Académique Documents
Professionnel Documents
Culture Documents
Biz Section
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1.Strategies for Hotel Industry to Gain Competitive Advantage - Dr. Aarti Mahendru
2.Developing The Knowledge Strategy For Service Sector Industries - Ms. Alaka
Samantaray
4.Pharmacoeconomics in Health Care Services - Abhishek Dadhich, S.D Gupta, Anil Sharma
6.Human Behaviour at Work: A Globalization Perspective - Dr. Pradip Kumar Mallik and
Dr. Pradyumna Kumar Tripathy
10.A Study on the changes brought by the FDI in the auto component sector -
Satyendra Kumar Sharma, Dr. Vinod Joshi and Raghav Gupta
11.Impact of Global Financial Crisis on Indian Banking System - Dr. Devendra Singh,
Dr. Gaurav Aggarwal and Dr. Amit Kumar Srivastava
12.A Panel Data Analysis on Indian Banks’ Intellectual Capital Efficiency - V. Murale
13.Marketing evaluation of travel and tourism websites: Lessons from the small and
medium enterprises in Andaman Islands - Dr. S.Victor Anandkumar
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Abstract:
This paper analyses recent developments in the hotel industry that aid in the gaining of
competitive advantage and creating value to investors and customers. One of the methods used to
promote their business undertaking is through e-business through the use of the internet. The
hotel industry has gained advantage through the development of internet website and this helps
boost its market size.
The business environment today has experienced continuous change, this change has been
characterized by more complexity in the transactions and relationships, and the increased
complexity has been as a result of increase information access and the increasing access to
information due to the growing technology and the internet.
A business is usually empowered by information and the resources they usually seek out to meet
their wants and needs. Due to the increased complexity there is a need to acquire competitive
strategies and skills to gain competitive advantage over business rivals. In the past the only skills
that were required in the hotel industry was excellent guest services but now all this has changed
and more competitive strategies have emerged over time.
Introduction:
Competitive advantage is the advantage of a firm over its rivals. This advantage allows the firm
to generate higher sales and also retain more customers than its rivals. It may include any
advantage due to the cost, products, distribution network and customer support provided. When a
firm posses competitive advantage it is in a position to generate great value for its stake holders
and that the more sustainable the competitive advantage the more it becomes difficult for rivals
to neutralize these advantages.
There has also been an emergence of new and unique needs of the consumers in the hotel
industry. The needs of the consumers over time have moved from the brand to the price and
finally the value. Consumers now are interested to try out new things for the purpose of fulfilling
their distinct preferences and tastes. This has led to competitive firms to adapt to the changing
business dynamics to gain competitive advantage.
Labour is one of the important resources in any business. Hiring of highly talented workers will
ensure conducive environment in the workplace and therefore, there is need for firms to nurture
and also to retain these talents as a way of gaining competitive advantage. There must also be a
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focus on deriving value through this talent management strategy. This strategy focuses on
building a talented workforce and a self motivated and committed labour force.
Change management is also a key to the success in the hotel business. The business must adapt
to change in the market. This involves the introduction of new processes, enhancing team work
and increasing productivity and the profitability of the business undertaking. The hotel business
must, therefore, be flexible and positive towards change and not resist change because such
resistance may result in obstructions in moving towards a successful future.
Employment of skilled labour is also an important factor to consider. These skilled employees
are to perform such actions as budgeting, financial analysis and forecasting. This helps the
business to analyze the root cause and the possible solutions to any problem being faced by the
business. Skills required include sales skills and marketing skills and ability to formulate
competitive business strategies by implementing the best strategies that succeed in the business
undertaking, Charisma is also an important skill required by the hotel and it is an effective
strategy that is required in order to differentiate the hotel services and facilities because this
emphasizes benefits and features of the hotel in a way that creates value for the customers.
E-business:
Hotel sales and catering sales industry need to start thinking outside the box when it comes to
web sites and search engines through virtual presentation of services. In today's competitive sales
environment, time is money. Distribution and presentation of your sales material quickly and
professionally - while providing personal attention to the client - can make the difference
between the sale and lost business.
This communication provided by the internet between the service and product provider and
customer enhances businesses opportunities by making transaction much easier and cheaper
where consumers can buy the products and services over the internet.
Through the internet the hotels offer competitive prices to consumers and also offer promotions
to consumers. Through the aid of the internet the consumer is able to compare prices and also the
product and services offered and as a result the hotels gain competitive advantage.
The hotel industry has also initiated flexibility whereby they are currently able to offer more
brands and also negotiable price cuts schedules. Hotels now offer more rooms at different prices
that are very competitive. The ability of a hotel to be in a position to offer online purchase and
delivery of products and services has also provided them with competitive advantage. Further,
many hotels also offer services such as advance car hiring, air ticket and travel packages which
are very attractive and convenient to consumers.
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The main challenge to the e-business practiced by the hotels is that some customers are afraid of
giving away their personal information such as credit card information which is a security
concern. The other disadvantage of the internet booking process is the speed of delivery of goods
and services and also the reliability of these services. Booking and other processes require some
time to process and also may be unreliable to consumers and therefore this might turn to be
inconvenient to the customer and the business.
The internet has resulted in a reduction in information asymmetry and this means that currently
consumers can collect information easily regarding hotel products and services. This reduces the
customers’ cost of searching for information. It has also reduced the transaction costs involved in
the process and therefore the competitive hotels are using the internet to promote their services
which are at very competitive prices due to low transaction costs.
The occurrence of disintermediation in the hotel industry has also aided in gaining competitive
advantage. Disintermediation involves giving directly to the consumers the required products and
services. This means that consumers are directly connected to the producer, and as a result there
has been a reduction in costs through the elimination of intermediaries and because the price is
the determining factor in decision making this promotes hotel services providers who provide
competitive prices.
People productivity:
Labour is one of the important resource in any business, the hiring and the recruitment activity is
a major factor in the success of any business. The hiring of highly talented workers will ensure
conducive environment in the workplace and therefore there is need for the firms to nurture and
also to retain these talents as a way of gaining competitive advantage.
The pressure of retaining people in today’s competitive environment, and the adjustments that
this necessitates will, over a period, significantly change both the management structure and
working environment in hotels in India. Managers will need to pay more attention to employee
motivation and team-building efforts and see that these “ideas” are more regularly - and more
effectively - put into practice. Age old policies and super structures, will, we believe, have to
pave way to newer and faster career progression. HR concepts once alien to the Indian
hospitality, like HRIS, OD intervention and Career Pathing, must now be taken very seriously by
Indian hotel companies.
The solution lies in the industry taking some important steps, both in terms of building a
productive and positive work culture, where employees are actively encouraged to perform to
their best capabilities, as well as making the necessary changes in compensation practices. Hotel
owners need to share as much information as possible with management. Managers and team
leaders, on their part, need to spend time with their team members, to discuss objectives, provide
feedback, ask team members about their difficulties as well as to talk about what’s happening in
the hotel. International hotel companies such as the Ritz Carlton Company, Four Seasons Hotels
and Resorts and Marriott – leaders in this industry in guest satisfaction and business profitability
– are companies that have made a dedicated effort to encourage teamwork, employee
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Change management:
Success is also dependent on the adaptation of business to change in customer's needs, investors
and also the market. Therefore, in order to increase business opportunities the businesses must
harness all the creative energies from all stakeholders who include investors, owners, staff and
customers. This strategy involves keeping the employees engaged in earning, the introduction of
new processes, enhancing team work and increasing productivity and the profitability of the
business undertaking.
Therefore, the hotel business must be flexible and positive toward change and not resist change
because such resistance may result to distractions toward a successful future. Adaptation of new
technology is also an important factor in the determination of success, all this adds up to the
development knowledge and better understanding of stake holders wants and needs
Eco-practices:
In hotel business, initiatives that are environment sustainable are becoming widespread.
Environment friendly initiatives help hotels to save money and resources without compromising
on quality. Environmentally friendly initiatives range from saving water and energy to hiring of
hotel executives that will actively participate in implementing green programs.
Due to more concern about the threats to our environment, more people are embracing a 'Green'
lifestyle. Businesses are now realizing that they also need to make changes in order to adopt a
more environment friendly operation. One business area that is beginning to recognize the need
to be more 'green' is the hotel industry. Many hotels are responding to consumer demands for a
healthier and greener lifestyle by making their businesses more environmentally friendly. The
hotels would have to invest in environmentally friendly practices and look at long-term gains.
There are many ways that hotels can make their business eco-friendly include: Implement a
towel and linens reuse program and recycle stained tablecloth into napkins and aprons. You can
also make cloth laundry bags from old sheets. Adopt a nonsmoking policy for the entire hotel.
Provide guestroom recycle baskets and bins for newspaper, white paper, glass products,
aluminum cans, cardboard, and plastics. Provide recycling bins in public areas. Use fluorescent
lights instead of incandescent bulbs. Install devices that power down heating and cooling systems
when guests leave the room. Adopt the use of nontoxic cleaners by housekeepers. Adopt other
cleaning practices such as cleaning the windows with vinegar instead of chemicals. Dispense
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shampoo and soap from large containers instead of disposable plastic bottles. Offer guests
walking maps and information on public transportation. Provide bicycles to guests for sight
seeing excursions. Use electric or battery operated lawnmowers. Use a mulcher to chop up the
garden clippings to make your own mulch. Ban the use of pesticides and chemical fertilizer. Use
only organic products on the lawn and garden. Use 'gray' water from the showers and sinks for
ponds and landscaping. Compost food waste and use it as fertilizer. etc.
Being green means 'Green' hotels are adopting environment friendly practices and programmes
that will reduce energy, water, and waste. Hotels use a tremendous amount of energy and water
as well as collect a huge amount of waste. By doing their part to conserve, recycle, and reduce,
they are protecting the planet as well as providing a great place for eco-friendly guests to stay.
Conclusion:
The hotels with sustainable competitive advantage have the opportunity to capture value that will
benefit the customers through meeting their wants and needs and also stake holders. The value
captured is important as that value they create and if hotels cannot capture the value today in the
activities they undertake then they will still have difficulties in generating that value in the future
activities they undertake.
Businesses are usually empowered by information and the resources they seek out to meet the
wants and needs of stake holders. Due to the increased complexity there is a need to acquire
competitive strategies and skills to gain competitive advantage over business rivals. In the past
the only skill that were required in the hotel industry was excellent guest services but now all this
has changed and more competitive strategies have emerged over time.
References:
Singh, A. (2010), Environment Friendly solutions for hospitality. HVS international, May 21.
Hourah, J. (2010). Building Better Businesses with Strategic Employee Reviews. HVS
international, May 18.
Cheria, T.(2008).Hospitality Industry facing Manpower crunch. Business Line, Jan 22,Tuesday
Roth, B. (2009). Hotel Industry Embraces Green Revolution. Entrepreneur, May 22.
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ABSTRACT
Today we are all living in the Knowledge Era, this Knowledge Era or the technology era has
emerged as a challenge for all the sectors including the Service Sector in Particular the Financial
sector. The financial services sector relies on the intelligence, adaptability, innovation and drive
of its people to achieve and maintain competitive advantage. In this new environment, the
individuals that thrive in the knowledge era workplace are the ones that can make informed
decisions based on available information, and can relatively quickly provide meaningful
solutions for a public or private entity in the marketplace.
In most developed countries, some two-thirds of the GNP is made up of services.The emergence
of the Knowledge Age heralds the rise of new corporate structures. In the 21st century,
knowledge will be a company's most important asset and competitive advantage. This paper
gives focus on an alternative route in strategy formulation for knowledge-intensive
organizations. The purpose of this study is to suggest an alternative route in strategy formulation
for knowledge-intensive service sector industries.
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INTRODUCTION
The "service" emerges as an ongoing process of problem solving between the customers and
teams of experts. They therefore have to treat their customers as individuals. Because the
knowledge organisation cannot force its customers to adapt to it, it must perforce adapt to them.
Strategy-making is usually portrayed in dichotomous terms: rational vs. incremental, or
formulation vs. implementation. It may, however, be more valid to think of organizations as
entities capable of developing resources and skills in multiple strategy-making process modes.
Strategy implementation and performance in organizations are influenced by its market
orientation.. The relationship between market orientation, strategy implementation, and
performance is robust across environmental contexts. One key to success for leadership in a
knowledge-intensive organization is to be able to balance the management of both the
professionals and the organization strategy of the knowledge company. The Knowledge
Organisation belongs to a subgroup within the service sector. The service sector is not a discrete
phenomenon but rather a spectrum of company types ranging from those organisations totally
adapted to their customers -- the knowledge organisations -- to organisations that have refined
and packaged their output. The latter have more in common with manufacturing companies. The
"production" of the Knowledge organisations is solving problems that are hard to solve in a
standardised manner. The staff (key people) tend to be very competent; highly educated and/or
with long experience in a profession often involved with information processing. The business
logic depends on how the managers of the Knowledge Organisations regard their assets, their
key people and their customers, how they attract them and how they match their capacity for
problem solving with the needs of the customers. The service sector is not a discrete
phenomenon but rather a spectrum of company types, ranging from those organizations totally
adapted to their customers to organizations that have refined and packaged their output In the
companies on the far right, service has become industry; the key to profitability lies in efficient,
industrialized preprogrammed production aimed at a mass market The success comes from
standardization and the economy of scale resulting from it. In fact, too much initiative might
disrupt the fine-tuned system and make it less effective. The knowledge is in the hands of the
organization. Image, manuals, routines, experience, control. The standardized service factory has
a high structural capital. The "service" emerges as an ongoing problem-solving process between
the customer and the producer. There is no standardized service package. The customer often
does not know what he or she is asking for. The service provider is an expert and the customer
wants the problem solved by the expertise of the expert. The knowledge industry therefore has to
treat its customers as individuals. Their close relationship is sometimes even revealed in their
language.
Literature review
Filley and Aldag (1978), Galbraith and Schendel (1983), and Miller and Friesen (1986) have all
developed empirical taxonomies of firms based upon the content of the organization's strategy.
Fewer attempts have been made to classify empirically firms according to their strategic
processes. Extensive empirical work has been conducted on the Miles and Snow (1978) typology
(see Zahra and Pearce, 1990), however, most of this work has focused on testing specific
hypotheses with respect to the typology rather than the empirical validation of the classification
system. While Mintzberg, Raisinghani, and Theoret's (1976), Hickson et al.'s (1986) and
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Shrivastava and Grant's (1985) work is also significant, each adopted the strategic decision as the
unit of analysis. Development of an empirical taxonomy using the organization as the unit of
analysis has been more limited. For example, Miller and Friesen (1977, 1978, 1984) used Q-type
factor analysis to identify ten 'archetypes' of strategy-making. Eighty-one case studies were
coded and clustered into the 10 types using measures of environment, structure, and strategy
process. This work clearly broke new ground methodologically and offered a fresh approach to
organizational classification. However, the resulting taxonomy was quite coarse-grained since it
did not identify specific strategy process types distinct from structure or environment (Hambrick,
1984). Shrivastava and Nachman (1989) used a similar approach in their empirical classification
of 27 business cases. However, the constructs used in the classification system in this study were
limited to those relating to executive leadership and design processes. Organizations have long
sought how to achieve a competitive advantage in dynamic environments. Some suggest that
advantages are achieved by placing a renewed emphasis on delivering superior products and
services to customers. Others feel that organizations should take a more pragmatic approach by
implementing 'best practices' (Miles and Snow, 1978; Bourgeois, 1980; Snow and Hrebiniak,
1980; McKee, Varadarajan, and Pride, 1989; Venkatraman and Prescott, 1990). Finally, some
have suggested a more cerebral or cultural approach which requires organizations to engender a
market orientation (Kohli and Jaworski, 1990; Narver and Slater, 1990; Jaworski and Kohli,
1993; Day, 1994, 1998).
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information processing (not necessarily computerized) and the end result is normally a report or
process delivered orally or as hard copy. The customers are treated individually.
The companies are in the knowledge industries like management consulting, computer software,
technical research, advertising, law, medicine, architecture, and so on. The sector is sometimes
called professional services or business services but they have counterparts in the public sector,
such as many of the highly specialized governmental bodies or specialized hospitals or research
organizations. They also exist within big organizations as departments for R&D or laboratories.
Following are the factors which make the strategy successful: (International Review of
Strategic Management. D. E. Hussey ed. John Wiley & Sons Ltd)
1. Niche Orientation
It is much easier to manage a narrowly focused knowledge company than a
conglomerate. This is because (a) a leader from another profession will not have the
automatic following from the professionals in the other; (b) it is more or less impossible
for the conglomerates to achieve better quality than the focused companies.
2. Organic Growth
Acquisition of a knowledge company nothing more than recruiting a large bulk of new
people - unseen. This normally creates disenchantment among the Professionals in both
camps and quality, motivation and consequently productivity are affected negatively.
3. Quality Control
All professionals want to produce high quality. Clients want it too. The key is the follow-
up of quality through rigid systematic client reviews.
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The word Strategy is usually associated with activities and decisions concerning the long-term
interaction of an organisation with its environment. A knowledge-based strategy formulation
should thus start with the primary intangible resource: the competence of people. People are seen
as the only true agents in business; all tangible physical products and assets as well as the
intangible relations are results of human action, and depend ultimately on people for their
continued existence. People are seen to be constantly extending themselves into their world by
both tangible means, such as craft, houses, gardens and cars and intangible corporate
associations, ideas, and relationships.
People can use their competence to create value in two directions: by transferring and converting
knowledge externally or internally to the organisation they belong to. When the managers of a
manufacturer direct the efforts of their employees internally, they create tangible goods and
intangible structures, such as better processes and new designs for products. When they direct
their attention outwards, they will in addition to delivery of goods and money also create
intangible structures, such as customer relationships, brand awareness, reputation and new
experiences for the customers.
A Knowledge Organisation normally has rather few tangible assets. Some computers perhaps,
but even the office space is often on lease. Tangible assets are owned by the company and
usually the only assets that the accountants are allowed to bring into the Balance sheet. The real
assets of a Knowledge Organisation are mostly intangible.
The value of intangible assets can not be displayed in normal market transactions, like physical
goods. That there is a value everyone agrees.
The External structure can be seen as a family of intangible relationships with customers and
suppliers, which form the basis for the reputation (image) of the firm. Some of these
relationships can be converted into legal property such as trademarks and brand names. The
value of such intangible resources is primarily influenced by how well the company solves its
customers’ problems, which involves an element of uncertainty. Reputations and relationships
can be good or bad, and can change over time. They are partly independent of individuals.
When people direct their actions internally they create an Internal Structure. The family of
Internal Structure can be seen to hold patents, concepts, models, templates, computer systems
and other administrative more or less explicit processes. These are created by the employees and
are generally owned by the organisation. However, the organisation can legally own only a small
part of the Internal Structure. The informal power play, the internal networks, the culture or the
spirit can also be regarded as belonging to the internal structure. It is useful to include also the
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competence of individuals in the Internal structure family, such as support staff, accounting, IT,
HR and management in the Internal Structure family, since it is not possible to separate the
internal structure from it’s creators. Internal structure is thus partly dependent, partly
independent of individuals. Even if the most valuable individuals leave a company that depends
heavily on them, such as a consultancy firm, at least part of both the internal and the external
structures (the brand name)?will probably remain intact and can serve as a platform for a new
start, (Sveiby & Lloyd, 1987).
The knowledge organisation often finds itself pulled in two directions. One direction is pointing
towards the paradigm of the industrialised Service Company. The other direction is pointing
towards the "Knowledge Company".
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The forces that pull towards the industrialized Service Company tend to come from the managers
in charge of the organization. They wish to guard the survival of the organisation, reduce
uncertainty and work efficiently. They therefore:
Replace staff with computer systems.
Standardise service into packages that can be handled by less experienced and less costly
personnel.
Look for growth in volume rather than competence.
Look for larger profits.
The forces that pull in the other direction usually come from the professionals. They there fore:
Prefer to work in small units.
Want non standardized challenging problems.
Want to work together with colleagues of high competence.
Prefer close relationships with demanding customers.
Wish support from sufficient financial resources for own R&D
Summary
The emergence of the Knowledge Age heralds the rise of new corporate structures. In the 21st
century, knowledge will be a company's most important asset and competitive advantage. The
Knowledge Organisation belongs to a subgroup within the service sector. The service sector is
not a discrete phenomenon but rather a spectrum of company types ranging from those
organisations totally adapted to their customers -- the knowledge organisations -- to
organisations that have refined and packaged their output. Organizations have long sought how
to achieve a competitive advantage in dynamic environments. Some suggest that advantages are
achieved by placing a renewed emphasis on delivering superior products and services to
customers. Others feel that organizations should take a more pragmatic approach by
implementing 'best practices'. The knowledge-intensive organization is an organization where the
majority of the employees are highly educated, where the "production" does not consist of goods
or services but complex non-standardized problem-solving. The problem-solving process
involves a lot of information processing (not necessarily computerized) and the end result is
normally a report or process delivered orally or as hard copy. A knowledge-based strategy
formulation should thus start with the primary intangible resource: the competence of people.
People are seen as the only true agents in business; all tangible physical products and assets as
well as the intangible relations are results of human action, and depend ultimately on people for
their continued existence. A knowledge-based strategy formulation should thus start with the
primary intangible resource: the competence of people. People are seen as the only true agents in
business; all tangible physical products and assets as well as the intangible relations are results of
human action, and depend ultimately on people for their continued existence. People are seen to
be constantly extending themselves into their world by both tangible means, such as craft,
houses, gardens and cars and intangible corporate associations, ideas, and relationships.
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References
Allen, T. J. (eds.), 1997, Managing The Flow of Technology, Cambridge Mass: MIT Press.
Amit, R. and P. J. H. Schoemaker, 1993, ‘Strategic Assets and Organizational Rents’, Strategic
Management Journal 14, 33–46.
Ancona, D.G. and D.F. Caldwell, 1990, ‘Beyond Boundary Spanning: Managing External
Dependence in Product Development Teams’, Journal of High Technology Management
Research 1, 119–135.
Baba, Y. and K. Nobeoka, 1998, ‘Toward Knowledge-Based Product Development: The 3-D
CAD Model of KnowledgeCreation’, Research Policy 26, 643–
Ford C. & Gioia D. (ed. 1995): Creative Action in Organizations ? Ivory Tower Visions and Real
World Voices. Sage USA.
Garvin (1993): Building a Leaming Organisation, Harvard Business Review, July-August 1993
Hall (1992): The strategic analysis of intangible resources. Strategic Management Journal, vol
13 pp135-144.
Hamel G. & Prahalad C.K (1990): The Core Competence of the Organisation. HBR May-
June1990.
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Introduction
Accounting is the art of recording transactions in the best manner possible, so as to enable the
reader to arrive at judgments/come to conclusions, and in this regard it is utmost necessary that
there are set guidelines. These guidelines are generally called accounting policies. The intricacies
of accounting policies permitted Companies to alter their accounting principles for their benefit.
This made it impossible to make comparisons. In order to avoid the above and to have a
harmonised accounting principle, Standards needed to be set by recognised accounting bodies.
This paved the way for Accounting Standards to come into existence.
Accounting Standards
Accounting standards are regarded as a major component in the accounting framework and
reporting practices. Accounting standards improve the creditability and reliability of financial
statements.
Accounting Standards are written policy documents issued by experts accounting body or by
govt. or by any other body covering the aspects of recognition, measurement, presentation &
disclosure of accounting transaction in financial statement.
Accounting Standards are the policy documents issued by the recognized expert accounting body
relating to various aspects of measurement, treatments and disclosure of
accounting transaction and events. Accounting Standards contain the principles governing
accounting practices and determine the appropriate treatment of financial transactions.
With the activities and interests of investors, lenders and companies becoming increasingly
global, the Commission is increasing its involvement in a number of forums to develop a
globally accepted, high quality financial reporting framework. Our efforts, at both a domestic
and international level, consistently have been based on the view that the only way to achieve
fair, liquid and efficient capital markets worldwide is by providing investors with information
that is comparable, transparent and reliable. That is why we have pursued a dual objective of
upholding the quality of financial reporting domestically, while encouraging convergence
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towards a high quality global financial reporting framework internationally. In this release, we
are seeking comment on the necessary elements of such a framework, as well as on ways to
achieve this objective. One aspect of this is seeking input to determine under what conditions we
should accept financial statements of foreign private issuers that are prepared using the standards
promulgated by the International Accounting Standards Committee.
Accounting Standards is to standarize the diverse accounting policies and practices with a view
to eliminate to the extent possible the non-comparability of financial statements and the
reliability to the financial statements.
International accounting standards are a necessary part of the rapidly globalization economy.
However it is important to outline the steps necessary to establish these standards. This paper
explores the issues surrounding harmonization of accounting standards between nations.
The requirement of global economy is that accounting policy should be standardized among
nations. This "harmonization" of accounting standards will help the world economy in the
following ways: by facilitating international transactions and minimizing exchange costs by
providing increasingly "perfect" information; by standardizing information to world-wide
economic policy-makers; by improving financial markets information; and by improving
government accountability. International investment decisions and financial-based
management decisions are then made with less risk.
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In the short term, an approach to internationalism is to find standards acceptable to each local
regulator. Next, the amount of variance allowed from a single standard should be reduced until
additional standards placed on industry locally by regulators is removed. The curriculum of
business school accounting programs, in addition to practicing accountants, must quickly adopt
these international standards.
Adoption of IAS by accounting bodies in developing countries would reduce the expense of
creating domestic accounting standards. Countries with relatively high inflation might be able
to reduce "indexing" and other poor polices such as periodic, government-mandated
revaluation of long-term assets with the adoption of international accounting standards.
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Political Interference
Difficulty in adoption
Other obstacles
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Accounting standardization will aid in the economic conversion of the Central European
countries, East Germany, China and the Commonwealth of Independent States (CIS).
International standards can be adopted to efficiently evaluate businesses to be sold by
governments to the private sector. Infant stock markets and banking institutions need sound
accounting systems.
The role of developing nations in global economic development cannot be ignored. As sources
of comparative advantage in labor and raw material, it is necessary to harmonize international
accounting standards to measure the value of these assets in the world market. Government
accounting needs to be standardized to assist in the efforts of inter-governmental economic
development cooperation. Additionally, tax law standardization is necessary to minimize tax
avoidance and to help create the "level playing field."
Conclusion
Accounting standards are regarded as a major component in the accounting framework and
reporting practices. Accounting standards improve the creditability and reliability of financial
statements.
In view of the globalization of the economy and internationalization accounting standards has
become an imperative necessity. For this purpose harmonisation of accounting standards is the
most current issue throughout the world.
Harmonisation does not mean the replacement of existing GAAP with GFS. Rather, the principle
is “convergence to a high quality standard” with consideration being given to definition,
recognition, measurement, presentation and disclosure requirements.
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Most of the developed and developing countries have their Accounting standards and
international Accounting standards are used as a basis for developing their own standards aim at
reducing diversity in accounting and reporting practices in different countries.
Harmonization of Accounting Standards does not seem to be easily achieved as there are many
obstacles in the way. Achievement of the objectives of harmonisation will take time,
commitment and willingness for standards setters to work together to remove differences. The
most positive achievement over the past few years is that the important of harmonisation of
accounting standards is felt by all the countries and they have started taking the issue seriously.
References
Arpan J.S. Radebaugh L.H.: International Accounting and Multinational Enterprises, Warren
Gorham and Lamount, 1981.
Holman, David, L: Convergence, Hurdles Remains Accounting World, Dec. 2004, pg-47
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ABSTRACT
The principal of pharmacoeconomics science serve as a major tool in health economics that
aims to evaluate and optimize the health economy with new evaluation techniques. The economic
evaluation of the health care system provides standard guidelines which can be helpful in
providing “Quality of heath care system at optimum price”. This concept focuses on both
pharmaceutical sectors as well as general health care services.
INTRODUCTION
For promoting the science of pharmacoeconomics in health care system as well as in research
sectors in India, the Society of Pharmacoeconomics and Outcomes Research India (SPOR-
INDIA) was organized to provide an environment for knowledge sharing among researchers,
healthcare practitioners and decision-makers interested in pharmacoeconomics and outcomes
research. This serve as a bridge in bringing together Indian researchers, healthcare practitioners,
and decision-makers interested in pharmacoeconomics and members of pharmaceutical industry,
health-related organizations, and academia. It also acts as a resource at a local level for
individuals including students interested in pharmacoeconomics and outcomes research 2.
PHARMACOECONOMICS CONCEPT
The Science of pharmacoeconomics analyses provide a basis for resource allocation and
utilization, and are increasingly becoming important for health policy decision-making. It is
important that this concept be understood not only by policy-makers, health administrators and
health managers, but also by primary care providers in health care system. In the present scenario
of India the field of pharmaceutical industries and primary health care providers grown in large
number with various new formulations of drugs and health care services which make difficult for
the physician as well as medical professionals to judiciously decide which drugs to be use or not
to be use. Before prescribing any new drug therapy by the doctors, two questions must be
answered (i) whether the new drug is equally or more efficacious in the said disease as compared
to the standard treatment; and (ii) does the new drug have any economic advantage over the
existing drugs 1. Thus, to resolve these problems (SPOR-INDIA) conducting meetings and
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seminars at national and international level to provide the knowledge about the
pharmacoeconomics concept among the health care providers.
EVALUATION TECHNIQUES
For the evaluation cost advantages and disadvantages the balance sheet is drawing up between
them. These can also be measure in term of inputs and outputs, respectively. The ‘costs’ are
always assigned a monetary unit, while the unit of measurement of benefits (advantages) varies
with the type of analysis, and also determines the type of analysis. The cost is described as cost
per unit outcome.
There are 4 main approaches/techniques for economic evaluation in health care services which
are as follows:
1. Cost-minimization analysis
2. Cost–effectiveness analysis
3. Cost–utility analysis
4. Cost–benefit analysis
In the cost analysis the various types of cost are identified. These are of various types like:
Healthcare costs: Financial costs which fall on the health services (e.g. drug acquisition costs,
days in hospital). Healthcare costs are usually subdivided as follows:
Variable costs: Costs which vary immediately according to the number of patients treated (e.g.
drug acquisition costs, costs of other consumables such as needles and syringes)
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Fixed costs: Costs which do not vary with the number of patients treated, at least in the short
term, usually one year (e.g. capital costs of building or equipment; staff salaries).
Other financial costs: Financial costs which fall outside the health services (e.g. prescription
charges or other treatment expenses incurred by the patient; cost of patient’s or carer’s travel to
and from hospital, costs of providing social services, loss of productivity)
Intangible costs: Costs which are difficult to value financially (e.g. pain, anxiety and loss of
energy; time given up by voluntary carers).
Direct and Indirect cost: Direct cost is the obvious cost, i.e. the cost of the health service. It
includes physicians’ fees, cost of administering the medication, costs of treating an adverse drug
reaction, etc. Indirect cost is the one borne by the patient and family like transportation/traveling
cost etc.
This involves measuring only costs, usually only to the health service, and is applicable only
where the outcomes are identical and need not be considered separately. An example would be
prescribing a generic preparation instead of the brand leader (lower cost but same health
outcomes)11.
The term cost effectiveness is often used loosely to refer to the whole of economic evaluation,
but should properly refer to a particular type of evaluation, in which the health benefit can be
defined and measured in natural units (eg years of life saved, ulcers healed) and the costs are
measured in money. It therefore compares therapies with qualitatively similar outcomes in a
particular therapeutic area. For instance, in severe reflux oesophagitis, we could consider the
costs per patient relieved of symptoms using a proton pump inhibitor compared to those using
H2 blockers. CEA is the most commonly applied form of economic analysis in the literature, and
especially in drug therapy. It does not allow comparisons to be made between two totally
different areas of medicine with different outcomes 4,6,7,8.
Thus QALY tells us about both the quantity and quality of life gained. Cost–utility is expressed
as cost/QALY gained. CUA is not disease-specific. By using CUA, the cost/QALY value of
various procedures can be calculated and compared. For example, coronary artery bypass graft
and the use of erythropoietin in renal failure are totally different procedures; if limited resources
need to be allotted to them, this can be done using CUA. .
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In this type of analysis the benefit is measured as the associated economic benefit of an
intervention (eg monetary value of returning a worker to employment earlier), and hence both
costs and benefits are expressed in money. CBA may ignore many intangible but very important
benefits not measurable in money terms, e.g. relief of anxiety. CBA may also seem to
discriminate against those in whom a return to productive employment is unlikely, eg the elderly,
or the unemployed. However the virtue of this analysis is that it may allow comparisons to be
made between very different areas, and not just medical, e.g. cost benefits of expanding
university education (benefits of improved education and hence productivity) compared to
establishing a back pain service (enhancing productivity by returning patients to work). This
approach is not widely used in health economics, although many economists like it on theoretical
grounds and because it removes some of the “sacred cow” protection which surrounds health
care. They argue that health should be another commodity, and not necessarily valued more than
other possible uses of the resources 10.
CONCLUSION
The branch of Pharmacoeconomics is a new bud in health care sciences which is continuously
expanding with new methodologies and applications. It is also an important and helpful concept
in economics evaluation in drug therapy. In the era of rising medical costs, the health science
focuses on ‘value for money’. The various health professionals, clinicians and pharmacist should
actively participate in establishing standard guidelines for the proper implementation of
Pharmacoeconomics in developing countries.
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REFERENCES
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Abstract
The academic scenario has over the years undergone a tremendous change assuming
reincarnation of vast modern perception of global realities as its components. With the advent of
communication revolution, mass media information superhighway and the whole setup
aspiration associated with these phenomenon changes, the morality has undergone a
reincarnation in management education. There has also been gradual transference from the
traditional morality based concept of management education to the development based utilitarian
theory of management education. Globalization in India was generally taken to mean
‘integrating’ the economy of the country with world economy. This in term implies opening up
economy to foreign direct investment by providing facilities to foreign companies to invest
different field of economy activities and allowing Indian companies enter in to foreign
collaboration and encouraging them to set up joint venture abroad.
The increasing demand and the quality consciousness of the stakeholders had changed the
working style of various B-Schools in the recent past. There has been radical shift from the
traditional university set up to a modern private B-School. The model incorporates a series of
steps: Mission of the Institute, B-School Ranking, Accreditation, Curriculum and Contents,
Faculty programmes and Teacher’s Training, Examination, Teaching Methods and etc.
Introduction
The academic scenario has over the years undergone a tremendous change assuming
reincarnation of vast modern perception of global realities as its components. With the advent of
communication revolution, mass media information superhighway and the whole setup
aspiration associated with these phenomenon changes, the morality has undergone a
reincarnation in management education. There has also been gradual transference from the
traditional morality based concept of management education to the development based utilitarian
theory of management education. Globalization in India was generally taken to mean
‘integrating’ the economy of the country with world economy. This in term implies opening up
economy to foreign direct investment by providing facilities to foreign companies to invest
different field of economy activities and allowing Indian companies enter in to foreign
collaboration and encouraging them to set up joint venture abroad. The increasing demand and
the quality consciousness of the stakeholders had changed the working style of various B-
Schools in the recent past. There has been radical shift from the traditional university set up to a
modern private B-School. The model incorporates a series of steps:
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Mission of the Institute: The prime objective of learning needs and objectives of the Institute or
mission of the Institute can be:
• Change the thinking horizons of management trainees in to international standard.
• Develop the interpersonal potential by better management of cross- cultural diversities.
• Grooming of attitudes, skill, Knowledge and sound philosophy of life.
• Developing the entrepreneurial and entrepreneurial abilities.
B-School Ranking: Various management institutes participate in the B-school ranking survey
done by the various leading magazines and agencies to get their institutes enlisted in the ‘BEST
B-Schools’ or to gain the top rankings. This is a recent trend that boosts the business institutes
brand image, in making the students knowledgeable and help in their final decision in the college
(both domestic and international) to be joined on comparing the various parameters. These
surveys are done and published by various leading publications every year like the Business
World, Business Today, Business Week (Asian Edition), The Financial Times, AIMA and etc.
Branding of B-Schools: Various initiatives are taken by the Business Institutes to be brand as
Best B-School. It involves in the networking with the industry people, research wings,
collaborates with various agencies and institutes to share their knowledge and resources; it
undertakes various “Memorandum of Understanding” with various colleges domestic and abroad
ensures to take steps to meet quality specifications of various quality boards to meet global
quality standards and accreditation. Ex-National University of Singapore (NUS) had undertaken
several measures to brand their business schools that adopt the best of the curriculum of world
renowned Wharton School of the University of Pennsylvania to the needs and wants of
Singapore. Some of its branding initiatives like the student development centre specially
designed executive education programme and adopting the new teaching styles have made NUS
enter an exciting phase of change and expansion brought about by competition and globalization.
Learning is contextual:
According to David Thornburg, just as bell and whistle control the flow of work on the factory
floor, bell and scope and sequence mandates controlled the flow of information at school.
Students were taught and then assessed to see what they had retained. A management educated
student was seen as the successful product of the B-school, to be graduated at the end of the
educational assembly line.
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The curriculum of commerce and management education needs to be revised in the changed
socio-cultural-economic scenario. Consideration for region, sectoral requirements and
specialization are totally ignored in our curriculum. Much like their industrial counterparts,
Teachers only worked on one aspect of a student’s learning at a time, dividing then up either by
Subject or by age. Unlike the guild-based model of management education, in which, each
apprentice must learn the limited skills necessary for a particular career, today’s knowledge-
value teachers must learn a variety of skills in order to shift seamlessly from one career to
another throughout Working years.” Our curriculum must relate to realities and focus on the
context.
beyond the 9 to 5.
Making a career today no longer means progressing upward within an established hierarchy.
Rather; it now involves progressing upward through a series of assignments that provide
continual opportunities to learn. In many situations, this represents a return to a craft mentality
where Progress is not measured by position, but by growing mastery.
Comfort with ambiguity follows naturally from the changing nature of the work contract. The
uncertainty with the rapidity of knowledge-base change virtually in all professions, and it’s no
wonder that those who are uncomfortable with ambiguity tend to be highly stressed.
A lifelong learner: Most of the students graduating from traditional colleges, today, are left to
meet their future learning needs on their own. Two driving forces make lifelong learning as an
essential character of successful people: the short self life of much existing information, and the
exponential rate at which new information develops. The objective of any management
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education should not be to produce students having MBA, PhD, M.Com, but emphasis should be
to produce entrepreneurs to assist entrepreneurs and to solve the problem of entrepreneurs.
In the light of expectations of industry and requirements, it is suggested:
Use innovative ways of industrial linkage
Inputs of business programme must be as:
1. HRD and entrepreneurship must be made compulsory.
2. Course on foreign language must be introduced.
3. In addition to analytical skills, course has to strengthen with problem solving skill, skills in
planning and operations, presentation skill, stress management skills.
4. Focus must be given on integrative courses such as corporate strategy, strategic management
and business environment.
The designing of curriculum should be done by the academicians on local, national and
international basis and those who are taking the product of business schools like industries,
agencies etc.
Education imparting process should be strengthened by providing the best competitive offers
which helps in developing the differences in offer and competitor’s offer.
Need of hour: For a more efficient and supple education system, the rapid changing business
environment is the need of the hour. The national educational system as compared to the system
abroad is totally reverse. It is more firm and planned, with management being taught with less
scope for artistic quality and creative thoughts. Rather than spooning the students with same
techniques they should be trained and prepared for new challenging environment and should be
encouraged to bring out their originality with their thoughts and innovative methods. The leaders
of tomorrow cannot depend on some old theoretical beliefs; rather they should spread their wings
and cross every boundary. Tata Nano has been an illustration for many automobile companies
who want to design their cars on the similar lines. Now the crucial point is, learning nothing at
B-School will matter more than what you learn about the B-School. The outlook which one
develop in those two years course at B-School will determine one’s thinking capacity,
knowledge, networking ability, analytical skills and practical approach towards a problem which
will make big divergence in his career.
Dimensions of I-I-I: The relevance of institute-industry interface has been discussed umpteen
times in numerous seminars, conferences, forums and workshops. This subject has caught the
attention of innumerable writers too. The four dimensions of industry-interface are: knowledge
development, faculty development, student development, and infrastructure development.
Faculty programmes and Teacher’s Training: The management educators and training
instructors can play a critical role in executing the task developing the right perspective and
needed skills among the management students by redesigning business education programmes
and modify the necessary. A continuous change based faculty development programme must
design.
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Examination: Apart from semester and final examinations, to test the learning ability of the
students, internal test, surprise test and open book examination needs to be planned and
executed. Many management thinkers feel like doing away with examination system. I strongly
feel, examination really makes student work hard systematically and understand the subject in a
very structured way. Once the student understands the subject well and conceptualizes it, then it
becomes easy to face the challenges in real life. However, the pattern of examination and types
of question may differ from institution to institution. There need not be any direct question from
the book rather all the questions need to be application-oriented to test the understanding and
conceptualization of the subjects.
Teaching Methods: Now it is widely accepted and proven that case method of teaching is very
productive and hence many video case/movies have also come into place. Student at PG level
can always study what is there in the book, so there is no need to emphasize on that. Rather, the
teacher should bring fresh knowledge in the class, internet based questions, practical concept
application exercises, group mentoring to find out whether student have really understood the
topic or not are a few methods that can lead to effective learning. Teacher need to start a chapter
with a case and some real life example and then proceed and end with another case to judge the
understanding level of the students at the end of the chapter. Collaborative/participative learning
must be encouraged in the class. Audio/ Video teaching aids need to be in place.
Value added programs: Value added programs include sessions on soft skill development, how
to face interview, group discussions and personality enhancement classes in order to give
exposure and imbibe confidence among students. These classes help students enhance their
competencies.
Project Work: Four-six weeks of project in the area of specialization at final semester will help
the students implement their classroom learning in the industry and get the facts of the industry
requirements. Along with it some mini project should be assigned during this program.
Business Simulation Lab: The realism of businesses, with simulation technologies and the web.
In this case students, faculty and industry champions collaborate to impart practical business
education to students thereby create a growing body of knowledge within the school.
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Student Development: As part of their development, students should have adequate exposure
to management practices and process through frequent industry visits, summer projects and
internship programmes besides their classroom learning of theories and principles. Companies
could engage students in in-house exercises, funding of research or case studies involving
students, encouraging students to visit their factories or offices so that they get first-hand
information on the production/office process., sponsoring management fests and other events,
seminars and the like organized by students. The burning issue is to introduce the corporate
culture through various functions of management, like Marketing, HRM, Finance,
Communication, Cultural club etc. Let the students must handle the real exposure of corporate
interface.
Class Presentation: In order to encourage students improve their communication skills and
make them participate in the class, presentation should be assigned to them. The topic of
presentation may be academic as well as non academic, so as to make the students aware of the
practical aspects of the business/corporate environment. It also helps in enhancing the knowledge
base and develops their all-round personality.
Quiz Session: Quiz sessions should be held at the discretion of the respective faculty members
in order to enrich the students with subject and general knowledge. It provides a platform for
students to compete with each other and in the process improve their existing knowledge. It
includes different aspects like logo identification, brand identification as well as subject and
general questions.
Role Play: Role play helps students provide their prospective on a topic. This helps them
become more confident and shed their stage fright. It also helps them improve their
communication skills and develop better understanding of a topic.
Management Games: This is another very effective method of teaching. Various management
games on perception, leadership qualities, team work etc. will definitely benefit the students. It
helps one to think out of the box.
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Mentoring and Counseling Session on a Regular Basis: Regular counseling and mentoring
needs to be done for all students so as to make them more attentive, interactive and serious
towards studies. Special attention should be given to weak and problematic students to ensure
that they develop and improve before they go out of the college. It also helps to bridge the gap
between faculty members and students. Extra/ special classes are to be conducted for weak
students.
Conclusion
The coming world will be full of challenges and risks. The purpose of management educationist
is to prepare students for facing these challenges and taking risks. The whole society has to come
up in this great task of preparation of the future citizens. One has to come out from the traditional
way of learning, and adapt themselves with the new technologies and techniques. The role of
administrators will be to train the future management teachers for the coming years. We should
also redesign our modern trends of management education system, so to adjust with the global
effect of the new era. Managing Education could become a diagnostic tool for all problems of the
globalize world.
To end with the story about a great engineer and scientist Nikola Tesla, who developed the
alternating current generator? One day, Test was called to a power generating plant where the
generator was running at very-low speed. He saw that the flywheel was out of alignment, so he
took a hammer and as the wheel rotated to the right position, tapped it slightly to spring it back
into place. The generator quickly came to full speed, and the problem was solved.
“How much do I owe you?” the plant manger asked.
“Five dollars and fifty cents” Tesla replied.
“Five fifty for hitting a wheel with a hammer!”
“No sir,” said Test. “For hitting the wheel, the charge is fifty cents. The five dollars were for
knowing where to hit it.”
We may not know what type of management institutes, students, economy, technology is there in
the coming years, but we can be certain that they will all involve knowing where to hit the
wheel.”
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References
1. M.Khaja Peer, 2001, The Teachers Education in 21st Century in India –Challenges Ahead,
Vol.39, No.8, University News, and Baroda, India.
2. David Thornburg, 2002, The New Basics: Education and The Future of Work in the
Telematic Age, Alexandra, Virginia, USA.
3. Santosh Gupta, University News, 41(20), May19-25, 2003, Modern Trends in Management
Education.
6. www.b-school.com
8. www.icfaipress.org
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&
Abstract
An organization is an open system that transforms the inputs (materials, technology,
capital, human resources, etc.) obtained from the environment into finished goods or services as
outputs. Maximum advantages can be obtained from other resources only through sustained
human effort. Human beings are the prime mover of an organization’s functions and operations.
Human behaviour is an integral part of an organization, whether traditional or modern.
Globalization has induced sweeping changes in the business environment, be it external or
internal. Globalization is an irreversible phenomenon. The impact of globalization is so
enormous that it pervades the social infrastructure, cultural milieu, legal framework and
technological innovation to invite all round modification and transformation in business
organizations. The present article makes an endeavour to delineate the impacts of globalization
on business organizations. Furthermore, the article tries to analyse the effect of globalization on
human behaviour in present day organizations vis-à-vis the traditional ones.
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Globalization has invoked a far reaching effect in business environment. In fact, its
impulse has triggered a compelling change in traditional business organizations. Organizations
are the key players in the business environment. Organizations interact with multitude of
segments in different ways. Customers, employees, governments, intermediaries, competitors,
investors, general public, etc. in various forms and capacities interact with organizations or are,
being interacted to generate reciprocal utilities and benefits for both. Similarly organization to
organization interdependence and interaction is a feature of business environment. The following
figure illustrates the key participants in the business environment.
Government
Investors Customers
Organization
Competitors
Employees
Suppliers
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Top Management
Accountability
performance
Promise of
Command
Decision
Control
Effort
Work force
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Another feature of these type of organizations was that one department used to perform
its task according to its own goal, paying no attention to the other departments’ goal, resulting in
high degree of compartmentalization. These organizations indulged in a system-process-structure
combination where interdependence and interrelationship were hardly conceived of. Traditional
organizations were once on the right course of business transactions till a sweeping change took
place across the globe. This pushed these organizations to confront business realities of the day
that forced them to withdraw the compartmentalized approach and adopt a flexible organization
structure breaking down the rigor of centralized decision making and lopsided authority and
control.
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important. A company, at the same time, ought to look into developing an organizational
culture that doesn’t hurt the personal and social value systems of employees contrastingly.
d) Workforce diversity: A firm in a global environmental set up faces challenges to contain
with workforce diversity problems. By workforce diversity, we mean a company’s
workforce belong to multicultural, multi social, multilingual, multiracial backgrounds and
managing them under one roof needs some creative HRM skills and innovative HR
practices. This is evident when a company goes for multinational or global business ventures
and absorbs work force from a nation where it operates.
e) Organizational behaviour at crossroads: The organizational behaviour, under new globalized
scenario, demands time bound changes in the face of innovative changes in technology,
manpower etc. In fact globalization entails radical change in structure, process, technology,
system and behavior that are strikingly different from traditional organizations. For example,
new concepts and practices like virtual organizations, lean management process, nano-
technology, organizational delayering, management information system etc. have made
redefining of organizational behaviour. Dessler (2000) configured the concept of boundary-
less organization that decompartmentalized the walls of functional units in the organization
with the abolition of unitary work culture within a single unit and emergence of holistic
organizational culture that incites dejobbing on a large extent.
Therefore the effect of globalization is all-pervasive. It has a moderating effect on
traditional organizations to accept the inevitable changes of the business force and take steps to
turn around keeping in tune with present business imperatives.
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expanding its operations from a chain of hotels to family size restaurants, ice cream parlours etc.
has resuscitated its organizational structure to manage its diversified units successfully.
The journey of change was not easy, particularly retrograding within turbulent business
scene. Changes in structures, systems, process and operations, culture, ethos, behaviour
internally within the organization has been the basic premise to circumvent the uneven battle
between national and global business players. In fact, epoch making changes have been the cry
of the business houses. A shift from hierarchical to flat organization structure through
delayering, vertical to virtual organization, joining hands with foreign firms through
collaborative mechanisms, resort to Business Process Outsourcing (BPO), franchising, etc. are
some of the notable structural turn around, quite in line with present business contexts. A system
wide changes via various management support systems (e.g., Decision Support System),
Automations, Supply Chain Management (SCM), Enterprise Resource Planning (ERP) etc. have
made radical transformation of operations and management function of business firms. Invoking
these within the so called traditional framework is like driving an earthmover with bullocks.
Therefore, the crux of the issue is that an organization in the present context should
mould and redesign itself in a way that can accommodate the changes successfully. Change in
the basic philosophy of the organization is not the issue. The issues are transformation of
organizational missions and visions. Say an organization’s core philosophy is societal benefits at
a profit for long term sustenance. This may remain unchanged. But the perspective at present is
different from the past. Now an organization has to broaden its operations across the globe in
order to meet global competition and fulfill commitments to customer, distributors, suppliers,
franchisees, investors, agents etc. within and outside the nation. Therefore, the mission of the
new age organization is more broad and all-encompassing. The vision is a dynamic entity. The
organization should have the foresight to feel the pulses of future business such as radical
technological change, cultural transformations, legal amendments in near and distant future.
Otherwise the prospect of the organization will be bleak.
Another noticeable change that has shaken up the organization is behavioural dynamics.
Behaviour of an organization is the combination of behaviour of individual and behaviour of
groups. How employees behave in isolation and in group can be better understood how they
receive information, process the information, analyze the information and act or behave on the
processed information. By behaviour dynamics we mean how employees moderate their
behaviour with time depending on the situation or circumstances they confront. Traditional
organizations were run customarily by employers’ or top level managers’ instructions and
compliance of employees in humility without getting much scope in venting their voices or
opinions in operations. Employees were just treated as order servers. They didn’t assume any
role in operational planning of policy formulation, not to say in strategic planning. Therefore, in
true sense, behavioural dynamics was an utopia in traditional firms because of the rigidity and
absence of freedom for grass root level employees to share their views and contribute their worth
that are probable in a flexible business environment. Therefore, employees were always at the
receiving end and employers took an upper hand to force employees to adapt in such water tight
set up.
Globalization has now turned the tables on this one sided approach. Its gigantic force has
made inroads into orthodox organization to destabilize the long cherished and hackneyed culture
and values which favoured only the employers. In fact, it has stirred the organization from top to
bottom to forsake all the anti-employee decisions with profit maximization drive as the sole
prerogative.
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Organizational behaviour has come to a turning point at present. The way employers
behaved and employees complied has come to a point of turnaround. The forces of change being
manifested in forms of technological upgradation, cultural transition, social networking, legal
norms and standards etc. that cause a drastic change in organizational structure, process, system
and behaviour. Structurally an organization moves from taller to flatter configuration, thus
indulging in more delegation of authority and empowerment. Even an organization assumes
virtual form by lessening its gravity of operations in its core unit and spreading its wings by
empowering various other business firms to share the whole work operations. Indeed, BPO,
multi-tasking, licensing, franchising, collaborating etc. are nothing but mechanism of uprooting
the traditional hierarchical structure in totality and giving birth to boundary less organization that
can’t be straight jacketed in structural regularities. Similarly system and process changes are
reflected in earnest acceptance of modern techniques like TQM (Total Quality Mgt.), Six sigma
approach (Stringent quality control), BPR (Business Process Reengineering), CRM (Customer
Relationship Management) etc.
Behavioural changes are the order of the present day organizations. Behaviour in
organizations has taken a turn around because of intervention of machines in modern firms.
Information and communication Technology (ICT) has heavily impacted human behaviour at
work. ICT networks employees, not employees network among themselves. As computers
increasingly pervade all spheres of business, it has far reaching implications for work flows in
organizations, work arrangements, and organizational systems and processes (Schermerhorn, et
al., 2006). In the internet age, it has become a practice for the employer to contract for work
anywhere in the globe where talent exists by offering the lowest price.
This has resulted in organizational transformation, as organizations are engaged in job-
cutting exercises and streamlining in the search for operational efficiencies. They are becoming
more virtual and technology-driven. Such transformations are the reality of the new-age
organizations. Having said that, its true that truly progressive organizations are doing much more
than simply downsizing their employees, becoming tech-savvy, and joining the global economic
order. They are in fact redefining the way things get done, the work settings and the value
delivered to customers and clients. They are in fact the high-performance organizations (HPOs).
A high performance organization is designed and operates in a way that brings out the best in
people and achieve sustainable high-performance results while creating high quality-of-work-life
environments (Schermerhorn et al., 2006). HPOs use empowerment as an effective tool to let
people, both at individual level and group level to use their talents and expertise to make
decisions that affect their work.
Ethical behaviour at the workplace and social-responsibility of business are closely
related. They do affect human behaviour in organizations. Organizations should behave in moral
and ethical ways as constituents of the society.
In the wake of major scandals involving the likes of Enron, World Com, Satyam etc.,
there is renewed emphasis on corporate governance. Transparency in financial operations,
business decisions, reporting by board of directors, hiring and firing of employees, assessing
business strategies, environment protection, compensation of CEOs etc. have come under the
purview of corporate governance. Now the essence of corporate governance transcends not only
among the top level managers but also among the employees down the line. It has become a
major cause of concern among various stakeholders of the firm. It is because of the realization of
the fact that they can either sink or survive and prosper with the organizations as their destinies
are intertwined.
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Epilogue
In this globalized era, although premium is placed on high-end technology to surge ahead
beating cut-throat competition, the fact remains that human resources are indispensable for an
organization. Maximum advantages can be realized from other resources of organizations only
through sustained human efforts. Under the new economic system, i.e., knowledge economy, the
mind of an employee rather than his physical abilities become crucial for the organization. The
collective expertise, experience, competencies, ingenuity and commitment of an organization’s
workforce become the intellectual capital of the organization. Talent management has become
the key to success of an organization. Human behaviour is a complex issue because of its
different manifestations at different levels, i.e., at individual and group levels. Again it is
different depending on whether behaviour takes place in a formal or an informal group setting. It
is also true that an individual’s behaviour may not be in tune with that of the group behaviour
unless and until there is pressure on him / her to conform to group norms. In modern
organizations, we find different types of employees, i.e., in addition to permanent full-time
employees we have contractual as well temporary, part-time employees. The orientations and
engagement level of these employees are different and so also their sense of belonging and
loyalty towards the organization. Outsourcing of jobs has become commonplace across the
globe. This has resulted in domestic jobs being replaced with employees hired in countries where
cost per employee is low as compared to the parent country from where jobs are being
outsourced. As the business environment is changing at a very fast pace, so also the business
plans, strategies, etc. This has also affected the system-structure-process set-up of the
organization. Human behaviour at work has also been reshaped and remoulded keeping in tune
with the changes in the environment. In fact, human behaviour has always been in a state of flux
and continuous reengineering is probably the best way to describe it.
References:
Aswathappa, K., Essentials of Business Environment. Himalaya Publishing House, Mumbai,
Hyderabad (2007).
Krishna, C.V., The Importance of External Commercial Borrowings & Indian Experience.
Synergy, Vol.3, No.1, 16-31, (2005).
Luthans, F., Organizational Behavior, McGraw-Hill International Editions, New York, Toronto,
(1989).
Robbins, P.S. and Sanghi, S., Organizational Behavior. Pearson, New Delhi (2006).
Schermerhorn, Jr., J.R., Hunt, J.G. and Osborn, R.N., Organizational Behavior. Wiley India,
New Delhi (2006).
––––––––––
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ABSTRACT:
The emergence of Internet is largely thought to have brought a major change in the retail and
financial sectors by enabling consumers to make purchases and carry out financial transactions
over the Internet. The increasing volatility in the global environment, competition, co-operation,
change as well as changing consumer preferences have forced the retail bank to adopt new
strategies to attract and retain customers. The internet provides a channel or platform linking
consumers and banks. Now the banks are using electronic delivery channels such as internet,
telephone and mobile .The emergence of the internet has had a significant on the diffusion of
internet banking. Technology has introduced new ways of delivering banking to the customer,
such as ATMs and Internet Banking. Hence, banks have found themselves at the forefront of
technology adoption for the past three decades. The objective of this research is to identify the
factors affecting the adoption of Internet banking by customers in India in the context of the
technology acceptance model (TAM).The findings of the study indicate that the security about
Internet banking and its benefits have significant effects on the perceived usefulness (PU) and
perceived ease of use (PEOU) of Internet banking acceptance. Overall, the results of this study
are vital to both researchers and practitioners and it allowed us to understand TAMs validity in
technology acceptance research.
1.0 INTRODUCTION
Rapid innovation is changing the array of financial services and payment options available to
customers. Technology diffusion is an indispensable process through which technological
potential of innovative activities can be actually turned into productivity. Various characteristics
of the economic environment in which diffusion takes place may affect the pace of diffusion,
while the diffusion itself may also have feedbacks on the environment. Economists are most
curious about the following: who are the early adopters of technological innovations, what
factors determine the various diffusion rates across adopter groups and geographic regions, and
what feedbacks, if any, the diffusion may have on the economic environment. Technology has
introduced new ways of delivering banking to the customer, such as ATMs and Internet Banking.
Hence, banks have found themselves at the forefront of technology adoption for the past three
decades. Banks began to look at I-banking as a means to replace some of their traditional branch
functions. I-banking products/services like ATM and electronic funds transfer were a source of
differentiation for banks that utilized them. When an innovation emerges, diffusion unfolds
which entails communicating or spreading of the news of the innovation to the group for which it
is intended (Rogers, 1995). Adoption however is the commitment to and continued use of the
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innovation. The diffusion of innovations theory provide explanations for when and how a new
idea, practice or newly introduced information and communication medium is adopted or
rejected over time in a given society (Rogers, 1995). Diffusion of innovations theory postulate
that diffusion of innovation occur as potential users become aware of the innovation, judge its
relative value and make a decision based on their judgment, implement or reject the innovation,
and seek confirmation of the adoption or rejection decision (Roger, 1995). These processes take
place through a channel over a period of time among users within a social system. Diffusion of
innovation recognizes individual as well as social factors that can influence the decision to adopt
or reject a given innovation. Rogers concludes that diffusion of innovation could be affected by
psychological and behavioral as well as external and environmental factors. He identifies factors
like perceived characteristics of the innovation and the type of individual decision involved in
the adoption process, size of the organization and socio economic status of the users of the
innovation. Barras (1986) identified three main factors affecting the rate of realizing the
potentials of a new technology. The first factor is opportunity, defined as the suitability of the
activities carried out within the user sector for applications of the new technology. This of course
affects the rate at which the technology is initially adopted within an industry, but more
important in the longer term, it affects the rate at which process and product innovations can be
generated once the technology has been introduced. The second factor Barras (1986) discussed is
the usability of the technology. Usability is defined to cover both the availability and quality of
software, which provides the direct embodiment of the service sector applications of the
technology, and the user friendliness of the system’s basic operating procedures. The final factor
identified affecting the realization of the potential of a technology is the adaptability of the
organization installing the equipment: this includes workforce or managerial resistance to the
introduction of new technology: the extent to which working procedures can be adjusted; and the
rate at which the workforce can be trained in the necessary skills to use the technology.
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Kaplan, 1972; Havlena and DeSarbo, 1990; Murray and Schlacter, 1990; Stone and Gronhaug,
1993). The model consists of two attitudinal dimensions: Perceived Usefulness (PU) and
Perceived Ease of Use (PEOU). PU is defined as “the degree to which a person believes that
using a particular system would enhance his or her job performance” (Davis, 1989, p. 320).
PEOU in turn is defined by user's subjective evaluations on how much cognitive work she or he
must expend when using the system. Davis et al. also claim that PU is directly linked to
intentions of use. Perceived usefulness refers to consumers’ perceptions that using the internet as
banking medium enhances the outcome of their banking experience (Venkatesh, 2000; Moutinho
& Smith, 2000). Suganthi and Suganthi (2001) carried out research in Malaysia when Internet
banking in that country was only six months old. They found Perceived Usefulness is the former
part of accessibility, which is part of features of web site. On the word of Davis, Bagozzi, and
Warshaw (1992), perceived usefulness refer to consumers’ perceptions regarding the outcome of
the experience. Perceived usefulness is defined as the individual’s perception that using the new
technology will enhance or improve her/his performance (Davis, 1993). Perceived usefulness
denoted to the prospective user’s subjective likelihood that the use of a certain application would
increase his or her performance (Al-Gahtani, 2001). Similarly, Mathwick, Rigdon, and Malhotra
(2001), defined perceived usefulness as the extent to which a person deems that a particular
system will boost his or her job recital. In the same way, perceived usefulness is defined as
consumers’ perceptions of functional and utilitarian dimensions (Menon & Kahn, 2002;
Childers, Carr, Peck, & Carson, 2001). Bhattacherjee (2002), in his empirical study, found that
one’s willingness to transact with an electronic firm is considered as perceived usefulness. He
also added that the perceived usefulness might not be derived only from prior familiarity with the
firm, but also from calculative, institutional and identification about the firm. TAM (Davis,
1989; Davis et al., 1989) posits perceived ease of use as the extent to which a person believes
that using a particular system will be free of effort. Daniel (1999) pointed out the perceived ease
of use as one’s experience how conveniently uses a technology. Venkatesh (2000) stated that
with increasing direct experience with the target system, individuals adjust their system-specific
ease of use to reflect their interaction with the system. He added that in the case of electronic
banking, savings of time, money, and convenience have been quoted as perceived ease of use.
The degree to which an innovation is ease to understand or TAM suggests that attitude is based
on the salient beliefs that a person has about the consequences of a given behavior and his or her
evaluation of those consequences. Davis (1993) put forward that consumers’ attitude toward
electronic banking first associated with the direct possessions of relevant electronic banking
features. Electronic banking features can be consumers’ attitudes of functional and utilitarian
dimensions, like ease of use and usefulness (Menon & Kahn, 2002; Childers et al., 2001;
Mathwick et al., 2001). More specifically, (Polatoglu & Ekin, 2001) suggested that customer
attitude is composed of one’s attribute beliefs about the object and perceived importance
(weight) of having that attribute in making the decision to adopt. In the electronic banking
context, consumers attitude is assorted in terms of perceptions regarding product information,
form of payment, delivery terms, service offered, risk involved, privacy, security,
personalization, visual appeal, navigation, entertainment and enjoyment (Burke, 2002). As
whispered by Consult (2002), the attitudes of growth in electronic banking were the combination
of convenience provided to those with easy internet access, the availability of secure, high
standard electronic banking functionality, cost savings and the necessity of banking services.
According to Howcroft, Hamilton, and Hewer (2002), attitude of users and non-users towards
electronic banking is the reflection of a number of factors such as technology, security,
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convenience, prior computer/new technology experience, prior personal banking experience and
possession of a credit/debit card and a WAP/CDMA. On the contrary, an attitude has been
defined as a psychological tendency that is expressed by Liao and Cheung (2002). However,
factors affecting the adaptation of a new information technology are likely to vary with the
technology, target users, and context (Moon & Kim, 2001). As whispered by Sohail and
Shanmugham (2003), customer adaptation describes beliefs about having necessary resources
and opportunities for an individual’s intention to perform. These are facilitating conditions,
which refer to the availability of resources, i.e. the technological resources and infrastructure
needed to engage in the adaptation (Triandis, 1979). Lee and Allaway (2002) suggested that the
adaptation of electronic banking depends on the service firm’s resource management by lowering
delivery costs and by releasing service personnel to provide better and more varied service. The
current trend reflects a decrease in the number of branch transactions and an increase in the
number of electronic transactions (Mukherjee & Nath, 2003). Some banks are segmenting their
markets by developing lower cost delivery systems in order to increase customer adaptation.
Cost savings have been the compelling reason for outsourcing by many banks (Bradley &
Stewart, 2003). Adaptation of thus, according to TAM, a user’s acceptance of an information
system is dependent on two factors: perceived usefulness and perceived ease of use. Together,
these factors determine the attitude toward using the technology. This in turn affects the
behavioral intentions of use, which then leads to actual use. Security and reliability of
transactions over the internet is a burning issue and it is an important factor that customers
consider before adopting Internet banking. Some customers avoid internet banking as they
perceive it as being easily susceptible to fraud. This perception can damage consumers’
confidence of the online system as a whole.
We conducted a survey study for hypothesis testing using the framework of the original
TAM as the foundation to determine the predictors of customers’ intention to use internet
banking in India. To collect data, we designed a questionnaire by adapting the instrument and
scales developed for TAM. We augmented TAM by adding the construct Perceived Web
Security developed by Salisbury et al. (2001) and adapting their instrument and scale to measure
this construct in our questionnaire. We collected data from bank customers in India who use
internet banking and collected 295 usable responses The questionnaire developed for TAM by
Davis (1989) – adapting the scales for Perceived Usefulness and Perceived Ease of Use and the
questionnaire developed by Salisbury et al. (2001) – adapting the scale for Perceived Web
Security. We tested the structural model by means of Confirmatory Factor Analysis (CFA). An
exploratory factor analysis using SPSS was conducted on the survey data. A seven-point likert
scale ranging from (1) ’strongly disagree’ to (7)’strongly agree’ were used to assess responses.
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H1: Perceived Web Security will positively influence the perceived ease of use of Internet
banking.
H2: Customer’s perceived ease of use has a significant impact on his/her perceived usefulness of
Internet banking.
H3: Customer’s perceived usefulness has a positive impact on his/her attitude towards using
Internet banking.
H4: Customer’s perceived ease of use has a positive impact on his/her attitude towards using
Internet banking.
H5: Customer’s attitude towards using Internet banking has a significant impact on his/her
intention to use it.
Perceived Usefulness
H3
H5 Behavioral Internet
Security H2 Attitude Towards Intention to Use Banking
Use Usage
H4
H1 Perceived Ease of Use
( Modified Conceptual Framework of Technology Acceptance Model (TAM ) and Web Security )
Structural equation modeling (SEM) was used to test the model and analyse the factors that
affect customers attitude towards Internet banking acceptance. Moreover, this approach was
chosen because of its ability to test causal relationships between constructs with multiple
measurement items (Jöreskog and Sörbom,1993). All reliability measures were well above the
recommended level of 0.70 as an indicator for adequate internal consistency (Hair et al, 1995;
Nunnally, 1978).
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Perceived
Usefulness
(PU)
0.797
0.896
Perceived
0.590 Ease of 0.782
Use
(PEOU)
Over 80% of customers expressed concerns on Web security and real benefits when
considering internet banking, which are the highest among other factors such as difficulty in use
and no internet access. Our research based on TAM suggests that perceived usefulness has the
greatest influence on customer intention to adopt internet banking. Perceived ease of use,
however, does not have a direct impact on intention to use, although it affects the perceived
usefulness of customers, which in turn leads to acceptance of internet banking. Perceived
usefulness is more influential than perceived ease of use in explaining technology acceptance of
internet banking. On the marketing side, bankers should emphasize the full functionality of their
systems to cater for the different banking needs of the users efficiently. We suggest bankers
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improve the security features of their systems and stress their system security and the precaution
functions they have implemented. With these functions, they could reassure their customers that
internet banking is a safe mode to perform transactions. Banks should also consider how to shift
the perceptions of their customers by emphasizing the positive safety features in any marketing
campaign. They should pass an effective message to customers that the Web security facility
now available will eliminate any third-party intrusions into their internet banking account in
order to turn around the negative perceptions of their customers, thereby enabling customers to
feel secure and comfortable in using internet banking services. In this regard, proper training of
customers on the safe use of internet banking could help improve security and enhance their
overall confidence in long-term.
6.0 CONCLUSIONS:
The results support the view that Perceived Ease of Use and Perceived Web Security are
predicting variables, affecting Perceived Usefulness and Attitude as intervening variables, and
Intention to Use internet banking as the dependent variable. Perceived Usefulness and Perceived
Web Security has a direct effect on Intention, while Perceived Ease of Use has only an indirect
impact. The results of hypotheses testing provide satisfactory support for the extended TAM
through the SEM analysis.
References:
1. Byrne, B.M., 2001. Structural Equation Modeling with AMOS, Basic Concepts, Applications,
and Programming, Multivariate Applications Series. Lawrence Erlbaum Associates,
Hillsdale, New Jersey.
2. Chan, S.C. and Lu, M. T., 2004. Understanding internet banking adoption and use behavior: a
Hong Kong perspective. Journal of Global Information Management, 12, 21-43.
3. Chau, P. Y. K., 1997. Reexamining a model for evaluating information center success using a
structural equation modeling approach. Decision Sciences, 28, 309-335.
4. Chin, W.W. and Todd, P.A., 1995. On the use, usefulness, and ease of use of structural
equation modeling in MIS research: a note of caution. MIS Quarterly, 19, 237-246.
5. Cohen, J., 1988. Statistical Power Analysis for the Behavioral Sciences, 2nd Edition,
Lawrence Erlbaum Associates, Hillsdale, New Jersey.
6. Cornwell, T.B., Roy, D.P. and Steinard II, E.A., 2001. Exploring managers’ perceptions of
the impact of sponsorship on brand equity. Journal of Advertising, 30, 41-51.
7. Davis F.D., Bagozzi R.P. and Warshaw P.R., 1989. User acceptance of computer technology
a comparison of two theoretical models. Management Science, 35, 982-1003.
8. Davis, F. D., 1989. Perceived usefulness, perceived ease of use, and user acceptance of
information technology. MIS Quarterly, 13, 319-336. 23
9. Fishbein, M.A. and Ajzen, I., 1975. Belief, Intention and Behavior: An introduction to
Theory and Research. Addison-Wesley, Reading, Massachusetts.
10. Gefen, D., Karahanna, E. and Straub, D. W., 2003. Trust and TAM in online shopping: an
integrated model. MIS Quarterly, 27, 51-90.
11. Hair, J., R. Anderson, Tatham, R. and Black, W., 1998. Multivariate Data Analysis. Prentice
Hall, New Jersey.
12. Hendrickson, A.R., Massey, P.D. and Cronan, T.P., 1993. On the test-retest reliability of
perceived usefulness and perceived ease of use scales. MIS Quarterly, 17, 227-230.
13. Jarvenpaa, S.L. and Todd, P.A., 1997. Consumer reactions to electronic shopping on the
World Wide Web. International Journal of Electronic Commerce, 1, 59-88.
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Appendix-1
Table-1
Age of Respondents
Frequenc Valid Cumulative
y Percent Percent Percent
Valid 24-35 134 45.4 45.4 45.4
36-45 91 30.8 30.8 76.3
46-55 51 17.3 17.3 93.6
56-65 19 6.4 6.4 100.0
Total 295 100.0 100.0
Table-2
Gender of Respondents
Frequenc Valid Cumulative
y Percent Percent Percent
Valid Male 253 85.8 85.8 85.8
Femal
42 14.2 14.2 100.0
e
Total 295 100.0 100.0
Table-3
Occupation of Respondents
Frequenc Valid Cumulative
y Percent Percent Percent
Valid Bank Executives 40 13.6 13.6 13.6
IT Professionals 67 22.7 22.7 36.3
Medical 35 11.9 11.9 48.1
Senior
22 7.5 7.5 55.6
Management
Legal 30 10.2 10.2 65.8
Unemployed 23 7.8 7.8 73.6
General
26 8.8 8.8 82.4
Administration
Businessman 7 2.4 2.4 84.7
Customer services 31 10.5 10.5 95.3
Academicians 14 4.7 4.7 100.0
Total 295 100.0 100.0
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Table-4
Use of Internet
Frequenc Valid Cumulative
y Percent Percent Percent
Valid Occasional
29 9.8 9.8 9.8
ly
Fortnightly 25 8.5 8.5 18.3
Weekly 39 13.2 13.2 31.5
Daily 202 68.5 68.5 100.0
Total 295 100.0 100.0
Table-5
Use of Internet Banking
Frequenc Valid Cumulative
y Percent Percent Percent
Valid Occasional
26 8.8 8.8 8.8
ly
Fortnightly 38 12.9 12.9 21.7
Weekly 105 35.6 35.6 57.3
Daily 126 42.7 42.7 100.0
Total 295 100.0 100.0
Table-6
Use of Internet Banking Services
Frequenc Valid Cumulative
y Percent Percent Percent
Valid Balance Enquiry 99 33.6 33.6 33.6
Statement 56 19.0 19.0 52.5
Bill Payment 34 11.5 11.5 64.1
Funds Transfer 48 16.3 16.3 80.3
Cheque Book
6 2.0 2.0 82.4
requests
Other 52 17.6 17.6 100.0
Total 295 100.0 100.0
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Table-7
Reason of Using Internet Banking
Frequenc Valid Cumulative
y Percent Percent Percent
Valid Convenience 80 27.1 27.1 27.1
24/7 60 20.3 20.3 47.5
Inexpensive 53 18.0 18.0 65.4
From
46 15.6 15.6 81.0
anywhere
Saves Time 23 7.8 7.8 88.8
Other 33 11.2 11.2 100.0
Total 295 100.0 100.0
Table-8
Reason for not using Internet Banking
Frequenc Valid Cumulative
y Percent Percent Percent
Valid Awarenes
47 15.9 46.1 46.1
s
Need
21 7.1 20.6 66.7
Internet
Computer
24 8.1 23.5 90.2
Skill
Other 10 3.4 9.8 100.0
Total 102 34.6 100.0
Missing System 193 65.4
Total 295 100.0
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Table-9
Average
Composite Cronbach’s
Constructs Items Loading Variance
Reliability alpha
extracted
Perceived PS1 0.956
Security(PS) PS2 0.934
PS3 0.912 0.867 0.756 0.665
PS4 0.671
Perceived PU1 0.809
usefulness(PU) PU2 0.903
0.875 0.713 0.698
PU3 0.879
PU4 0.912
Perceived Ease PEOU1 0.893
of use(PEOU) PEOU2 0.817
0.804 0.731 0.721
PEOU3 0.891
PEOU4 0.912
Attitude ATT1 0.867
towards ATT2 0.642
0.854 0.784 0.631
Use(ATT) ATT3 0.781
ATT4 0.831
Intention to INT1 0.956
use INT2 0.912 0.892 0.815 0.793
(INT) INT3 0.867
Table-10
Model Summary
Std. Error
Adjusted of the
Model R R Square R Square Estimate
1 .686(a) .316 .387 .32978
2 .727 (b) .467 .506 .31456
a. Predictors: (Constant), PS
b. Predictors: (Constant), PS, PEOU
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Dr P.S. Vohra
Assistant Professor
Chandigarh Business School
Contact 09779910672
E mail – drpsvohra@gmail.com
ABSTRACT
Operational Efficiency is - what occurs when the right combination of people, process, and
technology come together to enhance the productivity and value of any business operation, while
driving down the cost of routine operations to a desired level. The end result is that resources
previously needed to manage operational tasks can be redirected to new, high value initiatives
that bring additional capabilities to the organization. In relation to operations of a business, the
term Operational efficiency means different things to different people. Success or failure of a
business in the economic sense is judged in relation to expectations, return on invested capital
and objectives of the business concern. In a Private industry the extent of profit indicates its
efficiency. Private investment is only held justifiable on business principles if the foreseeable
future there is reasonable prospects of a fair rate of return on capital invested therein. Public
investment on the other hand, while not shunning profits would move to whatever the social
benefits Social cost ratio justified it. Banks are among the main participants of the financial
system in India. Banking offers several facilities & Opportunities. This attempt provides
comprehensive and updated information, guidance and assistance for deposit performance areas
of selected private banking in India.
Key Words: -
Operational efficiency, private investment, public investment, private banking
Introduction
Companies need to find the best way to do what they do. Every business is determined in their
efforts to ensure the best people create the best processes, which leverage the best and most
relevant technology. People and the relevant experience they bring are critical to this effort. The
right people have designed similar processes before. They have skills to lead an implementation
and the ingenuity to find the most effective solution to challenges they face. Process is a key to
drive down costs for any activities that are repeatable. If faced with a new complex challenge,
it’s important to draw upon actual experience, best practices, and industry standards to design
and execute any process.
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The term “operational efficiency” is a composite one. The meaning of efficiency is relating to
operations which implies the performance of some functions involving practical application of
principles or process. The term “operation” is generally used in military or naval action mission
including its planning and action. In management science the term operation is used in order to
convey the same sense. It is defined as an action to be implemented in a planned manner with a
view to achieving the pre-determined objectives of the concern. In brief, efficiency is the state or
the equity of being efficient or competence in performance or ability to accomplish a job with
the minimum expenditure of time and energy or functioning in the best possible manner.
Productivity
The concept of Efficiency is generally considered as synonymous with productivity. But both are
quite different with each other. It has been pointed out that the word” Efficiency” does not
embrace the idea of productivity, but goes beyond it in the sense that it express an aptitude or
capacity or the quality of the input, the productivity of which is under consideration, which
productivity introduces the idea of Relationship between output and input factors. It has also
been observed in this connection that efficiency should be measured by the output of goods or
services to be obtained in relation to the corresponding total input or resources used in their
production. The term “Operational efficiency” thus, refers to efficiency pertaining to operation
both organization and management of a business concern. Therefore any discussion of
organization and administration created the general question of operational efficiency of the in
dustiest and demands that performance and management of various operational or functional
aspects of the industry should be so organized that they may achieve the desired objectives.
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India is one of the most preferred private banking destinations as its economy is not only
growing at 8 per cent annually, but is also going through a transformation to the next level of
maturity. This enables double digit returns on most asset classes which are not the case in a
majority of countries. Offering a perspective on the private banking scenario in India, it can be
said that, ``robust and liquid financial markets enable exits on a timely basis to be able to realize
gains. This makes India a good resource deployment avenue. In addition, an emerging trend in
India is a high savings rate given increased earning levels. This has resulted in a robust private
banking capital raising avenue. Indian private banking capital will soon fund deployments to a
significant part of our capital needs. Now level of activity is likely to persist as it also found that
over 90 per cent of private banks believe that there are good growth prospects for the industry
over the next three years and 89 per cent are either actively seeking acquisition targets or would
consider acquiring if the right opportunity arose.
It can also be stated about private banking industry that, the explosion of corporate activity in
private banking is the result of a perfect storm of contributing factors. There has been an
explosion of personal wealth, particularly in India, continuing growth in private banking
revenues and regulatory pressures benefiting economies of scale. Private Banks have tended to
react in two ways. The favorable market has allowed plenty to grow organically, but nearly a
third of private banks reported acquisitions over the past three years. These acquiring banks have
not rested on their laurels, they tend to be serial dealmakers, completing on average almost a deal
every year. The high levels of activity will only increase if the seventy percent of non-acquisitive
banks join the M&A market. Private sector Banks have pioneered internet banking, phone
banking, anywhere banking, mobile banking, debit cards, Automatic Teller Machines (ATM).
Deposits play a significant role in running a banking industry. A bank purchases deposits in
order to produce and sell the loans and advances, therefore, purchases of deposits is an important
activity of bank marketing. Survival and development of the banks are mainly influenced by
their ability to attract deposits from different segments of the community rather than by the
volumes of their capital resources. Thus, it can be concluded that deposits are the life blood of
the banking industry and are the mainstay of bank funds. Since the nationalization of the major
Private banks, the lending policies have been diversified to meet the needs of the priority sector
of economy and neglected sections of society, viz, agriculture, small-scale industries, weaker
sections, self-employed persons etc. At the same time, a greater volume of financial resources is
required for a higher economic development.
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Types of Deposit
Deposit Mobilization
The strategy of mobilizing of deposits has been through the information and implementation of
various deposit schemes of the banks. They are almost identical even though the schemes have
been different names. These schemes can be broadly divided into five categories, viz. fixed
deposits, current deposit, saving deposit, recurring deposit, and other deposits. Strengthening the
ability of banks to mobilize deposit requires the formulation of new schemes of different nature
and suitability to the different classes of investors in both rural and urban Centers.
Deposit the growth in deposit mobilization efforts by the banks has not been adequate made in
order to meet the need of present economic environment. Yet there is a vast scope for deposit
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mobilizing from different sections of society, particularly those of the rural areas, which will be
the main beneficiaries of the economic and industrial policies. The Strategy for mobilizing
deposits has been through the formulation and implementation of various deposit schemes of the
banks. They are all identical even through the schemes have been given different names, all as
“old wine in new bottles”. The formulation of new schemes of a different t nature in order to
make them suitable for the different classes of investors. Most deposit mobilization schemes are
now tailored to the convenience and preference of urban depositors, neglecting the potential rural
depositors. The banks have to tailor the schemes to match in nature, convenience and preference,
the need of the rural depositors to be able to exploit the untapped rural saving. Besides this in a
vast country like ours, the requirement and preferences of various community groups in different
areas underage periodic changes.
Deposit mobilization should be backed by adequate publicity most of the banks have harnessed
the media, which are popular only in urban area .they have been using the same publicity in rural
area as well as. Deposit mobilization also demands a proper marketing strategy. The time has,
therefore come when the choice of right media and marketing strategy for the rural area has to be
made.
The bank should be educated in these schemes, because often the by bank staff at various levels
is not adequately aware of these schemes .the result is that whenever a customer’s approaches
them, he does not get enough guidance and consequently his doubts in the efficiently of these
schemes remain un cleared. The bank staff with an urban and little knowledge about rural area is
unable to deal correctly with the customer. The banks in their recruitment policies should give
preference to orientation and knowledge. The success of the banks depends largely on the ranges
and quality of the services offered to their customers yet complaints of poor customer service are
common in the banks. Banks should strengthen their organizational structure and build up their
efficiency in management to hasten deposit mobilization.
The volume of deposits collected by a private bank in relation to deposit potential of its area is
considered to be a reliable index of the performance of the bank in this respect. The trend
analysis and ratio analysis techniques are used for evaluation of the performance of the private
banks under study in deposit mobilization. The following important indicators can be used to
evaluate the performance of the private banks in deposit mobilization:
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Table no 1 shows the deposit performance of Indian private banking industry, during to period of
2002 to 2007.
In the year 2002, the total amount of deposit was Rs. 6573763.51 lacks, which reached on Rs.
38211841.96 lacks in the year 2007. It was a great achievement for Indian private banking
industry. In industry deposit was registered an increase of about 5 times during the six year of
study. It showing its significant growth and indicates the high level of operational efficiency.
In the case of ICICI bank in the year 2002, the amount was Rs. 3208511.11 lacks. It was 49% of
total deposits of selected private in 2002 year. It was also great success for ICICI bank, because
in among the banks under study ICICI bank was occupied about 50% amount of total deposits. In
the end of 2007, the deposit of ICICI Bank reached on Rs. 23051018.63 lacks. It was increased
by 618.43% in 6 year, from 2002 to 2007. In 2007 year, ICICI Bank was occupied 60% of total
deposit of selected private banks. It can be concluded that the bank has got 7.2 times in study
period and about 10% share occupied from the industry.
In the case of HDFC Bank, the amount was Rs. 1765381 in the end of year 2002. It was 26.85%
of total deposits of selected private banks in year 2002. But in the end of year 2007, it reached on
Rs. 6829794 lacks. It was an increase of 287% in 6 year of study period from 2002 to 2007.
Infect in the year 2007 the deposit of HDFC Bank was 17.87% of Total Deposit of selected
private banks. It means bank enclose his deposits in term of equity but its total share in industry
was reduced.
In the case of Axis Bank, the amount of deposit was Rs. 1228721 lacks in the end of year 2002.
At that time it was 19% of total amount of deposit of selected private banks of India. In the end
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of year 2007, this amount reached on Rs. 5878560.11 lacks. It was an increase of 378.43% in 6
year of study period from 2002 to 2007. Infect in year 2007, Axis Bank was having 15.38% in
total amount of deposits of selected private banks. The figure of deposits shows that absolute
figure registered of banks has increased but in relative term its size was decreased during the
period of study.
In case centurion bank the deposit was 5.38% share. The absolute amount of the deposit was
increased by .32% during the six years of study period but its size was reduced in the form of
percentage of industry by 1.49%. in the end of the study period its share was 3.89% in the total
deposits of banks under study.
On the other hand the Kotak bank was holding the minor share i.e. .27% in the year 2002 of total
deposit of the banks under study, which increased to 2.53%. The growth rate of deposits was
more than five thousand times in absolute figure shows its commendable growth and
performance.
In this section, the Operational efficiency of the management of the Private Banks under study in
respect of the deposit mobilization is evaluated. It is the primary responsibility of the
management of the banks to make an endeavor for deposit mobilization. This endeavor can be
made in the following way:
1. To identify the potential centers and open the branches at such centers.
2. Involve an appropriate strategy for attracting the deposit, any strategy for deposit
mobilization involves
3. Introducing the new deposit accounts and banking service.
4. Publishing for deposits.
5. Motivating the saving community to deposit with the bank and also the bank staff for
securing deposits in large measure.
6. Organizing special drive for the purpose.
References: -
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P.P.Singh
Dy. Director,
Punjab College of Technical Education
Baddowal, Ludhiana
pps@pcte.edu.in, pctepps@gmail.com
Mobile: 09914551155
Centuries ago kings used to listen to music in the evenings or go for hunting in the forests.
Common man enjoyed his time in nukkad nautankis or fairs. As the time passed on, new modes
of entertainment came into picture like in 19th century radio was there and then cinema enthralled
the spectators in early twentieth century. The games like chess, polo and wrestling were other
sources of entertainment in eighteenth and nineteenth centuries. Then came hockey, soccer and
test cricket in twentieth century to entertain the people. All these traditional formats of
entertainment were to relieve the stress factor, to make people happy and enjoyable.
Today entertainment is present in different formats like pubs, parties, discos, videogames, game
shows like KBC, reality shows, Multiplexes and Sports. In sports, the latest version T20 cricket
has got tremendous interest of the people. India is a country where cricket is given the status of
religion and cricketer like Sachin Tendulkar is the God of cricket. It is quite obvious that any
format of cricket hits a large audience as a result the game gets maximum sponsorship & TRP
than other game or mode of entertainment. BCCI is the richest cricket board in the world because
of popularity of cricket in India. For cricketers, selectors, sponsors cricket has become a business
to earn revenues. For example a good cricketer or selector becomes the brand ambassador of
business group or a party. But the way Indian Premier League (IPL) has generated the business is
amazing. Started by Lalit Modi as a rival of Indian cricket League (ICL) in 2007 & was backed
by BCCI, big business houses, politicians. The main objective of IPL was to bring young
talented cricketers to the world of cricket. But today IPL is synonym with a good business
model. It has been proving as a money minting machine for last three editions. IPL has
enthralled the spectators in every edition. Every time revenues & glamour touches it climax. IPL
becomes a complete business model for any organizational to generate maximum rate of returns.
Each & every aspect of getting publicity & to get attention is used. No stone is left unturned to
advertise the IPL fever. The ads are shown on every channel irrespective of whether they belong
to the TV channel group having the broadcast rights or not. Local feeling is added to the
advertisements by training foreign players speaking in Hindi. Controversies have proved
publicity stunt for IPL. Beginning from the controversy involving the inclusion of Pakistan
players, allowing the Australian players to play on the Indian soil, the Telangana issue ruling out
Hyderabad as a spot for the tournament, Telangana supporters asking last year’s champions
Deccan chargers to pull out of the tournament, the tournament was in news due to these issues.
Who cares what is wrong or right, IPL gets a lot of publicity because of this. Politics on IPL also
contributed to it becoming most popular event in the country. It began with Shahrukh Khan’s
comments about including Pakistani players and the outcry over the same by Shiv Sena. Then
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Shiv Sainiks threatened Aussie players not to come for IPL, then retreating their statement after
Sharad Pawar met their chief. Mega film stars like Shah Rukh Khan, Preity Zinta, Shilpa Shetty
as the owners of IPL teams and stars like Katrina Kaif, Deepika Padukone as brand ambassadors
of teams make this tournament most exciting. Big corporate houses like Ambanis, United
Breweries (Kingfisher) see huge profits in the money minting machine and as a result they
involve themselves in this tournament. IPL has been selling like a hot product for last three
years.
Franchisors buy the players and teams at such whopping sums which makes International players
to think whether they play for their own national teams in other tournaments during IPL. The
marketers of IPL have brought every concept of marketing to attract mammoth audience. Cheer
leaders, music & dance programmess, drum performances, bhangara beats and stage shows
during and before IPL matches make the spectators out of the world. Today the IPL is the second
name of glamour. IPL is no more related to a sport but to mega stars, late night parties. IPL three
gets its publicity not only because of cricket but because of late night parties and the
controversies. No doubt controversies make IPL most happening event but the involvement of
politics in cricket has made a negative impression on the mind of people. The controversy
between Lalit Modi & Shashi Tharoor and later on involvement of other politicians shows how
much is the influence of politics on cricket. Further in spite of taking rest players enjoy
themselves in late night parties dancing with stars & cheer leaders. Everyday stories are in air
about these parties, cheer girls, players which some how has made the people think about
objective behind IPL. Is the objective of IPL is to mint money or enjoyment of players or at
some extent enjoyment for spectators? Recently, Indian Cricket Team has been thrashed out of
the T20 world cup in West Indies due to its dismal performance. Whole country is shocked on
this performance. Indian Skipper M S Dhoni along with CEO of BCCI have accepted that the
performance of Indian Team could have been better if the players would have not attended late
night parties during IPL. Indirectly both have have made it clear that IPL is responsible for this
shameful performance of Indian Cricket Team at international front.
No doubt IPL has given Indian cricket & India an extraordinary platform at international front in
such a way that every Indian should be proud of it. Today IPL has become a symbol of
entertainment & excitement. It follows the perfect business model of maximum returns, perfect
model of marketing strategies, and perfect model of entertaining the audience. But the BIG
question is “Has IPL become a perfect model for its ULTIMATE OBJECTIVE i.e. improving
the performance of Indian Cricket team & bringing new talented cricketers to the world of
cricket?” Today IPL three has become the hub of controversies due bad performance of Indian
cricket team & political turmoil in it. These issues put a question mark in everybody’s mind that
whether IPL is a reality or hype because in reality Indian cricket team is missing its objective to
become number one cricket team in T20 cricket. If IPL is affecting the performance of Indian
cricket team then the feasibility & success of IPL four becomes an issue under consideration.
The organizers of IPL should concentrate on raising the level of Indian cricket rather becoming
itself as the troubling waters. Very soon different governing bodies have to decide how to tackle
these troubled waters of IPL.
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1. Which stage do you think IPL has reached in its Product Life Cycle & Why?
2. Is IPL responsible for dismal performance of Indian Cricket team? If yes, then how?
4. What improvements or changes should be made in the current format of IPL? Why do
you think these improvements or changes are necessary?
5. Should IPL fourth edition be played next year? Give your opinions with explanation.
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Raghav Gupta
B.E Hons.(Mech.), BITS – Pilani
Abstract
“India has finally arrived” is what everyone believes .Indian industries are performing better than
ever and stories like Corus, Land Rover, and Taro etc. have become common phenomena.
However, one industry that has outperformed others is the auto component industry. The
industry has registered staggering growth rate post liberalization era, as India is quickly
becoming the favored destination for auto component production. Post 1991 the industry has
grown at a scorching rate of over 20 %.With the entry of foreign players and technology the
industry has become globally competitive. The Indian manufacturers are fast becoming the
favored suppliers for the global automobile companies. Companies like TELCO, Bharat Forge,
TVS, Rane Brake Limited, Sundaram Fasteners etc have made a mark for themselves on a global
scale by winning supplier awards from the global auto giants as GM, Honda etc. Increased
competition due to the entry of the foreign suppliers such as Delphi, Visteon etc has led to an
enormous increase in the domestic investments. The growth has had a favorable impact on the
quality, production of the companies. Words like TQM, Kaizen, Lean manufacturing etc have
become very common among the Indian manufacturers now. With more and more companies,
adopting Japanese methods of manufacturing the productivity and quality levels have increased
immensely. Due to the increased labor productivity, the increase in the no. of jobs is not in
proportion with the increase in revenues. Tierisation and vendor rationalization are increasingly
becoming more popular. The opening of the economy has thus been a blessing for the industry
specially the auto component industry.
Keywords:
FDI , Tierization ,Kaizen, LCA (Low Cost Automation),WOS (Wholly Owned
Subsidary),ROCE ,Value chain, Capacity utilisation,Vendor rationalization
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Introduction
Before 1990’s, only a handful of companies were present in India. In 1991, India produced just
about 209,000 cars. In the early 60’s and 70’s the Ambassadors and the Padmini Fiats dominated
the automobile market. But both of them were toppled by the Maruti Suzuki as it went on to
capture 70% of passenger car sales by the early 1990s.The Suzuki-Maruti plant, located outside
Delhi, developed a network of suppliers during the early 1990s. Some of these were joint
ventures, in which Suzuki-Maruti held a substantial stake, while others were independent
domestic firm. In both cases, Suzuki-Maruti worked with suppliers to establish international best
practice, and to achieve high levels of productivity and quality.
The 1990s were major breakthrough years for the Indian Automobile and Auto component
industry .This was the era of major reforms that had a positive effect on these industries.
Realizing the market size, many automobile majors entered India in a hope to make huge profits.
From the early ’90s onwards, a wave of multinational firms entered India .Most of these entrants
were required to achieve a high level of domestic content within a specified period (typically,
70% within 3 years). For at least some of the new entrants, this was seen as an unreasonable
target, as domestic suppliers could not meet the price and quality requirements of the carmakers.
Achieving the 70% target required the carmakers to switch rapidly from a reliance on imported
components to sourcing from local vendors; and this in turn gave the carmakers a strong
incentive to work closely with (first-tier) suppliers, to ensure that quality standards were met,
within an acceptable price.
By the end of the decade, car production had increased by a factor of two and a half in India
(from 209 thousand units in 1991 to 564 thousand in 2001), and by a factor of almost nine in
China (from 81 thousand in 1991 to over 703 thousand in 2001). Over the same period, the
supply chain had undergone a major transformation. The new generation of multinationals
worked closely with local suppliers to achieve high standards of productivity and quality.
Meanwhile, domestic carmakers in both countries faced intense competition for market share,
and their response was to upgrade productivity and quality levels in their own plants, and to look
for higher quality levels from their (first-tier) suppliers.
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has grown, by the rate of approx 8 % during the 10th 5-year plan. The auto components industry
has attracted investments, to the tune of US$ 5.4 billion, in 2006-07 alone. The investments have
increased by a CAGR of 21.7 % for the period of 2002-07 and are expected to touch 20 billion $
by 2015-16. The bulk of these investments have been made by Indian companies, which have
expanded their manufacturing capacities and invested on technologies. India expects to attract
US$ 5 billion in foreign direct investment (FDI), over the next five years in the sector.
18
15.7
16
FdI (in Billion
14 $)
12
10
6 5.5
4.2
4 2.9 3.1
2.6
2.133
2
0.165
0
1990- 1995- 2001- 2002- 2003- 2004- 2005- 2006- 2007-
91 96 02 03 04 05 06 07 08
Figure 1 :- Source ACMA
The Indian Auto component industry has finally come of age .The “Made in India “brand has
made a quality statement in the world. Indian Majors are acquiring companies abroad and the
industry is growing at a double digit CAGR. However, this has been largely possible due to the
reforms that have proved to be the life savior of the industry. The opening of the economy was
the most crucial step in the growth saga of the auto and the auto component industry. Due to the
growing domestic demand and the cost effectiveness, the auto component industry witnessed a
boom with increased investments, production, and exports. The overall passenger vehicle
production has increased by a whopping 17.6 CAGR between 2001-2007. The overall production
of the four wheelers approximately doubled in a span of 4 years increasing from 669,000
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vehicles in 2001-02 to 1,210,000 in 2004-05. The cars have increased by a greater margin than
the MUV’s. Due to the low labor costs, the Indian markets are around 30% cost effective to the
American and the European manufacturers. Due to this major auto, component suppliers are
flocking to the sub-continent. The Indian auto components industry is one of the fastest growing
manufacturing sectors which is both forward and backward integrated with other engineering and
manufacturing divisions in the country.
1309000 1528000
1400000
1210000
1200000 1323000
988000
Cars
1000000 1113000
1028000 MUV's
722000
800000 Overall
669000 842000
600000
608000
564000
400000
245000
200000
196000 222000
114000 146000 182000
105000
0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
The revenue of the industry has been on a huge upswing. The turnover of the industry has grown
at a brisk pace with the turnovers increasing from 1.9 billion $ in 1995-96 to a huge 18 billion $
in 2007-08.The turnover of the industry has grown by a huge 27.2 CAGR over the period of
2002-07. The turnover has crossed the mark of 18 billion $ in 2007-08 and the turnover is
expected to reach 40 billion$ by 2015. The threefold increase in the turnover in a span of 5 years
indicates the scorching pace with which the industry has grown.
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After the reforms in 1990’s India has attracted huge foreign investments in almost all the sectors.
The FDI has increased from 2 billion $ to a mammoth 19 billion $ in a span of 3 yrs. The
investments in the years 2006 were 15 billion $ up from 5.5 billion $ the previous year. Due to
the lower costs, the multinationals have been shifting their manufacturing and most importantly,
their R&D centers to India. The effect of the FDI can also be seen on the Indian economy, which
has grown, by the rate of approx 8 % during the 10th 5-year plan. The auto components industry
has attracted investments, to the tune of US$ 5.4 billion, in 2006-07 alone. The investments have
increased by a CAGR of 21.7 % for the period of 2002-07 and are expected to touch 20 billion $
by 2015-16. The bulk of these investments have been made by Indian companies, which have
expanded their manufacturing capacities and invested on technologies. India expects to attract
US$ 5 billion in foreign direct investment (FDI), over the next five years in the sector.
14
12 Investments (in
10.1
10 billion $)
8 7.2
6 5.4
4.4
3.8
4 2.7 3.1
2
0
20 20 20 20 20 20 20
02- 03- 04- 05- 06- 07- 09-
03 04 05 06 07 08 10
Source:- ACMA
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Most of these firms that entered India were well equipped with high-end technology, huge
investment capabilities, and diverse product portfolio. The Auto Component firms i.e. the first
tier suppliers had the same characteristics. To counter these new entrants the industry has
adopted a three pronged strategy of product portfolio enhancement, market expansion and
efficiency improvement to achieve this status. Enhanced capacities and higher capacity
utilization have contributed significantly to this growth. This has been possible due to an
increased domestic investment. In Tamil Nadu, for example, the suppliers who are doing very
well are those who have been able to continually upgrade their technical capacity through joint
ventures or technical tie-ups with overseas partners much before the recent arrival of
multinational auto assemblers. These suppliers, like the TVS and Rane groups have also made
strategic use of government policies and are now quite well positioned in the field of global
suppliers.
2. Quality
The quality of the Indian Manufacturers has improved immensly over the last few years. Due to
the entrance of the Foreign suppliers in the country the firms knew that they had to improve the
overall quality and their systems or get shunned out of business.The other key factors that
contributed to the improved quality standards are the long term contracts given by the 1st tier
suppliers to the sub-suppliers and the belief in the growth story of the Auto Component
industry.In desperation the companies improved the quality of the products which can be easily
seen from the reduction in the amount of rejections per million for the various companies . The
in-plant rejections came down to 1.07 per cent from 2.5 per cent. The customer line rejection
which was 15,937 parts per million (ppm) in 1999 went down to 864 ppm this fiscal.
Another thing to note is the No. of quality awards that the Indian companies have. One
interesting thing to notice is that out of the total 558 members of the ACMA 551 are ISO 9000
certified. In a very short span of time, 11 Indian Auto component manufacturers have bagged the
prestigious Deming Award, of which 9 have been won after 2003 i.e. in a span of 5 years .This is
the largest number of firms across all industries from any country other than Japan to win
Deming award. Most of the manufacturers are following modern shop floor practices such as 5-
S, 7-W, Kaizen, lean manufacturing etc. that have led to better overall quality and productivity.
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problems from the year 1997 to 2006. The problems reported per 100 vehicles in 2006(208) have
been approximately reduced to 1/3rd of the problems reported in 1997( 572).
The other indicator of the improved quality of the Indian manufactures is the increase in the
export of the auto components, as most of the products that are exported are of good quality.
What further establishes the fact of increased quality is the markets to which the auto
components are exported .Most of the Indian exports are to the European and American markets,
which are high quality markets with very stringent quality measures. In 2006-07, exports to US
and Europe accounted for 62 per cent of total exports. On the other hand, share of exports to
Asian markets have reduced to 16 per cent in 2006-07 as compared to 26 percent in 2003-04.
Source :- IBEF
Besides the decline in end-of-the-line rejection rates, customer level rejection rates have also
come down significantly for Indian automotive component manufacturers. International
companies maintain their customer rejection rate at an average 200 PPM. In the recent past,
certain Indian companies have attained a customer rejection rate of up to 500 PPM, with a few
attaining even a zero customer level rejection rates.
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3. Increase in productivity
The Indian auto component industry has witnessed a sharp increase not only in quality but also in
productivity in the past few years. Revenues have risen by a compounded annual growth rate of
25%, outstripping the growth in employment, which is at 5%. Consequently, productivity, as
measured by revenue per employee, has increased from $22,500 in 2002-03 to $30,923 in 2005-
06, according to data compiled by the Automotive Components Manufacturers Association
(Acma). Lean manufacturing, Kaizen, total factor productivity - terms once confined to
management textbooks - have suddenly become part of the discourse among the industry players,
small and big players alike.
This sharp increase in productivity is linked to increasing use of technology along with the best
in class management techniques, per employee turnover in Bharat Forge has risen from Rs 17
lakh in the fiscal 2002 to Rs 42.5 lakh in 2004-05.
One of the key reasons for the increase in productivity is that manufacturing has moved from
process-orientation to product-orientation. Other factors that have equally contributed to the rise
in productivity include the gain in skills of workers and more balanced production lines (i.e.
elimination of bottlenecks and so on).However, India still lags behind the productivity of a
country like Japan, where sales per worker is estimated at $50,000, nearly 70% more than that of
India. The increase in our productivity has not come from a huge increase in capital investment.
Employees are still working the same number of hours. It is that we are using our capital assets
better. One of the major impacts of the FDI was the introduction of the world class
manufacturing techniques in the Indian auto component industry .The companies started
automating and now almost all companies in the organised sector have some sort of automation
in the plants. Technologies were sourced either by the Joint ventures with the foreign firms or by
the inorganic means of mergers and aquisitions.Today almost all of the major firms use the
modern shopfloor practices like 5-S , 7-W, TQM ,Kaizen ,TPM etc. The need to increase
productivity and to manage as few vendors as possible has made the auto component majors help
the SME’s to also adopt these modern shopfloor practices which has led to a trememdous
increase in the productivty and cost cutting. Indian labor productivity in the manufacturing sector
is on an increase with the application of production management techniques and many
companies have doubled their productivity in last five years. Now more and more emphasis is
being laid on both product and process improvement to reduce the cycle time and to increase the
first pass percentage. The Indian Industry has adapted LCA (low cost automation) very well
which has helped the companies to increase the production without significant investments.
There has been a significant improvement in the ROCE of both the Indian companies as well
the foreign counterparts in India. The ROCE for some companies has increased to as much as
40%.The above exhibit clearly suggests an increase in the ROCE for the firms. The ROCE for
some companies like lumax and Sona Koyo have increased from less than 10% to over 25% in a
span of 5 yrs. What the above clearly suggests is an increase in the productivity of the firms, i.e.
more efficient use of the resources including increase in the labor productivity. This is attributed
to the modern shop floor practices such as TQM, Kaizen etc. The companies are laying more and
more importance on waste reduction as well as its management. Another reason for the increased
productivity has been increased technical investments. Due to long term orders and massive
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growth opportunities the companies are spending more and more on newer technologies as well
as R&D.But the SME’s generally prefer used machinery from the failed plants and companies. It
is not just the increased expenditure on the technology but also R&D that is helping the
companies increase productivity. The companies have not just adopted best practices but have
also vertically extended such practices to their sub-suppliers.
The effects of FDI can easily be seen from the above exhibit which clearly indicates an increase
in the capacity utilisation.For companies like MICO the capacity utilised has almost quadrupled
from around 25% to 100%. Another very important thing to notice is that almost all the
companies in the exhibit are now utilising 80% of their capacities. This has been made possible
by the increased use of the modern shopfloor practices and discipline at the shop floor.One of the
reasons can also be that the companies increased their capacities around 2001-02 and the
increased business is now increasing their capacity utilisation.The other exhibit confirms both
the views .Companies like MICO and Setco Automobiles have not increased their capacities but
even then their capacity utilisation has increased .This clearly indicates an increase in the
productivity of the firm due to automation and usage of modern shopfloor practices which has
led to reduced cycle time for the product.
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story. Today, Indian automobile component manufacturers supply 75 per cent of their exports to
Tier 1 OEMs and only 25 per cent to the aftermarket. Companies like Bharat Forge are now one
of the largest in their kind and are the major suppliers to the tier 1 suppliers and OEM’s. This
increased supply to the OEM’s and export is also an indicator of the improved performance and
working of the Indian Auto component industry.
Indian component suppliers have displayed a growing capability to cater to the engineering and
production needs of the some of the world's biggest auto companies. This is largely due to:
• Proficiency in understanding technical drawings and being well conversant in all global
automotive standards: American, Japanese, Korean and European
• Appropriate automation has led to economically attractive production costs
• Flexibility in small batch production
• Growing IT capability for design, development and simulation
5. Jobs
Due to the increase in the domestic demand as well as exports, the Indian Auto Component
companies have responded by increasing their capacities. Due to the increased capacities, the
jobs have increased. Along with this has come the increased wages for the workers and better
working conditions .The workplaces are more safe and worker friendly as depicted by the
increased no. OHSAS 18001 awards for the companies. However, many companies, which post
reforms did not adapt to the changing environment of the Auto component industry, faced
closure due to which many workers lost their jobs. Moreover, increased automation in the
industry has also led to firing of the workers. Due to the above reasons, the net effect has been a
loss of jobs or we can say the increment in the no. of jobs is not in proportion with the increment
in the capacity. Revenues have risen by a compounded annual growth rate of 25%, outstripping
the growth in employment, which is at 5%.
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However, due to the entry of foreign suppliers and increased packages that they offer the auto
component industry is facing an attrition problem. Attrition, a problem that was earlier confined
to the mid-level of management in automotive component manufacturing industry — has now
started affecting operators. Attrition at the lower level of the workforce is turning out to be a
major problem for maufacturers. There have been instances of the workers of smaller companies
failing to turn up at the workplace as they have been hired by bigger companies. The attrition
rate is around 5 per cent overall. One of the reasons is that most OEMs find it prudent to hire
people from smaller companies instead of spending time and resources on training newcomers.
Conclusion
With the liberalization of the Indian economy in 1991 and coming of many foreign automobile
manufacturers like Hyundai, Daewoo etc., the auto ancillary industry witnessed huge capacity
expansions and modernization initiatives in this period. This also led to a tough competitive
scenario, which saw a lot of consolidation, technological collaborations, and equity partnerships
within the industry and with leading global players abroad. One of the key effects of increased
competition and pressure from OEM’s has been tierisation and Consolidation in the top tiers of
the industry. This can be seen from the increased merger and acquisitions. A tighter tiering of
suppliers that has high lightened the concept of a small group of design-capable and global first
tier suppliers, while segmenting the rest into contract manufacturers and lower-tier
subcontractors.
Value added
23
Organised
77 Unorganised
Though currently 558 members comprise the organised structure ,but there are as large as 6000
players in the unorganised structure.But the organised players controll over 75% of the market
and are the main suppliers to the OEM’s ,while on the other hand the Unorganised players are
mainly limited to the replacemant market or fprm the ¾ tier of the industry. The after-market is a
highly competitive market as there is a high price elasticity of demand and a tolerance of lower
quality standards .Though both, organized sector and unorganized sector supply to the
replacement market ,the unorganized sector dominates the replacement market because the fiscal
liabilities (in terms of excise duties) are not accounted for by this sector. Due to which the
unorganized companies are able to supply the replacement market with significantly lower-
priced though usually lower-quality parts as compared to those produced by the organized sector.
A tighter tiering of suppliers that has heightened the importance of a small group of design-
capable and global first tier suppliers, while segmented the rest into contract manufacturers and
lower-tier subcontractors has radically transformed customer and supplier relations, as well as
employer and employee relations.
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Another thing that can be seen is the formation of clusters .Before 1990 the concept of clustering
was no so evident as we see it now. There are four major manufacturing clusters in India. Most
of the manufacturing is confines to NCR cluster, Maharashtra cluster, Tamil Nadu cluster and the
Eastern cluster. Nowdays more and more plants are being set up in the state of Uttaranchal.
Most of the unorganized players are the suppliers to the organized companies. However, slowly
the best practices have penetrated down to some of these players. With increased exposure and
opportunities, these small enterprises are slowly entering the big market. One of the major
advantages that these small enterprises enjoy is the ability of batch production. Though the
industry is fragmented, the fragmentation is fast decreasing with concepts such as tierisation &
vendor rationalization coming in vogue under pressure from the OEM’s to cut costs.
References:
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ABSTRACT
The financial crisis has been erupted in a comprehensive manner on Wall Street; there was some
premature triumphalism among Indian policymakers and media persons. It has been argued that
India would be relatively immune to this crisis, because of the "strong fundamentals" of the
economy and the supposedly well-regulated banking system.
These effects have been most marked among those developing countries where the foreign
ownership of banks has been already well advanced, and when US-style financial sectors with
the merging of banking and investment functions have been created.
The crash in the Sensex at that time was not simply an indicator of the impact of international
contagion. There have been warning signals and signs of fragility in Indian finance for some time
now, and these are likely to be compounded by trends in the real economy. So far the global
financial crisis has had three major impacts on the Indian economy: (i) Economic Downturn (ii)
Exposure of banks (iii) Domestic policy.
ECONOMIC DOWNTURN:-
After a long spell of growth, the Indian economy was experiencing a downturn. Industrial growth
has been faltering, inflation remains at double-digit levels, the current account deficit is
widening, foreign exchange reserves are depleting and the rupee is depreciating. The last two
features can also be directly related to the international crisis. The most immediate effect of that
crisis on India has been an outflow of foreign institutional investment from the equity market.
Foreign institutional investors, who need to retrench assets in order to cover losses in their home
countries and were seeking havens of safety in an uncertain environment, have become major
sellers in Indian markets.
In 2007-08, net FII inflows into India amounted to $20.3 billion. As compared with this, they
pulled out $11.1 billion during the first nine-and-a-half months of calendar year 2008, of which
$8.3 billion occurred over the first six-and-a-half months of financial year 2008-09 (April 1 to
October 16). This has had two effects: in the stock market and in the currency market.
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Given the importance of FII investment in driving Indian stock markets and the fact that
cumulative investments by FIIs stood at $66.5 billion at the beginning of year 2009, the pullout
triggered a collapse in stock prices. As a result, the Sensex fell from its closing peak of 20,873
on January 8, 2008, to less than 10,000 by October 17, 2008 (Chart 1).
Falling rupee
In addition, this withdrawal by the FIIs led to a sharp depreciation of the rupee. Between January
1 and October 16, 2008, the RBI reference rate for the rupee fell by nearly 25 per cent, even
relative to a weak currency like the dollar, from Rs 39.20 to the dollar to Rs 48.86 (Chart 2). This
was despite the sale of dollars by the RBI, which was reflected in a decline of $25.8 billion in its
foreign currency assets between the end of March 2008 and October 3, 2008.
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It could be argued that the $275 billion the RBI still has in its kitty is adequate to stall and
reverse any further depreciation if needed. But given the sudden exit by the FIIs, the RBI is
clearly not keen to deplete its reserves too fast and risk a foreign exchange crisis.
The result has been the observed sharp depreciation of the rupee. While this depreciation may be
good for India's exports that are adversely affected by the slowdown in global markets, it is not
so good for those who have accumulated foreign exchange payment commitments. Nor does it
assist the Government's effort to rein in inflation.
Change is the only constant factor in this dynamic world and banking is not an exception. The
changes staring in the face of bankers relates to the fundamental way of banking-which is
undergoing rapid transformation in the world of today, in response to the forces of completion
productivity and efficiency of operations, reduced operating margins better asset/liability
management, risk management, any time and any where banking. The major challenge faced by
banks today is to protect the falling margins due to the impact of competition. Another
significant impact of banks today is the technology issue. There is an imperative need for not
mere technology up gradation but also its integration with the general way of functioning of
banks to give them an edge in respect of services provided to optimizing the use of funds and
building up MIS for decision making and better management of assets and liabilities and risk
assumed which in turns have a direct impact on the balance sheet of banks as a whole. Word
over, technology has demonstrated potential to change methods of selling marketing, advertising,
designing, pricing and distributing financial products of an electronic, self-service product
delivery channel. All these changes call for a new, more dynamic, aggressive and challenging
work culture to meet the demands of customer relationships, product differentiation, brand
values, reputation, corporate governance and regulatory prescriptions.
EXPOSURE OF BANKS:
A second route through which the global financial crisis could affect India is through the
exposure of Indian banks or banks operating in India to the impaired assets resulting from the
sub-prime crisis. Unfortunately, there were no clear estimates of the extent of that exposure,
giving room for rumour in determining market trends. Thus, ICICI Bank was found to be the
victim of a run for a short period because of rumours that sub-prime exposure had badly
damaged its balance sheet, although these rumours have been strongly denied by the bank.
So far the RBI has claimed that the exposure of Indian banks to assets impaired by the financial
crisis was small. According to reports, the RBI had estimated that as a result of exposure to
collateralized debt obligations and credit default swaps, the combined mark-to-market losses of
Indian banks at the end of July 2009, was around $450 million.
Given the aggressive strategies adopted by the private sector banks, the MTM losses incurred by
public sector banks were estimated at $90 million, while that for private banks was around $360
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million. As yet these losses are on paper, but the RBI believes that even if they are to be
provided for, these banks are well capitalized and can easily take the hit.
Such assurances have neither reduced fears of those exposed to these banks or to investors
holding shares in these banks.
These fears were compounded by those of the minority in metropolitan areas dealing with
foreign banks that have expanded their presence in India, whose global exposure to toxic assets
must be substantial.
A third indirect fallout of the global crisis and its ripples in India is in the form of the losses
sustained by non-bank financial institutions (especially mutual funds) and corporate, as a result
of their exposure to domestic stock and currency markets.
Such losses were expected to be large, as signaled by the decision of the RBI to allow banks to
provide loans to mutual funds against certificates of deposit (CDs) or buyback their own CDs
before maturity. These losses are bound to render some institutions fragile, with implications that
would become clear only in the coming months
A fourth effect is that, in this uncertain environment, banks and financial institutions concerned
about their balance sheets, have been cutting back on credit, especially the huge volume of
housing, automobile and retail credit provided to individuals. According to RBI figures, the rate
of growth of auto loans fell from close to 30 per cent over the year ending June 30, 2008, to as
low as 1.2 per cent at year ending June 2009.
Loans to finance consumer durables purchases fell from around Rs 6,000 crore in the year to
June 2007, to a little over Rs 4,000 crore up to June 2009. Direct housing loans, which had
increased by 25 per cent during 2006-07, decelerated to 11 per cent growth in 2007-08 and 12
per cent over the year ending June 2008.
It is only in an area like credit-card receivables, where banks are unable to control the growth of
credit that expansion was, at 43 per cent, quite high over the year ending June 2008, even though
it was lower than the 50 per cent recorded over the previous year.
It is known that credit-financed housing investment and credit-financed consumption have been
important drivers of growth in recent years, and underpin the 9 per cent growth trajectory India
has been experiencing.
The reticence of lenders to increase their exposure in markets to which they are already
overexposed and the fears of increasing payment commitments in an uncertain economic
environment on the part of potential borrowers are bound to curtail debt-financed consumption
and investment. This could slow growth significantly.
Finally, the recession generated by the financial crisis in the advanced economies as a group and
the US in particular, will adversely affect India's exports, especially its exports of software and
IT-enabled services, more than 60 per cent of which are directed to the US.
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International banks and financial institutions in the US and EU are important sources of demand
for such services, and the difficulties they face will result in some curtailment of their demand.
Further, the nationalisation of many of these banks is likely to increase the pressure to reduce
outsourcing in order to keep jobs in the developed countries.
And the slowing of growth outside of the financial sector too will have implications for both
merchandise and services exports. The net result would be a smaller export stimulus and a
widening trade deficit.
The main challenges facing by Indian banking are the role of financial instrumentation in
different phases of the business cycle, the emerging compulsions of the new prudential norms
and benchmarking the Indian financial system against international standards and best practices.
The need for introduction of new technology in the banking and the importance of skill building
and intellectual capital formation in the banking industry are also equal important.
DOMESTIC POLICY:
While these trends are still in process, their effects were already being felt. They were not the
only causes for the downturn the economy has been experiencing, but they were found to be
important contributory factors. Yet, this does not justify the argument that India's difficulties are
all imported. They have been induced by domestic policy as well.
The extent of imported difficulties would have been far less if the Government had not increased
the vulnerability of the country to external shocks by drastically opening up the real and financial
sectors. It is disconcerting; therefore, that when faced with this crisis the Government is not
rethinking its own liberalization strategy, despite the backlash against neo-liberalism worldwide.
By deciding to relax conditions that apply to FII investments in the vain hope of attracting them
back and by focusing on pumping liquidity into the system rather than using public expenditure
and investment to stall a recession, it is indicating that it hopes that more of what created the
problem would help solve it.
Recent events in the global financial system have been nothing short of seismic. Hundreds of
billions, if not trillions of dollars in capital value have been lost in stock markets. Inter-bank
credit has almost frozen up.
Actual costs of borrowing have gone up (even with falling central bank interest rates),
unemployment has been rising in the major world economies, and home foreclosures and
bankruptcies are on the rise.
This crisis is sought to be addressed by a variety of policy initiatives, the most important aspects
of which are the injection of vast amounts of public funds into financial institutions and the
provision of sovereign guarantees on bank accounts.
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But the ability to do so is limited. The budget deficit for 2008 in the US has trebled as compared
to its forecasted value and the ratio of public plus private debt to GDP is well over 300 percent.
The huge injection of funds to stabilize the financial system will need to be financed.
So far the global financial crisis has had three major impacts on the Indian economy: (i) the
quantum of liquidity available during the first half of FY 2008-09 is about a third lower than
during the first half of FY 2007-08; (ii) with slackening external demand, export growth is
expected to slow; and (iii) Foreign Institutional Investors have withdrawn from Indian stock
markets leading to sharp falls in key indices.
Indian banks have strong balance sheets, are well-capitalized and well regulated. The capital
adequacy ratio of every Indian bank is well above Basel norms and those stipulated by the RBI.
Not one Indian bank has had to be rescued in the aftermath of the crisis. India has a long history
of working with public sector banks and in engineering bank rescues. India's growth rate will
slow in 2008-09. Growth during the quarter ending June 2008 was 7.9 percent.
Principal reasons for this modest drop in economic growth include (i) a large and diversified
consumption base for the Indian economy; (ii) India's trade to GDP ratio is much smaller than
that of, say, China; and (iii) Indian financial markets are still relatively insulated from global
financial markets. India has a healthy external balance, with high foreign exchange reserves, low
ratio of short term external debt to GDP and less than complete capital account convertibility.
Nevertheless, that will be a significant slowdown compared to recent experience, but it will still
be robust growth. The slower growth will be accompanied by reduced employment growth and
slower poverty reduction.
Indian policymakers have responded with measures to enhance liquidity – primarily by reducing
the cash reserve ratio and the repo rate – and enhancing confidence. Bank guarantees, beyond
those that already exist, have been deemed unnecessary.
India's economic managers, and particularly the Reserve Bank of India (RBI) take considerable
pride in having protected India from Asia's financial crisis in 1997-98. Although India did
experience a period of slow growth in the years that followed that crisis, the basic financial
machinery of the country remained relatively robust, providing a solid foundation for the much
more rapid growth that has taken place this decade.
In common with its East Asian neighbours, India is grappling once again with many of the same
challenges that the region faced a decade ago, creating difficult choices for economic and
financial policy.
In charting its course, the Government is juggling multiple considerations: the state of the
domestic business cycle; ensuring financing for the balance of payments deficit; the sharp shift in
the availability of global risk capital for financing Indian investment; and the slowdown in
growth in the world's rich economies.
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After three years of buoyant, investment-led growth, the Indian economy started to slow late last
year (2007). This growth slowdown was initially welcomed by the RBI, which had been
gradually tightening monetary policy (since 2004) in a fight against inflation.
Taking economic and political pressures together, it is perhaps not surprising that, for many
Indians the present moment is compared less with 1997 than with 1990-91. That was the year
when India suffered a major external payments crisis and was obliged to apply to the IMF for
assistance. Thanks, however, to inspired political and economic leadership at that time, that
payments crisis was turned into an opportunity for major structural reform from which India
continues to benefit till this day.
The interesting question is whether a similar opportunity can be created again. Policy until late
August operated on a business-as-usual basis. Even though the financial crisis had been
underway for almost a year, policy action was based on the assumption that India could remain
largely unscathed.
Over the course of October 2009, the RBI has sharply reversed course on the two key
instruments at its disposal: the cash-reserve ratio (that is, reserve requirements) that banks are
required to hold in their accounts with the RBI; and the overnight secured lending rate at which
the RBI lends to banks.
India's policymakers have both the experience and the tools to ride out the present storm. They
will be helped by India's lower integration with world trade and finance, and by a variety of
institutional features. Yet by itself this is not enough: the larger challenge will be, as in 1991, to
use this crisis also to resume the momentum of reforms that have largely stalled. Of this there is
as yet little sign.
CONCLUSION
The Indian economy has globalized rapidly during the past few years. The ratio of exports plus
imports to GDP increased by more than 50 per cent between 1997–98 and 2007–08 (from 21.2
per cent to 34.7). The growth of financial integration has been even more rapid. Three different
channels of the GFC's impact on India can be identified: i) The financial channel, i.e., the
growing integration of India's financial markets with global financial markets; ii) The growing
trade links between India and the rest of the world indicate that exports would decline quite
sharply, and; iii) A final avenue is the confidence channel. The tightened global liquidity
situation following from the failure of Lehman brothers in September 2008 increased the risk-
aversion of several banks and other lending institutions. There is a slowdown in India's growth
performance — but not a collapse. The short-run outlook for the Indian economy is unclear. Real
GDP growth and major sectors have shown strong signs of slipping. But, the stimulus packages
announced by the government and the RBI have had their desired effect. The Indian banking
industry is facing newer challenges in terms of narrowing spreads, new banking products and
players and mergers and acquisitions. Adoption of risk management tools and new information
technology is now no more a choice but a business compulsion. Technology product innovation,
sophisticated risk management systems, generation of new income streams, Building business
volumes and cost efficiency will be the key to success of the banks in the new era. In the present
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environment where change is invisible, it is not enough if bank change with the change, but they
have to change before the change. They should perceive what customer want and accordingly
structure their product and services
REFERENCE:
“Banking Sector in global perspective”- Inaugural address by Dr. Y V Reddy, Governor RBI, at
Banker Conference, New Delhi, 10 Nov. 2004.
Banerjee, Abhhijit. V. and Esther Dufflo, 2003 Bank Fiancé India, MIMEO, MIT.
Banerjee, Abhijit. V., Shawn Cole and Esther Duflo, 2004, Banking Reforms in India MIMEO,
MIT.
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Working Paper No.03/150.
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Banking Summit 2002, Mumbai, April 2002.
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Abstract
The human resource research is replete with studies that have contributed to understand human
resource management issues and the importance of human capital (Huselid, 1995; Bae and
Lawler, 2000; Inchniowaki,1997; Boxall and Steenevald,1999) several problems still exists. as
most of these studies were conducted under different geographic ,economic, and cultural
conditions outside india.Thus for broadening and reinforcing the literature requires expanding
the research with more diverse examples. Indian firms had underwent through several
transformations during the last two decades and service sector is being emerged a s a major
progressive contributor to Indian as well as world economy, hence they present a unique
opportunity for broadening the literature and expanding the understanding of strategic role
that human capital plays in the success of an organization
The purpose of this paper was to examine empirically how certain human capital elements affect
a firm’s value creating efficiency. The human capital of the firms were measured using a new
accounting tool proposed by Ante Pulic named Value Added Intellectual Coefficient (VAIC). As
mentioned earlier VAIC comprises of structural capital efficiency, human capital efficiency and
financial capital efficiency. The impact of the human capital on firm’s performance is measured
by Market Value to Book Value (MB) . The study deals with Impact of Intellectual capital on
Indian Banking Sector.
Introduction
The concept of human capital” subsumes and goes beyond the conventional concept of human
resources. While training and development of employee's skills, motivation, and involvement of
employees in decision making, are common to both; the focus of human capital is sharper,
broader, and deeper. This focus is on ensuring and sustaining the competitiveness of the
enterprise. It wouldn’t be wrong to contend that the society has turned out to be an information
society in which the main economic resource is information. In this new information society and in
its economy, information and skilled workers– in other words intellectual capital will determine the
competitive edge of the firms .For the purposes of this study the concept of a firm’s human
capital is incorporated as a part of intellectual capital. (V.Murale.R.Jayaraj,A.AshrafAli 2010).
In a rapidly changing environment on a globalised arena competition has become a nomenclature
for most of the organization. To have a sustainable performance they should continually improve
their performance by reducing costs, and by the way of innovation of new products process and
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productivity and speed of market. Pfeffer (1998),for example, argues that success in today’s
markets depend lesson advantages associated with economies of scale, technology, patents and
access to capital and more on innovation sped and adaptability, Pfeffer argues that these latter
sources of competitive advantages are largely derived out of firms’ human resources.
In response to the longstanding and repeated criticisms that HR does not add value to
organization, the post 90 period has been seen a burgeoning of research attempt that progressive
HR practices result in higher organizational performance.
An Australian study, (Royal, 2000, 2001, 2002) and separate studies by American
researchers(Kalleberg, Marsden and Spaeth, 1996) found that people-centered management
practices which emphasize long term relationships with their employees, and which encourage
organizational membership, perform better with regard to innovation, product development,
attracting and retaining good staff, and financial performance. Another Australian study (Stace
and Dunphy, 2001) found that organizations performed better when they were strategically well
positioned within a changing environment and pushed the pace of internal organizational change
at a rate appropriate to the external environment. They particularly stress the importance of
leading edge HR practices. There is an important link between retaining key knowledge workers,
and retaining critical intellectual capital within the firm
The following examples serve to bring out the consequences of the missing focus of human and
intellectual capital. In each of these cases, serious strategic and cognitive failures occurred
despite the presence of highly trained, competent, and experienced managers and employees:
• Ford, General Motors, and Chrysler failed to see the impending threat of the Japanese
competition before the Japanese auto firms had captured a large market share.
• The rich, powerful, and well-established retail firm, of Sears failed to see the impending
threat of Wal-Mart, and understand the implications of the latter's new business design
and logic of competition.
• IBM was not only very late in entering in the PC market, but also gave away the huge
new wealth to be generated from the PC software market.
• Encyclopedia Britannica came to the brink of disaster owing to its failure to appreciate
the implications of printing its product on CD-ROM.
• Xerox missed out the PC revolution even when they had invested so much in their
pioneering Altos machine. A then insignificant firm — Apple — capitalized on the
Xerox's R&D.
• In the early days of Xerox, IBM turned down the opportunity to acquire it very cheaply.
According to IBM's management, the demand for photocopiers was in-sufficient to
justify investment. Later, IBM entered the photocopier market, but had to withdraw after
sustained losses in the face of Xerox's entrenched position.
• Compaq missed the opportunity of Just-in-Time assembly of PCs which was exploited by
Dell with outstanding success.
Similar examples can be multiplied. High level of human resource management and
development practices, and highly qualified and competent managers were present in all these
organizations. Their top managements believed that they knew all the answers. These were no
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Literature
Roos etal. (1998) argue that employees generate intellectual capital through their competence,
their attitude and their intellectual agility. According to Bontis et al. (2001), quite simply ,Human
capital represents the individual knowledge stock of an organization as represented by its
employees. Edvinsson (1997) defines intellectual capital as the possession of knowledge, applied
experience, organizational technology, customer relationships and professional skills’. Recent
social scientist account Human capital as One component of intellectual capital.
Ulrich (1996, ) argues that intellectual capital exists when skilled employees are committed to
business goals. That is, IC equals competence times commitment. Others view this asset as
functioning at the collective level and regard it as a meta-competence. Rastogi (2002), for
instance, views IC as a firm’s holistic capacity or meta-capacity to meet the challenges and
exploit opportunities in its continual support of and search for value creation.
The term “intellectual Capital (IC),”was first introduced by Kenneth Galbraith in 1969 (Bontis,
1998) who believed that there was more to the definition of corporate intelligence than dry
skills—that it also requires intellectual action. IC, as he introduced it, is the move from “having”
knowledge and skills to “using” the knowledge and skills that are scripted, often circuitously, in
literature. The active use of knowledge is the transformation of information known to the
individual into a product or service that is of value to a firm and its stakeholders. In short
intellectual capital is defined “A dynamic nexus of a company’s human capital , social capital
and knowledge management” (Rastogi, 2003).Edvinsson (2000) views IC as the future earning
potential derived from the combination of human capital and the potential of workers within an
organization.
The Resource-Based View (hereinafter quoted as (RBV) links a firms internal capability (what
it does best) to its external Industry environment (what market demands and what competitors
offer).Capabilities have proven more difficult to delineate and are often termed as intangible
assts (Hall, 1992) or intermediate goods (Amit and Schoemaker, 1993). Essentially capabilities
refer to the firm’s capacity to deploy resources, usually in combination using the skills of
individuals or group as well as organizational routines and interactions to affect a desired end.
Academicians and practicing managers alike, however, were not aware of the argument,
regarding the resource-based view until recently. Resource-based view gained attention of
strategic thinkers only after the contribution by prominent authors such as Barney (1986),
Wernerfelt (1984) and Dierick & Cool (1989). Dierick & Cool’s paper is a fundamentally
important literature in the theory of Resource-based view, because it clearly explains the kind of
resources and capabilities that are of central concern.
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In 1991, Barney, in his seminal study “Firm Resources and Competitive Advantage”, expanded
Werner felt’s 1984 model with concepts from organizational economics and strategic
management literature to demonstrate that firms can gain and maintain competitive advantage.
Barney coined the phrase “Resource-Based View of the firm” to describe this new model. He
argued that firms’ sustained competitive advantage derives from resources and capabilities that
are rare valuable, imperfectly imitable, and not substitutable. Moreover in the context of the firm,
these resources and capabilities are viewed as bundles of tangible and intangible assets that
include management skills, organisational processes and routines, and information and
Knowledge.
A number of scholars had expressed the concern that much of the strategy literature was
narrowly focused on product market position as a basis for competitive advantage and above
normal return, This approach has created an analytical problem: if a product market position is
achieved or otherwise protected by the deployment of scarce assets, it is necessary to account for
the opportunity cost of those assets. The measured returns of the products market activities under
normal circumstances will be inflated if the opportunity cost is not properly appropriated.
Dierick & Cool (1989) offered a unique perspective on the topic of limits to imitation of
valuable, but non tradable asset stocks. They suggested that the degree to which an asset is
imitable depends upon the characteristics of the process used to accumulate the particular asset.
Time compression diseconomies, asset mass efficiencies, interconnectedness of asset stocks,
asset erosion and causal ambiguity are the dimensions associated with the value of an imitable
asset.
Value creation” is the process by which we accumulate value. The concept of value has went a
radical redefinition in a knowledge economy, Shaikh (2004) views IC as knowledge that can be
converted into value, or intellectual material (knowledge, information, intellectual property and
experience) that can be used to create wealth.
Value based on knowledge is not based on tangible “quantity,” rather it is based on the
perception that potential clients have. It is “value creation” and not the “production of prices”
that serves principal actors in the new economy. “Quantity” is now substituted with “value.”
Whereas in the old economy, wealth was equal to an increase in the quantities produced of a
product, with the measurement of quantities captured by models based on cost/I income ratios, in
the knowledge economy, the attention has been switched from quantity to value and hence the
topic need a study in detail.
India’s liberalization have had two major implications for the corporate world, creation of
hyper-competitive environment by lowering barriers to entry and opening up of opportunities for
growth through the removal of regulations.
Lahiri, Somnath; Kedia, Ben L. (2009) in their study on business process outsourcing focus on
the resources and capabilities that are utilized by the providers in fulfilling their clients' sourcing
needs. Using resource-based view and social exchange as theoretical foundations, they argue that
providers' human capital, organizational capital, management capability, and partnership quality
are crucial assets that are deemed valuable by the clients and are utilized by the providers in
attaining higher performance.
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However, very little work in general has been done on the Human capital of Indian corporates
after the liberalization process and practically a few on how they are bracing competition
through human capital in adding value . In the west and other developed nations aligning and
adopting strategy for competitive advantage is common and there had been many approaches and
studies done on measuring and valuing the intangible capital and their impact on firm
performance and value, However most of the studies in Indian context had used a subjective
approach in studying the impact of human capital on firm value ,In the light of the progress made
by India's reforms and the growing worldwide interest in India, this article tries to bridge this gap
with an analysis of intellectual capital in thirty firms in service sector and how they helped in
improving value.
In today’s global marketplace, hardly anybody would dispute the decisive role of information
and skilled workers in producing goods and services effectively and efficiently. Consistently
increasing progress of information has taken the knowledge-based workforce into a superior
position. Modern companies base their operations upon information and relevant technologies.
Therefore, so as to evaluate performances of them, new valuation techniques are continued to be
sought. It is commonly agreed that there is a lack of appropriate method of valuation, particularly
in monitoring and managing intangible assets. Though there are many methods in measuring
human capital efficiency, VAIC method of Ante Pulic (1998) is considered as a robust approach
in recent studies in the field of Human capital accounting. However there has been a very few
studies in India which had deployed VAIC method in determining the human capital efficiency
of a firm, Hence there exists a gap in the application of these modern concept of human capital
measurement in Indian service context
The primary objective of this study was to ascertain the relationship between human capital of
a firm and indices of organizational performance at the organizational level; The human capital
indices considered for this study is addressed by the Value added Intelligent coefficient(VAIC)
VAHC and the outcomes are measured by Market Value to Book Value (MB )
The data used for the study comprises of Sixteen banks representing Bankex in BSE. The data
obtained from Prowess Data base provides detailed information on each company. This includes
a normalized database of the financials covering 1,500 data items and ratios per company. The
data used for the study are for the period 2003 to 2009..The firms were selected from the
Information Technology service sector which plays a crucial role in the economy of India, its
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innovation in products and services, and driving factor for competition is mainly accounted for
by intellectual capital.
Researchers, such as Edvinsson, Malon Sveiby and Stewart maintain that traditional accounting
is inapplicable to modern companies for it cannot appropriately measure and indicate their
natural dynamics. However, only using intellectual brainpower intensely in the production
process can now increase the value of commodities. To accomplish this, a company should and
may rely on its skilled workers.
Conventional companies’ objective was to increase production, and everything was contingent
upon production. Modern companies’ objective is, however, to produce commodities by using
more information as much as possible. Today, business success rests upon the ability and
efficiency of companies to utilize information. The value-based management approach pushes
the managers so as to maximize the economic value of the assets by using them efficiently.
This empirical study applies a new accounting tool of VAIC(TM) or the Value Added
Intellectual Coefficient, developed by Ante Pulic (1998) as his trade mark- and his colleagues at
the Austrian IC Research Centre (Pulic 2000; Borhemann 1999) which is designed to help
managers leverage their company's potential. The key contribution of VAIC is to provide a
standardized and consistent measure that can be used to conduct comparative analyses across
various sectors locally and internationally.
This potential of VAIC is motivated by growing evidence in the literature, much of the research
stemming from the work of Pulic (1998). Bornemann (1999) found a correlation between
intelligent potential and economic performance.
The method of Value Added Intellectual Coefficient (VAICTM) was first made public by Pulic
(1998) and further developed by Manfred Boremann (1999). It gives a new insight to measures
of value creation and monitors the value creation efficiency in companies using basic accounting
figures. VAIC is designed to effectively monitor and evaluate the 'efficiency' in adding value
(VA) to a firm's total resources and each major resource component, focusing on value addition
in an organization and not on cost control (Pulic 2000, Boremann 1999).
VAICTM method assumes that company is a dynamic and ever-changing system, and a
company’s workers are viewed as the primary asset for success. VAICTM method is based upon
physical, financial and intellectual capital. This method measures the performance of both
physical and intellectual capital in value-adding process. The coefficient of VAICTM is the
efficiency of all resources and exhibits the value-adding ability of a company or an economy.
The larger the coefficient, the more efficiently used physical, financial and intellectual capital
turn out to be.
VAICTM numerically shows that total efficiency of physical, financial and intellectual capitals in
value-adding process. Pulic’s methodology focuses on value-adding, value-adders, and value-
adding procedures. VAICTM considers the entire company as a dynamic system.
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The enterprise thus yields less output to the economic environment than the input it uses as
resources. In this case it could be stated that it does not create wealth (value), but rather wastes it.
The value created (and also value added) indicator acknowledges that the use of any sort of
capital implies the existence of costs that have to be paid. Irrespective of the origin of capital and
of the form in which it is supplied, it can never be used for free. The earnings that add value to a
company can be recorded only after all costs have been covered.(Gigare 2009)
VA=OUT-INP
Where:
VA= Value Added
OUT= Output
INP= Input
The value added indicator is measured in monetary units (units of value): Money earned by an
enterprise is what provides this enterprise with value. The indicator is simple, and intellectual
Capital is one of its central contributing factors. Each and every employee takes part in the
process of value creation, as well as company stockholders, suppliers and clients
In a later research from Firer and William (2003), they define VAIC as a composite sum of three
separate indicators
(1) Capital employed efficiency (CEE): indicator of VA efficiency of capital employed.
(2) Human capital efficiency (HCE): indicator of VA efficiency of human capital.
(3) Structural capital efficiency (SCE): indicator of VA efficiency of structural capital.
Human Capital: As the Human Capital is not only one of the most important components of
intellectual capital, it is also the ability source of intellectual capital. Stewart suggests that the
workers in a company from bottom to top must be seen not as assets, but investment. Human
capital can be defined as health, knowledge, motivation and skills, the attainment of which is
regarded as an end in itself (irrespective of their income potential) because they yield fulfillment
and satisfaction to the possessor. It is also referred to the employee competence in creating both
tangible and intangible assets by contributing in the continuous generation of knowledge and
ideas. Unlike structural capital, human capital is always owned by the individuals who have it,
unless it is recorded in a tangible form or is incorporated in the organization’s procedures and
structures (businessdictionary.com). In essence, continuous strengthening of intellectual
resources and capabilities must be made to create a larger pool of talents and high caliber
professionals in the banking and finance industry (Zeti, 2005). Financial sector in particular,
needs a new generation of professional executives who are more customer-centric, technology-
savvy, more highly qualified, flexible and agile with skill sets that are now more comprehensive
than previously. In the context of globalization, high class human capital today has become a
necessity and not merely opulence.
Structural Capital: Structural capital encompasses the enabling structures that allow the
organization to exploit the intellectual capital. The structures ranges from tangible items offered
by an organization such as patents, trademarks and databases, to complete intangible success
such as culture, transparency and trust among employees (Seetharaman, Low, and Saravanan,
2004). This capital is resulted from the products or systems that firm has created over time and
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will stay remains with the enterprise when people leave (Nik Muhammad and Aida, 2007). Thus,
organizations that possess strong structural capital will have a supportive culture that permits
their employees to try new things, to learn and to practice them (Bontis et al., 2000).
Capital Employed: Capital employed refers to physical capital employed for attaining business
goals
The equation to assess each resource that helps to create or produce VA.
where VAIC, the Value Added Intelligent Coefficient, indicates corporate value creation
efficiency. VACA indicates capital employed efficiency, VAHC human capital efficiency and
STVA denotes structural capital efficiency
To achieve the above research objectives, this study selected the Information Technology
industry as an empirical research target. Unlike other companies, Software companies rely little
on physical capital investment. Rather, the intellectual capital possessed by Information
technology firms is what determines their survival.
Based on the resource-based view, firms gain competitive advantage and superior performance
through acquiring, holding and subsequently using strategic assets (namely, both tangible and
intangible assets) that are vital to developing competitive advantage and achieving strong
financial performance(Wernerfelt, 1984), we would like to propose the following hypothesis:
H1: Firms with higher intellectual capital (VAICTM) yields a higher firm value(market/Book
value ) in banking sector
H2: Firms With Higher component of Intellectual Capital Yields a Higher firm
Value.(Market/Book Value) In Banking Sector
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Independent Variables
As mentioned beforehand, in this study, the VAIC method as modified by Firer and Williams
(2003) was used and the measure of independent variables as follows:
Dependent Variables
To conduct the analysis, t dependent variable of Market value to book value was used as
measure for and market valuation , VAIC is applied as it indicates efficiency in creating
corporate value or the extent of corporate intellectual ability.
The Analysis
This evaluation of the hypothesized model is carried out by using correlation and linear
multiple regression to analyze the data. Before proceeding with regression analysis the
assumption of regression analysis have to be fulfilled .None of the multivariate analysis
may yield reliable results if the assumption are not satisfied, For testing the linearity of
variables initial test was through correlation analysis that is being discussed in the
forth coming section of the paper. (Table -1).The data was normalized by converting it to
natural logarithm.
Thus the above discussion provided a plausibility of hypothetical assertions about potential
interrelationships among construct as well as the measures assessing them. Analytical
procedures and tools for testing the model was also presented, both independent and
dependent variables have been were operationalised. With these we will extent the study by
presenting the results of analysis.
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Table-1
Correlation among VAIC and MVBV
The table 1 shows that there exists a correlation between market value to book value and the
VAIC at 95 percentage confidence level. The dependent variables were tested against
independent variable and the significance of linearity test was small -- less than 0.05. It indicates
that the linear relationship exists and was ensured.
Table – 2
Impact of VAIC on Market value to book value
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Table-4 ANOVA
Table-5 Coefficients
Standardized Sig
Unstandardized Coefficients Coefficients
Model B Std. Error Beta
1 (Constant) 3.000 0.127469 .000
LOGCEE 0.603 0.107371 0.734 .000
2 (Constant) 3.198 0.185794 .000
LOGCEE .513 0.093052 0.824 .000
LOGSCE 0.153 0.136657 0.42445 .000
3 (Constant) 3.01149 0.314844 .000
LOGCEE 1.050759 0.091463 0.860 .000
LOGSCE 0.46768 0.191497 0.247013 .000
LOGHCE 0.5171 0.208676 0.248735 .000
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Discussion
It can be inferred from the table -2 The total variation in Market value to book value can be
explained (explanatory power) by the 60 percentage variation in the Value Added Intellectual
Capital Coefficient. The VAIC has a positive impact on Market value to Book value. The
Influence of VAIC on Market value to Book Value is significant at 0.05 Level, Hence the
statement of hypothesis that firms with Higher Value added Intellectual Coefficient will have
higher rate market value to book value is supported
The table three represents the model generated using regression analysis. Three models were
generated with model 1 being the best one variable model , Model 2 being the best two variable
model and model three is a single multiple regression with three variables. The R square ranges
between 0.54 and 0.726 According to Table-3 54 %, 69% and 72% of the variation in Market
value to book value on shares can be explained (explanatory power) by the variation in the
Value Added Intellectual Capital Coefficient components such as physical capital, structural
capital efficiency and human capital efficiency respectively.
Table-4 shows the significant result (P value < 0.05) of the Global test, which suggests that at
least one independent variable such as human capital, structural capital and physical capital has a
positive correlation with market value to book value
Table 5 shows the coefficients of the linear regression in the respect of independent variables.
All the three components of VAIC shows a significant positive relationship with market value to
book value and thus the second hypothesis is also proved to be valid.
This investigation has shown potency of corporate intellectual capital in order to generate capital
gain on shares and as a result attract investors in the market. Thus a firm can formulate their
business strategies to increase the efficiency of its resources and achieve competitive advantages
over its rivals. Similarly investors should also carry out analysis on firms Intellectual capital
along with other parameters to have a sustainable return.
Conclusion
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Abstract:
Tourism and Internet are ideal partners, according to a World Tourism Organization (WTO)
report. Tourism is an information-intensive industry and the Internet, with its inherent wealth of
information and interactivity empowers customers to locate information quickly and precisely on
the web-fronts of Tourism enterprises. It is understood that the Tourism industry is dominated by
private sector, comprising largely of small to medium Tourism enterprises. For these enterprises,
Internet offers a level playing field. According to a UN report, it is not the cost of being there on
the online market place that must be reckoned with, but the cost of not being there. Thus one of
the most important characteristics of Internet marketing is the opportunity and the promise it
holds for Tourism enterprises (particularly the small and medium-sized) to extend their
marketing capabilities and grow.
As small and medium Tourism enterprises come up with well-developed and innovative Internet-
enabled marketing strategies, important consideration must be given to the design and
implementation of their web-fronts where the service encounter happens. It involves an
evaluation of their websites from a marketing perspective. Since the website represents the
enterprise–customer interface, it certainly affects the quality of service encounters. Because of
the Internet, “face-to-face” encounters common in the traditional retail environment have been
widely replaced by “screen-to-face” interactions. This paper studies the websites of select small
and medium Tourism enterprises in Andaman Islands from the marketing perspective and draws
generalizations about the enterprise–customer interface design, using the 7-C framework as
suggested by Rayport and Jaworski (2002).
Introduction:
Some of the services that people use require active contact with the organization. Tourism and
hospitality services fall in this category. In the off-line service marketplace, a notion of a
spectrum of customer contact with the service organization is possible with the extremes of high-
contact and low-contact service encounters. With the advent of Internet and e-commerce, this
notion is changing. In the online service market space, every encounter is a real-time encounter
with a self-service equipment (e.g. website) and a virtual encounter with service personnel (e.g.
virtual assistant). When the competition is just a click away and when the customer can leave at
the click of a mouse, the design and implementation of the enterprise-customer interfaces are of
paramount importance.
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The paper briefly discusses the healthy marriage between tourism and Internet. The concept of
Internet marketing of tourism services is presented as the context and rationale for the paper. The
7-C framework of enterprise-customer interface in Internet marketing as propounded by Rayport
and Jaworski (2002) is evaluated and its application in the case of select small and medium
tourism enterprises in Andaman islands is studied. In the Internet marketing of tourism and
hospitality services, e-Service encounters represent the Moments of Truth (Carlzon, 1987). The
paper identifies the 7-C framework to manage these moments of truth and transform them into
moments of magic, lest they become moments of misery, if not mediocrity.
Tourism and Internet are ideal partners (WTO, 2001). The study of e-commerce in the Tourism
industry has emerged as a ‘frontier area’ for information technology. Organization for Economic
Cooperation and Development (OECD, 2000) revealed that the advent of Internet-based
electronic commerce offered considerable opportunities for firms to expand their customer base,
enter new product markets and rationalize their businesses. As information is the life blood of
the travel and tourism industry, effective use of Information Technologies (ITs) is pivotal. Hence
a whole system of ITs is being rapidly diffused throughout the tourism industry and no player
will escape its impacts (Poon, 1993). Unlike durable goods, intangible tourism services cannot be
physically displayed or inspected at the point of sale before purchasing. They are bought before
the time of their use and away from the place of consumption (Buhalis, 1998). Hence they
depend exclusively upon the quality and quantity of information provided by the travel trade.
The information representations and descriptions (e.g. brochure ware) are used to influence the
consumer decision making. Timely and accurate information, relevant to consumers’ needs, is
often the key to satisfaction of tourist demand. Internet and related technologies can provide the
information backbone that facilitates tourism.
The growth and popularity of Internet marketing of services is overwhelming. They can be
attributed to three major benefits that customers perceive, viz., convenience (i.e., anytime
24*7*365), information (that is recent, reliable and researchable) and fewer hassles (as there are
no die-hard salespeople nor long lines) (Janal, 1998). However, Internet marketing is not for
every company nor for every product (Kotler, 1999). The Internet is useful for products and
services where the customer seeks greater ordering convenience or lower cost or more
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information about features and value differences. Tourism products and services match these
requirements for Internet Marketing. For example, consider airline tickets, hotel reservation, car
rental, facility booking and so on.
Background:
A service encounter is a period of time during which customers interact directly with a service
(Shostack, 1985). From the customer’s point of view, the most vivid impression of service
occurs in the service encounter, when the customer interacts with the service firm. It is in these
encounters that customers receive a snapshot of the firm’s service quality, and each encounter
contributes to the customer’s overall satisfaction and willingness to do business with the firm
again. From the firm’s point of view, each encounter thus presents an opportunity to prove its
potential as a quality service provider and to increase customer loyalty. Mistakes or problems
that occur in the early service encounters are particularly critical because a failure at one point
results in greater risk for dissatisfaction at each ensuing encounter. In this context, eService
encounters happening at the enterprise-customer interfaces (i.e. the websites) assume special
importance. They appear at a time and space and in an environment defined as per the
customer’s convenience. Table 1 summarizes the benefits and challenges in eService encounters
(Zeithaml and Bitner, 2003).
Benefits Challenges
Consistent delivery for Customers are active, not passive
standardized services
Low cost (per interaction) Lack of control of the electronic
environment
Customer convenience Price competition
Global distribution and bigger Lack of consistency due to customer
reach involvement
Customer choice and ability to Requires changes in consumer
customize behaviour
Quick customer feedback Security concerns
Parallel processing Customers want to interact, not peep
Research Methodology:
This is a descriptive research aimed at studying the websites of the small and medium Tourism
enterprises in Andaman Islands from a marketing perspective. Apart from general industry
information collected as secondary data, this research relies heavily on passive primary data
collected through observation method. Observation means that the situation of interest is checked
and a person or some mechanical device records the relevant facts, actions, or behaviours.
Accurate data about the situation of interest (in this case, the eService encounter at the website)
is provided by observation. Observation does not tell why it happened. Observational studies
can provide rich data and insights into the nature of the phenomena observed (Sekaran, 2003).
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The data obtained through observation of events as they normally occur are generally more
reliable and free from respondent bias.
The research study was carried out during the period December 2004 - June 2005. This time
period accounts for all types of seasonal variations and thus accounts for all types of business
promotions and periodic site content changes. Through a random sampling from the sampling
frame provided by the Destination Marketing Organization (http://tourism.andaman.nic.in), 20
websites of small and medium Tourism enterprises were identified. The definition of what
constitutes the small and medium Tourism enterprises varies widely. This research defines them
as enterprises that have 50 or fewer employees or annual sales in the range of US$ 10000–
100000 and operating in the sectors like travel services, leisure, hospitality and so on. These
sectors represent the 4 As of tourism – Access, Accommodation, Attraction and Ancillary
services. Table 2 gives the list of small and medium Tourism enterprises whose websites were
chosen as the sample for research. The sample profile is shown in Figure 1.
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From these websites, primary data was collected through a structured observation method. The
7-C framework for Customer interface provided the structure for observation. Table 3 explains
the seven Cs (design dimensions of enterprise–customer interface) and their indicators.
From a marketing viewpoint, traditional marketing mix elements involve product, price,
promotion and place (McCarthy, 1981). In the case of Service marketing, physical surroundings,
participants and processes are added to the marketing mix (Booms and Bitner, 1981). These
however do not fit into the Internet Marketing paradigm. Because of the Internet, “face-to-face”
encounters common in the traditional retail environment have been widely replaced by “screen-
to-face” interactions (Rafi, et al. 2002). Seven design elements of customer interface have been
suggested, including content, customization, community, commerce, context, communication
and connection (Rayport and Jaworski, 2002).
Content is defined as all digital subject matter on the website. It may include the
itineraries/tour/product information, maps, pictures, security/privacy/quality statement,
price information and so on.
Customization means the website’s ability to tailor itself to different users or to allow
users to personalize the site. Service that allows customers to design personal itineraries
by themselves is a good example of customization. Websites offering multiple language
support and search (on the basis of a personal query) facility may be credited for this
design element.
Community is defined as the interaction that happens between and among the website
users. User-to-user communication can occur between two users (e.g. emails) or
involving many (e.g. chat rooms). It serves to organize favourable customers and to
increase their loyalty. Furthermore it is expected that they play a critical role as opinion
leaders for general customers through word-of-mouse, which is the online equivalent for
word-of-mouth. Customer postings, guestbook comments are certain instances of
community-building, though not in a dynamic sense.
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Dimension Indicators
Content Essential information
Itineraries/tour/product info
Maps
Security/privacy statement
Click-through content
Quality assurance
Price information
Community Customer postings
User-to-user interaction
Customization Multi-language service
Personalized service
Loading specifications
Search function
Communication FAQs
Email form
Online registration
Call center
Offline Contact details
Connection Useful links
Affiliate links
Commerce Online reservation
Online payment
Online cancellation
Cross-selling
Context Sitemap
Main menu
Multimedia contents
Cookies placement
Search Engine optimized
Resident software required
Look and feel
Transactional utility
Alias
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Communications refer to the dialogue that unfolds between the website and its users.
This communication can be of three types: site-to-user communication (e.g. email
notification), user-to-site (e.g. customer service request) or two-way communication (e.g.
instant messaging). On many tourism sites, this function enables the user to talk directly
with the contact person while using the site.
Connection is defined as the number of formal linkages between the website and other
websites. It involves a program that supplies affiliated sites with banner advertisements to
link visitors from other sites to a particular site.
Findings:
Tables 4 and 5 consolidate the website (i.e. enterprise–customer interface) evaluation of the
sample of 20 small and medium tourism enterprises. Overall, they are well-constructed in terms
of communication and context. In particular, sites which resemble portals (with extensive menus
and links and diverse services) excelled in communication and context. Most of the sites were
found to need improved functions of community, customization and commerce. Although the
sites were found to be doing well in terms of context, most of them were not offering sitemaps
that make site navigation easy and convenient for the customers. Multimedia contents mostly
comprised of Flash animation which add to the site aesthetics and hi-tech looks, but at the cost of
slow download time. It is surprising to note that not many sites had even thumbnail picture/video
gallery. Apart from the cognitive appeal generated by the site, such visuals immensely improve
the emotive appeal. After all, seeing is believing!
For these small and medium Tourism enterprises, commerce is the most important function.
Therefore, they have to make this function available and secure as possible. Online, real-time
reservation (with a real-time email or a call center) is a step to begin with, followed by online
payments. Community is an important function in the sense that it facilitates information
exchange among customers, word-of-mouth (or word-of-mouse!) advertising and repeat
purchasing. The power of community needs to be harnessed and therefore the community
services must be enhanced on the websites.
Tourism and travel-related websites should consider implementing one-stop services like portal
sites given the fact that customers want not only simple, fragmented information about products,
but also other necessary information on tourism destinations such as ‘places to see’, ‘things to
do’ and ‘guidelines for the visitors’.
Conclusion:
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across browsers (for example, Netscape Navigator) was not studied. The study covers the
Tsunami and post-Tsunami periods. In the post-Tsunami recovery, lot of content on the websites
was to build confidence and to dispel apprehensions. Such contents are temporal in scope and not
part of the usual website content. Tsunami did wipe away a few small and medium tourism
enterprises out of business and hence their online presence also got wiped off. Moreover, the
website mortality rate seems to be high. The convenience and the low cost of setting up a website
attracts many small and medium enterprises. But the effort and the expenditure in maintaining it
puts off certain small and medium enterprises. As a result, they pull off their websites. But these
limitations in no way undermine the conclusion about the importance of a good enterprise–
customer interface to facilitate eService encounters.
References:
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services on the Internet, New York: John Wiley (1998)
Kotler, P., Marketing Management: The millennium edition, New Jersey: Prentice-Hall Inc.
(1999)
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McCarthy, J., Basic Marketing: A Managerial Approach, Homewood, IL: Richard D.Irwin
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the firm (3e), Tata McGraw-Hill (2003)
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(Note: A-E – Accommodation; F-K – Access; L-P – Attractions; Q-T – Ancillary businesses; Y – available; N – not
available)
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Community 3 4 1 0
Customization 2 5 3 4
Communication 8 10 11 6
Connection 2 7 3 4
Commerce 10 16 11 7
Context 14 23 12 13
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