powered by
resource investment.
•
Resource investment is powered by revenue and
return on investment.
•
Revenue is powered by volume and repeat sales
through customer loyalty.
•
Customer loyalty is powered by quality and
value of products.
•
Quality and value of products is powered by
Employee Productivity and innovation.
•
•
Employee Productivity is powered by employee
loyalty, employee satisfaction and working
environment.
•
•
Working environment is powered by
management stewardship and sound project
management.
•
•
CONCLUSION
As the study shows that enough has been done in the
promotional front by NGO's and Government
Organisations for developing and promoting
entrepreneurship among women. However it is sad
to note that the implementation of these
programmes have not been very successful
especially at the economically weaker section level
and partially at the other levels also, mainly due to
lack of managerial skill set which include the
following :
• Training women entrepreneurs on the finer
aspects of finance management, business
management, marketing management and
human resource management.
• Though The Micro, Small and Medium
Enterprises Development (MSMED) Act 2006 ,
(which is a follow-up of the Gupta Committee
Report, a Government of India initiative to
promote and create a protective environment
and also promote a competitive environment)
emphasizes the need of a single legal framework
to cover all issues of SME's, the need to have a
separate piece of legislation, exclusively for
women entrepreneurs, incorporating specific
services and facilities provided by financial
institutions, service provides, hirers of service
and replacing the generalities with specifics.
• Need to instigate appropriate marketing
strategies for marketing products / services.
• Council for motivating women take up
Entrepreneurship through undeviating strategy
training programmes that inspire ,enhance and
•
33
facilitate them to synchronize newer
opportunities.
Introduction and training, to suit and bring
awareness on global market requirements. This
would help motivate even the existing women
entrepreneurs broaden up horizons and create a
niche for themselves in the world market as well.
The need to boost and motivate women
entrepreneurs.
A separate piece of legislation, exclusively for
women entrepreneurs, incorporating specific
services and facilities provided by financial
institutions, service provides, hirers of services
and replacing the generalities with specifics.
Council for motivating Women take up
Entrepreneurship programmes, thereby
facilitating them of newer opportunities,
educating them on the finer aspects of finance
and business, marketing management, human
resource management.
Introduction and training, to suit and bring
awareness on the global market requirements.
This would help motivate women
entrepreneurs diversify and create a niche for
themselves in the world market as well.
SOURCES & REFERENCES
1.
The Economic Times.
2.
The Financial Express.
3.
Business Line.
4.
CREED Centre for Research in Entrepreneurship Education
and Development.
5.
Indian Management. The journal of The All India
Management Association.
6.
MANAGE Home Journal of Bangalore Management
Association.
7.
Growth pattern of women-run enterprises : An empirical
study in India, The Journal of Development
Entrepreneurship, Aug 2002 by Reshmi Mitra.
8.
The ICFAI Journal of Entrepreneurship Development.
9.
India Today Opportunities and challenges for women in
business Nov 2001. Article by Ms. Renuka Vishwanathan.
10. An excerpt from the following web pages:
i)
www.awake-india.org
ii) www.cgtmse.in
iii) www.sewa.org
iv) www.fiwe.org
v) www.bhide.net/Entrepreneurs_role_in_India_nov_04
vi) http://bus.colorado.edu/faculty/meyer/6700syl.htm
vii) www.gmu.edu/rae/archives/VOL16_1_2003
viii) http://www.gian.org/
34
GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIAN ECONOMY
P Sivadasan *
This paper tries to analyse various issues of international financial crisis in the world including the subprime mortgage crisis and the
causes and risks associated with it. It goes into various aspects of the US financial system and multiplicity of financial instruments. It is the
complexity of the financial engineering of different financial instruments, which made it very difficult to understand the working and its
effect on financial institutions. The net result is the near collapse of the financial system. The US and other world governments plan to help
the financial sector by injecting more than $ 2 trillion to clear the international financial crisis.
INTRODUCTION
The concept of financial crisis is applied broadly to a
variety of situations in which some financial
institutions or assets suddenly lose a large part of
their value. In the 19th and early 20th centuries,
many financial crises were associated with banking
panics, and many recessions coincided with these
panics. Other situations that are often called
financial crises include stock market crashes and the
bursting of other financial bubbles, currency crises,
and sovereign defaults.
The origins of today's crisis can be traced back to
mid-2007 when three things became clear. One, low
income or sub-prime US households that had
borrowed heavily from banks and finance
companies to buy homes were defaulting heavily on
their debt obligations. Two, the size of this subprime housing loan market was huge at about $1.4
trillion. And three, Wall Street's financial engineers
had packaged these loans into really complicated
financial instruments called CDOs (collateralized
debt obligations) and American and European
banks had invested heavily in these products.
However, no amount of financial engineering could
protect investors from one simple and irrefutable
principle - if these housing loans turned 'bad', the
instruments that were based on these loans would
lose value. CDO prices started plummeting as
defaults on US home loans rose. Falling prices
dented banks' investment portfolios and these
losses destroyed banks' capital. The complexity of
these instruments meant that no one was too sure
either about how big these losses were or which
banks had been hit the hardest.
Banks usually never hold the exact amount of cash
that they need to disburse as credit. The 'inter-bank'
market performs this critical role of bringing cashsurplus and cash-deficit banks together and
lubricates the process of credit delivery to
companies and consumers. As the housing loan
crisis intensified, banks grew increasingly
suspicious about each other's solvency and ability to
honour commitments. The inter-bank market
shrank as a result and this began to hurt the flow of
funds to the 'real' economy.
In short, today's financial crisis is the culmination of
these problems in the global banking system. Interbank markets across the world have frozen over.
Indian banks are in the middle of a severe cash
crunch. Other more 'solvent' banks at bargainbasement prices have acquired Wall Street blue
chips like Bear Stearns and Merrill Lynch. Lehman
Brothers, which had survived every major upheaval
for the past 158 years, went bust. Panic begets panic
and as the loan market went into a tailspin, it
absorbed other markets into its centrifuge. The
meltdown in stock markets across the world is a
victim of this contagion.
Some questions need answers at this stage. Why are
the sensex and the rupee getting hurt so badly by the
* Dr P Sivadasan (Project Consultant, School of Management Studies, University of Calicut, Palakkad, Kerala.
woes of the American and European banks? Their
presence in India is minuscule compared to the
nationalized banks or the bigger private banks. A
glance at Indian banks' balance sheets would show
that their exposure to complex instruments like
CDOs is almost nil.
The word, 'globalization', and the phrase, 'risk
aversion', should explain why India has not been
spared the contagion of the US and European
banking crisis. Global investors are seriously
concerned about the prospect of a great upheaval, if
not a complete collapse in the banking system in the
developed world. This, they fear, would affect all
financial transactions in the near term. Going
forward, this disruption could trigger a global
recession (that is about 3% growth in 2009 for all
economies put together). Agencies like the
International Monetary Fund have endorsed this
view.
The upshot is that the global investment community
has become extremely risk-averse. They are pulling
out of assets that are even remotely considered risky
and buying things traditionally considered safe gold, government bonds and bank deposits.
Emerging markets like India have over the last few
years offered spectacular returns but have always
been considered 'risky'.
THE RISKS
The reasons for this crisis are varied and complex.
Understanding and managing the ripple effect
through the worldwide economy poses a critical
challenge for governments, businesses, and
investors. The crisis can be attributed to a number of
factors, such as the inability of homeowners to make
their mortgage payments; poor judgment by the
borrower or the lender; and mortgage incentives
such as teaser interest rates that later rose
significantly. Further, declining home prices have
made re-financing more difficult. As a result of
innovations in securitization, risks related to the
inability of homeowners to meet mortgage
payments have been distributed broadly, with a
series of consequential impacts. The following risks
can be attributed to the crisis:
1. Credit risk: Traditionally, the bank
originating the loan would assume the risk of
default called credit risk. However, due to
35
innovations in securitization, credit risk is
frequently transferred to third-party investors.
The rights to mortgage payments have been
repackaged into a variety of complex
investment vehicles, generally categorized as
mortgage-backed securities (MBS) or
collateralized debt obligations (CDO). A CDO,
essentially, is a repacking of existing debt, and
in recent years MBS collateral has made up a
large proportion of issuance. In exchange for
purchasing MBS or CDO and assuming credit
risk, third-party investors receive a claim on the
mortgage assets and related cash flows, which
become collateral in the event of default.
2. Asset price risk: MBS and CDO asset
valuation is complex, and related "fair value" or
"mark to market" accounting is subject to wide
interpretation. The valuation is derived from
both the collectibles of subprime mortgage
payments and the existence of a viable market
into which these assets can be sold. They are
interrelated. Rising mortgage delinquency
rates have reduced demand for such assets.
Banks and institutional investors have
recognized substantial losses as they revalue
their MBS downward. Several companies that
borrowed money using MBS or CDO assets as
collateral have faced margin calls, as lenders
executed their contractual rights to get their
money back. There is some debate regarding
whether fair value accounting should be
suspended or modified temporarily, as large
write-downs of difficult-to-value MBS and
CDO assets may have exacerbated the crisis.
3. Liquidity risk: Many companies rely on
access to short-term funding markets, such as
the commercial paper and repurchase markets,
for cash to operate. Companies and structured
investment vehicles (SIV) often obtain shortterm loans by issuing commercial paper,
pledging mortgage assets or CDO as collateral.
Investors provide cash in exchange for the
commercial paper, receiving money-market
interest rates. However, because of concerns
regarding the value of the mortgage asset
collateral linked to subprime, the ability of
many companies to issue such papers have
been significantly affected. In addition, the
36
interest rate charged by investors to provide
loans for commercial paper has increased
substantially.
4. Counter party risk: Major investment banks
and other financial institutions have taken
significant positions in credit derivative
transactions, some of which serve as a form of
credit default insurance. Due to the effects of
the risks above, the financial health of
investment banks has declined, potentially
increasing the risk to their counter parties and
creating further uncertainty in financial
markets.
THE RISK ON CORPORATIONS AND
INVESTORS
The average investors and corporations also face a
variety of risks owing to the inability of mortgage
holders to pay. These vary by legal entity. Some
general exposures by entity type include:
1. Banking corporations: The earnings
reported by major banks are adversely affected
by defaults on the mortgages they issue and
retain. Companies value their mortgage assets
based on estimates of collections from
homeowners. Companies record expenses in
the current period to adjust this valuation,
increasing their bad debt reserves and reducing
earnings. Unexpected changes in mortgage
asset valuation can lead to volatility in earnings
and stock prices. The ability of lenders to
predict future collections is a complex task,
subject to a multitude of variables.
Additionally, a bank's mortgage losses may
cause it to reduce lending or seek additional
funds from the capital markets if necessary, to
maintain compliance with capital reserve
regulatory requirements.
2. Investment banks, mortgage lenders,
and real estate investment trusts: These
entities face risks similar to banks, yet do not
have the stability provided by customer bank
deposits. They have business models with
significant reliance on the ability to regularly
secure new financing through CDO or
commercial paper issuance, borrowing shortterm at lower interest rates, and lending longer-
term at higher interest rates. The more profits
such firms generate, the more leveraged they
became as housing values increased. However,
due to the decline in home values, the
mortgage-backed assets people purchased
with borrowed funds, declined in value.
Further, short-term financing became more
expensive or unavailable. Such firms are at
increased risk of significant reductions in book
value owing to asset sales at unfavorable prices
and hence several firms have filed bankruptcy
or been taken over. These types of risks lead us
to analyse various aspects of international
financial crisis.
TYPES OF FINANCIAL CRISES
When a commercial bank suffers a sudden rush of
withdrawals by depositors, this is called a bank run.
Since banks lend out most of the cash they receive in
deposits it is difficult for them to quickly pay back
all deposits if these are suddenly demanded, so a
run may leave the bank in bankruptcy, causing
many depositors to lose their savings unless they
are covered by deposit insurance. A situation in
which bank runs are widespread is called a systemic
banking crisis or just a banking panic. A situation
without widespread bank runs, but in which banks
are reluctant to lend, because they worry that they
have insufficient funds available, is often called a
credit crunch.
SPECULATIVE BUBBLES AND CRASHES
Economists say that a financial asset (stock, for
example) exhibits a bubble when its price exceeds
the value of the future income (such as interest or
dividends) that would be received by owning it to
maturity. If most market participants buy the asset
primarily in hopes of selling it later at a higher price,
instead of buying it for the income it will generate,
this could be evidence that a bubble is present. If
there is a bubble, there is also a risk of a crash in asset
prices. Market participants will go on buying only
as long as they expect others to buy, and when many
decide to sell the price will fall. However, it is
difficult to tell in practice whether an asset's price
actually equals its fundamental value, so it is hard to
detect bubbles reliably.
Well-known examples of bubbles and crashes in
stock prices and other asset prices include the Dutch
tulip mania, the Wall Street Crash of 1929, the
Japanese property bubble of the 1980s and the crash
of the dot-com bubble in 2000-2001, and the nowdeflating United States housing bubble.
INTERNATIONAL FINANCIAL CRISES
When a country that maintains a fixed exchange rate
is suddenly forced to devalue its currency because
of a speculative attack, this is called a currency crisis
or balance of payments crisis. When a country fails
to pay back its sovereign debt, this is called a
sovereign default. While devaluation and default
could both be voluntary decisions of the
government, they are often perceived to be the
involuntary result of a change in investor sentiment
that leads to a sudden stop in capital inflows.
Several currencies that formed part of the European
Exchange Rate Mechanism suffered crises in 199293 and were forced to devalue or withdraw from the
mechanism. Another round of currency crises took
place in Asia in 1997-98. Many Latin American
countries defaulted on their debt in the early 1980s.
The Russian financial crisis of 1998 resulted in a
devaluation of the Rouble and default on Russian
government debt.
WIDER ECONOMIC CRISES
A downturn in economic growth lasting several
quarters or more is usually called a recession. An
especially prolonged recession may be called a
depression, while a long period of slow but not
necessarily negative growth is sometimes called
economic stagnation. Since these phenomena affect
much more than the financial system, they are not
usually considered financial crises per se. But some
economists have argued that many recessions have
been caused in large part by financial crises. One
important example is the Great Depression, which
was preceded in many countries by bank runs and
stock market crashes. The subprime mortgage crisis
and the bursting of other real estate bubbles around
the world is widely expected to lead to recession in
the U.S. and a number of other countries in the
world.
Nonetheless, some economists argue that financial
crises are caused by recessions instead of the other
way around. Also, even if a financial crisis is the
37
initial shock that sets off a recession, other factors
may be more important in prolonging the recession.
In particular, Milton Friedman and Anna Schwartz
argued that the initial economic decline associated
with the crash of 1929 and the bank panics of the
1930s would not have turned into a prolonged
depression if it had not been reinforced by monetary
policy mistakes on the part of the monetary
authority.
CAUSES AND CONSEQUENCES OF
FINANCIAL CRISES
It is often observed that successful investment
requires each investor in the financial market to
guess what other investors will do. George Soros
has called this need to guess, the intentions of others
'reflexivity'. Similarly, John Maynard Keynes
compared financial markets to a beauty contest
game in which each participant tries to predict
which model other participants will consider most
beautiful.
Furthermore, in many cases investors have
incentives to coordinate their choices. For example,
someone who thinks other investors want to buy
lots of Japanese yen may expect the yen to rise in
value, and therefore has an incentive to buy yen too.
Economists call an incentive to mimic the strategies
of others, strategic complementarily.
It has been argued that if people or firms have a
sufficiently strong incentive to do the same thing
they expect others to do, then self-fulfilling
prophecies may occur. For example, if investors
expect the value of the yen to rise, this may cause its
value to rise; if depositors expect a bank to fail this
may cause it to fail. Therefore, financial crises are
sometimes viewed as a vicious circle in which
investors shun some institution or asset because
they expect others to do so.
LEVERAGE
Leverage means borrowing to finance investments.
This is frequently cited as a contributor to financial
crises. When a financial institution invests its own
money, it can, in the very worst case, lose its own
money. But when it borrows in order to invest more,
it can potentially earn more from its investment, but
it can also lose more than all it has. Therefore
leverage magnifies the potential returns from
38
investment, but also creates a risk of bankruptcy.
Since bankruptcy means that a firm fails to honor all
its promised payments to other firms, it may spread
financial troubles from one firm to another.
The average degree of leverage in the economy
often rises prior to a financial crisis. For example,
borrowing to finance investment in the stock
market, margin buying became increasingly
common prior to the Wall Street Crash of 1929.
ASSET-LIABILITY MISMATCH
Another factor believed to contribute to financial
crises is asset-liability mismatch, a situation in
which the risks associated with an institution's
debts and assets are not appropriately aligned. For
example, commercial banks offer deposit accounts,
which can be withdrawn at any time, and they use
the proceeds to make long-term loans to businesses
and homeowners. This mismatch between the
banks' short-term liabilities (its deposits) and its
long-term assets (its loans) is seen as one of the
reasons bank runs occur (when depositors panic
and decide to withdraw their funds more quickly
than the bank can get back the proceeds of its loans).
In an international context, many emerging market
governments are unable to sell bonds denominated
in their own currencies, and therefore sell bonds
denominated in US dollars instead. This generates a
mismatch between the currency denomination of
their liabilities (their bonds) and their assets (their
local tax revenues). So they run a risk of sovereign
default due to fluctuations in exchange rates.
FRAUD
Fraud has played a role in the collapse of some
financial institutions, when companies have
attracted depositors with misleading claims about
their investment strategies, or have embezzled the
resulting income. Many rogue traders that have
caused large losses at financial institutions have
been accused of acting fraudulently in order to hide
their trades. Fraud in mortgage financing has also
been cited as one possible cause of the 2008
subprime mortgage crisis; government officials
stated on Sept. 23, 2008 that the FBI was looking into
possible fraud by mortgage financing companies
Fannie Mae and Freddie Mac, Lehman Brothers,
and insurer American International Group.
CONTAGION
Contagion refers to the idea that financial crises may
spread from one institution to another, as when a
bank run spreads from a few banks to many others,
or from one country to another, as when currency
crises, sovereign defaults, or stock market crashes
spread across countries. When the failure of one
particular financial institution threatens the
stability of many other institutions, this is called
systemic risk. One widely cited example of
contagion was the spread of the Thai crisis in 1997 to
other countries like South Korea. However,
economists often debate whether observing crises in
many countries around the same time is truly
caused by contagion from one market to another, or
whether it is instead caused by similar underlying
problems that would have affected each country
individually even in the absence of international
linkages.
RECESSIONARY EFFECTS
Some financial crises have little effect outside of the
financial sector, like the Wall Street crash of 1987,
but other crises are believed to have played a role in
decreasing growth in the rest of the economy. There
are many theories why a financial crisis could have a
recessionary effect on the rest of the economy. These
theoretical ideas include the 'financial accelerator',
'flight to quality' and 'flight to liquidity', and the
Kiyotaki-Moore model. Some 'third generation'
models of currency crises explore how currency
crises and banking crises together can cause
recessions.
Similarly, the sell-off in the stock markets is not
entirely the effect of global contagion. To a degree, it
reflects anxieties about our prospects of future
growth. The bloodletting in the financial markets is
unlikely to stop soon. Governments and central
banks are trying every trick in the book to stabilize
the markets. They have pumped hundreds of
billions of dollars into their money markets to try
and unfreeze their inter-bank and credit markets.
Large financial entities have been nationalized. The
US government has set aside $700 billion to buy the
'toxic' assets like CDOs that sparked off the crisis.
Central banks have got together to co-ordinate cuts
in interest rates. None of this has stabilized the
global markets. Thus, it is impossible to predict
when the financial problem will stop and what will
stem it.
In this scenario it would be interesting to
understand the Bretton Woods financial system,
which was established in 1944. During the meeting
of the members of the G20 grouping of nations in
Washington to discuss ways to reform the global
financial system, there was a strong need was
discussed for a updated Bretton Woods system
(1944) to manage the current international financial
crisis. With World War II drawing to a close and
Japan and Europe in ruins, the world's economic
elite gathered to build a framework for economic
cooperation that would avoid a repetition of the
cycle of competitive devaluations that had
contributed to the Great Depression of the 1930s.
The Conference established the International
Monetary Fund and the World Bank, set the gold
standard at $35 an ounce and chose the dollar as the
cornerstone of world currency exchange.
Bretton Woods was blown apart by the strains
produced by the war in Vietnam and effectively
suspended by President Richard Nixon in 1971. This
meant the US would no longer honor the agreement,
which made the US dollar the world's reserve
currency, and allowed other countries to convert
their US-dollar holdings into gold. In 1994, calls for
more stability resurfaced after the dollar tumbled to
a series of post-World War II lows against the
Japanese yen and Central bankers and politicians
worried about the onslaught of speculators in
foreign exchange markets.
The global credit crunch that originated in the US
housing market 15 months ago before enveloping
the banking system and threatening the very
foundations of the global market economy, has
prompted banks to pull back lending to each other
and to businesses and households. Synchronized
rate cuts by Central banks and emergency
government packages worth some $4 trillion may
have prevented a banking sector meltdown, but the
world economy is in poor shape. British Prime
Minister Gordon Brown and French President
Nicolas Sarkozy want a Bretton Woods style
reworking of supervision of global capital markets.
In this context one may say that emerging
economies like India and China should have more
say in the management of international financial
management.
39
A short list of some major financial crises since 1980
1980s:
Latin American debt crisis, beginning in Mexico
1989-91: United States Savings & Loan crisis
1990s:
Collapse of the Japanese asset price bubble
1992-93: Speculative attacks on currencies in the European
Exchange Rate Mechanism
1994-95: 1994 economic crisis in Mexico: speculative attack
and default on Mexican debt
1997-98: Asian Financial Crisis: devaluations and banking
crises across Asia
1998:
Russian financial crisis: devaluation of the Rouble
and default on Russian debt
2001-02: Argentine economic crisis (1999-2002):
breakdown of banking system
2008:
USA, Europe: spread of the subprime mortgage
crisis
Source: www.NYtimes.com
Top US bank failures
Homefed Bank FA of San Diego failed in 1992 with assets of
$12.2 billion.
First City Bancorp of Houston failed in 1988 with assets of
$13 billion
Gibraltar Savings of Simi Valley, California, collapsed in 1989
with assets of $15.1 billion
MCorp of Dallas failed in 1989 with assets of $15.6 billion
Gibraltar Savings of Simi Valley, California, collapsed in 1989
with assets of $15.1 billion.
MCorp of Dallas failed in 1989 with assets of $15.6 billion.
Bank of New England collapsed in 1991 with assets of $21.7
billion
American Savings and Loan Association of Stockton,
California, failed in 1988 with assets of $30.2 billion.
IndyMac Bank FSB of Pasadena, California, collapsed in July
with assets of $32 billion
First Republic Bank Corporation of Dallas failed in 1988 with
$32.5 billion in assets.
Continental Illinois of Chicago, collapsed in 1964 with $40
billion in assets
Washington Mutual of Henderson, Nevada and park City,
Utah; seized September 25,2008 with $307 billion in assets
as of June 30.
Source: www.Nytimes.com
40
IMPACT ON INDIA
The impact on India can be both direct and indirect.
The direct impact comes from exposure to the
distressed assets by Indian banks and other
financial institutions. This is expected to be
minimal. Indian banks, in general, have very little
exposure to the asset markets of the developed
world. Indian banks have very few branches
abroad. The indirect impact will be through trade
and capital flows.
However, export growth will be adversely affected
by the recession in the developed world. It will have
an impact both on merchandise exports and service
exports. The deceleration in export growth may
sharply affect some segments of the economy,
which are export-oriented. Given the nature of the
crisis, it is only to be expected that capital inflows
into the country will dry up. Foreign Institutional
Investors (FIIs) have already disinvested and taken
out close to $10 billion. This has had the most serious
impact on the stock market.
Stock prices have fallen by 60% from the peak they
had reached 10 months ago. Apart from the loss to
stockholders, this will have the most serious impact
on the primary market. Inability to raise fresh funds
will affect investment and capital formation in the
corporate sector. Conversion of positive flows to
negative flows on portfolio capital can also lead to a
fall in the value of the rupee.
Withdrawing investment by FIIs will put additional
pressure on dollar demand. The availability of
dollars is affected by the difficulties faced by Indian
firms in raising funds abroad. This, in turn, will put
pressure on the domestic financial system for
additional credit. Though the initial impact of the
financial crisis has been limited to the stock market
and the foreign exchange market, it is spreading to
the rest of the financial system, and all of these are
bound to affect the real sector.
As external sources of funds dry up, the pressure on
the domestic banking system will increase. The
RBI's decisions to reduce CRR and Repo rates are in
the right direction and taken on time. As the
reserves come down, this will also suck out
liquidity. It is, therefore, important for the RBI to
keep a watch on liquidity condition in the market.
The RBI's ability to help other institutions such as
mutual funds and non-banking finance companies
(NBFCs) directly is limited right now. It can only
help them indirectly by reducing the pressure of the
corporates on them for redemption through the
enlargement of liquidity of the banking system.
There can be no dispute about the contention that
public spending should remain at a high level in a
situation like the present one. With the
Supplementary Grants approved recently by
Parliament, it is almost apparent that the fiscal
deficit of the Centre in the current year may touch
4% of GDP, at least 1% above the fiscal
responsibility and budget management (FRBM)
target.
The Indian government should focus on the
financial system and enable it to fulfil its functions
adequately in terms of the provision of credit to
productive sectors. The domestic credit system
must also fill the gap created by the drying up of
external sources. Hence, one should think in terms
of providing additional funds for long-term capital
requirements, since the ability to raise funds from
the capital market is bleak. Similarly, there will be
some tendency for the rupee to depreciate, which
cannot be avoided. In relation to the exchange rate,
the RBI can manage to prevent extreme volatility in
the exchange market. The government should
spend more on agriculture sector particularly on
food grain production and investment should be
made on basic infrastructure. The time has come for
country like India to play a major role in the
international financial sector.
ACTION TO MANAGE THE CRISIS
The Federal Reserve in partnership with Central
banks around the world has taken several steps to
address the crisis. Between September 18, 2007 and
April 30, 2008, the Federal funds rate was lowered
from 5.25% to 2% and the discount rate was lowered
from 5.75% to 2.25%. They have conducted open
market operations to ensure member banks have
access to funds. These are effectively short-term
loans to member banks collateralized by
government securities. In March 2008, the Fed also
provided funds and guarantees to enable J.P.
Morgan Chase bank to purchase Bear Stearns, a
large financial institution affected by the subprime
crisis. Similarly, the Fed has provided about $85 bn
to protect AIG from creditors. Lenders and
homeowners may benefit from avoiding
foreclosure, which is a costly and lengthy process.
Some lenders have taken action to reach out to
homeowners to provide more favorable mortgage
terms like refinancing, loan modification etc. Credit
rating agencies help evaluate and report on the risk
involved with various investment alternatives. The
rating processes can be re-examined and improved
to encourage greater transparency to the risks
involved with complex mortgage-backed securities.
Major financial institutions have obtained a
substantial amount as new capital from
international lenders. Banks have obtained some of
this capital from sovereign wealth funds, which are
entities that control the surplus savings of
developing countries. These funds may be used to
help banks maintain the required capital ratios to
keep up the financial health of the sector.
For a financial problem of this magnitude faced by
the developed countries today, the most immediate
concern is to provide liquidity to institutions, which
are locked into assets that cannot be easily realized.
That is what the U.S. and the European countries
have done. The recovery package of $700 billion
approved by the U.S. Congress is a massive effort in
this direction. These funds are being utilized to
inject capital into banks.
CONCLUSION
The international financial crisis is the net result of
the over ambitious attitudes of financial
institutions. It started with the US subprime crisis.
The financial institutions believed that by
transferring CDOs to a third party, the financial risk
could be avoided. In addition to that they started
enhancing their business by leveraging against their
total assets. In the process they ended up in
providing financial loans to borrowers, who neither
have the capacity to repay the loan nor have the
collateral to guarantee the loan. The institutions
overlooked this factor and learned the lesson the
hard way. Along with the desire to make more
profit, financial institutions should have corporate
responsibility towards its stakeholders. In an open
economic system it is the institutions that should
41
have self discipline rather than the government
regulations.
REFERENCES
1.
Milton Friedman and Anna Schwartz (1971), A Monetary
History of the United States, 1867-1960. Princeton
University Press, ISBN 0691003548.
2.
1929 and all that, The Economist, Oct. 2, 2008.
3.
The Theory of Reflexivity, speech by George Soros, April
1994 at MIT.
4.
J. M. Keynes (1936), The General Theory of Employment,
Interest and Money, Chapter 12. (New York: Harcourt
Brace and Co.).
5.
Are emerging economies causing inflation, Economic
Times (India) (2008-07-08).
6.
www.Yahoofinance.com
7.
www.Theeconomictimes.com
8.
www.wikepedia.org
9.
www.businessweek.com
10.
www.wallstreetjournal.com
11.
www.Nytimes.com
12.
www.brettonwoodsproject.org / britannica.com
42
ROLE OF SECURITIES AND EXCHANGE BOARD OF INDIA
(SEBI) IN REGULATING THE STOCK MARKET
Manoj Sharma*
The developments which took place in the stock markets in India during the 1980's boom and the mega issues during that period took the
investors for a ride. Companies raised over Rs. 12,000 crores from the public during that period and in many cases the investors were
cheated by presenting rosy pictures about the security of investments, high dividends and capital appreciation which were not actually
true. It was felt that legislation in this regard was scattered in different laws and the administrative agencies did not have proper
manpower and expertise to ensure a fair deal in investors.
In view of the above, SEBI (Securities and Exchange Board of India) was initially constituted on 12th April, 1988 as a non-statutory body
through a resolution of the government for dealing with all matters relating to development and regulation of securities market and
investor protection and to advise the government on all these matters. The government issued an ordinance on January 30, 1992 for giving
statutory powers to SEBI. This act was passed by the parliament as Act No. 15 of 1992 which received the assent of the parliament on 4th
April, 1992. But, it was found that the role of SEBI to regulate the Stock market have been subject to intense scrutiny. Therefore, through
this research paper an attempt has been made to examine the role of SEBI to regulate the Stock Market. The present paper is confined to 20
years period starting from 1988 to 2008. The study reveals that over the years role of SEBI has been increased and SEBI is trying to do a fair
job to regulate the Stock Market. Further, while concluding the study, it was found that SEBI regularly need to introduce such monitoring
techniques which can build more transparency, confidence and fairness in the Stock Market.
The developments which took place in the stock
markets in India during the 1980's boom and the
mega issues during that period took the investors
for a ride. Companies raised over Rs. 12,000 crores
from the public during that period and in many
cases the investors were cheated by presenting rosy
pictures about the security of investments, high
dividends and capital appreciation which were not
actually true. It was felt that legislation in this
regard was scattered in different laws and the
administrative agencies did not have proper
manpower and expertise to ensure a fair deal in
investors. There was a need to check the
malpractices, insider trading and the market
pricing, etc., on the one hand and to regulate the
mutual funds and venture capital on the other.
In view of the above, SEBI (Securities and Exchange
Board of India) was initially constituted on 12th
April, 1988 as a non-statutory body through a
resolution of the government for dealing with all
matters relating to development and regulation of
securities market and investor protection and to
advise the government on all these matters. The
government issued an ordinance on January 30,
1992 for giving statutory powers to SEBI. This act
was passed by the parliament as Act No. 15 of 1992
which received the assent of the parliament on 4th
April, 1992. Further, on May 29, 1992 the
government issued an ordinance abolishing the
capital Issues Control Act, 1947. The ordinance also
supersedes the various guidelines issued by the CIC
from time to time. Accordingly, SEBI has been set up
under the SEBI Act, 1992.
The main purpose of the SEBI Act is to provide for
the establishment of a board called 'Securities and
Exchange Board of India'. The purposes of the Board
as laid down in its preamble are as follows:
•
To protect the interests of investors in
securities.
•
To promote the development of the securities
market.
•
To regulate the securities market; and
•
For matters connected therewith or incidental
* Manoj Sharma, is a Research Scholar in Faculty of Commerce and Management, Himachal Pradesh University.
thereto.
FUNCTIONS OF SEBI
Under section 11 of SEBI Act, 1992 it has to perform
the following functions:
•
To protect the interests of investors and to
regulate capital market with suitable measures.
•
To regulate the business of stock exchanges and
other securities market.
•
To regulate the working of stock brokers, subbrokers, share transfer agents, trustees,
merchant bankers, underwriters, port-folio
managers etc. and also to make their
registration.
43
and control of contracts and a copy of the rules
relating in general to the constitution of the stock
exchange. If the central government is satisfied that
bye laws of the exchange ensure fair dealing and
protect investors; stock exchange is willing to
comply by other conditions which central
government may impose and it is in the interest of
trade and of the public to grant recognition, it may
recognize the stock exchange.
POWER OF SEBI IN RELATION TO STOCK
EXCHANGE
The SEBI ordinance has given it the following
powers in relation to Stock Exchange:
•
To register and regulate collective investment
plans of mutual funds.
•
It may call periodical returns from stock
exchanges.
•
To encourage self-regulatory organizations.
•
It has the power to prescribe maintenance of
certain documents by the stock exchange.
•
SEBI may call upon the exchange or any
member to furnish explanation or information
relating to the affairs of the stock exchange or
any members.
•
It has the power to approve bye-laws of the
stock-exchange for regulation and control of
the contracts.
•
It can amend by-laws of stock-exchange.
•
In certain areas it can license the dealers in
securities.
•
It can compel a public company to list its shares.
•
To eliminate malpractices of security markets.
•
To train the persons associated with security
markets and also to encourage investor's
education.
•
To check insider trading of securities.
•
To supervise the working of various
organizations trading in security market and
also to ensure systematic dealings.
•
To promote research and investigations for
ensuring the attainment of above objectives.
•
Under new provisions SEBI has been given
powers for granting recognition to any stock
exchange in the country. SEBI has also been
given the authority of deciding voting right for
any member and also of amending it (till now
this authority was exercised by (central
government). SEBI will now settle the disputes
relating to regulation of transactions under
spot delivery and non-listing of share by the
company.
Further, if the Central government is of the opinion
that the governing body of any recognized stock
exchange should be superceded then it may give a
written notice specifying the reasons for such
action. After giving opportunity to the governing
body it may supercede it and appoint person or
persons to exercise and perform all the powers and
duties of the governing body.
ROLE OF SEBI IN STOCK EXCHANGE
LIMITATIONS OF SEBI
Every stock exchange needs recognition from
central government. Any stock exchange, which is
desirous of being recognized, may make an
application to the central government. The
application should be accompanied by a copy of the
bye laws of the stock exchange for the regulation
Though SEBI has started as a watch dog in
protecting investors interests, regulating the
working of stock exchanges and promoting capital
market, still it faces a number of problems in its
working. Some of these are as follows:
•
The central government has authorized SEBI to
44
frame its rules and regulations for actively
monitoring capital market. These rules and
regulations will have to be approved by the
government first. This will cause unnecessary
delays and interference by the finance ministry.
The bureaucratic delays in clearing the rules
will hamper the working of SEBI to frame or
change the rules as per the demand of the
institution so that it is able to achieve
professional efficiency.
•
•
SEBI will have to seek prior approval for
solving criminal complaints regarding
violation of the regulations. This will again
cause delay at government level.
SEBI has not been given autonomy. Its board of
directors is dominated by government
nominees. Out of 5 directors only 2 can be from
outside and these are to represent the ministries
of finance, law and Reserve Bank of India. The
chairman of the board has no fixed tenure and
can be removed with three months notice.
These appointments should be for a fixed
tenure to regulate the SEBI's working in the
long run.
NEED OF THE STUDY
SEBI is regulating the stock market since its
introduction in April, 1988. After reviewing the
literature available on the current topic it is
observed that there is none of the study conducted
on same topic. It is further-observed that there is
research gap in the available studies. The present
study is an attempt to bridge the research gap and to
assess the role of SEBI in regulating the stock
market.
SCOPE OF THE STUDY
The present study is confined to twenty years
period starting from 1988 to 2008. Every efforts have
been made to make the study exhaustive for the
stipulated time period, subject to the availability of
the information and data concerning to various
aspects. The secondary data have been used for the
study and the data for the study has been collected
from the published documents of the SEBI and stock
markets.
OBJECTIVES OF THE STUDY
The main objectives of the present study are as
follows:
•
To study the role of SEBI in regulating the stock
market.
•
To know the changes that took place in the role
of SEBI.
ROLE OF SEBI IN REGULATING THE STOCK
MARKET
Govt. of India constituted the SEBI with a view to
regulate and control the Stock Market. So, right
from its inception to ensure fairness in the Stock
Market, SEBI has developed a Stock Watch System
to protect the interest of investor's. The detailed
study of this system is as follows:
SEBI'S STOCK WATCH SYSTEM
For effective surveillance and monitoring of the
securities markets it was felt that there is a need to
have a system with a common framework across all
the stock exchanges. The objectives of this system,
termed as the Stock Watch System, is to give suitable
indicators for the detection of potential illegal or
improper activity to protect investor confidence
and the integrity of the securities market and its
players.
DATABASES
The Stock Watch System has standardized
information available with all the stock exchanges.
This standard information is stored in the form of
four databases classifieds as follows:
Ø
Issuer Database
Ø
Securities Database
Ø
Trading Database
Ø
Member Database.
In order to access information on a security from any
of these databases, there is a unique identification
number which comprises the first seven digits of the
ISIN number issued by SEBI. In order to access
information for any member, a unique
identification code is being formulated on lines
similar to the ISIN codes for securities. Final
objective of the uniform structure of these databases
is to make these databases accessible on line to other
stock exchanges. In order to detect any improper
activity, the system has standardized alerts, which
are classified as follows:
Ø
Online Real time Alerts
Ø
Online Non-real time Alerts
These alerts generated are stored in two separate
databases, which are dynamically updated.
Detailed description of these databases and alerts is
given below:
ISSUER DATABASE
This database is maintained by the regional stock
exchange and updated every week. The database
contains information about the company whose
instruments are traded on the exchange. This
information includes the name, address, the line of
business, the promoters share holding pattern,
capital history, balance sheet, profit and loss
accounts, corporate actions, subsidiary companies
etc.
SECURITIES DATABASE
This database is maintained by all stock exchanges
and updated every week. The database contains
information about the instruments like shares,
preference shares, warrants, debentures etc., which
are traded on the exchange. This information
includes the name of the company, the instrumental
type, floating stock, trading start date, ex-date, nodelivery periods, dates and reasons for suspension
of trading, details of fake and forged shares etc.
TRADING DATABASE
This database is maintained by all stock exchanges.
It is updated on-line/ daily/ end of settlement
based on the type of information. This information
includes price, volume and value relating to the
trades, obligations, deliveries and auctions,
positions, price bands etc.
MEMBER DATABASE
This database is maintained by all stock exchanges.
The information in this database includes the name
and type of membership, name, address and
qualification, details of other exchange's
45
membership, securities in which the member is
active, short and bad delivery record, suspension
record, investor grievance complains, arbitration
cases, sub-brokers with their names and addresses,
the turnover details, net worth etc.
ALERTS
Ø
Online Real time Alerts
These alerts are based on the order and trade
related information during the trading hours.
The objective of these alerts is to identify any
abnormality as soon as it happens. These alerts
include intra-day price movement related and
abnormal order and trade quantity or value
related alerts.
Ø
Online Non-real Time alerts
These alerts are based on the traded related
information at the end of the day and the
available historical information. The objective
of these alerts is to analyze the price, volume
and value variations over a period.
PARAMETERS FOR ALERT GENERATION
The parameters that are used for alert generation are
explained below:
Category
Price Band
Less than Rs. 10.00
+/-50.00%
Rs. 10.00 to Rs. 19.95
+/- 25.00%
Rs. 20.00 and above
+/- 8.00%
In case of 200 securities jointly identified by BSE and
NSE the price band are relaxed by further 4%.Once
the scrip touches 8% price band in either direction,
trading in that scrip would be restricted up to the
price band for half an hour. After half an hour of
trading, price band would be further relaxed by 4%
in that direction only. In case of scrip touches the
price band of 8% in BSE prior to NSE, on receipt of
such information from BSE, the price band would be
relaxed at NSE by 4% in that direction, after such
relaxation is applied at BSE. In cases where the scrip
touches the price band on either side, in last half an
hour of trading, then the trading in that scrip would
be restricted up to the price band for fifteen minutes
instead of half an hour. After fifteen minutes, the
46
price band would be further relaxed by 4% in that
direction only.
The relaxation in price band would be effected only
if the scrip (scrip other than those in compulsory
rolling settlement) touches the price band in any
direction in EQ series in the normal market. Once the
price band is flexed in series EQ for a security then
price band shall also be flexed in other relevant series
AE, BE, BT and TT. In case of rolling settlements the
price band shall be flexed in series BE only and price
band in series BT for the respective security shall be
flexed only on request from member. Similarly price
bands shall be flexed in market type 'S' and 'O' for the
purpose of ALBM and Limited Physical Market,
only if the price bands have been flexed in the
Normal Market as detailed above and on specific
request from member in this regard. The above
provisions are not applicable in case of securities
trading below Rs. 20. There is no settlement price
band. Maximum/ minimum prices calculated on the
basis of the price ranges applicable are rounded
(ceiling) to Rs. 0.05.
Ø
Auction Market
Price bands are applicable over previous day's
close price and are as follows:
Category
Price Band
Less than Rs. 10.00
+/-50.00%
Rs. 10.00 to Rs. 19.95
+/- 25.00%
Rs. 20.00 and above
+/- 15.00%
Ø
Quantity Freeze Percentage (Volume of
large order)
Any order, whose value is greater than or equal
to around Rs. 5.00 crore subject to a ceiling of
1.00% of the issue size, results in a quantity
freeze and does not go directly into the order
books. Such orders go into the books only after
the exchange's approval. Rejected quantity
freeze results in the cancellation of the order.
Ø
Price Variation
It is defined as the variation between the last
trade price (LTPt) and the previous close price
(P) of a security expressed as a percentage of the
previous close price (P). i.e. Price Variation
{(LTP-P)/p} x 100.
Ø
High Low Variation
It is defined as the variation between the high
price (H) and the low price(L) of a security
expressed as a percentage of the previous close
price (P) i.e.
High Low Variation {(H-L)/P}X 100
This parameter can also be expressed as a
percentage of the low price i.e.
High Low Variation over low price = {(H-L/l}x
100.
Ø
Open Price Variation
It is defined as the variation between the open
price (O) and the previous close price (P) of a
security expressed as a percentage of the
previous close price (P) i.e.
Open Price Variation = {(O-P)/P X 100.
Ø
Consecutive Trade Price Variation
It is defined as the variation between the last
trade price (LTP1) and the previous trade price
(LTPt-1) of a security expressed as a percentage of
the previous trade price (LTPt-1) i.e. Consecutive
Trade Price Variation (?LTP) = {(LTPT LTPt-1)/
LTPt-1}X 100
Ø
Quantity Variation
It is defined as the percentage variation between
the total traded quantity Q and the average
traded quantity Qavg expressed as a percentage of
the average traded quantity.
Quantity Variation = {(Q-Qavg)/Qavg}x 100
Quantity Variation Ratio = Q/Qavg
Daily Average Traded Quantity = Total number
of shares traded in the last 'n' trading days/n
Ø
Price Movement in Relation to the Index
This is used to identify securities whose price
movement is opposite to the index is the
difference between the % change in index and
the % price variation of the security.
OFF-LINE SURVEILLANCE SYSTEM
Margins
Margin represents a prescribed token amount
evidencing commitment made by a client in the
form of cash and/ or securities or in any other
form to honour the executed transaction/
contract/ trade. National Securities Clearing
Corporation Limited (NSCCL), a wholly owned
subsidiary of the National Stock Exchange
(NSE) carries out the settlement of trades
executed on the Exchange, imposes stringent
margin requirements on CMs, as explained
below:
Ø
Mark to Market Margin
Mark to market margin is the aggregate amount
of actual loss incurred on the positions closed
out during the course of the day and the notional
loss, which a member would incur, if the net
cumulative outstanding positions in all
securities were to be closed out at the closing
price of the relevant trading day. For each
security, this is worked by multiplying the
difference between the close price and the price
at which the trade was executed by the
cumulative buy and sell open position (for buy
position the close price being lower than actual
trade price and for sale position the close price
being higher than actual trade price). The
aggregate across all securities is Mark to Market
margin payable by a member. It is calculated as
under:
MTM Profit/Loss = [(Total Buy Qty X Close
price) Total Buy Value] + [Total Sale Value
(Total Sale Qty X Close price)]
Actual profit and notional profit worked out on
identical basis are ignored while calculating
mark to market margin. In case of Regular
Market segment, after close of a trading cycle,
mark to market margin continues to be
computed in respect of transactions of the closed
trading cycle till its funds pay in day because the
positions for the closed settlement are not
settled by way of delivery and payment. The
credit for mark to market profit is therefore not
taken into account and all the mark to market
losses are taken into consideration. In cases
where the outstanding position in a security is
zero, the difference between the buy and sell
values is considered for the mark to market
calculation.
Mark to market losses in the Regular Market
Segment in a security are adjusted against the
47
Mark to Market profits in other securities. Mark
to market margins are calculated separately for
the two trading cycles. Credit for mark to market
profits of the closed trading cycle is not given
against Mark to Market losses of the current
trading cycle, as per SEBI directive.
Ø
Volatility Margin
Volatility Margin is imposed to curb excessive
volatility in the market and to act as a deterrent
to building up of excessive outstanding
positions. Volatility of a security is determined
on the basis of fluctuations in stock prices over a
six-week period. The volatility percentage is
defined as:
(6 week high price 6 week low price)/ 6 week
low price* 100
Price variations on account of calls, bonuses,
rights, mergers, amalgamations and scheme of
arrangements are adjusted for determining
volatile securities and adjustments in prices,
when securities are traded ex-benefits, is made
for the purpose of computation of volatility. The
margin rates are as under:
Price Variation
Margin Rate
³ 60%- <70%
5
³ 70% - <90%
10
³ 90% - <110%
15
³110% - <130%
20
³ 130% - < 150%
25
³ 150%
30
Source : NSE
The securities that attract volatility margin and
the margin rates applicable are announced on
the last day of the trading cycle and are
applicable from the first day of the succeeding
trading cycle. The volatility margin is levied on
the net outstanding position of the member in
each security based on the respective margin
rates.
Further, if prices have been volatile, say,
upwards (or downwards) and are attracting
margins on the buy side (or sell side), and if the
price movement reverses and exhibits a decline
(or increases) of 16% or more, then the margins
will be applicable on sell side (buy side) as per
48
rates prescribed. The volatility margins are not
applicable for securities whose prices are less
than Rs. 40. However, it attracts volatility
margin if the price of a security increases to Rs.
40 or more. If a price of a security reduces to
below Rs. 40 in a trading period, it will still be
eligible for consideration during that trading
period. If a security attracts both the mark-tomarket and the volatility margins, the higher of
the two is levied as daily margin.
Ø
Gross Exposure Margin
Gross Exposure Margin is computed on the
aggregate of the net cumulative outstanding
positions in each security of the CM in the
following manner:
Margin Payable
0 – 10
Nil
> 10 and upto 30
2.5%
> 30 and upto 60
Rs. 5 lac plus 5% in excess of
Rs. 30 million
> 60 and upto 80
Rs. 60 million
> 80 and upto 200
Rs. 80 million
SEBI time to time amend and issue additional
guidelines to regulate and protect the interest of
investors in the Stock Market. The detailed study of
these guidelines is as follows:
Rs. 200 million
Source: NSE
Additional margin of 5% will be imposed on net
sale position at the end of day on all securities.
Ø
Gross Exposure
The price movement for the following securities
are as given below:
Example: The price movement for the following
securities are as given below:
Security
Preceding
Preceding
6-week High 6 week Low
Answer: Security A and E will attract an additional
volatility at a rate of 15.00% and 5.00% respectively
(NSE's NCFM, 2007, PP. 70-72).
ADDITIONAL GUIDELINES
Gross Exposure
(Rs. Million)
> 200
Which of the following statements is true for the
above securities for the next settlement.
1. Security A will attract an additional volatility
margin at a rate of 15.00%.
2. Security B will attract an additional volatility
3. Security C will attract an additional volatility
4. Security D will attract an additional volatility
5. Security E will attract an additional volatility
margin at the rate of 5.00%.
Settlement
Close
A
140.00
80.00
100.00
B
205.00
195.00
200.00
C
15.00
5.00
10.00
D
105.00
95.00
100.00
E
130.00
90.00
110.00
Uniform intra-day price band of 10 percent:
(Action by all Stock Exchanges)
In addition to the price cap of 25 percent which is
being implemented uniformly by all stock
exchanges, it was decided that the intra day price
band which is presently flexible in the range of upto
10 percent would be implemented uniformly at 10
percent. This is to be implemented by all exchanges
by January 31, 1998, if not already done.
Price bands on the scrips traded below Rs.
20/- (Action by all Stock Exchanges)
It was decided to retain the flexibility of the price
bands by the exchanges themselves in the scrips
trading upto Rs. 20/- However, the exchanges are
required to send details of how they are operating
the price bands in the scrips quoted below Rs. 20/for information.
Price bands in respect of infrequently
traded scrips: (Action by NSE, BSE and
DSE)
Though broadly it was decided that if the scrip is not
traded for six settlement the NSE formula (sq. root of
number of days not traded on NSE)* (Normal Price
band of NSE) for fixing the price bands may be used.
If the scrip is not traded for more than 15 settlements
then the exchange would approve the price case by
case. However, no uniform view could emerge on
fixing of price bands for infrequently traded scrips. It
was therefore, decided to form a small group
comprising of representatives of BSE, NSE and DSE,
to frame the guidelines and the basis on which such
price bands could be fixed. NSE would be the coordinator and give a report by January 31, 1998.
Public disclosure of information relating to
actions taken against the members: (Action
by all Stock Exchanges)
Presently the action taken against the members
including penal actions are not disclosed to other
market participants/ investors by all the Exchanges.
It was agreed that such actions need to be disclosed
in the larger interest of the investors and market
participants. It was therefore decided that the
actions taken by the Disciplinary Action Committee
(DAC) against the member brokers would be made
public and would at least be displayed on the notice
board of the respective Exchange.
Dissemination of price sensitive
information to public/investors: (Action by
All Stock Exchanges)
There was need to have proper dissemination of
price sensitive and other important information
relating to corporates/ market, to investors in the
quickest possible manner. For this purpose the
service provider like Reuters etc. could also be used.
The exchanges should also display such information
on their terminals in the quickest possible manner.
Dealing with Market Rumours: (Action by
all Stock Exchanges and SEBI)
Rumours in the market can do considerable damage
to the normal functioning and behavior of the
market. It is therefore essential to have quick
verification of such rumors from the corporate as
well as from other entities whenever it is so
necessary. Therefore it was decided that exchanges
would make it possible to verify such rumours in the
quickest possible manner and inform other market
49
participants/ investors, if possible through their
terminals. Further to begin with top 100 companies
which figure in BSE specified groups of securities
and NSE Nifty would be asked to designate a
compliance officer who could be contacted by
exchanges whenever such verification is needed.
This would be taken up by SEBI.
Co-ordination between exchanges: (Action
by all Stock Exchanges)
To facilitate better and quicker co-ordination it was
decided that all exchanges would designate a coordination officer who could be contacted by the
other exchanges for immediate exchange of
information. A list of such co-ordinating officers
would be sent to the Senior Executive Director,
Investigation, Enforcement and Surveillance, SEBI
who would communicate the same to all exchanges.
This should be done by January 31, 1998.
Joint Inspection/ Investigation in case of
brokers having multiple memberships:
Action taken by SEBI and all Stock
Exchanges
It was decided that in some suitable cases, the
exchanges would co-ordinate and carry out joint
inspection of members having multiple
membership. Besides there should be information
sharing also in such cases. Modalities of such
inspection and sharing of such information would
be worked out by SEBI with the help of the
Exchanges (ISG, 1997, PP. 88-89).
PRICE BANDS FOR SCRIPS TRADING AT
LESS THAN RS. 20/It was observed that in the cases of scrips trading at
less than Rs. 20/- different systems of price bands
were being followed by stock exchanges. The price
bands for scrips being traded at less than Rs. 20/would have to be simplified by the stock exchanges.
IMPLEMENTATION OF THE FIRST PHASE
OF THE STOCK WATCH SYSTEM
With respect to the implementation of the first phase
of the Stock Watch System, all the exchanges are
advised to take up this matter on top priority. NSE
and BSE informed that at their exchanges the same
would be operational by June 1998. In the case of
DSE it would be operational by first week of August.
50
PROMPT COLLECTION OF MARGINS
In the context of ensuring market safety it was
decided that the Stock Exchanges would collect
margins due from members before the close of
banking hours on the following day. The margins
would be collected either by direct debit to the
member's bank account or by cheque issued on the
clearing bank branch of the exchange. In the event of
non-payment of margins by the members the
exchanges would ensure that the members are not
able to increase their exposure in the market and a
member would not have unsupervised access to the
trading terminal (ISG, 1998, PP. 91-93).
DAILY PRICE BANDS FOR THE TOP 100
SCRIPS
The system of price bands has evolved well over a
period of time and has served its purpose well. As a
measure to increase liquidity in high turnover
stocks, it was decided to modify the daily price band
in the following manner for the top 100 scrips:
Ø
It was decided that once scrip touched the 8%
price band in either direction, the trading in that
scrip would be restricted upto the price band for
half an hour. After half an hour, the price band
would be further relaxed by 4% in that direction
only.
Ø
The relaxation of the price bands can only be
done at BSE or NSE. The other exchanges would
relax the price bands (by 4%) only after such
relaxation is applied at BSE or NSE.
Ø
This modification of the price bands would
initially be applicable on the top scrips. The 100
scrips would be commonly identified by BSE
and NSE.
Ø
The exchange (BSE or NSE) where the price
band in any of the 100 scrips is hit first, would
communicate such information to the other
exchanges including by email so that the
relaxation of price bands could also be
undertaken by the other exchanges. The
information would also be communicated
through PTI and Reuters.
Ø
In case the price band is hit on either side in the
last half an hour of trading, then the trading in
that scrip would be restricted upto the price
band for fifteen minutes instead of half an hour.
After fifteen minutes, the price band would be
further relaxed by 4% in that direction only.
Ø
The modified price band system would be made
applicable from Monday, January 24, 2000
(Economic Times, 2000).
REVIEW OF THE ADDITIONAL VOLATILITY
MARGINS
In view of the relaxation in price bands and also with
a view to focus on scrips with higher volatility, the
additional volatility margins were reviewed and
modified. The additional volatility margins would
be applicable for volatility (six weekly (high- low)/
low) above 60% instead of the earlier 40%. The
applicable rates would be as follows:
S.No.
Volatility
% of Additional
Volatility Margins
1
60% - 70%
5%
2
70% 90%
10%
3
90% - 110%
15%
4
110%-130%
20%
5
130% -150%
25%
6
Above 150%
30%
The above rates would be applicable from settlement
accounting period commencing immediately after
Monday, January 24, 2000 (ISG, 2000, PP. 99-100).
PRIORITISATION AND BENCHMARKING
OF ALERTS GENERATED UNDER THE
STOCK WATCH SYSTEM
The stock watch system was developed and
implemented to generate alerts on abnormal trading
and manipulative market activity. However the
Stock Watch System can only be effectively utilized
if there is proper bench marking and prioritization of
alerts to identify and focus on high priority sectors/
areas of follow up/ investigations. It was agreed that
exchanges will complete the process of proper
benchmarking and prioritization of alerts and make
the system fully functional within one month.
DOCUMENTATION OF
SURVEILLANCE ACTIVITIES
There has to be a proper and systematic
documentation of Surveillance procedures to ensure
transparency, objectivity and accountability in the
functioning of the surveillance department. It was
agreed that the exchanges would put in place a
system of documenting surveillance activities
within one month.
INSTITUTIONALISED CO-ORDINATION
BETWEEN EXCHANGES IN SURVEILLANCE
ACTIVITIES
With multiple listing and membership, trading
aberrations and abnormal trading activity is
sometimes difficult to identify in isolation. Also in
the context of the proposed derivatives trading it
would be all the more important that there is greater
co-ordination among the exchanges in the matter of
monitoring and investigation. Hence, there is a need
to build an institutional mechanism for the purpose
of exchanging timely information and co-ordination
in investigations wherever required. BSE, NSE, DSE
and CSE may send their suggestions on how to bring
about the same by May 31, 2000.
VERIFICATION OF RUMOURS WITH
COMPANIES BY THE EXCHANGES
It is known that rumours can create distortions in
trading patterns, leading to unrealistic valuations.
Presently the exchanges are verifying the rumors
with the companies and disseminating the same to
the investors. However, there is a need to effectively
and continuously provide correct information to the
market and also take punitive actions wherever
instances of deliberate rumor propagation are
noticed. Exchanges may further strengthen this area
of their surveillance activity.
MODIFICATION IN THE PRICE BAND
SYSTEM
Inter-Exchange Market Surveillance Group
appointed by SEBI discussed and reviewed the
functioning of the price band mechanism and the
recent relaxation of price band by 4 percent beyond 8
percent after half an hour halt. The feedback given
was that the new system of price relaxation by 4
percent has been working well and has served the
purpose for which it was introduced. It has been
noticed that the scrips after hitting 8 percent freeze
when relaxed to further 4 percent in majority of the
51
cases were traded between 8 percent and 4 percent
and only in a small number of cases were hitting 12
percent freeze. This is providing the required
opportunity to the investors to trade in the scrips
which would have been denied to them in the earlier
system. It was also agreed that while the system is
working well any deliberate attempt in the market to
misuse the system of price band should be examined
properly and whenever such instances are detected,
preventive and punitive actions should be
immediately taken and also reported to SEBI.
CONCLUSION AND SUGGESTIONS:
The present research work has been divided into two
parts in order to ascertain the results and to make
recommendations to the government and
authorities associated with SEBI and Stock Market.
•
•
Summary and Conclusions.
Suggestions.
The above discussion leads us to conclude that to
ensure fairness in the Stock Market SEBI has
developed a Stock Watch System. The objective of
this system is to provide suitable indicators for the
detection of potential illegal or improper activity to
protect investor confidence and the integrity of the
securities market and its players. The Stock Watch
System has standardized information available with
all the stock exchanges. This standard information is
stored in the form of four databases classifieds as
follows:
Ø
Issuer Database
Ø
Securities Database
Ø
Trading Database
Ø
Member Database.
Issuer Database is maintained by the regional stock
exchange and is updated every week. The database
contains information about the company whose
instruments are traded on the exchange. Securities
database is maintained by all stock exchanges and
updated every week. The database contains
information about the instruments like shares,
preference shares, warrants, debentures etc., which
are traded on the exchange. Whereas, trading
database is maintained by all stock exchanges. It is
updated on-line/ daily/ end of settlement based on
the type of information. Member database is
maintained by all stock exchanges. The information
in this database includes the name and type of
52
membership, name, address and qualification,
details of other exchange's membership, securities in
which the member is active etc. Further, to know the
Price variation in securities High Low price
Variation, Open Price Variation and Consecutive
Trade Price Variation has been studied.
Furthermore, SEBI's off line surveillance system has
been studied which concludes that Mark to market
margin is the aggregate amount of actual loss
incurred on the positions closed out during the
course of the day and the notional loss, which a
member would incur, if the net cumulative
outstanding positions in all securities were to be
closed out at the closing price of the relevant trading
day. Volatility Margin is imposed to curb excessive
volatility in the market and to act as a deterrent to
building up of excessive outstanding positions. The
volatility percentage is defined as:
4.
SEBI should establish a watchdog cell to ensure
that listed companies follow accounting
standards and that financial statements are not
manipulated to show a healthy picture to cheat
investors. SEBI, in this respect, should start
functioning like Securities Exchange
Commission (SEC) of the US.
5.
SEBI should make moves to computerize the
entire process of regulating and controlling the
stock markets. Further, Regional Stock
Exchanges (RSEs) will have to modernize their
style of working if, they have to stay in future.
6.
Bunching of huge new issues in one month must
be avoided by SEBI as it imposes unnecessary
pressure on the stock market.
7.
SEBI should make rating mandatory for all
initial Public offering (IPO) issues, this will at
least make. General investor aware of issue
entering the market.
(6 week high price 6 week low price)/ 6 week
low price* 100
Whereas, Gross Exposure Margin is computed on
the aggregate of the net cumulative outstanding
positions in each security of the CM.
1.
“Meetings of the Inter-Exchange Market Surveillance Group
(ISG),” NSE of India Limited.
2.
“SEBI Manual,” (2007), Taxmann allied services (p.) ltd.,
Vol. 1.
3.
“SEBI Manual,” (2007), Taxmann allied services (p.) ltd.,
Vol. 1.
4.
“SEBI Guidelines on Capital issues, Euro issues, Merchant
banking and mutual funds,” (2000), A Nabhi Publication,
Vol. 1.
It is assessed that SEBI should set up a clear
monitoring system to ensure that public money
raised through issues is used precisely for the
purpose stated in the offer document and any
diversion short term or long term is dealt with as
strictly as possible.
5.
“SEBI Guidelines on Capital issues, Euro issues, Merchant
banking and mutual funds,” (2000), A Nabhi Publication,
Vol. 2.
6.
“SEBI and corporate laws,” (2006), Taxmann allied services
(p.) ltd.
7.
“SEBI’s Surveillance system-A study material of NCFM,”
(2007), NSE of India limited.
The supervision of SEBI must be strengthened
to safeguard the interest of the small investors.
The role of the supervisory body must be to
strengthen by strict application of various
norms and rules and not merely to formulate
such norms and rules.
8.
Sharma R.K., Gupta Sashi, (2006), “Management accounting,
principles and practices,” Kalyani publications.
On the basis of the conclusion drawn by examining
the working of Indian stock market traditionally and
modernly, following suggestions may be given in
order to improve the working of Indian stock
market:
1.
2.
3.
REFERENCES
SEBI must establish an effective and efficient
monitoring and control and surveillance of the
operations and management of stock
exchanges. A separate cell may also be
established to monitor and control the
functioning of different market operators.
NEWS PAPERS
Economic Times, January, 24, 2000.
Economic Times, May 31, 2000.
The Tribune, April 28, 2006.
The Tribune, April 23, 2006.
Economic Times, April 23, 2007.
Economic Times, October 08, 2008.
WEB ADDRESSES
www.sebi.gov.in
www.nseindia.com
www.nsdlindia.com
53
FACTORS FOR SUCCESSFUL ERP IMPLEMENTATION IN INDIAN SCENARIO AN EMPLOYEE PERCEPTION
Satyendra K Singh *
ERP has gained special momentum in recent times. It has been seen with respect to data integration across the organizations. The
streamlining of crucial functions has made the operations simpler. However, ERP implementation has sensed significant failure. One of
the important factors thereof is the perception of employees towards various factors of ERP implementation.
This paper explores the perceptions of employees towards the success factors for ERP implementation as found through empirical data.
Keywords: ERP, Success Factors, Perception of Employees, Implementation Failure
INTRODUCTION
ERP has now been taken as the success tool in the
organizations. Almost all the fortune 500 companies
have got the ERP implemented. However, statistics
reveal the alarming rate of failure for ERP
implementation. It is not fair to raise questions only
on technical aspects of ERP implementation as the
important ERP vendors are top giants in the area
having expertise and experience in ERP
implementation. Another important factor during
ERP implementation is the role of employees. Their
perception about various factors of ERP
implementation governs their behaviour and
approach towards acceptability of the package. It is
also interesting to find the role of demography of
sectors having ERP as the backbone.
Robbins-Gioia Survey (2001) in their research
identified that 51% of the respondents considered
ERP implementation as unsuccessful, while 46 % of
the participants noted that while their organization
had an ERP system in place, or was implementing a
system, they did not feel their organization
understood how to use the system to improve the
way they conduct business. They further opined
that the project failure is not defined by objective
criteria but by the perception of the respondents.
The advantage of a perception is that it naturally
integrates multiple aspects. Its obvious
* Research Scholar, Deptt. of Psychology, University of Lucknow.
disadvantage is that it is inevitably partial: if the
respondent has taken an active role in the project it
will inevitably embellish the reality, whereas if the
project has been "forced down his throat" he might
cast a grimmer look at the project outcome.
In their paper “Issues in multinational ERP
implementation”, Olson et al (2005) identified that
ERP has been instrumental in advancing efficiency
across the globe. David Hebert of Hackett Group
however opined that only a few companies have
gained value out of ERP implementation, and are
world-class companies.
Carten and Adam (2003) identified the following
issues during ERP implementation:
•
Shifting to ERP can be a painful learning
process, requiring unlearning old ways of
working
•
Subsidiaries of multinational firms are often
faced with changes imposed, rather than
designed
•
Implementation of ERP systems usually lead to
integration of data, which has the effect of
centralising ownership, away from the
multinational subsidiary
•
IT support also is often centralised (as a way to
reduce IT cost), while responsibility for
accurate data entry is shifted back to the point
54
of entry, increasing the responsibility and work
of the subsidiary
•
ERP implementation can often change the
balance of power within organisations, usually
favouring central administration at the expense
of subsidiaries.
b. Nature of the companies
Nature of the companies
0%
Private
40%
Public
RESEARCH METHODOLOGY
60%
The research was carried out on major companies of
India including both public and private sector. The
nature of the companies varied from retail to
manufacturing and services. All these companies
have ERP implemented. The respondents were
from large-scale, medium-scale and small
companies. The questionnaire and interviews
method was used to collect the data. A pilot study
was conducted to identify the ambiguous questions.
The unnecessary questions were removed and new
questions were added. The research was conducted
to have the perception of the managerial cadre
towards the issues and factors related to ERP
implementation.
Govt
Figure 2: Nature of the companies
40% of the companies that were chosen for the
research were from public sector. The share of
private companies in the research was 60%. There
was no government sector company taken for the
survey on account of poor availability of
respondents.
When looked into the experience of using ERP
package, the majority of the respondents had the
previous experience (70%) (Refer Figure 3)
Previous experience
(Respondents)
FINDINGS
The types of companies taken into consideration for
the research in terms of turn-over and the nature of
the company were as follows:
30%
Yes
70%
a. Size of the companies:
Size of the Companies
(Turn -over in Rs Crores)
Figure 3: Previous experience
20%
>300
20%
60%
No
100-200
<100
Figure 1: Percentage of companies taken for research
The percentages of the companies taken during the
research were having different turn-overs. The
majority of the companies (60%) were having the
turn-over of more than 300 crores per annum. The
remaining companies having the turn-over 100 to
200 crores per year and the companies having it less
than 100 crores shared the percentage with 20%
When asked about the number of years since the
company has switched to ERP, 60% of the
companies had moved to ERP around a year ago
while 40% of the companies had been using it since 3
years (Refer Figure 4). None of the companies had
ERP implemented for more than 3 years.
No. of years since the company is
using ERP
0%
1 year
40%
1-3 years
60%
> 3 years
Figure 4: Experience of the company for using ERP
When enquired about the ERP vendor, 80% of the
companies were using SAP while 20% were using
ORACLE. None of the companies were using any
other type of ERP package (Refer Figure 5).
E.
Careful selection of s/w
F.
IT infrastructure
G. Data analysis & conversion
H. Competency of project team
Vendor-wise data
0%
20%
55
I.
Communication
J.
Use of consultant
0%
SAP
K. Training and education
0%
ORACLE
L.
EDWARDS
M. Business Process Reengineering
BAAN
N. Evaluation of performance
OTHERS
80%
Preparedness of employees
The inclination of the responses was towards
important to most important. It meant that the
respondents rated the above factors as important
and more than important. In order to find whether
they have sensed any other success factors other
than the above ones, they added the following
points as important success factors.
Figure 5: Vendors that provided ERP
Noble (1984) identified the significant relationship
between technology and human behaviour. The
following section identifies the perceived relevance
and importance of critical factors.
Previous researches have identified various critical
success factors for successful ERP implementation.
Based on their experiences, the list of important
success factors was prepared. The respondents
were asked to rate the importance of success factors
for ERP implementation, the following results were
obtained against 5 point rating scale of importance
(1-Least Important, 3-Important, 5-Most
Important). (Refer figure 6).
•
Flexibility in design of organization
•
Fulfill the specific need of an organization
•
Cost benefit
•
Reducing damages in terms of retail
•
Analysis of employee retention
•
Analysis of employee performance
•
Restructuring the engineering process with
analysis of data
No. of respondents
(in hundreds)
Perceived importance of success factors for ERP implementation
18
16
14
12
10
8
6
4
2
0
Least Imp
Somewhat Imp
Imp
Very Imp
Most Imp
A
B
C
D
E
F
G
H
I
J
K
L
M
N
Success factors
Figure 6: Perceived importance of success factors for ERP implementation
List of factors
•
Awareness among users and proper training
for the usage of the same
Commitment of mgmt
•
Payroll analysis (proper modular functioning)
C. Participation of employees
•
Circulation of manual book
D. Support from vendors
The opportunity to experiment, improvise and
A. Sufficient budget
B.
56
rehearse with alternative ways of perceiving and
acting on the world distinguishes human
involvement from human behaviour. Such type of
human involvement often revealed in
improvisation (Ciborra, 1999; Weick, 1979a, 1993).
The perceptions of respondents towards the
significance and relevance of such a big package like
ERP are important for its successful acceptance. The
respondents were given a list of probable reasons
for ERP implementation and were asked to rate on a
five- point rating scale of relevance (1- Very little
relevance, 3- Moderately relevant, 5- Mostrelevant).
The major difficulties faced during implementation
as stated by the respondents are as mentioned
below:
• Lack of knowledge
• Lack of homework
• Resistance from users
• No previous experience
• Hardships faced at startups
• Low awareness amongst staff
• Fear of technology
• Poor training and education
• No consultant was provided
Perceived reasons for ERP implementation
No. of responses
(in hundreds)
16
14
Modernize IT environment
12
10
Replace aging legacy system
8
6
Efficiency (e.g. reduce cost,
improve speed etc)
4
2
Better management tools (e.g.
decision making, planning)
0
Very little Somewhat Moderately Relevant
relevant
relevance relevant
Most
relevant
Increase customer satisfaction
Reasons
Figure 7: Perceived relevance of reasons for ERP implementation.
The inclination of responses was again towards
relevant to most relevant on the reasons given to
them, thereby indicating that the above points were
rated at least relevant (Refer figure 7).
The other reasons that they felt important for opting
for ERP were as follows:
• Proper planning
• Proper Implementation
• Dealing user resistance
• Training on updates in dynamic SAP
environment
• Repeated customization
• Meeting specific needs
• Planning makes easier
When enquired about the difficulty faced during
ERP implementation, 20% of the respondents found
it difficult while 80% of the respondents did not face
any difficulty during the implementation.
•
•
•
Technical aspects and organization structure
was the main constraint in order to implement
the ERP software
Faced difficulty in Advanced Business
Application Programming
Not flexible in modification
The important reasons for facing these difficulties
were identified as given below:
• Unawareness amongst users
• Training required
• Hype about problems
• Not willing to change
• Could not change the mistaken entries
However, the important reasons for not feeling any
type of hardships during implementation were
described as mentioned below:
• Being in s/w environment switching is not
difficult
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Quality manpower ready to accept change and
challenge
Experience of existing users
Handy and useful tool
Acquaintance and experience with the system
Ease in analysis of data as available under one
roof, thereby making a good decision tool
Minimization of human errors thereby
streamlining the process and standardizing the
same
Fast
Secure
Remote and multi-logins
Online updations
Easy to access
Simple interface
Data accuracy
ERP has all the tools related to business process
requirement.
Easier to see all the relevant data with facts and
figures
Being user friendly s/w it helped in better
management
Easy to learn
57
When asked to list the other perceived important
obstacles faced during ERP implementation, the list
was comparatively bigger. The list is given in
reverse order of importance.
• User resistance
• Data conversion
• Removal of fear
• Getting good consultant
• Initial teething troubles to make employees
comfortable
• Inventory planning
• Productivity planning
• Process and organization change
• Coming out of comfort zone
• Obtaining support
• Training prospects are missing.
Implementation without training is quite
difficult
• Slow process of implementation
When enquired about the change of vendor in due
course of time, 20% of the companies answered in
Yes while 80% of the companies never had to change
the ERP vendor. The important reasons for this
change over were classified as follows:
To identify the levels of obstacles, the factors were
classified into four major aspects:
• Technical aspects
• Process change & organization change
• Support (including upgrades)
• Schedule
The respondents were asked to rate the above
classifications on a five point rating scale and the
following inference was drawn (Refer figure 8).
•
Change to upgraded technology
•
Better technology to accommodate expanding
requirements
•
Modification in current ERP system
•
Increase customer satisfaction
•
Meeting the changes
•
Monopoly brings complications.
No. of respondents
(in hundreds)
Perceived level of obstacles faced during implementation
12
10
Technical aspects
8
6
4
Process change & organization
change
2
Support (including upgrades)
0
Negligibly Somewhat Moderately
difficult
difficult
difficult
Difficult
Very difficult
Finishing as per schedule
Levels of obstacles
Figure 8: Perceived level of difficulty faced during ERP implementation
58
When asked to rate the reasons for picking up the
current vendors on a five point rating scale of
relevance (1-very little relevance, 3- moderately
relevant, 5- most relevant), the following results
were identified:
is required, the following points were identified:
•
Helps in planning
•
Helps in Implementation
•
Consultants have the required skills
No. of respondents
(in hundreds)
Perceived reasons for choosing the current ERP Vendor
18
16
14
12
10
8
6
4
2
0
Very little relevance
Somewhat relevant
Moderately relevant
Relevant
Most relevant
Best fit to our
requirements
Best fit to our
strategic goals
Product price
Vendor’s reputation
Advice from the
experts or
consultants
Vendor’s ability to
provide a complete
solution to our needs
Reasons
Figure 9: Perceived reasons for choosing the current ERP vendor
The respondents felt that the above factors related to
ERP vendor were mainly relevant and most
relevant (Refer figure 9).
Finally when asked about taking the services of
consultants in ERP implementation, 45% of the
companies answered in Yes while 55% of the
companies did not take the services of the
consultants.
When asked, (about the manner in which
consultancy proved helpful) to the respondents
from the companies who took the services of
consultants, the following reasons were cited:
•
They have experience
•
Are able to have better understanding
•
Cost-effective in long run
•
Helps in picking best package
•
Good guidance
•
Expert advice can effectively implement the
system
•
Better -Code understanding
•
Experience of business process and system
knowledge
•
Organization may not have the time / resource
/ technical expertise to liaison with vendor on
every aspect of ERP implementation
•
Advices given by them are handy as people are
unaware
•
For better managing the change amidst
resistance
•
To know the areas where ERP can be
implemented
•
Readymade knowledge
•
Better implementation
•
Expert advice
•
Helped in dealing and convincing users
•
Experience helped in smooth implementation
•
Easy fusion into existing system
•
Process flow understanding
•
Previous experience in some sector
•
Understand technical aspects
•
Help in decision making
•
Expert advice
•
Interface for successful and smooth transition
•
Training and their knowledge
•
Understanding process flow
•
Official training by trained staff
•
Training and education
•
•
Selection of correct ERP package
For upgradation of s/w and to know about the
latest development
•
Consultant will give joint effort with company
needs and requirement
•
Knows about proper implementation and all
the basic tools
When asked about the reasons why the consultancy
CONCLUSION
The key factors for successful ERP implementation
have been many including the employees and their
perceptions. The paper has highlighted their ideas
on various factors including areas of difficulty and
reasons thereof, role of ERP vendors and
consultants, and most importantly the reasons for
opting for ERP.
REFERENCES
Carton, F., & Adam, F. (2003). “Analysing the impact of ERP
systems roll-outs in multi-national companies”. Electronic
Journal of InformationSystems Evaluation, 6(2), 21-32.
Ciborra, C.U. (Ed.) (2000), “From Control To Drift”, Oxford
University Press, Oxford.
Noble, D. (1984), “Forces Of Production: A Social History Of
Industrial Automation”, Alfred, A. Knopf, New York, Ny.
Olson, D. L., Chae, B., & Sheu, C. (2005). “Issues in multinational
ERP implementations. International Journal of Services and
Operations Management, 1(1), 7-21.
Robbins-Gioia Survey (2001), “Statistics over IT Failure Rate”,
http://www.it-cortex.com/Stat_Failure_Rate.htm
Weick, K.E. (1979b), “Cognitive Processes In Organizations”, In
Staw, B.M. (Ed.), Research In Organizational Behavior , Jai Press,
London.
Weick, K.E. (1993), “The Collapse Of Sensemaking In
Organizations: The Mann Gulch Disaster”, Administrativ E S
Cience Quarterly , Vol. 38, Pp. 628-52.
REFERENCES
http://www.it-cortex.com/Stat_Failure_Rate.htm
59
60
BOOK REVIEW
Advanced Human Resource Management Strategic Perspective
S.C. Gupta
Ane Books India
2008
ISBN (10): 81-8052-193-1
ISBN (13): 978-81-8052-193-1-5
Price:Rs.295
Author S.C. Gupta starts differently with contents
from Strategic HRM there by avoiding the
traditional, way of explaining Human Resource
Management from recruitment to retirement as an
HR process. But he explains the evolution of SHRM
by co-relating the corporate strategy in tune with the
HR strategy. Further the book cross checks the status
of HR by emphasizing the area of Human Resource
Audit and further with balance scorecard. Besides, it
explains the labor cost against the utility of HR in the
HRoutput point of view.
We are in the changing scenario where the
performance of the employees are to be measured
from the fixed working atmosphere to flexible
working atmosphere where flexi-time and flexiwork are considered. Here output is the matter, but
the way of getting the output is not necessarily
formulated by the management by keeping the
labour force strictly within physical the premises of
the organization in framed time; and framed
working schedule. This flexi time and choosing of
work as flexi work are possibly given to the work
force according to the taste of the work force which is
selected by the work force itself. This is concept
suitably incorporated in this book.
To day the organizations are working in the era of
global business, so the knowledge and the study of
cultural diversity is important and the knowledge
about the cross cultural diversity is to be taught and
to be known. This book has taken care of exposing
the cultural issues, by highlighting them from the
organizational level to national level and then to the
international level ; which indeed has a reflection in
the organizational performance resulting the degree
of organizational excellence.
The author then moves to the second part where he
explains the traditional HR functions and process by
starting from the HR planning. He emphasizes
strategic resourcing, retaining and out sourcing.
May be this part is the question of dilution of HR
function by outsourcing the same to BPOs. But
outsourcing is broadly done by some organizations
for one or the other reasons. As it is a changing
concept of decentralizing the procurement of HR
part to BPOs is practiced by certain organizations.
The Book provides a section to this issue as well.
Even though the compensation management
training and development, employee relations and
management of change are spoken in a different
way. Evaluation of HR plan, right type of training
methodology, integration of training with HR
process are the selected examples which have been
spoken with a different dimension and this book get
a distinct outlook accordingly. In the chapter of
employee relations and the management of change;
employee involvement sustaining the momentum,
employee burnout etc., get a refrained shape
altogether.
The last part of the book discuss the current issues in
HRM where the author speaks about the importance
of organizational restructuring and empowerment.
Further the author highlights the ethics, structure
design in tune with technology, teamwork etc.
In the global business scenario HR process in the
multinational perspective is not to be avoided.
Hence the chapter of HR processes in multinationals
has been introduced. But a thin layer is observed as
61
international HR by incorporating almost all the HR
functions in the international perspective in a single
chapter. Author's other books called International
HRM and Global Business and Cross Culture may be
able to speak in detail of International HRM.
But the author some how compensates the expected
elaboration on international HRM by opening
another chapter named international mergers and
acquisitions in context with HR perspective. Author
goes deeper and speaks about e-HRM which is
comparably a new concept where he exclusively
differentiates e-HRM with HRIS. While concluding
the text, he speaks the HRM and quality by
explaining the philosophy of TQM, Role of HRM in
Quality Management and more.
Author further integrates or co-relates
organizational design, corporate strategy and HR
strategy together and illustrated these three
concepts by some figures. Moreover instead of
providing limited cases that too at the end of the first
and second part of the book; author may try to
incorporate good number of cases immediately after
certain important chapters. Further Knowledge
Management is also coming as new concept and
some views about the same may also be
incorporated in the third part where current issues in
HRM were explained.
The title of the book is Advanced Human Resource
Management and indeed this book speaks of HRM
in an advanced way.
Dr. Dhason Antony
Professor
Amity Business School
Noida
62
BOOK REVIEW
Marketing Management-A South Asian perspective-The Millenium edition
ISBN 978-81-317-1683-0
Authors:Philip Kotler,Kevin Lane Keller,Abraham Koshy,Mithileshwar Jha
Publisher-Pearson Prentice Hall
Price : Rs 575.00
Abraham Koshy,Professor of Marketing at Indian
Institute of Management ,Ahmedabad and
Mitheleshwar Jha, Professor of Marketing at Indian
Institute of Management, Bangalore have joined
Philip Kotler and Kevin Kellar to make this book on
Marketing more relevant for south Asian students.
This south Asian edition contains numerous
examples and studies of companies and brands from
the subcontinent to help readers appreciate concepts
within familiar contexts. At the same time, readers of
the south Asian edition will also benefit from the
international case studies authored by partners' of
Pearson world wide.
The contents of the book run through 647 pages
complemented by End notes, Glossary, Image
Credits, Name Index, Company Brand and
Organization Index along with Subject Index.
The contents of the book are divided across 8 parts
and these parts are further sectioned into 22
Chapters. All the chapters reflect the latest changes
in the marketing theory and practice while retaining
the original frameworks and concepts which are
quite vital to the book.
Chapter1 of Part1 addresses initial concepts for
understanding Marketing Management and Good
marketing has become the an increasingly vital
ingredient for business success
The Chapter also discusses how the marketing
management has changed over a period of time and
is then defined for the 21st century .The Concept of
“Holistic Marketing” in this chapter and following
chapters, is explored as the emerging concept that
everything matters in Marketing. Chapter 2 holds
deliberations regarding the development of
Marketing strategies and Plans. The chapter also
discusses the implications regarding the structure of
Marketing plan to be incorporated through Market
oriented Strategic Planning.
Part 2 comprises Chapter3 and Chapter4. Chapter3
is all about capturing the Marketing Insights by
gathering information and scanning the
environment. It discusses about the changing
marketing environment that has provided
opportunities to many Indian Companies to
aggressively venture into global arena. Chapter 4
gives numerous insights on how to conduct
Marketing Research and Forecast Demand. The
chapter also discusses the metrics for measuring
Marketing Productivity.
The authors have divided Part 3 into Chapters 5, 6, 7,
8; which provides a glimpse of issues that helps the
marketers connect with their customers.Chapter5
details Customer value, Satisfaction and loyalty. It
emphasizes and quotes several examples of
companies that are adept at building customer
relationships, not just products; they are skilled in
Market Engineering, not just product engineering.
Chapter6 address the need to analyze the consumer
markets while discussing consumers decision
making process. This chapter gives a deep
understanding to marketers for analyzing the
consumer decision-making.Chapter7 discovers the
differences between business market and consumer
markets, the various buying situations faced and
decisions made by Business buyers. It quotes several
instances regarding the institutional buyers and
government agencies making their purchase
decisions. Chapter8 identifies the different levels of
market segmentation and bases for segmentation,
targeting and positioning.
Part 4 has been effectively decomposed into
Chapter9, 10, 11; it introduces the concept of
building strong brands.Chapter9 emphasizes that
building strong brand requires a keen
understanding of competitors and competition, thus
marketers need to develop creatively designed and
63
well executed marketing programs. Chapter 10
elaborates how a strong brand can commend intense
consumer loyalty by creating brand equity,
thereafter mange and measure it as well.Chapter11
suggests that no company can win if its products and
services resemble every other product and offering.
The chapter represents compelling and distinctive
ideas on strategic brand management process, as
well as marketing strategies that are appropriate at
each stage of the product life cycle.
Part 5 holds a basket of next 3 Chapters that manage
to explore the shape of market offerings. Chapter 12
provides an insight about the market leaders who
generally offer the products and services of superior
quality that provides unsurpassed customer value
by setting effective product strategy. Chapter 13 tries
to find out definitions and classifications for services
and how do they differ from goods. It also traces how
the service providers may enjoy the advantage of on
time delivery, better and faster answering of queries
or quicker resolution of complaints; and find
significant profitability in delivering superior
service. Chapter 14 comments that a well-designed
and marketed product can ensure a price premium
and reap big profits. The chapter emphasizes on the
need to adapt prices that meet varying
circumstances and opportunities through various
strategies and programs in times of competition.
Part 6 comprises of Chapter 15 and 16 which look at
the various customer segments and consider wide
range of different possible means to deliver value to
them. Chapter 15 examines the Marketing channel
system and value network that links raw material,
components, and manufactured goods and shows
how they move towards final consumers. Chapter
16 opens with concepts of retailing, wholesaling and
logistics for intermediaries who forge their own
marketing strategies.
Chapter 17, 18 and 19 of Part 7 are all about
communicating Value to the customers.Chapter17
deals with the design and management of Integrated
Marketing communications. It emphasizes that if
done right, marketing communications can have a
huge pay off. Chapter 18 addresses guidelines for
managing mass communications; advertising, salespromotions; experiences and events; public
relations.Chapter-19 alternatively manages
personal communications: Direct and interactive
marketing, word of mouth and personal selling.
Last but not the least Part 8 of this book comprises
Chapter 20,21,22 which discuss the creation of
successful long term growth of the organization
since companies need to grow their revenue over
time by developing new products and services by
expanding into new markets. Chapter 20 introduces
the fundamentals of changing the way the
companies develop their new to the world,
improved or replacement products and services that
can transform companies and change lives. Chapter
21 acknowledges the fact faster communication,
transportation and final flows; are making the world
shrink. The authors travel around various factors
that help a company review their marketability
within their country and across boundaries. Chapter
22 is the last chapter of the book that reviews the
holistic management of a Marketing organization in
the long run. Finally the authors instill how firms
can embrace the new vision of corporate
enlightenment in terms of social responsibility and
sustainability.
Amongst the important features of the book are the
Memos in each chapter that provide tips and
suggestions at all stages of Marketing to the
customers, as well as directions in dealing with the
various marketing decisions. The Breakthrough
Marketing Boxes in the chapters highlight
innovative and insightful marketing
accomplishments by leading organization. All the
chapters contain a Summary towards the end. The
book is very focused on preserving the strengths and
core topics from the previous editions, while
carefully tightening coverage in every chapter for
greater clarity and giving instructors greater
flexibility.
This book is a package of materials available to
students and instructors in the form of cases and
articles that enhance and maximize learning in a
Marketing Course. A South Asian perspective
through new cases from South Asian countries
discusses a variety of aspects, including the
socioeconomic characteristics of urban and rural
consumers, demographics and socio-cultural
nuances. The contents are embedded with Universal
applications including products and services
consumer and business Markets, profit and non
profit organizations, domestic and foreign
companies and low and high end industries.
Reviewed by:
Dr. Himani Sharma
(Sr. Lecturer, Marketing and Strategy,
Amity Business School, Noida )
Guidelines for Contributors
70
FEEDBACK FORM
Empirical Study of Relationship Marketing in Indian Banks
(Customers’ perspective)
Relationship of Demographic Factors with the level of Job
Satisfaction in Employees of A Garment Manufacturing Unit
Empowerment of Women Entrepreneurs through Micro Financing
& Training
Global Financial Crisis and its Impact on Indian Economy
Role of Securities and Exchange Board of India (SEBI) in Regulating
the Stock Market
Factors for Successful ERP Implementation in Indian Scenario An Employee Perception
SUBSCRIPTION FORM
AMITY UNIVERSITY PRESS

The Journal of Amity Business School

Transcription

Similar documents

Lori Asmus, RN, Director of Operations, Primary Care, Pacific

The Peak Business

BankersHub Newsletter July 2014 Beird

InsulTech Sales sheets mech

Jo Causon - Professional Planning Forum

Public overview CP - ANIMA Investment Network

Invu Document Management Product Sheet

Invu Document Management Product Sheet

INICIATIVAS PROPOSTAS Apresentação das diferentes iniciativas

Innovation Definition