IJRFM Volume 1, Issue 3 (July, 2011)

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SaaS BI: SUSTAINABLE BUSINESS INTELLIGENCE SOLUTION FOR SMB’S Riyaz A. Sheikh*

ABSTRACT In the wake of the economic slowdown, organizations are increasingly looking for ways to do more with the same resources; articulate differently - to make every penny, input and contribution count. In such situations, technologies like Cloud Computing and Business Intelligence (BI) are becoming increasingly important in gaining and maintaining a competitive edge. These technologies when combined enable a variety of new analytic data management projects and business possibilities. Cloud computing will change the economics of BI by making available the hardware, networking, security and software needed to create data marts and data warehouses on demand with a pay-as-you-go approach to usage and licensing. This paper focused on the need of BI in SMB’s. It also state the problems associated with traditional BI tools and proposed a SaaS BI model for handling the problems. Finally the paper outline the benefits of SaaS BI tools.

Keywords: cloud computing, business intelligence, networking, data warehouse, data marts, SaaS, SMB * Assistant Professor, DMSR-Tirpude College of Social Work, Nagpur

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1. INTRODUCTION 1.1 What is Business Intelligence? Business Intelligence at first glance is a broad array of applications or technologies designed for storing, gathering, analyzing, and processing information. These applications also provide access to data for professionals and help them make better business decisions. It is the ability of in depth analysis and data mining of detailed business data to provide real and significant information to users. The software allows users to access and review large amounts of complex data. Yet this is only Business technology on the technical side of the spectrum, in fact we also need to acknowledge the human end, meaning the human views and concepts of Business Intelligence.

Business Intelligence is just as much complicated yet helpful applications as it is the interpretations of those who use those applications. This includes the ability to effectively act through the exploitation of information and human resources.

1.2 Why do we need Business Intelligence? "We need information but all we have is data!" This is the message managers often complain about. Business author and management expert Peter Drucker said there is nothing worse than doing the wrong thing well. Why does this happen? Because people don't understand the company plan or have visibility into how the business is performing.

In today’s struggling economy with competition controlling and shrinking the landscape, it is important to make sound business decisions based on complete data. With the proper Business Intelligent implementation, businesses can make decisions and feel comfortable that they are provided with the proper tools and data needed to believe in their decisions. Without the correct Business Intelligence solution even well planned and executed data warehouse architectures can fail. Business Intelligence is a decisions support system and database that can provide professionals with the information they need to make the most effective decisions for their organization. It also International Journal of Research in Finance & Marketing http://www.mairec org

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provides data about the organizations details, such as customers, products, and services. Honestly when a one can access this information rapidly and easily in order to take appropriate action or make the right decision business success is realized. 1.3 What are the benefits of having a Business Intelligence System? Some of the benefits of having a Business Intelligence system include the ability to access data in a common format from multiple sources, a way to measure goals and analyze crossdepartmental data, to see who your organizations good and bad customers are, and to track customer behavior in order to improve services and relationships.

This software can also help to track specific product sales and distributors to improve supply and production, as well as track external trends to improve processes, track market trends to improve an organization’s competitiveness, and fine tune pricing and marketing policies. Some issues still need consideration, though increased efficiency and extraction of clear information from complex data can improve and reduce the need for data analyst and improve revenues, determine the exact return on an organizations investment in Business Intelligence systems can be difficult. It can take a while to see the real world benefits of Business Intelligence software and executives can easily label the venture as a failure when results are not immediate. 2. Problems with Traditional BI Solutions Price

The software license, maintenance, support, and services are too expensive.

Usability

TOO difficult to use for most users.

Skills

Customization Tool-Set orientation

Lack of adequate skills transfer from vendor to customer. Lack of implementation methodologies. TOO difficult for customers to develop solutions and integrate business rules. The 'solutions' are tool sets and not a solution at all.

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The solutions are proprietary and difficult or impossible for customers and After market suppliers to extend and direct the system. Customers did not buy Extensibility

the software; they paid upfront for the right to use it. This is like getting a lease on a car but making all the payments on day one: it's the worst of both worlds.

Reporting and

The solutions are focused on the reporting and analysis of KPIs, and ignore

analysis focus

the performance of the processes that affect the metric.

Process influence

They are unable to ensure driving changes in a business process. They assume that the delivery of a report will have the side effect of influencing a business process. They are unable to provide complete tracking and auditing. Who got the

Tracking and

report? What action did they take? How long did it take? Was a business

Auditing

process initiated as a result? How far along is that process? What is the performance of the process? The software pricing models do not support the prototyping phases necessary

Prototyping

to ensure the success of Business Intelligence projects. Significant financial outlay and contractual agreements must be signed before full evaluation and prototyping can be done. Traditional BI license models are built with the assumption that a named user

License

spends much of his/her day using the BI system as a standalone application.

flexibility

The best example of where this model breaks down is a deployment to extra

and fit

net users - infrequent, casual users, outside the firewall, where a multithousand dollar named user license is nonsensical.

3. Cloud Computing and BI Cloud computing is characterized by ability to consume resources as required in an elastic manner and scaling the consumption arbitrarily as required. The advent of infrastructure as a service implies that computational power is available on demand and on a pay-as-you-go basis with similar characteristics applying to storage of data as well. This enables a layer of services International Journal of Research in Finance & Marketing http://www.mairec org

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sitting on top of this infrastructure to decouple the delivery aspect of the services from the core business oriented aspects involved in these services. Related to this, is the fact that storage of the underlying data is also decoupled and segregated from the services. Business Intelligence involves intelligent reporting on top of existing data which helps in prompt and actionable decision making. These decision making might involve "geography based investment decision for a multinational company" or even a "buy decision for a product by the consumer". BI has evolved over time but the key components still continue to hold true. It is still necessary to be able to aggregate the factual data from various data sources and doing involved transformations. This data then either needs to be stored in a data mart or warehouse to enable reporting and analysis on top or it could then be further aggregated into metrics which are then reported. Nevertheless the ability to perform BI involves key aspects related to data management and computationally expensive analytics or reporting. In Figure 1.1, we illustrate the different types of cloud services as being one of four layers, plus an overarching management and administration level.

Fig. 1.1 A simple model of Cloud Computing

4. Software-As-A-Service Business Intelligence (SaaS BI) In these difficult economic times, small as well as big businesses are looking at cost cutting and scrutinizing their basic expenditure. This includes cost cutting on manpower, office equipments and most important, the technology used. But to let business move on uninterrupted, International Journal of Research in Finance & Marketing http://www.mairec org

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organizations are constantly seeking more cost effective product development models. This has led to the evolution of the idea behind using “Software as a Service” (SaaS) where end-user access can be shared to reduce the cost and time of product development. With the advent of time “Software as a Service” is now popularly known as SaaS. It represents a method of using the software hosted by some companies and delivered to customers through a web browser on the Internet. With this, software hosted at a central location by its vendor can be made available to numerous users worldwide. The SaaS BI model is shown in the fig. 1.2

Fig. 1.2 SaaS BI Model 4.1 What is a SaaS BI Model? SaaS model is a hypothesis of software deployment that includes providing a software application as a service to customers across the internet. SaaS model, therefore, can be considered as “renting” the software to global customers who can access it via the Internet. SaaS model providers evaluate the existing business model to determine the feasibility of the SaaS model, build the product using right development techniques and design architecture, deploy the correct SaaS solution and market it through social media marketing techniques. Software users through a SaaS model get the benefit of subscription pricing, hosted delivery, and outsourced technical expertise. This way the end-users save on costs, and utilize latest International Journal of Research in Finance & Marketing http://www.mairec org

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technologies more effectively. A well-designed SaaS model also ensures users of cost-effective access to updates.

4.2 Why SaaS BI? "By 2011, 25% of new business software will be delivered in SAAS" - Gartner, Sept 2006. It is now an accepted fact that, On-Demand software has become an essential part of almost every organization in one way or other. Just the scale of adoption varies. Right from Email to traditional transactional systems like CRM, Marketing, Customer Service etc., are more and more being adopted in the On-Demand way. Gmail, Yahoo Mail, Salesforce, Zoho and a whole bandwagon of On-Demand Service providers are now consistently figuring in the list during any business software evaluation by any organization. With this trend being irreversible, it might not be surprising to see Gartner's prediction being surpassed long ahead of 2011.

"On-demand computing or SaaS is the future of software and the future of BI, at least for the small-medium size business market, if not for a majority of standard enterprise reporting applications" - The DataWarehouse Institute, March 2007

5. Salient Features of SaaS BI 1) Simplicity and Easy of Use On-Demand Business Intelligence tools when done right, are simple and easy to use because of the following factors: •

Web Interface - On-Demand BI tools Reports offer a universal Web browser based interface, which is very familiar and shortens the learning cycle.

•

Accessibility - Accessible on the Web from anywhere and anytime

•

No Setup - On-Demand BI tools are ready to use right away, no complex setup tasks required as in traditional business intelligence tools

•

Skillset - No special skillset required like knowledge on Database, ETL, OLAP, Reporting etc. You just need to know your business

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Easy to Buy - Monthly subscription based. You can unsubscribe anytime, if there is no further need

2) Collaborative Analytics and Reporting Traditional in-premises business intelligence tools were not naturally built for collaborative analysis and reporting. To collaborate, you need to mail either your reports or spreadsheets and engage in discussions over mail threads. This creates duplication of reports/data, conflicting modifications resulting in synchronization problems, and long cycles for convergence. SaaS business intelligence tools are built on the ground-up to facilitate collaboration. You can easily share reports (not through email but online), and data to other users in your system with proper credentials. They can access it, do modifications or provide comments. Moreover, everyone works on the same data set/reports there by removing the possibility of duplication or conflicting modifications. You can also revoke the sharing permission anytime, thereby restricting a user the rights to access a report or data, who no longer requires access to it. This enables you to enforce data security. Accessibility from anywhere also lends itself for better collaboration, particularly when more of your workforce either are mobile in nature or work in a distributed work setup (working from home, different regions/countries etc.) 3) Wide range of Publishing options: In-premises business intelligence tools provide you restricted publishing options, typically exporting into different file formats like PDF, Doc etc. On-Demand BI tools apart from covering these basic publishing options also offer capabilities to embed all your reports anywhere (in your blogs, web pages, Microsoft SharePoint server, intranet etc.) as live widgets. The embedded reports are interactive, always live and up-to-date and serve the same version to everyone without duplication. 4) No Setup, No Maintenance On-Demand business intelligence services do not require setting up of servers and making complex configurations to make it work. It does not require you to configure complex OLAP servers and ETL settings which are part of most traditional business intelligence tools. Also, you do not need to know any black-magic to achieve performance and spend effort on the continued International Journal of Research in Finance & Marketing http://www.mairec org

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maintenance of the BI tools, which includes handling upgrades, patch updates, securing your servers, having your system always accessible etc., All you need is to just sign-in to the service, upload or setup the necessary data sources and start analyzing your data. Your focus is on arriving at the necessary business insights, either individually or collaboratively, which would directly benefit and complement your business operations. Focus becomes purely over business analytics and not on setup or maintenance worries. 5) Cost On-Demand Business intelligence tools offer the following cost advantages: •

Pay as you use vs Pay Upfront. Affordable monthly subscription model compared to thousands of $ for in-premises business intelligence tools.

•

Unsubscribe anytime you do not require further usage

•

No Hardware Cost. Accessible with just a browser from anywhere.

•

No Maintenance Cost. No software installation required in any machine

6) Quick Feedback Loop In packaged or in-premises business intelligence tools, measuring the actual usability and adoption of the product is a tough task for the vendor. It is typically done through any of the following means: •

Periodic Surveys

•

Customer on-site meetings

•

Feedbacks percolating from Customer Support

•

etc.,

6. Advantages of SaaS BI Model Companies that choose a SaaS model gain the following business benefits: •

IT infrastructure cost will be significantly reduced

•

No need to purchase any software or hardware

•

Business risks can be shared among users International Journal of Research in Finance & Marketing http://www.mairec org

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Rapid deployment reduces the installation or maintenance cost

•

Hassle-free implementation at multiple locations

•

No need of any additional hardware or software infrastructure support

•

Capital expenditure is reduced as the subscription fees can be paid easily

•

System can be accessed anytime, anywhere by simply connect to the cloud.

•

Easy access to comprehensive security, back-up, disaster recovery and support services.

When comparing the costs of a SaaS solution and a traditional, premises-based software solution, people often fall into the trap of simply comparing the subscription fees of the SaaS against the software license fees of the traditional system. The application license fee is only a small portion of the total cost to implement, customize, manage and support traditional software.

7. Some popular SaaS BI Tools 1. Panorama Software (http://www.panorama.com/) 2. Vertica (http://www.vertica.com/) 3. Kognitio(http://www.kognitio.com/) 4. LucidEra(www.lucidera.com) 5. SAP Business Objects(www.sap.com)

8. Conclusion Business Intelligence is one of the few technologies that can equip organizations to more effectively prepare for tomorrow today. It's no wonder the BI platform is expected to grow by 7.9% through 2012 (according to Gartner). However traditional BI products required huge upfront costs, had long lead times and demanded technical expertise to use. SaaS allows powerful functionality without the need for any of these, making it a highly profitable investment for SMBs.

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References [1]

http://ebookee.org/Strategic-Intelligence-Business-Intelligence-Competitive-Intelligenceand-Knowledge-Management_372938.html

[2]

http://en.wikipedia.org/wiki/Business_intelligence

[3]

http://www.exforsys.com/tutorials/business-intelligence/how-to-best-use-businessintelligence-to-your-advantage/1.html

[4]

http://www.sascommunity.org/wiki/Introduction_to_the_SAS%C2%AE_9_Business_Int elligence_Platform:_A_Tutorial

[5]

http://www.scribd.com/opensearch?language=1&limit=10&num_pages=&page=2&quer y=cloud+and+business+intelligence

[6]

Hurwitz,Bloor,Kaufman, “Cloud Computing For Dummies”, Wiley Publication Inc,2010

[7]

Targett David, “Analytical Decision Making”, Maxmillan India Ltd., 1997

[8]

www.leosys.net

[9]

www.lexjansen.com/phuse/2007/tu/tu01.pdf

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GAINING THE COMPETITIVE EDGE THROUGH CRM – A STUDY ON PRIVATE SECTOR BANKS Yogita Narang* Atul Narang** Dr. Shalini Nigam**

ABSTRACT Customer relationship management (CRM), being disciplined and holistic approach in identifying the tastes and preferences on individual basis to enhance relationship over the customer’s life, is the buzz word for competitive advantage and so the companies are spending enormous resources on it. In CRM every customer is viewed on his life time value, and the realization is loud and clear that not only customer retention but customer satisfaction is more important than just customer acquisition for a transaction. In real terms CRM is a philosophy and the software solution part is a mere tool to aid better implementation of the philosophy. CRM goes way beyond a software solution. The present level of MIS covers, information needed for control, performance monitoring, decision making etc. and encompasses activities in administrative offices like processing of statutory returns, monthly/quarterly performance reports from branches, credit information personnel inventory, profit and loss accounts, funds management, and branch maintenance etc. The purpose of this research is to study the comparative use of CRM in various private sector banks. The study analyzes the perceptions of the customers regarding the impact of CRM on service quality and evaluates the impact of CRM on customer retention. The results bring out the comparative ratings by customers, ICICI being rated first in implementation of CRM, HDFC rated first in service quality and customer retention. Keeping this challenge in mind it is an attempt to rediscover the power of upcoming Technologies of digital revolution in the field of banking sector – the challenges and their impact on future economy.. *Research Scholar, Dept of Management, Dayalbagh Educational Institute, Agra, INDIA, **Ast. Proferssor, Dept of Management, Anand Engineering College, Agra, INDIA, ***Associate Professor, Dept of Mgt, Dayalbagh Educational Institute, Agra, INDIA,

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Key Words: Customer Relationship Management, Customer retention, service quality, competitive advantage, competitive strategy, Information Technology

INTRODUCTION Customers Relations Management (CRM) helps in maintaining customer database and providing better services. Over the last decade, firms across a wide variety of industries (for example, banking, insurance, telephone, retailing and airlines to name a few) have increasingly focused on customer as opposed to a product or brand management strategy. With a customer management focus, these firms have changed from a transactional to a relationship orientation, where they differentiate customers as a function of the lifetime value of the relationship to the firm (Blattberg and Deighton 1996; Peppers and Rogers 2001; Gupta et al. 2004). To implement such a customer relationship strategy, firms have not only made massive investments in information infrastructure to store and analyze customer information, but also changes in organizational structure, employee incentives, accounting and operations management practices to facilitate the implementation of the strategy (Day 2003). Yet, despite such massive investments in Customer Relationship Management (CRM), the current state of the literature provides feeble information on the usage of CRM strategies by some of the good MNC’s private sector banks in developing country.

CRM and its evolution CRM is the business buzzword on the Internet these days. Customer Relationship Management promises faster customer service at lower costs, higher customer satisfaction and from this, better customer retention and ultimately customer loyalty. Naturally, all this is done in hope for more sales and profits. A management philosophy according to which a company’s goals can be best achieved through identification and satisfaction of the customers' stated and unstated needs and wants. CRM is a

computerized system for

identifying, targeting, acquiring, and retaining the best mix of customers. Customer relationship management helps in profiling prospects, understanding their needs, and in building relationships with them by providing the most suitable products and enhanced customer service. It integrates back and front office systems to create a database of customer contacts, purchases, and technical support, among other things. This database helps the International Journal of Research in Finance & Marketing http://www.mairec org

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company in presenting a unified face to its customers, and improve the quality of the relationship, while enabling customers to manage some information on their own.

The Customer is King. This mantra, although used for a long time, has not been put into practice until recently. Forget the notion of royal treatment; customers were not even treated with dignity by most organizations. As recently as the 1970s and 80s, the concept of customer support meant that organizations were doing a favor by answering a few questions for the customer on the phone – after putting them on hold for an hour! Standing in line to buy something was common and expected. Remember when the customers had to go to the airports to buy tickets only because the airlines kept them there? Organizations simply lost touch with the realization – that they existed because of these customers.

The 1990s brought two new concepts that challenged the prevailing business landscape: deregulation and the Internet. These forces brought down the barriers of entry resulting in an environment of intense competition. Stores faced competition from on-line start-ups. Traditional bricks-and-mortar banks fought for customers with online or virtual banks. Airline tickets were increasingly purchased from the convenience of your home. The explosion in information allowed consumers to compare features, and prices across multiple providers. Products became commodities and prices could not be lowered further to ensure survival. Customer service became the only major differentiator in many cases. Customers received what they have always deserved – respect. The customer was now truly the king.

Business customers, although always treated with more respect than individual consumers, were more or less ignored in the early stages of the Internet boom. The emphasis focused on expanding the consumer base regardless of positive cash flow, revenues, and margins. The demise of many dot-coms brought an epiphany. Companies realized that they needed to focus on their enterprise customers. The advent of e-CRM applications was the first big step toward providing better support to the strategic business customers. Although these solutions provided automated self-service to customers, they still treated all customers the same. Furthermore, the focus of these applications is more on improving call-center productivity. Clearly, these applications add value and help many organizations execute their CRM initiatives. However, they are not effective in meeting the needs of an organization’s strategic

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enterprise customers. Each enterprise customer has its own needs and craves personalized support.

More and more organizations and companies have realized that they need to put their customers front and center and to support a robust strategic customer care process, including profiling customers, segmenting customers, researching customers, investing in technology, and managing customers (Brown, 2000).

The paradigm shift brought lots of discussions on “relationship marketing” since the 1980s (Berry, 1983; Håkansson, 1982). Relationship marketing aims to identify, maintain and build up a network with individual customers and to continuously strengthen the network for the mutual benefit of both sides through interactive, individualized and value-added contacts over a long period of time (Shani and Chalasani, 1992). However, relationship marketing focuses mainly on strategy, and lacks a holistic view of the business processes connected to it. CRM evolving from business processes emphasizes not only a comprehensive strategy, but also the process of acquiring, retaining and partnering with selective customers to create superior value for the company and the customer (Parvatiyar and Sheth, 2000).

Second, while companies and organizations are making efforts to keep pace with the paradigm shift in marketing, customer needs, expectations and behaviors are also changing. Customers do not only want services; they want “good” services, which possess characteristics like “ease of doing business, trust, responsiveness, web site navigability, problem resolution and all those other elements of good e-business that don't fit quite so neatly into a purely binary world” (Zemke and Connellan, 2001). Javalgi et al. (2006, p. 12) also pointed that “in today's hyper-competitive markets service firms must be market oriented”. As “knowledge is key to nurturing customer relationships” (Lavender, 2004), “market research plays a critical role in generating the needed data on which a market orientation can be developed and implemented, which, in turn, can enhance the practice of CRM” (Javalgi et al., 2006). Therefore, CRM is considered as a means of supplementing ERP systems to match customers' needs and increase their satisfaction.

CRM has been explained in various ways and the same applies about the understanding of the organizations and individuals about it. International Journal of Research in Finance & Marketing http://www.mairec org

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As per a study by CRMGuru (www.crmguru.com) the following chart in Fig. 1 gives a breakup of what the customer understands about CRM:

Fig.1: Source: “What is CRM?” Survey Results. www.crmguru.com: CRMGuru Online Survey, 4400 Respondents, July 2003.

So we can see that a major chunk of the respondents believe that CRM is about putting the customers at the heart of the business or employing a customer-centric approach. But what decides and drives the decision of how to approach the question of CRM implementation during the whole lifecycle of a customer.

Private Banking sector In 1994, the Reserve Bank of India issued a policy of liberalization to license limited number of private banks, which came to be known as New Generation tech-savvy banks. Global Trust Bank was, thus, the first private bank after liberalization; it was later amalgamated with Oriental Bank of Commerce (OBC). Then Housing Development Finance Corporation Limited (HDFC) became the first (still existing) to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector.

At present, Private Banks in India includes leading banks like ICICI Banks, ING Vysya International Journal of Research in Finance & Marketing http://www.mairec org

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Bank, Jammu & Kashmir Bank, Karnataka Bank, Kotak Mahindra Bank, etc. Undoubtedly, being tech-savvy and full of expertise, private banks have played a major role in the development of Indian banking industry. They have made banking more efficient and customer friendly. In the process they have jolted public sector banks out of complacency and forced them to become more competitive.

Dhanalakshmi Bank The foundation of Dhanalakshmi Bank Limited was laid down on 14th November 1927, in the Thrissur district of Kerala. A group of innovative entrepreneurs had started the bank with a capital of Rs.11,000 and only 7 employees.

HDFC Bank Housing Development Finance Corporation Limited, more popularly known as HDFC Bank Ltd, was established in the year 1994, as a part of the liberalization of the Indian Banking Industry by Reserve Bank of India (RBI). It was one of the first banks to receive an 'in principle' approval from RBI, for setting up a bank in the private sector.

ICICI Bank ICICI Bank started as a wholly owned subsidiary of ICICI Limited, an Indian financial institution, in 1994. Four years later, when the company offered ICICI Bank's shares to the public, ICICI's shareholding was reduced to 46%. In the year 2000, ICICI Bank offered made an equity offering in the form of ADRs on the New York Stock Exchange (NYSE)

ING Vysya Bank ING Vysya Bank Ltd came into being in October 2002, when erstwhile Vysya Bank Ltd was merged with ING, a global financial powerhouse boasting of Dutch origin. Vysya Bank Ltd, one of initial banks to be set up in the private sector of India.

Jammu & Kashmir Bank The origin of Jammu and Kashmir Bank Limited, more commonly referred to as J&K Bank, can be traced back to the year 1938, when it was established as the first state-owned bank in India. The bank was incorporated on 1st October 1938 and it was in the following year (more precisely on 4th July 1939) that it commenced its business, in Kashmir (India). International Journal of Research in Finance & Marketing http://www.mairec org

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Karnataka Bank Karnataka Bank Limited is a leading private sector bank in India. It was incorporated on 18th February 1924 at Mangalore, a town located in the Kannada district of Karnataka. The bank emerged as a major player during the freedom movement of 20th Century India.

Karur Vysya Bank The Karur Vysya Bank Limited commonly known as KVB was set up by Late Shri M.A. Venkatarama Chettiar and the Late Shri Athi Krishna Chettiar, the two great visionaries in 1916

in

Karur,

a

textile

town

in

the

Tamil

Nadu

state

of

India.

Kotak Mahindra Bank Kotak Mahindra Bank is one of India's leading financial private banking institutions. It offers banking solutions that covers almost every sphere of life. Some of its financial services include commercial banking, stock broking, mutual funds, life insurance and investment banking.

UTI Bank Axis Bank was formed as UTI when it was incorporated in 1994 when Government of India allowed private players in the banking sector. The bank was sponsored together by the administrator of the specified undertaking of the Unit Trust of India, Life Insurance Corporation

of

India

(LIC)

and

General

Insurance

Corporation

ltd.

YES Bank Yes Bank is one of the top most private Indian banks. Awarded by the only Greenfield license award by RBI in last 14 years, this bank is established and run by Rana Kapoor and Ashok Kapur with the financial support of Rabobank Nederland, the world's single AAA rated private Bank

Review of Literature

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The literature on Customer Relationship Management in the context of the Banking Industry of developed countries points towards the wide use of all financial services under one roof leading to relationship banking and CRM concept.

Brain and Company, USA in a specific study on CRM found that a customer becomes more profitable in the long run. Though the initial acquisition cost exceeds gross margin but the subsequent retention costs are much lower which help in increasing the profits. The Research findings of Technical Assistance Research Project state that 95% of customers do not complain and give opportunity to competitors. On the other hand, a dissatisfied customer tells around 14 people about service failure, whereas the same customer tells only around six others when he receives excellent service.

Bateman & Snell (2007) observed that CRM is a business process which results in optimized profitability and revenue generation, while achieving customer satisfaction. Often also known as relationship marketing by marketing academicians, CRM is an information technology assisted process that establishes a collaborative environment for businesses to analyze the buying behaviour and product/service requirements of an individual or group of existing as well as potential customers.

Pisharodi, Angur and Shainesh (2003) in a study of success of CRM found that a process oriented strategic approach to connect the operational, informational and the organizational components of CRM are critical for the success of CRM application.

Reinartz & Kumar (2002) pointed out that Managers need to be careful in differentiating customer loyalty and customer profitability. Enterprises ought to understand the fact that managing customers for loyalty is different from managing them for profits.

As per the Research Note by Gartner Group (2001), more than 75% of enterprises engaged in CRM initiatives are incapable of putting together a comprehensive view of their customers. Further, it noted that market leadership would be attained by enterprises that achieve maximum value and customer satisfaction within each customer segment being

served by

them.

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Parvatiyar and Sheth (2001) observed that CRM is a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value for the company with the customers. Day (2000) pointed out that the enterprise has to develop some key marketing competencies for the smooth implementation of CRM. A relationship orientation is the first such thing. Relationship orientation should permeate the mindset, values and norms of the organization. Further, the enterprise needs to continue to increase its knowledge of the customers and ensure that it flows all over the organization. Finally there is a need for alignment and integration of processes. Ernst & Young (1999) observed that enterprises investing on CRM solutions predominantly focus on technology. The challenge lies in combining people, processes and technologies while implementing CRM Solutions.

Davids (1999) observed that choice of relevant technology and implementation are keys to successful customer relationship plans. The failure rate of CRM projects has been estimated to be high. Groff et al (1998) observed that CRM facilitates better handling of the obstacles of interweaving customer relationship strategy at all levels. It demands a holistic approach and process orientation.

Reichheld & Sasser (1990) found that advancements in information technology, data warehousing and data mining capabilities enable enterprises to manage individualized relationships with key customers. The benefits come by way of lower costs of customer retention, improved profitability and lower defection rates.

Objective of the Study The main objectives of the study are: 1. To analyze the extent of the implementation of CRM in MNC’s private sector banks operating in India. 2. To analyze the perceptions of the customers regarding the impact of CRM on service quality. 3. To evaluate the impact of CRM on customer retention.

Research Methodology

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The study focuses on the CRM practices in private sector banks. For the purpose of analysis, the various dimensions of CRM have been formulated on the basis of the study carried out by N.O. Ndubsi and Chankok.Wah (2005) and further validated by J.G. Barnes in his book “Secrets of Customer Relationship Management”.

Cronbach Alpha test has been used to validate the scale being used, giving the score of 0.89, leading to the inference that the scale is highly reliable. Likert’s 5 – point scale is used for the data collection and for its suitability to establish the range and variation in the perceptions (Below 4: Poor; 4 to 5.5: Average; 5.6 to 7: Good; 7.1 to 8.5: Very Good: 8.6 to 10:Excellent)

Five aspects of service quality have been used to measures the gap between customer expectations and experience, developed by Zeithamal, Parsuraman and Berry (1988) value, trust, commitment, communication and conflict handling. Lickert Scale 1 to 5 have been used as 1 stands for strongly agree and 5 for strongly disagree. 1 to 13 - item scale developed by Parasuraman, Berry and Zeithaml in 1996 in the Research paper entitled “Behavioral consequences of service quality” for measuring customer retention have been used.

Ten Private Sector banks have been taken for studying the sample for this study (Table-1). These banks have been chosen because they have a good market share and latest technology. The representative sample has been collected from the 10 Banks situated in Delhi and NCR. 500 questionnaires were distributed among the customers of ten banks covered for the study but 359 responses were received back from the customers of the above mentioned banks.

Hypothesis formulation Hypothesis 1 Null Hypothesis: There is no difference in the CRM implementation in all private sector banks. Alternate Hypothesis: There is a difference in the CRM implementation in all private sector banks.

Hypothesis 2 International Journal of Research in Finance & Marketing http://www.mairec org

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Null Hypothesis: There is no relationship between CRM and service Quality. Alternate Hypothesis: There is a relationship between CRM and service quality.

Hypothesis 3 Null Hypothesis: There is no impact on customer retention using CRM in private sector banks. Alternate Hypothesis: There is an impact on customer retention using CRM on private sector banks.

Analysis and Interpretation Extent of CRM Implementation in Private sector Banks The first objective of this study is aimed at understanding the extent to which the CRM is implemented by the different Private Sector banks. For this purpose, the customer’s perceptions about the CRM have been measured. The five dimensions on which CRM has been perceived by the customer are value, trust, commitment, communication and conflict handling. Table 2 depicts the customer’s perceptions of the implementation of CRM in the banks where ICICI topped with 8.44 mean score and Karur Vaishya scores lowest with 3.94 score. As it depicts, the overall mean score of CRM implementation is 5.17. This shows that CRM implementation is average i.e. satisfactory. It shows that Private Sector Banks are using Customer Relationship Management technique but not aggressively to enhance their Customer base.

Perceptions of customers regarding the Impact of CRM on Service Quality Customers’ perceptions regarding the impact of CRM on service quality have also been studied which are based on the five-dimension model. For the purpose of this study, CRM has been considered as the independent and service quality as the dependent variable. The relationship between the two has been studied with the help of regression analysis as shown in Table-5. The results reveal the strength of the relationship between CRM and service quality, and shows that 18% of the total variance in service quality is explained by CRM as suggested by the R2 value.

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This indicates that service quality is a complex variable and is a function of many more underlying variables. Also, the beta values of CRM (0.432) are significant at 5% level of significance as suggested by the t value as depicted in Table-6 & 7. This suggests that there is a positive relationship between CRM and Service Quality. From the analysis, it can be inferred that CRM has a moderate influence on service quality and thus appropriate steps have to be taken by the private banks on this front.

CRM and Customer Retention The next objective of the study is to analyze the impact of CRM on customer retention. The analysis of results obtained reveals the strength of the relationship between CRM and Customer Retention. It can be observed that 63% of the total variance in customer retention is explained by CRM as suggested by the R2 value shown in Table -8. The beta values of CRM (0.79) are also significant at 5% level of significance as suggested by the t value (Table-9 & 10). This further suggests that there is a positive relationship between CRM and Customer Retention. This leads to the rejection of the Null Hypothesis and acceptance of alternate Hypothesis that CRM has a positive impact on customer retention.

Conclusion Information technology and the communication networking systems have a crucial bearing on the efficiency of money, capital and foreign exchange markets and have manifold implications for the conduct of monetary policy. In India, banks as well as other financial entities have entered the world of information technology and computer networking with INFINET. Like every other industry the financial services sector is also witnessing a plethora of changes. Facing umpteen challenges, the industry despite its phenomenal growth, has witnessed a slump in some areas. The main reasons are changes, vast competition, increased costs, decreased efficiency, inadequate client relationships and poor sales processes. Something vital is needed to cut through the waves and make the sector boom. Organizations need to basically better their relations with their customers in an effort to sustain them.

The financial services industry is now looking at customer focus as a means by which it can achieve lost profits. An acute focus on customer relationship management – CRM is being International Journal of Research in Finance & Marketing http://www.mairec org

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given. Adopting this strategy has slowly resulted in financial firms, venture capital, private equity, investment banking institutions etc, achieving an increase in overall productivity.

The dilemma that most financial institutions face is that they do not store their valuable customer data in a comprehensible or easily assessable manner. In an attempt to be more profitable, the banks have become competitive and more customer – oriented. This new orientation has compelled them to take a more pragmatic approach for conducting the business. The CRM is one such tool which helps in meeting the customer’s expectations according to their changing needs.

While analyzing the CRM Implementation in private sector banks, it was found that few Private Sector Banks have been able to implement the CRM practices. This indicates that Private Sector Banks have been quite innovative in understanding their customers and in building good relations with them but these will have to improve the level of efforts needed to keep customers satisfied. Further, it has been observed by analyzing the service quality dimensions that trust and empathy of Private Sector Banks scored the least. Highest scores in terms of assurance has been obtained. This indicates that the banks are in a dire need to make proper strategies to improve their working and handling of the customers. This will make the banks more efficient in serving the customers and in maintaining the long term relations with them. The analysis of the results received on customer retention suggests that the banks are equally affected by the kind of CRM initiatives they undertake to retain the customers. The banks are now under tremendous pressure to retain the older customers because of the competition in the Banking Sector. This would not only ensure better customer relations but also loyalty among them, which is very critical and important in today’s competitive world.

CRM for financial services is actually benefiting the financial services sector. Obtaining, maintaining and basically utilizing a customer database in an effort to maximize or improve customer relationships will go a long way in increasing overall productivity. A failure to focus on these relationships can prove detrimental while knowing and indulging your customer preferences can go a long way in securing and raising profitability.

REFERENCES International Journal of Research in Finance & Marketing http://www.mairec org

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Anand, S (2008), Customer Relationship Management in Indian Banks, Journal of Professional Banker, Dec. 2008 pp 66-70. Bholanath Dutta, CRM in Financial Services Marketing, Journal of Marketing Mastermind, Sept 2008. Davids M (1999), How to Avoid the 10 Biggest Mistakes in CRM, Journal of Business Strategy, Nov-Dec 1999, pp22-26. Day GS (2000), Managing Market Relationship, Journal of the Academy of Marketing Science Vol. 28 (1), pp – 24-30. Ed Thompson et al (2005), Organisations are beginning to think about CRM again, Management update, November, 2005. Kimberly, C et al (2005), CRM Marketing Strategies and Technologies Mature, Management update, November, 2005. Parvatiyar A and Sheth JN (2001), Conceptual Framework of Customer Relationship in Customer Relationship Management – Emerging Concepts, Tools and Applications, Tata McGraw Hill, New Delhi, pp. 3-25. Pisharodi R et al (2003), Relationship Strategy, Effectiveness and Responsiveness in Services Marketing, Journal of Relationship Marketing, Vol 2, No. 1, 2003 pp. 3-22. Rajiv Joshi, Customer Relationship Management: Free and Open Source CRM Software for SMEs, Journal of Marketing Mastermind, Dec. 2008. Sarangapani, A (2008), Customer Relationship Management in Banking Sector, Journal of Professional Banker May 2008 pp 39-47. Shainesh G and Sheth JN (2006), Customer Relationship Management – A Strategic Perspective, Macmillan India, New Delhi, pp 16-29. Sisodia R.S and Wolfe D.B (2000), Information Technology: Its Role in Building, Maintaining and Enhancing Relationships, in Handbook on Relationship Marketing, Saga Publications, pp 526-563. William, B (2005), Best Practices for CRM Deployment, The Forrester, December, 2005. www.dmnews.com/Datamonitor-suggests-orcle-SAP-likely-to-remain-atop-CRM market/article/98266. www.opensourcestrategic.com/ofbiz/index.php. www.atosorigin.com/enus/ Services/Solutions/Systems_Integration/Solutions/CRM/. International Journal of Research in Finance & Marketing http://www.mairec org

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www.crm – review.com/software 2. Php.

ANNEXURE Table 1: List of the Sample Banks

1

ICICI BANK

2

HDFC BANK

3

DHANLAXMI BANK

4

KARNATAKA BANK

5

J& K BANK KOTAK

MAHINDRA

6

BANK

7

YES BANK

8

AXIS BANK

9

ING VYASA

10

KARUR VAISHYA BANK

TABLE-2 Crm implementation in private sector banks

IMPLEMENTATION OF

CRM

(MEAN

VALUE)

CUSTOMER RANKING

ICICI BANK

8.44

I

HDFC BANK

6.53

II

DHANLAXMI BANK

5.06

III

KARNATAKA BANK

4.96

IV

J& K BANK

4.95

V

KOTAK MAHINDRA BANK

4.74

VI

YES BANK

4.73

VII

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AXIS BANK

4.37

VIII

ING VYASA

4.18

IX

KARUR VAISHYA BANK

3.94

X

OVERALL MEAN

5.19

TABLE- 3 Service Quality Analysis in Private sector Banks

PERCEPTION

OF

SERVICE QUALITY

CUSTOMER RANKING

HDFC BANK

5.88

I

ICICI BANK

5.24

II

ING VYASA

5.18

III

YES BANK

4.64

IV

AXIS BANK

4.34

V

KOTAK MAHINDRA

4.22

VI

KARNATAKA BANK

4.04

VII

J & K BANK

3.64

VIII

KARUR VAISHYA BANK

3.54

IX

DHANLAXMI BANK

3.54

X

OVERALL

PERCEPTION

MEAN

4.42

TABLE-4 Customer retention perception by private sector banks NAME OF BANK

MEAN VALUE

CUSTOMER RANKING

HDFC BANK

6.67

I

KOTAK MAHINDRA

5.64

II

ICICI BANK

5.4

III

YES BANK

5.2

IV

ING VYASA

4.9

V

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AXIS BANK

4.89

VI

KARNATAKA BANK

4.87

VII

DHANLAXMI BANK

3.2

VIII

KARUR VAISHYA BANK

2.9

IX

J & K BANK

2.6

X

OVERALL MEAN

4.627

TABLE-5 Model Summary

Model

R

1

.432a

Adjusted R

Std. Error of

Square

the Estimate

R Square .186

.184

.90388

a. Predictors: (Constant), CRM TABLE-6 ANOVAb Sum of Model 1

Squares Regression

Df

Mean Square

66.785

1

66.785

Residual

291.667

357

.817

Total

358.453

358

F 81.745

Sig. .000a

a. Predictors: (Constant), CRM b. Dependent Variable: SQ Table-7 Coefficientsa

Model 1

Unstandardized

Standardized

Coefficients

Coefficients

B (Constant) CRM

Std. Error 3.187

.112

.186

.021

Beta

t

.432

Sig.

28.356

.000

9.041

.000

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Coefficientsa Unstandardized

Standardized

Coefficients

Coefficients

Model 1

B (Constant)

Std. Error

Beta

3.187

.112

.186

.021

CRM

t

.432

Sig.

28.356

.000

9.041

.000

a. Dependent Variable: SQ Table-8 Model Summary

Model

R

1

.797a

Adjusted R

Std. Error of

Square

the Estimate

R Square .635

.634

1.73211

Mean Square

F

a. Predictors: (Constant), CRM Table-9 ANOVAb Sum of Model 1

Squares

df

Regression

1863.876

1

Residual

1071.077

357

Total

2934.953

358

1863.876 621.247

Sig. .000a

3.000

a. Predictors: (Constant), CRM b. Dependent Variable: CR Table-10 Coefficientsa

Model 1

Unstandardized

Standardized

Coefficients

Coefficients

B (Constant)

Std. Error .755

Beta

.215

t 3.506

Sig. .001

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.982

.039

(ISSN 2231-5985) .797

24.925

.000

a. Dependent Variable: CR

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ADMINISTERING THE FACTION Y: (A SUPPORTING REVIEW WITH SPECIAL REFERENCE TO GENERATION’S ADAPTABILITY CHARACTERISTICS) Abhishek Singh Chauhan* Tweena Pandey**

ABSTRACT The paper seeks to study the impact of Generation Y that comprises of those particular groups of people, who are born between the Year 1980 – 2000 and their age is ranging from 19 – 30 Years and contribute a major part of our able population. These Gen Y people are highly Energetic, Practical, Motivated have different value system. The biggest divide facing our society is not a gender divide, racial divide, income or technology divide but it is the generational divide. For those of us involved in engaging young people, it must be remembered that the gap between them and us is constantly growing: school students are always aged 5-18 but we are getting older, so we must work harder to understand them and so remain relevant.

Authors have tried to define these generations by the parameters like:-1. Their Status Description like:- Seniors, Builders, Boomers, Generation X, Generation Y, & Generation Z , 2. International Journal of Research in Finance & Marketing http://www.mairec org

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The underlying years in which these status of people born, 3. Their different Age Parameters , 4. Their approximate Population in Million, & 5. The different levels of Population Rate.

The study shows that the third strongest felt need Indian Teenagers have is for guidance &or direction in their life that is trustworthy. The further relevance of the study will encompass the underlying facts and will surely try to bridge the gap between Generations from an altogether new prospective.

Key Words:- Administering, Faction- Y, Special Reference, Adaptability Characteristics *Faculty, Department of Management, Uttaranchal Institute Of Management, Dehradun, Uttarakhand, INDIA. **Faculty, Department of Management, Uttaranchal Institute Of Management, Dehradun, Uttarakhand, INDIA.

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INTRODUCTION Businesses continue to be challenged with workforce diversity and how to best manage the differences that exist in race, religion, gender, disability, sexual orientation, color, etc. The general theme is that managers should focus on minimizing tension that exists resulting from generational differences. Unfortunately, there is more agreement and discussion as to how generations are different than there is on how to manage these differences. There is general agreement that India’s workforce is aging and can be divided into four distinct groups. There is also agreement among experts as to how each group has developed its values, attitudes, and expectations toward work. There is, however, an absence of agreement in the published literature regarding strategies and techniques for managing generational differences. Our paper will discuss India’s workforce in the future with special attention given to the absence of relevant information for practitioners resulting from generational differences. First, we must recognize that most experts divide the workforce into the six basic generational groups. Table 1. Describes these categories as per their existing percentage during the respective years accordingly. (Refer to Table 1.)

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Description

Born

(%)

Builders/ Traditionalists

1926–1945

15%

Boomers

1946–1964

25%

Generation X

1965–1979

26%

*Generation Y

1980–2000

28%

Generation Z

2001+

1%

Table 1. (Source: Self Composed): Generation X has been synonymous with young people since the name was first coined by Douglas Coupland in 1991ii. However many X’ers are now in their 30’s and when it comes to understanding school students we are talking about Generation Y.

*represents the most highest percentage of existing Population of Generation- ‘Y’

ABOUT GENERATION CATEGORIES

Traditionalists Builders: Traditionalists, born between 1926 and 1945, were raised in homogeneous families and neighborhoods. This generation witnessed the rise of the white collar job and a strong commitment to higher education. Traditionalists have a respect for authority and place a lot of International Journal of Research in Finance & Marketing http://www.mairec org

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value in receiving financial rewards and having security. A good example of the focus on security needs can be seen in how important health care is to this generation.

Boomers: The baby boom generation, born between 1946 and 1964, was shaped by the Vietnam War; the Civil Rights movement; and the assassinations of Martin Luther King, John F Kennedy, and Robert Kennedy. Boomers are more suspicious of authority than their parents as a result of events like Watergate and Unpopular wars. Boomers are competitive by Nature, but they do show some commitment to make a better world.

Generation X: Generation Axe’s was born between 1965 and 1979- the oldest Gen X's are in their early 40s now. This generation saw the end of the Cold War and the fall of the Berlin Wall. They were the first to experience high divorce rates amongst their parents, and most had some exposure to parents or relatives losing jobs to the recessions of the 1980s and 1990s. The growth of the Internet and global access to information created a generation that is information rich. Generation Xers asked the question, “Where can I get the information?” Generation Xers are self- reliant and have clear tribal affiliations. Generation X, born from 1965 to 1979, are the children of the workaholic Baby Boom Generation and tend to feel overlooked and less appreciated. These latch-key kids were taught to be self-reliant individuals. Generation X tends to desire more of a balance between work and life and has been referred to as the me generation. Somewhat mistrustful of corporations, Generation Xers are less loyal than their Veteran and Baby Boom counterparts. However, this lack of loyalty is not all negative. They tend to embrace International Journal of Research in Finance & Marketing http://www.mairec org

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change, particularly as it relates to technology; and, since they are more outcome/results focused, they expect specific constructive feedback on their performance.

Generation Y: Generation Y, born in & after 1980, is challenging traditional hiring and recruiting practices. Companies don't have a lot of experience with this generation and are still figuring out what motivates this group. There will be a struggle for some time as to how to manage Generation Y, which comprises not only the largest consumer group but the largest employee group as well. Gen Y’s are the children of the Boomers and the siblings of Generation X. Generation Y's are very upbeat and optimistic despite having been exposed to routine violence in schools and terrorism. Events such as the Columbine school shootings and September 11th terrorist attacks created an almost constant state of vigilance for many of these young people. Generation Y is the most educated, well traveled and technologically sophisticated generation that we have ever had. They live in a world of computers, the Internet, DVDs and cell phones. This group seems to be less process or outcome focused. Generation Y has a sense of morality and civic duty, but making a lot of money is less important to this generation. Their contributions to society and their role as parents are equally important to them.

Generation Z: This Generation Z is including those born after 2000, i.e. in 2001 or beyond. Yet, the generation includes upbringing, unconscious & moreover an infant generation, thus it merely worth to comment this group.

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GENERATION: - “Y” (SPECIAL FEATURES)

Technology Oriented:

Generation Y grew up with technology and rely on it to perform their jobs better. Armed with BlackBerrys, laptops, cell phones and other gadgets, Generation Y is plugged-in 24 hours a day, 7 days a week. This generation prefers to communicate through e-mail and text messaging rather than face-to-face contact and prefers webinars and online technology to traditional lecture-based presentations.

Work Time Attitude:

The fast-track has lost much of its appeal for Generation Y who is willing to trade high pay for fewer billable hours, flexible schedules and a better work/life balance. While older generations may view this attitude as narcissistic or lacking commitment, discipline and drive, Generation Y legal professionals have a different vision of workplace expectations and prioritize family over work.

Achievement-Oriented:

Nurtured and pampered by parents who did not want to make the mistakes of the previous generation, Generation Y is confident, ambitious and achievement-oriented. They have high expectations of their employers, seek out new challenges and are not afraid to question authority. Generation Y wants meaningful work and a solid learning curve.

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Team-Oriented:

As children, Generation Y participated in team sports, play groups and other group activities. They value teamwork and seek the input and affirmation of others. Part of a no-person-leftbehind generation, Generation Y is loyal, committed and wants to be included and involved.

Requires Mentors:

Generation Y craves attention in the forms of feedback and guidance. They appreciate being kept in the loop and seek frequent praise and reassurance. Generation Y may benefit greatly from mentors who can help guide and develop their young careers.

SPECIFIC HIGHLIGHTS ABOUT GENERATION ‘Y’ If we want to understand Generation- Y up to some more extent, let’s stress upon the three effective features of this group, which can also be termed as 3Cs of GEN.Y:

Confidence:

•

Upside: In general, Generation Y is more self-confident than any generation that preceded it thanks to the empowerment focused parenting styles of a large majority of Baby Boomers.

•

Downside: They often lack the behavioral skills to back up their confidence.

•

Implication for you: This generation is used to positive reinforcement, feedback in the moment and very specific and clear direction at all times. What they may seem to lack in

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interpersonal sophistication they can make up for in effort, if they feel comfortable that they can learn safely. They are highly trainable. Make it easy for them to learn and don’t make them feel stupid if they mess up. Just turn it into a learning experience. And yes, you will need to be patient.

Career Expectations:

•

Upside: This is the generation that’s aiming high and reaching for the stars. They’re ambitious, but not at any cost. They’ve seen their parents get burned by a lack of worklife balance and/or get laid off at some point in their careers. Subsequently Generation Y has a maturity of perspective that the rest of us have had to gain the hard way.

•

Downside: Their work ethic may not appear to match their aspirations.

•

Implication for you: Don’t whitewash a job or the requirements of it when you hire them. Be upfront and clear about what level of commitment you will need, right down to the hours they will need to put in and what they will and will not be compensated for. Make expectations clear and outline the potential career paths from the outset so that they know what they are working towards.

Capability:

•

Upside: Gen Y have had instantaneous input into their decisions from trusted friends, parents and teachers their entire lives thanks to the plethora of technology like instant messaging, text messaging and cell phones. An opinion is never more than a few clicks or a quick dial away. This means that they are naturally pre-disposed to teamwork and collaboration. International Journal of Research in Finance & Marketing http://www.mairec org

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Downside: They can appear to lack independence of thought and initiative. It can be hard for them to solve problems/crises in the moment and by themselves.

•

Implication for you: Set up the working environment so that teamwork is encouraged and rewarded. Set team goals. And put the more experienced members of your team in place as team leaders to help coach the newcomers in some of the trickier aspects of the job.

Now, while understanding the significant characteristics of ‘Y’- group, their arises one more thing to inquire about, & that is “What are the factors that influences the behavior of YGeneration ??..”:-

The answer to this can be possible by focusing upon one more

abbreviatory term, i.e. “PPP”- The 3-P terminology & the detailing to which is as follows:

Peers: While the Builders/ Traditionalists’ Generation are most influenced by authority figures and Boomers make decisions based on data and facts, post-modern youth are more likely to make a decision based on the influence of their own peers. Our research has further confirmed that the biggest factor determining the choice a teenager will make is the experiences of their core group of 3 to 8 friends. Rather than making independent decisions based on core values, they live in a culture encouraging them to embrace community values, and to reach consensus.

Pragmatism: It is understandable that young people today are less idealistic than generations past due in part to the media and pop culture that fills their life. The most popular song of the 1940’s was Bing Crosby’s “White Christmas” (1942), for the 50’s it was “Rock around the Clock” (Bill Haley and International Journal of Research in Finance & Marketing http://www.mairec org

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his Comets, 1955), and the 60’s it was the Beatles’ “I want to hold your hand” (1963)vi. A quick listen to the music of choice for Generation Y reveals what different times they live in. Much is made of the dark lyrics of Eminem and Marilyn Manson, but these are just public examples of the popular and pervasive genre. The influence of music is second only to the influence of TV and movies in Gen Y culture. George Barna has found that when teenagers were asked, “What/who has a lot of influence on your thinking and behavior?” one quarter of the influence on their lives is from TV and movies.

Teenagers are now spending more time watching TV today compared to four years ago, up from 2 hours 16 minutes per day to 2 hours and 20 minutes, a growth of 3.6%. In addition to the growing Internet and video games use, they are now approaching 4 hours screen time per day.

At the same time Generation Y are increasingly worried by an array of factors from youth unemployment rates and increasing housing costs, to body image and crime rates. The result is that they have an increasingly short-term focus. Our research shows that their top life expectation is to complete their education (94%) with not too many plans after this.

Preference: For previous generations, the modernism mindset ruled and so people grew up believing that technology was good and to be trusted, medicine could overcome any problems humanity faced, and together we could create a great future. However in these postmodern times, technology is often not trusted let alone held up as the answer. AIDS and other pandemics continue to defy the experts, and the scientific method has given way to virtual reality. The concept of absolute and International Journal of Research in Finance & Marketing http://www.mairec org

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inherent truth has been banished as truth is deemed to be relative to one’s own background and understanding. The culture today asserts that any philosophy, religion, or practice is as valid as any other as long as it doesn’t hurt anyone else, and it is tolerant of the beliefs of others.

If we want to establish the healthier & constructive (productive) association with this ‘Y’Generation society, it is better to consider the following four “R” Concepts essentials while engaging with today’s youth:

Real: Not only must our communication style be credible, but we must be also. They don’t expect us to know all about their lifestyle, nor do they want us to embrace their culture. They are simply seeking understanding, and respect. If our communication has a hidden agenda, or we are less than transparent, it will be seen. This generation can sniff a phony from a long distance.

Raw: Today’s youth have access to the most advanced technology, movie special effects, and video games with which we can never compete. But the good news is that they are not impacted by slick presentations. They don’t want a rehearsed talk, or a manufactured spiel. The more spontaneous and interactive we are in the classroom, the less intimidated, and more open they will be.

Relevant:

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Obviously what we are communicating has to fall within their area of interest. But the style, as well as the content of our message must be relevant to a generation who are visually educated and entertained. There is no point in giving music to a friend on a cassette tape if they only have a CD player, or on CD if they only use MP3. Similarly we must research in the most appropriate format for those we are reaching. So in understanding the communication styles of our target cohort we will be better equipped to reach them.

Relational: There is an old and true saying in education circles: “They don’t care how much you know until they know how much you care!” Communicating to this generation requires openness, vulnerability, and genuine interest in those we are trying to teach, and above all else, understanding. The more relaxed the environment, and the more socially conducive to discussions; the better will be the quality of the learning.

GENERATION: - “Y”- EMPLOYEES OR VOLUNTEERS “How would you manage your staff differently if, instead of being paid employees, they were volunteers”?

I count myself lucky that as president of my local branch of a national charity I get to 'manage' volunteers. Reflecting on how I work with these volunteers compared to how I used to manage my staff I've identified some key differences:

1. People have much more flexibility around what they do and when they do it. International Journal of Research in Finance & Marketing http://www.mairec org

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2. I thank and praise people much more often. 3. I spend significantly more time with our new 'recruits' exploring what motivates them what their specific interests are, what type of work they feel they are most suited to, etc. 4. I spend more time discussing with people how important their work is, highlighting the value of their contribution in light of what we are aiming to achieve. 5. I use a more collaborative decision making process - all decisions are joint decisions in our group.

CONCLUSION The past two decades have seen a trend toward less hierarchical employer-employee relations along with a move away from long-term employment relationships and toward more demanding work. This means both employers and employees are less loyal to one another. Generational differences do exist but more research is needed. With today’s bottom line focus, companies are not likely to change age-old practices without being convinced of solid reasons to do so. Even before the economic crisis that occurred during the fall of 2008, employees tended to have less confidence in long-term rewards. Whether we are involved in educating youth, or in a leadership role, a quality outcome is dependent on our understanding of them. Once we have a foundational grasp of their characteristics, communication styles, and social attitudes, we will be well equipped to effectively impact this enormous and emerging generation. At last but not the least, we can say that Generation Y is generally idealistic, confident and brighter than they might sometimes come across. They can appear to lack what many of us would call “common sense”. Well, as it turns out, it’s not so common, and it’s not always the only way that makes sense. Be

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sure to tap into the energy, creativity and enthusiasm of your young talent. They might just teach you a thing or two.

References: Armour, Stephanie (2005). “Generation Y: They’ve Arrived at Work with a New Attitude.” November 6, 2005.

Deal, J. J. (2007), ‘Generational differences’, “Leadership Excellence, 24(6), 11”.

Douglas Coupland (1991), “Generation X: tales for an accelerated culture”, ‘St Martin’s Press’

Ibbotson, Alan (2007), “Managing Generation Y”, ‘HR Made Simple’, May 11, 2007.

Lewis, R. A. (2005). “Organizational behavior meets Generation X and Y – A practical approach”.

Walker-Smith, J. & Clurman, A. (1997), ‘Rocking the Ages’, ‘Yankelovich Partners’.

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Web Accessing: http://legalcareers.about.com/od/practicetips/a/GenerationY.htm, (accessed on:- July 2010) http://www.pdfdoc.net/kr/generation%20financial-ppt-1.html

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FACTORS OF PRODUCTION VIS-A-VIS PROFITABILITY OF TEXTILE INDUSTRY IN INDIA Sandeep Kapoor* Rocky Sachan**

ABSTRACT Every industry is either labor intensive or capital intensive or capital intensive. As far as textile industry of India is concerned it can be bradly classified into two parts i.e. cotton and blended mills and non-cotton mills. This paper attempts to test a hypothesis that, cotton mills are labor intensive and non cotton mills are capital intensive, on the basis of financial results of mills for the financial year 2008-2009. On acception or rejection of the above said hypothesis it explores the reasons of acception or rejection and then suggests the remedial measures.

*Sandeep Kapoor, Sr. Lecturer, Meerut Institute of Engineering and Technology **Rocky Sachan, Sr. Lecturer, Meerut Institute of Engineering and Technology International Journal of Research in Finance & Marketing http://www.mairec org

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Industry Overview India Textile Industry is one of the leading textile industries in the world. Though was predominantly unorganized industry even a few years back, but the scenario started changing after the economic liberalization of Indian economy in 1991. The opening up of economy gave the much-needed thrust to the Indian textile industry, which has now successfully become one of the largest in the world. Indian textile industry largely depends upon the textile manufacturing and exports. It also plays a major role in the economy of the country. India earns about 27% of its total foreign exchange through textile exports. Further, the textile industry of India also contributes nearly 14% of the total industrial production of the country. It also contributes around 3% to the GDP of the country.1 Indian textile industry is also the largest in the country in terms of employment generation. It not only generates jobs in its own industry, but also opens up scope for the other ancillary sectors. Indian textile industry currently generates employment to more than 35 million people. It is also estimated that, the industry will generate 12 million new jobs by the year 2012. The industry is estimated to be around US$ 115 billion by the year 2012. The current domestic market of textile in India is expected to be increased to US$ 60 billion by 2012 from the current US$ 34.6 billion. The textile export of the country was around US$ 19.14 billion in 2006-07, which saw a stiff rise to reach US$ 22.13 in 2007-08. The share of exports is also expected to increase from 4% to 7% within 2012.2 Fabric Production in India: Table 1 Fabric Production in India Mn.Sq.Mtrs.

Type of Mills

2005-06

2006-07

2007-08

2008-09 2009-10 (Prov.)

1

2

www.texprocil.com www.txcindia.com

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Cotton & Blended

30171

33120

34084

33664

36285

100% Non Cotton

18637

19545

21173

20534

22411

Total

48808

52665

55257

54198

58696

Source: www.txcindia.com

Research Methodology: The Indian textile industry has been choosen as universe for the present study. Method of simple random sampling has been adopted, for this purpose the universe is divided into two parts i.e. cotton blended mills and non-cotton mills. A sample size of 23 mills of each category has been taken. The financial period for the study is 2008-09. The hypothesis of the study is that, the cotton and blended mills are labor intensive and non cotton mills are capital intensive. Data Analysis: For testing the hypothesis the method of correlation has beed used. Firstly a correlation betwwen % of net profit and % of manufacturing expenses has been calculated and then a correlation between % of net profit and % of salary/wages expenses has been calculated. Table 2 Financial Position of Cotton & Blended Mills

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In % of Sales

S.No

Textile Spinning

.

-Cotton Blended

Net

Net

MFG

Salary

Sales

Profit

Profit

Exp

&Wages

991.73

-246.25

-24.83%

76.46

4.85

208.2

-28.23

-13.56%

65.35

11.89

3 Bombay Rayon

1342.4

148.5

11.06%

70.36

9.12

4 DCM

213.86

6.08

2.84%

51.76

21.45

5 Ginni Filaments

393.68

-31.6

-8.03%

70.46

5.47

6 GTN Industries

199.09

-18.76

-9.42%

83.97

9.99

7 Malwa Cotton

458.86

-43.72

-9.53%

68.62

9.85

8 Maral Overseas

503.49

-41.87

-8.32%

66.9

9.28

9 Morarjee Textiles

203.92

-38.07

-18.67%

50.41

8.92

10 Nagreeka Exports

266.53

-1.76

-0.66%

78.07

2.61

11 Nitin Spinners

262.25

-14.11

-5.38%

69.47

3.99

12 Patspin India

205.33

-26.03

-12.68%

83

6.45

13 Precot Meridian

378.96

-8.71

-2.30%

58.5

9.29

14 SEL manufacturing

589.71

54.78

9.29%

89.74

1.99

15 Spentex Industries

661.82

-77.4

-11.70%

70.88

6.7

322.1

-0.45

-0.14%

90.1

2.92

17 Super Spinning

366.45

-27.42

-7.48%

65.53

9.65

18 Supreme Textile Mart

310.45

-4.04

-1.30%

89.12

2.78

19 Suryajyoti Spinning

209.53

3

1.43%

73.13

5.4

20 Mill

355.39

-15.7

-4.42%

73.54

5.05

21 Sutlej Textiles

843.04

-30.15

-3.58%

63.96

8.7

22 Vardhman Polytex

428.29

-7.72

-1.80%

81.26

5.13

23 Vardhman Textile

2456.72

140.77

5.73%

60.79

6.23

0.15

-0.064

1 Alps Industires 2 Ashima

16 STL Global

Suryalakshmi Cotton

Source: Business Standard Magazine, annual issue, Feb, 2010

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Interpretation: As the correlation between net profit and manufacturing expenses is positive i.e. (0.15) this signifies that the cotton and blended mills are capital intensive, thus the hypothesis is rejected. It refers that if cotton and blended mills increase their manufacturing expenses in terms of superior quality of raw material or automation of plants then the mills would be able to generate more profit. Moreover the correlation between net profit and wage/salaries is negative i.e. (-0.064) this shows that the cotton and blended mills are not labor intensive thus capital intensive. Table 3 Financial Position of Non-Cotton Mills

In % of Sales Textile Spinning S.No.

Non -Cotton

Sales

Net

Net

MFG

Salary

Profit

Profit

Exp

&Wages

1 SPL Industries

339.78

-14.35

-4.22%

80.63

11.27

2 Nahar Industrial

999.92

1.11

0.11%

53.74

6.57

3 Arvee Denim

319.56

2.32

0.73%

71.42

4.35

2344.82

-47.87

-2.04%

57.59

10.52

5 Nandan Exim

315.68

-1.4

-0.44%

62.13

3.75

6 Nahra Spinning

962.03

-16.63

-1.73%

58.39

7.35

7 TT

234.11

-36.29

-15.50%

88.46

3

8 Works

1338.01

106.93

7.99%

64.92

8.27

9 Aditya Birla Nuvo

4754.22

137.43

2.89%

60.95

5.76

1164.72

16.62

1.43%

67.42

4.13

347.7

-15.16

-4.36%

67.62

1.61

2394.29

76.27

3.19%

83.93

0.84

371.47

-45.54

-12.26%

78.4

3.5

1805.23

163.28

9.04%

52.41

4.79

4 Arvind

Lakshmi Machine

10 Century Enka 11 GSL Nova Petro 12 JBF Industries 13 Sanghai Polyester 14 SRF

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240.8

4.23

1.76%

78.3

2.65

16 Indus Fila

294.56

-11.34

-3.85%

77.88

2.68

17 Raj Rayon

313.84

-10.55

-3.36%

83.64

1.52

18 Shri Lakshmi Cotsyn

845.24

46.58

5.51%

92.46

1.83

19 Banswara Syntex

550.72

9.59

1.74%

59.02

9.83

1291.18

-63.85

-4.95%

63.55

8.47

21 Sangam India

748.27

-15.99

-2.14%

64.29

6.52

22 Indo Rama Synthetics

2462.3

-97.83

-3.97%

61.23

2.06

23 Eastern Silk

510.04

19.21

3.77%

113.6

1.41

-0.135

0.045

20 RSWM

Source: Business Standard Magazine, annual issue, Feb, 2010

Interpretation: As the correlation between net profit and wages/salary expenses is positive i.e. (0.045) this suggests that the non-cotton mills are labor intensive, thus hypothesis is rejected. It refers that if non-cotton mills increase their labor expenses to increase the production, by hiring more skilled, technically qualified personnels, then mills would be able to generate more profit. Moreover the correlation between net profit and manufacturing expenses is negative i.e. (-0.135) this shows that the non-cotton mills are not capital intensive. This shows that the superior quality of raw material and automatic machines are not major factors to contribute to the profits.

Conclusions: As we know that labor and capital are two integral part of business. No business can get success without these two factors of production. However the importance of these two factors varies depending upon the type of industry or segment. The above study reveals that the cotton and blended mills are capital intensive while the non-cotton mills are labor intensive.

Suggestions: The study suggests that the cotton blended mills should go for fine or superior quality of raw materials as the data shows the mills are getting good price if they are providing a good or International Journal of Research in Finance & Marketing http://www.mairec org

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fine quality of products. Moreover these mills should adopt modern technologies, achieve the level of full automation if possible otherwise semi-automation must be achieved. On the other hand the non-cotton mills should go for the highly skilled laborers, as data shows the mills are getting good price for their product if the product is manufactured by technically sound laborers.

References: th

•

Beri G.C, Marketing Research, Tata Mc Graw Hill, 4 Edition.

•

Carpets and Textiles, The Thyssen Bornemisza Collection -Friedrich Spuhler Philip Wilson Publishers

•

Churchill Gilbert A. and Iacobuce Dawn, Marketing Research Methodological th

Foundation, Cengage Learning, 9 Edition. •

Cooper and Schindler, Business Research Methods, Tata Mc Graw Hill, 9

th

Edition. •

Colin Gale and Jasbir Kaur, Fashion and Textiles : An Overview, Berg Publishers.

•

Gravetter, Research Method for Behavourial Sciences, Cengage Learning.

•

Green Paul E, Tull Donald S. and Albaum Gerald, Research for Marketing Decisions, Prentice Hall of India, 5th Edition. th

•

Luck and Rubin, Marketing Research, Prentice Hall of India, 7 Edition.

•

Nargundkar, Marketing Research, Tata McGraw Hill, 2 Edition.

•

Panneer Selvam, Research Methodology, Prentice Hall of India, Edition 2008.

•

Saunders, Research Methods for Business students Pearson Education, 2 Edition,

nd

nd

2007. •

Sharma Milan, Textile Industry In India And Pakistan, Aph Publishing Corporation, 2006

•

Tull & Hawkins, Marketing Research: Measurement & Method, Prentice Hall of th

India, 6 Edition. •

V Narasimha Rao, Financing Of Cotton Textile Industry in India, Aph Publishing Corporation, 1994.

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William G., Zikmund and Babin Barry J, Essence of Marketing Research, Cengage Learning.

•

Business Standard Magazine, annual issue, Feb, 2010

•

www.money control.com

•

www.texmin.nic.in

•

www.commin.nic.in

•

www.finmin.nic.in

•

www.dgft.delhi.nic.in

•

www.txcindia.com

•

www.texprocil.com

•

www.cotcorp.com

•

www.rbi.org.in

•

www.otexa.ita.doc.gov

•

www.cottonpromotion.org

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IMPLEMENTATION OF KNOWLEDGE MANAGEMENT TO MINIMIZE ERP BASED SYSTEM’S FAILURE OF AN ORGANIZATION: A SURVEY Anubhav Kumar * Dr. P C Gupta**

ABSTRACT ERP system implementation is wide adopted technology in big and small size organization for improvement their business. ERP implementation takes a lot of effort, time and money and if these are not handled properly they can become the reasons why ERP is not successfully implemented. There are many reasons for failures of ERP system, one of them time. Most of ERP projects take more time than scheduled to be completed, due to which the cost also increases. In this paper I have given an idea how Knowledge Management can be implemented to minimize the failure of An ERP implementation of an organization.

Key-words: Knowledge Management, ERP System, Tacit, Explicit, Capture *Research Scholar (Asst Prof In Lingaya’s University) ** Head of Department (Engineering),Affiliation: JNU, Jaipur International Journal of Research in Finance & Marketing http://www.mairec org

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1. Introduction Knowledge management KNOWLEDGE MANAGEMENT is the process of creating, capturing and using knowledge to enhance organizational performance [1] Gryskiewicz propose the six principle of knowledge management 1. Knowledge is personal. 2. Capturing knowledge does not ensure an increase in performance 3. Acceptance of Knowledge Management comes by connecting people. 4. Technology is necessary 5. Knowledge Management learning events focusing on helping individuals and team learn before. A key component to the successful delivery of knowledge management solutions is going. Knowledge can be categorized into two forms namely. •

Explicit or

•

Tacit.

Explicit knowledge can be thought of as knowledge that can be expressed in terms of words and numbers. It can be shared in form of data. On the other hand tacit knowledge is highly personal, hard to formalize and difficult to communicate [2]. 1.1 Challenge in knowledge The bigger challenge in knowledge management is to convert tacit knowledge in to explicit knowledge. Tacit knowledge is commutative store of experience, expertise, understanding, learning skills and expertise. This comes through the past and present experience. It can also

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referred to as embedded knowledge is usually localized either with in the brain of an individual or embedded in the group interactions within a department or branch office [3]. Tacit knowledge involves expertise or high level skills. It is diffused, unstructured without tangible form and therefore, difficult to coding. It is difficult to put tacit knowledge into words [4]. For example you can not express correctly the whole movie with expression of characters in words. Tacit knowledge is highly personal and hard to formalize making it difficult to communicate or share with others. Explicit knowledge is the policies, written text, white paper, annual report, product, strategy, goal, mission and profile of the organization. It can be shared through communication and media, but is difficult in the case of tacit knowledge. Tacit knowledge can be sometimes communicated through shared understanding between individuals. But tacit knowledge must be converted into explicit knowledge before it can be shared [5]. 2. Enterprise Resource Planning systems Enterprise Resource Planning (ERP) system is an iterative system for identifying, analyzing, evaluating, testing, and monitoring the entire process of an organization or a company. In every organization, Enterprise Resource Planning is recognized as, an essential contributor to business and project success. Enterprise Resource Planning mainly focuses on addressing business or project uncertainties, in a proactive manner in order to minimize threats, maximize opportunities, and optimize achievement of objectives.

Figure 1 Isolated Information System

Figure 2 ERP System

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There is wide convergence and international consensus on the necessary elements for an Enterprise Resource Planning system. Enterprise Resource Planning software is intentionally designed to model and automated many of the basic processes of a company. It established an effective link between the various functions of a company from top level to the bottom level of the hierarchy, with the goal of integrating information across the company, figure 1 shows A pre-ERP Scenario where all the department have its own system to handle their day to day activity. But in figure 2 shows how information is integrated with in an organization using ERP system. This system is similar to the pre-ERP system but, in the Enterprise Resource Planning system all the different departments of an organization are linked to a centralized system which stores all the information from various departments. Any department at any time can gain access any required information from any other department via ERP or from the ERP database itself [6].

2.1 Benefits and Use of ERP System Enterprise Resource Planning system has many advantages both direct and indirect. The direct benefits include improved efficiency, information integration for better decision making, faster response time to customer queries, and so on. The indirect benefits comprises better corporate image, improved customer goodwill, customer satisfaction and so on.

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Some of the benefits that you can find in an organization with Enterprise Resource Planning implementation are [7]: •

Reduction of lead-time

•

On-time shipment

•

Reduction in cycle time

•

Better customer satisfaction

•

Improved supplier performance

•

Increased flexibility

•

Reduction in quality costs

•

Improved resourced utility

•

Improved accuracy of information and decision-making capability

2.2 Life Cycle of ERP implementation Following are eleven phase which involve in Enterprise Resource Planning implementation life cycle. First two activity pre-selection screening and package evaluation are optional if an organization already decided which ERP package they want to implement in their organization [8].

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Company Management + ERP Venders

Pre-Selection Screening

Package Evaluation

Project Planning

GAP Analysis

RE-Engineering

Configuration

Testing

End User Training

Implementation Team Training

Going Live

Post Implementation Phase

Figure 3 ERP implementation Life Cycle

2.3 Failures of ERP To work successfully, the ERP solutions need to address a lot of factors. There should be good people who know the business. The vendor should be good, and his package should be one of the best suited for the, company’s needs. The ERP consultants should be good. The system developers should plan well and execute perfectly the implementation. The end user training should be done so that the user must be aware of the system, and effect of their efforts on the overall success of the program. In case of any of the above mentioned factor are not addressed

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properly by company’s top management, the possibility of system failure is evident during the implementation process of the ERP system. ERP implementation takes a lot of effort, time and money and if these are not handled properly they can become the reasons why ERP is not successfully implemented. Most of the ERP projects take more time than scheduled to be completed, due to which the cost also increases. There are many reasons why the delays happen and one may not be able to pinpoint any one reason. The most common reasons why ERP is not successfully implemented are as follows [8]: 1. Changes 2. Communication/Coordination issues 3. Budget issues 4. Customization issue 5. Lack of experience 3. Review of Literature In a research three dimensions of KM is focused, namely Knowledge creation/capturing, knowledge integration and knowledge transfer, while most past research has dealt with knowledge transfer. These three dimensions of knowledge management are [9]: Knowledge creation & capture: the implementation of ERP creates a new knowledge of new routines and procedures specified in the ERP system. ERP implementation also requires the capture of explicit and tacit knowledge of the business processes [10]. Knowledge sharing: there are mainly two type of knowledge, transferred during an ERP implementation; transfer of existing businesses process to vendors and transfer of ERP knowledge to users [11]. Knowledge integration: knowledge integration issues stem from team functioning related issues and management issues. International Journal of Research in Finance & Marketing http://www.mairec org

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Tacitness of a great part of ERP knowledge

Process-based nature of ERP knowledge and Organization memory

ERP Knowledge Management Negative effects are moderated by

Structure of team interaction

Atmosphere of the team

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Negative effects are moderated by

Powerful core ERP team

Hiring external consultant

Figure 4 Two major areas of concern regarding the management of enterprise system knowledge and their respective facilitators This work investigated the major concerns of different lines of research which arise as the consequences of two distinct characteristics of ERP specific knowledge: tacit and process-based nature of enterprise system knowledge. Fig 4 summarized these two areas of concerns in enterprise system knowledge management along with their facilitators that moderate their negative effects which are identified to be prevalent in cases studies by different researches. The first area concerns the effect and implication of the tacit chunk of ERP specific knowledge. The subject of tacit knowledge management is addressed extensively in the literature and different issues along with their respective mitigating solutions are provided in various research works. Tacit knowledge sharing facilitators during enterprise system implementation are classified in to two categories: structure of team integrations and atmosphere of the team. Proper utilization of each method can assist the adopting organization in overcoming the difficulties of tacit knowledge sharing. Organizing communities of practice composed of the different groups involved in different stage of enterprise system life cycle is one way to overcome the difficulties of transferring such knowledge from where it resides to where it needed. Process-based nature of organizational knowledge is the second area of concern in enterprise system knowledge management whish was examined from the lens of organizational memory. Organizational process embeds substantial knowledge of the organization’s history and can be International Journal of Research in Finance & Marketing http://www.mairec org

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regarded as the organizational memory. Viewing the ERP knowledge through lens of organizational memory sheds light onto some interesting issues of concern in ERP implementation projects. ERP implementation is continuous improvement effort and continued efforts after system start up will influence the ultimate success of an ERP implementation system. This research work defines a four phase ERP refinement model that incorporated knowledge management into each major implementation phase.

4. Problems to be considered (i). Changes If there is a change in the management or in the management procedures, it can cause delays. We are concerned with designing of a system in which changes related to short term need should be avoided. A number of changes have to be made in the automated system and take time. These changes are not easily accepted and cause problems. (ii). Implementing proper Communication/Coordination between departments for ERP system implementation A lack of communication or a lack of coordination is one of the most common reasons for ERP failure. The ERP implementation process involves a lot of people and it is essential that proper coordination and communication exists between these people. A proper understanding with the customer is essential for the proper functioning and lack of it can cause failure. (iii). Appropriate Customization of the system ERP can be customized to fit the requirements of the client. However, too much customization can become a problem and eliminate all the features of the application. The application may not be able to support the real time environment and turn into a failure. (iv). Applying KM in ERP to utilize Human Resource in term of experience

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Many people are involved in the implementation of the ERP. The consultants and the project manager have an important task and their roles and responsibilities are well defined. They need to be experienced in their fields for proper execution of the project.

5. Methodology This study focuses on a contemporary phenomenon in a real life context and explores how and why questions. Hence we adopted case study approach [12]. A combination data analysis technique including pattern matching and explanation building formed a major part of the investigation. Flow of work will be as follow: Knowledge management Study

Study of ERP system

Pointing failure in ERP system

Applying KM in ERP system

Collecting the results

Study and analysis of the results

6. Conclusion In our proposed research work we have considered Knowledge management to minimize the failure of ERP based system implementation. We have proposed to apply different techniques for this purpose.

7. References: 1. Reduction of the vulnerability of the rural poor, document available at website www.deza.admin.ch/en/Dossiers/Mozambique/Rural_development International Journal of Research in Finance & Marketing http://www.mairec org

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2. Wigg, K. (1993), “Knowledge Management Foundation: thinking about thinking how people and organization create, represent and use knowledge”, Arlington, TX: Schema Press

3. Brian (Bo) Newman and Kurt W. Conrad, “A Framework for Characterizing Knowledge Management Methods, Practices, and Technologies”, Director of Publications,The Knowledge Management Forum, 4600 Mallard Court, West Richland, WA 99353.

4. Alavi, M. and Leidner, D. (1999), “Knowledge Management System: Emerging Views and Practices from the Field”, Proceedings of the Hawaii International Conference on System Sciences, IEEE Computer Society, Los Alamitos, CA, USA, PR00001.

5. Anubhav kumar and Anuradha, “Knowledge Managemen”, National Conference on Emerging Trends in Communication & Information Technology, HVPM’s College of Engineering & Technology, 2008.

6. Book of Management studies, “Enterprise Resource Planning”, sikkim manipal University, 2010.

7. Ellen & Wagner (2008), “Concept in Enterprise Resource Planning”, Course Technology . 8. “Why ERP fails: most common reason”, An article at website: http://articleseo.org/most-common-reason-why-erp-system-is-not-successfully-implemented/

9. T. Suraweera and et al (2008), “Knowledge Management Implications in ERP Implementations”, IEEE.

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10. G.G. Gable (2007), “The enterprise system lifecycle: through a Knowledge Management lens”, Strategic Changes, Vol. 14, pp. 255-263.

11. Z., Lee & J., Lee (2000), “An ERPs implementation case study from a knowledge transfer perspective”, Journal of Information Technology, Vol. 15, no. 4, pp. 281-288.

12. K. Yin, “Case study Research:Design and methods”, second edition, Vol. 5, Sage Beverly Hills.

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FOREIGN DIRECT INVESTMENT AND FOREIGN TRADE: EMPIRICAL EVIDENCE FROM INDIA Neelam Rani* Neelam Dhanda**

ABSTRACT Foreign Direct Investment provides a direction through which developing countries can gain access to foreign capital for their economic development. FDI also tends to improve the productive efficiency of resource allocation by facilitating the transfer of resources across different sectors of the economy. The cause and benefit of foreign investment varies from country to country. It can persuade the factor productivity of the recipient country and also shape the balance of payments. The purpose of the paper is to estimate and analyze the impacts of FDI on exports, imports, foreign exchanges and capital formation in India for the post-liberalization period (1991-2009). With this intention, simple regression technique has been used to capture the impact of FDI on these economic indicators. FDI has been used as an independent variable and others are used as dependent variables. Growth rates are evaluated and trends are analyzed for this purpose. The study enables us to obtain a blueprint of the major impacts of FDI on Indian trade and economy. It could also provide us with a direction in which the country needs to proceed in order to become a favored FDI destination.

*Assistant Professor,Department of Commerce,Government College, Karnal,India **Associate Professor,Department of Commerce,Kurukshetra University, Kurukshetra,Haryana India

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INTRODUCTION Foreign direct investment leads to flow of capital and technology from investing country to the investment destination economy. Policy makers believe that FDI will lead their country’s overall development, including the foreign trade and capital formation. For a developing nation like India, FDI could play a significant role in its economic development process in general and to the foreign trade in particular by improving India’s infrastructure manufacturing by modern technologies which are the keystones to the development. FDI is seen as a means of transferring knowledge and other assets both tangible and tacit, in order to organize production abroad. FDI inflows could bring important benefits to the recipient countries in the form of capital inflows, technology spillovers, and human capital formation, international trade integration, enhancement of enterprise development and good governance. FDI plays a complementary role in overall capital formation and in filling the gap between domestic savings and investment. Further, FDI may have strong relationship with other economic parameters such as exports, imports capital formulation and even the gross domestic capital formulation. Review of literature Foreign Direct Investment is an essential need for a country. This is because of its multifaceted features in the economy, which include fulfilling saving-investment gap, relaxing foreign exchange constraints and flowing as a bundle of capital, technology, knowledge, marketing, competitiveness, etc.(Grossman and Helpman, 1992; Walz, 1997; and Pradhan.2003). These are the main avenues by which FDI can contribute to economic growth. FDI affects economic growth by generating increasing returns in production via externalities, i.e., by productivity spillovers and exports spillovers. FDI represent the movement of capital in and out of the country with the intention of buying physical assets to start a business. The contribution of foreign direct investment to economic growth has been well documented in economic literature (Romer, 1993; De Mello. 1997; Mody and Wang, 1997; Dua and Rashid, 1998; Zhang, 1999; Demurger, 2000; Yusop Keong and Mericam 2002; Zebregs, 2002; Dias, 2003; Lensink and Hermes, 2003; and Sjoholm and Okamoto, 2005). Hymer (1970); Vernon (1966) and Caves (1971) discussed that oligopolistic structure of markets, international integration, imports and the level of foreign direct investment are complementary. The existence of multinational would not have been possible in case of perfect

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markets as all the activities will be carried out by free trade (kindleberger, 1969). In the current global scenario, study by Bajpai and Sachs (1997) can be relied upon which shows that India can attain dynamic growth only by combining vast supply of skilled managerial and engineering labour with foreign technology. This technology can be attracted by allowing MNCs in India along with FDI. However, from the long term development point of view India has tremendous growth prospects through export led development in a broad range of sectors, both traditional and new (Bajpai and Sachs, 1998). Borensztein, De Gregorio, and Lee (1998) find that if the level of education in the host country is high the economic growth will improve at very high pace. Because, the absorptive capacity of the given economy has becomes high with improvement in human resources. The author has examined the impacts of FDI on the economic growth of 69 developing countries during the period of 1970-89 in context of human capital available in the country. Matusz and Tarr (1999) survey the studies carried out before 1995 on the impact of globalization on employment in developing countries. Comparing the levels of employment before and after trade liberalization, they conclude that trade and FDI liberalization has been beneficial for labour except in the transition economies of Eastern Europe. Sanchez-Robles (2003) posited that economic growth increases with FDI inflows with adequate human capital. Economic stability and liberalized market supplement these inflows. This study was carried out in Latin America and showed a positive correlation between FDI and economic growth. The pre-requisite of long term benefits from FDI are high quality human capital sufficient infrastructure and liberalized market. Another study by Alfaro, Chanda, Kelemli and Sayek (2004) supports the similar views that FDI can play a clear role in the economic growth of a country. The authors studied the relationship between FDI and growth in the financial developed markets covering the period 1975-95. According to world investment report of UNCTAD (2003), “Foreign investors regard both China and India as a hub for relocation of labour intensive activities. In India, the relocation has been confined to the services, particularly information and communication technology. In China, about 2/3rd of FDI inflows flow into a diverse range of manufacturing industries.” Other Indian neighbors, such as Indonesia, Malaysia, and Thailand are also relying heavily on FDI for pulling

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ahead in economic growth, income levels and productivity, while also increasing their security and geopolitical influence in the world community. FDI tends to expand the local market attracting large domestic private investment. This effect creates additional employment in the economy (Jenkins and Thomas, 2002). Developing nations gets positive impacts on employment in both direct and indirect manner due to FDI. It also produces tertiary employment by generating additional income and increase in aggregate demand. The author also discussed that several developing countries have exhibited export and employment growth due to FDI. Further, FDI has a strong relation with increased exports from host countries. FDI also tends to improve the productive efficiency of resource allocation by facilitating the transfer of resources across different sectors of the economy (Chen, 1999). Lee and Vivarelli (2006) in their study has concluded that controlled liberalization result in high economic growth and human development otherwise financial liberalization can lead to increased poverty and high income disparity. They have also mentioned that FDI can have positive impacts on employment but such employment growth can results into regional disparities. Thus the national educational policy should try to play a crucial role to reduce such disparities and try to increase the supply of such skills which can absorb technological import. The research paper of Nagesh Kumar (2009) examines the emerging trends and patterns in FDI inflows to India. A major objective is to evaluate the role of liberalization in shaping these patterns. This article attempts to analyze the changes in India’s shares in FDI outflows from Europe, US and Japan. The study also covers current reforms in policies to remove impediments for export-oriented manufacture in general. The purpose is to attract MNCs to locate efficiencyseeking FDI in the country. These investments could help India in expanding manufacture exports by using her as an export platform. The majority of the recent approvals of FDI, however, aim to explore India’s sizeable and expanding domestic market. The efficiency-seeking FDI has yet to start flowing to the country in a considerable manner. In an era of stiff competition among developing countries to attract export oriented FDIs, liberalization of policies alone may not be enough to win the race. More active negotiations and bargaining with MNEs may often be required.

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Following Mundell (1957), it was long thought that FDI substitutes trade. The proposition was strongly challenged by Agmon (1979) and subsequently, a number of studies emphasized the potential complementarities between FDI and trade (Markusen, 1995 and Ethier, 1996). Bhagwati, Srinivasan and Wan (1978) were of the opinion that FDI inflows might worsen the country’s terms of trade. They suggested that the effect of FDI on developing countries depends on the country’s trading mode, i.e., import substitution and export promotion. Under export promotion strategy, FDI inflows lead to biased growth in exports, thus possibly worsening the country’s terms of trade. Zhang (1999) and Li (2002) point out that when the multinational industries with comparative advantage may worsen the recipient’s terms of trade because of the possible fall in the price of the exports. Wang (2002) also concludes that the primary cause of the deterioration of China’s terms of trade is that its export growth largely depends on foreigninvested enterprises and labor-intensive products. On the contrary, the study by Benhabib and Spiegel (1994) found negative impact of human capital on FDI inflows, which was highly supported by Kyriacou (1991), Lau, Jamison and Louat (1991) and Pritchett (2001). Lucas (1993) suggested that there is a positive relationship between FDI and level of foreign exchange reserves. Similarly, FDI can have positive impact on the level of foreign exchange reserves as well. He also mentioned that events which generate political instability do reduce the flow of FDI, but they have a short-run impact. The major determinants for FDI are sound domestic macroeconomic and structural policies, adequate and efficient domestic savings and investment and human capital accumulation, supported by sound and strong domestic institutions. Appropriate domestic policies will help attract FDI and maximize its benefit, while at the same time removing obstacles to local business (Ögütçü, 2002); Pradhan (2008), in his empirical study identifies these macro-variables, such as current account in balance of payments, economic growth, foreign exchange rate, terms of trade, inflation rate and trade openness, which determine the FDI inflows in India. While the impact of current account in balance of payments and inflation are negative, the impact of openness, economic growth, terms of trade and real effective exchange rate are positive. All are statistically significant except current account in balance of payment and economic growth.

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RESEARCH METHODOLOGY FDI plays a multidimensional role in the overall development of host economies. It is widely discussed in the literature that, besides capital flows, FDI generates considerable benefits. Indiaspecific studies on FDI have dealt with determinants of FDI, technology spillovers, export growth and good governance practices transferred from foreign to domestic firms (Banga, 2003; Kumar, 2002, 2003; Siddharthan, 2004). These effects have been estimated through firm-level case studies and through cross- section industry data. However, the impact of FDI on the economy is still not clear and there is little evidence on the economy-wide impact of FDI in India. However, there is great interest among academics and policy makers to critically examine the impact of FDI on the different sectors of the economy and various regions of the country. Specific Objectives of the Study: The specific objectives of the study are listed as: •

To study the growth pattern in FDI in India during the study period.

•

To establish the relationship between FDI and Foreign Trade.

•

To establish the relationship between FDI and Foreign Exchange Reserves.

•

To establish the relationship between FDI and Capital Formation.

Eventually the analysis is geared towards evaluating the impact of FDI on the economic growth of the country as represented by selected indicators i.e. Exports, Imports, Foreign Exchange Reserves and Capital Formation. Data Collection and Analysis The present study makes use of secondary source of data collected from the publications of Government of India, Reserve Bank of India, Ministry of Industry and Commerce, World Bank, and IMF, UNCTAD, Journals and Periodicals. The reference period of this study relates from 1991 to 2009. Relevant statistical techniques such as growth rate, compound growth rate, t-test and regression analysis has been applied to establish the relationship between foreign direct investment and selected economic growth parameters. FDI is considered as an independent variable and each of the economic indicators as a dependent variable

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Growth in FDI Inflows Foreign direct investment is that investment, which is made to serve the business interests of the investor in a company, which is in a different nation distinct from the investor's country of origin. A parent business enterprise and its foreign affiliate are the two sides of the FDI relationship. Together they comprise an MNC. The parent enterprise through its foreign direct investment effort seeks to exercise substantial control over the foreign affiliate company. The trends in FDI inflows in India are presented in Table 1. TABLE 1 FOREIGN DIRECT INVESTMENT IN INDIA Year

FDI Inflows (Rs in Crore)

Yearly Growth (% age)

1991-92

408

---

1992-93

1094

168.14

1993-94

2018

84.46

1994-95

4312

113.68

1995-96

6916

60.39

1996-97

9654

39.59

1997-98

13548

40.34

1998-99

12343

-8.89

1999-00

10311

-16.46

2000-01

12645

22.64

2001-02

19361

53.11

2002-03

14932

-22.88

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2003-04

12117

-18.85

2004-05

17138

41.44

2005-06

24613

43.62

2006-07

70630

186.96

2007-08

98664

39.69

2008-09

98860

0.20

CAGR (% age) t test

25 27.00*

Source: Fact Sheet, Department of Industrial Promotion, Ministry of Finance, GOI. FDI inflows have also shown very unusual trends. But the position regarding the actual inflows was slightly better when we consider the CAGR which worked out at 25 percent for the period 1991-92 to 2008-09. Until the end of 2009 the annual growth rate has been positive. But there has been the presence of the growth at a decreasing rate. When the absolute figures of amount are taken in consideration it is inferred that there has been a gradual rise in the FDI inflows from Rs.408 crore in 1991-92 to Rs.13548 crore in 1997-98 followed by a decline at Rs.10311 crore in 1999-00. The recovery to Rs.12645 crore to place in 2000-01 which ended up at Rs.19361 crore by the end of financial year 2002-03. Having seen a dip to Rs.12117 crore in 2003-04, the actual FDI inflows started rising and by capturing this trend the amount reached to Rs.98860 by 200809. The trends in FDI inflows discussed here resulted into a CAGR of 25 percent which is significant as indicated by the t-test (27.00) as well. EXPORTS Vs IMPORTS Foreign trade is an important segment for any economy. The growth in exports and imports are listed in Table 2.

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TABLE 2 TRENDS IN EXPORTS AND IMPORTS Year

Exports (Rs.

Growth Rate

Imports (Rs.

Growth Rate

Crore)

(%age)

Crore)

(%age)

1991-92

44042

1992-93

53688

1993-94

---

47851

---

21.9

63375

32.44

69751

29.92

73101

15.35

1994-95

82674

18.53

89971

23.08

1995-96

106353

28.64

122678

36.35

1996-97

118817

11.72

138920

13.24

1997-98

130101

9.5

154176

10.98

1998-99

139753

7.42

178332

15.67

1999-00

159561

14.17

215237

20.69

2000-01

203751

27.69

230873

7.26

2001-02

209018

2.59

245200

6.21

2002-03

255137

22.06

297206

21.21

2003-04

293367

14.98

359108

20.83

2004-05

375340

27.94

501065

39.53

2005-06

456418

21.6

660409

31.8

2006-07

571779

25.28

840506

27.27

2007-08

655863.5

14.71

1012312

20.44

2008-09

840755.1

28.19

1374436

35.77

C.A.G.R. (%age)

13.90

15.30

t-test

128.25*

100.85*

Source: RBI; Data Compiled from Various Economic Surveys from 2000-01 to 2009-10. Goods and services that are produced domestically and sold to buyers in another country are exports. Transport goods abroad out of a customs territory; to server them from the mass of International Journal of Research in Finance & Marketing http://www.mairec org

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things belonging to one country with the intention of uniting them to the mass of things belonging to a foreign country. Simply, goods or any articles of trade or commerce sent out of a country to another country are called exports. Growth in Exports Table 2 presents the volume of exports in Rs crores, yearly growth rate, compound annual growth rate (CAGR) and the results of t test to see the significance of CAGR. As per the table, the highest annual growth rate is (29.92percent) during 1993-94 and the lowest growth rate (2.59 percent) in 2001-02. The period of five years from 2004-05 to 2008-09 appears to be the period of boom in exports as the yearly growth rate during these years were the highest (14.71 percent in 2007-08, the minimum and 28.19 percent in 2008-09, the maximum). The decade ending 2001-02 has witnessed wide fluctuations in annual growth rate in exports, i.e. 2.59 percent is lowest in 2001-02 and 29.92 percent the highest in 1993-94. The compound growth rate for the study period (1991-92 to 2008-09) of eighteen years has been worked out at 13.90 percent. The calculated t-value is statistically significant at 5% level of significance indicating that the growth during the study period has been statistically significant in the volume of exports. Growth in Imports Goods or services are purchased from other countries for use in one’s own country. Visible imports are items such as clothing, cars and machinery; invisible imports are such things as freight payments, dividend payments and royalties. Generally, products of foreign origin brought into a country are imports. Table 2 shows the yearly imports in Rs crores, yearly growth rate, compound annual growth rate (CAGR) and the results of t -test to see the significance of CAGR. As shown in the table, the highest annual growth rate (39.53 percent) during 2004-05 and the lowest growth rate (6.21 percent) in 2001-02. Here it needs mention that annual growth rate was very low for exports as well as imports during 1998-99. The period of five years from 2004-05 to 2008-09 appears to be the period of boom in imports as the yearly growth rate during these years were continuously at higher rate (ranging from 20.44 percent in 2007-08 to 39.53 percent in 2004-05). The decade ending 2001-02 has witnessed wide fluctuations in annual growth rate in imports, i.e. 6.21 percent the lowest in 2001-02 and 36.35 percent the highest in 1995-96. The

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compound growth rate for that period (1991-92 to 2008-09) of eighteen years worked out at 15.30percent which is significant at 5% level as indicated by the result of t-test.

FOREIGN EXCHANGE RESERVES Deposits of a foreign currency held by a central bank, holding the currencies of other countries as assets allow governments to keep their currencies stable and reduce the effect of economic shocks. Total of a country’s gold holdings and convertible foreign currencies held in its banks, plus special drawing rights (SDR) and exchange reserve balance with the International Monetary Fund (IMF) are foreign exchange reserves. The use of foreign exchange reserves became popular after the decline of the gold standard. The trends in foreign exchange reserves and capital formation are shown in table 3. TABLE 3 TRENDS IN FOREX AND CAPITAL FORMATION Years

FOREX

Growth

GDCF

Growth

NDCF

Growth

(Rs.

Rate

(Rs.

Crore)

(%age)

Crore)

1991-92

23850

----

144466

-----

82495

-----

1992-93

30744

28.91

173498

20.10

101369

22.88

1993-94

60420

96.53

194724

12.23

113842

12.30

1994-95

79781

32.04

259355

33.19

165533

45.41

1995-96

74384

-6.76

311782

20.21

200656

21.22

1996-97

94932

27.62

330806

6.10

202415

0.88

1997-98

115905

22.09

385808

16.63

242059

19.59

1998-99

138005

19.07

408109

5.78

245907

1.59

Rate (%age) (Rs. Crore) Rate (%age)

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1999-00

165913

20.22

506244

24.05

324823

32.09

2000-01

197204

18.86

511788

1.10

309970

-4.57

2001-02

264036

33.89

520656

1.73

292359

-5.68

2002-03

361470

36.90

618035

18.70

367528

25.71

2003-04

490129

35.59

759325

22.86

479277

30.41

2004-05

619116

26.32

1011212

33.17

682171

42.33

2005-06

676387

9.25

1272630

25.85

892318

30.81

2006-07

868222

28.36

1521805

19.58

1084768

21.57

2007-08

1237965

42.59

1845513

21.27

1336064

23.17

2008-09

1283865

3.71

2275608

23.30

1303204

-2.46

CAGR

27.90

0.163

0.175

72.69*

177.87*

125.24

(%age) t test

Source: RBI; Data Compiled from Various Economic Surveys from 2000-01 to 2009-10. Growth in Foreign Exchange Reserves Table 3 presents the yearly total Foreign Exchange Reserves in Rs crores, yearly growth rate, compound annual growth rate (CAGR) and the results of t-test to see the significance of CAGR. As revealed by the table, the highest annual growth rate is (96.53 percent) during 1993-94 and the lowest growth rate (-6.76 percent) in 1995-96. The period of seven years from 1993-94 to 1999-00 appears to be the period of boom in Foreign Exchange Reserves as the yearly growth rate during these years were the highest (-6.76 percent in 1995-96, the minimum and 96.53

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percent in 1993-94, the maximum). The decade ending 2001-02 has witnessed wide fluctuations in annual growth rate in Forex, i.e. -6.76 percent is lowest in 1995-96 and 96.53percent the highest in 1993-94. The CAGR for that period (1991-92 to 2008-09) of eighteen years worked out at 27.90 percent which is significant at 5% level as revealed by the result of t-test. Capital Formation Generally, the higher the capital formation of an economy, the faster an economy can grow its aggregate income. Increasing an economy's capital stock also increases its capacity for production, which means an economy can produce more. Producing more goods and services can lead to an increase in national income levels. Gross Domestic Capital Formation is that part of a country's current output and imports which is not consumed or exported during the accounting period but set aside as addition to its stock of capital goods. It is composed of gross addition to fixed assets and changes in stocks. . Net Domestic Capital Formation refers to net additions of capital stock such as equipment, buildings and other intermediate goods. Growth in Gross Domestic Capital Formation The highest annual growth rate is 33.19 percent during 1994-95. In the same year FDI inflows are also very high 113.68 percent growth in comparison to previous year. The lowest growth rate is 1.10 percent in 2000-01. The period of seven years from 2002-03 to 2008-09 appears to be the period of boom in Gross Domestic Capital Formation as the yearly growth rate during these years were the highest (18.70 percent in 2002-03, the minimum and 33.17 percent in 2004-05, the maximum). The CAGR for that period (1991-92 to 2008-09) of eighteen years worked out at 0.163 percent. Growth in Net Domestic Capital Formation The growth in Net Domestic Capital Formation has shown wide fluctuation throughout the given period of two decades. The fluctuation has become quite sharp in the decade of 2001-10 with a negative rate -5.68 percent in 2001-02 to a high positive growth rate 42.33 percent in 2004-05. The year 1994-95 has shown the highest annual growth rate of 45.41 percent in net domestic capital formation. The period of six years from 2002-03 to 2007-08 appears to be the period of International Journal of Research in Finance & Marketing http://www.mairec org

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boom in Net Domestic Capital Formation as the yearly growth rate during these years were the highest (21.57 percent in 2006-07, the minimum and 42.33 percent in 2004-05, the maximum). The CAGR for that period (1991-92 to 2008-09) of eighteen years worked out at 0.175 percent.

CORRELATION BETWEEN FDI AND ECONOMIC INDICATORS This section of the study presents the results of inter-correlation analysis with respect to the relationship between FDI inflows in India and individuals economic indicators and the economic indicators inter-se. For the impact of examine the impact of FDI on economy growth is presented by different economic indicators or a vice versa, it is imperative to see their standard of relationship with each other to the values of correlation coefficient. Table 4 presents the results of multiple correlations (Pearson’s) and their significance at the 0.01 level. TABLE 4 CORRELATION BETWEEN FDI AND ECONOMIC INDICATORS Variables FDI

Export

FDI P Cor

1

Sig.

0

P Cor

P Cor

.963**

P Cor

.928**

P Cor

.992**

.941**

.982** 0

.997** 0

P Cor Sig.

0

0

Sig. NDCF

NDCF

.997** 0

Sig. GDCF

GDCF

0

Sig. FOREX

FOREX

.953**

Sig. Import

Exports Imports

.945**

.994** 0

.998** 0

0 .990** 0 .996**

0

0 .988**

0

.999** 0

1 0

0

** Correlation is significant at the 0.01 level (2-tailed). P Cor- Pearson’s Correlation

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Foreign Direct Investment is significantly correlated for the selected economic indicators. The value of r is high at .963 (between FDI and imports). Almost similar results can be seen with respect to the correlation of exports with other variables. In this case the value of significant correlation at .998 (between exports and NDCF). The inter correlation of imports with other variables are almost in consort with what has been obtained the case of exports. It is interesting to note that the r value for exports correlated with the other economic indicators are higher than the r values for imports correlated with the other economic indicators. In the case of Forex, it seems that it bears very high and significant correlations with the other selected variables. The significant correlation between Forex and GDCF is .977. There is a statistically significant correlation between GDCF and NDCF. Impact of FDI on Economic Growth FDI is considered as an independent variable and each of the economic indicators as a dependent variable. The regression results are presented and discussed separately for each set of relationship. The statistical tables for each set of variables are presented in three parts: part 1Model Summary; part 2- ANOVA; and part 3- Coefficients. The model summary, among other things is the value of R2 which indicates the extent to which the regression line fits the points. Value of R2 can range from 0.000 to 1.000 and the higher value of R2 will indicate that the variation in the value of particular economic indicator is explained by FDI in a larger measure. The model summary also gives adjusted R2, which we have ignored in the analysis because it is used in multiple regressions while we have performed a simple, two variable linear regression analyses. The results so obtained are given in table 5. TABLE 5 REGRESSION RESULTS variables

Constant

R2

B

F- Value

Exports

28142.16

0.909

0.953

160.09

Imports

33721.43

0.928

0.963

206.97

Foreign Exchange Reserves

106182

0.862

0.928

99.53

Gross Domestic Capital Formulation

306541

0.886

0.941

124.2

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Net Domestic Capital Formulation

177848

(ISSN 2231-5985) 0.893

0.945

133

As per the model summary the value of coefficient of determination, represented by symbol R2 is 0.909, which imply that the change in FDI account for 90.3 percent of the systematic variations in exports along with other factors during the period 1991-2009. Exports =

28142.155+1.396FDI

Thus study has proved the positive effect of FDI on the volume of exports for the study period. The value of coefficient of determination, represented by symbol R2 is 0.928, which imply that the change in FDI account for 92.8 percent of the systematic variations in imports along with other factors during the period 1991-2009. Imports =

33721.429+2.295FDI

These results are also supported by F statistics (ANOVA table), which confirm statistical significance of R2. This implies that FDI inflows have a very positive influence on the imports during the given period of 1991-2009. The change in FDI results in similar change of 86.2 percent of the systematic variations in Forex along with other factors during the period 1991-2009. Forex =

106182+10.738FDI

These results are also supported by F statistics (ANOVA table), which confirm statistically significant value. It means that if FDI is increased by one unit the FOREX will be increased by 10.738 units. The present study regarding influence of FDI on Gross Domestic Capital Formation has confirmed the expectations of economic experts that FDI increases GDCF. Gross Domestic Capital Formation =

306541+16.566FDI

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As per the model summary the value of coefficient of determination, represented by symbol R2 is 0.886, which imply that the change in FDI account for 88.6 percent of the systematic variations in Gross Domestic Capital Formation along with other factors during the period 19912009.These results are also supported by F statistics (ANOVA table), which statistically confirm the significance of R2. FDI is supposed to have a positive impact on Net Domestic Capital Formation. The slope of regression line is 12.151 describes that if FDI increased by one unit the Net Domestic Capital Formation will be increased by 12.151 units. Net Domestic Capital Formation =

177848+12.151FDI

The value of the constant 177848 shows that if FDI were zero the Net Domestic Capital Formation would be Rs. 177848 crores. The value of t statistics (3.989) and the significance level of given in the table of coefficients reveal that FDI and Net Domestic Capital Formation have a significant relationship with each other. The value of coefficient of determination is 0.893, which imply that the change in FDI account for 89.3 percent of the systematic variations in Net Domestic Capital Formation along with other factors during the period 1991-2009.These results are also supported by F statistics.

RESULTS AND DISCUSSION The descriptive study shows that the change in FDI has accounted for 90.3 percent of the systematic variations in exports and 92.8 percent in imports. The analysis also lends credence to the rejection of the null hypotheses: “there is no significant relationship between FDI and exports” and “there is no significant relationship between FDI and imports”, implying that there is a significant relationship of FDI with exports and imports. Further, the change in FDI accounted for 86.2 percent of the systematic variations in Foreign Exchange Reserves and our null hypothesis: “there is no significant relationship between FDI and Forex” is rejected. It concludes from this result that there is a significant relationship between FDI and foreign exchange balance in the country.

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The change in FDI accounted for 89.3 percent of the systematic variations in Net Domestic Capital Formation along with other factors. Also, our null hypothesis: “there is no significant relationship between FDI and Net Domestic Capital Formation”, is rejected, which implies that there is a significant relationship between FDI and Net Domestic Capital Formation.

CONCLUSION FDI has contributed in the process of growth in the world economy in general and the developing world in particular. FDI plays an important role in the transmission of capital and technology across home and host countries. Benefits from FDI inflows are expected to be positive, although not automatic. From the study it is clear that FDI has positive impact on exports, imports and has greatly contributed to foreign exchange reserves. In developing countries like India there has been a felt need for building up the foreign exchange reserves to meet our trade deficits. FDI can prompt knowledge transfer and capital accumulation to support the manufacturing for exports. This study establishes the relationship between the FDI inflows and exports, imports foreign exchange reserves and capital formation in the Indian economy. A greater inflow of foreign capital has lead to growth in the exports of goods and services and also growth of the foreign exchange reserves over the period of study. These results have great policy implications giving a direction to the policymakers that further liberalization attempts can be made. A facilitating policy regime with minimum interventions may be ideal to maximize the benefits of FDI inflows.

REFERENCES Agmon T (1979), “Direct Investment and Intra-Industry Trade: Substitutes or Complements?” in Giersch H (Ed.), On the Economics of Intra-Industry Trade, pp. 49-62, JCB Mohn, Tubingen. Alfaro L, Chanda A, Kelemli-Ozcan S and Sayek S (2004), “FDI and Economic Growth: The Role of Local Financial Markets”, Journal of International Economics, Vol. 64, No 1, pp.89-112. Bajpai Nirupam and Jeffery D. Sachs (1997), “India’s economic reforms: Some lessons from East Asia”, Journal of International Trade and Economic Development, 6/2 July.

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Banga, R. (2003), “The Export-Diversifying Impact of Japanese and US Foreign Direct Investments in Indian Manufacturing Sector”, Indian Council for Research on International Economic Relations (ICRIER) Working Paper No. 110, New Delhi. Benhabib J and Spiegel M (1994), “The Role of Human Capital in Economic Development: Evidence from Aggregate Cross-Country Data”, Journal of Monetary Economics, Vol. 34, No. 2, pp. 143-174. Bhagwati J, Srinivasan T N and Wan H Y (1978), “Value Subtracted, Negative Shadow Prices of Factors in Project Evaluation and Immiserising Growth: Three Paradoxes in the Presence of Trade Distortions”, Economic Journal, Vol. 88, No. 349, pp. 121-125.

Borensztein E, Gregorio J D and Lee J W (1998), "How Does Foreign Direct Investment Affect Economic Growth", journal of International Economics, Vol. 45, No. 1 pp. 115-135.

Caves R E (1974), “Causes of Direct Investment: Foreign Firms’ Share in Canadian and Evidence from Pane! Data", Asian Economic Review, Vol. 45, No. 2, pp. 197-217.

Caves, R. E. (1971), ‘International corporations: the industrial economics of foreign investment’, Economica, 38, pp. 1–27.

De Mello L R (1997), "Foreign Direct Investment in Developing Countries and Growth: A Selective Survey", Jouvnal of Development Studies, Vol. 34 No. l pp. 1-34.

Demurger S (2000), "Economic Opening and Growth in China", Development Centre of the Organization for Economic Cooperation and Development, Paris.

Dias R T (2003), "Foreign Direct Investment Models: Empirical Evidence from Italy", Journal of financial Management and Analysis, Vol. 16, No. 1, pp. 36-52.

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Dua P and Rashid A I (1998), "Foreign Direct Investment and Economic Activity in India", Indian Economic Review', Vol. 33, No. 2, pp. 153-168.

Ethier W J (1996), “Theories about Trade Liberalization and Migration: Substitutes or Complements”, in Lloyad P J and Williams L (Eds.), International Trade and Migration in the APEC Region, Oxford University Press, Oxford.

Jenkins C and Thomas L (2002), Foreign Direct Investment in Southern Africa: Determinants, Characteristics and Implications for Economic Growth and Poverty Alleviation University of Oxford pp. 1-60. Grossman G and Helpman E (1992), "Trade, Knowledge Spillovers and Growth, European Economic Review” Vol. 35, pp. 517-526.

Hymer S H (1976), “The International Operations of National Firms: A Study of Direct Foreign Investment”, Doctoral Dissertation, MIT Press, Cambridge.

Kindleberger, C. P. (1969) American Business Abroad: Six Lectures on Direct Investment. Yale University Press, London.

Kumar, N. (2002). Towards an Asian Economic Community: The Relevance of India: Research and Information System for Developing Countries (RIS) Discussion Paper 34, New Delhi.

Kyriacou G A (1991), “Level and Growth Effects of Human Capital”, CV Starr for Applied Economics, Centre Economic Research Reports, pp. 91-26, New York University, New York.

Lau L J, Jamison D T and Louat F F (1991), “Education and Productivity in Developing Countries: An Aggregate Production Function Approach”, Working Paper No. 612, World Bank, Washington.

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Lee Eddy and Vivarelli (2006), “The Social Impact of Globalization in the Developing Countries”, International Labour Review, Vol. 145 (2006), No.3, PP 167-184.

Lensink R and Hermes N (2003), "Foreign Direct Investment: Financial Development and Economic Growth" Journal of Development Studies, Vol. 40. No. 1, pp. 142-163.

Li Y (2002), “Effect of FDI in Home Country’s Trade Advantage” Beifang Jingmao, Vol. 8, No. 1, pp. 39-40.

Lucas R E B (1993), On the Determinants of Direct Foreign Investment; Evidence from East and Southeast Asia World Development VoL21 No. 3 pp. 120-138.

Markusen J. R. (1995), “The Boundaries of Multinational Firms and the Theory of International Trade”, Journal of Economic Perspectives 9. Matusz, Steven J, Tarr David (1999), “ Adjusting to trade policy reform, Policy Research Working Paper No. 2142, Washington, DC, World Bank.

Mody A and Wang F Y (1997) "Explaining Industrial Growth in Coastal China: Economic Reforms and What Else?" World Bank Economic Review, Vol. 11, No. 2, pp. 293-325.

Mundella R (1957), “International Trade and Factor Mobility”, American Economic Review, Vol. 47, No. 3, pp. 321-325.

Nagesh Kumar & Alka Chadha (2009), "India's outward foreign direct investments in steel industry in a Chinese comparative perspective," Industrial and Corporate Change, Oxford University Press, vol. 18(2), pages 249-267, April

Ögütçü, Mehmet. (2002), ‘Foreign Direct Investment and Regional Development: Sharing Experiences from Brazil, China, Russia and Turkey’, OECD Secretariat, in the International

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Conference on Regional Development and Foreign Investment in Brazil, Fortaleza, Brazil, 12‐13 December.

Pradhan J P (2OO3). "Foreign Direct Investment and Economic Growth in Developing Countries: Further United Kingdom Manufacturing Industries”, Review of Economics and Statistics, Vol. 56, No. 2, pp. 272-293. Pradhan R P (2008), “Does Infrastructure Play a Role in Foreign Direct Investment?” The ICFAI University Journal of Financial Economics, Vol. VI, No. 2 pp. 48-60.

Pritchett L (2001), “Where Has All the Education Gone?”, World Bank Economic Review, Vol. 15, No. 3, pp. 367-391. Siddharthan N S (2004), “Globalization: Productivity, Efficiency and Growth: An Overview”, Economic and Political Weekly, Vol. 34, No. 5, pp. 420-422.

Sjoholm F and Okamoto Y (2005), "FDI and the Dynamics of Productivity in Indonesian Manufacturing", Journal of Devebpment Studies, Vol. 41, No. 1, pp. 160-182.

Vernon, Raymond (1966), “International Trade and International Investment in the Product Cycle”, Quarterly Journal of Economics, Vol. 83, No.1, pp. 190-207. )

Wah U (1997), "Innovation, Foreign Direct Investment and Growth" Económica, Vol. 64. No. 253, pp. 63-79.

Wang Y (2002), Upgrading Industrial Structure in Open Economy, Economic and Management Publishing House, Beijing.

Yusop Z, Keong C and Mericam Y (2002), "Foreign Direct Investment and Economic Growth" in Azali et al (Ed) APEB C Proceedings Universiti Putra Malaysia (UPM), Serdang.

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Zebregs H (2002), "Foreign Direct Investment and Output Growth", in Tseng W and Rodlauer M (Eds.) China: Competing in the Global Economy, International Monetary Fund (IMF), Washington.

Zhang B (1999) International Capital Flow and Foreign Trade Competitive Advantage, Beijing Development Press of China, Beijing.

Zhang K H (1999), "Foreign Direct Investment and Economic Growth: Evidence from Ten East Asian Economies", Ecorwmica Intemazionale, Vol. 54, No. 4, pp. 517-535.

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TO EVALUATE WHETHER ONE TIME INVESTMENT OR SYSTEMATIC INVESTMENT PLAN (SIP) WOULD GIVE HIGHER RETURNS AND TO FIND OUT THE TOP FIVE SCHEMES ON THE BASIS OF RETURN IN THE SAME – A CASE STUDY OF HDFC BANK Shelly Singhal* Manisha Goel**

ABSTRACT Indian Mutual fund industry has witnessed a structural transformation during the past many years. Systematic Investment Plans (SIP) is among the most successful financial innovations grown at a fairly rapid pace in emerging markets and India is no exception to it. This paper aims at evaluating the performance of SIP plans against one time investment. HDFC mutual funds return has been compared with the HDFC SIP return for the past 10 year period from April1, 2001 to Feb, 28,2011.For this purpose we have used annual returns based on NAV(Net Asset Value).CRISIL has been used as a proxy for benchmark return, while annual yields on 364-day Treasury bill as a surrogate for the Risk free rate of Return.The investment performance has been measured in terms of Sharpe’s Ratio, Treynor’s Ratio and Jensen Ratio. The Empirical result reported that SIP Plans has performed better than the one time investment. After that, from the various SIP Plans available top five plans have been found out by doing ranking of the Returns from the various kinds of SIP Plans. Keywords: Mutual funds, SIP (Systematic Investment Plan), Net Asset Value

*Lecturer,Maharaja Agrasen Institute of Management and Technology, Jagadhri, Haryana, India **Maharaja Agrasen Institute of Management and Technology, Jagadhri, Haryana, India International Journal of Research in Finance & Marketing http://www.mairec org

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INTRODUCTION Stock selection is the nucleus of investment decision making as it determines the contour of risk bearing & diversification. Generally, the investors get confused regarding the investment option whether to go for one time or systematic mode of investing and they generally remain in a dilemma of in which plan to invest in to get maximum returns. Hence the decision is to be taken regarding which mode of investment should be adopted. This decision can be taken by comparing the risk & return from each mode of investment. not only this, even when a particular mode of investment is selected there still remains a confusion regarding in which plan the money should be invested as there are a number of plans available with a mode of investment. So in this study the researcher has tried to reveal ,out of SIP & One –Time Investment which option is better taking the case of HDFC Bank. The Systematic Investment Plan (SIP) is a simple and time honored investment strategy for accumulation of wealth in a disciplined manner over long term period .In case of systematic investment plan; a specific amount is invested at specific period of time so the average cost of investment is reduced as the amount is invested. It can also be called as a Rupee cost averaging formula Plan which is a passive Portfolio Revision Strategy. Let us assume that an investor decides to buy approx Rs 1000 worth shares for four Quarters in one Particular Year, ignoring the transaction costs and share price movements, the details are given as under:Rupee cost averaging Quarter Market Price

Shares

Cumulative Market

Purchased

Investment

Value

Profit/loss (in

Average cost

Rs.)

share

Average

per Market price per share

1

100

10

1000

1000

0

100

100

2

90

11

1990

1890

(100)

94.76

95

3

100

10

2990

3100

110

96.45

96.67

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9

3980

4400

(ISSN 2231-5985) 420

99.50

100

Source –Punitavathy & Pandian(SAPM) In the above example, the stock price fell in the second quarter but recovered in the third quarter. So the no. of shares purchased varies in each quarter.The investor was able to buy more stock in second quarter instead of first quarter. In the second quarter, the average cost per share is lower than the average market price per share. This is the benefit derived from SIP.

SELECTIVE REVIEW OF LITERATURE Sen(2009) concluded that the average performance of sample mutual funds lagged behind the average returns of the market proxy. The researcher found that the performance of mutual funds in India support the Efficient Market Hypothesis and the fund managers do not make use of any superior information for fund selection. Singh (2003) calculated that the salaried class people & retired people give maximum weight to past record of the organization while business class people give preference to liquidity position. As per scheme wise breakup, out of the total schemes currently operative, income/debt schemes outnumbered the growth and balanced schemes. Chander (2005) studied that Investment performance on the stock selection refers to the managers’ ability to identify under or overvalued securities. The author examined the stock selection abilities of investment managers’ in India across the fund features as well as the persistence of such performance. Guha Deb (2008) find that Investment style of a fund refers to the combination of long positions in passive indexes, which would have most closely replicated the actual performance of a fund over a specified time period. The author finds that all domestic asset classes have generated positive mean monthly returns with return and volatility increasing commensurately. Sethu & Baid (2003) they concluded that the valuation of the networth of the AMCs is influenced by the nature of the scheme and the growth rate in AUM envisaged. They also find that the AMCs are not listed. Ansari (2007) concluded that the relation between the fund size and the mutual fund performance has been an unsettled issue as the empirical studies have reported mixed results. The study reveals a quadratic relationship between the size and performance of mutual funds. Gupta (2004) found that sample funds are not adequately diversified. . The author suggested that there is no conclusive evidence, which suggests that the performance of mutual funds is superior to the market during the study period. International Journal of Research in Finance & Marketing http://www.mairec org

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OBJECTIVES The objectives of the study are:
To have a comparative analysis of return while investing in mutual funds via one time investment and SIP as per Sharpe, Treynor & Jensen ratio
To find the top 5 schemes (SIP) as per Sharpe, Treynor & Jensen among all the options available with special reference to HDFC Mutual Fund Theoretical Framework Construct: “To study which investment option whether SIP or One Time Investment, is a better option Variables: There are basically two types of Variables, as follows: •

Independent Variable

•

Dependent Variable

The following are the variables of the study: Independent Variable: 

Market Rate of Return



Risk free Rate of Return



Benchmark i.e. CRISIL return

Dependent variable: 

NAV of SIP Plan



NAV of On time Investment



Standard Deviation of SIP plan



Standard Deviation of One Time Investment

Moderating variable: International Journal of Research in Finance & Marketing http://www.mairec org

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HDFC Mutual Funds

Research Design: The purpose of this study is descriptive. A descriptive study is undertaken in order to be able to describe the characteristics of variables of interest in a situation. In this type of research the researcher has no control over the variables; he can only report what has happened or what is happening. Data & other sources i) The sample The researcher has used a sample of 24 funds of HDFC including SIP & One Time Investment to study their performance. The choice of the sample is largely based on the availability of necessary data.

Annual return based on NAV ( Net Asset Value) have been used for

performance evaluation. The data regarding the sample funds used in the study has been taken from the Monthly Factsheet available on the company website (www.hdfcbank.com) ii) Period of study The study period is the ten years period from April 1, 2001 to 28 feb, 2011. It is during this period that a major structural change has taken place in the Indian Mutual Fund Industry. The period is long enough to draw meaningful inferences. iii) The Market Proxy For evaluating the investment performance, it is necessary to choose a benchmark against which the performance of sample fund is compared .The researcher has used CRISIL as a benchmark as it is widely use index use by both practitioners and researchers. iv) The Risk Free Proxy The study has used the annual yields on 364-day Treasury bill as a surrogate for the Risk free rate of Return.

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v) Beta of the fund The data regarding the Beta of the fund is taken from the Monthly Factsheet of the company. Methodology Performance Evaluation Measures The researcher have utilized following measures to evaluate performance:a) Sharpe ratio Sharpe (1966) devised an index of portfolio performance measure, referred to as reward to variability ratio denoted by Sp. It measures the excess return per unit of total risk as measured by standard deviation. The Sharpe ratio for different mutual funds, as well as benchmark portfolios, has been computed by using the following equation: Sp= Risk premium/Total Risk = Rp-Rf S.D. p Where, Sp=

Sharpe ratio

Rp=

portfolio return

Rf=

risk-free return

S.D.p= standard deviation of portfolio The Sp for benchmark portfolio is Rm-Rf/S.D.m, where S.D. is the standard deviation of market returns. If Sp of the mutual fund scheme is greater than that of the market portfolio, the fund has outperformed the market. Sharpe ratio is considered better as it considers the total risk.

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b) Treynor Ratio The Treynor reward to volatility ratio measures the excess return per unit of market (systematic) risk. The Treynor ratio for the sample funds has been calculated as follow:Tp= risk premium Systematic risk = Rp-Rf/βp Where, Tp=Treynor ratio Rp= return from portfolio Rf= risk-free return βp= Bata coefficient for portfolio As the market Beta is 1, Treynor index Tp for market portfolio is (Rm-Rf) where Rm is the market return. If Tp of the mutual fund scheme is greater than (Rm-Rf), then the fund has outperformed the market. The major limitation of the Treynor ratio is that it ignores the reward for unsystematic risk. c) Jensen ratio This ratio attempts to measure the differential between the actual return earned on a portfolio and the return expected from the portfolio given its level of risk. The expected return of the portfolio is calculated as under:E (Rp) =Rf+βp (Rm-Rf) Where,

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E (Rp) = expected portfolio return Rf= risk-free rate Rm= return on market index βp= systematic risk of the portfolio the differential return is calculated as follow: αp =Rp-E(Rp) Where, αp =Differential return earned Rp= Actual return earned on the portfolio E (Rp) = Expected return If αp has a positive value, it indicates that the superior return has been earned due to superior management skills. When αp =0, it indicates neutral performance. It means that the portfolio manager has done just as well as an unmanaged randomly selected portfolio with a buy and hold strategy. RESULTS &DISCUSSION Objective 1: To have a comparative analysis of return while investing in mutual funds via one time investment and SIP as per Sharpe, Treynor & Jensen measure. Comparison of return of schemes from SIP & one-Time investment as per Sharpe Measure Comparison of returns as per Sharpe measure Scheme

Rp(one time)

Rp(SIP)

SD (one time)

SD (SIP)

One time

SIP

investment

Return(as

return(as

per

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sharpe)

Tax Saver Fund

22.36

31.99

12.23

15.92

30.32

31.62

Equity Fund

22.17

28.64

11.73

15.49

21.88

28.26

Capital builder

14.66

20.36

10.14

14.49

14.08

19.95

Growth Fund

24.74

26.57

11.85

13.59

21.67

26.14

Top 200 Fund

30.81

26.5

12.05

15.01

24.24

26.11

fund

Risk- free return=5.82 (364 days t-bills yield 0n 28-02-11 (source:hdfcbank.com/monthlysheet) 35 30 25 20 SIP return 15 10

one time investment return

5 0 tax saver equity fund fund

capital builder fund

growth top 200 fund fund

Comparison of returns as per Sharpe measure Interpretation The result of graph shows that the return from the SIP is much higher than the return from one time investment. So it is more beneficial to invest in SIP plans instead of one time investment. Also there is no need to invest all the money in lump sum. Comparison of return of schemes from SIP & one time investment as per Treynor Measure Comparison of returns as per Treynor measure International Journal of Research in Finance & Marketing http://www.mairec org

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Scheme

Beta

Rp(one

Rp(SIP)

time)

(ISSN 2231-5985) One time

SIP Return

investment return

Tax Saver Fund

2.69

22.36

31.99

28.64

29.82

Equity Fund

2.69

22.17

28.64

20.19

26.47

Capital builder

2.69

14.66

20.36

12.49

18.19

Growth Fund

2.69

24.74

26.57

20

24.40

Top 200 Fund

2.69

30.81

26.5

22.57

24.33

fund

Risk- free return=5.82 (364 days t-bills yield 0n 28-02-11) (source:hdfcbank.com/monthlysheet) 35 30 25 20 15

One time investment

10

SIP Return

5 0 Tax Saver Fund

Equity Fund

Capital Growth Top 200 builder Fund Fund fund

Comparison of returns as per Treynor measure Interpretation The result as per Treynor measure also shows that the return from SIP is much higher in comparison to return from one time investment. It shows that SIP plans are more schemes profitable in comparison to one time investment.

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Comparison of return of schemes from SIP & one time investment as per Jensen Measure Comparison of returns as per Jensen measure Scheme

Beta

Rm(One

Rm(SIP)

time )

One time SIP Return investment Return

Tax Saver Fund

2.69

22.36

31.99

73.04

76.21

Equity Fund

2.69

22.17

28.64

50.31

67.20

Growth Fund

2.69

14.66

20.36

49.80

61.63

Top 200 Fund

2.69

24.74

26.57

56.71

61.44

Capital builder Fund

2.69

30.81

26.5

29.59

44.93

Risk- free return=5.82 (364 days t-bills yield 0n 28-02-11) (source:hdfcbank.com/monthlysheet) 90 80 70 60 50 one time investment return

40 30

SIP Return

20 10 0 Tax Saver Fund

Equity Growth Top 200 Capital Fund Fund Fund builder Fund

Comparison of returns as per Jensen measure Interpretation : As per Jensen ratio also return from SIP plans is more than return from one time investment. The result from all these shows that SIP plans are better than one time investment schemes. SIP plans are beneficial over a long period of time.

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Objective 2 To find the top 5 schemes (SIP) as per Sharpe, Treynor & Jensen among all the options available with special reference to HDFC Mutual Fund Table-32, Ranking of SIP schemes on the basis of Sharpe’s index Scheme

Sharpe ratio

Rank

= Rp-Rf S.D. p

Growth Fund

26.14

4

Equity Fund

28.26

2

Top 200 Fund

26.11

5

Capital Builder Fund

19.95

7

Multi Cap Fund

13.90

11

Core & Satellite Fund

16.89

9

Balance Fund

18.39

8

Prudence Fund

23.57

6

Children Gift Fund

16.88

10

Children Saving Plan

8.67

13

Long term Advantage Fund

27.17

3

Tax Saver Fund

31.62

1

MF MIP-Short Term

5.75

14

MF MIP- Long Term

10.80

12

Returns from top 5 SIP plans as per Sharpe measure SIP Scheme

SIP Return

Tax Saver Fund

31.62

Equity Fund

28.26

Long term advantage fund

27.17

Growth Fund

26.14

Top 200 Fund

26.11

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SIP Return 35 30 25 20 15 SIP Return

10 5 0 Tax Saver Equity Fund Long term Fund advantage fund

Growth Fund

Top 200 Fund

Figure-Top 5 SIP plans as per Sharpe measure Interpretation As per Sharpe Ratio among SIP Plans Tax Saver Fund has shown the best result over time. Performance of Equity Fund is also good. Ranking of SIP schemes on the basis of Treynor’s index Scheme

Treynor Ratio = Rp-Rf/βp

Rank

Growth Fund

24.40

4

Equity Fund

26.47

2

Top 200 Fund

24.33

5

Capital Builder Fund

18.19

7

Multi Cap Fund

12.09

11

Core & Satellite Fund

15.07

10

Balance Fund

16.80

8

Prudence Fund

21.85

6

Children Gift Fund

15.40

9

Children Saving Plan

8.10

13

Long term Advantage Fund

25.43

3

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Tax Saver Fund

29.82

1

MF MIP-Short Term

4.86

14

MF MIP- Long Term

9.59

12

Return from Top 5 SIP plans as per Treynor measure Scheme

SIP Return

Tax Saver Fund

29.82

Equity Fund

26.47

Long term advantage fund

25.43

Growth Fund

24.40

Top 200 Fund

24.33

SIP Return 35 30 25 20 15 SIP Return

10 5 0 Tax Saver Equity Fund Long term Fund advantage fund

Growth Fund

Top 200 Fund

Figure- Return from Top 5 SIP plans as per Treynor measure Interpretation As per Treynor ratio Tax Saver Fund has shown the best performance. It is 29.82%.

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Table-36 Ranking of SIP schemes on the basis of Jensen’s index Scheme

Jensen Ratio

Rank

Growth Fund

61.63

4

Equity Fund

67.20

2

Top 200 Fund

61.44

5

Capital Builder Fund

44.93

7

Multi Cap Fund

28.52

11

Core & Satellite Fund

36.53

10

Balance Fund

41.19

8

Prudence Fund

54.77

6

Children Gift Fund

37.42

9

Children Saving Plan

17.79

13

Long term Advantage Fund

64.40

3

Tax Saver Fund

76.21

1

MF MIP-Short Term

9.07

14

MF MIP- Long Term

21.79

12

Return from Top 5 SIP plans as per Jensen measure Scheme

SIP return

Tax Saver Fund

76.21

Equity Fund

67.20

Long term advantage fund

64.40

Growth Fund

61.63

Top 200 Fund

61.44

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SIP return 90 80 70 60 50 40 30 20 10 0

SIP return

Tax Saver Equity Fund Long term Fund advantage fund

Growth Fund

Top 200 Fund

Return from Top 5 SIP plans as per Jensen measure Interpretation As per Jensen ratio also Tax Saver Fund has shown the best performance. It is 76.21%. The major findings of the study are as under: Objective 1: To have a comparative analysis of return while investing in mutual funds via one time investment and SIP as per Sharpe, Treynor & Jensen measure. Findings
The comparative analysis of return as per Sharpe, Treynor & Jensen measure shows that the return from the SIP is much better than the return from one time mode of investment. under Taxsaver fund the return from SIP is 31.62% while under one time mode of investment it is 30.32%.
Instead of return the amount needed to invest in SIP is also less, so it is profitable to invest in SYSTEMATIC INVESTMENT PLANS.

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Objective 2: To find the Top 5 schemes (SIP) as per Sharpe, Treynor & Jensen measure among all the options available with special reference to HDFC Mutual Fund. Findings
As per all the measures Tax saver fund has performed best among all the SIP plans. Equity fund has been ranked as 2 while long term advantage fund, Growth fund & Top 200 fund has been ranked as 3, 4&5.
It shows that the results of all the schemes as per Sharpe, Treynor &Jensen measure are same.

CONCLUSION This paper has aimed at testing the performance of SIP Plans against one time investment. Using HDFC bank SIP plans and one time investment plan as the sample and annual returns based on NAV, the results indicated that the return from the SIP is much better than the return from one time investment mode. In order to get better results from SIP these plans should be held for a long period of time and the revision of plans to be included in portfolio is necessary so that the results are better. In order to know about the profitability of various plans their comparative study & corpus of fund should be studied as per various analytical measures. By studying the corpus of a fund information regarding allocation of funds is known and accordingly the decision to invest in a particular scheme can be taken. Overall, the results reported here are in consensus with the ones reported earlier from the foreign markets.

REFERENCES Sethu(2003), Valuation of Asset Management Companies-AFree Cash Flow Approach, The ICFAI Journal of Applied Finance, vol.9, 5-20 Ansari (2007), Influence of Fund size on the performance of a Mutual Fund, NICE Journal of Business, vol.2, no.2, 81-86

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Gupta (2004), Performance Evaluation of Selected Indian Mutual Fund Schemes, The ICFAI Journal of Applied Finance, vol.1, 81-97 Tripathy (2004), An Empirical Analysis on Performance Evaluation of Mutual Funds in India, The ICFAI Journal of Applied Finance, vol.4, 38-55 Sen (2009), Understanding the Performance of Mutual Funds in India, Bhavishya Journal of Future Business School, vol.3, No.1,13-26 Sahoo (2007), Prediction of Mutual Funds: Use of Neural Network Technique, The ICFAI Journal of Applied Finance, vol. 13, No. 11, 5-14 Slaheddine (2003), The Implication of Arbitrage Strategies on Performance Persistence: Evidence on Tunisian Mutual Funds, Finance India, vol. XVII, No. 3, 931-937. Grinblatt (1984), The Persistence of Performance of Mutual Fund, Journal of Finance, vol.47, 1979-1983 Catrinu(2007),

A Risk Based Approach to Distribution System Asset Management and a

Survey of Perceived Risk Exposure among Distribution Companies, 19th International Conference on Electricity Distribution,1-4

Chevalier (1997), Risk Taking by Mutual Funds as a response to Incentives, The Journal of Political Economy, vol.105, No.6, 1167-1200

Edelen (1999), Investor flows and the assessed performance of open-end mutual funds, Journal of Financial Economics 53, 439-466

Titman(1993), Performance measurement without benchmarks: an examination of mutual fund returns, Journal of Business , vol.23, 66-68.

Grinblatt(1994), A study of mutual fund returns and performance evaluation techniques, Journal of Financial and Quantitative Analysis vol.29, 419-444.

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Henriksson(1984), Market timing and mutual fund performance: an empirical investigation., Journal of Business , vol.57, 73-96.

Jensen(1968), The performance of mutual funds in the period 1945-1964, Journal of Finance, vol. 23, 389-416.

Gruber(1996), Another puzzle: the growth of actively managed mutual funds, Journal of Finance, vol. 51, 783-810.

Ingves(2004), Issues in the Establishment of Asset Management Companies, IMF Policy Discussion Paper,1-28

Daniela(2000), The Use of Asset Management Companies in the Resolution of Banking Crises: Cross-Country Experience, World Bank Policy Research Paper No. 2284.

Guifen Pei(2004), The Main Problems of China’s financial Industry and Asset Management Companies, Habei University and Keio University,1-16

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VENTURE CAPITAL: THE INDIAN SCENARIO Dr. A. Amruth Prasad Reddy* Dr. M. Venkata Subbaiah**

ABSTRACT Every human behaviour is positive, that is, goal-directed, backed by true-will. There is a passion and commitment to start their own venture and be on their own, provided there is high reward associated with high-risk new business projects. The internet and telecom revolutions are affecting life styles, personal interactions, societies and businesses in profoundly many ways. The changes in turn are being fueled by globalization, technology, knowledge and intellectual property. However, for a substantial number of technocrats who seek to capitalize on their strengths and business opportunities, starting-up a new venture is a distant dream. There are a number of critical factors that contribute to its success or failure of new business. Experience, integrity, prudence and a clear understanding of the market are among the most sought after qualities of a promoter. Besides these, there are other external factors which lie beyond the control of the entrepreneur. Prominent among them are the timely infusion of funds, technical skills, cost competitive manpower,etc. This is where the ‘venture capitalist’ comes in with money, business sense and a lot more. Two-tier institutional structure- central and state levels – evolved after independence in India to provide long-term finances to industry. The notable deficiency in the structure of lack of provision of VC to new industrial units. To correct this deficiency VC evolved in India in three phases: In the first phase (1973-1994) the need for VC was recognized in India. This phase witnessed inauguration of risk capital foundation by IFCI, creation of venture capital fund by IDBI, development of VCCs, tax concessions to VCCs/VCFs by the government and formation of venture capital association.

--------------------------------------------------------------------------------------------------------------------*Asst. Professor, Dept. of Business Administration, Yogi Vemana University, Kadapa-516003, YSR District, Andhra Pradesh,India

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**Professor, Bangalore Institute of Management Studies, Bangalore, Karnataka,India

The landmarks in second phase (1995-99) were establishment of clear guidelines to VCFs by SEBI. In the third phase, (which started in 2000) in addition to some overseas VCFs also entered into Indian industry.It is against this backdrop, the present paper is designed to provide a comprehensive picture of venture capital industry in India, tracing out its evolutionary stages in abroad as well as in India. Reliable estimates of magnitudes of venture capital are difficult because of two primary reasons: firstly, all that is reported under venture capital is difficult to be verified for its validity; and secondly, under defined rules venture capital transactions fall outside official statistical system leading to under-reporting.

INTRODUCTION Between taking-up a job for salary and starting their own risky business venture, many educated youth prefer the former which, they think, will give them comfortable existence. Besides, people have become risk-averse, conditioned by their direct and indirect experiences. What is needed at present is change in the mindset at a faster rate never before seen in history. Every human behavior is positive, that is, goal-directed, backed by true-will. There is a passion and commitment to start their own venture and be on their own, provided there is high reward associated with high-risk new business projects.

The internet and telecom revolutions are

affecting life styles, personal interactions, societies and businesses in profoundly many ways. The changes in turn are being fueled by globalization, technology, knowledge and intellectual property.1 However, for a substantial number of technocrats who seek to capitalize on their strengths and business opportunities, starting-up a new venture is a distant dream. There are a number of critical factors that contribute to its success or failure of new business. Experience, integrity, prudence and a clear understanding of the market are among the most sought after qualities of a promoter.2 Besides these, are other external factors which lie beyond the control of the entrepreneur. Prominent among them are the timely infusion of funds, technical skills, cost

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competitive manpower,etc. This is where the ‘venture capitalist’ comes in with money, business sense and a lot more. AIM OF THE PAPER This paper is designed to provide a comprehensive picture of venture capital industry in India, tracing out its evolutionary stages in abroad as well as in India. Reliable estimates of magnitudes of venture capital are difficult because of two primary reasons: firstly, all that is reported under venture capital is difficult to be verified for its validity; and secondly, under defined rules venture capital transactions fall outside official statistical system leading to under-reporting.

CONCEPT Venture capital financing means providing a proper mix of medium and long-term investments in high-risk industrial projects with high reward possibilities. It may be at any stage of implementation of the project or its production cycle viz., to start-up an economic activity or an industrial or commercial project or to improve a process or a product in an enterprise associated with both risk and reward. Medium-term refers to a period ranging between 3-5 years and ‘longterm’ covers a period of 5-15 years.3

VISION OF VENTURE CAPITAL The vision of venture capital is focused on new projects, seed capital, technology and innovation. It aims at:4
Fueling ambitions and dreams;
Breathing life into promising business ventures;
Charting the course of incisive business ideas;
Providing foresight with a free sense of direction;
Helping in building enterprise vision; and
Guiding smoothly over rough passages;
Partnering enterprises on to script thrilling success; International Journal of Research in Finance & Marketing http://www.mairec org

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Complementing acumen and enterprise with a steady flow of resources;
Inspiring enterprises to script thrilling success; and
Plotting venture capital finances are plotted on a firm life-cycle curve.

ORIGINS OF VENTURE CAPITAL IN ABROAD Period of venture capital development can be divided into two sub-periods: prior to 1980 and post-1980. In the first sub-period venture capital was really a cottage industry in its rudimentary form. Before 1980 there were two venture capital investments in Massachusetts – the Saugus Ironworks in 1645 and the Middlesex Canal in 17895. Prior to 1980s individuals and families were the main sources of venture capital. It was John Witter who used the term ‘venture capital’ in 1939 while addressing the Investment Bankers Association of America6. Through 1930s to 1950s, there were intensive discussions in USA and UK as to lack of investment in small business, although there was a little agreement about what types of small businesses should be given funds and what would be the vehicles for providing finance to them. Increased awareness of, and heightened interest in, small and medium enterprises (SMEs) led to the Small Business Investment Company (SBIC) in the year 1958. As a result of the implementation of the act, the term ‘venture capital’ evolved into a specific form financing exclusively small, privately owned firms with high growth potential. Entrepreneurial finance has a long history in US going back to financing rail roads in18007, and later to industrial revolution. Prior to World War II there were wealthy American families investing in new promising firms. Soon after the war these families started hiring professional managers to discover, evaluate and invest in high-growth potential small firms. By providing start-up capital to companies, Eastern Airlines and Xerox8 became household names. In fact, the first entrepreneurial bank founded by Brother Pereire in 1852 operated with a concept, ‘creative finance’9. Thus, venture capital firm is a US organizational innovation. Three role models in venture capital industry in USA are: American Research and Development Corporation (ARDC), Minute Maid Juice, and Eastern Airlines10.

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INDIAN SCENARIO Though entrepreneurial spirit of Indian business man is well known, institutional finance in no form was available to breathe life into the spirit. Soon after independence two-tier financial institutional structure – central and state levels – was created to promote industrial development through provision of long-term finance. But these development financial institutions (DFIs) do not provide venture capital to small industrial units with unproven technology. This is the major institutional deficiency in institutional structure. To correct this inherent lacuna venture capital emerged in India, whose evolution in India can be studied in three phases. Venture Capital Development in India: First Phase (1973-94) The first phase began with the government of India when the need for venture capital financing was first highlighted in 1973 by the government appointed committee on Development of Small, and Medium Enterprises(SMEs) under the Chairmanship of R.S.Bhatt, drew attention to the problems of new entrepreneurs and technologies in setting-up industries11. Thereafter, though some public sector funds were set-up but the activity of venture capital did not gather momentum as the thrust was on high-technology projects funded on a purely financial rather than a holistic basis. Beginning of Risk Capital and Seed Capital By Industrial Development Financial Institutions (DFIs) In 1975 venture capital financing was introduced in India by the All-India Financial Institutions with the inauguration of ‘Risk Capital Foundation (RCF)’ sponsored by Industrial Finance Corporation of India (IFCI) to supplement “promoters’ equity” with a view to encouraging technologists and professionals to promote new industries12. During 1976 the seed capital scheme was introduced by Industrial Development Bank of India (IDBI). The announcement of National Technology Policy Statement in 1983 by the Central Government setting guidelines towards technological self-reliance through commercialization and exploitation of technologies developed in the country, had established the need for venture capital. Till 1984 the concept of venture capital was known in the form of “Risk Capital and Seed Capital”13. In addition to IFCI and IDBI the Industrial Credit and Investment Corporation of India Limited (ICICI), another all International Journal of Research in Finance & Marketing http://www.mairec org

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India financial institution, also took decision in 1984 to allocate funds for providing assistance in the form of venture capital to economic activities involving both risk and high-profit potential.14 Government Created and IDBI-Administered Venture Capital Fund To popularize venture capital financing the government announced the creation of a venture capital fund (VCF) in the document on long-term fiscal policy presented to Parliament by the Finance Minister on 20th December, 1985. The VCF, which became operational on 1.4.1986 is administered by IDBI. It was created on an experimental basis with an initial capital of Rs.100 million to provide equity capital for pilot projects attempting commercial applications of indigenous technology for wider domestic applications. As a result to the above decision, ICICI launched a venture capital scheme in 1986 to encourage new technocrats in the private sector in the emerging fields of high-risk technology. Programmes for Application of Commercial Technology (PACT) of USAID Further, in August, 1986, ICICI undertook the administration of the Programme for Application of Commercial Technology (PACT) aided by USAID with the initial grant of U.S. $ 10 million. Under the R and D Cess Act, 1986 an R and D levy is imposed on all payments made for purchase of technology from abroad including royalty payments, lump sum payment for foreign collaboration and payment for designs and drawings. The levies form a source for the venture capital fund. Development of Venture Capital Companies (VCCs) in India At the behest of the Government of India, a high level team led by the United Nations Development Programme (UNDP) was formed in May, 1987 for examining the possibility of developing Venture Capital Companies (VCCs) in the private sector in India and to make appropriate recommendations.

The ‘Technology Policy Implementation Committee’ of the

department of science and technology also specifically recommended the need for venture capital organization in the private sector. ANZ Grindlays, a foreign bank, set-up the first private venture capital fund known as India Investment Fund in 1987. It subsequently came out with the second India Investment Fund in 1989. This is the only foreign bank with a venture capital fund operations in India. In 1988, ICICI sponsored the Technology Development and Information International Journal of Research in Finance & Marketing http://www.mairec org

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Company of India Limited (TDICI) which took over venture capital operations of ICICI on 1.7.1988. The necessity of venture capital institutions was also echoed by the then Finance Minister, N.D. Tiwari, in his budget speech 1988-89, referring to the need for introducing venture capital to help new entrepreneurs develop. He said, “we have one of the largest pools of scientific and technical manpower. Yet many of our young and new entrepreneurs find it difficult to raise equity capital because of the risks involved. Allowing venture capital companies to undertake high-risk equity financing, in anticipation of future capital gains’’15 can solve this problem. The Finance Minister gave concessional treatment for capital gains to be made by VCCs/VCFs, in the wake of the failure of many new companies during 1985-86 boom which practically failed to come to the level of satisfaction of investors. He declared that it had been decided to formulate a scheme under which VCCs/VCFs would be enabled to invest in new companies and be eligible for the concessional treatment of capital gains available to non-corporate entities16. It is increasingly realized that the companies should first go to venture capital fund for their financial requirements before they go to public for raising needed funds. Guidelines for Venture Capital Financing The first serious efforts of the government to promote and regulate venture capital industry simultaneously took the form of venture capital guidelines. The Department of Economic Affairs, Office of the Controller of Capital Issues, by its notification dated November 25, 1988 finally issued the long awaited guidelines for venture capital financing to fulfill the promise of the finance minister. These guidelines delineated, a scheme of venture capital financing of new companies. The guidelines provide broad framework for the operation of the VCCs, covers establishment of VCCS/VCFs, their management, areas for venture capital assistance, size, debtequity ratio, underwriting, listing, and eligibility for tax concessions. Financing of Venture Capital :Tax Concessions to VCC/VCF In January 1989, the working group on the Development of the Capital Market, set-up by the Planning Commission under the chairmanship of Mr. Abid Hussain, made relevant observations on organization and financing of venture capital industry in India. The budget proposals of 198990, recognized the importance of risk capital needs of projects upto Rs.10 crores promoted by International Journal of Research in Finance & Marketing http://www.mairec org

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technocrats possessing untried and improved technology. The proposals extended concessional treatment of 20 per cent tax on long-term capital gains arising to such venture companies on eventual sale of equity shares in the assisted companies. The clause II of budget speech of 198990 stated “in furtherance of the announcement made by the finance minister in his budget speech of 1988-89, that a scheme to obviate the difficulties faced by new entrepreneurs in raising equity capital would be framed, it has been decided to formulates a scheme for setting-up VCCs/VCFs to extend venture capital assistance to undertakings where the risk element is comparatively high and the entrepreneurs are relatively new and non-affluent”. With a view to help the growth of VCC/VCF, by amending section 48 of the Income Tax Act, it is proposed to provide that the VCCs in respect of the capital gains on sale of shares of venture capital undertaking will get a deduction at “the same rate as available to non-corporate tax payers”. This amendment will take effect from 1st April, 1990 and will accordingly apply in relation to the assessment year 1990-91 and subsequent years17. Over the Counter Exchange of India (OTCEI) and VCCs A significant achievement during 1990 was the incorporation of the first Over the Counter Exchange of India (OTCEI) as a company under Section 25 of the Companies Act, 1956 on 25th September 1990. The Union Finance Minister issued fresh guidelines revisiting those issued by the OTCEI itself earlier, on 9th May 1991, for the listing of VCCs on the OTCEI and the issue of securities. Indian Venture Capital Association(IVCA) In 1992, Indian Venture Capital Association (IVCA) being established, the prime mover of this Association was Sri Nadakarni, it’s first President. In the association there are 9 members, the majority of whom are subsidiaries of Indian government agencies or banks and received funds from international development agencies. Venture capital and private equity investment accelerated around 1993 with the industrial recovery following the liberalization measures of the early 1990s. By 1994, a few foreign financial institutions began venture capital and private equity funds but with a focus towards larger and later stage investments. Till 1995, domestic VCCs/VCFs were paying a 20 per cent tax on capital gains from their investments. During the 1995-96 budget speech, the finance minister announced total exemption from tax dividends and International Journal of Research in Finance & Marketing http://www.mairec org

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long-term capital gains from equity investments made by approved VCFs/VCCs in unlisted companies in the manufacturing sector including software units but excluding other service industries. However, the income in the hands of their shareholders is fully taxable. For tax purposes the VCFs have been brought on par with the mutual funds. To operationalize these, the Central Board of Direct Taxes (CBDT) notified a scheme on 18th July, 1995. Moreover, with a view to augment the availability of venture capital, the government of India issued guidelines on 20th September, 1995, for overseas venture capital investments in India. Further, as a part of its mandate to regulate and to develop the Indian capital markets, the SEBI framed the SEBI (Venture Capital Funds) Regulation, 1996 Venture Capital Development in India: Second Phase (1995-99) The second phase was heralded in by the SEBI committee on Venture Capital Industry under the chairmanship of Mr. K.B. Chandrasekhar which laid down clear guidelines for venture capital funds for opening-up the industry.

In 1998, only 8 domestic venture capital funds were

registered with SEBI18. Year 1999 was a year of rapid growth for venture capital industry in India when 12 new venture capital funds were registered with SEBI, taking the total to 20. Foreign venture capital funds like Draper International and Walden Nikko India Management Company Limited, among the more active funds, have chosen not to register themselves with SEBI, due to its constricting guidelines. In the year 2000 SEBI registered 13 more venture capital funds, which increased their number to 33.19 Venture Capital Development in India: Third Phase (Since 2000 till to date) The third phase witnessed the introduction of new set of rules having a salutary effect on the venture capital industry. However, the dot com bust and global economic slowdown saw the plight of many venture capital firms. Though 2001 was a relatively bad year, investments in venture capital continued at the same level. In 2002, India became the second most active venture capital market among 10 major Asia-Pacific economies in terms of the total investment.20 During 2001-03, the VCs and Private Equitys started investing less money and in more mature companies in an effort to minimize the risk. For example:

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The average deal size more than doubled from USD4.14 million in 2000 to

USD8.52 in 2001 

The number of early stage deals fell sharply from 142 in 2000 to 36 in 2001



Later stage deals and Private Investments in Public Equity (PIPEs) declined from

138 in 2000 to 74 in 2001 

Investments in internet-related companies fell from USD576 million in 2000 to

USD49 million in 2001. This decline broadly continued until 2003. since India’s economy has been growing at 7 per cent - 8 per cent per annuam, and since some sectors, including the services sector and the high end manufacturing sector, have been growing at 12 per cent – 14 per cent a year, investors renewed their interest and started investing again in 2004. The investments made in 2004 were USD1.65 billion as against USD 1.16 billion in 2000 by an increase of almost 42 per cent. These investments reached USD 2.2 billion in 2005 and USD 7.5 billion in 2006, a number that is more than six times the amount invested in 2000.

PROGRESS OF VENTURE CAPITAL INVESTMENT IN INDIA The venture capital investment in India till the year 2001 was continuously increased and thereby drastically reduced up to 2003. Table 1 Growth of Venture capital in India (amount in US dollars) Year

Number of Deals

Growth

Value (in millions)

Growth

2000

280

--

1160

2001

110

(-) 60.71

937

(-) 19.22

2002

78

(-) 29.09

591

(-) 36.92

2003

56

(-) 28.20

470

(-) 20.47

2004

71

26.78

1650

251.06

2005

146

105.63

2200

33.33

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2006

299

104.79

7500

240.90

2007

387

29.43

14234

89.79

Total

1427

28742

Source: Secondary data

7500 400 387

Growth of Venture capital in India

7000

350 6000 300

299 280 5000

250

4000 200

3000 150

146 2200 110

2000

1650 78

1160

71

937

1000

100

56 591

50

470

0

0 2000

2001

2002

2003

Value (in millions)

2004

2005

2006

2007

Number of Deals

The above table shows that there was a tremendous growth by almost 251 per cent in 2004, and 89.79 per cent in 2007. In absolute terms, the number of deals and the value to investments were 280 and USD 1160 million in 2000, which were increased to 387 and USD 14234 million in 2007 respectively.

STAGE-WISE INVESTMENT The stage wise investment of venture capital is shown in Table 2. Table 2

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Venture capital investments by stage (US dollar million) Stage

Number of deals

Value of investments

Early stage

59

236

Growth stage

42

393

Later stage

104

3663

PIPE

61

1314

Buyout

11

1125

others

22

769

Total

299

7500

Source: Secondary data In 2006 the later stage plays first with USD 3663 million following by PIPE, Buyouts etc. Further noticed that the later stage attracted 104 deals of the total 299 deals in 2006. This indicates the importance of later stage finance in India. Venture capital investments by stage 769

others

22

1125

Buyout

11

1314

PIPE

61

3663

Later stage

104

393

Growth stage

42

236

Early stage

59

0

500

1000

1500

Number of deals

2000

2500

3000

3500

4000

Value of investments

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CITY WISE INVESTMENT The major top cities in India were attracted the venture capital investment is shown below: In case of city wise investment, it appears that Mumbai has attracted USD 5995 million as venture capital, which plays first in India, followed by Delhi, Hyderabad, Table 3 Top cities attracting Venture capital investments in India:2007 (amount in US dollars) Cities

Number of deals

Value of investments

Mumbai

109

5995

Delhi

63

2688

Bangalore

49

685

Hyderabad

41

1380

Channai

32

824

Ahmedabad

14

492

Kolkata

12

339

Source: Secondary data Chennai and Bangalore. In terms of numbers, as seen from the above Table and Chart that 109 deals were financed in Mumbai city, followed by Delhi, Bangalore and Hyderabad with 63, 49 and 41 deals respectively.

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Top cities attracting Venture capital investments in India 6500 5995 6000 5500 5000 4500 4000 3500 3000

2688

2500 2000 1380

1500 1000

824

685

492

339

500 109

63

49

41

32

14

12

0 Mumbai

Delhi

Bangalore

Hyderabad

Number of deals

Channai

Ahmedabad

Kolkata

Value of investments

SECTOR - WISE INVESTMENT The industry wise venture capital investment in 2007 is shown in Table 4. Indian venture capital activity is characterized by major investment going to banking and Table 4 Venture capital investments by industry in India: 2007 (amount in US dollars) Sectors

Value of investments

IT and IT Enabled services (ITES)

988

Manufacturing

638

BFSI

3979

Engg and Construction

1628

Health care and life sciences

478

Energy

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Media and entertainment

616

Shipping and logistics

685

Telecom

1839

Others

1284

Source: Secondary data financial services industries (BFSI) , plays first rank in venture capital attraction with USD 3979 million and Engineering and construction plays second with USD 1628 millions.

Venture capital investments by industry in India 8%

10%

5%

15%

IT and ITES Manufacturing BFSI Engg and Construction Health care and life sciences Energy Media and entertainment

6%

Shipping and logistics Telecom

33%

Others

5% 1% 4% 13%

THE EXIT SLOWDOWN OF VENTURE CAPITAL IN INDIA The proverbial IPO window lifts, falls, then lifts again. Veteran venture capitalists have lived through such cycles, but few have seen the window shut a completely as it did in 2007.

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In the second quarter of 2008 there were zero VC-backed exits- on the heels of five in the previous quarter, which raised a thin USD 283 million. In the first half of 2007, by comparison, 43 VC-backed IPOs collected USD 6.3 billion. When the last VC-backed IPO shutout hit, in 1978, “styain’ alive” topped the charts and space invaders ignited the video game market. The country was mired in recession and wading into its second oil crisis. Nearly two months into third quarter 2008, the window nudged open for two cleantech debuts – desalination company energy recovery and solar cell equipment supplier GT sola – suggesting that cleantech IPOs may very well lead an IPO recovery. When the window does reopen, it may reveal an altered VC landscape, one shaped partially by the exit slowdown.

CONCLUSION In the background of lack of investment in new small business and increased awareness of the need for promotion of SMEs, small business investment company came into existence in America. This was the beginning of VC abroad. Seeing greater promise for commercial application developed by MIT, ARDC was formed. Number of SBICs established in America to leverage their private capital by borrowers from the federal government at lower interest rates. Two-tier institutional structure- central and state levels – evolved after independence in India to provide long-term finances to industry. The notable deficiency in the structure of lack of provision of VC to new industrial units. To correct this deficiency VC evolved in India in three phases: In the first phase (1973-1994) the need for VC was recognized in India. This phase witnessed inauguration of risk capital foundation by IFCI, creation of venture capital fund by IDBI, development of VCCs, tax concessions to VCCs/VCFs by the government and formation of venture capital association. The landmarks in second phase (1995-99) were establishment of clear guidelines to VCFs by SEBI. In the third phase, (which started in 2000) in addition to some overseas VCFs also entered into Indian industry. In the second quarter of 2008 there were zero VC-backed exits- on the heels of five in the previous quarter, which raised a thin USD 283 million. In the first half of 2007, by comparison, 43 VC-backed IPOs collected USD 6.3 billion. When the last VC-backed IPO shutout hit, in 1978, “styain’ alive” topped the charts and space invaders ignited the video game market. The country was mired in recession and wading into its second oil crisis. International Journal of Research in Finance & Marketing http://www.mairec org

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REFERENCES 1.

Sanjay Anandaram, “Venture Capital : The Writing on the Wall”, ICFAI READER,

January, 2004, pp. 19-21. 2.

Nagendra V. Chowdary, Ramakrishna Reddy, G and Bharati V Nagendra, “Venture

Capital : Funding the Dreams”, Mumbai : Himalaya Publishing House, 2002, p.2 3.

Gowri Gurumurthy, “Venture Capital Sans venture”, FINANCIAL EXPRESS, 2nd

February, 1990 4.

Vasanth Desai, “The Indian Financial System”, Mumbai: Himalaya Publishing House,

2001,p.615 5.

Ashok K Mohanty, “Venture Capital: Panacea for Small Industry”, INDIAN

MANAGEMENT, January, 1991, p.28 6.

Avimelech G and Teubal, M., “Venture Capital Policy in Israel: A Comparative Analysis

and Lessons for Other Countries”, M.A. Degree Paper, 2002, The Hebrew University, Israel. 7. 8.

Avimelech G and Teubal M (2002), Ibid, Bygrave D William, Timmons A Jeffery, “Venture Capital at the Cross Roads”, Harvard

Business School Press, Boston, 1996, pp.16-17 9. 10.

Drucker Peter, “Innovation and Entrepreneurship”, Pan Books, London, 1985,p.23 Nagendra V Chowdary, Ramakrishna Reddy, G and Bharati V Nagendra, “Venture Capital: Funding the Dreams”, Mumbai: Himalaya Publishing House,2002

11.

L.K. Singhvi, “Venture Capital Industry in India – An Agenda for Growth”, PRODUCTIVITY, Vol.40(3), Oct-Dec,1999, pp.374-375

12.

ICFAI Brochure, “Risk Capital Foundation”, Proceedings of Inaugural Function held on 10th March, 1975, p.11

13.

Vethirajan, C., ‘Venture Capital Funding: The Challenges

and Perspectives”,

BANKING FINANCE, Vol.18(1), Jan,2005, p.11 14.

ICICI, Annual Report, 1984-85, p.12

15.

Budget Speech, 1988-89

16.

Budget Speech 1988-89

17.

Clause II, Budget Speech, 1990-91 International Journal of Research in Finance & Marketing http://www.mairec org

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18.

http://www.iciciventures.com

19.

J.P. Sharma, “Venture Capital Operations and Performance in India”, THE INDIAN JOURNAL OF COMMERCE, Vol.55(2), Jan-June,2002, p.64

20.

Bowonder and Sunil Mani (2002), “Venture Capital and Innovation:The Indian Experience”, International Conference on Financial System, Corporate Investment in Innovation and Venture Capital by UNU, INTECH and EU-DG Research, Brussels.

21.

various websites http://www.ilfsinvestmentmanagers.com http://www.rediff.com http:// www.AltAssets.com www. [email protected]

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AN EMPIRICAL ANALYSIS ON BAD LOANS IN AGRICULTURE LOAN (With special reference to Co-operative Banks in Odisha) Dr. B.C.M.Patnaik * Dr. Ipseeta Satpathy** Aroop Kumar Mohapatra***

ABSTRACT The timely recovery of loans is prerequisite for any credit institution, particularly for Cooperative Banks (CBs) with their limited funds for sustained growth and existence. Efficient financial resource management requires that funds deployed should give them good returns along with timely repayments of principal amount. Defaults limit the recirculation of funds thereby upsetting the financial planning of Cooperative Banks (CBs). The repayment of loans mainly depends on proper utilization of loan amount, supply of quality assets, generation of sufficient income from schemes, availability of infrastructural and marketing facilities, willingness to repay, continuous supervision and follow-up visits, interest and initiatives taken by the bank staff. The present paper makes an attempt to analyze the causes of NPA in Agricultural Loans of Cooperative Banks and suggestions made to overcome the problems. For the purpose of confidentiality the name of branches has not been disclosed. Ganjam and Gajapati district of Odisha was selected for the study. Bank officials and borrowers are surveyed through separate questionnaires made for the purpose. Different causes of NPA in agricultural loan of Cooperative Banks (CBs) are analyzed and suggestions made to overcome the problem.

Key words: NPAs, Cooperative Banks, Agricultural Loan, Total Score, Ideal Score, Least Score *Associate Professor,School of Management,KIIT University, Bhubaneswar, Odisha ** Associate Professor,School of Management,KIIT University, Bhubaneswar, Odisha ***Associate Professor,School of Management,KIIT University, Bhubaneswar, Odisha International Journal of Research in Finance & Marketing http://www.mairec org

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INTRODUCTION Agriculture is one of the most important industries and regarded as the “backbone” of the Indian economy. About 80 percent of its population lives in villages and agriculture is the primary occupation of about 70 percent of the total population of the country. It creates employment for about three-fourths of the working population and accounts for about 50 percent of the national income. The Orissa State Co-operative Bank, a Scheduled Bank under RBI Act was registered in the year 1948 as the Apex Bank of the short term Cooperative .Credit structure of Orissa with an objective of Development of the agrarian economy of Orissa by catching the credit equipment of the terms of the state. About OSCB MISSION Corporate mission is to become a strong and competitive Bank offering innovative financial products and services and to lead a rejuvenated short term cooperative credit structures to better serve the people of Orissa.


To cater to the credit requirement of farmer-members of the Primary Agriculture Cooperative Societies.




To implement the Kissan Credit Card (KCC) scheme to ensure instant finance and adequacy in credit delivery.




To step up production and productivity in agriculture through promotion of farm mechanization and better land and water management.




To create employment opportunities by channeling credit for promotion of dairy, poultry, tissue culture handlom, transport and Micro Small and Medium Enterprises (MSMEs).




To cater to the credit needs of small traders and artisans for income generation and employment opportunities under Swarojgar Credit Card (SCC) Scheme.




To extend credit facilities to Tenant Farmer Groups (TFGS), Joint Liability Groups (JLGs), Oral Leasees, Share Croppers and Self Help Groups (SHGs) for farm and non-farm operations.




To recognize and reward good repayment habits of farmer-members through Kalinga Kissan Gold Card (KKGC) scheme. International Journal of Research in Finance & Marketing http://www.mairec org

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To direct efforts towards achieving the State Government – given targets under various crop production programmes and implementation of policies on the cooperative sector.

ACTIVITIES:


Providing insurance services to the customers of the Bank as corporate agent of Tata AIG Insurance Co. Ltd.




Providing investment opportunity to all sections in the form of attractive saving products including Tax Benefit Scheme.




Facilitating customers in meeting their credit needs through various financial products and services.




Providing Bank-connectivity through “Financial inclusion” under the policy of “Inclusive Growth” to the unbanked and under banked sections of the Society by opening “No Frills Account” and providing General Credit Cards (GCC).




Human Resource Development through Agricultural Cooperative Staff Training Institute (ACSTI) of the Bank. Continuous research for product innovation to cope with the emerging challenges in banking industry.




Developmental initiatives for furtherance of the Cooperative Credit Structure of the State including computerization of affiliated DCCBs.




Transparency in management by adhering to good corporate governance practices.




“Whistleblowers policy” to provide protection to staff members who expose wrong doings, and implementation of Right to Information Laws. The word NPA is not something new to the bankers. It is regular but disguised loan asset. As everyone knows, a portion of loan assets may become NPA. An asset becomes non-performing when it ceases to generate income for the bank. Prior to 31st March, 2004 a non-performing asset was defined as a credit facility in respect of which the interest or installment of principal has remained past due for a specified period of time which was four quarters. Due to the improvements in payment and settlement system, recovery climate, up gradation of technology in the banking system, etc, it has been decided to dispense with past due concept, with effect from

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March 31st 2004. Accordingly, as from the date, a non-performing asset (NPA) is an advance where:

RBI’s Guideline for NPA Recognition Loans and Advances

Guidelines

applicableGuidelines

from 31.3.2001 Term loan interest and /or installment180 days

applicable

from 31.3.2004 90 days

remains over due for more than Overdraft/ credit A/C

Remains out of order

Bills purchased and discounted remains over180 days

Remains out of order 90 days

due for more than Agricultural loan interest and or installmentsTwo harvest seasons butTwo harvest season but remain over due for

not exceeding two andnot exceeding two and half years

Other accounts- any amount to be received180 days

half years 90 days

remains over due for more than Source: Dr. Ch. Rajesham and Dr. K. Rajendar, “Management of NPAs in Indian Scheduled Banks”, The Journal of Management Accountant, August 2008, Vol.43, No.8, pp.602-608

Non- Performing Assets Provisioning Doubtful status

Percentage of provisioning as secured portion

Up To one year

20%

Less than 1 year and less than and equal to 3 years 30% Greater than 3 years

100%

Source: RBI Bulletin 2009

Objectives of the study
To study the factors responsible for growth of NPAs in agriculture loan from lenders and borrowers perspective in Cooperative Banks
Studying in problem in relation to NPAs in agriculture loan in Cooperative Banks
To give suggestions to overcome the problem of NPAs in agriculture loan in Cooperative Banks International Journal of Research in Finance & Marketing http://www.mairec org

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Limitation of the study
The study is restricted to Ganjam and Gajapti districts of Odisha.
The sample size is limited to 284 members only; it may not give the real picture.
The study conducted for the period of 3 months from February 2011April2011.. Sampling plan In support to the objective of the research there is a primary research through questionnaire administration method in the field through stratified random sampling method covering the state through regional, geographical, economic, cultural, lingual and settlement wise and to analyze the data and derive results from it, perception score method used. This method is easy to use and taken as suitable method to compare.

Category

Rural area

Urban

Semi-urban area

area Male (20-40) age group

13

8

8

Female (20-40) age group

11

9

7

Male (more than 40 age group)

16

11

14

Female ( more than 40 age group)

14

12

11

Bank employees

15

10

11

Total

69

50

51

Respondents’ perception with regard to NPAs in Agricultural Loan in Cooperative Banks To measure the perception level of the participants with regard to NPAs in agricultural loan in Cooperative banks two categories of attributes/variables identified. One is economic and other is general variables. The 12 economic variables are growing expenditure and low productivity, inadequate price for the product, difficult marketing and marketing hazards, natural hazard caused by draught, absence of proper crop planning, unsatisfactory agricultural credit, minimum support price is not available to all farmers, lack of storage facility, which forces to sell the product at lower price, exploitation by business man, lack of good price for the product ,partly due to import, failure of banking system and increased competition. International Journal of Research in Finance & Marketing http://www.mairec org

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Similarly , the 9 general variables identified are inconsistent government policy, traditional way of cultivation, willful default and expectation of debt relief ,lack of initiative on the part of bank employee, misutilization of loan amount, weak monitoring, delay in disbursement of credit facilities, inaccurate pre-sanction security, wrong identification of beneficiary and unforeseen domestic problems like death, divorce, illness ad marriage In this regard we have been assigned as +3,+2,+1,0 and -1 for the responses of the respondents “ strongly agree”, “ Agree”, “ Neutral, “ Disagree” and “ Strongly disagree” respectively. Final scores for each feature are calculated by multiplying the number of response by the weights of the corresponding response. Calculation of respondents’ perception: Ideal and Least scores Ideal scores are calculated by multiplying the number of respondents in each category with (+3) and product with total number of attributes. Least scores calculated by multiplying the number of respondents in each category with (-1) and the product with number of attributes in the questionnaires. Computation of Ideal Score and Least Score for Agriculture Loan Particulars

Equation Ideal

Equation Least

score

score

Rural male (between 20-40 years of age)

21x3x13

819

21x13x-1

-273

Rural female ( between 20-40 years of age)

21x3x11

693

21x11x-1

-231

Urban male ( between 20-40 years of age)

21x3x8

504

21x8x-1

-168

Urban female (between 20-40 years of age)

21x3x9

567

21x9x-1

-189

Semi-urban male (between 20-40 years of age)

21x3x8

504

21x8x-1

-168

Semi-urban female (between 20-40 years of age)

21x3x7

441

21x7x-1

-147

Rural male ( above 40 years)

21x3x16

1008

21x16x-1

-336

Rural female ( above 40 years)

21x3x14

882

21x14x-1

-294

Urban male ( above 40 years)

21x3x11

693

21x11x-1

-231

Urban male ( above 40 years)

21x3x12

756

21x12x-1

-252

Semi- urban male ( above 40 years)

21x3x14

882

21x14x-1

-294

Semi-urban female ( above 40 years)

21x3x11

693

21x11x-1

-231

Rural bank officials

21x3x15

945

21x15x-1

-315

Urban bank officials

21x3x10

630

21x10x-1

-210

Semi-urban bank officials

21x3x11

693

21x11x-1

-231

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Findings of the Study: Findings of the study are as under. The tables are formed on the basis of questions contained in the questionnaires. Respondents of age group 20-40 years on Agriculture Loan

Variables

Aggregate Scores Urban area

Semi Urban area

Rural area

Male

Female

Male

Female

Male Female

20

17

18

15

24

23

Inadequate price for the product

14

20

14

11

25

26

Difficult in marketing and

13

21

16

14

29

22

Natural hazard caused by drought

10

20

18

18

27

25

Absence of proper crop planning

12

16

13

17

26

26

Unsatisfactory agricultural credit

16

17

11

18

26

25

Minimum support price is not

14

24

10

14

25

26

10

17

14

13

31

23

Exploitation by business man

10

21

15

11

28

19

Lack of good price for their

12

19

10

14

27

28

Failure of banking system

18

21

20

13

30

24

Increased competition

15

19

15

15

23

25

Inconsistent Government policy

9

17

19

18

26

24

Traditional way of cultivation

10

22

14

11

29

19

Economic Causes Growing expenditure and low productivity

marketing hazards

available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes

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Willful default and expectation of

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18

21

21

9

24

23

10

17

13

15

34

26

Misutilization of loan amount

10

20

13

16

33

30

Delay in disbursement of loan

9

16

15

15

26

23

In accurate pre- sanction security

10

22

13

11

30

26

Wrong identification of

17

20

12

13

33

22

15

20

8

12

26

25

272

407

302

293

582

510

(53.96)

(71.78)

(59.9)

(66.44) (71)

Ideal scores

504

567

504

441

819

693

Least Scores

-168

-189

-168

-147

-273

-231

No. of Respondents

8

9

8

7

13

11

debt relief Lack of initiative of the bank employees and weak monitoring

beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Total scores

(73.6)

Source: Annexure 1,2,3,4,5,6

-400

Rural area

Female

Semi Urban area

Female

Urban area

Aggregate Scores

Respondents of age group 20-40 years on Agriculture Loan

Female

-200

Male

Male

Male 0

200 Least Scores

400 Ideal scores

600

800

1000

Total scores

In the above table, the total scores are 272,407, 302,293,582 and 510 and as against this the idle scores are 504, 567, 504,441, 819 and 693 respectively for urban male & female, semiInternational Journal of Research in Finance & Marketing http://www.mairec org

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urban male & female and rural male & female respectively for the respondents of age group of 20-40. The percentages of total score to idle score are 53.96, 71.78, 59.9, 66.44, 71, and 73.6 respectively. The percentage is low in case of urban male and high in rural female. The average percentage is 66.11%. It is also important to note that in no case the total scores are negative and comes near to the least score. Hence various variables considered for agricultural loan seems to be positive for this group.

Respondents of age group more than 40 years on Agriculture Loan Variables

Aggregate Scores Urban area

Semi Urban area

Rural area

Male

Female

Male

Female

Male Female

22

25

30

19

30

27

Inadequate price for the product

21

22

30

23

33

28

Difficult in marketing and

24

26

26

26

32

32

Natural hazard caused by drought

21

29

26

25

36

31

Absence of proper crop planning

22

26

27

19

34

35

Unsatisfactory agricultural credit

24

30

29

27

31

28

Minimum support price is not

23

32

28

26

30

31

22

26

31

30

34

28

Exploitation by business man

26

26

33

29

28

33

Lack of good price for their

29

28

35

23

26

35

Failure of banking system

24

22

30

26

32

32

Increased competition

24

25

27

19

30

31

Economic Causes Growing expenditure and low productivity

marketing hazards

available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

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Inconsistent Government policy

24

30

28

19

31

30

Traditional way of cultivation

19

32

33

23

38

29

26

28

30

27

35

29

21

22

31

23

34

32

Misutilization of loan amount

25

25

28

25

29

34

Delay in disbursement of loan

20

23

25

23

36

35

In accurate pre- sanction security

25

26

27

27

34

32

Wrong identification of

25

22

18

30

30

29

21

23

23

25

32

28

488

548

595

514

675

649

(70.42)

(72.49)

(67.46)

(74.17) (66.96) (73.58)

Ideal scores

693

756

882

693

1008

882

Least Scores

-231

-252

-294

-231

-336

-294

No. of Respondents

11

12

14

11

16

14

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Total scores

Source: Annexure 7,8,9,10,11 &12

-600

Rural area

Female

Semi Urban area

Female

Urban area

Aggregate Scores

Respondents of age group more than 40 years on Agriculture Loan

Female

-400

Male

Male

-200

Male 0 Least Scores

200

400

Ideal scores

600

800

1000

1200

Total scores

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In the above table , the total scores are 488, 548, 595, 514, 675 and 649 respectively and the idle scores are 693, 756, 882, 693,1008 and 882 for the urban male & female, semi-urban male & female and rural male & female respectively. The percentage of total score to the idle scores are 70.42, 72.49, 67.46, 74.17, 66.96 and 73.58 respectively and the average score for to all taken together 70.85%. Here the perception level is high for the semi-urban female respondents and low in case of rural male. In no case the total scores are negative. It seems to be the various variables considered for agricultural loan by this age group of more than 40 holds good.

Respondents of Bank Officials on agriculture Loan Variables

Aggregate Scores Urban area

Semi Urban

Rural

area

area

Economic Causes Growing expenditure and low productivity

20

19

29

Inadequate price for the product

23

22

32

Difficult in marketing and marketing hazards

16

21

28

Natural hazard caused by drought

19

20

31

Absence of proper crop planning

22

20

32

Unsatisfactory agricultural credit

20

18

31

Minimum support price is not available to all

23

19

29

24

21

25

Exploitation by business man

20

20

31

Lack of good price for their product, partly due to

18

23

36

Failure of banking system

16

23

33

Increased competition

21

26

32

farmers Lack of storage facility, which forces small farmers to sell the product at less price

import

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General causes Inconsistent Government policy

20

15

33

Traditional way of cultivation leads to less

24

20

30

Willful default and expectation of debt relief

27

22

32

Lack of initiative of the bank employees and weak

25

20

34

Misutilization of loan amount

16

20

38

Delay in disbursement of loan

20

30

38

In accurate pre- sanction security

16

27

34

Wrong identification of beneficiary

23

29

37

Unforeseen domestic problems like death, divorce,

23

21

28

Total scores

436 (69.21)

456 (65.80)

Ideal scores

630

693

945

Least Scores

-210

-231

-315

No. of Respondents

10

11

15

productivity

monitoring

illness and marriage 673 (71.22)

Source: Annexure 13, 14 &15 Respondents of Bank Officials on agriculture Loan

Aggregate Scores

Rural area

Semi Urban area

Urban area

-400

-200

0

200 Least Scores

400 Ideal scores

600

800

1000

1200

Total scores

In the above table, the total scores are 436, 456 and 673 as against the idle scores are 630, 693 and 945 respectively for the bank employees of urban, semi-urban and rural area. The International Journal of Research in Finance & Marketing http://www.mairec org

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percentage of perception towards various variables considered is high in case of rural bank employees and low in case of semi-urban bank employees. The average perception level is 68.74%. This shows a quite support for the various attributes considered for the NPAs in agricultural loan by the bank employees.

Suggestions The following suggestions are made to control the NPAs in agricultural loan of Cooperative Banks.  General compromise settlement policy for all loan accounts.  While making pre-lending appraisal, the repaying capability of the borrower must be ascertained by the bank employee carefully.  In the same way, post-lending supervision and approaching the borrower at the right time for repayment may prove effective in the controlling of NPA.  In case willful defaulters, the bank must flash their photos and warn them through the local news paper and if there is no response, stern action will have to be taken with the help of the legal authority.  The legal system must be effective: the Government of India and /or the RBI have initiated many legal measures to recover overdue. However, as there are some flaws in each legal measure, they need improvement made in order to bring down the level of NPA.  Dynamic people are to be recruited to collect doubtful debts and for better asset liability management.  Political pressures are to be resisted in the operation of banks.  Banks must operate in a democratic environment.  Banks have to adopt professionalism and accountability in their functioning.  New technologies should be introduced to reduce administrative costs and increase the profit margin.  Banks must transparent in their functioning and accountable to share holders and public to maintain international standards of corporate governance.  Sanctioning authority should not succumb to external pressure.  Innovative initiatives should be made for marketing the product.  Proper crop planning should be developed.  Minimum support price should be provided to all the farmers. International Journal of Research in Finance & Marketing http://www.mairec org

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 Proper storage facilities should made available  Direct marketing strategy should be made to eliminate middle men.  Government should support for modern technology in cultivation.

Conclusion: NPAs have always been a big worry for the banks in India. It is just not a problem for the banks; they are bad for the economy too. This paper has analyzed the causes of NPA from borrower’s point of view and bank official’s point of view. In this direction concerted efforts are required at Ministry of Finance, RBI and at bank’s level to control the menaces of NPAs. Government should also not use Cooperative Banks as a vehicle to achieve its political objectives by lending to unviable projects, announcing loan melas and loan waiver scheme etc. The Cooperative Banks should not be loaded with twin objectives of profitability and social welfare which are mutually incongruent. This calls for a strong political will only then can Co-operative banks be able to find satisfactory solution of the problem.

References  Mayuri Patel (March 2009), “Corporate Debt Restructuring: Mechanism to Manage NPAs”, The Indian Banker, Vol. IV, No.3.  Srinivasan Umashankar ( June 2009), “Managing NPAs: A Three-pronged Strategy”, The Indian Banker, Vol.IV, No.6, pp 46-49  N. Ramu (2009), “Dimensions of Non-Performing Assets in Urban Cooperative Banks in Tamil Nadu”, Global Business Review, 10:2, 279-297.  Manish Mittal & Aruna Dhade (May 2007), “ A Comparative study of various banks on their profitability and productivity” , AIMS, International, Vol.1, Number 2, pp. 137-152

Annexure –1 : Perception towards Agriculture Loan (13) Variables

Opinion of Rural male ( age group of 20-40 years) Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

7

2

1

1

2

Economic Causes Growing expenditure and low

24

productivity International Journal of Research in Finance & Marketing http://www.mairec org

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Inadequate price for the product

8

1

1

1

2

25

Difficult in marketing and

9

1

1

1

1

29

7

3

1

1

1

27

6

4

1

1

1

26

7

2

2

1

1

26

7

2

1

2

1

25

9

2

1

0

1

31

Exploitation by business man

8

2

1

1

1

28

Lack of good price for their

7

3

1

1

1

27

Failure of banking system

7

4

1

1

0

30

Increased competition

6

3

1

1

2

23

Inconsistent Government policy

6

4

1

1

1

26

Traditional way of cultivation

7

3

2

1

0

29

6

3

1

2

1

24

9

3

1

0

0

34

Misutilization of loan amount

10

1

1

1

0

33

Delay in disbursement of loan

8

1

1

2

1

26

In accurate pre- sanction

9

1

2

0

1

30

9

2

2

0

0

33

marketing hazards Natural hazard caused by drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

security Wrong identification of

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beneficiary Unforeseen domestic problems

8

2

0

1

2

26

like death, divorce, illness and marriage Source: Compiled from field survey

Annexure –2 : Perception towards Agriculture Loan (11) Variables

Opinion of Rural female ( age group of 20-40 years) Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

7

1

1

1

1

23

Inadequate price for the product

7

2

1

1

0

26

Difficult in marketing and

7

1

1

0

2

22

6

3

1

1

0

25

8

1

1

0

1

26

7

1

2

1

0

25

8

1

1

0

1

26

7

1

1

1

1

23

Exploitation by business man

6

1

1

1

2

19

Lack of good price for their

7

3

1

0

0

28

5

4

1

1

0

24

Economic Causes Growing expenditure and low productivity

marketing hazards Natural hazard caused by drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import Failure of banking system

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Increased competition

(ISSN 2231-5985)

8

1

0

1

1

25

Inconsistent Government policy

5

4

1

1

0

24

Traditional way of cultivation

6

1

1

1

2

19

7

1

1

1

1

23

8

1

1

0

1

26

Misutilization of loan amount

9

1

1

0

0

30

Delay in disbursement of loan

7

1

1

1

1

23

In accurate pre- sanction

7

2

1

1

0

26

7

1

1

0

2

22

7

1

2

1

0

25

General causes

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Source: Compiled from field survey

Annexure –3 : Perception towards Agriculture Loan (8) Variables

Opinion of urban male ( age group of 20-40 years) Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

5

2

1

0

0

20

Inadequate price for the product

4

1

1

1

1

14

Difficult in marketing and

3

2

1

1

1

13

Economic Causes Growing expenditure and low productivity

marketing hazards

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Natural hazard caused by

(ISSN 2231-5985)

3

1

1

1

2

10

3

1

2

1

1

12

4

1

2

1

0

16

3

2

2

0

1

14

2

2

1

2

1

10

Exploitation by business man

3

1

1

1

2

10

Lack of good price for their

3

2

1

0

2

12

Failure of banking system

5

1

1

1

0

18

Increased competition

4

1

1

2

0

15

Inconsistent Government policy

2

2

1

1

2

9

Traditional way of cultivation

3

1

1

1

2

10

5

1

1

1

0

18

3

1

1

1

2

10

Misutilization of loan amount

2

1

3

1

1

10

Delay in disbursement of loan

2

2

1

1

2

9

In accurate pre- sanction

3

1

1

1

2

10

5

1

1

0

1

17

4

1

1

2

0

15

drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and International Journal of Research in Finance & Marketing http://www.mairec org

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marriage Source: Compiled from field survey

Annexure –4 : Perception towards Agriculture Loan (9) Variables

Opinion of urban female ( age group of 20-40 years) Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

5

1

1

1

1

17

Inadequate price for the product

5

2

1

1

0

20

Difficult in marketing and

6

1

1

1

0

21

6

1

1

0

1

20

5

1

1

0

2

16

5

1

1

1

1

17

7

1

1

0

0

24

5

1

1

1

1

17

Exploitation by business man

5

2

2

0

0

21

Lack of good price for their

6

1

0

1

1

19

Failure of banking system

6

1

1

1

0

21

Increased competition

5

1

2

1

0

19

Economic Causes Growing expenditure and low productivity

marketing hazards Natural hazard caused by drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes

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Inconsistent Government policy

5

1

1

1

1

17

Traditional way of cultivation

7

1

0

0

1

22

6

1

1

1

0

21

5

1

1

1

1

17

Misutilization of loan amount

5

2

1

1

0

20

Delay in disbursement of loan

5

1

1

0

2

16

In accurate pre- sanction

5

3

1

0

0

22

5

2

1

1

0

20

6

1

1

0

1

20

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Source: Compiled from field survey

Annexure –5 : Perception towards Agriculture Loan (8) Variables

Opinion of semi-urban male ( age group of 20-40 years) Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

5

1

1

1

0

18

Inadequate price for the product

4

1

1

1

1

14

Difficult in marketing and

3

3

1

1

0

16

Economic Causes Growing expenditure and low productivity

marketing hazards International Journal of Research in Finance & Marketing http://www.mairec org

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5

2

0

0

1

18

3

2

1

1

1

13

3

1

1

2

1

11

3

1

1

1

2

10

3

2

1

2

0

14

Exploitation by business man

4

1

1

2

0

15

Lack of good price for their

3

1

1

1

2

10

Failure of banking system

5

2

1

0

0

20

Increased competition

4

1

1

2

0

15

Inconsistent Government policy

6

1

0

0

1

19

Traditional way of cultivation

4

1

1

1

1

14

6

1

1

0

0

21

3

2

1

1

1

13

Misutilization of loan amount

2

3

1

2

0

13

Delay in disbursement of loan

4

1

1

2

0

15

In accurate pre- sanction

3

3

0

0

2

13

2

2

2

2

0

12

2

1

2

1

2

8

drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and International Journal of Research in Finance & Marketing http://www.mairec org

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marriage Source: Compiled from field survey

Annexure –6 : Perception towards Agriculture Loan (7) Variables

Opinion of Rural semi-urban female ( age group of 20-40 years) Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

4

1

1

1

0

15

Inadequate price for the product

3

1

1

1

1

11

Difficult in marketing and

4

1

1

0

1

14

5

1

1

0

0

18

5

1

0

1

0

17

5

1

1

0

0

18

4

1

1

0

1

14

4

1

0

1

1

13

Exploitation by business man

3

1

1

1

1

11

Lack of good price for their

3

2

1

1

0

14

Failure of banking system

4

1

0

1

1

13

Increased competition

4

1

1

1

0

15

Economic Causes Growing expenditure and low productivity

marketing hazards Natural hazard caused by drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes International Journal of Research in Finance & Marketing http://www.mairec org

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Inconsistent Government policy

5

Traditional way of cultivation

3

(ISSN 2231-5985)

1

0

0

18

1

1

1

1

11

3

1

0

1

2

9

4

1

1

1

0

15

Misutilization of loan amount

5

1

0

0

1

16

Delay in disbursement of loan

4

1

1

1

0

15

In accurate pre- sanction

3

1

1

1

1

11

3

2

1

0

1

13

3

1

1

2

0

12

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Source: Compiled from field survey

Annexure –7 : Perception towards Agriculture Loan (16) Variables

Opinion of Rural male ( age group of more than 40 years) Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

9

2

1

2

2

30

Inadequate price for the product

10

2

1

1

2

33

Difficult in marketing and

9

2

2

2

1

32

10

2

2

2

0

36

10

2

1

2

1

34

Economic Causes Growing expenditure and low productivity

marketing hazards Natural hazard caused by drought Absence of proper crop

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planning Unsatisfactory agricultural

8

4

1

1

2

31

8

3

2

1

2

30

8

5

1

1

1

34

Exploitation by business man

8

2

2

2

2

28

Lack of good price for their

9

1

1

1

4

26

Failure of banking system

9

3

1

1

2

32

Increased competition

10

1

1

1

3

30

Inconsistent Government policy

8

4

1

1

2

31

Traditional way of cultivation

9

5

1

1

0

38

9

4

1

1

1

35

9

3

2

1

1

34

Misutilization of loan amount

9

2

1

1

3

29

Delay in disbursement of loan

10

3

1

1

1

36

In accurate pre- sanction

8

5

1

1

1

34

9

3

0

1

3

30

8

4

1

2

1

32

credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Source: Compiled from field survey

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Annexure –8 : Perception towards Agriculture Loan (14) Variables

Opinion of Rural female ( age group more than 40 years) Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

8

2

1

1

2

27

Inadequate price for the product

9

1

1

1

2

28

Difficult in marketing and

10

1

1

1

1

32

9

2

1

1

1

31

10

2

1

1

0

35

8

2

2

0

2

28

9

2

1

1

1

31

9

1

1

1

2

28

Exploitation by business man

10

1

1

2

0

33

Lack of good price for their

11

1

1

0

1

35

Failure of banking system

10

1

1

1

1

32

Increased competition

9

2

1

1

1

31

Inconsistent Government policy

8

3

1

1

1

30

Traditional way of cultivation

8

2

2

1

1

29

Economic Causes Growing expenditure and low productivity

marketing hazards Natural hazard caused by drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes

leads to less productivity

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Willful default and expectation

(ISSN 2231-5985)

9

1

1

2

1

29

10

1

1

1

1

32

Misutilization of loan amount

10

2

1

0

1

34

Delay in disbursement of loan

10

2

1

1

0

35

In accurate pre- sanction

9

2

2

0

1

32

8

2

2

1

1

29

9

1

1

1

2

28

of debt relief Lack of initiative of the bank employees and weak monitoring

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Source: Compiled from field survey

Annexure –9 : Perception towards Agriculture Loan (11) Variables

Opinion of urban male ( age group of more than40 years) Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

6

2

1

1

1

22

Inadequate price for the product

6

1

2

1

1

21

Difficult in marketing and

5

4

1

1

0

24

5

3

1

1

1

21

6

1

2

2

0

22

7

1

1

2

0

24

Economic Causes Growing expenditure and low productivity

marketing hazards Natural hazard caused by drought Absence of proper crop planning Unsatisfactory agricultural credit International Journal of Research in Finance & Marketing http://www.mairec org

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Minimum support price is not

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7

1

1

1

1

23

5

4

0

1

1

22

Exploitation by business man

8

1

1

0

1

26

Lack of good price for their

8

2

1

0

0

29

Failure of banking system

7

1

1

2

0

24

Increased competition

6

3

1

0

1

24

Inconsistent Government policy

6

2

2

1

0

24

Traditional way of cultivation

6

1

1

1

2

19

7

2

1

1

0

26

7

1

0

1

2

21

Misutilization of loan amount

5

4

2

0

0

25

Delay in disbursement of loan

4

4

1

1

1

20

In accurate pre- sanction

7

2

1

0

1

25

6

3

1

1

0

25

5

3

1

1

1

21

available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Source: Compiled from field survey

Annexure –10 : Perception towards Agriculture Loan (12) Variables

Opinion of urban female ( age group of more than40 years) International Journal of Research in Finance & Marketing http://www.mairec org

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Agree

(ISSN 2231-5985)

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

7

2

1

1

1

25

Inadequate price for the product

7

1

1

1

2

22

Difficult in marketing and

8

1

1

1

1

26

8

2

1

1

0

29

8

1

1

1

1

26

9

1

1

1

0

30

9

2

1

0

0

32

7

2

2

0

1

26

Exploitation by business man

8

1

1

1

1

26

Lack of good price for their

8

2

0

2

0

28

Failure of banking system

7

1

1

1

2

22

Increased competition

7

2

1

1

1

25

Inconsistent Government policy

9

1

1

1

0

30

Traditional way of cultivation

9

2

1

0

0

32

8

2

1

0

1

28

7

1

1

1

2

22

Economic Causes Growing expenditure and low productivity

marketing hazards Natural hazard caused by drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank

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employees and weak monitoring Misutilization of loan amount

7

2

1

1

1

25

Delay in disbursement of loan

7

1

1

2

1

23

In accurate pre- sanction

8

1

1

1

1

26

7

1

1

1

2

22

7

1

1

2

1

23

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Source: Compiled from field survey

Annexure –11 : Perception towards Agriculture Loan (14) Variables

Opinion of semi-urban male ( age group of more than40 years) Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

8

2

2

2

0

30

Inadequate price for the product

8

3

1

1

1

30

Difficult in marketing and

7

3

1

1

2

26

7

2

2

2

1

26

8

2

1

1

2

27

8

3

1

0

2

29

9

1

1

1

2

28

Economic Causes Growing expenditure and low productivity

marketing hazards Natural hazard caused by drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers International Journal of Research in Finance & Marketing http://www.mairec org

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9

2

1

1

1

31

Exploitation by business man

9

3

1

0

1

33

Lack of good price for their

9

4

0

1

0

35

Failure of banking system

6

6

1

0

1

30

Increased competition

7

3

1

2

1

27

Inconsistent Government policy

7

3

2

1

1

28

Traditional way of cultivation

9

2

2

1

0

33

8

3

1

1

1

30

7

5

1

0

1

31

Misutilization of loan amount

6

5

1

1

1

28

Delay in disbursement of loan

6

4

1

1

2

25

In accurate pre- sanction

6

4

2

1

1

27

6

1

2

1

4

18

6

3

1

2

2

23

Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Source: Compiled from field survey

Annexure –12 : Perception towards Agriculture Loan (11) Variables

Opinion of semi- urban female ( age group of more than40 years) Strongly

Agree

Neutral Disagree

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3

2

1

0

-1

6

1

1

1

2

19

Inadequate price for the product

7

1

1

1

1

23

Difficult in marketing and

7

2

1

1

0

26

7

2

1

0

1

25

6

1

1

1

2

19

8

1

1

1

0

27

8

1

1

0

1

26

9

1

1

0

0

30

Exploitation by business man

8

2

1

0

0

29

Lack of good price for their

7

1

1

1

1

23

Failure of banking system

7

2

1

1

0

26

Increased competition

6

1

1

1

2

19

Inconsistent Government policy

6

1

1

1

2

19

Traditional way of cultivation

7

1

1

1

1

23

8

1

1

1

0

27

7

1

1

1

1

23

7

2

1

0

1

25

Economic Causes Growing expenditure and low productivity

marketing hazards Natural hazard caused by drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring Misutilization of loan amount

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Delay in disbursement of loan

7

1

1

1

1

23

In accurate pre- sanction

8

1

1

1

0

27

9

1

1

0

0

30

8

1

0

1

1

25

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Source: Compiled from field survey

Annexure –13 : Perception towards Agriculture Loan (15) Variables

Opinion of Rural bank officials Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

8

3

1

1

2

29

Inadequate price for the product

8

4

1

1

1

32

Difficult in marketing and

8

2

2

1

2

28

8

3

2

1

1

31

8

3

2

2

0

32

7

5

1

1

1

31

7

4

1

2

1

29

7

3

1

1

3

25

Economic Causes Growing expenditure and low productivity

marketing hazards Natural hazard caused by drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price International Journal of Research in Finance & Marketing http://www.mairec org

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Exploitation by business man

7

5

1

1

1

31

Lack of good price for their

9

4

1

1

0

36

Failure of banking system

9

3

1

1

1

33

Increased competition

9

2

2

1

1

32

Inconsistent Government policy

8

3

3

1

0

33

Traditional way of cultivation

9

2

1

1

2

30

10

1

1

2

1

32

10

2

1

1

1

34

Misutilization of loan amount

11

2

1

1

0

38

Delay in disbursement of loan

12

1

1

0

1

38

In accurate pre- sanction

10

2

1

1

1

34

10

3

1

1

0

37

9

1

1

2

2

28

product, partly due to import

General causes

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Source: Compiled from field survey

Annexure –14 : Perception towards Agriculture Loan (10) Variables

Opinion of urban bank officials Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

6

1

1

1

1

Economic Causes Growing expenditure and low

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20

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productivity Inadequate price for the product

6

2

1

1

0

23

Difficult in marketing and

5

1

1

1

2

16

5

2

1

1

1

19

6

1

2

1

0

22

6

1

1

1

1

20

7

1

1

0

1

23

7

2

1

0

0

24

Exploitation by business man

6

1

1

1

1

20

Lack of good price for their

5

1

2

1

1

18

Failure of banking system

5

1

1

1

2

16

Increased competition

5

2

2

1

0

21

Inconsistent Government policy

6

1

1

1

1

20

Traditional way of cultivation

7

1

1

1

0

24

8

1

1

0

0

27

7

1

2

0

0

25

Misutilization of loan amount

5

1

1

1

2

16

Delay in disbursement of loan

6

1

1

1

1

20

In accurate pre- sanction

5

1

1

1

2

16

marketing hazards Natural hazard caused by drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import

General causes

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

security International Journal of Research in Finance & Marketing http://www.mairec org

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Wrong identification of

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6

2

1

1

0

23

7

1

1

0

1

23

beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Source: Compiled from field survey

Annexure –15 : Perception towards Agriculture Loan (11) Variables

Opinion of semi-urban bank officials Strongly

Agree

Neutral Disagree

agree

Strongly Score disagree

3

2

1

0

-1

6

1

1

1

2

19

Inadequate price for the product

6

2

1

1

1

22

Difficult in marketing and

5

3

1

1

1

21

4

4

1

1

1

20

5

2

2

1

1

20

5

2

1

1

2

18

5

2

1

2

1

19

4

4

1

2

0

21

Exploitation by business man

6

1

1

2

1

20

Lack of good price for their

6

2

1

2

0

23

Economic Causes Growing expenditure and low productivity

marketing hazards Natural hazard caused by drought Absence of proper crop planning Unsatisfactory agricultural credit Minimum support price is not available to all farmers Lack of storage facility, which forces small farmers to sell the product at less price

product, partly due to import International Journal of Research in Finance & Marketing http://www.mairec org

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Failure of banking system

7

1

1

1

1

23

Increased competition

8

1

1

0

1

26

Inconsistent Government policy

5

1

1

1

3

15

Traditional way of cultivation

5

2

2

1

1

20

5

2

3

1

0

22

5

3

1

0

2

20

Misutilization of loan amount

6

1

1

2

1

20

Delay in disbursement of loan

9

1

1

0

0

30

In accurate pre- sanction

8

1

1

1

0

27

7

4

0

0

0

29

6

1

2

1

1

21

General causes

leads to less productivity Willful default and expectation of debt relief Lack of initiative of the bank employees and weak monitoring

security Wrong identification of beneficiary Unforeseen domestic problems like death, divorce, illness and marriage Source: Compiled from field survey

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APPROXIMATION OF THE INFLUENCE OF MONETARY POLICY ON ECONOMIC GROWTH, EMPLOYMENT GENERATION, AND INFLATION – A CASE STUDY IN BANGLADESH Dr. Shyamapada Biswas* Dr. Michael J. Winckler** Mrinal Kanti Paul***

ABSTRACT Monetary policy in general influences the price level, growth of the economy, and employment generation. To estimate the effects of the monetary policy in Bangladesh, at first the functions and influences of different monetary policy tools used by the “central banks” of the developed countries have been reviewed. Next, the impact of the monetary policy of Bangladesh Bank and government have been analyzed at which the data on money supply, growth of the GDP, change in the price level, and change in the unemployment rate have been quantitatively analyzed. For this, first hypothesis has been laid down and statistically tested, whether there is any correlation between (i) money supply and growth of the GDP, (ii) money supply and inflation, and (iii) money supply and employment generation. Depending on the nature of correlation between the independent and dependent variables and the degree of correlations next the validity of the hypothesis identified. On the basis of the outcome of the qualitative and quantitative analysis in the end inference has been made and conclusion drawn. Key Words: Analysis of variance, Bangladesh Bank, bank rate, central banks, coefficient of correlation, discount rate, discount window, economic growth, exchange rate, monetary policy, interest rate, inference, inflation target, interest rate, minimum reserve requirements, monetarist, monetary policy, objective, open market operations, money supply, research methodology, Treasure Bills.

*Associate Professor, School of Business, Ahsanullah University of science and Technology. **Docent, HSG, Heidelberg University, Heidelberg, Germany. ***Lecturer, School of Business, Ahsanullah University of science and Technology. International Journal of Research in Finance & Marketing http://www.mairec org

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1. INTRODUCTION Monetary policy is the process by which the government, central bank, or monetary authority of a country controls the supply of money and the rate of interest in order to attain a set of objectives oriented towards the growth and stability of the economy (Friedman). It uses different tools to foster economic growth, control inflation, and reduce unemployment. Monetary policy is either an expansionary, contractionary, accommodative or neutral policy. Expansionary monetary policy is used to combat unemployment in recessions which lowers interest rates and enhances investment, while contractionary monetary policy involves raising interest rates in order to increase the cost of investment and combat inflation. An accommodative monetary policy sets interest rate to create economic growth; neutral monetary policy, on the other hand, aims at neither to foster growth nor to combat inflation. Nevertheless, most economists think that price stability should be the primary goal of any monetary policy, since price stability is the key to the economic growth, employment generation, as well as to maintaining moderate interest rates. Most of the developing countries have problems in ascertaining an effective monetary policy, because the financial systems of these countries are seldom enough developed, the banks have poor records; and the central banks are rarely independent. Very often the monetary policy in these countries is to take a backseat to the political desires of the incumbent government or used to follow non-monetary goals. However, recently attempts have been undertaken also in many developing countries to liberalize and reform the financial system, and the central banks are being progressively given more authority to set economic goal oriented monetary policy.

2. The Advent of the Theory – A Literature Review The idea of monetary policy began with the establishment of the Bank of England in 1694, which got the responsibility to print notes and backed them with gold reserve (Sullivan). Monetary policy was seen at that time as an executive decision, and the goal of monetary policy was to maintain the value of coins, print notes and prevent the coins from leaving circulation. Eventually, central banks were established also in other industrializing nations. Since then the central banks have gained valuable practical and theoretical knowledge regarding the monetary policy. And now in the age of globalization the central banks have various tools like (i) International Journal of Research in Finance & Marketing http://www.mairec org

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Minimum Reserve Requirement, (ii) Discount Rate, (iii) Open Market Operations, (iv) Interest Rate and (v) Exchange Rate to form monetary policy framework. The minimum reserve or vault cash is the portion of the deposits that the banks and other depository institutions are required to hold as cash in their vaults. With minimum reserve the central banks intend to administer the reserves of the banks, and trigger a chain of reactions that influence interest rates, foreign-exchange rates, and the amount of money and credit in the economy. These changes should instigate adjustments in consumption, affect saving and investment decisions, and ultimately influence growth of output, employment, and price level. The minimum reserve has the effect of ‘multiple money creation’. Let’s the minimum reserve requirement ratio is 10% and a bank receives a $100 deposit, it can lend out $90. Let’s the bank lends $90 to a borrower, who deposits it in the bank. So, the bank can now lend out $81. As this process continues, ultimately the initial deposit of $100 involves a total deposit of $1,000 ($90 + $81 + $72.9 + …… = $1,000) (Samuelson). This example shows that it is difficult to administer lending with minimum reserve requirement. In addition, the banks have the opportunity to enter into the reserves market which further limits the role of minimum reserve requirements. The central banks of some countries have no reserve requirements; in these countries the lending is constrained by other regulations, such as taxation, ceilings, etc. Discount rate enables the central banks to influence the borrowing of the commercial banks from the central banks. To meet short-term needs, the commercial banks can borrow at a discount rate from the central bank. Depending on the cyclical conditions in the economy the discount rate is reset. As for instance, from December 1990 to July 1992, the Federal Reserve System (Central Bank of the USA) cut the discount rate seven times from 7% to 3% to foster investment. From May 1994 to February 1995 the rate was raised four times from 3% to 5.25% to counter economic overheating and inflation (United States Monetary Policy). Maintaining the funds rate around the target level and administer the reserves of the banks the central banks trade government securities in the open market. In case of shortages of reserves of the banks the central banks buy securities from the banks to increase the reserves of banks and sink the funds rate (Orphanides). In case of excess reserves of the banks the central banks sell securities to the banks to decrease reserves and increase the funds rate. Buying securities from the banks increase the reserves of banks which sink the funds rate; and by selling securities to the banks decrease the reserves which increase the funds rate. As for instance in this purpose, in International Journal of Research in Finance & Marketing http://www.mairec org

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1997 the Federal Reserve System purchased and sold short-term Treasury Bills of $3.62 trillion and $3.58 trillion respectively (Treasury Bulletin). To meet short term fund needs of the banks the central banks use repo, in which the central banks purchase securities from the banks with the agreement that these will be bought back by the banks within a short period of time, mostly within seven days. Repo increases the reserves of banks temporarily; but it vanishes when the term expires. As under fixed exchange rate system1 foreign currency is bought or sold by the central banks to attain the target exchange rate, it changes the monetary base (Lindert). If the central banks buy foreign exchange, the monetary base expands; and when the central banks sell foreign exchange, the monetary base shrinks. As for instance, if a central bank buys foreign exchange to support the exchange rate, the monetary base expands. If the central bank intends to rinse out this impact completely, it has to sell as for example government bonds to diminish the monetary base by an equal amount. The activities regarding the management of the exchange rate may cause the central bank to lose control over the monetary policy. On the other hand, the free floating exchange rate system enables the central banks to follow monetary policies independently of the exchange rate. In 1980s the economists began to believe that to ensure optimal monetary policy the central banks must be independent of the government because this is only way to hinder the misuse of the monetary policies influencing the electoral result, such as the re-election of the incumbent government (Krugman). Further, the economists began to believe that increasing the monetary supply at a low but constant rate is the best way of maintaining low inflation and growth of the economy (Nelson). Since 1990s, the central banks of the developed countries started to adopt formal inflation targets making the outcomes of the monetary policy transparent. Currently the central banks of these countries have to proclaim annual inflation target; and if it fails to achieve the target, they have to explain the reasons behind. 1

Under fixed exchange rate system every unit of local currency is backed by a fixed unit of foreign currency, and the foreign currency is bought and sold by the central bank to maintain the target exchange rate. The target rate, however, can be a fixed band within which the exchange rate may fluctuate until the monetary authority intervenes to buy or sell as necessary to maintain the exchange rate within the band. The fixed exchange rate system with a fixed rate can be considered as a special case where the band is set to zero. There are varying degrees of fixed exchange rates, which can be ranked in relation to how rigid the fixed exchange rate is with the anchor nation. As for instance, under the system of fiat fixed rates, the monetary authority declares a fixed exchange rate but does not actively buy or sell currency to maintain the rate. Instead, the rate is enforced by non-convertibility measures (Samuelson).

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It is worthwhile to mention in the end of the theoretical discussion that some economists suspect whether monetary policy can smooth business cycles (Bernanke). In this regard, it is pertinent to refer that in the short run the central banks can stimulate with its monetary policy tools the aggregate demand, because the prices of a significant number of produces are fixed in the short run and firms can produce as many goods and services as are demanded (Dornbush & Fisher). In the long run a monetary expansion, however, causes inflation which has no or very insignificant impact on economic growth. Some economists even doubt that it may be the expansionary and contractionary monetary policies of the central banks those cause the economic cycle.

3. Objective and Methodology of the Study Objective of the Study The objective of this study is to analyze the impact of the monetary policy tools employed by the Bangladesh Bank till 2009 on the economic performance of the country. The monetary policy tools which were applied by Bangladesh Bank till 2009 and investigated in this study are: o Reserve Requirement, o Discount Rate, o Open Market Operation, o Interest rate, and o Exchange Rate. The study appraised the effect of the monetary policy tools used by Bangladesh Bank on: o Growth of the GDP, o Inflation, and o Employment Generation.

Methodology of the Study For investigating theories and phenomenon of social sciences either qualitative or quantitative or both of the research methodologies could be used (Cooper & Schindler). Qualitative research methodology includes different interpretive techniques such as describing, decoding, interpreting, and analysing naturally occurring phenomenon in social world to explain how and why things happen as they happen. Qualitative research techniques could be used at both data International Journal of Research in Finance & Marketing http://www.mairec org

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collection and analysis stages. At data collection stages, it includes focus group discussion, interviews, case studies, action research, observation, etc. In analysis stages, it includes the analysis of written or recorded materials, as well as the study of artefacts and trace of evidences from the physical environment. Qualitative research mythology is very often called interpretive methodology, because it strives to understand and develop theories and phenomenon of social sciences through analysis and builds theory, but rarely tests theories. Quantitative research methodology on the other hand, attempts precise measurement to test theories and hypothesis. It answers questions related to how much, how often, when and who. While survey is a dominant factor for collection of data in quantitative research methodology, frequently secondary data are used in this methodology. For the preparation of this research article relevant secondary sources of information and data such as books, articles published in national and international journals, government’s policy report and bulletins have been studied, and different websites visited. For the analysis of the information in text format qualitative and for the analysis of the statistical data quantitative research methodology have been used. Particularly, to analyze the correlation between money supply in one side and inflation and growth of economy in the other side the computer program SPSS (Statistical Package for Social Studies) have been applied.

4. Monetary Policy in Bangladesh After the liberation of the country in 1971 the principal objectives of the monetary policy the country were to control reserves of the banks, regulate direction of the flow of money and credit, preserve the par value of domestic currency, generate employment and income, and foster the growth of the economy in the best national interest (Bangladesh Bank Order). For development Bangladesh followed during this time the model of planed economy. Following set development policy in close collaboration with the government Bangladesh Bank tried to use money supply as an instrument for achieving the goals of the development plans, and programs. The long term focus of monetary policy during this time was the economic growth and stability, but for the short-term it was oriented to resolve immediate problems of the war torn economy.

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Nonetheless, along with the political change and achievement of a standby-arrangement of the country with the IMF in 1975, the monetary policy of Bangladesh got a new direction (Khan). Bangladesh Bank started to set henceforth short-term objectives of monetary policy and tried to achieve the targets using control instruments. The annual monetary expansion had to be fixed now; and the volume of the broad money (M2)1 had to be adjusted along with forecast of the growth rate of the real GDP, rate of inflation and foreign exchange reserve. Bangladesh Bank began to monitor the credit, and tried to hold the target through imposing ceilings on credit to the government, public, and private sector. Moreover, it set objective to provide the desired volume of credit at a low rate of interest. The monetary policy followed by the Bangladesh Bank after 1975 may seem to be pragmatic, but in fact Bangladesh Bank possessed no effective tools for adjusting money supply following the market signals. So, the monetary policy could not be fully used in favour of economic growth, employment generation and control of the price level. In the end of 1980s Bangladesh left the course of planed economic development followed since the liberation of the country and turned toward free market economy. The financial sector was reformed and Bangladesh Bank moved away from the direct quantitative monetary control to indirect methods of monetary control (Khan, & Sarker). Though the fixation of monetary target continued to function as absolute operative category, the way to achieve it had been changed. Credit ceilings imposed on individual banks and direct control of interest rates were removed. Since then on Bangladesh Bank started to regulate the money supply through the use of the major monetary policy tools like minimum reserve requirement, bank rate, open market operations, and rediscount policy. Until the reform of the financial sector in 1989 the bank rate was not applied in Bangladesh to meet the temporary need of funds of the commercial banks. Before the reform, bank rate was changed in a few occasions and only to align the bank rate with lower market rate of interest. After the reform of the financial sector in 1989, the bank rate began to be used to change the cost of borrowings for banks and thereby to affect the market rate of interest. The sale and purchase of government securities by the Bangladesh Bank, i.e. the use of repo and reverse repo, to withdraw and correspondingly inject funds into the financial market began to be

1

Broad money (M2) includes the sum of the currency in circulation and total deposits of money in banks.

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utilized after the financial reform. Rediscount facility was introduced and even open market operations were conducted through weekly, monthly, fortnightly auctions of Treasure Bills (Bangladesh Bank, 2005). Bangladesh Bank had been using ‘Cash Reserve Requirement’ (CRR) and the ‘Statutory Liquidity Requirement’ (SLR) since the reform when necessary. What more noteworthy was that Bangladesh Bank used the monetary policy tools as per demand of the financial targets to regulate money supply. In brief, after the reform Bangladesh bank began to use the monetary policy tools particularly SLR, CRR, repo, reverse repo, discount rare, bank rate etc more systematically to influence the volume of the board money or so called M2, in favour of economic growth, employment and income generation and price stability. Next we intend to investigate the influences of the monetary policy used by the Bangladesh Bank. We want to analyse how the usages of monetary tools in Bangladesh have changed the base of the board money and what for effect it has on the growth of the economy, employment generation and price stability. The development of the board money (M2) from 1991 to 2008 shows that, after the reform of the financial sector in 1989, it has grown continuously. In the beginning from 1991 to 1999, the expansion of the money went relatively slow; but from

G ra ph- 1: M 2 F ro m 19 9 1 t o 2 0 0 7

2000 to 2008 it grew faster (Graph-1).

The absolute

300000 250000

growth of the board money shows that from 1991 to 1999 it

200000 15 0 0 0 0

grew from Tk.25004.4 crore to Tk.63026.3 crore, which

10 0 0 0 0 50000

means a growth of 252% in 9 years. From 2000 to 2008 it

0

07 20 05 20 03 20 01 20 99 19 97 19 95 19 93 19 91 19

grew from Tk.74767.4 crore to Tk.248795 crore, which

So urce o f d at ao f t he G r ap h: A p p end i x

G ra ph- 2 : Inf la t io n F ro m 19 9 1 t o 2 0 0 7

means a growth of 332% in 9 years (Appendix). That means, in 17 years after the reform of the financial sector

12 10

in 1989 M2 has increased nearly in 10 times (Appendix).

8 6

Year to year development of the board money shows that it

4

the beginning from 1991 to 1999 it grew slowly; but from

2 0

07 20

05 20

03 20

01 20

99 19

97 19

95 19

93 19

91 19

Source of data of the Graph: Appendix

2000 to 2008 it grew faster. As for instance, in compare to 1991 in year 1992 it grew 14.08%; in 1993 in comparison to 1992 it grew 10.55%, and so on. However, in 2000 in

comparison to 1999 it grew 18.62%; in year 2001 in compare to 2000 it grew 16.60%, and so on (Appendix). International Journal of Research in Finance & Marketing http://www.mairec org

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The trend of the inflation from 1991 to 2008 shows a remarkable cyclical fluctuation (Graph-2). The first cycle began in 1991 with a peak in the inflation, 8.31%, which went down during the following years 1992 and 1993, and reached the lowest rate of 2.73% in 1993 (Appendix). Nevertheless, after 1993 it began to increase again and in year 1995 it reached once more a peak value of 8.87%. With the end of the first cyclical development of the inflation in 1995 began the second cycle which ended in 1999. During the second cycle from 1995 to 1999 the inflation went down again and reached the lowest value of 2.52% in 1997 and reached a peak of 8.91% in 1999. The third cycle began with the end of the second cycle in 1999 and continued till 2008. The significance of the third cycle was that it prolonged longer than the previous two cycles. The durations of the first and second cycles were 5 and 4 years respectively, but the third cycle prolonged 9 years. During the third cycle the inflation went down sharply in 2001, reached the lowest rate of 1.58% since then. However, after that from 2001 to 2008 the inflation went up steadily and reached in 2008 the highest rate of 9.94% (Appendix). The development of inflation from 2001 to 2008 shows that a new phenomenon might have set forth in the behaviour of inflation, which indicates that the cycle of inflation prolongs longer than before. Inflation could have many causes. We, however, are interested to find whether the monetary policy, i.e., expansion of the board money (M2) had any role in this regard. The development of M2 and the growth of the GDP from 1991 to 2008 had astonishing similarity (Graph-1 and Graph-3). From 1991 to 2008 the GDP Graph-3: GDP From 1991 to 2007

grew continuously, but from 2001 to 2008 the GDP

600000

grew faster than from 1991 to 2001. Similarly, from

500000 400000

2001 to 2008 the M2 grew fast from 1991 to 2001

300000 200000

(Appendix).

100000 0

In comparison to 1991 in 1992 M2 increased 14.08%, 20

20

20

20

19

19

19

19

19

07

05

01

03

99

97

95

93

91

Source of data of the Graph: Appendix

in the same year the GDP grew 8.17% (Appendix). Next year, 1993, M2 decreased (10.44%), so decreased

also the growth of the GDP (4.88%). In 1994 M2 increased 15.43% and the GDP grew 8.01%. The expansion of M2 and the growth of the GDP also in the followings years make it evident that from 1991 to 2008 in general with the expansion of M2 the GDP grew. Particularly the development of M2 and GDP from 2001 to 2008 makes it apparent that during this period with the expansion of M2 the GDP grew continuously. From the discussion above it may be International Journal of Research in Finance & Marketing http://www.mairec org

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speculated that expansion of M2 might have some impact on inflation, growth of the GDP and employment generation. Next statistical methods have been used to test whether the growth of the GDP has any correlation with monetary expansion. Let’s put forward the hypothesis (null hypothesis) that ‘there was no correlation between the independent variable (M2) and the depended variable (growth of the GDP) and test this hypothesis with help of the ‘Analysis of Variance’ (ANOVA)1. As the calculated value of F, 2052.63, in the ANOVA table is larger than the significance value, 0.00, so the null hypothesis is rejected (Table-1). It means that the null hypothesis is not true that there was no correlation between the independent and dependent variables. Therefore, it is to conclude that there was a correlation between the expansion of M2 and the growth of GDP. Table - 1: ANOVA Sum of Squares

Degree of Freedom

Mean Square

F

Sig.

Regression 276193681897.21

1

276193681897.21 2052.63 .000

Residual

2152891637.29

16

134555727.33

Total

278346573534.50

17

Predictors: M2, Dependent Variable: GDP Sources of data of the Table: Appendix [Constructed with SPSS]

Let us now estimate the type and significance of the coefficient of correlation between the expansion of M2 and the growth of the GDP. It means, next we intend to fix whether the correlation between the expansion of M2 and the growth of the GDP was positive or negative, and what the rate of change was. The coefficient of correlation2 between the expansion of M2 and the growth of the GDP is 0.996 (Table-2). The positive value of the coefficient of correlation indicates that there was a very strong positive correlation (0.996) between the expansion of M2 and the growth of the GDP. It means that with the expansion of M2 the GDP grew and vice versa. The value of R, 0.996, means that there was 99.6% correlation between the expansion of M2 and the growth of the GDP during the period from 1991 to 2008. The value of R2, 0.992, suggests that every unit increase in the independent variable, the money supply, caused 0.992 1

2

The Null Hypothesis is: There is no correlation between M2 and GDP. The variance analysis has been done using the statistical program, the SPSS (Statistical Program for Social System). The coefficient of correlation has been calculated using the statistical program, the SPSS (Statistical Program for Social System).

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unit increases in the dependent variable, the growth of the GDP. It means that there was nearly a perfect correlation between the expansion of M2 and the growth of the GDP. In other word, with the expansion of the M2 the GDP grew nearly at the same rate. It suggests that in the case of Bangladesh the supply of the financial resources was absolutely essential for the growth of the GDP. High value of the standard error of estimate (11599.82) and the low value of R (only 0.996), indicates further the high reliability of the computation of the coefficient of correlation between the money supply, M2, and the growth of the GDP. Table - 2: Coefficient of Correlation between M2 and GDP R

R2

Adjusted R2

Std. Error of the Estimate

0.996

0.992

0.992

11599.82

Predictors: M2, Dependent Variable: GDP Sources of data of the Table: Appendix [Constructed with SPSS]

Let’s now put forward the hypothesis (null hypothesis) that ‘there was no correlation between the independent variable, the expansion of M2 and the depended variable, the inflation’ and test the hypothesis again with the help of Analysis of Variance (ANOVA)1. The variance analysis of the data of M2 and inflation from 1991 to 2008 explains the correlation between the independent variable, the expansion of M2 and the dependent variable, the inflation. As the value of F (0.43) in the ANOVA table is smaller than the value of significance (0.520) the null hypothesis is accepted (Table-3). That means it is true that there was no significant correlation between the dependent variable (expansion of M2) and the independent variable (inflation). Table - 3: ANOVA Sum of Squares Degree of Freedom Mean Square F Regression

2.95

1

2.95

Residual

102.10

15

6.81

Total

105.05

16

Sig.

.43 .52

Predictors: M2, Dependent Variable: Inflation Sources of data of the Table: Appendix [Constructed with SPSS]

1

The Null Hypothesis in this case is: There is no correlation between the independent, M2 and the depended variable, inflation.

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Let’s again compute the coefficient of correlation1 between the expansion of M2 and inflation to test whether it is true that there was no correlation between them. The value of coefficient of correlation between the expansion of M2 and inflation (0168) indicates that from 1991 to 2008 there was positive correlation (0.168) between the expansion of M2 and inflation (Table-4). The smaller value of R2 (0.028) indicates that the expansion of the M2 had a very weak impact in the increase of the inflation. It denotes that every unit change in the M2 had caused only 0.028 unit change in the inflation. That means, in other word, 2.8% of the increase of the inflation was caused by the expansion of the M2. Small value of standard error of the estimate (2.61) and the low value of R (0.168) suggests further the unreliability of the computed very weak correlation between the expansion of M2 and inflation. So, in summary, it could be concluded that there was only insignificant correlation between the expansion of M2 and inflation. Table - 4: Coefficient of Correlation between M2 and Inflation R

R2

Adjusted R2

Std. Error of the Estimate

0.168

0.028

-0.037

2.61

Predictors: M2, Dependent Variable: Inflation Sources of data of the Table: Appendix [Constructed with SPSS]

The unemployment data in Bangladesh are not annually updated; and it seems that they are gathered in three to four years intervals (Appendix). So, in the absence of continuous data statistical treatments of the same and computation of ANOVA and the coefficient of correlation between the expansion of M2 and the development in the unemployment rate as above was not possible. The unemployment rate in 1990s remained very low and had an increasing tendency.2 From 2000 to 2008, however, it had a light sinking tendency. If the annual growth of population, which remained over 2% in Bangladesh, considered in this regard, it becomes evident that the economy had created annually at least 2% more jobs in the country. Otherwise, the annual unemployment rate was larger than what are in the official ‘Statistical Yearbooks’. So, it is evidently convincing to conclude that the expansion of the M2, which had triggered the growth of

1

2

The coefficient of correlation has been calculated using the statistical program, the SPSS (Statistical Program for Social System). The available data show that in the beginning of the 1990s, the unemployment rate in Bangladesh remained far below the natural rate in the USA and anywhere else in the developed country which is to distrust.

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the economy, had also created jobs at least at the rate of the population growth annually and stopped the unemployment rate to increase. The qualitative and quantitative analysis above lead ultimately to conclude that the expansion of the M2 has strongly supported the growth of the economy and the generation of employment during period from 1991 to 2008. The supply of money had insignificant role for the increase of the inflation, i.e., the upward trend of the price level. Inflation in Bangladesh is explained by supply side factors particularly higher international commodity prices, deficient monetary policy and the shortfall in domestic food grain production. Large spending on flood and cyclone rehabilitation; higher bank credit for agriculture, industry and services; and the rise in demand from the rapid growth in remittances were other factors for higher inflation. Further, reduction of import duties on food items; subsidized sales, lowering of interest rate on import credit, and other similar measures caused budget deficit and fostered inflation. For general price level rise in Bangladesh food price inflation is a special concern, because expenditure on food items constitutes more than 58 percent of the total consumption spending (Ahmed). Inflation in Bangladesh varies directly with food price; and higher food price inflation fuelled overall higher inflation. The weakening of local currencies against the US dollar has also contributed to inflationary pressures exacerbating the rise in global commodity and other import prices. Despite the rising trend, inflation in Bangladesh is lower than in major South Asian countries (Ahmed). The recent inflationary pressure in Bangladesh is largely home grown and has more a cost-push than a demand pull nature. The home grown nature of inflation in Bangladesh gives the opportunity for effective action against it.

5. Inference All over the world policymakers face difficulties in balancing the trade-off between growth and inflation. Inflation adversely affects the growth of the economy, the financial sector development and the vulnerable poor segment of the population. So, it has become a major concern worldwide including Bangladesh particularly in this decade. In the developed countries, inflation has gone upward in recent years despite low growth. Monetary policy makers in the advanced economies International Journal of Research in Finance & Marketing http://www.mairec org

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face a delicate balancing act between alleviating the downside risks to growth and guarding against a buildup in inflation. In the emerging economies, inflation has risen more markedly reflecting both strong demand growth and the greater weight of energy and particularly food in consumption baskets. One of the fundamental objectives of macroeconomic policy is to sustain high economic growth with low inflation. Despite of debate on the nature of the correlation between inflation and growth in the economic paradigm, there is a consensus that some sort of causalities exist between macroeconomic stability and economic growth. The monetarists view that inflation is always and everywhere a monetary phenomenon (Mishkin), and there would be no inflation without sustained increase in the money supply. This leads to conclude that long-run price stability can be achieved by limiting the rate of money growth in the economy (Gokal). It is observed by many researchers that there is a positive correlation between excess money supply, growth of the economy and inflation (Abdul Qayyum). The money supply first affects real GDP growth but next it affects inflation. So, to avoid inflationary pressures in the economy, the authority of monetary policy must consider development in the real and financial sector. The prime objective of monetary policy should be to attain price stability, because inflation is harmful to economic growth. Rising of price level may create uncertainty in the economy that hamper smooth economic growth. When the overall level of prices of goods and services changes, it is harder for consumers, businesses and government to interpret the price change that complicates their decision making. Opinion surveys indicate that the public is hostile to inflation, and evidence increasingly suggests that inflation leads to lower economic growth (Fischer). Ensuring macroeconomic stability, supporting the highest sustainable real output growth, and keeping inflation under control should be the main objective of monetary policy. Bangladesh Bank may pursue growth supportive well thought-out monetary policy stance to keep at bay the uptrend in inflationary tendency. It may accommodate monetary stance permitting strong expansion in credit growth to the private sector to sustain economic growth and keep demand-side pressures broadly in check. For policy stance it may consider: o Short term and long term interest rates, o Bonds, equities, options, swaps, futures, etc. o Exchange rates, o Credit quality, International Journal of Research in Finance & Marketing http://www.mairec org

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o Government sector spending and savings, o Private sector spending and savings, and o Flow of FDI (foreign direct investments). To impede higher inflation, Bangladesh Bank must be cautious about monetary policy stance of keeping 'appropriate liquidity' instead of 'adequate liquidity' in the economy. To maintain exchange rate stability and keep the pressure of imported inflation under control pragmatic exchange rate policy may be followed. Besides, the government may adopt appropriate precautionary measures such as reducing import duty on food items, raising food grain imports, extensive rehabilitation programme for flood affected areas and effective measures for higher crop production. Moreover, guaranteed employment programme for rural people during lean seasons, social safety net programs like Food for Work, Vulnerable Group Feeding, Vulnerable Group Development and test relief etc may be expanded for poorer section of people living below poverty line. Government may reduce import duties on food items and food grain, subsidize sales, and lower interest rate on import credit, which cause budget deficit. Greater integration of the national economy with world's economies means that inflation in the domestic economy is more open to external pressures. So, it is essential to define channels through which global integration can affect inflation and monetary policies. The internationalization of inflation means diminished role for central banks in managing domestic inflation. Following measures may be adopted to manage inflation, foster growth, and generate employment and income: a.

Bangladesh Bank must be cautious about the growth of money supply. Price inflation is a major threat to macro-economic stability, though some economists advocate that some degrees of moderate inflation is to welcome as a tool for promoting growth and believe that development inevitably involves trade-off between inflation and unemployment. They suggest that wise course resolves the trade-off in favour of less unemployment and inflation. Milton Friedman, however, asserts that high inflation is the result of a high rate of money growth.

b.

Bangladesh Bank may manipulate the nominal interest rate to influence inflation expectations. Recently, the central banks of some developed countries like New Zealand, the UK, and other countries have adopted inflation targeting (IT) framework. Under IT framework, the nominal interest is a flexible policy instrument which has three main International Journal of Research in Finance & Marketing http://www.mairec org

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elements. First, there is an explicit target for inflation which is not more than a few percentage points. Second, central banks place more weight on the behaviour of inflation. Third, policies of the central bank are made transparent; and the central bank is made accountable for the policies. c.

Inflation must be persistently measured by Bangladesh Bank, because monetary policy is pursued on a day-to-day basis and controlling inflation through controlling broad money depends on the relationship between money supply and level of price.

d.

It is primarily the responsibility of the government to ensure economic stability and create favourable environment for full use of the production potentialities. For this, the Bangladesh Bank must provide appropriate monetary conditions. If interest rates are too low, supply of money is too high which triggers excessive demand for goods and services. Low interest rates in the short run boost production, but production bottlenecks occur later. So, in the long run only prices rise, and the economic situation deteriorate. On the contrary, too high interest rates reduce the flow of money to the economy and, lead to a demand shortage. Deflation may take place and hamper economic growth.

e.

Bangladesh Bank should regulate and supervise the financial system, safeguard the soundness of the financial system and absorb possible adverse shocks that could be detrimental to economic growth. It should improve the efficiency of the financial system and deepen financial intermediation to channel increasingly greater volume of financial resources to the economy at a lower interest rate.

6. Conclusion One useful way to reduce the price of food is to maintain adequate strategic buffer stock of food that could be released to the poor and food insecure households through different food transfer programs targeted when needed. Considering the financial burden of subsidies in the context of limited fiscal space of the governments, targeted safety nets programs such as feeding programs for school children, food-for-work programs, open market sales, and guaranteed employment program for the poor and disadvantaged households especially during the lean seasons could be used to enhance food entitlements and stabilize the prices. Along with mitigating the inflationary impact on the poor through generating short-term employment opportunities and providing International Journal of Research in Finance & Marketing http://www.mairec org

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access to transfer incomes in the rural areas, it is important to ensure food to the poor at subsidized prices also in the urban areas. Since the demand of food by the poor is inelastic, the thrust of the macroeconomic policies should be on increasing domestic food production and stabilizing supply. Providing agriculture credit, supplying input, relaxing trade policies and providing timely market information may assist the producers. Improvement of institutional capacities and investments in agricultural research, technology, marketing, and post-harvest facilities are feasible ways of sustaining positive outcomes. Similarly, investment in rural infrastructure such as irrigation and rural transport can diminish the trend of higher food prices. Keeping inflation within tolerable limits and ensuring highest sustainable growth in domestic output require continuous pursuit of supportive macroeconomic policies, growth in investment, measures to reduce power shortage, steps to remove infrastructure constraints and speedy implementation of structural, institutional, and financial sector reforms. Moreover, the challenges of limited resources, particularly food and fuel have to be met. Further, the implementation of the reforms focusing on the improvement of the efficiency and productivity are essential to strengthen competitiveness, foster growth, and generate job opportunities. Moderating inflation and raising economic growth require painful tradeoffs, but this should not be excuse for delays in implementing corrective policy measures to the detriment of outlooks. Appendix Development of M2, GDP, Inflation, and Unemployment in Bangladesh From 1991 to 2008 Year

M2

GDP

Crore

Growth

Taka)

(%)

Crore Inflation Taka

Growth (%)

Unemployment (%)

1991

25004.4

---

8.31

110518

---

1.9

1992

28524.9

14.08

4.56

119542

8.17

----

1993

31535.6

10.55

2.73

125370

4.88

----

1994

36403.0

15.43

3.28

135412

8.01

----

1995

42212.3

15.96

8.87

152518

12.63

2.5

1996

45690.5

8.24

6.65

166324

9.05

----

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1997

50627.5

10.80

2.52

180701

8.64

----

1998

55869.0

10.35

6.99

200177

10.78

----

1999

63026.3

12.81

8.91

219695

9.75

4.3

2000

74762.4

18.62

3.41

237086

7.92

----

2001

87174.1

16.60

1.58

253546

6.94

----

2002

98616.0

13.13

2.36

273201

7.75

4.3

2003

113994.4

15.60

5.14

300580

10.02

----

2004

129721.7

13.80

5.14

332973

10.78

----

2005

151446.6

16.75

6.48

370707

11.33

4.25

2006

180674.2

19.30

7.16

415728

12.14

----

2007

211504.4

17.06

7.20

472477

13.65

----

2008

248795.0

17.63

9.94

545822

15.52

----

Note: GDP: At Current Price, M2: Board Money Sources: Bangladesh Bank, Bangladesh Bank Bulletin, 1995-6 & 2004-5. Bangladesh Bank, Economic Trends, Statistical Department, Monthly, Volume XXXIV, No. 7 & XXXVII, No. 11. Statistical Yearbook of Bangladesh, Bangladesh Bureau of Statistics, Planning Division, Ministry of Planning, Government of the People’s Republic of Bangladesh, 1994, 1995, 2005 & 2008.

References Ahmed, Dr. Salehuddin, Inflation: A Challenge to South Asia's Economic Progress. Bangladesh Bank Order, Government o f Bangladesh, Dhaka, 1972. Bangladesh Bank, Bangladesh Bank Bulletin, 1995-6 & 2004-5. Bangladesh Bank, Economic Trends, Statistical Department, Monthly, Volume XXXIV, No. 7 & XXXVII, No. 11. Bangladesh Bank, Notes on Monetary Policy Strategy of the Bangladesh Bank, Volume I &

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Volume II, Policy Note Series: PN 0602, 2005. Bangladesh Bureau of Statistics, Statistical Yearbook of Bangladesh, Ministry of Planning, Government of the People’s Republic of Bangladesh, 1994, 1995, 2005 & 2008. Bank of England, March 31, 2006. http://www.bbc.co.uk/history/timelines/britain/stu_eng_bank.shtml. Bernanke, Ben, Monetary Aggregates and Monetary Policy at the Federal Reserve: A Historical Perspective, (2006). Cooper, Donald R. & Schindler Pamela S, Business Research Methods, New York, 2006. Fischer, Stanley, The Role of Macroeconomic Factors in Growth, Journal of Monetary Economics, 32 (1993): pp. 485-512. Friedman, B.M, Monetary Policy, International Encyclopaedia of the Social & Behavioral Sciences, 2001. Gokal, Vikesh and Hanif Subrina, Relationship between Inflation and Economic Growth, Working Paper 2004/04, Economics Department, Reserve Bank of Fiji. Khan, Syed Ahmed & Sarker, Abdus Samad, Monetary Policy in Bangladesh, Dhaka, 1993. Lindert, Peter H, International Economics. 8th Edition, 1996. Mishkin, Frederick S, The Economics of Money, Banking and Financial Markets, Seventh Edition, 2004, Columbia University, USA. Nelson, Edward, Milton Friedman and US Monetary History: 1961-2006, 2007. Orphanides, Athanasios, Taylor rules, The New Palgrave Dictionary of Economics, 2nd Edition, 2008. Qayyum, Abdul, Money, Inflation and Growth in Pakistan, The Pakistan Development Review, 45:2 (Summer 2006), pp. 203-212.

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Samuelson, Paul A. & Nordhaus, William D, Economics, New Delhi, 1998. Sullivan, Arthur, Steven M. Sheffrin, Economics Principles in Action, Upper Saddle River, Pearson Prentice Hall, 2003.

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SWITCHING BEHAVIOUR OF SUBSCRIBERS IN INDIAN TELECOM SECTOR Priyanka Gautam* Dr. Anil Chandhok**

ABSTRACT The Indian Telecommunications network with 621 million connections (as on March 2010) is the third largest in the world. The sector is growing at a speed of 45% during the recent years. This rapid growth is possible due to various proactive and positive decisions of the Government and contribution of both by the public and the private sectors. The rapid strides in the telecom sector have been facilitated by liberal policies of the Government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices. This study investigates determinants that cause mobile phone customers to switch from one service provider to another. By examining what keeps customers loyal, and then examining what provokes the same customers to switch, the findings suggest that switching may be due to changes in the underlying determinants as well as new determinants. Switching behaviour of subscribers has many factors behind it and this study attempts to identify such reasons through intensive literature review. Indian telecom industry is one of the fastest growing in the world and is projected that India will have 'billion plus' mobile users by 2015. Projection by several leading global consultancies is that India’s telecom network will overtake China’s in the next 10 years. So, it becomes important to find out such reasons and solutions thereof. After the introduction of MNP various players of telecom market are gaining and losing customers. Service providers need to concentrate on customer needs especially in customer service side. Although, increased competition has benefitted customers it will further enhance the scenario.

*Lecturer, Post Graduate Govt. College, Sector-11, Chandigarh **Professor, Maharishi Markandeshwar University, Mullana

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Keywords: switching behaviour, telecommunication sector, relationship, factors behind switching behaviour.

INTRODUCTION Thus, tremendous growth of services sector implies the role of marketing in terms of vast opportunities and implications, marketing opportunities arising from new technology, in franchising from fewer regulations and professional restrictions, in servicing physical goods and international markets (Lovelock, 1999). The rapid growth of services industry has changed the conditions of business. As the market growth slows down or as the markets become more competitive, firms are more likely to attempt to maintain their market share by focusing on retaining the current customers. (Lee et al., 2001). Customer retention has been advocated as an easier and more reliable source of superior performance (Reichheld and Sasser, 1990). Achieving and maintaining a commanding position in such a growing market place is becoming increasingly difficult because of more competition on the one hand and more demanding customers on the other. Under such a situation, protecting the existing customer base and retaining the existing customer loyalty appear to be the crucial competitive advantage. Customer loyalty provides the foundation of a company’s sustained competitive edge, and that developing and increasing customer loyalty is a crucial factor in companies’ growth and performance (Lee and Cunningham, 2001). Gerpott et al., 2001, noted that in telecommunication services, it is frequently pointed that once customers have been acquired and connected to the telecommunication network of a particular operator, their long-term relations with the operator are of greater importance to the success of the company in the competitive markets than they are in other industry sectors. This is due to the fact that the cellular service providers don’t differentiate from each other. They all deliver more or less the same service leading to high competition. Customer loyalty can be gained by increasing the customer satisfaction through raising the offered service quality (Fornell et al., 1996; and Brady and Robertson, 2001). Aydin et al. (2005) noted that switching costs and service quality are the most important factors for determining the customer loyalty. The relationship between the service quality and customer preference loyalty have been studied by various researchers (e.g., by Cronin and Taylor, 1992; and Boulding et al., 1993). Perceived service quality is often viewed as a pre-requisite

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for loyalty and frequently, loyalty is included in models as an outcome variable (Cronin and Taylor, 1992; and Boulding et al., 1993). Many studies have shown that customer satisfaction positively affected loyalty (Fornell, 1992; Gerpott et al., 2001; and Sharma, 2003) concluded that the relationship between customer satisfaction and customer loyalty is affected by many factors, including type of the industry, switching cost and the differentiation level of products in a category. However, only few studies have examined switching behaviour in telecom sector. Jones and Sasser (1995) found switching costs as one factor that determines the competitiveness of market environment, since high switching costs discourage changing from a current provider, thereby yielding less incentive for companies to actively compete. Service Providers’ share in net additions during the month of February 2011

Source: www.telecomindiaonline.com

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Service Provider wise Market Share as on 28-02-2011

Source: www.telecomindiaonline.com

LITERATURE REVIEW A Study on Consumer Switching Behaviour in Cellular Service Provider: A Study with reference to Chennai: Far East Journal of Psychology and Business Vol. 2 No 2, February 2011: M.Sathish, K.Santhosh Kumar, K.J.Naveen, V.Jeevanantham, they have attempted to identify the factors that affects the consumers into switching the service provider. To find the major influences that goes into the decision of purchasing a SIM card, to find the likeliness of switching the service provider. The study reveals that call rates play the most important role in switching the service provider followed by network coverage; value added service, Consumer care and advertisement which plays the least important role. It is found that there is a relation between switching the service provider and the factors (Customer service, service problem, usage cost, etc.). The findings also suggest that managers of these mobile operators should shift focus on building corporate image and analyse more carefully the reason for consumers to switch brands in this industry in order to increase loyalty among these consumers. Canadian Cellular Industry: Consumer Switching Behaviour by Aneeta Sidhu (2002). The author of this paper finds out that customers with one year contract are more likely to switch. Customers find using their services as expensive. Whereas, customers who are attached to the International Journal of Research in Finance & Marketing http://www.mairec org

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service provider for a long time are less likely to switch. Some of the strategies have been identified like building value for the customers by providing them with better service and reliable reception. Antecedents and Consequences of Customer Switching Costs for the Mobile Phone Market: Arthur Lin, Christine CHOU: According to the results of this study, switching costs appear to be an appropriate concept to analyze customers’ behaviours in the mobile phone market. For the antecedents of switching costs, product complexity, provider heterogeneity and switching experience significantly affect perceived switching costs; product complexity, customer investments significantly affect relational switching costs. As for the consequences, both perceived and relational switching costs significantly affect the ‘exit’ option. Our results indicate that governmental policy influences product complexity and provider heterogeneity. According to the results, the effect of switching costs on consequence is significant only when customers consider to exit. The effect is insignificant when customers consider to voice or keep loyal. Therefore, how to maintain customers’ loyalty is still a pertinent interesting issue.

SWITCHING BEHAVIOUR AND TELECOM INDUSTRY Relation of switching behaviour and telecom sector has been summarized in four major points i.e. Customer satisfaction, User demographics, Relational Investment and service quality. Telecommunication markets have changed dramatically in recent years. Customers in many countries who used to have only one service provider now have a wide variety to choose from. The fight to attract and keep customers has resulted in the development of relationship marketing strategies. The telecom companies are developing a mix of relationship- marketing tools to establish and build profitable customer relationship. With the concept of relationship marketing, we focus on the need for companies to be market oriented by building up the ability to manage networks, relationships and interactions (Gronroos, 1983; Gummesson, 1987). In other words, the main thrust has been on expanding the relationship with existing customers. It has been fully accepted in marketing literature that long-term customers are more profitable than short-term customers (Reichheld and Teal, 1996; Johnson, 1998).The evolution of the competition forces firms to cope with an increasing difficulty in the management of technological options and market relations. In telecommunication industry, International Journal of Research in Finance & Marketing http://www.mairec org

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technologies are in continual development; market relations are frequently threatened by new or more aggressive competitors. In this situation, the behaviour of entrepreneurs and managers is turned in search of new models to manage market relations, suitable for operating with success in face of continual change and a high level of uncertainty. Customer switching has become a critical issue facing mobile service firms. Customer switching refers to migration of users from one provider to another. In most service contexts, customer switching is associated with negative consequences such as declining market share and poor profitability (Keaveney, 1995). Switching assumes additional significance in mobile context as it has become widespread among mobile users. To control switching, mobile service providers are increasingly relying on contracts that would lock-in customers for a definite time period. However, with changing competitive dynamics, contracts are not being favored by many users (Braff and Laogue, 2004). Therefore, it becomes important to understand the fundamental drivers of switching behavior. “Customer retention is very difficult in a market that is highly competitive and it takes more than just advertisements and incentives,” explains Vodafone Director (marketing and new business) Harit Nagpal. According to him, there are four factors that make customers stick to a service provider: A good network, service recovery, technology and great value for money (Byravee Iyer / Mumbai March 3, 2009).

A) Customer Satisfaction As we all know customer satisfaction is the most important factor behind switching behaviour of telecom subscribers. Oliver (1980) defines that “Customer satisfaction is a summary psychological state when the emotions surrounding disconfirmed expectations are coupled with the consumer’s prior feelings about consumption experience”. According to Churchill and Surprenant (1982), “Customer satisfaction is an output, resulting from the customer’s pre-purchase comparison of expected performance with perceived actual performance and incurred cost. There have been many studies on customer satisfaction over the years. However, Parasuraman et al. (1994) have put forward the simple and clear definition for satisfaction. They suggest that satisfaction is influenced by service quality, product quality and price. They researched satisfaction on a transaction level, implying that the overall satisfaction is a function of transactions. International Journal of Research in Finance & Marketing http://www.mairec org

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B) Service Quality Service quality has been described as a form of attitude, but not an equivalent to satisfaction that results from the comparison of expectations with performance (Parasuraman et al., 1988; and Bolton and Drew, 1991). Perception of service quality could occur at multiple levels in an organization – for example, with the core service, physical environment interaction with the service providers, etc. (Bitner and Hubert, 1994). Customer expectations and perceived performance of services have been found to be the main antecedents of perceived service quality. Service quality is generally measured on following parameters: A) Responsiveness

B) Assurance

C) Customer Perceived Network Quality

D) Pricing Structure

E) Value Added Services

F) Convenience

C) Users' relational investments Relational investments refer to investments that are specific to the user-provider relationship (e.g., learning about products, services, procedures, transactions, proprietary systems etc) (De Wulf et al., 2001). These investments influence customers' perceptions of the costs of switching between providers. Further, since the investments are specific to the relationship, they are lost when the relationship is terminated (Klemperer, 1995). Relational investments increase switching costs and discourage users from migrating to a different provider, thus enhancing loyalty. Studies have shown that loyal customers tend to spend more and bring a steady stream of future customers by spreading positive word of mouth (Reichheld & Teal, 1996). Based on prior research in service marketing (Gwinner et al., 1998; Bolton & Lemon, 1999; Keaveney & Parthasarathy, 2001; Tellis, 2002), we assess relational investments of mobile users through three constituent variables: (i) service usage, (ii) duration of userprovider relationship, and (iii) service bundling. D) User demographics Recent research on mobile computing suggests user demographics to play a dominant role in influencing mobile user behavior. Lu et al. (2005) argued for looking beyond behavioral beliefs and examining personal traits and user attributes to better understand mobile user behavior. Age and Gender affect the individuals’ behaviour and they tend to switch service International Journal of Research in Finance & Marketing http://www.mairec org

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providers. Individual user demographics have been found to influence user attitude towards mobile services (Okazaki, 2006). Studying Singaporean mobile users, Gilbert & Han (2005) found user characteristics to be prominent in influencing mobile consumers' behavior. Based on these prior studies, we focus on two specific demographic variables (age and gender) and examine their possible association with switching behavior of mobile users.Many researchers have identified these as the main causes of switching behaviour. MNP and Switching Behaviour in Telecom Sector (2011)

wordpress.com

CONCLUSION & SUGGESTION In this study the main antecedents of switching behaviour that came in to light are customer satisfaction, relationship of service provider and customer in terms of duration and service feedback. Various studies conducted in Nigeria and various other countries emphasize the role of customer service in terms of network quality and easy plans along with value added services. The perception of quality influences the extent of loyalty. As such, highly satisfied customers tend to demonstrate a high likelihood of repurchase and higher tolerance to price increases by providers or price decreases by competitors. Furthermore, it was found that due to the moderating role of switching barriers, loyalty, in the context of mobile services, is not a unified construct but rather one with at least two distinct dimensions: repurchase likelihood and price tolerance. A negative link between satisfaction and customer complaints shows that the more satisfied a customer is, the less he or she is prone to complain. Respondents to the survey reported a surprisingly low degree of satisfaction with mobile services, which is even lower than those of cable companies and satellite TV providers. This suggests that Indian International Journal of Research in Finance & Marketing http://www.mairec org

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mobile operators need to further improve their offering through a better understanding of their subscriber base and their needs.

BIBLIOGRAPHY Turel Ofir, Serenko Alexander: User Satisfaction with Mobile Services in Canada. Michael, Lycett, Mark, Love, Steve, Enhancing Customer Experience within the Mobile Telecommunications Industry, Anaman, Dr. Rosemond Boohene, Gloria K.Q. Agyapong, Analysis of the Antecedents of Customer Loyalty of Telecommunication Industry in Ghana: The Case of Vodafone (Ghana) www.docstoc.com/.../An-empirical-analysis-of-consumers-switching-decisions-in-themobile-service-industry www.oecd.org Annual report on Telecommunications, Department of Telecommunications, Government of India, www.dotindia.com.

www.indianfoline.com.

New Telecom Policy”, www.trai.gov.in Gilbert D, Lee-Kelley L and Barton M (2003) Technophobia, gender influences and consumer decision-making for technology related products. European Journal of Innovation Management 6(3/4), 253–263. Keaveney S (1995) Customer switching behavior in service industries: An exploratory study. Journal of Marketing 59, 71–82.

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CORPORATE GOVERNANCE CONCEPT FRAMEWORK AND MECHANISM, SCOPE & FUTURE Manish Kumar* Dr. Bhuvnender Choudhary**

ABSTRACT After such a huge fraud revelations done in Satyam, the 4th big IT companies, a new question has been arisen among the all corporate i.e. corporate governance. Satyam founder B Ramalinga Raju had, on January 7, confessed that he had cooked the company's books to the tune of over Rs 7,000 crore over several years, triggering India's biggest corporate governance scandal and throwing the future of the country's fourth largest computer services provider and its 53,000 employees into uncertainty. What is corporate governance? Corporate governance refers to the set of systems, principles and processes by which a company is governed. They provide the guidelines as to how the company can be directed or controlled such that it can fulfill its goals and objectives in a manner that adds to the value of the company and is also beneficial for all stakeholders in the long term. Stakeholders in this case would include everyone ranging from the board of directors, management, shareholders to customers, employees and society. How? Corporate governance mechanism is the toughest part of corporate handling. It requires an ideal control system which can regulate both motivation and ability. It also requires third party involvement for fair information provider regarding the working and management of the corporate. Keywords: Corporate Governance, Frame work, mechanism.

*MIMA,Asstt Professor, Deptt Of Mgt Studies, DBIT, Dehradun, UK **Dean, Deptt of Mgt Studies, Phonics Group, Roorkee International Journal of Research in Finance & Marketing http://www.mairec org

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INTRODUCTION After such a huge fraud revelations done in Satyam, the 4th big IT companies, a new question has been arisen among the all corporate i.e. corporate governance. In September 2008 the World Council for Corporate Governance has honored the now-beleaguered Indian outsourcer Satyam with a "Golden Peacock Award" for global excellence in corporate governance. And now Council has rushed to keep distance from awarding to such organization and all over the world it is matter of great debating on corporate governance. Satyam founder B Ramalinga Raju had, on January 7, confessed that he had cooked the company's books to the tune of over Rs 7,000 crore over several years, triggering India's biggest corporate governance scandal and throwing the future of the country's fourth largest computer services provider and its 53,000 employees into uncertainty. After such money plundering, Minister of State for Information Technology Jyotiraditya Scindia said a stronger corporate governance framework is needed to prevent Satyamlike financial frauds. "...I think most important is to have the measures in place to ensure something like this does not happen in terms of corporate governance across the country,"

Now the main question arises what is Corporate Governance? The corporate governance is made of two words i.e. corporate and second governance. In Business world “corporate” signifies the big honchos doing any business activity like P&G, UL, Nestle, TATA, BIRLA, INFOSYS, TCS, Satyam and few others. Governance is linked with the rules and regulations required for governing the companies. But in economics, corporate is a legal entity separate from the persons that form it. In British tradition it is the term designating a body corporate, where it can be either a corporation sole (an office held by an individual natural person, which is a legal entity separate from that person) or a corporation aggregate (involving more persons). In American and, increasingly, international usage, the term denotes a body corporate formed to conduct business, and this meaning of corporation is discussed in the remaining part of this entry (the limited company in British usage). Corporations exist as a product of corporate law, International Journal of Research in Finance & Marketing http://www.mairec org

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and their rules balance the interests of the shareholders that invest their capital and the employees who contribute their labor. People work together in corporations to produce value and generate income. Despite not being natural persons, corporations are recognized by the law to have rights and responsibilities like actual people. Corporations can exercise human rights against real individuals and the state, and they may be responsible for human rights violations. Just as they are "born" into existence through its members obtaining a certificate of incorporation, they can "die" when they lose money into insolvency. But after such a tragedy happened in Indian scenario, where the corporate governance is very less implemented or have little presence, people mainly stock holders has raised his voice over corporate governance. But very few of us know about it or have very meager knowledge about the corporate governance.

What exactly the corporate governance is? A Frame workCorporate governance refers to the set of systems, principles and processes by which a company is governed. They provide the guidelines as to how the company can be directed or controlled such that it can fulfill its goals and objectives in a manner that adds to the value of the company and is also beneficial for all stakeholders in the long term. Stakeholders in this case would include everyone ranging from the board of directors, management, shareholders to customers, employees and society. The management of the company hence assumes the role of a trustee for all the others. The main theme of corporate governance is multi facet subject and one of the important theme is to ensure the accountability of certain individuals in an organization through the elimination of principal- agent problem. The other important theme is strong emphasis on shareholders welfare.

Definition:One of the leading business author Gabrielle O'Donovan defines corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity and integrity. Sound corporate International Journal of Research in Finance & Marketing http://www.mairec org

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governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'.

Corporate governance is the relationship between corporate managers, directors and the providers of equity, people and institutions who save and invest their capital to earn a return. It ensures that the board of directors is accountable for the pursuit of corporate objectives and that the corporation itself conforms to the law and regulations. - By International Chamber of Commerce Corporate governance describes all the influences affecting the institutional processes, including those for appointing the controllers and/or regulators, involved in organizing the production and sale of goods and services. Described in this way, corporate governance includes all types of firms whether or not they are incorporated under civil law. - Shann Turnbull “Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment”, -The Journal of Finance, Shleifer and Vishny "Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also provides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance", OECD April 1999. OECD's definition is consistent with the one presented by Cadbury [1992, page 15].

"Corporate governance - which can be defined narrowly as the relationship of a company to its shareholders or, more broadly, as its relationship to society -….” -From an article in Financial Times [1997].

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Even SEBI, India has defined corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal & corporate funds in the management of a company.” The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as more ethics and a moral duty. According to Gandhian principle of trusteeship, Trusteeship is combination of principle and philosophy both. We can develop trusteeship only when we follow the following principles•

To promote relationship

•

Neighborliness in all walks of life

•

A means of radical social change

•

Change of heart

•

Human dignity and charity

•

Mutuality and well-being

•

Promote relationship

So, corporate is also a kind of trusteeship between promotor and stockholder. Even JRD Tata has imbibe the Gandhian thought’s of trusteeship and built such a big empire of Tata Groups. Directive principles of the Indian Constitution puts stress on the overall governance of the country. The principles laid down therein are considered fundamental in the governance of the country, making it the duty of the State to apply these principles in making laws to establish a just society in the country. The principles have been inspired by the Directive Principles given in the Constitution of Ireland and also by the principles of Gandhism; and relate to social justice, economic welfare, foreign policy, and legal and administrative matters.

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MECHANISM Corporate governance mechanism is the toughest part of corporate handling. It requires an ideal control system which can regulate both motivation and ability. It also requires third party involvement for fair information provider regarding the working and management of the corporate. At one end of the spectrum are the shareholders as owners of the business entity since they provide the ultimate risk capital. At the other end are the “managers” or the main “executive directors” of the company who are in control of its day-to-day affairs. As the elected representatives of the shareholders it is the responsibility of the entire board of directors to direct operations of the company. As the owners of business the shareholders are expected to monitor and evaluate operations of the company as well as the performance of the entire board of directors and in particular the effectiveness of the full time or executive directors. Corporate governance mechanisms differ as between different countries. The governance mechanism in each country is shaped by its political, economic and social history as also by its legal framework. The governance practices adopted in any country reflect national ethos and value systems adopted in that country over a long period of time. For most of the countries the corporate form of organization did not evolve and emerge through a natural business process. Hence different countries have assimilated it their own way. But given the differing social and business value systems of individual countries, assimilation process of the philosophy of the corporate form of organization was not necessarily similar in different countries. Globally, the process of convergence in corporate governance is gathering momentum due to growing international integration of financial and product markets. Foreign investors and creditors are more comfortable in dealing with economic entities that adopt transparent and globally acceptable accounting and governance standards. Companies that embrace high disclosure and governance standards invariably command better premium in the market and thus able to raise capital at lower costs. The predominant form of corporate governance in India is much closer to the east asian “insider” model where the promoters dominate governance in every possible way. A International Journal of Research in Finance & Marketing http://www.mairec org

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distinguishing feature of the Indian Diaspora is the implicit acceptance that corporate entities belong to the “founding families” though they are necessarily considered to be their private properties. Despite all the differences among shareholders philosophy across different countries in regard to corporate governance mechanisms there is no denying of the fact that good governance is the time need of changing world. While multilateral organizations like World Bank and ADB have shown keen interest in the subject of corporate governance, the intellectual lead has been given by the OECD (Organization for Economic Cooperation and Development) in evolving a set of cogent principles of corporate governance. OECD has come out with a set of clearly defined principles, which it hopes, will be useful to all countries irrespective of their stages of development, legal systems, institutional frameworks and traditions. But roughly there is the requirement of some corporate governance control. It requires two types of corporate governance ie. Internal corporate governance and external corporate governance. External Environment Govt. regulations, Policies, Guidelines SEBI

corporate sector character. / influences

Internal Environment Company vision, mission, policies, and norms Internal stake Holder Board of Directors

External Stakeholder

Corporate Governance Proper governance

Investor protection

Shareholder value

Transparency Healthy corporate

Concern for Customer

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Internal corporate governance- controls monitor activities and take corrective actions for organizational growth and development using following parameters•

Monitoring by the Board of Directors

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Balance of Power

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Remuneration

External Corporate governance- controls includes the controls external stakeholders exercise over the organization using following parameters•

Competition

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Debt covenants

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Demand for and assessment of performance information specially financial information

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Government regulations

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Managerial labor market

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Media pressure

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Takeovers and mergers

Today there is need of strengthening the companies act, stringent role of independent directors and rights of shareholders of banks/public sector undertakings. 1. Strengthening companies’ act-India also has its own company act. Most of the important requirements set out by the OECD principles in regard to good corporate governance are very well defined in the companies act in India. These provisions have been further supplemented by SEBI recently which has directed all the stock exchanges to amend their listing agreement to incorporate new clauses to make it binding on the listed companies to improve their governance practices. However, the main instrumentality, viz the listing agreement, through which SEBI seeks to ensure implementation of its measures, is a weak instrument, as its penal provisions are not hurting enough. Secondly, several regional stock exchanges where a large no. of companies is listed lack effective organizations and skills to monitor effective International Journal of Research in Finance & Marketing http://www.mairec org

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compliance with corporate governance requirements as stipulated by SEBI. It is therefore desirable that the companies act needs to be amended suitably for enforcing good governance.

2. Role of Independent directors- India has adopted a unitary board structure. For unitary board structure to function efficiently there should be a strong representation of non-executive independent directors who are capable of taking independent stand and are not suppressed by the full time directors or the promoters of the company. The board should be able to perform its task of monitoring performance of the full time directors satisfactorily. It should ensure that returns to the shareholders on their investments are maximized while not making any compromises with the provisions of law and the rightful interests of all the stakeholders.

3. Right of the shareholders of banks/ public sectors- Most of the important rights of shareholders like right to ownership and conveyance of transfer, obtaining relevant information regularly, elect members of the board, etc are reasonably well covered by the companies Act. However, the rights of shareholders of banks and public sector undertakings stand considerably abridged. The quality of disclosure by most of the Indian companies in regard to several key areas is rather poor There is scanty disclosure regarding organization structures and arrangements that enable certain shareholders to obtain a degree of control disproportionate to their known equity ownership.

SCOPE According to KPMG’s Fraud survey 2002, the fraud areas where majority of cash losses occur are expense accounts, secret commission and kickbacks, forged documents, misappropriation or diversion of funds and false or misleading information. It must be emphasized that mere drafting of governance codes can’t restore ethical standards. An honest corporate culture and an internal ethical environment in an organization are preconditions for a successful governance code.

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Corporate governance emerged as an issue following a series of frauds which were damaging confidence in the city in the late 1980s. Its initial focus was on financial reporting but it developed a detailed set of standards (the ‘cadbury code’) for the board to meet in order to rebuild confidence among the investment community. Sir Adrian Cadbury always intended the scope of corporate governance to cover all aspects of company direction, both internal and external, and the wider spectrum was addressed through the ‘Tomorrow’s Company’ Report of 1995 and the subsequent movement it engendered. Progress in widening the scope of corporate governance leaves much to be done in deeping it. Too many companies’ boards treat corporate governance as an imposition, like regulation, rather than a way of managing to be used to strengthen their business. Few companies have succeeded in taking corporate governance, and the shared values which animate it, right down through their organization. Corporate governance refers to the system by which a corporation is governed and administered. It relates both to the roles of different actors in the system, and to its internal and external checks and balances. There are two broad views of corporate governance. The first focuses on the relationship between company owners and managers; the second on the wider set of relationships between owners and company stakeholders, including shareholders, employees, local communities and NGOs. The need for corporate governance systems arises in relation to the separation of ownership and management of corporations. Public companies are characterized by a separation of roles between those who own the company (i.e. shareholders or investors) and those who direct its economic fortunes (i.e. managers). The main aim of corporate governance systems in public companies is to create a balance of power between owners and managers. Corporate governance standards can and should also apply to private small- and medium-sized companies, not least in order to increase their ability to attract external capital. In the corporate governance debate, increasing attention is paid to the relationship between managers and stakeholders, the protection of minority shareholder rights and the independent supervision of business activities. International Journal of Research in Finance & Marketing http://www.mairec org

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Good corporate governance is of crucial importance to countering corruption in both developed and developing countries. Where levels of corruption in the public sector are high, it is not the most competitive companies that succeed but, rather, those that can afford to bend the market and regulatory system in their favour. Without fair competition, international investors prefer to direct their investment elsewhere or to demand higher returns to mitigate the increased risk of doing business. Fundamentally, there is a level of confidence that is associated with a company that is known to have good corporate governance. The presence of an active group of independent directors on the board contributes a great deal towards ensuring confidence in the market. Corporate governance is known to be one of the criteria that foreign institutional investors are increasingly depending on when deciding on which companies to invest in. It is also known to have a positive influence on the share price of the company. Having a clean image on the corporate governance front could also make it easier for companies to source capital at more reasonable costs. Unfortunately, corporate governance often becomes the centre of discussion only after the exposure of a large scam. Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interest of individuals, corporations and society “The foundation of any structure of corporate governance is disclosure. Openness is the basis of public confidence in the corporate system and funds will flow to centers of economic activity that inspire trust.” -Sir Adrian Cadbury “Shareholders role in governance is to appoint the directors and the auditors. Poor corporate governance has ruined companies, sent directors to jail, and destroyed a global accounting firm and threatened economies and governments.” •

e.g., Taj Company

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Mohib Textile Mills Ltd

Today we have to follow more ethics and morals for corporate governance. Even Cudbury report produced in 1992 has raised the following points•

Wider use of INDEPENDENT DIRECTOR

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Introduction of AUDIT COMMITTEE

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Separation between CHAIRMAN and CEO

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Adherence to detailed code of BEST PRACTICES.

Again OECD has defined some basic principles regarding corporate governance. It includes – •

Protect rights of SHAREHOLDERS

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Recognize the rights of STAKEHOLDERS

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Timely and accurate DISCLOSURE

•

Responsibility of the BOARD

Again in 2002, a generic code of corporate governance has been promulgated on the pattern of earlier two principles. •

Non Executive Director

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Qualification of a Director

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Tenure of Director

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Governance Policies of the Directors

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Information to Directors

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Orientation Courses

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CFO/ Company Secretary

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Corporate and Financial Reporting

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Audit Committees

Today there is a need of corporate governance in every field such as•

Training of the IAS officers and PSU official on board governance matters.

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Exclusive in house training program for central PSUs on board governance inclusive of ethics and corporate social responsibilities

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Short seminars with global Conference Center New York and The British Council.

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Teaching on corporate Governance in the business schools and universities in the European countries as France and Germany

FUTURE Inadequacies and failures of an existing system often bring to the fore the need for norms and codes to remedy them. This is also true for corporate governance. Even in the earlier phase in U.K., deficiencies in the accounting standards became more evident after many companies, in their eagerness to increase earnings and accelerate growth, exploited the weaknesses in the accounting standards to show the inflated profits and understate liabilities. Similarly, failures of several companies raised concern regarding corporate governance. In India also, the CII has published a code of Corporate Governance. Corporate governance is considered an important instrument of investor protection. To further improve the level of corporate governance, need was felt for a comprehensive approach at this stage of development of the capital market, to accelerate the adoption of globally acceptable practices of corporate governance. This would ensure that the Indian investors are in no way less informed and protected as compared to their counterparts in the best-developed capital markets and economies of the world. The Financial crisis in the Asian markets in the recent past has highlighted the need of firm corporate governance. Globally, stockholders are finally demanding that they must be heard and they are also calling for reforms in how companies are being run. Big investors are demanding international standards of corporate behaviour, accounting clarity, and disclosure. Boards of directors have been sued and found liable for their actions. Significant changes are taking place in corporate regulation around the world. Some countries have written their business and company law; others are in the same line. Securities regulators have also become more demanding. The move towards the adoption International Journal of Research in Finance & Marketing http://www.mairec org

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of international accounting standards in many countries is also changing the corporate governance scene. Increasing recognition is beginning to dawn that the crucial issues are not really about board structures, company regulation or even shareholder power; they are about the processes, perceptions and powers of directors. Corporate governance in the future will, according to Devdip Ganguli, reflect an increasing emphasis on customer satisfaction as a way of measuring the adaptability of the organization over time. As he put it, "By focusing too strongly on financial records (and audit committee work), we lose sight of the fact that departments like operations and human resources are very important components (in forecasting future success). Shann Turnbull suggests that the world of corporate governance will benefit from the establishment of "a new type of corporate information and control architecture." In fact, he goes beyond this to propose that a network of more specialized board groups and "advisory stakeholder councils" comprising employees, lead customers, suppliers, and others offers a useful solution to the governance vacuum that exists in many large corporations today. So, when there is requirement of corporate governance, then that time we have to take care of four things1. Responsibility 2. Measures 3. Rewards & 4. Goal All should be interlinked and interrelated creating a diamond structure similar to porter model. Responsibility

Measures

Rewards

Goal

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Finally, there is a need of balance among objectives, risks and controls, when we want smooth corporate governance.

Objectives

Risks Corporate Governance

Controls In a world where principles have to be relearned, corporate governance will continue to rely on alert regulation. The history of regulation in the UK and elsewhere is full of examples of belated ‘stable door shutting’, most recently in insurance misleading. A new threat is emerging in the areas of life assurance consolidation where closed funds are run off to extinction. There is no doubt that interest in corporate governance has substantially increased in recent years. Not only have separate states adopted their own corporate codes but also changes in corporate governance are directed at a global level. For developing economies, corporate governance helps to achieve stable economic growth by means of effective management of corporations and, to some extent, governments (Bushman and Smith 2001). Countries which already possess advanced corporate governance standards strive to strengthen adherence to them. It goes without saying that the catalyst of the process was the corporate and financial collapse of Enron. The crash of this company illustrated that even a company with good financial results might go bankrupt if it lacked solid corporate governance mechanisms guaranteeing trustworthy work of non-executive directors, auditors and the board of directors. Following the scandal, the regulators all over the world developed a number of policies to prevent further failures. It seems unlikely that corporate governance will ever change human nature. Greed and fear are the basic motivators of humankind since the time of Adam and civilization is only skin deep. Corporate governance is part of a process of building a better world, based on shared values, which can produce growing wealth and new opportunity for sharing it more widely. At present corporate governance has not even won full International Journal of Research in Finance & Marketing http://www.mairec org

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acceptance in the boardroom and has touched few of the employees and other stakeholders who are needed to help to embed it in the daily routine of business.

REFERENCES •

Around the corporate campfire by E Clark.

•

Business Environment by Francis Cherunilam

•

Business Environment by suresh bedi

•

HBS articles

•

International Business- by VK Bhalla & S shivaramu

•

www.corpgov.net

•

www.wikipedia.com

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VALUE CREATION MECHANISM AND CLIMATE ISSUES: AN EFFICIENT APPROACH FOR CONQUERING SYNCHRONIZED CUSTOMER VALUE AND SUSTAINABLE DEVELOPMENT Dr. Shiv Prasad*

ABSTRACT “Strive for Excellence, not Perfection” is a new ideology of business in the era of competitiveness with deadlines. Cut throat competition is increasing with new business challenges and both customer and environment are putting swift torque to business drivers. Undoubtedly, businesses are running for wealth & profit creation but customer value enhancement and satisfaction have significant part in the outcomes of business intermediary processes and these processes are putting adverse impacts on ecosystem. Natural resources are depleted by rapid industrialization and reflecting negative climate change. Divergently, customers are becoming intelligent, eco conscious and technology savvy and thus they are “value takers”. It comprises organization, people and environment which are the principle dimensions and these are analysed to fabricate excellent value chain to enhance customer value premises for nurturing pragmatic business functions. The present paper envisages empirical investigation covering environmental changes and sustainable development which affects value creation mechanism in the modern aggressive and knowledge equipped society. The aim of this paper is to suggest the companies to take the help of green value chain and build programs for eco-efficient treatment of products. This will provide a new base for competitive advantage and present a new core competence to win hearts of customers. Keywords Green Value Chain, Sustainable Development, Eco-conscious Human Resources, Lean Development Mechanism

*Principal Investigator (UGC-MRP), Associate Professor, Convener, Placement Cell,HeadDepartment of Journalism & Mass Communication

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Figure 1: Aspects of Sustainable Development

INTRODUCTION Human Lives depend on a crucial relationship of people, environment

and

economic Environment

structures. The history of human development evidences environment

signifies of

impact on

the of

Sustainable Development

us.

Environment is the universal

Organization

People

and unique driver that affects every wall of life. From day to night, winter to summers, breezes to storm, drought to flood and so forth. We are living in a developing and ever growing world with incomplete knowledge of development. Unfortunately, we have decided to cut same branch on which we are standing. It is the branch of materials and developing materialistic society. Although this is not a subject matter here but somewhere it is putting groove of grey matter. We live on this earth, we use all its natural resources and simultaneously spending these resources into vanishes just in the name and sake of development. We should remember if we lose earth and its elements that will be last day for all human beings. We are running to achieve higher growth rates but how and what will be the scenario after consuming all the natural resources, we can visualise. The scenario developed by LPG is sounding to put forward global economies particularly developing economies like India and China toward respectable positions on the world map. Today’s economic environment is significantly complex especially to undertake smooth business operations. Global trade is regularly increasing irrespective of global financial turmoil. Population is increasing and thrusting consumption and its patterns. Primarily this increase is taken as opportunity to enhance business operations by the business houses. Since all business operations are performed by the human and physical resources, and these are performing crucial role in two ways. Firstly, these are essential for production function and secondly, uninterrupted utilization imposing inherent natural pressure and risk on us. Uninterrupted utilization causing considerable issues regarding climate change. For instance, production and operation function involves different types of heat and chemical treatments and these processes require higher level of energy came from different sources. To produce energy and products we are just deploying natural resources without considering negative International Journal of Research in Finance & Marketing http://www.mairec org

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impacts. Although, only high industrialization is not a single responsible factor for climate change but it is the most considerable aspect of development movement in this century. It originated several supportive processes and activities which are having the risk of natural calamities. The climate change will create a need for rapid deployment of new, low-carbon, clean technologies at a scale of production which the world has rarely, if ever, seen before. But, according to a new report released by the World Business Council for Sustainable Development (WBCSD), global low-carbon technologies are not moving at the rate of demand. The report offers policy suggestions to governments on how to leverage R&D to drive private sector investments.1 The ecological aspects are absolutely ignored in the race of development which has only one dimension i.e. economic development. Despite the spectacular gains in productivity over the last thirty years, along with the continued pursuit for improved productivity using reengineering principles, the environment has suffered tremendous environmental damage. Toothless regulation, both domestically and internationally, has been unsuccessful at stopping the harm to our environment.2 This article considers three major dimensions viz. Environment, Organizations and People. These three dimensions are not isolated from each other and forming an interrelated relationship for achieving sustainable development. Organizations are representing a social arrangement to carry out specific developmental goals and, of course, people are inseparable from both dimensions. For the business community, sustainability is more than mere window-dressing. By adopting sustainable practices, companies can gain competitive edge, increase their market share, and boost shareholder value.3 Governments are also taking initiatives for clean development system seriously because earlier efforts to retain favourable climatic conditions were not sufficient. In this respect different treaties and agreements are taking place to prevent environment and climate depletion. This article gives emphasis on correlation of environment, organization and people through business and marketing thread. Primarily, it is focussed on the present climate consideration, as a consequential of industrial participation. As every business have specific value chain to create value, they can enrich total customer value by redefining value chain with a focus on sustainable green development.

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OBJECTIVES OF THE STUDY This article focuses on environment; people, business organization and sustainable development hence on green value chain for greener operations and its role for enhance customer value. The objectives of the study are as follows: •

To assess the impact of Business Operation on current climatic conditions.

•

To correlate environment and industrialization to evaluate the role of industrialization in depleting climatic outlook.

•

To analyse interrelationship between environment, business operation and customers’ value

•

To enhance collaborative role of business operation through value chain analysis in order to perform environment friendly processes

•

To discuss customer value in the light of green value chain

•

To analyse customer value in present marketing challenges

EFFECTS OF INDUSTRIALIZATION According to United States National Research Council, Advancing the Science of Climate Change, “Science has made enormous inroads in understanding climate change and its causes, and is beginning to help develop a strong understanding of current and potential impacts that will affect people today and in coming decades. This understanding is crucial because it allows decision makers to place climate change in the context of other large challenges facing the nation and the world. There are still some uncertainties, and there always will be in understanding a complex system like Earth’s climate. Nevertheless, there is a strong, credible body of evidence, based on multiple lines of research, documenting that climate is changing and that these changes are in large part caused by human activities. While much remains to be learned, the core phenomenon, scientific questions, and hypotheses have been examined thoroughly and have stood firm in the face of serious scientific debate and careful evaluation of alternative explanations.” Heavy industrial practices are introducing contaminated things in the environment which is resulting in the stern climate transformation and contamination. Pollution became a popular issue after World War II, due to radioactive fallout from atomic warfare and testing. Then a non-nuclear event, The Great Smog of 1952 in London, killed at least 4000 people.4 The Industrial Revolution grades a major decisive moment in human history; almost every aspect of daily life was influenced in some way. Most notably, average income and population began to exhibit unprecedented sustained growth. In the two centuries following International Journal of Research in Finance & Marketing http://www.mairec org

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1800, the world's average per capita income increased over 10-fold, while the world's population increased over 6-fold.5 In the words of Nobel Prize winner Robert E. Lucas, Jr., "For the first time in history, the living standards of the masses of ordinary people have begun to undergo sustained growth. ... Nothing remotely like this economic behavior has happened before."6 Industrial Revolution, World War I and II induced several changes like political instability, changes in geographic boundaries, social patterns etc. including heavy industrialization. Heavy industrialization was supported by scientific innovations and put a thrust upon structure of employment. Instead of social changes, industrial revolution provided a strong base to heavy industrialization. Population is ever increasing and to meet proportional demand. Since the advent of industrial and technological revolutions, economic indicators have been considered as the principal criteria for measuring progress. The industrial and technological progress however, has been accompanied by a growing negative impact on the environment in terms of its pollution and degradation. Activities such as manufacturing, processing, transportation and consumption not only deplete the stock of natural resources but also add stress to the environmental system by accumulating the stock of wastes. The productivity of the industries, however, depends on the supply and quality of natural and environmental resources. While water, soil, air, forest and fishery resources are productive assets, the pollution of water, air, atmosphere and noise are the by-products of economic development, particularly industrialisation and urbanisation.7 In the past seventy years, we have exploited the Earth at the most crucial level. We are using physical resources of earth for mass production needs and in return, leaving all waste on earth. From the business philosophy, it is not a fair deal. It affects our earth and its climate negatively. In the context of climate variation, anthropogenic factors are human activities which affect the climate. The scientific consensus on climate change is, "that climate is changing and that these changes are in large part caused by human activities."8 Physical and natural resources like water, soil, air, forest etc. resources are productive assets, the pollution of water, air, atmosphere and noise are the by-products of growth and development, particularly industrialisation. "Global warming", "Green house effects", and "Acid Precipitation" are cases in point. Pollution is an "external cost". Untreated or improperly treated waste becomes pollutants and causing pollution and climate change. Climate change negatively affecting human health, flora and fauna. Climate change also International Journal of Research in Finance & Marketing http://www.mairec org

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increasing social cost. The ecological and social costs of such unrestrained pollution and degradation have put a big question mark on the perceived notion of industrialisation as a way of economic development.9 Industrialisation is necessary for human civilization and newly defined development priorities but there should be balance between natural climate conditions and industrialised emissions which are causing pollution. As always, pollution induces inauspicious chemical reactions in the environment. These reactions are imposing adverse effects on natural cycles like Water Cycle, Carbon Cycle, and Nitrogen Cycle etc. Human health, on the other hand, is also a matter of vast consideration because pollution causes health losses and labour efficiency. Henceforth, matter of human capital degradation arises.

INDUSTRIAL PARTICIPATION AND SUSTAINABLE DEVELOPMENT: Engaged in Bizarre Situation We live in a “productivist” society, where growth and economic activity have long been the central focus of the activities we undertake as individuals and communities. World GDP has grown from around $16 trillion in the mid 1970s to over $40 trillion today. Companies are churning out more of everything and inventing new products all the time.10 It is known fact that better economic indicators are now the imperatives of development. If a country is giving high growth rate with high GDP, comparatively more per capita income, balanced trade with other countries, this means it is growing and putting a thumbnail on the globe. If one country emitting huge carbon ash due to heavy industrialization, full of pollutants and due to natural air flow it is spread over another country what another country will do? Moreover, we have answers like Kyoto Protocol (11 December 1997 in Kyoto, Japan), developing and least developing countries are not supported by the developed countries. Major multinationals have played and to some extent continue to play a significant role in the politics of global warming, especially in the United States, through lobbying of government and funding of global warming sceptic. Business also plays a key role in the mitigation of global warming, through decisions to invest in researching and implementing new energy technologies and energy efficiency measures. Industrialization is the process of social and economic change that transforms a human group from an agrarian society into an industrial one. It is a part of a wider modernisation process, where social change and economic International Journal of Research in Finance & Marketing http://www.mairec org

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development are closely related with technological innovation, particularly with the development of large-scale energy and metallurgy production. It is the extensive organisation of an economy for the purpose of manufacturing.11 The international trade is increasing with the increasing purchasing power of the consumers. If we think about the decreasing the numbers of industries, it may lead to the serious problems like unemployment, poverty and inequality around the globe and of course, this is not a feasible solution. Heavy investment in large production houses fulfilling the need of population and the population is responsible for the specific patterns of consumption level; somewhere the heavy industrialization is responsible for environmental depletion. Climate change does not occur in fortnight, it is result of continuous aggregation of pollutants and their impact on local ecology (biotic and abiotic factors). Although, there are very few and low level operations of firms but at the level of industry the operations take place of huge processes and environmental consideration. Societies have always depended on the climate but are only now coming to grips with the fact that the climate depends on their actions. The steep increase in greenhouse gases since the Industrial Revolution has transformed the relationship between people and the environment. In other words, not only does climate affect development but development affects the climate. Climate change will reverse development progress and compromise the well-being of current and future generations. It is certain that the earth will get warmer on average, at unprecedented speed. Impacts will be felt everywhere, but much of the damage will be in developing countries. Millions of people from Bangladesh to Florida will suffer as the sea level rises, inundating settlements and contaminating freshwater. Greater rainfall variability and more severe droughts in semiarid Africa will hinder efforts to enhance food security and combat mal-nourishment. The hastening disappearance of the Himalayan and Andean glaciers—which regulate river flow, generate hydropower, and supply clean water for over a billion of people on farms and in cities—will threaten rural livelihoods and major food markets. That is why decisive, immediate action is needed. Even though the debate about the costs and benefits of climate change mitigation continues, the case is very strong for immediate action to avoid unmanageable increases in temperature.12 Industrialisation has spawned its own health problems. Modern stressors include noise, air, water pollution, poor nutrition, dangerous machinery, impersonal work, isolation, poverty, homelessness, and substance abuse. Health problems in industrial nations are as much caused International Journal of Research in Finance & Marketing http://www.mairec org

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by economic, social, political, and cultural factors as by pathogens. Industrialisation has become a major medical issue worldwide. Countries, such as the United States and China are now looking at ways to manage emissions being let off. China, being one of the fastest growing industrialized countries, releases emissions at a much more rapid rate than any other country. They are burning more fossil fuels and discharge more Carbon emissions. With China’s substantial industrialized growth, it is likely that we will see more cars on the road, letting of greater emissions. As more countries begin to develop, the pollution only gets larger, making it harder to improve the air. On one hand, as the economy rises, so does the amount of fossil fuels being burned daily. On the other hand, there is still the question of whether or not economic development could even happen while protecting the atmosphere. The main problem is that developed countries are competing instead of working together. Even if the countries do work together, there is still not enough participation among other countries to do any drastic change. Countries now need to agree on a low emission standard to cease the competition.13 Aside from purely human-produced synthetic halocarbons, most greenhouse gases have both natural and human-caused sources. During the pre-industrial Holocene, concentrations of existing gases were roughly constant. In the industrial era, human activities have added greenhouse gases to the atmosphere, mainly through the burning of fossil fuels and clearing of forests.14Since about 1750 human activity has increased the concentration of carbon dioxide and other greenhouse gases. Measured atmospheric concentrations of carbon dioxide are currently 100 ppm higher than pre-industrial levels. Natural sources of carbon dioxide are more than 20 times greater than sources due to human activity,15 but over periods longer than a few years natural sources are closely balanced by natural sinks, mainly photosynthesis of carbon compounds by plants and marine plankton. As a result of this balance, the atmospheric mole fraction of carbon dioxide remained between 260 and 280 parts per million for the 10,000 years between the end of the last glacial maximum and the start of the industrial era.16 Figure 2: Annual GHG Emissions by Sector

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Annual Greenhouse Gas Emission by Sector Residential, Commercial Use 10% Land Use and Biomasss Burning 10%

Waste Disposal and Treatment 3%

Industrial Process 17%

Power Stations 22%

Fossil Fuel Retrieval 11%

Agricultural Byproducts 13%

Transportation Fuels 14%

Source: Climate Change 2007: Synthesis report, Summary for Policy Makers19

At the macroeconomic view point, the consumption and production are the two different sides of same coin. Growing rate of population growth resulting into increasing consumption and this increasing consumption is framing opportunity head of organization in their Economic Threat Opportunity Profile with higher production chance. Despite the present downturn, the issue of environmental responsibility hasn’t gone away. Again and again, we hear of a continued boardroom focus on the ‘carbon agenda’. Yet at the exact same time as economic conditions are forcing organizations to justify the expenditure and effort on the most tangible and immediate of returns, half of our respondents say they are unable to quantify the savings achieved through carbon initiatives.17 The 2007 Fourth Assessment Report compiled by the IPCC (AR4) noted that "changes in atmospheric concentrations of greenhouse gases and aerosols, land cover and solar radiation alter the energy balance of the climate system", and concluded that "increases in anthropogenic greenhouse gas concentrations is very likely to have caused most of the increases in global average temperatures since the mid-20th century". In AR4, "most of" is defined as more than 50%.18

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Gas

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Preindustrial level

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Current level

Increase since 1750

Carbon dioxide 280 ppm

388 ppm

108 ppm

Methane

700 ppb

1745 ppb

1045 ppb

Nitrous oxide

270 ppb

314 ppb

44 ppb

CFC-12

NIL

533 ppt

533 ppt

ppm=parts per million ppb=parts per billion ppt=parts per trillion Source: Climate Change 2007: Synthesis report, Summary for Policy Makers19

Expanding economies, growing populations and unsustainable patterns of energy supply and use could lead to an increase in global GHG emissions, incompatible with stabilization objectives. The Intergovernmental Panel on Climate Change has concluded that reductions of at least 50% in global CO2 emissions compared to 2000 levels will be necessary by 2050 in order to prevent dangerous climate change. Concerns over energy security and the volatility of oil prices contribute to a demand for less fossil fuel in the energy mix. Achieving this goal will require a wider diffusion of existing low-carbon technologies as well as RD&D investment to improve existing low-carbon technologies and processes, and to produce new ones.19 In totality, industries are playing significant role in the issues related to the environment and climate change. Perfect evidences are available at the counterparts of industrialization. It is also clear from above discussion that environment is not a sole property of any country or organization; it is an asset of whole living and non living things available on the earth. Henceforth, for sustainable development, collective actions are required from different types of entities including business and non business organizations. The overall scenario is changing gradually. There are various organization which are taking climate change very seriously and striving for sustainable development. Environmentalism in the 21st century is likely to be characterized by various efforts to implement the sustainable development agenda. International organizations, such as the United Nations and World Bank, will be integral to the development of effective global environmental policy.20 2010 Biodiversity Indicators Partnership, 2010 International Year of Biodiversity, Afrique verte, Agronomy for Sustainable Development,

Appropedia, Dashboard of Sustainability, Earth Charter,

Greenhouse Development Rights, Institute for Environment and Sustainability (IES), Institute International Journal of Research in Finance & Marketing http://www.mairec org

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for Trade, Standards and Sustainable Development (ITSSD), International Institute for Environment and Development, International Institute for Sustainable Development (IISD), International Organization for Sustainable Development, National Center for Appropriate Technology, National Strategy for a Sustainable America, Solar Net International, Stakeholder Forum for a Sustainable Future, Sustainable Tourism CRC, The Earth Institute, TERI – The Energy and Resources Institute, The Sustainable Urban Development Network (SUD-Net), The Venus Project, United Nations Decade of Education for Sustainable Development, World Cities Summit are the considerable institutions which are working for sustainable development. There is an increased awareness of the importance of global warming (the current climate change) as a factor in a range of issues. Many environmental, economic and social issues find common ground in mitigation of global warming.21 Now the corporate sustainability, corporate sustainability is a business approach that creates long-term consumer and employee value by not only creating a "green" strategy aimed towards the natural environment, but taking into consideration every dimension of how a business operates in the social, cultural, and economic environment. Also formulating strategies to build a company that fosters longevity through transparency and proper employee development. Corporate sustainability is an evolution on more traditional phrases describing ethical corporate practice. Phrases such as corporate social responsibility (CSR) or corporate citizenship continue to be used but are increasingly superseded by the broader term, corporate sustainability. Unlike the other phrases that focus on "added-on" policies, corporate sustainability describes business practices built around social and environmental considerations.22 In the words of Mr. Connie Hedegaard, Danish Minister for the Environment, Measuring Sustainable Production, and Our overriding challenge is to dramatically decouple economic growth from the use of natural resources and degradation of the environment.

INTEGRATING MARKETING, SURROUNDINGS AND CUSTOMERS: A Prolific Passage for Diametric Development Incorporating marketing management with sustainable development, customer delighting & environmental brilliance is becoming a crucial element for achieving operational and strategic excellence. It results into creating shared value with the help of uninterrupted International Journal of Research in Finance & Marketing http://www.mairec org

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enhancement cycle & process innovation to save money and optimum utilization of natural resources in the processes via diminished resources & utility cost. In this way, firm can support environment & enhance customer value. New environmental issues dictate the redefining of economic interest in the wake of the corporate social responsibility. By leveraging superior visibility up and down the entire value chain, firms can achieve increased efficiency and reduce environmental impacts by aligning around common goals and making better-informed executive decisions. To sustain profitable growth over time, companies need to build a more robust and reliable growth platform with a disciplined focus on creating and exchanging value with their customers. Increasingly, companies are striving to create value by using their assets and capabilities to drive innovation and profitable growth while striving for a positive economic, environmental and social impact. To become, in other words, sustainable enterprises that can use growing public support for more environmentally-friendly production to build good will and brand equity. The sheer breadth of the mission can appear daunting. Until, that is, you consider that Lean improvement tools and methodologies that have been used by many organizations for nearly 30 years to help cut waste and costs—and boost profits—also can provide a marked advantage in achieving sustainability objectives.23

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Figure 2:Integrating Marketing, Environment and Customers Customer s’ Shared Value Enhancement & Wealth Creation

Demanding Natural Products Strategic Excellence

“Chemical” Conscious

Vision Mission Goals and Objectives

Environment Friendly Products

(Delivering)

Corporate Social Responsibility Adequate Profit Margin

Customer Group

Overall Reduced Cost Sustainability Marketing (Communicating)

Green Value Chain (Creating)

Business Definition

Sustainable Technology & Operations Customer Function

Alternative Technologies Operational Excellence Competitive Advantage & Distinctive Competencies Employment of Physical & Less Carbon Emission Natural Resources Existing Development Definitions Amplifying Carbon Credit Less Environment Friendly Processes Rapid Industrialization Climate Change

Less Environment Regulation Burden

Environmental Degradation & Climate Change Serious Environment Issues

Protected Climate

Increased Risk

Cautious People Negative Impact upon Natural Resources

Secured Earth

GREEN VALUE CHAIN: A Little but Effective Approach to Uphold Environment The term “Value Chain” was given by Michael E. Porter of Harvard in his book “Competitive Advantage: Creating and Sustaining Superior Performance” (1985) as a tool for identifying ways to create customer value. The value chain analysis describes the activities the organization performs and links them to the organizations competitive position. Every firm is systems of different activities that are performed to acquire raw materials, design, product, market, deliver, and support its product. The value chain identifies nine strategically relevant activities that create value and cost in a business. The primary activities represent the sequence of bringing materials into the business (Inbound Logistics), converting them into final products (Operations), shipping out final products (Outbound Logistics), marketing them( Marketing and Sales), and servicing them(Service). The support activitiesProcurement, Technology Development, Human Resource Management, and Firm International Journal of Research in Finance & Marketing http://www.mairec org

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Infrastructure- are handled in certain specialized departments. The term “Margin” implies that organizations realize a profit margin that depends on their ability to manage the linkages between all activities in the value chain. In other words, the organization is able to deliver a product / service for which the customer is willing to pay more than the sum of the costs of all activities in the value chain. It is clear from the above discussion that every organization has its own value chain to create value for customers. It can be observed that value chain includes all activities from procurement of raw materials to sales and after sales services. Therefore, the production operation function is included in between them. One of the three dimensions, the Alternative Technologies deals with it and envisages collaborative association with customer function and group. The role of alternative technologies is significant in value chain. It defines the mode of transformation of input into output and has greater influence on the environment. Microscopically, in primary activities the part framed by the Operation is significantly considerable for adopting green practices. Differentiated green value chain operations envisages with the ways by which an organization can differentiate itself and gain market share over another by utilizing greener operations and achieve competencies for delivering high customer value. This concept is based on micro level analysis of each component or process of the product (or service) creation –Value Chain- to ascertain which activities are adding values in low carbon mode to the customer. A differentiation strategy based on environmental protection can add value to the product. Since many companies will adopt a “wait and see” attitude toward environmental products, there is a window of opportunity for firms whose management is prepared to exploit it. Over time, corporate greening will become so widespread, that any “green advantage” will become a competitive necessity. However, in this interim, Green Reengineering leaders will have netted more profits, production efficiencies, and customer goodwill.24

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Figure 3:Strategic Framework for Green Operations Need to Preserve Natural Climate

Global Environment & Climate Changes

Sustainable Envisioned Future Focus on Customer Value Prioritize Climate Issues

Focus on society and Socially Responsible Business Practices

Adopt Green Strategy

Execute Green Operations

Perform fair CSR

Deliver Green Products

Green Strategy Integration & Low Carbon Technologies

Focus on Lean Operations Utilize Renewable Energy

Redesigned Green Products Biodegradable Features

Sustainable Business Excellence Increased Customer Value

GREEN VALUE CHAIN, CUSTOMER VALUE AND ENVIRONMENT: An Exceptional Association As natural resources become scarcer and measures to reduce pollution and global warming increase, the continued trend to go “green” is accelerating. Growing concern and increasing awareness about environment aspects leads the companies to adopt leaner and greener practice in consistent to the economic and environmental benefits. Working closely across the value chain

improves the effectiveness of their operations and reduce waste through

alternative material usage, improved material utilization, transportation optimization to reduce carbon emissions etc. and it facilitates the journey to becoming greener. In this aggressive arena, to match customer expectation is very difficult. Increasing customer expectations are imposing new concerns for the firm. As discussed earlier, an organization has abided by bidirectional forces, firstly, pressure from economic forces and secondly, pressure and responsibility to protect the environment. To survive in this competitive environment, firm must have a fresh look on their strategies with the touch of environmental protection. International Journal of Research in Finance & Marketing http://www.mairec org

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Cornerstone of a well conceived marketing orientation is ‘customer’ & customer have the crucial voice and entire system revolves around their attitudes. Clear understanding of end consumer always pays to companies. Companies are striving to create value by using their resources and capabilities to drive innovation and profitable growth while striving for a positive economic, environmental and social impact. To become, sustainable enterprises can use growing public support for more environmentally-friendly production to build goodwill and brand equity. To achieve high performance, companies must understand the customer value enrichment drivers and the opportunities across the value chain and try to develop new competencies for sustainable development. By achieving sustainable growth, organization can set a new customer value equation. With the help of eco-friendly products & Services, firm can develop and retain profitable customer relationship by creating differentiated customer centric experience. This attitude of firm will results into increased brand reputation, cost reduction by having less carbon footprint and it can create and influence customer loyalty. Since the awareness of environment is increasing in customers, on the other part it is a corporate responsibility to convey the core ideology of sustainable development to their customers. It thrust more green awareness and put a force of feel discerning by consuming green products.

Customer

experience design management will results into high customer value, hence high customer loyalty. With the help of green value chain, companies can build programmes for eco efficient treatment of products. Businesses to win customer, must make the products to give customer surplus. Meanwhile, end consumers are also becoming more environmentally aware, creating an opportunity for marketing departments to appeal to this segment. A recent Accenture survey showed that 80 percent of respondents believed their lives would be impacted by climate change. Furthermore, these consumers are starting to demand sustainable solutions at the same price as products of comparable value.25 Increasing step for happy environment results in to enormous positive impact on customer attitude while embodying comprehensive national strength. In a time of changing customer value and customer expectation, marketing function has a more strategic role to play in adding new dimension in their present concept. Adding a dimension of environmental can have a powerful impact on the customer attitude. It provides a new base for competitive advantage and presents a new core competence to win hearts of customer. It will present a

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“win-win” situation in a way of happy & delighted customer, safe environment and growing business. Figure 4: Assimilation of Green Value Chain and Customer Value

I. PrimaryActivities

“Green” Scope

1. InboundLogistics

Quantum of Fossil Fuel in Transit & Storage Function

Low inventory. Less frequency of shipment Optimumpurchase order size

2. Operations

Lower Intensive Heating & Chemical Treatment

•Waste Elimination •Use of Solar & Nuclear Energy •Green & Lean Operations •Process Innovation •Low Carbon Transformation

3. OutboundLogistics

4. Marketing& Sales

5. Services

Execution Mode

Storage & Use of Fossil Fuel in Transit

OptimisePhysical Network SRM

Use of Energy & Physical Evidences

Local Warehousing Simplified Tertiary Packaging

Service differentiation

Green Utility RenewableEnergy Extension

II. SupportActivities 1. Firm Infrastructure

Primary & Support activities have collaborative impact on Total Customer Value. Customer ValuePropositions are added through out the Value chain and finally communicated and delivered to the customer. Customer are the Value maxi misers and GreenerOperations add Economic, Functional and Psychological values as perceived by customer. ValueDrivers: Differentiatedcustomer experience Unparalleled Customer Service Experience Growth

Cost reduction EnhancedOrganizational Reputation

Ventilated, use of natural light & green surroundings

Energy saving Technology FollowEnvironmental Management System

2. HumanResource Management

Eco-consciousHuman Resource

Develop & buildeco responsible Human resources

3. Technology Development

Clean DevelopmentMechanism

Process Innovation Transaction & management information system

4. Procurement

Customer Value Enrichment

Sustainable Sourcing

Brand Image

CorporateSocial Responsibility Improved EnvironmentalImage

Qualityof Life

Develop generic efficient natural practices

Customers are value-maximizers, within the bounds of search costs and limited knowledge, mobility and income. They form an expectation of value and act on it. Whether or not the offer lives up to the value expectations affects both satisfaction and repurchase probability. Total Customer Value is the perceived monetary value of the bundle of economic, functional, and psychological benefits customers expect to incur in evaluating, obtaining, using and disposing of the given marketing offering.26 Changing consumption pattern with a touch of eco-consciousness leads to consumer to spend money for environment friendly products. Green ordinal utility can be delivered through green products produced by sustainable value chain. International Journal of Research in Finance & Marketing http://www.mairec org

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The recurrent theme of Green value chain is to reduce, reuse, and recycle. By undertaking effective initiatives to reduce, reuse, and recycle, companies can cut various costs while bolstering their brand’s image of corporate responsibility. Businesses can integrate supply chain activities (from sourcing, through distribution and store operations, to end consumers) to make up most of their carbon footprint.

Corporate Participation in Sustainable Development: A Case of Hindustan Unilever Limited, India27 Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company with a heritage of over 75 years in India and touches the lives of two out of three Indians. With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers, the Company is a part of the everyday life of millions of consumers across India. The Company has over 15,000 employees and has an annual turnover of Rs.17, 523 crores (financial year 2009 - 2010). HUL is a subsidiary of Unilever, one of the world’s leading suppliers of fast moving consumer goods with strong local roots in more than 100 countries across the globe with annual sales of about €44.3 billion in 2010. Unilever has about 52% shareholding in HUL.

Sustainability Strategy of HUL Unilever’s vision is to double the size of its business while reducing the overall impact on environment. This new vision recognises that the world is changing, populations are growing and the rise in incomes is fuelling a growth in the demand for consumer products. Products rely on an increasingly constrained set of natural resources, whether it is fuel, water, or other raw materials. In Hindustan Unilever Limited (HUL), the principle of Corporate Responsibility (CR) is an integral part of their commitment to all stakeholders – consumers, customers, employees, the environment and the society that HUL operate in. The key to this approach is developing a CR framework which integrates the social, economic, and environmental agenda with business priorities – growing markets, maintaining the competitive edge, enjoying goodwill in the communities HUL operate in, and building

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trust and an exceptional reputation. Hence, in the future, the three cornerstones for CR integration with business at HUL will be:

1. Growing markets responsibly: They will address issues related to hygiene and nutrition through product innovations and awareness. Gathering information about the concerns expressed by consumers, communities, and stakeholders can help us identify opportunities for innovation at the category, brand, and marketing plan level. HUL have a very strong and trusted position in India and HUL can leverage to achieve competitive advantage. 2. Ensuring sustainable practices in operations: To secure a thriving future, organization need to establish sustainable sources for raw materials. Being a company that is heavily dependent on water, agriculture, fuels and petrochemicals, HUL must plan now for a future in which water could be scarce, agriculture could be under pressure, and fuels will be expensive. 3. Building a good reputation through responsible leadership: Corporate Responsibility is one of the key components of reputation and trust. A good reputation can be a major competitive advantage and can build employer brand and consumer loyalty.

Ecosystem: Sustainable living Our planet faces enormous environmental problems. HULs’ aim is to make own business activities more sustainable and encourage suppliers, consumers, and others. It is constant endeavour to manage and reduce wider footprint with sustainable agricultural practices, ecoefficient operations, as HUL as with product and packaging innovations. Operations of HUL A large amount of the raw materials HUL need is derived from agriculture, so Sustainable Agriculture Programme plays a key role in managing upstream impact. In operations HUL aim to improve the eco-efficiency of manufacturing operations, minimize resources used and waste created. To manage downstream impact, research and product development teams work towards reducing the environmental impact of products and packaging through reformulation and innovations. Sustainable Sourcing Since HUL depend on agriculture and forestry for a large part of raw materials, sustainable sourcing has become a strategic issue for business and brands. Unilever developed the generic Good Agricultural Practice Guidelines (now known as the Unilever Sustainable Agriculture Code) for growers of key crops, which cover 11 indicators, International Journal of Research in Finance & Marketing http://www.mairec org

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including water, energy, pesticide use, biodiversity, social capital and animal welfare. In 2002, HUL started using these guidelines for five crops. HULs’ long-term aim is to buy all key agricultural raw materials from sustainable sources, so that: •Farmers and farm workers can obtain an income they can live on and improve their living conditions •Soil fertility is maintained and improved •Water availability and quality are protected and enhanced •Nature and biodiversity are protected and enhanced Eco-efficiency HUL is striving to improve the eco-efficiency of manufacturing operations, minimising resources used, and residual waste created. HUL have continuous improvement targets for all environmental parameters and specific goals with respect to water and carbon. All manufacturing sites have implemented Unilever's Environmental Care Framework Standards, which require all Unilever operations to establish a formal environmental management system. The framework is modeled on ISO-14001 and OHSAS 18001 international standards and is ultimately applicable to all manufacturing sites. Some units are also ISO-14001 and OHSAS-18001 certified. The environmental data was collected from all 42 owned manufacturing units (including one in Nepal). HUL apply a set of mandatory standards of safety and environment to third party manufacturers and co-packers and encourage them to monitor their own performance. HULs’ environmental performance is periodically reviewed by the Central Safety, Health and Environment Committee (CSHEC). It is supported by sub-committees which are responsible for making and recommending standards. Implementation and monitoring is done by safety, health and environment committees used, and residual waste created. HUL have at division and unit level (DSHEC and USHEC).

ECO-EFFICIENCY INITIATIVES Low carbon technology: The ploughshare mixer technology eliminates the need for steam in soap making, cutting carbon emissions by 15,000 tonnes per year. HUL are the first Unilever business, in the world, to be awarded carbon credits under the Clean Development Mechanism (CDM)

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1. Carbon neutral fuels and renewable energy: Manufacturing operations at Chiplun, Puducherry, and Hosur use briquette boilers that utilise bio-mass as fuel. The reduction per annum in C02emissions in the Chiplun factory is 11,000 tonnes and in the Puducherry factory is 10,000 tonnes. They also have project of switching over to biomass as fuel and replacing furnace oil has been registered as a CDM project. Mysore and Hosur manufacturing operations source green electricity from windmills.

2. Water sustainability in manufacturing operations: HUL is focussing on the strategy for water is based on the 4-R Principle – HUL reduce at source, reuse within process, recycle wherever possible, and renew groundwater with rainwater harvesting projects.

3. Compliance and Audit: All manufacturing units comply with local and national laws. Necessary environment clearances and all their conditions as applicable are being complied with. External audits for Unilever's Environmental Care Framework Standards are conducted once every three years for manufacturing operations

4. Climate-friendly Refrigeration: HUL ice-cream business uses deep freezers in retail and vending operations for storage of product at the point of sale. Since 2007, Kwality Wall's has moved into procuring technologically advanced Hydrocarbon (HC) refrigerant-based freezers for its retail operations, instead of the hydrofluorocarbons (HFC) refrigerant based freezers. HUL are also trying to develop freezers with HC technology for use in vending operations. The HFC avoidance methodology has been approved by the United Nations Framework Convention on Climate Change.

5. Safe drinking water without consuming energy: Without making use of electricity or heat energy, Pureit water purifier ensures that that water is as safe as boiled water. Pureit filtered water meets the stringent criteria of the Environmental Protection Agency (USA). Consumers, who use Pureit to get safe drinking water, do so without consuming electricity, thus conserving energy. The internal studies have indicated that in terms of CO2emission reduction.

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6. Reducing water footprint: Unilever developed a formulation that produces less lather and hence requires less water when rinsing. Based on a study of current laundry habits and recommended detergent usage, it is estimated that Surf Excel quick wash has the potential to reduce water usage by consumers significantly. Considering large consumer base for this product, it makes a big difference, especially in the southern states of India, where laundry accounts for up to a quarter of the total water used.

7. Sustainable Packaging: Packaging protects products right from the transportation stage till its purchase by a consumer. HUL take a lifecycle approach to managing the environmental impact of packaging, therefore HUL try to ensure that the most suitable and sustainable packaging material is used. Sustainable packaging involves: •Considering the whole product, not just the packaging •Adopting leading-edge design techniques and choosing materials to minimise impact •Working with others, through advocacy and partnerships, to strengthen the recycling and recovery infrastructure This approach is dictated by five principles - remove, reduce, reuse, renew and recycle. The environmental impact of different materials varies significantly, so HUL consider the impact of the packaging at each stage of the product's lifecycle. In a nutshell, we can conclude that HUL is continuously striving for customer value creation through adopting significant eco-efficient initiatives.

CONCLUSION Heavy Industrialization, increasing population and cutting edge technology have adverse effect on the environment. Businesses are the development drivers and at the same time they are imposing serious environmental challenges. Value chain flexibility can be a valuable tool to both leverage reductions in carbon emissions and simultaneously exceed their customers' expectations. By integrating sustainable thinking within their selection of technology for their operations, organisations can therefore shift to lower carbon platforms and simultaneously reap business benefits. Customer Value Propositions can be added across the Value chain and finally conveyed to the customer. Customers are the Value maximizers and Greener Operations add Economic, Functional and Psychological values to the customers with differentiated customer experience. International Journal of Research in Finance & Marketing http://www.mairec org

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Organizations are missing out an opportunity to develop operations that are more sustainable as well as more cost effective .Organizations should have lean and flexible value chains, end to end visibility across those value chains, fair-but-flexible contracts with service providers, and an understanding of how best to harness carbon-based initiatives to the broader operational agenda. Few lean and agile organizations are moving on the path of developing new competencies for sustainable development with an angle of customer value enrichment. It facilitates journey of “Greener Tomorrow” with threefold benefit for People, Environment and Organization.

REFERENCES 1

2

http://www.wbcsd.org/plugins/DocSearch/details.asp?State=P&type=DocDet&ObjectId=MzkxNjA

http://www.unm.edu/~rattner/picmet97.pdf http://www.iisd.org/business/ 4 1952: London fog clears after days of chaos (BBC News) http://news.bbc.co.uk/onthisday/hi/dates/stories/december/9/newsid_4506000/4506390.stm 5 Maddison, Angus (2003). The World Economy: Historical Statistics. Paris: Development Centre, OECD. pp. 256–62 6 Lucas, Robert E., Jr. (2002). Lectures on Economic Growth. Cambridge: Harvard University Press. pp. 109–10. 7 http://himadri.cmsdu.org/documents/Industrialisation_and_Environmental_Pollution.pdf 8 America's Climate Choices: Panel on Advancing the Science of Climate Change; National Research Council (2010). Advancing the Science of Climate Change. Washington, D.C.: The National Academies Press. 9 http://himadri.cmsdu.org/documents/Industrialisation_and_Environmental_Pollution.pdf 10 Sustainable Development: Linking Economy, Society, Environment, OECD Library, pp-79 11 Sullivan; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 472 12 World Development Report, 2010, pp. 37 13 Hopke, Philip K. "Contemporary Threats and Air Pollution." Atmospheric Environment 43 (2009): 87-93. Web. 25 Feb. 2011 14 IPCC; Solomon, S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor and H.L. Miller (eds.) (2007). “Historical Overview of Climate Change Science ". Climate Change 2007: The Physical Science Basis. Cambridge, United Kingdom and New York, NY, USA: Cambridge University Press. http://www.ipcc.ch/pdf/assessment-report/ar4/wg1/ar4-wg1-chapter1.pdf 15 "Climate Change 2001: Working Group I: The Scientific Basis: figure 6-6 16 IPCC; Solomon, S., D. Qin, M. Manning, Z. Chen, M. Marquis, K.B. Averyt, M. Tignor and H.L. Miller (eds.) (2007). "Couplings Between Changes in the Climate System and Biogeochemistry". Climate Change 2007: The Physical Science Basis. Cambridge, United Kingdom and New York, NY, USA: Cambridge University Press. http://www.ipcc.ch/pdf/assessment-report/ar4/wg1/ar4-wg1-chapter7.pdf 3

17

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http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Closing_the_Gap.pdf http://www.ipcc.ch/pdf/assessment-report/ar4/syr/ar4_syr_spm.pdf, pp. 5 International Journal of Research in Finance & Marketing http://www.mairec org

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19

Innovating for green growth, The World Business Council for Sustainable Development, pp-5 20 Fernando, A.C. (2009), Business Ethics and Corporate Governance, Environment Ethics; Pearson Education, India, pp. 4.6 21

http://www.oecd.org/document/11/0,3343,en_21571361_37705603_41530635_1_1_1_1,00.html

22

http://en.wikipedia.org/wiki/Corporate_Sustainability

23

http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Look_to_Lean_to_Reduce_Waste.pdf

24

Klassen, R. D. and C. P. McLaughlin, “The Impact of Environmental Management on Firm Performance,” Management Science, Vol. 42:8, August 1996, pp. 1199-1214. 25 http://www.accenture.com/ 26 Kotler, Philip (2004), Marketing Management, Building Customer Satisfaction, Value and Retention, Printice Hall of India, pp-60 27 Case is based on information available in Annual Reports 2009-10 and Sustainable Development Report 2009. http://www.hul.co.in/Image/AnnualReport0910_tcm114-225889.pdf http://www.hul.co.in/Images/hul%20Sustainable%20Development%20Report%202009_tcm1 14-226531.pdf

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HR ISSUES IN MICRO, SMALL AND MEDIUM ENTERPRISES Ms. Himani Agarwal*

ABSTRACT MSMEs (Micro, Small and Medium Enterprises) are the backbone of Indian economy and this sector plays a vital role in the growth of the country, contributing significantly to GDP and export. In addition, this sector mobilizes local capital and skills, provides jobs to millions of people, and thereby provides the impetus for growth and development, particularly in rural areas and small towns. Most previous studies have identified or examined different types of problems based on the size, age, and/or growth rate of the firm. In which “people” or “human resource” (HR) problems facing firms in various stages that we intend to examine. The human resource “department” for a small business is usually not more than one person–and often only one person who wear many hats. While general people/HRM problems have been identified few studies have focused on specific MSMEs HRM problems or issues Consequently, Firms of different sizes do apparently have different HRM problems and practices but five specific HRM areas

must

be

examined:

job

analysis/job

description,

recruiting/

selection

compensation/benefits, training, and performance appraisal. It is therefore important that not only the customers and suppliers, MSMEs today also need to collaborate closely with their own employees, in order to increase the organizational efficiencies. In this article we have studied about to finding solution a wide range of HRM issues that can help a firm to put the right people on a right job, develop their skills, retain talent, reward to top performers. This means reduced cost, healthy work environment and more importantly, increased profit.

Key Words: Economy, Growth rate, HRM/People MSMEs, profit, Recruitment and Training etc.

,

*Lecturer (M.B.A), GRD Institute of management and technology Rajpur road, Dehradun

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INTRODUCTION MSMEs (Micro, Small and Medium Enterprises) are the backbone of Indian economy and this sector plays a vital role in the growth of the country, contributing significantly to GDP and export. In addition, this sector mobilizes local capital and skills, provides jobs to millions of people, and thereby provides the impetus for growth and development, particularly in rural areas and small towns. Most previous studies have identified or examined different types of problems based on the size, age, and/or growth rate of the firm. In which “people” or “human resource” (HR) problems facing firms in various stages that we intend to examine. Firms of different sizes do apparently have different HRM problems and practices but five specific HRM areas must be examined: job analysis/job description, recruiting/ selection compensation/benefits, training, and performance appraisal. Human resource (or personnel) management, in the sense of getting things done through people. It's an essential part of every manager's responsibilities, but many organizations find it advantageous to establish a specialist division to provide an expert service dedicated to ensuring that the human resource function is performed efficiently. "People are our most valuable asset" is a cliché which no member of any senior management team would disagree with. In order to implement a successful business strategy to face this challenge, organizations, large or small, must ensure that they have the right people capable of delivering the strategy. The market place for talented, skilled people is competitive and expensive. Taking on new staff can be disruptive to existing employees. Also, it takes time to develop 'cultural awareness', product/ process/ organization knowledge and experience for new staff members. As organizations vary in size, aims, functions, complexity, construction, the physical nature of their product, and appeal as employers, so do the contributions of human resource management. But, in most the ultimate aim of the function is to: "ensure that at all times the business is correctly staffed by the right number of people with the skills relevant to the business needs", that is, neither overstaffed nor understaffed in total or in respect of any one discipline or work grade. International Journal of Research in Finance & Marketing http://www.mairec org

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MSME’s SCENARIO: World over, the Micro Small and Medium Enterprises or MSMEs have been recognized as engines of economic growth. In India, MSMEs are the second largest source of employment after agriculture. They account for almost 40 per cent of industrial production, 95 per cent of the industrial units, 34 percent of the exports and manufacture over 6000 products. It is estimated that to create one job in the MSME sector, only Rs 72,000 is required as against Rs 5.5 lakh required in the large organized sector. In the present scenario of global recession, where several large industries are on the verge of collapse, the role of MSMEs assumes significance. It is estimated that to achieve the target of 10 per cent growth by 2011, the MSME sector needs to grow at 12%. However if we compare the growth of MSMEs in India with those in the neighboring countries in South East Asia like Thailand, Malaysia, Japan, China, etc. it is found that we lag far behind. There are some major hurdles which do not allow this sector to flourish well. The first major hurdle is that the credit availability is low for this sector. It is estimated that the unorganized sector comprises 95% of the total industrial units, employing more than 65 million people. Yet only 8% of the total bank credit finds its way into this sector. Though credit to MSMEs fall under the category of priority sector lending, but with the expansion of the priority sector lending to accommodate fast growing areas such as home loans, education loan, the percentage share of credit to MSMEs is falling. According to the Third All-India SSI Census (2001–02), only 14.2% of the registered and 3.09% of the unregistered MSMEs availed finance from bank. Arranging collateral security, documentation etc makes clearance of the loan all the more difficult and as a result the business of the local money lenders continues to flourish. Inevitably, many of these small units fall into the vicious cycle of debt and poverty and eventually many of them perish. Banks therefore should be encouraged to ensure that all loans up to Rs 5 lakh to MSMEs are given free of collateral and at a low interest rate.

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Formal sector has the option to raise huge sum from the money market, while the unorganized sector doesn’t have any such opportunity. In the 11th Five Year Plan, Planning Commission estimates that in the next five years the total working capital and loan requirement by the MSMEs/unorganized sector would be 2,96,000 crore. Given the small percentage of financing by the formal banking system, this huge credit requirement cannot be met by the banking system alone. Need of the hour is venture capitalist approach to be encouraged in the unorganized sector as it is practiced in the developed countries. Secondly, if microfinance agencies can be properly regulated and monitored they can serve as a good avenue of investment for people who are interested in high risk- high profit investment. At present most, of the micro finance agencies/projects active in India is either operating with a welfare motive or are too small to make any impact. Second major hurdle is the lack of technological innovation and the knowledge of market demands. This is true particularly in the textiles sector. Most of the household units still work on obsolete technology because of which not only the cost of production remains high but the product also fails to meet the demand of the market in terms of quality. Because of liberalization and opening up of the economy, the MSMEs are now facing stiff competition from imports and therefore need technological up gradation to manufacture better quality products at cheaper rates.

Though India ranks at top in terms of availability of human resource in science and technology but technology intervention in the small industry sector is still very low and as a result the cost of production is much higher in India than other developing nations in Asia. Similarly, our artisans and weavers remain unaware of the latest designs and current market trend. They continue to manufacture products with old design which fail to generate appeal among the consumers.

There exist a huge disconnect between the household unit owners/weavers/artisans, and the designers/engineers. There is need to encourage engineers and fashion designers to work with these small units’ owners, weavers, designers which would be mutually beneficial and would International Journal of Research in Finance & Marketing http://www.mairec org

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help revive the sector and make it globally competitive. Information dissemination about availability of recent technologies, literature on modern machinery, contact details of suppliers of raw materials, buyers, etc., among those working in the MSMEs is extremely essential.

Another major hurdle is the lack of market accessibility for the poor artisans, weavers, household unit owners, etc. Most MSMEs do not have money to invest in market research and are unable to carry out design and technical improvements to keep up with market demands. It is because of this lack of information that the middlemen are able to take advantage of and exploit the poor artisans, weavers by paying a paltry sum for their products and selling those products in the international market at exorbitant prices. Artisans and weavers, household unit owners are left with no choice but to depend entirely on these agents/middlemen and get exploited or else, die of starvation. It has been seen that majority of these products fail to compete in either domestic or international market. Thus, the skill and potential of a vast section of our people go waste. Also, rural industries/unorganized sector produce more than 6000 products but most of us are unaware of majority of these products. Government of India and various State Governments need to vigorously promote these industries (clusters) by creating awareness of these products by adopting newer methods of marketing and brand promotion. Building promotional websites and geographical mapping of the clusters are some methods which could be tried.

This would not only create awareness in both international and domestic market but would also attract several suppliers, retail chain owners, foreign buyers to directly approach the clusters/weavers/artisans who would then have more buyers and thus higher bargaining power. Government need to create awareness among the weavers, artisans etc, on how to find the appropriate market and the potential buyers. Similarly creating clusters and Self Help Groups of micro enterprises owners, research in the industry on energy conservation measures, better infrastructure/machinery, health insurance of International Journal of Research in Finance & Marketing http://www.mairec org

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artisans, etc. would go a long way in strengthening this sector. Though various scheme are being run by Ministry of MSME, Ministry of Textiles, Ministry of Food Processing and various State Governments to promote this sector, however lot many are unaware of such programmes. Government needs to adopt PPP (Public Private Partnership) approach and take the help of NGOs working in this field. By addressing these issues we would not only enable India to realize its true economic potential but would also bridge the huge economic gap between the rich and the poor and put a check on the migration of people from rural to urban areas.

Steps for micro, small and medium-sized enterprises (MSMEs) The aim of this article is to help owners and managers of micro, small and medium-sized enterprises (MSMEs) to adopt and implement diversity policies and approaches within their business. The guidance is designed to be flexible and general so that it can be applied to the majority of MSMEs irrespective of sector or location and is mostly about formalizing procedures to avoid staffing problems, freeing up time and increasing profitability. 1. Analysis: Think about your business—its strengths, weaknesses, issues and needs. Research has shown that very few MSME ‘owner managers’ have time to think about business development as they are constantly involved in day-to-day activities. Before starting to implement diversity policies, consider the following: What is it that makes this business strong? What weakens this business? What problems have recently occurred within this business? Are we getting the most out of our managers and staff? Do we have the right mix of skills and experience to meet operational and market demands? Does my management style allow others to take responsibility and be productive? International Journal of Research in Finance & Marketing http://www.mairec org

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How diverse is the market place? Is it becoming more or less diverse with demographic, technology and lifestyles change? Are we responding? 2. Recruitment: Research has shown that negative outcomes result from an overemphasis on the business owner’s personal values, attitudes and beliefs. Personal values can lead to costly recruitment mistakes and to discrimination (whether you know it or not) and this can result in legal problems that could terminate the business. How to do it (Recruitment): • Decide on the skills, knowledge and experience that the business needs to fill a specific job role. • Produce a ‘job description’ and a person specification that outlines the skills and experience needed for the role. • Check that the job description does not exclude anyone from applying because of racial origin, religious belief, gender, sexual orientation, age or disability. • Adapt your methods to allow (and encourage) disabled people to apply. • Avoid ‘word of mouth’ recruitment processes. Consider a range of advertising methods e.g.: job centre; national, local or ‘community’ newspapers; schools, colleges or universities; community organizations; commercial recruitment agencies; news boards in retail outlets; website / internet. • State that you welcome applications from all sections of the community. • Do not give age limits (or ranges) in job adverts • Talk informally about the job to potential candidates. This will help to include people that may be worried about their age, gender and / or impairment, etc. 3. Explore new / potential markets “Consumer diversity requires staff diversity – not simply in terms of age, ethnicity, and ability, but to reflect the changing motivations and lifestyles of the market place, in all its forms”. International Journal of Research in Finance & Marketing http://www.mairec org

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Research indicates that many MSMEs are being constrained by focusing on their existing market base. This means that these firms are limiting themselves to a fixed, known, market and are not benefiting from much broader market opportunities. This is a result of established business routines and a lack of internal diversity restricting new ideas. How to do it: • Recognize the diversity and scale of the potential market place you can appeal to (the age range, the sexual orientation, the ethnic range, disability issues) • Research the needs of the different groups within the potential market place • Seek feedback from clients / customers across target markets and develop advertising materials that are accessible to all • Recognize the potential benefits in matching personality, age, background and style of frontline staff with customers / clients • Discover and utilize new media opportunities (e.g. ‘Pod Casting’, local magazines, social groups) to focus marketing on new groups 4. Put client / customer needs at the forefront of your business strategy and planning process This will ensure that this broad diversity of customer / client need is reflected within the planning process; requiring your business to consider how to respond (in terms of staff profile, staff creativity, staff attitudes and staff training and development needs). How to do it: • Feed diversity market research directly into product and service developments • Develop accessible external communications systems that allow for feedback and new ideas from customers / clients (both existing and new). Build this feedback into a regular business review process 5. Develop strong internal communications systems

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Many SMEs are constrained by poor communication between owner managers and staff. Strong internal communications systems should be developed to allow and promote the ‘free flow’ of ideas, knowledge, information and solutions. How to do it: • Regular staff meetings – these can have a business or social focus – but make sure they do not exclude people either by time or location. It is also important to have structured meetings with an agreed agenda (circulated beforehand) that is facilitated to allow fair and equal discussion • Allow and encourage staff to suggest ideas, anonymously if necessary, through written and verbal channels (e.g. bulletin boards, ‘drop box’) • Use the appraisal system for staff feedback • Ensure that staff confidentiality is protected 6. Use your commitment to diversity as a business tool in terms of reputation, PR and winning business (particularly from larger and public sector firms) Research has shown that large firms and public organizations increasingly require SMEs to submit information on their equality and diversity policies in tenders for work. Having these policies in place has shown to assist SMEs in winning contracts for work. How to do it: Through the development of formal diversity policies – but keep it simple. • A one page review with staff on what diversity targets will help them over the year, with clear objectives (e.g. flexible working around religious holidays) • Set out a training plan and record any training related to diversity issues • Specify the measures you have put in place to select and recruit new staff • Include diversity statements in your handbook or general firm guidelines, as you might do with health and safety issues • Monitoring and recording information on your staff and customers. Start with this as a baseline for your strategy, with an annual review to assess and reflect your movement towards increased International Journal of Research in Finance & Marketing http://www.mairec org

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diversity. For a lot of member states data collection of a personal nature is a very sensitive subject; indeed in many countries no such data is kept by employers. 7. Evaluate the potential costs and benefits of implementing diversity policies The implementation of diversity policies will require time and resources and the benefits need to be highlighted. Evaluation should be a joint process to help owners, managers and staff to understand why these steps are being undertaken, sustain commitment to the process and encourage future development of these policies. How to do it? • Think about what you will need to put into the process (costs) in terms of management time and business resources • Think about what the outcomes might be e.g. improved communications, better staff relations etc. • Think about the potential benefits e.g. solutions to labour shortages; avoiding staff problems such as stress and absenteeism; access to new markets; improved performance in existing markets; access to talent; getting the most out of existing staff; increased innovation and creativity; improved reputation • Review this on an annual basis

Steps in developing HRM strategy Step 1: Get the 'big picture' Understand your business strategy. •

Highlight the key driving forces of your business. What are they? e.g. technology, distribution, competition, the markets.

•

What are the implications of the driving forces for the people side of your business?

•

What is the fundamental people contribution to bottom line business performance? International Journal of Research in Finance & Marketing http://www.mairec org

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Step 2: Develop a Mission Statement or Statement of Intent That relates to the people side of the business. Do not be put off by negative reactions to the words or references to idealistic statements - it is the actual process of thinking through the issues in a formal and explicit manner that is important. •

What do your people contribute?

Step 3: Conduct a SWOT analysis of the organization Focus on the internal strengths and weaknesses of the people side of the business. •

Consider the current skill and capability issues.

Vigorously research the external business and market environment. High light the opportunities and threats relating to the people side of the business. •

What impact will/ might they have on business performance?

•

Consider skill shortages?

•

The impact of new technology on staffing levels?

From this analysis you then need to review the capability of your personnel department. Complete a SWOT analysis of the department - consider in detail the department's current areas of operation, the service levels and competences of your personnel staff. Step 4: Conduct a detailed human resources analysis Concentrate on the organization's COPS (culture, organization, people, and HR systems) •

Consider: Where you are now? Where do you want to be?

•

What gaps exists between the reality of where you are now and where you want to be? International Journal of Research in Finance & Marketing http://www.mairec org

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Exhaust your analysis of the four dimensions. Step 5: Determine critical people issues Go back to the business strategy and examine it against your SWOT and COPS Analysis •

Identify the critical people issues namely those people issues that you must address. Those which have a key impact on the delivery of your business strategy.

•

Prioritize the critical people issues. What will happen if you fail to address them?

Remember you are trying to identify where you should be focusing your efforts and resources. Step 6: Develop consequences and solutions For each critical issue highlight the options for managerial action generate, elaborate and create don't go for the obvious. This is an important step as frequently people jump for the known rather than challenge existing assumptions about the way things have been done in the past. Think about the consequences of taking various courses of action. Consider the mix of HR systems needed to address the issues. Do you need to improve communications, training or pay? What are the implications for the business and the personnel function? Once you have worked through the process it should then be possible to translate the action plan into broad objectives. These will need to be broken down into the specialist HR Systems areas of: •

employee training and development

•

management development

•

organization development

•

performance appraisal International Journal of Research in Finance & Marketing http://www.mairec org

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Volume 1, Issue 3 (July, 2011)

•

employee reward

•

employee selection and recruitment

•

manpower planning

•

communication

(ISSN 2231-5985)

Develop your action plan around the critical issues. Set targets and dates for the accomplishment of the key objectives. Step 7: Implementation and evaluation of the action plans The ultimate purpose of developing a human resource strategy is to ensure that the objectives set are mutually supportive so that the reward and payment systems are integrated with employee training and career development plans. There is very little value or benefit in training people only to then frustrate them through a failure to provide ample career and development opportunities.

CONCLUSION Our results provide guidance regarding human resource management issues over the life cycle of the MSME. As firms achieve increasing levels of growth, HR issues seem to shift from attracting to retaining, and finally to training. As a result we would recommend that MSME owner/managers prepare themselves for these changes if and when growth occurs. On the other hand, if an MSME is consistently achieving very low levels of growth, the owner/manager should focus on improving his or her recruiting and selection skills. It is therefore important that not only the customers and suppliers, MSMEs today also need to collaborate closely with their own employees, in order to increase the organizational efficiencies. In this article we have studied about to finding solution a wide range of HRM issues that can help a firm to put the right people on a right job, develop their skills, retain talent, reward to top performers. This means reduced cost, healthy work environment and more importantly, increased profit.

REFERENCES International Journal of Research in Finance & Marketing http://www.mairec org

244

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(ISSN 2231-5985)

Adizes, I. (1979). Organizational passages: Diagnosing and treating lifecycle problems of organizations. Organizational Dynamics, 8, 3–25.

•

Adizes, I. (1988). Corporate lifecycles: How and why corporations grow and die and what to do

•

About it. Englewood Cliffs, NJ: Prentice Hall.

•

Adizes, I. (1999). Managing corporate lifecycles. Paramus, NJ: Prentice Hall Press.

•

Baird, L., & Meshoulam, I. (1988). Managing two fits of strategic human resource management.

•

Academy of Management Review, 13, 116–128.

•

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management,

•

17, 99–120.

•

Barney, J. (1995). Looking inside for competitive advantage. Academy of Management Executive, 9(4), 49–61.

•

Baron, J. N., Hannan, M. T., & Burton, M. D.(1999). Building the iron cage: Determinants

•

Cameron, K. S., & Whetten, D. A. (1981). Perceptions of organizational effectiveness over organizational life cycles. Administrative Science Quarterly, 26, 525–544.

•

Churchill, N., & Lewis, V. L. (1983). The five stages of small business growth. Harvard Business Review, 61(3), 30–40.

•

Dess, G. G., & Lumpkin, G. T. (2003). Strategic management: Creating competitive advantages.

•

Boston: McGraw-Hill Irwin.

•

Dodge, H. R., Fullerton, S., & Robbins, J. E. (1994). Stage of the organizational life cycle and competition as mediators of problem perception for small businesses. Strategic Management Journal, 15, 121–135.

•

Dodge, H. R., & Robbins, J. E. (1992). An empirical investigation of the organizational life cycle International Journal of Research in Finance & Marketing http://www.mairec org

245

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model for small business development and survival. Journal of Small Business Management,

•

www.stop-discrimination.info

•

EU campaign ‘For Diversity. Against Discrimination.’

•

www.stop-discrimination.info

•

European Association of Craft, Small and Medium-Sized Enterprises (UEAPME)

•

www.ueapme.org

•

EU Documents on Diversity and Equality

•

http://ec.europa.eu/employment_social/fundamental_rights/public/pubst_en.htm

•

European Chamber of Commerce

•

http://www.eurochambres.be/

•

European Trade Union Confederation

•

www.hrwork.in

•

Local Government across Europe

•

http://www.lgib.gov.uk/index.html

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HR ISSUES IN MICRO, SMALL AND MEDIUM ENTERPRISES Ms. Himani Agarwal*

ABSTRACT MSMEs (Micro, Small and Medium Enterprises) are the backbone of Indian economy and this sector plays a vital role in the growth of the country, contributing significantly to GDP and export. In addition, this sector mobilizes local capital and skills, provides jobs to millions of people, and thereby provides the impetus for growth and development, particularly in rural areas and small towns. Most previous studies have identified or examined different types of problems based on the size, age, and/or growth rate of the firm. In which “people” or “human resource” (HR) problems facing firms in various stages that we intend to examine. The human resource “department” for a small business is usually not more than one person–and often only one person who wear many hats. While general people/HRM problems have been identified few studies have focused on specific MSMEs HRM problems or issues Consequently, Firms of different sizes do apparently have different HRM problems and practices but five specific HRM areas

must

be

examined:

job

analysis/job

description,

recruiting/

selection

compensation/benefits, training, and performance appraisal. It is therefore important that not only the customers and suppliers, MSMEs today also need to collaborate closely with their own employees, in order to increase the organizational efficiencies. In this article we have studied about to finding solution a wide range of HRM issues that can help a firm to put the right people on a right job, develop their skills, retain talent, reward to top performers. This means reduced cost, healthy work environment and more importantly, increased profit.

Key Words: Economy, Growth rate, HRM/People MSMEs, profit, Recruitment and Training etc.

,

*Lecturer (M.B.A), GRD Institute of management and technology Rajpur road, Dehradun

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INTRODUCTION MSMEs (Micro, Small and Medium Enterprises) are the backbone of Indian economy and this sector plays a vital role in the growth of the country, contributing significantly to GDP and export. In addition, this sector mobilizes local capital and skills, provides jobs to millions of people, and thereby provides the impetus for growth and development, particularly in rural areas and small towns. Most previous studies have identified or examined different types of problems based on the size, age, and/or growth rate of the firm. In which “people” or “human resource” (HR) problems facing firms in various stages that we intend to examine. Firms of different sizes do apparently have different HRM problems and practices but five specific HRM areas must be examined: job analysis/job description, recruiting/ selection compensation/benefits, training, and performance appraisal. Human resource (or personnel) management, in the sense of getting things done through people. It's an essential part of every manager's responsibilities, but many organizations find it advantageous to establish a specialist division to provide an expert service dedicated to ensuring that the human resource function is performed efficiently. "People are our most valuable asset" is a cliché which no member of any senior management team would disagree with. In order to implement a successful business strategy to face this challenge, organizations, large or small, must ensure that they have the right people capable of delivering the strategy. The market place for talented, skilled people is competitive and expensive. Taking on new staff can be disruptive to existing employees. Also, it takes time to develop 'cultural awareness', product/ process/ organization knowledge and experience for new staff members. As organizations vary in size, aims, functions, complexity, construction, the physical nature of their product, and appeal as employers, so do the contributions of human resource management. But, in most the ultimate aim of the function is to: "ensure that at all times the business is correctly staffed by the right number of people with the skills relevant to the business needs", that is, neither overstaffed nor understaffed in total or in respect of any one discipline or work grade. International Journal of Research in Finance & Marketing http://www.mairec org

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MSME’s SCENARIO: World over, the Micro Small and Medium Enterprises or MSMEs have been recognized as engines of economic growth. In India, MSMEs are the second largest source of employment after agriculture. They account for almost 40 per cent of industrial production, 95 per cent of the industrial units, 34 percent of the exports and manufacture over 6000 products. It is estimated that to create one job in the MSME sector, only Rs 72,000 is required as against Rs 5.5 lakh required in the large organized sector. In the present scenario of global recession, where several large industries are on the verge of collapse, the role of MSMEs assumes significance. It is estimated that to achieve the target of 10 per cent growth by 2011, the MSME sector needs to grow at 12%. However if we compare the growth of MSMEs in India with those in the neighboring countries in South East Asia like Thailand, Malaysia, Japan, China, etc. it is found that we lag far behind. There are some major hurdles which do not allow this sector to flourish well. The first major hurdle is that the credit availability is low for this sector. It is estimated that the unorganized sector comprises 95% of the total industrial units, employing more than 65 million people. Yet only 8% of the total bank credit finds its way into this sector. Though credit to MSMEs fall under the category of priority sector lending, but with the expansion of the priority sector lending to accommodate fast growing areas such as home loans, education loan, the percentage share of credit to MSMEs is falling. According to the Third All-India SSI Census (2001–02), only 14.2% of the registered and 3.09% of the unregistered MSMEs availed finance from bank. Arranging collateral security, documentation etc makes clearance of the loan all the more difficult and as a result the business of the local money lenders continues to flourish. Inevitably, many of these small units fall into the vicious cycle of debt and poverty and eventually many of them perish. Banks therefore should be encouraged to ensure that all loans up to Rs 5 lakh to MSMEs are given free of collateral and at a low interest rate.

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Formal sector has the option to raise huge sum from the money market, while the unorganized sector doesn’t have any such opportunity. In the 11th Five Year Plan, Planning Commission estimates that in the next five years the total working capital and loan requirement by the MSMEs/unorganized sector would be 2,96,000 crore. Given the small percentage of financing by the formal banking system, this huge credit requirement cannot be met by the banking system alone. Need of the hour is venture capitalist approach to be encouraged in the unorganized sector as it is practiced in the developed countries. Secondly, if microfinance agencies can be properly regulated and monitored they can serve as a good avenue of investment for people who are interested in high risk- high profit investment. At present most, of the micro finance agencies/projects active in India is either operating with a welfare motive or are too small to make any impact. Second major hurdle is the lack of technological innovation and the knowledge of market demands. This is true particularly in the textiles sector. Most of the household units still work on obsolete technology because of which not only the cost of production remains high but the product also fails to meet the demand of the market in terms of quality. Because of liberalization and opening up of the economy, the MSMEs are now facing stiff competition from imports and therefore need technological up gradation to manufacture better quality products at cheaper rates.

Though India ranks at top in terms of availability of human resource in science and technology but technology intervention in the small industry sector is still very low and as a result the cost of production is much higher in India than other developing nations in Asia. Similarly, our artisans and weavers remain unaware of the latest designs and current market trend. They continue to manufacture products with old design which fail to generate appeal among the consumers.

There exist a huge disconnect between the household unit owners/weavers/artisans, and the designers/engineers. There is need to encourage engineers and fashion designers to work with these small units’ owners, weavers, designers which would be mutually beneficial and would International Journal of Research in Finance & Marketing http://www.mairec org

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help revive the sector and make it globally competitive. Information dissemination about availability of recent technologies, literature on modern machinery, contact details of suppliers of raw materials, buyers, etc., among those working in the MSMEs is extremely essential.

Another major hurdle is the lack of market accessibility for the poor artisans, weavers, household unit owners, etc. Most MSMEs do not have money to invest in market research and are unable to carry out design and technical improvements to keep up with market demands. It is because of this lack of information that the middlemen are able to take advantage of and exploit the poor artisans, weavers by paying a paltry sum for their products and selling those products in the international market at exorbitant prices. Artisans and weavers, household unit owners are left with no choice but to depend entirely on these agents/middlemen and get exploited or else, die of starvation. It has been seen that majority of these products fail to compete in either domestic or international market. Thus, the skill and potential of a vast section of our people go waste. Also, rural industries/unorganized sector produce more than 6000 products but most of us are unaware of majority of these products. Government of India and various State Governments need to vigorously promote these industries (clusters) by creating awareness of these products by adopting newer methods of marketing and brand promotion. Building promotional websites and geographical mapping of the clusters are some methods which could be tried.

This would not only create awareness in both international and domestic market but would also attract several suppliers, retail chain owners, foreign buyers to directly approach the clusters/weavers/artisans who would then have more buyers and thus higher bargaining power. Government need to create awareness among the weavers, artisans etc, on how to find the appropriate market and the potential buyers. Similarly creating clusters and Self Help Groups of micro enterprises owners, research in the industry on energy conservation measures, better infrastructure/machinery, health insurance of International Journal of Research in Finance & Marketing http://www.mairec org

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artisans, etc. would go a long way in strengthening this sector. Though various scheme are being run by Ministry of MSME, Ministry of Textiles, Ministry of Food Processing and various State Governments to promote this sector, however lot many are unaware of such programmes. Government needs to adopt PPP (Public Private Partnership) approach and take the help of NGOs working in this field. By addressing these issues we would not only enable India to realize its true economic potential but would also bridge the huge economic gap between the rich and the poor and put a check on the migration of people from rural to urban areas.

Steps for micro, small and medium-sized enterprises (MSMEs) The aim of this article is to help owners and managers of micro, small and medium-sized enterprises (MSMEs) to adopt and implement diversity policies and approaches within their business. The guidance is designed to be flexible and general so that it can be applied to the majority of MSMEs irrespective of sector or location and is mostly about formalizing procedures to avoid staffing problems, freeing up time and increasing profitability. 1. Analysis: Think about your business—its strengths, weaknesses, issues and needs. Research has shown that very few MSME ‘owner managers’ have time to think about business development as they are constantly involved in day-to-day activities. Before starting to implement diversity policies, consider the following: What is it that makes this business strong? What weakens this business? What problems have recently occurred within this business? Are we getting the most out of our managers and staff? Do we have the right mix of skills and experience to meet operational and market demands? Does my management style allow others to take responsibility and be productive? International Journal of Research in Finance & Marketing http://www.mairec org

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How diverse is the market place? Is it becoming more or less diverse with demographic, technology and lifestyles change? Are we responding? 2. Recruitment: Research has shown that negative outcomes result from an overemphasis on the business owner’s personal values, attitudes and beliefs. Personal values can lead to costly recruitment mistakes and to discrimination (whether you know it or not) and this can result in legal problems that could terminate the business. How to do it (Recruitment): • Decide on the skills, knowledge and experience that the business needs to fill a specific job role. • Produce a ‘job description’ and a person specification that outlines the skills and experience needed for the role. • Check that the job description does not exclude anyone from applying because of racial origin, religious belief, gender, sexual orientation, age or disability. • Adapt your methods to allow (and encourage) disabled people to apply. • Avoid ‘word of mouth’ recruitment processes. Consider a range of advertising methods e.g.: job centre; national, local or ‘community’ newspapers; schools, colleges or universities; community organizations; commercial recruitment agencies; news boards in retail outlets; website / internet. • State that you welcome applications from all sections of the community. • Do not give age limits (or ranges) in job adverts • Talk informally about the job to potential candidates. This will help to include people that may be worried about their age, gender and / or impairment, etc. 3. Explore new / potential markets “Consumer diversity requires staff diversity – not simply in terms of age, ethnicity, and ability, but to reflect the changing motivations and lifestyles of the market place, in all its forms”. International Journal of Research in Finance & Marketing http://www.mairec org

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Research indicates that many MSMEs are being constrained by focusing on their existing market base. This means that these firms are limiting themselves to a fixed, known, market and are not benefiting from much broader market opportunities. This is a result of established business routines and a lack of internal diversity restricting new ideas. How to do it: • Recognize the diversity and scale of the potential market place you can appeal to (the age range, the sexual orientation, the ethnic range, disability issues) • Research the needs of the different groups within the potential market place • Seek feedback from clients / customers across target markets and develop advertising materials that are accessible to all • Recognize the potential benefits in matching personality, age, background and style of frontline staff with customers / clients • Discover and utilize new media opportunities (e.g. ‘Pod Casting’, local magazines, social groups) to focus marketing on new groups 4. Put client / customer needs at the forefront of your business strategy and planning process This will ensure that this broad diversity of customer / client need is reflected within the planning process; requiring your business to consider how to respond (in terms of staff profile, staff creativity, staff attitudes and staff training and development needs). How to do it: • Feed diversity market research directly into product and service developments • Develop accessible external communications systems that allow for feedback and new ideas from customers / clients (both existing and new). Build this feedback into a regular business review process 5. Develop strong internal communications systems

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Many SMEs are constrained by poor communication between owner managers and staff. Strong internal communications systems should be developed to allow and promote the ‘free flow’ of ideas, knowledge, information and solutions. How to do it: • Regular staff meetings – these can have a business or social focus – but make sure they do not exclude people either by time or location. It is also important to have structured meetings with an agreed agenda (circulated beforehand) that is facilitated to allow fair and equal discussion • Allow and encourage staff to suggest ideas, anonymously if necessary, through written and verbal channels (e.g. bulletin boards, ‘drop box’) • Use the appraisal system for staff feedback • Ensure that staff confidentiality is protected 6. Use your commitment to diversity as a business tool in terms of reputation, PR and winning business (particularly from larger and public sector firms) Research has shown that large firms and public organizations increasingly require SMEs to submit information on their equality and diversity policies in tenders for work. Having these policies in place has shown to assist SMEs in winning contracts for work. How to do it: Through the development of formal diversity policies – but keep it simple. • A one page review with staff on what diversity targets will help them over the year, with clear objectives (e.g. flexible working around religious holidays) • Set out a training plan and record any training related to diversity issues • Specify the measures you have put in place to select and recruit new staff • Include diversity statements in your handbook or general firm guidelines, as you might do with health and safety issues • Monitoring and recording information on your staff and customers. Start with this as a baseline for your strategy, with an annual review to assess and reflect your movement towards increased International Journal of Research in Finance & Marketing http://www.mairec org

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diversity. For a lot of member states data collection of a personal nature is a very sensitive subject; indeed in many countries no such data is kept by employers. 7. Evaluate the potential costs and benefits of implementing diversity policies The implementation of diversity policies will require time and resources and the benefits need to be highlighted. Evaluation should be a joint process to help owners, managers and staff to understand why these steps are being undertaken, sustain commitment to the process and encourage future development of these policies. How to do it? • Think about what you will need to put into the process (costs) in terms of management time and business resources • Think about what the outcomes might be e.g. improved communications, better staff relations etc. • Think about the potential benefits e.g. solutions to labour shortages; avoiding staff problems such as stress and absenteeism; access to new markets; improved performance in existing markets; access to talent; getting the most out of existing staff; increased innovation and creativity; improved reputation • Review this on an annual basis

Steps in developing HRM strategy Step 1: Get the 'big picture' Understand your business strategy. •

Highlight the key driving forces of your business. What are they? e.g. technology, distribution, competition, the markets.

•

What are the implications of the driving forces for the people side of your business?

•

What is the fundamental people contribution to bottom line business performance? International Journal of Research in Finance & Marketing http://www.mairec org

310

IJRFM

Volume 1, Issue 3 (July, 2011)

(ISSN 2231-5985)

Step 2: Develop a Mission Statement or Statement of Intent That relates to the people side of the business. Do not be put off by negative reactions to the words or references to idealistic statements - it is the actual process of thinking through the issues in a formal and explicit manner that is important. •

What do your people contribute?

Step 3: Conduct a SWOT analysis of the organization Focus on the internal strengths and weaknesses of the people side of the business. •

Consider the current skill and capability issues.

Vigorously research the external business and market environment. High light the opportunities and threats relating to the people side of the business. •

What impact will/ might they have on business performance?

•

Consider skill shortages?

•

The impact of new technology on staffing levels?

From this analysis you then need to review the capability of your personnel department. Complete a SWOT analysis of the department - consider in detail the department's current areas of operation, the service levels and competences of your personnel staff. Step 4: Conduct a detailed human resources analysis Concentrate on the organization's COPS (culture, organization, people, and HR systems) •

Consider: Where you are now? Where do you want to be?

•

What gaps exists between the reality of where you are now and where you want to be? International Journal of Research in Finance & Marketing http://www.mairec org

311

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(ISSN 2231-5985)

Exhaust your analysis of the four dimensions. Step 5: Determine critical people issues Go back to the business strategy and examine it against your SWOT and COPS Analysis •

Identify the critical people issues namely those people issues that you must address. Those which have a key impact on the delivery of your business strategy.

•

Prioritize the critical people issues. What will happen if you fail to address them?

Remember you are trying to identify where you should be focusing your efforts and resources. Step 6: Develop consequences and solutions For each critical issue highlight the options for managerial action generate, elaborate and create don't go for the obvious. This is an important step as frequently people jump for the known rather than challenge existing assumptions about the way things have been done in the past. Think about the consequences of taking various courses of action. Consider the mix of HR systems needed to address the issues. Do you need to improve communications, training or pay? What are the implications for the business and the personnel function? Once you have worked through the process it should then be possible to translate the action plan into broad objectives. These will need to be broken down into the specialist HR Systems areas of: •

employee training and development

•

management development

•

organization development

•

performance appraisal International Journal of Research in Finance & Marketing http://www.mairec org

312

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Volume 1, Issue 3 (July, 2011)

•

employee reward

•

employee selection and recruitment

•

manpower planning

•

communication

(ISSN 2231-5985)

Develop your action plan around the critical issues. Set targets and dates for the accomplishment of the key objectives. Step 7: Implementation and evaluation of the action plans The ultimate purpose of developing a human resource strategy is to ensure that the objectives set are mutually supportive so that the reward and payment systems are integrated with employee training and career development plans. There is very little value or benefit in training people only to then frustrate them through a failure to provide ample career and development opportunities.

CONCLUSION Our results provide guidance regarding human resource management issues over the life cycle of the MSME. As firms achieve increasing levels of growth, HR issues seem to shift from attracting to retaining, and finally to training. As a result we would recommend that MSME owner/managers prepare themselves for these changes if and when growth occurs. On the other hand, if an MSME is consistently achieving very low levels of growth, the owner/manager should focus on improving his or her recruiting and selection skills. It is therefore important that not only the customers and suppliers, MSMEs today also need to collaborate closely with their own employees, in order to increase the organizational efficiencies. In this article we have studied about to finding solution a wide range of HRM issues that can help a firm to put the right people on a right job, develop their skills, retain talent, reward to top performers. This means reduced cost, healthy work environment and more importantly, increased profit.

REFERENCES International Journal of Research in Finance & Marketing http://www.mairec org

313

IJRFM •

Volume 1, Issue 3 (July, 2011)

(ISSN 2231-5985)

Adizes, I. (1979). Organizational passages: Diagnosing and treating lifecycle problems of organizations. Organizational Dynamics, 8, 3–25.

•

Adizes, I. (1988). Corporate lifecycles: How and why corporations grow and die and what to do

•

About it. Englewood Cliffs, NJ: Prentice Hall.

•

Adizes, I. (1999). Managing corporate lifecycles. Paramus, NJ: Prentice Hall Press.

•

Baird, L., & Meshoulam, I. (1988). Managing two fits of strategic human resource management.

•

Academy of Management Review, 13, 116–128.

•

Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management,

•

17, 99–120.

•

Barney, J. (1995). Looking inside for competitive advantage. Academy of Management Executive, 9(4), 49–61.

•

Baron, J. N., Hannan, M. T., & Burton, M. D.(1999). Building the iron cage: Determinants

•

Cameron, K. S., & Whetten, D. A. (1981). Perceptions of organizational effectiveness over organizational life cycles. Administrative Science Quarterly, 26, 525–544.

•

Churchill, N., & Lewis, V. L. (1983). The five stages of small business growth. Harvard Business Review, 61(3), 30–40.

•

Dess, G. G., & Lumpkin, G. T. (2003). Strategic management: Creating competitive advantages.

•

Boston: McGraw-Hill Irwin.

•

Dodge, H. R., Fullerton, S., & Robbins, J. E. (1994). Stage of the organizational life cycle and competition as mediators of problem perception for small businesses. Strategic Management Journal, 15, 121–135.

•

Dodge, H. R., & Robbins, J. E. (1992). An empirical investigation of the organizational life cycle International Journal of Research in Finance & Marketing http://www.mairec org

314

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(ISSN 2231-5985)

model for small business development and survival. Journal of Small Business Management,

•

www.stop-discrimination.info

•

EU campaign ‘For Diversity. Against Discrimination.’

•

www.stop-discrimination.info

•

European Association of Craft, Small and Medium-Sized Enterprises (UEAPME)

•

www.ueapme.org

•

EU Documents on Diversity and Equality

•

http://ec.europa.eu/employment_social/fundamental_rights/public/pubst_en.htm

•

European Chamber of Commerce

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http://www.eurochambres.be/

•

European Trade Union Confederation

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www.hrwork.in

•

Local Government across Europe

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http://www.lgib.gov.uk/index.html

International Journal of Research in Finance & Marketing http://www.mairec org

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