MA in Emerging Economics

Management Accounting Techniques are Highly Effective in

Emerging Countries

Introduction
In today’s business environment, organizations globally encounter various challenges that
requires them to adapt new management accounting techniques effectively as one means to
remain competitive. There has been changes of management accounting techniques over the
years where it has expanded from traditional costing techniques to developed management
techniques such as Activity-Based Costing (ABC) and Balance Scorecard Costing (BSC) and
many others. According to Joshi (2001), the changes are moved by change in competition,
change in a firm’s cost structure as well as advanced technologies available now.
Various researchers have agreed on traditional costing is no longer sufficient to be used as
planning and control tools as there are many aspects that these costing techniques overlook.
(Maliah et al., 2004) According to Maleah and Ibrahim (2007), there was an increasing
concern for an overhead costing approach to reflect better on the cause-effect relationship
between products and the consumption of resources. ABC has emerged during this period
and therefore was able to utilize costs in such manner. Besides that, BSC is able to take into
account the financial and non-financial measures of an organization that will lead to better
customer satisfaction and profitability through the cause-effect relationship (Zeng and Luo,
2013)
However, many emerging countries still prefer the traditional costing over the new
management accounting despite its effectiveness in achieving corporate goals and objectives.
Thus, the question arises on why are the implementation rates so low in developing countries
despite the rapid changes in organizational and technological environment in said countries?
(Nassar et al., 2013)
This paper makes a comparison of management accounting techniques such as ABC and
BSC in emerging countries such as China, India and Malaysia and various factors that
influence the effectiveness of new management accounting techniques in different industry
such as manufacturing and service industry. ABC is more effective in organizations that give
importance to cost so it is more effective in manufacturing industry. BSC on the other hand is
more effective in the service industry where non-financial measures is equally important as
financial measures.

1
The University of Greenwich
 MA in Emerging Economics

Management Accounting Techniques

Management accounting was introduced when the usual financial reporting method
was failing to be relevant to aid manager’s control and planning over the organization.
However, in the twentieth century, management accounting also received its fair amounts of
criticisms that led to the downfall of management accounting practices. Among the reason of
the criticism are that management accounting failed to provide cost for products and services
accurately and that resulted in managers failing to reduce costs appropriately and to increase
productivity. Besides that, it was dominated by financial reporting in which the managers
base their planning and control with the historical information available.

However, management accounting have gained their popularity back with the
emergence of more effective management accounting techniques such as Activity-Based
Costing (ABC) and Balanced Scorecard Costing (BSC) that were introduced by Robert
Kaplan in his study. These innovated management accounting techniques emerged due the
changes in the organizational structure, advancement in information technology (IT) and the
rise of more competitive market. ABC helps financial managers to achieve organization goals
such as high profitability. This is being said because ABC analysis enables managers to
identify and focus on activities that has the biggest impact on their profitability so that they
can give more attention and spend their energy on said activities.

Malaysia vs. China: Effectiveness of ABC

ABC as a management technique is effective in service like public universities in
Malaysia. ABC implementation in government agencies is required to show transparency.
ABC is technique that acts as a guide for managers to take effective management actions that
leads to higher profits as it shows the connection between performances of specific activities
and how will these activities call for the organization’s resources (Kaplan and Cooper,1991)
ABC is incorporated with other costing method such as budgeting in public universities
because the management needs a higher quality costing service as it is at the management
level where the financial restrictions are seriously felt. Besides that, ABC became a
managerial need due to the change in funding methods in public universities and the
delegation of the financial autonomy to the budget holders at university Faculty levels.
Public universities have to use their internally generated fund to cover 30% of their
annual budget due the pressure from the government. Then they also have to adjust with
budget cuts and the fact that the budget received by one public university depends on the

2
The University of Greenwich
 MA in Emerging Economics

budget of other public universities. This is why a very detailed costing method like ABC is
needed for accuracy so that the budget received can be standardized for all public university.
Moreover, ABC is used to calculate the fees of new courses to balance the cost of introducing
the new courses.

A study by Mohamad (2016) states that the finance director of the public university
has stated that ABC implementation is highly effective especially for reporting to the
Ministry of Higher Education (MOHE) and the Treasury department. Besides that, it is also
very useful for negotiating the budget with budget holders. In the public university, ABC is
largely used for budget planning for the Treasury department and ABC report is used to
discuss about the budget when any problem arises. The finance director considers the ABC
analysis as a great tool for cost control as it is very important for a university to be financially
sustainable. This is being said because ABC analysis enables managers to identify and focus
on activities that has the biggest impact on their profitability so that they can give more
attention and spend their energy on said activities.
On the one hand, China uses ABC in manufacturing industry.

Malaysia vs. China: Effectiveness of BSC

BSC takes into account both the financial and non-financial measures to evaluate the
company’s performance. According to Kaplan and Norton’s study in 1992 (cited by Nouri
and Liu, n.a) BSC measures the company’s performance by a balance of four factors which
are the financial results, customers satisfaction, internal business process and learning and
growth. Financial indicators is not enough to evaluate the performance of a company though
it is very important to determine the wealth of the company. This is because in today’s
economy non- financial measures such as human capital, information and more is equally
important.
BSC is being implemented in public agencies in Malaysia such as Employee
Provident Fund (EPF) since 2002. Before implementing BSC, EPF was using other costing
methods like budgeting and year-on-year plan which met the operational need. However, it
did not provide any information on the performance so the agency was unable to determine
the strengths and weakness so there was no room for improvement. According to Som and
Majid (2008), when BSC is introduced in EPF, it helped the management to have a more
balance perspective on the organization and concentrate more in strategies to improve
performance rather than the operational needs only.

3
The University of Greenwich
 MA in Emerging Economics

The EPF uses a reverse cause-effect relationship between the financial measures and
the internal business process. The EPF considers that if the management improves the
learning and growth process that will increase the operational ability which will then improve
the internal business process. This improvement will then increase the financial results and
finally this will help the organization to achieve the organization goals set for the
stakeholders which is maximizing wealth.
The BSC is very effective in EPF as it helped the agency to to convert their visions
and strategies into achieving the agency’s goals. Besides that, it was used as a tool for senior
management to communicate and involve employees in all levels to participate in the
planning and execution of the agency’s strategies. Then, BSC also enables EPF to measure
the agency’s performance both in the past and in the future. BSC is successfully implemented
in EPF due to the top management’s role. The top management often stresses the importance
and benefits of BSC. Besides that, the top management will also monitor the performance
results and then decide on strategies to improve the performances of the agency. Then the
EPF also set a core team in which it is responsible to for development, coordination and
conducting training for the BSC.

China on the other hand, uses BSC in service industry like hospitals. In China, large
number of public hospitals have adopted BSC in the administration system. According to a
study by Lin, Yu and Zhang (2014), implementation of BSC shows an improvement in both
organization and personal performance which is increases together with the BSC application.
In other words, the performance of the organization and medical practitioners will be high if
BSC implementation is high. BSC has a positive impact on the performance due to certain
factors such as technological advancement, availability of medical resources and the
operational scope.
BSC is effective in public hospitals because it is able to control temporary actions that
are caused by financial measures. Besides that, it is able to improve the medical practitioners’
confidence as well as enhance the performance evaluation in public hospitals. Hospitals that
have adapted BSC with all four perspectives which are financial, customers, internal business
and learning and growth are able to achieve better organizational and personal satisfaction
compared to hospitals that have not adopted BSC. Therefore, management in other hospitals
should give attention to the four perspectives also rather than just financial measures in order
to increase the performance and satisfaction.

4
The University of Greenwich
 MA in Emerging Economics

Then, implementation of performance measures also plays a role in the performance

of the hospital. A hospital that uses more performance measures like financial, human capital,
intellect and such will be able to outperform other hospitals that utilize fewer performance
measures. This means that when more performance measures especially the non-financial
ones in accordance with the hospital’s strategy is implemented, the hospital’s performance
can be motivated and analyzed from different perspectives. Moreover the cause-effect
relationship that is used in BSC connect the financial and non-financial measures. This effort
can be triggered to encourage the consistency of goals as well as enhance the cooperation
between medical service department and the practitioners.
Therefore, using BSC as a management technique will result in better hospital
performance as well as increasing the satisfaction of the medical practitioners. This is
because the performance of the hospital is evaluated from multiple perspectives rather than
just financial perspective. This will make the medical practitioners to feel satisfied with their
job when they realize that they too add value to the hospital’s performance.

Conclusion
In whole, the emergence of innovated management accounting techniques are able to
solve many organizations’ problems in terms of costs. Different organizations have different
goals and objectives. This is why using a same costing technique will be impossible as there
are different costs involved. However, the same industry could use different management
techniques and this is mainly due to the different organization goals. Some organizations’
goals is to maximize wealth by allocating the costs efficiently while some will maximize
wealth by taking other factors into consideration like customers, employees and such.
Based on the research and analysis above, management techniques has been effective
in developing countries though the implementation is averagely low. Malaysian public
university though a service industry uses ABC as their costing technique due the importance
of being precise with their costs. Universities that are able to manage their costs and offer
affordable and appropriate fee will be able to attract students. Overly priced courses will only
be a drawback to the university which will then fail to reach the goals and objectives. On the
other hand, BSC is used more in service industry in both Malaysia and China. Evaluating the
performance or health of an organization in a service industry requires more than just
financial outcomes.
The EPF in Malaysia is using BSC as management accounting technique because of
the reverse cause-effect in BSC where four perspectives are interrelated in improving the

5
The University of Greenwich
 MA in Emerging Economics

performance. The senior management truly believe that performance can be evaluated by
involving all the employees and that will help the agency to achieve the goals and objectives.
BSC in China is used in public hospitals because it takes into account various factors to be
efficient and effective. Hospitals as a service industry is highly depended on their customers
and employees because that is how the service is done. It is important for organizations in the
service industry to evaluate the performance from different perspectives and to give
importance to other perspectives besides just financial. (Chen et al., 2006) The organization
should come up with strategies to increase satisfaction among stakeholders like customers
and employees. As mentioned before, the perspectives are linked among one another so when
the financial results increase, then customer satisfaction will follow suit if the organization
enhance their experience and such.
There are plenty of limitations in the implementation of new management techniques
in emerging countries like China and Malaysia mainly the high implementation cost and
culture. However, when an organization is able to identify the success factors that helps in the
implementation process like top management support or adequate training is given, then it
will be easier to implement management techniques in developing countries. (Fei and Isa,
2010)

6
The University of Greenwich
 MA in Emerging Economics

Appendix 1

Word count: 2248 words

Reference List:

Chen, X., Yamauchi, K., Kato, K., Nishimura, A. and Ito, K. (2006). Using the balanced
scorecard to measure Chinese and Japanese hospital performance. International Journal of
Health Care Quality Assurance, [online] 19(4), pp.339-350. Available at:
http://www.emeraldinsight.com/doi/full/10.1108/09526860610671391#_i8 [Accessed 23
Feb. 2018].

Fei, Z. and Isa, C. (2010). Factors Influencing Activity-Based Costing Success: A Research
Framework. International Journal of Trade, Economics and Finance, [online] 1(2), pp.144-
150. Available at:
https://www.researchgate.net/publication/291219513_Factors_Influencing_Activity-
Based_Costing_Success_A_Research_Framework [Accessed 21 Feb. 2018].

Joshi, P. (2001). The international diffusion of new management accounting practices: the
case of India. Journal of International Accounting, Auditing and Taxation, [online] 10(1),
pp.85-109. Available at:
https://www.sciencedirect.com/science/article/pii/S1061951801000374 [Accessed 20 Feb.
2018].

Kaplan, R. and Cooper, R. (1991). Profit Priorities from Activity-Based Costing. [online]
Available at: http://file:///F:/208556715-Profit-Priorities-From-Activity-Based-Costing.pdf
[Accessed 23 Feb. 2018]

LIN, Z., YU, Z. and ZHANG, L. (2014). Performance outcomes of balanced scorecard
application in hospital administration in China. China Economic Review, [online] 30, pp.1-
15. Available at: https://www.sciencedirect.com/science/article/pii/S1043951X14000418
[Accessed 20 Feb. 2018].
Maleah, R. and Ibrahim, D. (2007). Factors influencing activity based costing (ABC)
adoption in manufacturing industry. Investment Management and Financial Innovations,

7
The University of Greenwich
 MA in Emerging Economics

[online] Volume 4(Issue 2), pp.113-124. Available at:

https://www.researchgate.net/publication/291287016_Factors_influencing_activity_based_co
sting_ABC_adoption_in_manufacturing_industry [Accessed 16 Feb. 2018].

Mohamad, M. (2016). Activity-based costing (ABC) in Malaysian Public University -

Preliminary Assessment of ABC Implementation. [online] Available at:
https://www.researchgate.net/publication/297185738_Activity_based_costing_ABC_in_Mala
ysian_Public_University_-_Preliminary_Assessment_of_ABC_Implementation [Accessed 18
Feb. 2018].

Mohd Som, R. and Abdul Majid, M. (2008). The implementation of the balanced scorecard:
the Malaysian public service experience. Jurnal Pengurusan Awam, [online] Volume 7(No.
1), pp.Pages 81 to 98. Available at: http://www.myjurnal.my/public/article-
download.php?id=74100 [Accessed 22 Feb. 2018].

Nassar, M., Aldeen Al‐Khadash, H., Sangster, A. and Mah’d, O. (2013). Factors that
catalyse, facilitate and motivate the decision to implement activity‐based costing in Jordanian
industrial companies. Journal of Applied Accounting Research, [online] 14(1), pp.18-36.
Available at: http://www.emeraldinsight.com/doi/abs/10.1108/09675421311282522
[Accessed 18 Feb. 2018].

Nouri, H. and Liu, L., the Use of the Business Balanced Scorecard in China: The Impact of
Chinese Cultural and Social Context. Pp.22-38. Available at:
http://www.myacme.org/ijmtp/IJMTPV10N1/N1.pdf [Accessed 20 Feb.2018]

Zeng, K. and Luo, X. (2013). The balanced scorecard in China: Does it work?. Business
Horizons, [online] 56(5), pp.611-620. Available at:
https://www.sciencedirect.com/science/article/pii/S0007681313000967 [Accessed 16 Feb.
2018].

8
The University of Greenwich