Management & Change by IILM Institute for Higher Education

Management & Change The Journal of the Institute for Integrated Learning in Management

VOLUME 5

NUMBER 2

(fILM), New Delhi

WINTER 2001

ARTICLES Information Technology and Teleworking in Malaysia: A Study

Balakrishnan Parasuraman

263

Organizational Change as a Development Tool: A Study

Jamal Khan

277

Optimization in Media Development of a Model

M. R.Rao and A.K.Rao

295

Shahid Mahmood

309

Planning:

Service Quality in Education: Exploratory Study

Multi-Index Capital Asset Pricing Model: The Malaysian Case

Ch'ng Huch Khoun and G. S. Gupta P. K. Jain and Surendra S. Yadav

339

WTO and Current Issues of Negotiations for India: A Perspective

Raj Agarwal

357

Work Motivation of Managers in a Mixed Economy: A Comparative Study Disinvestment Public Sector Enterprises in India: A Review

Daisy Chauhan and S.P.Chauhan Bhaskar Majumdar

373 385

Marketing Implications of the Bhagavadgita: A Preliminary Study

Gautam Bhattacharya

407

Corporate Governance and Reporting Practices in India: A Study

Kamal Ghosh Ray

423

Management of Working Capital: A Comparative Study in India, Singapore and Thailand

321

BOOK REVIEWS Marketing Gaur, Sanjay Singh and Saggere V. Sanjay: Event Marketing and Management. by Sapna Popli.

443 Reviewed

Khera, Pramod: Franchising the Rowe Map for Rapid Business Excellence. Reviewed by Ritu Gupta ' Singh, Sukhpal: Rural Marketing Management. Reviewed by Ritu Gupta. Finance and Accounting

448

Chakravarty, S. K.: Accountancy for CA Foundation Course, Reviewed by Kamal Ghosh Ray. ' Pandian, Punithavathy: Security Analysis and Portfolio Managemellt. Reviewed by' Kamal Ghosh Ray. Organizational Behaviour

452

Khorshed, D. P. Madon and H. McDowell: Office Administration and Management (3rd edition). Reviewed by Padmakali Mishra. I

Singh, K. Anup, Rajen K. Gupta and Abad Ahmad: Designing and Developini Organizations for Tomorrow. Reviewed by Padmakali Mishra. ' Miscellaneous 459 Agarwala, P. N.: A Comprehensive History of Business in India from 3000 BC!o 2000 AD. Reviewed by Gautam Bhattacharya. I

Madhukar, R. K.: Business Communication and Customer Relations. Reviewed by Shiri Ahuja. BOOKS RECEIVED

463

Contributors Raj Agarwal

To This Issue All India Management Association New Delhi, India

Dr. Raj Agarwal is Senior faculty of Economic and International Business in ALMA, Centre for Management Education. A prolific writer as well as a keen researcher, he has several articles, books, seminar papers, audio-cassettes and video cassettes to his credit. His areas of specialization include Managerial Economics, Economy and Business Environment and International Business. Gautam Bhattacharya

Institute for Integrated

Learning in Management New Delhi, India

Gailtam Bhattacharya is an MBA from the Indian Institute of Management, Ahmedabad, the premier management institute in Asia. He has over 14 years of corporate experience in organizations as diverse as uca Bank, Apple Industries, the Eicher Group, East End Finance Ltd. upto Chief Executive levels. He shifted to academics eight years back and has taught at various leading management institutes and universities upto doctoral levels. He has also tramed senior exetutives at various government and private sector organizations, apart from being an advisor to a number of companies. Along with his academic pursuits, he is the Editor of Management & Change, a leading journal of national repute. He is currently professor and area head, marketing and strategic management areas at IILM, New Delhi. A prolific writ~r, he is also extensively quoted in the business press as a brand expert. Apart from his other activities, he has chaired a number of national and international seminars and conferences.

Daisy Chauhan

Management

Development Institute Gurgaon, India

Daisy Chauhan, Ph. D., is Assistant Editor, Vision, the Journal of Business Perspective, MDI. She has taken part in several research and conslufancy assignments at MDI. She has contributed articles in journals like Indian Academy of Applied Psychology, South Asian Journal of Management, Global Business Review, Indian Journal of Industrial Relations, Paradigm and Indian Journal of Training and Development Her areas of interest are Managing Stress, Motivation, Understanding Self, Interpersonal Relationship, and Leadership.

S. P. Chauhan

Shri Ram Centre for Industrial Relations and Human Resources I New Delhi, India I

S. P. Chauhan, M. A. (Economics and Psychology), is an Assistant Professor with SRC, New Delhi. Before joining SRC he was with Management Development Institute, Gurgaon. His Ph. D. thesis, Punjab University, Chandigarh is on ,1'Con_ struction of Professional Obsolescence Scale Using Job Involvement and Burnout as Validation Tools". He has contributed articles in journals of national and international repute. His areas of research interest are Professional Obsolescence, Managerial Effectiveness, Motivation, Interpersonal Relationship and Understanding Self. Indian Institute of Management Ahmedaba~, India

G. S.Gupta

G. S. Gupts, a Ph. D. from Johns Hopkins University, USA, Professor of EC,onomics and Finance at Indian Institute of Management, Ahmedabad since June 1970, is also a visiting professor in some US and Malaysian universities, con1sultant to several organizations. He has published many articles in Indian, USA, Malaysian and Australian journals as well as a number of textbooks. Indian Institute of Technology Delhi, India

P. K. Jain

P. K. Jain, Ph. D~, is Professor of Finance at the Department of Management Studies, Indian Institute of Technology, Delhi. He has also taught at the University of Delhi, the Foundation for Technical Institutes, Basrah and the University of Basrah, Iraq. He has been a visiting faculty in the area of Financial Management at the School of Management, Asian Institute of Technology, B~ngkok, ICPE Ljubljana and at the University of Paris, Pantheon-Sorbonne. Dr. Jain has published more than six dozen research papers in journals of national a11dinterI national repute. He has authored/co-authored more than one dozen books in the areas of financial management, management accounting, financial statement analysis and development banking, which are also his areas of consultancy. University of weSt Indies Barbados, West Indies

Jamal Khan

Jamal Khan has been with the University of the West Indies. Barbados since 1974. He has written in social science and management journals such as International Journal of Public Sector Management, Project Management Quarterly, ii

and International Review of Administrative Sciences. He has provided consultancy to several Caribbean regional organizations over the years. His teaching and research interests include development management, management techniques, policy analysis, project management and productivity measurement. Ch'ng Huck Khoon

Ch'ng Consultancy Penang, Malaysia

Ch'ng Huck Khoon, Ph. D. from Universiti Sains Malaysia, Remisier and visiting faculty in several institutions. He has also, apart from his professional work as a management consultant, published several articles in Malaysian and Australian journals. Shahid Mahmood

Institute of Leadership

and Management Lahore, Pakistan

Shahid Mahmood, Ph. D. is Associate Dean, Academic Planning and Quality Assurance, Institute of Leadership and Management, Lahore, Pakistan. A prolific writer, he has published a number of articles in journals of national and international repute. His areas of interest include services management, quality and various aspects of planning systems in the educational sector. Bhaskar Majumdar

GB Pant Social Science Institute Allahabad, India

Bhaskar Majumdar, Ph. D., is reader, G. B. Panth Social Science Institute, Allahabad .. He has published a large number of research papers in journals of repute. His current research interests include third world industrialization, political economy of globalization, trade and industrialization, India's cunent economic reforms and economic theory. Balakrishnan

Parasuraman

School of Social Science, UMS Sabah, Malaysia

Balakrishnan Parasuraman teaches Industrial Relations in the Asia Pacific and the ASEAN regions and workers' participation at the Industrial Relations Prograrnn1e, School of Social Science, Universiti Malaysia, Sabah, Kota Kinabalu, Sabah, East Malaysia. He holds an M. Sc. in Industrial Relations and HIu-1 from the University of Stirling, UK and a Postgraduate Diploma in Education. He has published (co-authored) a book entitled Globalisation: Social Sciences Perspective (Malay Version, Dewan Bahasa dan Pustaka (DBP, 2000), Employment Issues in Industrial Organizations (2001,UMS) (co-author) and co-edited a book, Industrial Reiii

1 latiolls and Human Resource Management: Issues and Per5pective (Malay:Version, UMS, 2000). He has presented conference papers locally as well as overseas at Lima (Peru), Manila (the Philippines) , Bangkok (Thailand), Barcelona (Spain), Groningen (the Netherlands), Sydney (Australia), Oslo (Nor~ay), Hiclderberg (Germany), and Tokyo (Japan). He is a fellow member in v*ious international profesional organizations. From April to August 2001, he was ~ Visiting Research Fellow at Faculty of Management and Organization and liRM, University of Groningen, the Netherlands under the UMESP Fellowship Programme, University Malaya, Malaysia. I

A. K. Rao

Director, SDM Institute for Management

Devel0I>ment Mysore, India

A.K. Rao ho!ds a Ph.D and M.S in Operations Research from Case. W~stern Reserve University, USA, a post graduate certificate from the Indian Statistical Institute and an M.A in Mathematics from Andhra University. Earlier he worked as Professor at Indian Institute of Management, Bangalore, California Stat~ University, San Diego and Indian Statistical Institute. His areas of specializati9n include Application of Quantitative Metnods to Management, Operations Re~earch Models and Market Research. He has a number of publications in national and international journals. In addition to teaching and research, he is also in~oI,ved in industrial consultancy. M. R. Rao

Director, Indian Institute of Management Bangalore,1 India

M. R. Rao is the Director and Professor in the area of Quantitative Methods and Inf0ll11ation Systems. He holds a Ph.D. and an M.S. in Industrial Administration from Carnegie Mellon University, USA, Master of Engineering (Industrial) from Cornell University, USA and Bachelor of Engineering (Mechanical) from University of Madras. Prior to his Ph. D., he worked as an Associate Researchl Engineer at U.S. Steel Applied Research Laboratary in Pittsburgh, USA. Dr. Rao was a Research Fellow at the Centre for Operations Research and Econometrics at I Leuven, Belgium and also at the International Institute of Management, Berlin. He has taught at the University of Rochester, University of Tennessee, a11dwas a Tenured Professor at New York University. Dr. Rao has published oyer 85 articles in various professional journals and has been a consultant to several companies. Dr. Rao is the recipient of the Fulkerson Prize awarded to him in August, 2000. The prize is sponsored by the Mathematical Programming Society and the American Mathematical Society. '

____________

Kamal Ghosh Ray

Institute for Integrated

Learning in Management New Delhi, India

Kamal Ghosh Ray, Ph. D., has over 21 years of corporate experience in senior positions in various reputed organizations including multinational corporations like ABB, where he worked for 14 years. He has consulting and training strengths in the areas of Project Appraisal, Implementation of Activity Based Costing System, Company Valuation, Mergers and Acquisition; Management Control Systems, Strategic Cost Management, Strategic Corporate Finance, Cash Flow and Credit Management, Management Audit and other related fields.

Indian Institute of Technology Delhi, India

Surendra S. Yadav

Surendra S. Yadav, Ph. D., is Associate Professor at the Department of Management Studies, Indian Institute of Technology,. Delhi. His areas of interest include financial; general and international management. He has previously taught at the Paris School of Management, Paris, France. He has authored six books in the area of Finance and International Finance and published a large number of articles in journals as well as in economic fmancial dailies.

From the Editor i

The New Millennium: Human Race

Reflections on the !

Gautam Bhattacharya We live in turbulent times; not that turbulence is a new phenomenon in the history of the world as we know it, even less so perhaps during prehistoric times. All religions of the world are intricately woven with sagas of tremors, turbulence and violence. In Hinduism, we have the Pralaya and the ultimate dance of turbulence, Shiva's tandava, now immortalized as perhaps the most complex movements and expressions of nritta and nritya in the art of Bharathanatyam, that only accomplished artistes dare to perform. But, both history as well as prehistory provide us with plethoric examples of peace that inva~iably follows turbulence, tranquility that emerges out of heat and chaos. Some Ark of Noah's or some Moses leads us qut of disequilibirium to a state of, if not equilibirium, at least towards it. We will reiterate on this theme later during the cou~se of this deliberation, but let us now take a look at the present and at the immediate past. I

A leading popular weekly, published in India, termed 2001 ,A. D. as "the year that changed the world." A terrorist attack, that too on the so-called temple of democracy, the parliament, 'left a "shaken India." Nostradamus had predicted the end of the ,world at the close of the twentieth century. Fortunately for u;s, the world survived, despite aircrafts hurtling into the Pentagon and human bombs exploding in sensitive places. There is no point in listing or, for that ma~ter, debating on the various devastating incidents that have taken place one after the vi

other, at an alarmingly accelerating frequency, in different parts of the world. Newspapers, magazines and even books have dissected, analyzed, prognosized billions of words on these issues. But, perhaps, there is scope for insight into deeper concerns, deeper issues that lie submerged beneath these incidents. The concern lies not in why these issues are being raised or in why these incidents happen or who lie behind them. The concern lies in why, we, human beings, have reached a state, ideologically, psychologically or otherwise, that allows such incidents to happen. The Origin of Species and the theory of evolution mooted in it, was the outcome of twenty-five years of observation of various species of living beings by Darwin. One conclusion clearly emerged, even though not stated in so many words, that we, as human beings, even though sourced from lower strata, today, stand at the pinnacle of all living beings, notwithstanding the fact that the human being is the only animal (forgive me, we cannot deviate from zoological facts), that kills or tortures for pleasure, notwithstanding the fact that a hitherto not fully substantiated theory hypothesizes that we are descended from a species of "killer monkeys'" which, as has been hypothesized, is the only other living species that kill for pleasure. Pleasure or not, we cannot deviate from the truth that positive and negative traits, drives and emotions are present in differing degrees in all animals, humans included (this has been referred to as Pravritti and Nivritti in Indian scriptures, long before Occidental theories of motivation were propounded). The ques.tion remains, which emotions dominate? Are we slowly and gradually, or, as recent events show, perhaps even dramatically, being transformed into living beings in which the negative dominates? The term "civilization" has been interpreted and dissected umpteen number of times by experts from different areas in the social sciences as well as by philosophers. Definitions and obvii

tuse interpretations apart, we now need to look at the b~sic fundamental premises which underlie the concept of civiljization. From there, we can proceed to debate on whether, ,we, human beings, are any longer civilized or not. The once much-lauded and later much-criticized Freud, apart from his other theories, perhaps touched the root of whatl we interpret as civilization. For a society to be termed as civiljrz;ed, there are three prerequisites (let me humbly beg pardon from the experts for reiterating embryonic knowledge): The existence of basic or primitive drives or urges; the demands stipulated by society in the form of acceptable norms and punitive mechanisms; and finally,' the internally existing contro}iJing mechanisms that are supposed to exist within every humanl being who is termed as civilized and which balance the two opposing forces. We can safely assume any postulate of Chebyshev's theorem at differing levels of significance and accept spme degree of deviations without which the world would have been a chimeral utopia. Therefore, we have a certain percentage of deliberate as well as involuntary violators of these norms and laws: We have criminals, psychotics and even the comparatively innocent, to quote an example, kleptomaniacs. We can term ourselves as a civilized society which has an active and effective set of control mechanisms in place which preempt, or at the least, detect and deter the deviants. The emphasis, ag~in, ils on the percentages involved and what is an acceptable (que~tion mark!) percentage of deviants to constitute a civilization., Since all of us, as we are only too aware, have felt differing degrees of these urges or drives which would be violating these so-called norms or laws and cannot indulge as could the 'pithecanthropus erectus or the Neanderthal man, most of us ,tend to dismiss deviant behaviour as "stray incidents." Let us tAke a look at some such "stray" incidents which have jarred the capital of the nation in recent times.

viii

A young man, a member of the so-termed elitist class, walks into a private bar in the middle of the night and asks for a drink. He is politely told by the hostess that the bar is closed for the night. He causally takes out a pistol and shoots her to death. What happens to our control mechanisms? Two car owners have an altercation over a trivial issue in the middle of a busy road. One man comes out and stands in front of his car, gesticulating. The other "man" rams his car into him and crushes him into pulp, not once, but repeatedly, while both the families in the cars watch the incident. What happens to our control mechanisms? A drunk young man, again from the cream of our society, expensively educated, kills a few public servants through his inebriate driving. What happens to our control mechanisms? The Up~nishadas narrate the story of the three monkeys wl:to see nothing evil, hear nothing evil and say nothing evil. All the witnesses to this incident turned back to the Upanishadas. Are these isolated, stray incidents which we read about; discuss for a day or two, perhaps feel some tremors of pity, sympathy for the victim and horror for the perpetrator and then erase them out of our short-term memory? "Something is wrong in the state of Denmark," wrote Shakespeare. Gibbon, in a series of detailed, meticulous, wellresearched and commented-upon volumes, traced the rise and fall of the Roman empire. Is some future historian, in the words of a popular singer, "if man is still alive," chronicle the fall of the modern nian, the fall of the so-called globalized, liberalized, technologically advanced society of ours? As a race, our sins of both omission and commission take two forms. First, we are moved by numbers, not by the importance of the individual numbers. Second, we are obsessed with dreams which are turning into realities and oblivious of realities which are turning grotesque and abhorrent. Let us examine the first postulate. When an aircraft like the Kanishka sinks into the sea, we are moved, for hundreds die. ix

When the Titanic sinks, we make movies out of it, for thousands die. When an obscure mechanic dies of electrification because of faulty wiring, lack of proper equipment and s~fety measures, in some remote ship, we shrug. When a lone flier in the fog, crashes his single-seater because of non-functi6ning communication systems, we shrug. We eulogize Hercule:s for his immense "efforts" in cleaning the megalithic Aegean s,t~bles. We ignore the poor fisherman's toddler on the sea coast, who, unobserved, unattended, picks up his first crab. We deify' men who move mountains, we ignore men who move garbage. Like Ayn Rand, we glorify the achievers, the men who make billions, and we forget Goldsmith's village blacksmith, who, at the end of the day, retires to bed, for "something attempted, somdthing done, has earned a night's repose." We are horrified when Ithousands die in skyscrapers in a mighty nation or the powerf\11 are threatened in another. We ignore the solitary jawan, who, isolated in bleak, snow-covered terrain, dies of a stray bullet' from an enemy gun. We need events on a 70 millimetre screen with Dolby sound and Moses' miracles. We are unmoved by a village show in an obscure "haat." I

Let us look at the second, even more disturbing, postulate. We, as a race, in history, have always scoffed at, mocked, ridiculed and even sacrificed our dreamers at the altar. But, deep ,down within us, embedded through centuries of fairy tales and stories of the impossible, we have, perhaps, secretly, and even enviously, previewed these dreams through a peep-show; and: when dreams turn into reality, we have blatantly claimed credit ~or the superiority of the human race. I wonder how many children of today remember as heroes, individuals like Edison or Ptolemi, Galileo or Rutherford, Thomas Cook or Vespucchi. I wonder, perhaps even as early as a few decades from now, how many children will remember Bill Gates or Nelson Mandela. It is not the individual or the creation that we remember or eul'ogize. What we praise and, waddle in self-glorification and self-esteem, is the thought of how great we, as human beings, al:e and, I

therefore, of how great I am, as a part of that race. Once eulogized emotions like humility, humbleness, sacrifice and so on, are meaningless words ,in concise compilations in' dictionaries. Another dimension of a vector that emerges out of this disturbing phenomenon is the magnitude of the force with which we eulogize technology. I was once told by a colleague about a giant automobile plant he had visited in a location close to the international date line. "You can't even believe how far we have progressed," he had commented with the unmistakable glow of pride on his face. "And what is this progress?" was my (undetected) caustic rejoinder. "You can't dream of it, a plant quite a few times the size of TELCO (the largest commercial vehicles manufacturer in India), and completely automated and roboticized." "Did xou see any human beings around?," was my question. "Well, there must have been a few around."! Is this what technology is doing to the human race? I would rather praise science fiction writers like Arthur C. Clarke and Isaac Asimov and movie makers like Steven Spielberg (in his Artificial Intelligence) who dreaded this future for the human race. Why are we ecstatic and jubilated by a television set on our wrist watches or electronic banking through a cellular phone? Why are we absolutely unconcerned about the crowds of skeletons who live in the depths of an unknown district called M idnapore in West Bengal, who walk down, often twenty or thirty kilometres, to scoop up the white fluid that oozes out of rice being cooked in a hostel for future top-level engineers of India, and pours out of the drains of the kitchens, into the waste beyond? Why are we more concerned about the upgradation of Windows 2000 or night detection systems for missiles in Kargil thart we are about the extinction of the Galapagos tortoises or the deforestation of the Tarai? I am not sayiilg that some of us are not concerned about these. The question again crops up, what is the percentage. The concern called "stray

today is not about killings or terrorism or soincidents" on city streets or law and order situaxi

tions. The concern today is about, not whether, but how, we, the human beings as a race, should look at ourselves, re-exa,mine the past, for history has an answer, look at values and beliefs and codes which we ourselves have claimed to have developed and perhaps analyze the human being per se. Are we Dr. Jekylls or are we Mr. Hydes? case we are both, how do we, on Freudian lines, work out a viable plan for at least a tolerant leyel of co-existence with one another? Let us learn again to look, in the middle of the night, at the myriad stars on a universal hemisphere, to explore the early morning dew on green growing grass, to learn, if not to love our neighbours, at least to let'them live in peace, and work towards the implementation of Da,win's theory of evolution of the human species to the pinnacle of living forms. Let us not debate. Let us harmonize. Let us not seek causes. Let us seek solutions. Let us not exterminate. Let us create.

xii

INFORMATION TECHNOLOGY AND TELEWORKING MALAYSIA: A STUDY

Balakrishnan Parasuraman

There is growing recognition that the globalization process plays an increasingly important role in shaping work patterns. With this regard, information technology plays a vital role in managing human resources both effectivley and efficiently. This pap.er will focus on teleworking which is currently expanding in Malaysia and its impact on human resource management clIld trace the current development of information technology and teleworking in Malaysia. Other issues also highlighted in this paper include teleworking and its effect on employment laws which need new amendments and restructuring of the current labour laws in Malaysia.

INTRODUCTION

loba:lization has made an organizational impact on the whole world. Most organizations reason that globalization is an issue related only to overseas business, foreign direct investment etc. However, it has an impact on local organizational management too. One of the impacts of globalization is the rapid development and transformation of technology. The development of information technology has made a tremendous impact on new entrepreneurs who have just associated themselves with the business world, especially the medium and small scale industries (Moha Asri Abdullah, 1997). Information Technology has immense implications in business, education, investment, banking, human resource management and industrial relations (Balakrishnan, 1999). Information technology has been accepted as a strategy enhancing technology and forms the basis of the Malaysian economic advancement as well as a tool to achieve an improved quality of life of its citizens (Zuraidah dan Yuzita, 1999). In view of this, the paper will focus on the concept of information technology, the role of informa-

ÂŤ;)

264 Information Technology and Teleworking in Malaysia

tion technology in an organization, the understanding and bene~its of teleworking on human resource management and its future in Malaysia.

CONCEPT OF INFORMATION

TECHNOLOGY

Chartrand Morent, referred to in his book, Information Technology Securing Society, unveiled that information technology means compilation, processing, distribution and utilization information (Zorkezy, 1982). However, according to the Centre for Information Technology (1999), information technology is a fusion of micro-electronic communication tools, and the computer's progress which together give us all the information that we require. In this case, the computer is the most important tool to handle up-to-date and accurate information. Therefore, informationl technology acts a force in strengthening the development of an organization through computerized communication and investment to increase the opportunities for competition, customer service and other benefits (Wang, 1

1997). Internet is a new technology in information technology. Even though its entry was disputed by certain parties, the usage of internet is e~er an increasingly popular daily activity among Malaysians.

Internet Internet is also known as the most advanced and modem cybernet. It is used as a worldwide network. There are many types of information lavailable globally. For instance, an individual with a computer can communicate or surf the world in seconds by using internet. Further, the usage of internet is cheaper than previous means such as the post, telegraph, telephone etc. Apart from that, internet can be used in looking for information on books, news, journals, films etc. by electronic means. Electronic mail is another facility available on the internet wHich is becoming popular among Malaysians. It assists in sending messages to someone swiftly. Besides that, it also reduces despatching cost o~ messages and is user-friendly. From the writer's experience, a significant percentage of this particular work had been done through use of the electronic mail. Currently, internet also assists in business transactions. In other words, it is known as e-commerce. For instance, a number of huge shopping I

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complexes such as Parkson and Jaya Jusco use websites as a platform to promote goods and attract more clients to buy their products. On the other hand, limited skill in handling computers among many staff members in an office, has also resulted in unfinished jobs. Many workers encounter problems of work preas sure whenever being assigned to learn new skills especially in relation to computers (Cecilia Ng and Anne Munro-Kuo, 1994). For the worker, these types of jobs con'stitute only a waste of time. NEW DEVELOPMENTS IN MALAYSIA

IN INFORMATION

TECHNOLOGY

In this century, probably half of the human tasks will be taken over by computers. This is evidenced from the success of Malaysia in tIie introduction of the Multimedia Super Corridor (MSC) project (Mohd ArifNur, 2000). In addition, cyber laws have also been introduced to structure and moderate the ever-challenging business world of information technology. With the emergence of MSC, the world of information technology is drawing participants from both the private and public sectors as well as the non-governmental organizations (NGOs). Malaysians should be proud of their success in the field of information technology. Although there are critics abroad about the development of MSC in Malaysia, the support of the Malaysian people has resulted in successful implementation of this project by the government. .For instance, as of 12th March, 1999, around 213 companies have been awarded MSC status whereas 29 among them are world-class companies I According to the Executive Chairman of the Malaysian Development Corporation (MDC), Tan Sri Dr. Otman Yeop Abdullah, around 50 worldclass companies have shown interest in participating in the MSC project by the year 2003. In line with this development, the nation's economy has shown signs of progress2â&#x20AC;˘ Subsequent to the development of information technology, a new area becoming popular in Malaysia is telework. Telework issues have drawn interest, when the Ministry of Human Resource itself expanded on this line in the country3. It is estimated that in the 21st century the global market for information technology will increase by as much as 10.4 percent within a short span of five years followed with an increase of 70 percent in job opportunites related to computer and information technology. Management

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266 Information Technology and Teleworking in Malaysia Based on this development, in 1998, the former Ministel of H,uman Resource, Datuk Lim Ah Lek, graced the launching of the National Workshop, "On Telework and Its Development in Kuala Lumpur".4 According to him, telework was popular and very important among imany developing nations. For developing nations such as Malaysia, employees, especially in small and medium industries, have taken longer to accept and implement this concept in their workplaces. THE MEANING

OF TELEWORK

(TELEWORKING)

Telework is a popular job that i.srelated to personal computers and internet and is widely used in most houses and elsewhere (Sandhu et.al, 1999). Telework refers to the usage of information technology and modern communication facilties to implement daily tasks in remote places, rJr from main offices (Olsen, 1991). Usually, these tasks are done in home, at our own time. Telework is also known as domestic industrial work (Lewis, 1984) and home-based data processing. Remote tasks mean any o'ther daily task done outside the perimeter of the normal office. There~ore, in a post-industrial society, telework and information communication ate very significant and appropriate for any organizational function. For example, in Britain, the British Telecommunication Company estimated that about 46,000 UK companies with more than 50 workers employ workers with telework-related skills. British Telec~mmunication Company also b~lieves that there are at least 1.8 million flexible workers and this will increase to 4.2 million in five years' time; whereas in the United States of America, there are 39 million persons who carry out their jobs at home (Hizarnnuddin Awang, 1999). Telework will provide freedom to individuals to undertake their work anywhere. Communication in the form of data in larger volumes and cheaper costs in line with the improvement of personal computJrs' capability has resulted in opportunities created for workers for not being confined strictly to normal organizational rules and regulations. Publlic telephones which provide a 24-hours a day and seven days a week communication assist in good organizational relationship with various interior remote areas. However, Sabah and Sarawak still need a more advanced telecommunication system in order for the world to communicate easily with these areas. Now, many companies use the alternative of video conferencing methods to interact among one another. I

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The History of Telework The telework concept began in the early 1970s primarily in order to tackle oil shortage. One of the different ways to develop industry was to develop the information technology industry where the workers need not travel to many places using vehicles. Telework cuts down travelling costs. Among the individuals who pioneered this effort are Toffler (1980); Kinsmen (1987); Handy (1989); Stanworth (1991); Hodson (1992) and dan Huws (1992). In 1980, Toffler wrote a book entitled "The Third Wave." In his book, he introduced the idea of work done at home by electronic means like the usage of computer, modem, telephone etc. Kinsmen (1987) in his book entitled "The Telecommuters," predicted that work flexibility revolution and telework will become a new working trend in the 21st century. According to Handy (1989), all organizations require a flexible style of work in their workplaces to fulfill customers' demands which are becoming challenging day by day in the world of business. In the face of these challenges, organizations will use work flexibility concepts such as the use of part-time or temporary workers. or the telework worker. Subsequent to the development of telework, in 19Q?, Huws undertook a research project regarding telework under the Workers Department, United Kingdom. His findings revealed that only 113 firms from a sample of 1003 employed half of their workers to work at home. These workers perform their tasks by using personal computers at home. Therefore, he urged policy makers such as the government, employers, and wdrkers' unions to create a committee to create an "Information Society." He suggested that work concepts should be restructured to be at par with the development in information technology. The European Union, on the other hand, feels that telework has become part of the new working style of the future. The telecommunication revolution and computers have paved the way towards a more flexible working style because part of the working time is used outside the. traditional office. Therefore, the European Union anticipated that telework will expand rapidly following high business competition. In 1997, Teleworker magazine reported that the number of teleworkers in the United Kingdom is 987,000, that is, four percent of the total working population of England. One-third of these workers are involved in banking; finance and insurance. In the United States of America, a research conducted through American Consumers Internet Census reManagement'

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268 Information Technology and Teleworking in Malaysia

vealed that telework has increased from four million in 1990 to 11.1 million persons in 1997. This shows that the influence of informatioIil technology has a great effect on comtemporary Americans. In Malaysia, the te1ework concept is still new and its popularity increased after launching the National Seminar on Telework Development. A research completed recently, undertaken by the United Nations University for Technologies and Mimos Berhad (1998) regarding the extent of the acceptance of the concept, revealed that telework in Malaysia is still very low. Statistics show that among 1,254 societies which are involved in reasearch, only 7.8 percent are involved in telework. In the overall context, the research shows that the ratio of people working by telework in Malaysia is 3.45 persons for every 1000 workers. Following this, the Ministry of Human Resource has proposed that the nation"s laws on labour be revised to ensure that both public and private sectors are directly and fully involved in telework. This is important in order to provide a necessary safeguard for teleworkers and home-based workers. Table-l and Table-2 summarized some of their findings.

Distribution

Table-l of 98 Firms' Telework According to Sectors and Regions North

Mining Manufacturing Construction Utility Distributive Business Transportation, Storage and Communication FIREBS Other Services Total

Interior

South

& Change,

Sabah Sarawak 4

5 2

Total !

5 Z7

14 1

1 1 9

1 1

6 53

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3 4

Source: UNDP and MIMOS, 1998

Management

East

2001)

16 16 9 98

Parasuraman

Number of Companies Sector

269

Table-2 emulating telework according to sector and size Small

Mining Manufacturing Construction Utility Transportation, Storage & Communication Distibutive Business FIREBS Other Business Total

Medium

Large

2 3

3 20 8 1

4 1

7 3 8 6 34

3 3 1 17

4 4

5 2 47

Total

5 T1 14 1 16 10 16 9 98

Source: UNDP and MIMOS,1998

Based on the above data (Table-l and Table-2), large companies categorized in the manufacturing sector integrate a teleworking system with a total number of 27 companies. This shows that manufacturing companies are more flexible in the usage of telework systems and more productive because the usage of this system will reduce labour cost and will increase workers' producti vity. In Malaysia, the interior areas of the Malaysian Peninsula dominated in the use of telework system with about 53 companies followed next by Sabah and Sarawak with 19 companies (Table-I). One of the factors whereby the interior areas of Peninsular Malaysia have more companies using telework system is because of the MSC Project located in this part. MSC has directly encouraged companies from abroad and within to be involved active~y in information technology management. On the other hand, a large area of Peninsular Malaysia, especially the East coast (Kelantan, Terengganu and Pahang), has a smaller percentage of involvement in telework systems. One of the major factors responsible for this situation is that telecommunication facilities such as home telephone facilities, internet and other aspects relating to information technology are still under development. In such a situation, the Federal and State Governments must take steps hand in hand to establish a mini-MSC project in every state especially in the east coast of Peninsular Malaysia as well as in Sabah and Sarawak. Management

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270 Information Technology and Teleworking in Malaysia

The Benefits of Telework Telework gives many benefits to the workers, employers, and the society. Teleworkers can perform their task at home where they arel more comfortable as compared to their official workplace (Cross, 1986). Teleworkers need not travel to and from their workplace, reducing working hours and daily transportation costs. They feel more comfortable to work in places where management has little control and they are not subject to various rules and regulations. When they are working at home, there is no pressure from supervizors or colleagues. In addition, marty personal tasks such as baby-sitting, shopping, house-keeping etc. can be performed at the same time by a teleworker. Besides, a teleworker normally has .Jery high responsibility and commitment (Glukin, 1985). The employer who practises a telework system will be able to increase produotivity, reduce overhead expenses and be able to improve the morale of the workers. Teleworkers are believed to be more productive becaus1e they are more comfortable in the performance of their duties (Lewis, 1984). They are not only working during the mandatory working hours, but sometimes far superceed that. Former research shows that the benefits of telework has increased the productivity of workers by 20 to 40 percent (Newsfront, 1984; Lynch, 1994)5. In this context, employers can reduce costs on office sp~ce especially at city centres like Kualalumpur, Kota Kinabalu, Kuching etc. Apart from that, employers also enjoy the reduced cost on utilities. There are also employers in search for teleworkers from developing nations because of their cheap cost of labour. A bond of trust can be nurtured between an employer and employee . whenever they enter into a telework agreement. This would indirectly improve the loyalty of an employee to the employer or the organization one is working with. Another benefit of telework shows that workers' stress and low productivity can be tackled effectively when a telework system is introduced. From the general perspective of a society, telework reduces the infrastructure cost to the government. Teleworkers need not use highways to travel between workplaces and homes. Other factors include its effects on environment. Traffic jams; during working hours and travelling back home after working hours will be reduced and more workers will be interested to work at home rather than I

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in the office. Consequently, air pollution can be minimized too. These matters should be addressed by the government who are involved in reducing social problems, especially traffic jams and air pollution in cities like Kualalumpur, Penang, Johor Bahru etc. Teleworking systems also assist big and small companies in human resource supply. According to Hizamnuddin (1999), there is a software distribution company known as Wingra Technology (www.wingra.com) in Wisconsin, USA, which successfully interacted with workers on computers, through the internet compared to the face-to-face contact via flights or in conferences. According to this company, the internet has successfully cut down total flight cost for computer software development. Indeed, it has quickened tn~ development of new applications because of the less time wasted ensuing from lengthy meetings. The staff at Wingra Technology use electronic mail to overcome problems and issues involving software programmes through internet. The most important benefit is the safety and health of the worker. There is a large number of accident cases reported daily in workplaces. Telework minimizes accidents in workplaces and on highways. It is reported that about 40,000 persons die from road accidents. Another benefit is that parents need not send their children to baby care centres. From the health aspect, telework reduces the chances of sickness such as influenza, fever, heart attack etc. Pollution is worsening due to the increase in vehicle usage and the number of factories. As an example, a worker suffering from influenza may transmit this virus to other work~rs. This will eventually disrupt .office management and thereby affect the productivity among workers. If the worker does his job at home, this can be avoided. Further, work preassure can be reduced to an extent whereby illnesses like high blood pressure and heart attack can be minimized. The employer can reduce costs on health care for workers too. If a worker works at home, the surrounding environment is tailormade to suit each worker's tastes and preferences. According to the reasearch finding of the United Nations for New Technologies (UNU/INTECH) and Mimos in Malaysia in 1998, there are three main benefits: Increase in production, reduced cost in travelling and a flexible working system. Based on available data, about 32 Malaysian companies confirmed that a teleworking system is more comfortable and flexible whereas 16 other companies feel that there is an inctease in the productivity as a result of the reduction of problems as stated earlier. Management

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Apart from the advantages of telework, companies interviewed feel that telework has certain disadvantages too. Firstly, they believe that telework is hard to be evaluated and monitored along with les~ fa~e-toface interaction which results in less interaction between workens and management and a lower degree of problem-solving due to reduction in meetings and brain-storming.

Implications of Telework for Malaysian Labour Laws and Reactions of Workers' Unions According to Khoo Kay Jin (1999), telework will be accepted as a new concept whereby workers' unions would ensure that their members (teleworkers) will be protected by the terms and working conditions to be agreed upon by the employer and the workers. But these terms will not apply to "home-based teleworkers" who are known as informal w,orkers under the nation's labour laws. Therefore, workers' unions suggest that a distinctionmust be made between various types of telework. especially between full-time workers and those who are bound by contracr (also known as part-time workers). Part-time workers must be protected by the Labour Act and their welfare taken care of. Part-time workers in this case can be categorized as tcleworkers. In addition, in Malaysia, teleworkers are not protected by Malaysian Laws especially the Labour Act, 1955, or the Industrial Relation Act. Therefore, these acts should be revised to redefine teleworkers as persons classified as workmen. Various trade unions such as the Malaysian Trade Union Cqngress feel worried that it will not be easy to unite teleworkers into a workers' union. Statistics show that workers' union membership of telewotkers in Malaysia is between 9 to 10 percent only as compared to the total number of workers of over 10 million people in Malaysia (Maih1Unah Aminuddin, 1999). This is despite the fact that labour laws encourage teleworkers to become members of workers' unions. Besides, workers' unions raise problems on conditions of work and minimum working terms which are supposed to. be protected for the teleworkers. If there are no such minimum terms and conditions of work, workers' exploitation will become rampant in Malaysia.

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[ Parasuraman CONCLUSION:

THE FUTURE

OF TELEWORK

273

IN MALAYSIA

In the post-industrial society, most organizations are rich in information. The style of work and the technological opportunities are leading to a situation where telework is the best option in the development of human resources. In this study, we have traced the history of telework6 an its implications for our country. Awareness of such type of work should be propagated so that people know the importance and advantages of the telework system of work. Telecommunication companies like Telecoms, Maxis, Celcom and DIGI need to expand their services to the rural and remote areas. As such, all organizations can use information technology facilities in their effort to expand to rural areas and build upon the concept of telework sepecially in Sabah, Sarawak, Kelantan, Terengganu and Pahang. This concept can further be expanded through electronic and newspaper advertisements. In addition, the Ministry of Human Resources should play its role in promoting this concept through seminars or wrokshops throughout the nation. Institutions like Malaysian Association of Productivity (MAP ), Malaysian Institute of Human Resource Management (MIHRM) and many other private agencies should join forces to increase people's awareness of the concept. Therefore, in the face of the the 21 st century, the human trend will shift to telework as a means of human resource management. Local and international companies will prefer to employ teleworkers to reduce costs. In view of this, as a country striving towards being an industrialized nation, Malaysia should make itself ready to deal with various new and dynamic types of work. The development in telework will provide many benefits to an organization and also to the worker especially on issues of productivity, labour cost management, production of quality products, low rotation of workers and increase in motivation among workers. NOTES 1. 2.

See Utusan Malaysia Online, 16 March, 1991. Credit Suisse First Boston, New York forecasted an increase of 3 percent in the Malaysian Government National Product (GNP) by the end of the twentieth century. Datuk Dn Fong Chan ann, former Deputy Minister of Education and currently Minister of Human Resources corroborated this statement. Management

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~------_._-----------------------------------,----------.,

274 Information Technology and Teleworking in Malaysia 4. 5. 6.

Daily Express, 12 March, 1999. This is also borne out by a report of the San Francisco Examiner, 29 May, 1994. History of telework can be obtained from http://members.aol.com/telwebsite/ twfacts.htm.

REFERENCES Amminuddin, M. (1999) Malaysian Industrial Relations and Employm~nt Law, (3rd ed.), Petaling Jaya: McGraw-Hill. Parasuraman, Balakrishan (1999) "Teleworking: Working Styles in Next Millenium," Dewan Masyarakat, June (Malay Version) Cecilia, N. G. and M. K. Anne (1994) Keying Into The Future: The Impact of Computerization on Office Workers. Kualalumpur: W. D. C. Sdn Bhd. Cross, T. B. (1986) "Telecommuting Future Options for Work" in Zorkoczy, P. I (Ed.) Oxford Surveys in Information Technology, (Volume 3), London:i Oxford University Press. Daily Express, 12 March, 1999 Glukin, N. (1985) "The Office is Where The Workers Are," Telecommunication I Products and Technology, June. Hizamuddin, Awang (1999) "Working at Home: Teleworking Apnoach," Dewan Ekonomi, March (Malay Version). Huws, N. J. (1992) "Teleworking in Britain: Prevalence and Employer Attitudes," UK: Interim Report to the Employment Department. Khoo, Kay Jin (1998) "Telework in Malaysia:Pattems,Perceptions and Potential," paper presented at seminar "Teleworking and Development in Malaysia," Organized by the Ministry of Human Resource, UNDP, MIMOS, and The United Nations University, Kualalumpur. Lewis, M. (1984) "If you worked here, you'd be home by now" Nation's Business, April. Lynch, A. (1994) "Telework raises productivity," The Australian, March. Mittei's, S. (1998) "Placing the Malaysian Question of Telework in a Global Context," paper presented in the seminar "Teleworking and Development in Malaysia," organized by the Ministry of Human Resource, UNDP, MIMPS, and The United Nations University: Kualalumpur Moha, Asri Abdullah (1997) Small industries in Malaysia: Development and Future Trends. Kualalumpur: DBP, (Malay Version) Nun, Mohamad Arif (2000) "Building Competitive Edge Through IT and IE-Commerce," paper presented at SMEs Congress: "Positioning For Succe~s in The New Millenium," January, 25-26, Kota Kinabalu, Sabah. Olsen, M. H. (1991) "Information Technology and The Where and When of Office Work:Electronic Cottages or Flexible Organisations'?" published in I

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Clarke, R. & Cameron, J (eds) Managing Information Technology's Organisational Impact, North Holland: Elsevier Science Publisher. Maklumat, Pusat Teknologi (1999) "Information Technology," Jabatan Perkhidmatan Awam, Kualalumpur, (Malay Version). San Francisco Examiner (1994),29 May. UNDP and Mimos (1998) Teleworking and Development in Malaysia. Kualalumpur, UNDP: Malaysia. Utusan Online, 16 March, 1999. Wang, C. B. (1997) Techno Vision II: Every Executive's Guide To Understanding and Mastering Technology and The Internet. London: McGraw-Hill. Wilson, D. N. and 1. Underwood (1995) "Teleworking: A Place For The Introvert?," School of Computing Science, University of Technology, Sydney (unpublished paper). Zuraidah, Abdullah and Yuzita Yaacob (1999) "Information Technology Literary: To Achieve Vision 2020," paper presented at seminar "Ekonomi Pembangunan Di Alaf Baru:Tujahan dan Cabaran," Port Dickson, 16-17 July. Zorkoezy, P. (1982) Information Technology: An Introduction. London: Pitman Books ..

Management

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2001)

ORGANIZATIONAL CHANGE AS A DEVELOPMENT TOOL: A STUDY

Jamal Khan

Organizational change is an area which has attracted a tremendous amount of attention in recent years from various sources like the academia, organizationa.l managers as well as management consultants. The process of change has exccelerated tremendously towards the close of the 28th century and therefore, poses a major challenge to organizations across industries and across countries. In this study. we have started from the premise that organizational change can assessed and facilitate the process of change. increase responsiveness in organization and help in development provided it is carried alit in a planned manner. To elaborate on this we have identified and examined in-depth three strands of organizational change: Organization De-I velopment, Organization Theory and Organization Design. The three strands are complementary and can be used in totality or in isolation to manage organizational change.

INTRODUCTION rom time to time, as a function of periodical cycles, as and when drastic needs arise, decision-~akers ~nd involved participants in tetvene m the normal and routme functIOnmg of theIr orgamzatIons. The interventions usually are short-term and largely unscheduled. At times, however, organizational interventions can become more deliberate, namely, creating new organizations, decentralizing decision-making, developing management, increasing participation by beneficiaries, or making organizations more effective relative to long-term development goals. Organizational change, whether in industrialized or in c ~loping regions, is complex. We, in this paper, start from the premise that organizational change, as and when purposefully carried out in a planned fashion, can assist and facilitate the process of change, and make organizations more responsive to, and capable of undertaking development activities; can trigger and sustain behavioural change which is supportive of growth initiatives, and make the change process less disconcerting ar:d more ac-

278 .Organizational Change as a Development Tool ceptable, beneficial and employee-friendly. To this end, we highlight 'three organizational strands as development tools and assess their potential for inducing and directing change.

CHANGE STRATEGIES Even though there are no satisfactory or agreed-upon frameworks for classifying organizational change strategies, there are three major strands in organizations which provide analytical tools and operational measures for inducing change, e.g., organization development, organization theory and organization design. We define a strategy of organizational change as a plan for achieving a purpose. At the minimum, the plan needs to indicate what such change should achieve, including the change points. The plan should also specify the change process, including the interv~ntion level, the change tactics, the data collection method and the needed resources. This is, however, an elaborate framework. We opine that such an elaborate framework is necessary since many change efforts in the past have failed or faltered due to the underrating of the complexity of the task. Often, change agents have worked with only one model of a good organization or proposed only one kind of change intervention and were not sensitive to different models or different types of interve~tions which could have been more appropriate. Furthermore, they often changed too few elements for lasting effects and perhaps utilized too few levels of interventions, tactics, resources or methods of data collection. In particular, they did not seriously consider the importance of performance gaps. The three change strategies focus on different kinds of performance or output gaps. The organization development strategy focuses 011 individual morale and motivation, goal and role clarity, individual effectiveness and team-building. It looks at performance and output of individua,ls and groups which contribute to organizational performance and output. The other two strategies focus directly on performance and output 'at the organizational level but tend to emphasize efficiency. The three organizational change strategies identify the same elements of the organizJtional system, but differ in the elements which their interventions modify. Organization development changes internal processes and inputs by changing the skills and attitudes of the employees. Organization theory mainly changes structures although structural changes which often tend to require Management

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concomitant changes in processes and personnel. Organization changes culture and strategy, structures as well as processes. ORGANIZATION

design

DEVELOPMENT

The best-known among organization change strategies is organizatiot; development (OD), which focuses on tools and techniques for introducing change. Conceptual Base Many of the crucial assumptions of OD involve the impact of motivation. OD practitioners agree generally that most organizations stifle individual initiative and motivation. The basic thrust of the OD change strategy is to improve motivation and morale, thereby increasing organizational productivity (Beer, 1980; Burke, 1987; Cummings and Huse, 1989; French and Bell, 1990; Harvey and Brown, 1996). A salient assumption of OD is that employees will be happier, work harder and be more productive if they are allowed to participate in group decisions and are given more authority as well as autonomy. The methods change agents and practitioners use to increase motivation include improvements in job design, career opportunites, goal clarity and group processes, because problems in these areas are perceived to be the major causes of low morale and productivity. This approach has been attractive to top management and OD change practitioners are keen on improving employee job satisfaction, motivation and other work-related attitudes. Unlike the other two strategies, OD does not assume that there is a rational order that pervades the functioning of organizations or that people should be seen exclusively as rational agents. OD places emphasis on expressing feelings and on increasing sensitivity. It tries to deal with the person as a complete and composite individual, attempting to focus on individual and group needs. Change practitioners assume that employees desire personal growth and development. They urge organizations to encourage openness, collaboration, trust, congeniality and open expression of feelings to motivate employees to work harder to achieve the goals of the organization. One group of OD change practitioners is oriented to socio-technical change. Their purpose is to self-direct the employees themselves, working in groups, and redesign jobs so that they are more user-friendly. This Management

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280 Organizational Change as a Development Tool approach makes a number of critical motivational assumptions (Miller and Rise, 1963; Emory and Thorsrud, 1964). It assumes, for example, that increasing skill variety, job autonomy and job enrichment increases employee job satisfaction and motivation. Hackman and Suttle (1977) argue tHat skill variety, task identity, task significance, job autonomy and job-related feedback equal motivation potentia!. These changes do not always boost prodilctivity, but they work in the long run by reducing employee turnover and absenteeism. A major strength of the OD approach is the understanding of groups and how they function, focusing on the many advantages of groups over individuals working separately. Groups are better for working on complex, interdependent tasks which are too difficult for any individual to perform, and for generating new ideas or creative solutions. They are als~ effective for creating liaisons and improving coordination, especially between organizations or units which are different but interdependent. Perhaps the most important asset of groups is their ability to solve problems. Two top-of-the-mind examples of the effectiveness of groups for problem-solving are quality work circles, as used by the Japanese, and task forces as recommended by Peters and Waterman (1982). Such tools are needed for problem-solving in developing countries because development is a complex and difficult task requiring a high degree of cr~ativity and ingenuity." For similar reasons, they are needed for the critical function of implementing organizational change. Groups and team~ork are used effectively in management training, especially in new management techniques and organization-building tools. Inter-group as well as intragroup relationships are also a critical component of OD approaches to the study of organizations. The assumptions for an organization-wide implementation of OD are not uniform nor always clearly articulated. Frequently, OD change proponents seem to view organizations as a collection of individual members. Thus, when OD change proponents attempt to improve the climate or culture of the organization, they emphasize on clarification of the goals and roles of individuals, usually through group discussions. I

Targets The major objectives of OD-driven change are to clarify goals, make jobs more satisfying, improve motivation, build teams and increase collaboration. OD interventions address specific problems and directly involve Management

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different functional areas of the organization. An OD intervention aims at inducing extensive changes, increasing collaboration, developing ways of communicating with each other that stress active listening, constructive dialogue as well as expression of feelings and building quality in relationships. An intervention may attempt at changing the goals, roles and culture of an organization. This transformation may require a significant shift in the values and behaviour of all personnel, extensive group discussions that help to build consensus about the desirability of change, and changing power structure from highly centralized to relatively decentralized and polyarchal structure. Change points The major change point for OD focuses on the internal processes of the organization. This includes, primarily, group processes and job design. Another change point in OD is role expectation. Conflicts in expectations are known to lead to role incompatibility, role ambiguity and role strain. OD techniuqes, usually group discussions, have been developed to resolve such conflicts, entailing improved communication and collaboration, more focused problem-solving sessions and greater attention to productivity, turnover, absenteeism and job-related errors. Group formation is a frequent change point in OD strategies in change organizations. The group may be created to diagnoze the state of the organization and to identify performance or output which is adversarial or, perhaps, rivalrous. In many instances, groups are fostered to solve problems and to implement change., and in others, they are used as effective tools for training. Occasionally, the change point for an OD exercise is the culture or the climate of an organization. The entire culture or climate of an organization can be changed when its goals are changed. Although interventions at this level are rare in OD, they may become more common in the future because of the current concern about culture in organizations, namely, Theory Z. Approach OD intervenes at two distinct levels. It usually intervenes at the microlevel, changing individuals and groups in the process. Sometimes, it intervenes at organization-wide levels, and attempts to change the culture and climate of the organization by changing the values and beliefs of the met:l1bers. OD tends to perceive inadequate organizational performance Management

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282 Organizational

Change as a Development Tool

and output as a function of insufficient individual motivation and 'effort. aD solutions usually involve micro-changes, such as job redesign, training, group therapy etc. Popular aD tactics are group decision-making, T-groups and problemsolving groups. Each has a slightly different objective. Group decisionmaking or participation is employed to fortify motivation, foster consensus on goals, clarify goals and roles and modify the operating climate. Tgroups and variations of them are utilized to create and improve communicationand to build greater trust. The essence of T-groups is to heighten sensitivity. In contrast, problem-solving groups focus on solving problems rather than focus on morale and group relations. They attempt to determine the causes of specific problems and then work out solutions for them. Generally, the reslJarces needed for aD exercises are not large or demanding. aD change protagonists operate within a relatively short time frame because they usually work with only a part of the organization. One major exception is socio-technical solutions which may extend' over a considerable period of time and require a much larger investment of human and financial resources. Surveys of individual attitudes comprise a common technique for collecting data within the framework of. the aD approach. They are used in studies of job design, job satisfaction, climate, motivation and in determining the extent of conflict in role expectations.

ORGANIZATION THEORY A second strand relevant to organizations is that of organization theory (aT). Certain assumptions have been built into aT, such as, the impact . of organizational structure on performance and output, the values 9f dominant coalition which affect performance and output, and greater exposure to change which encourages greater acceptance of such change. I

Conceptual base aT can be traced back to Weber, who discerned that a rational-legal organization was efficient because it had characteristics such as hierarchy or authority, rules; clearly-defined responsibilities, files, careers, and so on. These provided more order, discipline and predictability rhan was found in traditional or charismatic organizations (Hage, 1980; Dawson, 1994; Brown, 1995; Collins, 1998). This assumption differs con~iderably Management

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Khan 283 from the assumptions in 00, which stress on people as well as on structure and feelings rather than on order, consistency or predictability. The formal-organizational form, according to Weber, was superior to other organizational forms in achieving goals. This assumption was later contracidicated by research which found a second type of organization, the organic model, flourishing under certain conditions. The organic model was designed to be innovative rather than efficient. Bums and Stalker (1961) found that the organic model has different structural traits than the formal-organizational model. These traits-a network of communication, authority and control, an absence of rules, an emphasis on careers and continual redefinition of jobs-facilitated innovation in organizations. The Bums and Stalker (1961) model gave birth to the contingency theory, which posited that different models or structural features are appropriate for different tasks or goals. The theoretical work of Perrow (1967); Woodward "(1965); Thompson (1967); Blau et al. (1970) and Hage (1980) has been concerned with how tasks and environmental contingencies affect structure. The label of contingency theory comes from the work of Lawrence and Lorsch (1967), who identified the impact of environme~tal constraints on organizational structure. Technology, size and environmental factors define the contingencies in contingency theory. Environmental contingency variables such as demand for the organization's outputs, technological change, product mix, customer or client base set limits on how the organizations should be structured in order to survive and operate effectively. In some environments, the structure should be formal and hierarchical with well-defined routines for producing large-volume goods and services. In other environments the structure should embody few routines and many skilled professionals producing high-quality and relatively unique goods and services. Another perspective is the political perspective, which emphasizes the influence of the dominant coalition's values on the organization's performance and output (Pfeffer and Salancik, 1978). Even individual leaders can have a decisive influence on the way organizations perform and the output they produce. The motivational assumptions are fairly explicit on aT concerning organizational change. The most common assumption is that groups that have power, position, privilege, recognition, status or high income are reluctant to share them (the vested interest or the special interest postulate). The vested interest assumption is critical, in fact, seminal, in orgaManagement

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284 Organizational Change as a Development Tool nization theory, since structural changes usually upset power centr(:1s,relationships and organizational dynamics. Yet another assumption in OT is that experience with change develops a greater tolerance for change. It is a commonly observed fact that some organizations adapt to a higher quantum of change. Clearly, the members develop coping mechanisms. The lesson for change proponents is to introduce new initiatives or programmes in an organization which has already experienced cllange. Complexity and centralization are perhaps the two most important structural properties of organizations in the OT strand. They are central to the organic and mechanical models and to the discourse on innovation and size. Etzioni (1975) established the importance of various compliance mechanisms for the structure and processes of organizations, reporting that communication patterns are central to the studies of innovation. Targets Typically, OT focuses on the performance dimensions of effectiveness, efficiency, morale and information. Effectiveness is central to both OT 'and organizational design. Efficiency may be defined as the summation of efficiency, morale and innovation (Price, 1968; Perrow, 1967). Again, effecitveness and efficiency may be distinguished by defining effectiveness as the degree to which an organization realizes its goals and efficiency in relation to the amount of resources utilized per unit of output (Daft, 1983; Etzioni, 1967). The concept of effectiveness is central because performance and output gaps are usually classified as ineffectiveness. OT posits that both innovation and efficiency cannot be pursued effectively at the same time because they require different structures organizational concern. Organizations must, therefore, decide on the relative emphasis to place on each performance and then structure the organization accordingly. Change points The main change point for an OT strategy is the structure of the organization. The major contribution of OT in improving organizational performance and output is in understanding of the structural modalities which are the most effective in various contexts of change. When organizations are failing or faltering, or environmental conditions are changing, the structure should be changed accordingly to improve performance. Another substantial area of OT research concerns the structural determinants of Management

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morale, turnover and absenteeism, concerns which are shaped through 00. From the OT perspective, formalization of job descriptions, surveillance, centralization of decision-making and low job autonomy lead to low morale and high disengagement. In general, the lower the status of the occupation or job, the higher the is absenteeism (Price, 1977). The implication for change agents is that improving these forces and factors should boost morale and curtail absenteeism. OT studies the role of coordination and control mechanisms and processes. Coordination is defined as the integration of programmes to achieve the goals of the organization, while control refers to the conformity of individuals to job descriptions. Etzioni (1964) classifies organizations as nOImative, remunerative and coercive on the basis of their compliance mechanisms. Some organizations push through normative rewards, some through financial rewards and some through coercion. Most organizations do not use coercive mechanisms in addition to ~emuneration. Organization theory attempts to determine the major contingencies that influence the choice of structure and coordination and control processes. I Some research studies focus on size as a critical contingency (Blau et a1., 1970). Another line of OT research focuses on the effects of technology on organizational structure (Woodward, 1965). Routine ,technologies tend to lead to greater centralization of power (Hage and Aiken, 1969). Two relatively new areas of research in OT focus on the environments of organizations (Aldrich, 1979) and inter-organizational relationships (Hall, 1977). Approach OT usually intervenes at the organizational level, but more and more analysts implicitly recommend intervening at the environmental level. But, it is notaole, most environmental variables are difficult to structure and control. OT change tactics emphasize on structural changes. OT emphasizes equally on other change tactics, especially decree, fiat and group decisionmaking. One line of research compares the success of these change tactics (Hage, 1980). The first style of organizational change which involves a broad participation via group decision-making is called evolution, and the second style which involves decrees is called revolution. Group decision-making involves discussion and possibly experimentation resultManagement

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ing in slow and incremental changes. Decrees by top management usually produce structural changes resulting in quick and broad~ranging changes. The organizational change strand usually recommends evolution and widespread participation, but there are exceptions. The strand suggests that the greater the perceived crisis and the shorter the perceived time for change, the more acceptable is change by decree. Also, if an organization is trying to emulate some other organization, then its members are likely to accept decreed major changes. The organizational change strand notes certain weaknesses in the evolutionary method. The major limitation,of group decision-making is that the change is likely to be undermined by the group and only part of the needed change will become implemented (Rage and Aiken, 1969). The group is likely to lambast changes as too costly, unnecessary, impractical, and so forth. The more radical and visionary the change, the more likely would be this scenano. Change by decree, therefore, may be effective in certain situations. Organization theorists undertake more research on organizations than on interventions in organizations, with their expertise in data collection, research designs and tools, field work and research findings. Their main research tool is a survey of a sample or population of organizatiorls. The organizations are the units of analysis and are measured on structure, inputs, outputs, processes and environmental variables. The many indicators which have been developed constitute a major contribution of OT to change agents' tools and techniques. Organizational changes tend to be time-consuming and costly solutions to organizational problems, but they are likely to be enduring. The resources needed to make these kinds of changes are usually much greater than the micro-level changes of OD. Organization-wide changes dn provoke tremendous resistance if they are introduced inappropriately. In dealing with resistance, OT strategizes bargaining, cooptation and support mobilization.

ORGANIZATION DESIGN A third strand relevant to organizational change is organization design. Peters and Waterman (1982) used this approach to explore effective organizations.

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Conceptual base Organizational design shares many of its assumptions with aT. I~ adopts the rationalist premise that the structure of an organization affects performance and output (Schein, 1985; Carnall, 1990; Burness, 1996). The meaning of structure, however, is quite different for organization design than for aT. The former views structure mainly as the assembly of units and organizations, while the latter views structure in terms of variables, such as complexity and centralization. aT uses variables which affect performance and output, while organization design describes how organizational components should be put together. The two standards complement each other because aT develops a more basic aspect while organization design develops a more applied facet. Structural models that have become popular in organization design include decentralization, matrix structure and functional structure. Essentially, these models pose the same question: What is the best form of divisionalization and specialization that achieve the objectives of an organization? Organization design does not always make explicit its criteria for choosing one or another structural form, but generally the source of the greatest variation determines the most appropriate model. . Fayol (1916, 1949), who identified the five functions of managementplanning, organizing, cornnlanding, coordinating and controlling-argues that the functions form a logical sequence, while planning guides the other functions. A basic organizational design assumption has been derived from Fayol that planning or strategy is a major factor in the effectiveness of an organization. As a result, organization design currently includes a range of management techniques and standard operating procedures to assist planning and goal management. These include, to mention a few, breakeven analysis, capital budgeting, programme evaluation and review techniques, management by objectives, critical path analysis, line of palance techniques, logical framework analysis etc. Organizational design, like aD, assumes that employee motivation is crucial to organizational success. Organization design, however, places more emphasis on money as a motivating reward and less on self-expression and feelings. Organization design, therefore, is known for its emphasis on push for profit-sharillg, gain-sharing and incentives to intensify employee commitment, integrity and productivity. An assumption in organization design (Lawrence and Lorsch, 1967) is that increasing differentiation creates centrifugal forces. Separate units Management

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288 Organizational Change as a Development Tool or organizations develop different orientations and goals which 'create frictions and make coordination among organizations more difficult. Therefore, more effort must go into integration as differentiation increases in order to maintain effective performance. Organization design has developed conflict resolution techniques, including confrontation, intermediaries or boundary spanners, group meetings, negotiation, separation, inter-group training, structural change and image-exchanging to reduce dispositional or ideological conflict. OD research studies the conditions and dynamics under which each technique is the most effective. Organization design deals with the full range and variety of m~nagement issues and concerns so that it can employ a repertoire of concepts, variables and ideas. Organization design is also concerned about the optimal span of control for various types of work situations. First-line supervizors in mass-level activities can handle nearly fifty subordinates, but in other types of activities they usually control one to two dozen subordinates. At higher levels, the ratio is more often one to four. Organization design helps in better management, effective leadership and vision. It deals with leadership style, supervizory orientation and managerial roles. It studies leadership in terms of dimensions as such output concern and people concern (Blake and Mouton, 1964). It probes into the merits as well as the demerits of authoritarian, personalist and democratic, participative and supervizory styles. It identifies the many roles managers play from organization head and leader to resource allocator and trouble shooter (Mintzberg, 1980). Managers play an important role in reducing conflict and in controlling and coordinating behaviour, and organization design provides a battery of management techniques for performing these and other management roles. When organization design employs the contingency theory, it examines the impact of environmental complexity and uncertainty on organizational structure and performance, whereas, otherwise, It considers the impact of size and technology. Tosi and Carroll (1982) suggest that ifboth market and technology environments are certain or stable, then a mechanistic organization is the preferred model. If both are uncertain or volatile, then an organic organization is preferred. When certainty or uncertainty resides in technology but not in markets, mixed models are suitable. Organization design includes Galbraith's strategies for handling information in organizations (1973). A key strategy for better utilization of increasing information is to create teams and develop lateral relationships. Management

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This strategy is especially appropriate for organic organizations which have to process large quanta of information in order to cope with uncertainties. The structure which is generally envisaged for such strah.:gies is the matrix. Targets Organizational design seeks to improve the performance of organizations and make them more successful. It resembles aT in focusing on performance and utilizing the contingency theory. It differs fro~ aT in being much more concerned with success, -returns, cost recovery, price recovery, viability, sustainability, efficiency and productivity and much less concerned with innovation and exploration. The major motivational assumption underlying organization design is that performance gaps stimulate actions to close such gaps. High-performing organizations with their many accounting controls notice performance gaps quickly and move on to better designs and new technologies that improve efficiency and productivity. Organizations in trouble actively seek out consultancies to rectify some problems quickly. Detecting perforn1ance and output gaps is more complicated when performance measures and accounting controls do not exist, as is so often the case in the public sector, not because of the nature of the public sector which is inherently unmeasurable, but more so because of the lack of informed and sustained effort that builds up a database for measurement and other related purposes in the public sector. In fact, performance measures can be created, followed, updated and sustained in the public sector under the right kind of leadership. One of the more distinctive contributions of organization development has been its recognition of integration and conflict resolution as important objectives. Unlike aT, which has tended to ignore conflicts, contingency theory within organization design has focused on conflict as a central problem. Lawrence and Lorsch (1967) focused on tactics for reducing inter-occupational or inter-organizational conflict. Some examples are the use of confrontation, intermediaries, third-party interventions, group meetings etc. Other crucial areas for organizational design interventions are morale, absenteeism and turnover. Research on these issues benefit organization design as well as organization development.

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290 .Organizational Change as a Development Tool Change Points The major change points for organization design are internal organizational structures, lines of authority and responsibility, managerial roles and management techniques. Consultants often tend to modify the internal structure of an organization and recast modalities in order to improve performance and accelerate response. Typically, organizations are structured into units on the basis of variable product lines. One notes that an organizational structure generally evolves when the staff, especially managers or specialists, could. not be transferred easily among the different compartments of an organization. Once an organization is divided into units, then the units are organized along functional or product lines. Functional division is by occupation; while division by service or product lines is necessitated by the differences among customers and their service needs. Management principles often do not translate readily into the public sector because they are based on market control and competition. Daft (1983) reports on an initiative to apply a private sector design to a public sector organization by a university which was reorganized into profit centres except for central services, with each school and division operating as an autonomous unit. The redesign worked satisfactorily. Another change point for organization designers is the relationship between a4thority and responsibility. One of its prescriptions is that authority and responsibility must go hand in hand. Consultants often intervene to correct the chain of command moving the locus of authority to the appropriate level so that effective action can be taken. A sign that authority and responsibility are not at the correct level can appear in the form of excessive overhead costs. Too much centralization tends to produce an overly-high, top-heavy, slow-moving and transitive management. Further, the structure absorbs more and more of the resources in management. As centralization grows in size, the structure absorbs more and more of such resources, operations and procedures rather than ensure services, programmes and delivery, and the lines of authority and responsibility become confused. A third change point for organization designers is the appropriate role of managers for various contingencies. Mintzberg (1980) suggests that a manager carries out many roles and he distinguishes three types of roles which subdivide into ten distinct roles. He distinguishes among interpersonal roles, such as figurehead, leader and liaison; informational roles, such as monitor, disseminator and spokesperson; and decisional roles, such Management

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as entrepreneur, disturbance handler, resource allocator and negotiator. He aruges that contingencies determine which of these roles are to be employed by a manager at any given time. A fourth change point is management practices, i.e. an array of management and operational techniques that could be used to achieve each of the managerial functions; for example, forecasting, nominal groups, brainstorming and delphi technique are usable in planning. 'Other techniques deal with personnel practices and incentive systems that are supposed to make employees happier, more integrated and more productive. Approach Like OT, organization design intervenes at the organizational level. A standard intervention consists of interviews with key personnel, followed by diagnosis and a proposed solution. However, it is likely that the diagnosis and solution may be biased in the direction of those solutions which are the specialties of the consultants, such as matrix structures or a partial set of management techniques. Many of these solutions have the best results when changes are made at both micro- and organization-wide levels. Increasingly, contingency theories are integrating the two levels by speCifying the types of organizational contexts in which specific management techniques and organization-building tools are most useful. This integration approach is most pronounced in the work of Mintzberg (1979). A tactic of organization design is structural change. Whether one departmentalizes by function or by product, or employs decentralization or matrix structure, or employs a narrow or a wide span of control, the prescribed solution for a performance gap is to change the structure. Often, these changes are instituted by decree. Another tactic is problem-solving groups. Two kinds of problem-solving groups which have become conspicuous are task forces and quality circles, both of which have been made part of the permanent structure of many organization. Peters and Waterman (1982) view task forces as the essence of the modem successful organization. Organization designers also use replacement, that is, making recommendations about the replacement of key personnel. When data collection is involved, consultants draw on informant interviews and the use of documents to identify performance and output gaps. The interviews deal with lines of authority, responsibility, communication, conflicts etc. They Management

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292 Organizational Change as a Development Tool explore how key informants perceive the problem and its probable causes. Interventions usually require considerable resources, including a cr<::ative mindset. Changing the design of an organization frequently takes a year or more and entails a considerable infusion of time and effort. It requires support from the top and the strategic middle management and can substantially alter the situation as well as the behaviour of many employees. CONCLUSION The three strands are complementary and can be used either in totality or in isolation. They should or could be used in combination because organizational intervention usually is complex, interactive and interdependent and needs a time-phased multifaceted approach. They sensitize the change agent or the prime mover to the real or potential necessity of having to change several parts of the system at once to have a significant impact. As Beer (1980) notes, changing people and behavioural processes, but not structure does not usually yield permanent and satisfactory results: The changes are likely to peter out, erode or fade away. The reverse is also true. Davis and Lawrence (1977) observe that introducing designs in an organization requires considerable training and tactics to achieve congruence between employee behaviour and the new structure. Organizational interventions tend to require both micro- and organization-wide changes. The failure, setback or disappointment of many decentralization-oriented initiatives by developing country management systems are due in large partly to the neglect of micro-level changes. Most organizational changes result from the perception of performance or output gaps by organizational decision-makers. Such being the case, more often than not, the strategy of change must identify which component of the organizational system is to be changed and how the change is to be implemented. The strategy must select the intervention level, tactics, data collection methods and the resources required for implementing change. Notwithstanding the grim fact that development is a difficult, painful, daunting, but a rewarding task, it can be managed and realized. The solution to this apparent contradiction is that difficult and challenging tasks can only be executed with a multi-faceted, effective, result-producing and tenacious approach. OD, on the strength of its task-oriented tools' and techniques, helps in introduction and sustainance of change, which, in tum, causes development spurts. OT, always mindful of structuring organizaManagement

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tions with a view to raising performance and output, defines and extends development action. Organization design, positing the cogency of employee motivation to organizational success, provides the wherewithal and resources with which development can be targeted, pursued and achieved. The strands tap and sustain the capacity of the management system for autonomous action and development thrust, emphasizing an approach to monitoring, adapting and shaping organizational environments. These facilitate the fashioning of a learning organizational culture with the necessary practices, orientations and systems to promote the continuous sharing of experience, lessons, perceptions, insights and realities. These, representi~g long-range capabilities and cumulative intentions, empower organizational change as a development tool and as a carrier of innovating values, call for improving organizations' ability, willingness and readiness to manage change, transformation and renewal throu!:,h effective management of organizational culture. These, separately as well as collectively, reinforce the focal idea that in order for organizations and their development to be effective and durable, they must be more than effi9ient. Organizations and organizational development need to be flexible, changeable and reconfigurable, need to develop a self-renewal capacity and need to be able to grasp ideas, shift focus fast, strategize and move on. They must adapt to change or lose in the race.

REFERENCES Aldrich, Howard (1979) Organizations and Environment. Englewood Cliffs, NJ: Prentice-Hall. Beer, Michael (1980) Organizational Change and Development. Glenview: Scott, Foresman. Blake, Robert R. and Jane S. Mouton (1964) The Managerial Grid. Houston: Gulf. Blau, Peter (1970) "A Formal Theory of Differentiation in Organizations," American Sociological Review, Vol. 35, April. Blau, Peter and Richard Scoembuck (1971) The Structure o/Organization. New Yark: Bais Books. Brown, A. (1995) Organizational Culture. London: Pitman. Burke, W. W. (1987) Organization Development. Reading: Addison-Wesley. Burns, Thomas and G. M. Stalker (1961) The Management 0/ Innovation. London: Tavistock. Burns, B. (1996) Managing Change. London: Pitman. Carnall, C. A. (1990) Managing Change in Organizations. London: Prentice-Hall. Management

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2 (Winter

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Change as a Development Tool

Collins, David (1998) Organizational Changes. London: Routledge. Cummings, T. and E. Huse (1989) Organization Development. New York: West. Daft, Richard L. (1983) Organizational Theory and Design. St. Paul: West. Davis, Stanley M: and Paul R. Lawrence (1977) Management. Reading: AddisonWesley. Dawson, P. (1994) Organizational Change: A Process Approach. London: Paul Chapman. Emroy, Fred and Einar Thorsrud (1964) Form and Content in Industrial Democracy. Oslo: Oslo University Press. Etzioni, Amitai (1964) Modern Organizations. Englewood Cliffs: Prentice-Hall. ibid (1975) A Comparative Analysis of Complex Organizations. New York: Free Press. Fayol, Henri (1916, 1949) General Industrial Management. London: Pitman. French, Wendell L. and Cecil H. Bell (1990) Organization Development. Englewood Cliffs: Prentice Hall. Galbraith, Jay (1973) Designing Complex Organizations. Reading: AddisonWesley. Hackman, 1. R. and 1. L. Suttle (1977) Improving Work. Santa Monica: Goodyear. Hage, Jerald and Michael Aiken (1969) "Routine Technology, Social Structure, and Organizational Goals," Administrative Science Quarterly, Vol. 14, September.

ibid (1980) Theories of Organization. New York: John Wiley. Hall, Richard et al. (1977) "Patterns of Interorganizational Relationships," Administrative Science Quarterly, Vol. 1, NO.3, September. Harvey, Donald F. and Donald R. Brown (1996) An Experiential Approach to Organization Development. Upper Saddle River: Prentice-Hall. Lawrence, Paul R. and Jay W. Lorsch (1967) Organizations and Environments. Cambridge: Harvard University Press. Miller, E. 1. and A. K. Rise (1963) Systems in Organizations. London: Tavistock. Mintzberg, Henry (1979) The Structure of Organizations. Englewood Cliffs: Prentice-Hall. Perrow, Charles (1967) "A Framework for the Comparative Analysis of Organizations," American Sociological Review, Vol. 32, April. Peters, Thomas and Robert Waterman (1982) In Search of Excellence. New York: Warner. Pfeffer, Jeffrey and Gerald Salancik (1978) The External Control of Organizations. New York: Harper & Row. Price, James (1968) Organizational Turnover. Ames: Iowa State University. ibid (1977) A Study of Organization Culture and Leadership. San Francisco: Jossey-Bass. . Thompson, James (1967) Organizations in Action. New York: McGraw-Hill. Tosi, Henry and Stephen Carroll (1982) Management. New York: Wiley. Woodward, Joanee (1965) Industrial Organization. London: Cambridge University Press. Management

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OPTIMIZATION OF A MODEL

IN MEDIA PLANNING: DEVELOPMENT

A.K. Rao

M.R. Rao

In media planning, the media planner has to decide on the optimal number of insertions to be made in vari~us media vehicles so as to maximize some measures of effectiveness. The measures such as Reach, Gross Opportunities-To-See (GOTS), Average Opportunities-To-See (AOTS), Cost Per Person Reached etc. have to be evaluated for arriving at optimal decisions. In the past, researchers have developed an optimization model for determining the ideal combination of advertisement insertions that ma~imizes Reach or GOTS The constraints considered are an upper bound on the number of insertions in a vehicle and an upper bound on the total number of insertions in all vehicles. The optimal solution was obtained using dynamic programming. In this paper it is shown that the optimal solution for maximizing GOTS can be obtained easily even without using dynamic programming. Solution procedures have also been developed for m~imizing AOTS and minimizing Cost Per Person Reached for two sets of constraints; one set consisting of lower and upper bounds on the number of insertions in various vehicles and an upper bound on the total number of i;lsertions in all vehicles and the second set consisting of lower and upper bounds on the number of insertions in various vehicles and a budget constraint. The solution procedures use dynamic programming repeatedly with interval bisection.

INTRODUCTION

dvertising decision making is an important area of marketing where there is a vast scope for construction of analytical models. However, most of the analytical models have a serious limitation as it is difficult to assess the effect of advertising on sales. Many researchers have developed quantitative models for optimal advertising decisions. These models use some surrogate measures such as Gross Opportunities-To-See (GOTS), Reach, Average Opportunities"To~ee (AOTS) etc. which are assumed to have a direct effect on sales. Decisions on the choice of appropriate media, specific media vehicles and the number of insertions in each of them are arrived at by optimizing the Management & Change, Volume 5, Number 2 (Winter 2001) Institute for Integrated Learning in Management. AI!' Rights Reserved.

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296 Optimization in Media Planning: Development of a Model

chosen surrogate measure. Methods of evaluation for any specified media plan in terms of the different measures of effectiveness have also been developed. In the Indian advertising context, data from surveys such as National Readership Survey (NRS), National Television Survey (NTS), Audit Bureau of Circulation (ABC) Reports, Television Viewership Audit (TV A), Up-Market Survey (UMS) etc., are used for objective decision making in advertising. An optimization model for media planning based on the information contained in published NRS reports was proposed by Raghavendra (1989). The author used binomial distribution and estimation procedures for computing the probability of exposure and associated measures. He developed a dynamic programming model to derive an optimal media plan which maximizes Reach. In this paper, solution procedures for deriving optimal media plans for different criteria are given. As in Raghavendra (1989), the binomial distribution is used for computing the probability of exposure and the associated measures. Solution methods are proposed using simple ranking and Dynamic Programming to optimize GOTS, AOTS and Cost Per Person Reached. A REVIEW

OF MEDIA

MODELS

A brief review of the media models which are relevant for this paper is a prerequisite for subsequent development. In the past, methods were developed for generating exposure distributions and these exposure models were analyzed by researchers (Rust and Leone, 1982; Leckenby and Kishi, 1984). The media plans were evaluated using Beta Binomial distribution, Dirichlet Multinomial distribution, Hofman's Geometric distribution and Kwerels Geometric distribution for estimating the probability of exposure. The parameters of the distribution are estimated from the characteristics of the media schedule planned. In India, the Press Evaluation Model (PEMM) developed by IMRB, used binomial distribution for generating the probability of exposure. A dynamic programming model was developed by Raghavendra (1989) to maximize Reach. He illustrated the method through examples from the press media. Simple solution methods to maximize Reach are presented in Rao and Rao (1993) .

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NOTATION AND PRELIMINARIES The same notation as used in Raghavendra, tions is followed. M 1, ]

N. I

Mi d IJ..

1989) with slight modifica-

Number of media vehicles considered in the advertisement campaIgn. 1,2,...,M; Media vehicles, ranked in the order of target group readership. Target group readership of vehicle i. Unduplicated target readership of vehicle i. Duplication percentage, expressed as a fraction of readers of vehicle i who also read vehicle j. Number of sampled readers (from NRS) who read on an average, k issues of the total possible k issues of vehicle i in a pre-specified period for k = 0,1,2, ..., ki (ki = 7 for dailies, 4 for weekly, 6 for fortnightlies and monthlies). probability of readership of vehicle i. We assume, without loss of generality, that 0< Pi <1. Number of insertions in vehicle i. Cost per insertion in vehicle i. Probability of rOTS if Xi insertions are made in vehicle i. Expected number of readers seeing r insertions if Xi insertions are made in vehicle i. D.'(r, x.) is the expected number of unduplicated readers seeing r insertions of vehicle i after the first (i-I) vehicles are considered. Reach in vehicle i if X. insertions are made in it. Average OTS from vehicle i if Xi insertions are made in it. Cost per person reached from vehicle i if Xi insertions are made in it. j

Pi Xj

Ci Zj(r,X) Dj(r,X)

= :;=

Ri(X) Aj(X) Ci(X)

The method suggested by Raghavendra (1989) to estimate the probability of readership is given below. The published reports of NRS- III give the target group readership, the frequency of readership information, and the data on pair-wise duplication percentages in readership. One can estimate the probability of a reader reading vehicle i from the data on frequency of reading as:

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298 Optimization in Media Planning: Development of a Model k, 2;

fik

k=O

k kj 2;' fjk

k=O One of the major problems is the estimation of Reach because of duplication in readership. An approximate procedure for estimating Reach is given below. After the media vehicles are ranked and arranged in descending order of target group readership, the unduplicated readership (Rdach) of a vehicle is estimated sequentially as follows, with djj expressed as a fraction. It may be noted that this is an approximation to calculate Reach.

i-I M.

(l-d;) ; i = 2,3, ...,M.

j=l The probability of a reader coming across r insertions out of X insertions in a vehicle i is given by the binomial law, j

Z (r, X) I

[Xi] r

p' (l_p:)<X;-'l ; r I

0, I, 2, ... , X.

The expected number of readers seeing exactly r insertions of the advertisement out of Xi insertions in vehicle i is given by:

The expected number of readers seeing exactly r insertions of the advertisement, after adjusting for the duplication of common readers of more than one vehicle is given by:

The Gross OTS, Reach, Average OTS and the Cost Per Person Management

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Reached from vehicle i if X insertions are made in it are given by: I

Xi L r Dlr,X) r=0

Xi L r Nj Zj(r,X) r=0

Xi N L r Zj(r,X) j

Nj Pj Xi

r=O Xi L D;'(r,X) r=1 Gi(X) Ri(X)

cx. I

The gross OTS, Reach, Average OTS and the Cost Per Person Reached for all vehicles when Xj insertions are made in vehicle i; (i = I,2, ...M) are given by:

Gross OTS

G(X)

Reach

= R(X) =

M L G (X) i=I M L R (X) i=1 j

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300 Optimization in Media Planning: Development of a Model

G (X) Average OTS = A(X) =

R (X)

M 2: G (X.) i=l 1

M 2: R (X) i=l j

M 2: C. X.

i=l Cost per person reached = C(X) =

M 2: R (X) i=l j

The evaluation of these measures was illustrated in Raghavendra (1989). OPTIMIZATION Solution methods for maximizing Reach are given in Rao and Rao (1993). Here we present the solution methods for optimizing GOTS, AOTS and Cost Per Person R~ached. MAXIMIZING

GROSS OTS

Suppose we want to determine the number of insertions in the vehicles so as to maximize the Gross OTS. This seems to be relevant especially in cases where there is least duplication of readership for media vehicles considered. Here we consider two optimization problems; one with a constraint on the total number of insertions and the other with a budget constraint. For both the problems, we assume that there are lower and upper bounds on the number of insertions in a vehicle. Let L. and U. be the lower and upper bounds on the number of insertions in vehicle i. Let U be tpe upper limit on the total number of insertions in all vehicles and C be the available budget. We consider the following two problems. I

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RaoandRao 301 Problem I: M L Nj Pj Xj i=1

Maximize

subject to:

Lj :s;Xj :s;Uj

M L Xj:S; U i=1 and integer i = 1,2, ...,M.

M L u., for otherwise the optimal solution is .i=1 given by Xi = Uj, i = 1,2, ...,M.

We assume that U <

Problem 2: M L Nj Pi Xi i=1

Maximize subject to:

M L Cj Xi:S; C i=1 L :s;Xi :s;U and integer i = 1,2, ..., M. j

M L Cj Uj for otherwise, the optimal solution i=l i = 1,2, ...,M.

We assume that is Xi = Uj

;

C <

Optimal Solution to Problem 1: We first transform the problem by introducing integer variables Yjsuch that Y. = X. - L. for i = 1,2, ...,M I

Let

W = Uj - Li j

for i

1,2, ...,M and

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302 Optimization in Media Planning: Development of a Model M W=U-LL.

i=l M Note that W < L W. i=l The optimal solution can be arrived at by arranging the media vehicles in the descending order of N;Pj and assigning the highest possible integer value to Yj starting from the vehicle with highest value of NjPr The steps to be followed are given below. Step 0: Arrange the media vehicles in descending order of N;p; and renumber the vehicles so that I

Step 1: Set YI = Min (WI' W). For r = 2, ...,M, successively set

r-l L y. = 0 and i=l

Y r = 0 if W -

Yr = Min

{Wr,

W -

r-l r-l L YJ if W - L Yj > O. i=l i=l

Then, X. = y. + L. for i=1,2, ...,M is the optimal solution to the problem. I

Optimal Solution to Problem 2 Introduce integer variables Y. = X. - L. as in the above M Let B= C - :E C. L. i=l I

section.

Arrange the media vehicles in the descending order of Nipi and renumber the media vehicles so that C I

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~---

The optimal sblution can be easily obtained for some specified values of the budget B. Assume that the value of B is

where 0 ~ r ~ M-I and K is an integer such that The optimal solution is as follows: Ifr = 0, VI" If r ~ I , Vj" V*r+1

y* )

0 ~ K ~ Wr+1

= K ; Vj" = 0 , j = 2,3, ...,M Wj , j = I ,2 ,..., r. =K = 0, j = r+2,r+3, ...,M.

If B does not satisfy (I), we can solve the problem by dynamic programming where the stages correspond to media vehicles and the states correspond to amount available. Assuming B to be an integer, we would have M stages with B+ I states at each stage. If the cost of insertion and the budget are integer multiples of thousands of rupees, then from a computational point of view, it would be better to have states correspond to the amount available in thousands of rupees. MAXIMIZING

AVERAGE OTS

The average OTS is given by

G(X)

M L G.(x.) i=l I

A(X)=-R(X)

M L Ri(X) i=l where it is assumed that the denominator R(X) is strictly positive. We assume that we want to maximize A(X) over a feasible set XES. Since the denominator has to be strictly positive, we assume that the solution Xi = 0, i = 1,2, ...,M is not in S. Management

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304 Optimization in Media Planning: Development of a Model For instance S may be given by the constraints M L Rj(X)3 ~ R* i=1 L ~ x. I

~ U.

and integer i = I, 2, ..., M

where R. is some specified positive integer. Alternatively, S may be given by M L Cj Xi ~ C ; Li ~ Xi ~ Vj and integer i = I, 2, .." M i=1 where at least one Lj is greater than 0, Cj is the cost per insertion and C is the budget available. Let Max A(X) = A(X) = A. XeS Let A be any arbitrary positive scalar and f (A) = Maximize [G(X) - A R(X) ] XeS It can easily be shown that f (A) = 0 if and only if A = A.

SOLUTION PROCEDURE An interval bisection solution procedure to determine A. is given below, For any A, f (A) can be obtained by using dynamic programming. First we determine lower and upper bounds for A., Let Al and A2 be any lower and upper bounds on A. so that A. ~ A. ~ A2 ' There are several ways by which we can find values for Al and A2, One method is given below. Set

A = 1

GP) M

where G.(1) = Min G(1) if all Li = 0 J i I

L R (U) i=l j

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Rao and Rao 305 M ~ G. (L.) i=1 I

=---

if at least one Lj is positive.

M ~ Rj (U) i=1 M ~ Gj(U) i=1 if at least one L is positve.

A2 = Max

M ~ R (L) i=l j

M ~ G. (u.) i=1 I

where R (1) = Min R (1) if all L. = O.

.= Max

)

R(1)

)

The steps involved in the search procedure are given below: In order to find A., several iterations may be required. If we are satisfied with an approximate solution, then the criteria for stopping can be A2 - A( ~ E, where E is a small positive quantity. Step 0:

Let Al and A2 be lower and upper bounds on A..

Step 1:

If A2

Step 2:

Set A3 = (AI + A2)/2. Find f(A3) and the corresponding X(3). If f(A3) = 0, stop. We have the optimal solution given by

A. = A3

A1 <

' X

stop. Otherwise

go to step 2.

X(3).

If f(A3) > 0, go to step 3. If f(A3) < 0, go to step 4. Step 3: Step 4:

Set Go Set Go

AI = A3 and A2 remains unchanged. to step 1. A2 = A3 and AI remains unchanged. to step 1.

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306 Optimization in Media Planning: Development of a Model

MINIMIZING COST PER PERSON REACHED The problem now is M L CX. i=l Min I

XE S M L Rj(X) i=l Let f (A)

Min [C(X) - A R(X)] XES

As shown in the previous section, f (A) = 0 if and only if A = X. The problem of finding f(A) could be solved by dynamic programming if the constraints are of the type M L Rj(X) ~ R. , Lj ~ Xj .~ Vi and integer i = 1,2, ..., M i=l Alternatively, S may be given by M L CjXj ~ C, Lj ~ Xj ~ V and integer i = 1,2, ...,M i=l where at least one Lj is strictly positive. A search procedure similar to the one used for maximizing AOTS can be used for minimizing the cost per person reached. j

CONCLUSION This paper has discussed various methods of arriving at an optimal number of insertions of an advertisement in various media vehicles. The criteria for effectiveness considered are GOTS, AOTS and Cost Per Person Reached. Two sets of constraints are considered. Both these sets of constraints consist of a lower and upper bound on the number of insertions in a vehicle. In addition, one set consists of an upper bound on the total number of insertions in all vehicles and the other set has a budget

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Rao and Rao 307

constraint. Simple ranking procedures and dynamic programming with interval bisection can be used to arrive at an optimal media plan. ~

REFERENCES Aaker, David A. and 1. G.Myers (1982) Advertising Management (2nd Ed), New Delhi: Prentice Hall of India. Clarion-McCann Advertising Services Ltd. (1973) Quantitative Methods in Media Planning, Calcutta: Clarion-McCann Advertising Services Ltd. Indian Market Research Bureau (1984) "Examples To Illustrate Media Models," NRS-III Workshop (unpublished), New Delhi: Indian Market Research Bureau. Leckenby 1.,D and S. Kishi (1982) "An Empirical Test of the Performance of Four Exposure Distribution Models," Journal of Advertising Research, Vol 22:(2). Little 1. D. C and L.M. Lodish (1966) "A Media Selection Model and its Optimization by Dynamic Programming," Industrial Management Review, Vol.8, (Fall 1966) Little 1. D. C and L. M.Lodish (1969) "Media Planning Calculus," Operations Research, Vol. 17, (Jan-Feb 1969). Raghavendra B. G and M. V. Padmavati (1986) "An Optimization Mod~l for Media Planning using Dynamic Programming," paper presented a.t the 19th Convention of Operational Research Society of India, New Delhi. Raghavendra B. G, Vrinda Chiplunkar and M. Mathirajan (1988) "A Class of Optimization Models for Media Planning," paper presented at the 20th Annual Convention of Operational Research Society of India, Pune. Raghavendra B. G (1989) "An Evaluation and Optimization Model for Media Planning," International Journal of Management and Systems, Vol. 5, No.1. Rao A. K and M. R. Rao "On An Evaluation and Optimization Model for MediaPlanning," Working Paper No. 37, Indian Institute of Management, Bangalore, March 1993. Rust R. T and R. P. Leone (1984) "The Mixed-media Dirichlet Multinomial Distribution: A Model for Evaluating Television-Magazine Advertising Schedules," Journal of Marketing Research, Vol.xxi, pp 84-99. Sarla Achutan (1983) "Maximizing Gross OTS-An Application of Mathematical Programming," paper presented at the 16th Convention of Operational Research Society of India, Kanpur.

Management

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Volume 5, Number

2 (Winter

2001)

SERVICE QUALITY IN EDUCATION: AN EXPLORATORY STUDY

Shahid Mahmood This article presents the findings of an exploratory study which examines the concept of service quality in on educational setting with data collected from 223 students of graduate degree programmes. The study identifies five dimensions which influence students' perception about high quality service. The study indicates that service quality is derived mainly from the image of the institute, faculty and administrative staff through their personal attention to students also influence quality. Moreover, awareness about schemes of study, physical layout of the institute and availability of facilities to the students are also important contributing factors of quality of service. The study concludes with suggestions of measures for managing quality and achieving students' satisfaction, which should help management in the formulation of strategies to achieve excellence in education.

INTRODUCTION valuation of education and educational institutes is today a matter of great public concern. Public concern is based upon a new sense of the relationship between the quality of education and the future of any country. The debate on quality in education is not new. But the issue of quality in education implies never-ending adaptation and improvement. Berry and Rehman (1998) suggested that there is emerging evidence that schools could also benefit from the development of quality systems through their impact on a school's capacity to provide services which support both individual and organizational learning. Assessment of quality in educational enterprises is complex. The performance of an education system must be studied not only in the light of what it is at any given point of time, but also in terms of where it is heading. What such an educational system does must be considered not only in relation to what it should be under ideal'circumstances, but also in relation to what is possible under the actual circumstances.

310 Service Quality in Education: An Exploratory Study There is no single test of quality education, and this study proposes none. This exploratory research, pertinent to the existing situation, describes. some of the characteristics of quality in education and indicates certain essentials without which quality cannot be achieved. Hence, a better understanding of how customers form impressions of quality can provide valuable information to management for designing service delivery systems that enhance customer satisfaction (Seymour, 1992) and for adapting the university environment to the students' needs (Hampton, 1993).

PROBLEM IDENTIFICATION The identification of the dimensions which signal quality and the achievement of excellence in education have emerged during this decade as key issues confronting the academia. In fact, like many other organizations, educational institutes must be concerned now with return on investment, market share, productivity and the quality of services offered to the customers-students and their parents. There is increasing interest in the development of quality systems in all types of organizations by identifying and improving key elements within the organization. In the education sector, the concept of qua.lity service can 'lead to improvement and excellence in education and consequently can have lasting effects on the institute and the students it serves, The best education, according to National Education Policy Commission (1998), is that which does most to enable each student to develop his or her abilities and instill values in order to serve society. Education must therefore be appropriate to the needs of each pupil and to the needs of society. Glasser (1992) purports that quality education is the only answer to the problems our schools face. It is apparent, through this study, that students have thought about quality service and have a good idea of what, in their institute, is considered quality service in an educational setting. The problem, therefore, lies in the acquisition of information about dimensions used by the students of graduate degree programmes in order to evaluate service quality and to identify which characteristics of the service delivering process are most significant in students' perception.

LITERATURE REVIEW Work by Creemers, Peters and Reynolds (1989) and by Randenbush and Management

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2001)

Mahmood 311 Willims (1991) state that recent research on the effects of learning in schools provides clear evidence that variations in the characteristics of schools are associated with variations in student outcomes. Hawes and Stephens (1990) believe that quality is characterized by three inter-related and inter-dependent strands; (i) efficiency in meeting its goals, (ii) relevance to human and environmental conditions and needs; (iii) "something more," that is the exploration of new ideas, the pursuit of excellence and encouragement of creativity. Rust and Oliver (1994) maintain that all organizations (business, government, and education) are both product- and service-oriented, which makes the assessment of customer satisfaction a difficult and daunting task. Each of these organizational types has three measurable components; firstly, the physical product itself, secondly, the service environment, and lastly, the service delivery system. Because education is both a.product as well as service-producing, a demonstration of rating will have to focus on each of the three categories (Weller, 1996). Babakus and Boller (1992) describe that the difficulties of defining and. delimiting quality as it applies to intangibles and the measurement of service quality in specific service industries still remain a challenge. Parasuraman and his colleagues (1993) had initiated work on how to measure service quality across a broad spectrum of services. The service quality therefore is an elusive variable of education quality measurement mainly because of the unique features that differentiate services from goods. The authors (Parasuraman et al) conceptualize service quality to be a five dimensional construct consisting of tangibles, reliability, responsiveness, assurance and empathy. From a review of the services marketing literature, the service qualitY variables have been identified. Gronroos (1984) and Siraj (1999) point out corporate image as an important quality indicator for customers. Reputation is described as the consistency of an organization's actions over time (Herbig et aI, 1994). Hart (1988) explains that the reputation of a service firm is built through the credible actions of management. Therefore, reputation is closely tied to image in that it affects customer expectations with regard to the quality of the service offering. Bitner et al (1990) report that the human interaction component has an important effect on the customer's evaluation process with regard to the service offering by any organization. The performance of contact personnel during personnel-customer interactions which take place during Management

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312 Service Quality in Education: An Exploratory Study

service delivery are important indicators of quality (Heskett, 1987). In this context, Cannon and Sheth (1994), and Shah (1996) stress the iI1!Portance of building and maintaining relationship quality with the various stakeholder groups which interact with the organization. Ward et al (1989) explain that in the studies of faculty office designs, for example, students' belief about the persons occupying the offices and their personality traits were found to be influenced by such cues as degrees or certificates on the wall, .tidiness of the office and desk placement. Physical layout has, therefore, a strong influence on employee motivation and the quality of the service encounter. Shetty (1988) proposes that management should convince the faculty that concern for quality is part of their job and all contact personnel should be involved when setting goals and quality standards for the institution. Berry (1998) emphasizes that teamwork is to be considered as the primary element of the quality management approach to quality organiZeltions and represents the organizational structure on which the quality improvement process is based. Coate (1990) suggests that, for administrative personnel, management should start by setting quality standards for processrelated variables such as course registration, maintainence of records related to students and academic rules and regulations, which are easier to manage than the academic delivery of service. The related literature on quality service also addresses the role of leadership in the development of quality culture which ensures that the services provided by the organization meet or exceed the requirements of the customers of the organization. The importance of developing a shared vision in the implementation of quality management is very important and a primary responsibility of organization leaders (Quiqley, 1996; Hamid, 1999). Similarly, there is emerging evidence that leadership is a significant factor in the development of quality organizations (Blanton, 1991; Eddy et aI, 1998). Meanwhile, the heads of the educational institutes should be the first to be concerned about quality service and its importance not .only in managing institutes and the classrooms but equally importantly, to find out ways to facilitate learning, the core concern of the academia. The review of the available literature provided. the basis for an exploratory study of service quality in an educational setting. Its purpose is to identify the significant dimensions used by students in their evaluation of the quality of education they received and to determine the importance of these dimensions in the students' evaluation process. Management

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SURVEY METHODOLOGY Consequent to review of literature pertinent to quality service in an educational setting, interviews held with seven focus groups with a total of 42 students, provided the basis for developing the questionnaire used in this exploratory research. Students from graduate degree programmes were the source for generating items of the research instrument on how academic institutes can improve the quality of the services they impart to their students. Moreover, the students as respondents of both sexes were .selected through convenience sampling for the survey. The questionnaire contained 34 items corresponding to different dimensiorts of service offerings by the educational institutes. The items included in the research instrument were identified by the students. The items were measured on a 5-point scale, similar to the Likert scale, that varied from a score of I indicating "much worse than expected" to a score of 5 indicating "much better than expected." Each item of the questionnaire was assigned unit values of 1 through 5. The sample size for the questionnaire comprised 248 students from 14 educational institutes which offer graduate and postgraduate degree programmes. Students were asked to rate the degree of the quality of the services offered by the institute corresponding to their expectations on the 34 variables concerning service. The sampling, however, yielded 223 usable questionnaire responses. The reliability checks of the items of the questionnaire were pretested with a group of 21 students in a pilot run. To estimate the reliability of items by split-half procedure based on the full length responses, the Pearson Product-Moment Correlation Coefficient (r) between the odd and even values of each item of the pilot run was computed, which showed a correlation of 0.91. Reliability on full test was 0.95 through the Spearman-Brown formula. The variables therefore, for each dimension, were considered acceptable. FINDINGS Five dimensions have been used: Dl (Image and Reputation), D2 (Faculty), D3 (Administration and Responsiveness), D4 (Currculum Design and Delivery and D5 (Physical Layour and Facilities). Each dimension comprises a cluster of variables with a total of, as indicated earlier, 34 Management

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314 Service Quality in Education: An Exploratory Study variables. A score of' I' indicated "much worse than expectation," while a 'score of 5 indicated "much better than expectation." Scores have been given at the end of each dimensional head. The scores indicate the percentage of students who scored the highest on each di.mension. Table-l Dimensions (D)

Cluster

of Variables

D1 Image and Reputation

Institute is innovative Institute's culture and values Involvement in the community institute serves Degree to which curriculum is up-to-date Administration has students' best interests at heart Score

Variable

D3 Administration and Responsiveness

3 4 5 3 4 5

3 4 5

2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4

Availability of Administrative Staff I 2 1 2 Friendly and courteous personnel Capacity to solve problems 2 when they arise Personnel has a good knowledge 2 of rules and procedures 2 Appearance of personnel Students are informed promptly 2 of changes 2 Registration is timely and smooth 2 Records are kept accurately

& Change,

5 5 5 5 5 5 83%

3 4 5 3 4 5 3 4 5 3 4 5 3 4 5 3 4 5 3 4 5 3 4 5 81%

Score

Management

2 2

Valued by%

86%

Appearance of teachers Teachers are friendly and caring Teachers conduct 'research Courses are well taught Teachers are innovative & creative Institute retains quality faculty Score

D2 Faculty

Volume 5, Number 2 (Winter

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Mahmood 315 Table-I contd ... Dimensions (D)

Cluster

Orientation of programmes Awareness of course content Number of courses offered Course objectives are known to students Evaluation and taught content correspond Given course outline is followed

Curriculum Design and Delivery

of Variables

Variable

Valued by%

2 3 4 5 2 3 4 5 2 3 4 5 2 3 4 '5 2 3 4 5 2 3 4 5

Score D5 Physical Ll.yout and Facilities

80%

Layout of the campus Classrooms are comfortable Lighting in classrooms' Appearance of building and grounds General cleanliness of the campus Atmosphere of the institute Availability of parking Access to computer facilities Access to common rooms Score

2 3 4 5 2 3 4 5 2 3 4 5 2 2 2 2 2 2

3 3 3 3 3 3

4 4

5 5 4 5 4 5 4 5 4 5 76%

Dimension 1 (D 1), image and reputation of the institute, consists of innovation, institutional culture and institute's contribution to the community. The image dimension gained maximum percentage value (86 percent). This factor relates to the institute's capacity to position itself in the minds of its students and is closely associated with the image projected by the institute. Reputation is related closely to the institute's corporate image, and image is described as a significant determinant of perceived service quality by Gronroos (1984), Lethinen and Lethinen (1982) and Herbig et al (1994). The results of this study suggest a significant relationship between perceived quality and reputation through the institute's degree of innovation, updation, involvement with the society and serious concern for students' need. Since image is built through the credible actions of the institute, management should therefore set quality standards for all compoManagement

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316 Service Quality in Education: An Exploratory Study

nents of the service delivery system of education to ensure that students' expectations are met. In order to create a positive image, management of the institute should foster liaisons with prospective employers, research agencies, government bodies, alumni ana dignitaries. This study recommends that since a strong image of the institute needs to be built, every employee of the institute should ensure that every step is taken to promote and maintain institutional standing in the community the institute serves. The second dimension of service quality is related to faculty. This dimension (D2) consists of items which are related to the outlook of a professor, performance of the faculty members and their relationship with the students. In fact, contact with the faculty is perceived by the students as the second most important factor to measure quality service of academia. This dimension was valued at 83 percent. The contact of faculty with students is proposed as an important quality indicator by Surprenant and Solomon (1985) and Crosby et al (1990). It is evident that personal contact of the facl,llty members and ability of the faculty are important factors which inspire trust and confidence among the students. The classroom needs to be a stimulating place for students, which is a function of the quality of teachers (Sawyer, 1997). Moreover, caring attitude of the faculty towards their students may also influence quality service provided by the institute. Results of the study, therefore, reveal that faculty have a direct impact on perceptions of quality. This study suggests that faculty members should realize that concern for quality is part of their job. Faculty members should therefore enhance their professional qualifications, attend training courses, learn effective teaching methodologies. Moreover, management should prepare teaching manuals which outline quality standards to be adhered to in delivery of service to the students. The third important factor of service quality as perceived by the respondents was the attitude of the administration towards the students. This dimension which gained the value of 81 percent, is concerned with management's ability to provide personal attention to students in a professional and caring manner. Good listening skills is another important attribute. Parasuraman et al. (1991) reported similar results. For administrative personnel, management should start by setting quality standards for the service core, related to processes and proceManagement

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Mahmood 317

dures. Students must be familiar with the academic rules and regulations through participants' handbooks, notifications and orientation programmes. Treating students with dignity by the administrative staff gives a positive signal that students are valued. This study agrees with the research conducted by Madden (1997) which concludes that students deserve to be managed through the use of strength rather than toughness. Projecting a non-caring attitude brings out the negative traits in students. The fourth dimension, curriculum, involves variables related to faculty's capability to design schemes of study which meet students' needs. Awareness about breadth and depth of the curricula have a direct bearing on the institute's quality service. The findings of this study support prior research (Pennycuick, 1998) in the area of school effectiveness, specially, the impact of awareness about the courses to be studied and students' achievement. The fifth dimension (D5), physical layout and access to facilities, has been identified as a potential determinant of service quality in an education setting. This research finds support from earlier research (Mwamwenda and Mwamwenda, 1987) which argues that school facilities are integral to academic achievement. This dimension represents variables which explain the tangible factors associated with the institute's service delivery system and access to its facilities available for the students. In addition, since sfudentsexperience the services available to them in the campus and in the classrooms, students, therefore, can suggest improvement in the facilities. Management should realize that the institutional climate has a direct influence on students' satisfaction level. Hence, attention must be paid to appearance of the institute to ensure that students feel comfortable in the physical environment made available to them. In fact, physical environment and access to facilities speak about the institute's intention and capacity to offer services in a professional and organized manner. CONCLUSION The findings in this study indicate that service quality is derived mainly from image, a dimension which is closely related to management's capacity to enhance the institutional climate and ambience, directed at serving the needs of its students and to the reputation of the educational institute. Management

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318 Service Quality in Education: An Exploratory Study Faculty and administrative staff, through their personal attention to students in a professional and caring manner, also influence quality. Other factors such as curricula, physical layout and access to facilities are also significant quality factors. Accordingly, analyzing quality service perceptions for different segments can help management in the formulation of . strategies which will help to implement steps to meet the specific expectations of the students of the academia.

REFERENCES Babakus, E. and G. Boller (1992) "An Empirical Assessment of the SERVQUAL Scale," Journal of Business Research, 24. Berry, G. (1998) "A Quality Systems Model for the Management of Quality in NSW Schools," MCB Managing Service Quality, 8(2). Bitner, M. 1., B. Booms and M. S. Tetreault (1990) "The Service Encounter: Diagnosing Favourable and Unfavourable Incidents," Journal of Marketing. 54. Cannon, 1. P. and 1. N. Sheeth (1994) "Developing a Curriculum to Enhance Teaching of Relationship Marketing," Journal of Marketing Education, Sum-

rrer. Coate, L. E. (1990) "TQM at Oregon State University," Journal for Quality .and Participation, 13. Creemers, B., T. Peters and D. Reynolds (1989) School Effectiveness and School Improvement. Rockland, Massachussette: Swets and Zeitlinger. Eddy, 1. P; (1998) "Retaining Quality Students and Faculty: The Need for Refined Higher Education, Leadership Policies and Procedures," The College Student Journal, 32(2). Glasser, W. (1992) The Quality Schools. New York: Hall'~r Collins. Government of Pakistan (1998) National Education Policy-20 I O. Islamabad: Ministry of Education. Gronroos, C. (1984) "A Service Quality Model and its Marketing Implications," European Journal of Marketing, 18. Hamid, R. Q. (1999) "Academic Institutes and ISO 9000 Certification," The Dail.y Dawn, June 18. Hampton, G. (1993) "Gap Analysis of College Student Satisfaction as a Measure of Professional Service Quality," Journal of Professional Service Marketing, 9. Hart, C. (1998) "The Power of Unconditional Service Guarantees," Harvard Business Review, 66. Hawes, H. and D. Stephens (1990) Questions of Quality: Primmy Education and Development. New York: Longman. Herbig, P., 1. Milewicz and 1. Golden (1994) "A Model of Reputation Building and Management

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Destruction," Journal of Business Research, 31. Heskett, 1. L. (1987) "Lessons in the Service Sector," Harvard Business Review, 87. Madden, L. E. (1997) "A Call for Strength: How to Manage Students for a More Caring Society," Education, 118(2). Mwamwenda, T. S. and B. B. Mwamwenda (1987) "School Facilities and Pupil's Academic Achievement," Comparative Education, 23(2). Parasuraman, A., L. Berry and V. Zeithaml (1993) "More on Improving Service Quality Measurement," Journal of Retailing, 69. Pennycuick, D. (1998) School Effectiveness in Developing Countries: A Summmy of the Research Evidence. London: Department for International Development. Quiqley, 1. V. (1996) "Vision: How Leaders Develop it, Share it, and Sustain It," in The Quality Year Book-I996. New York: McGraw-Hill. Raudenbush, S. W. and 1. D. Willirns (1991) Schools, Classrooms and Pupils: International Studies fi"om a Multilevel Perspective. New York: Academic Press. Rehman, I. (1998) "Quality Education and Society," The Daily Dawn, June 30. Rust, R. T. and R. L. Oliver (1994) "Service Quality: Insights and Managerial Implications from the Frontier," in Service Quality: New Directions in TheOlY and Practice. New York: Sage. Sawyerr, H. (1997) "Quality Education: One Answer for Many Questions," The Progress of Nations-I 997, New York: UNESCO. Seymour, D. T. (1992) On Q: Causing Quality in Higher Education, Ne~ York: Macmillan. Shah, R. A. (1996) "Total Quality Management and the Universities," The Daily Dawn, April 20, 1996. Shetty, Y. K. (1988) "Product Quality and Competitive Strategy," Business Horizons, Spring. Siraj, A. H. (1999) "The Rationale for Acquiring ISO-9001 Certification ofPAF Air War College," The News, November 15,1999. Weller, D. Jr. (1996) "Return on Quality: A New Factor in Assessing Quality Efforts," The International Journal of Educational Management, 10(1).

Management

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2 (Winter

2001)

MULTI-INDEX CAPITAL ASSET PRICING MODEL: THE MALAYSIAN CASE

Ch'ng Huck Khoon

G. S. Gupta

The study uses monthly returns data on 213 stocks listed on the main board of the Kuala Lumpur Stock Exchange (KLSE), Malaysia for the period September, 1988 to June, 1997 to investigate whether the cross-sectional variations of stock returns are sufficiently accounted for and explained by the multiindex CAPM. The study has been conducted along the lines of Abdul Ghani Shafle (1994) and Fama and MacBeth 's (1973) two-step regression technique. Two specifications of the mufti-index CAPM are attempted. The results favour the multi-index CAPM over the single index CAPM, and suggest positive roles for earning per share and Dow Jones indices and negative influences of market capitalization and KLSE composite index in explaining the crosssection variations in stock returns.

INTRODUCTION

Pidchanges in technology and globalization of the security industry have had a significant impact on the conduct of business in alaysia. The Kuala Lumpur Stock Exchange (KLSE) has introduced the concept of Universal Brokers in early 2000 A. D. The ultimate objectives have been to strengthen the stockbroking industry, create a group of well-capitalized stockbrokers and prepare them to face the challenges of liberization and globalization. KLSE has even introduced a new system for the commission-a fully negotiable commission on all trades by early 2002, in order to foster competition within the region. The Securities Industry Development Centre (SIDC), the education arm of the Securities Commission (SC), the regulatory body, has introduced the Continuing Professional Education (CPE) for all its licensed dealers in early 2001. This is expected to raise the standard of market participants through enhancement of skills, professionalism and awareness among the various market participants. Management & Change, Volume 5, Number 2 (Winter 2001) ~ 2001 Institute for Integrated Learning in Management. All Rights Reserved.

312 Multi-Index Capital Asset Pricing Model: The Malaysian Case Mohamed Ariff, Shamsher Mohamad and Annuar Md Nassir (1998) suggested several areas in the KLSE worth further investigation. The al!thors noted that even though the CAPM (single-index model) and Arbitrage Pricing Theory (APT) (multi-index model) have been widely applied in professional and academic training, the '~ideas have not been tested in the Asia Pacific market places except in a few cases" (ibid). They also drew attention to the fact that "while the testability of the CAPM has been questioned, nothing stands in the way of testing if the systematic measure of CAPM is a pricing factor ... or of testing the relevance of APT to identify the factors associated with pricing securities in the region" (ibid). In summarizing the need for additional empirical work, the authors observed that "a useful agenda of research is to examine the relevance of the theory-suggested factors for pricing of securities in this region" (ibid). The issue of cross-sectional variation in stock returns has traditionally been investigated under the framework of the capital asset pricing model (CAPM), single-index model. The model predicts a positive relationship between beta (13) and return. Although the single-index CAPM was found by Fama and MacBeth (1973) to be important in explaining return behaviour, subsequent works suggest the contrary. It is common knowledge that the model has been found to be afflicted by several problems generally referred to as "anomalies" such as its inability to account for differences in return between small and large firms (size effect); its inability to account for differences in return across days of the week (week-end effect); months of the year (January effect); and differences in return due to analysts' differences (neglected firm effect). In view of these anomalies, Ross developed an alternative model in 1976, which came to be known as the Arbitrage Pricing Theory (APT). Fama and French (1992) have adyanced that the company-specific variables, like the firm size and ratio of book value to market value enjoy larger impact than the beta on stock returns. While the APT concentrates on the macrofactors, the multi-index CAPM uses both the macro- as well as microfactors in explaining the variations in stocks' returns. In both the models, the higher the risk, the higher is the expected return. The objective of this study is to gauge the extent to which (within the context of the single-index CAPM) the variables other than the market beta have a role in explaining stock returns on the KLSE. Thus, the study sets out to investigate the following research question: "Is the multi~index Management

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version of the single-index CAPM useful in explaining the cross-sectional variations in returns?" LITERATURE

REVIEW

The last three decades have seen a plethora of empirical evidence on the capital asset pricing model. One of the early tests of the single-index CAPM can be found in the works of Douglas (1968) who adopted the methodology suggested by Lintner (1965). This involved the use of time series data to estimate betas of individual stocks, and using the data so obtained to conduct a cross-sectional test. Douglas' results conformed fully with the prediction of the theory, confirming the expected positive relationship between beta and return. While Douglas' work has contributed towards confirming the validity of the single~index CAPM, it was flawed in at least one important respect: The study did not attempt to estimate the model via the portfolio approach. Instead, the estimation was based upon individual stocks. Blume (1970) has shown that the betas of individual stocks are highly unstable while those of portfolios of stocks are fairly stable over time. To avoid this error of variables' problem, he suggested the portfolio approach for testing the asset pricing models. Black, Jensen and Scholes (1972) used monthly New York Stock Exchange data. They were the first to undertake an empirical test of the single-inclex CAPM. They constructed portfolios based on the ascending order of beta. The beta obtained in the previous period was then used as the independent variable in the cross-section regression. The authors reported results that confirm the basic thesis of the single-index CAPM. Another landmark article on the single-index CAPM was that of Fama and MacBeth (1973)~ Fama and MacBeth used monthly return data on all common stocks listed on the New York Stock Exchange for the period January, 1926 to June, 1968.To avoid the Blume problem, they worked through portfolios. Also, they used the overlapping sample to minimize the loss of degrees of freedom caused by portfolios over the stocks. They adopted an entirely new estimation procedure that involves two steps. The results supported the single-index CAPM. In a recent study, Fama and French (1993, 1995), have tried to interpret Merton's (1973) proxies for the unobservable variances and have come out with the Three-factor Model. They find that three factors (the market index, the small-minus-big and the high-minus-low book-to-marketManagement

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324 Multi-Index Capital Asset Pricing Model: The Malaysian Case'

ratio portfolio returns) best explain the cross-sectional variations of US equity returns. While raising the issue of whether CAPM is a redundant concept by now, Jagannathan and Wang (1993) argue that the assumptions used by Fama and French (1992) are not reasonable. They show that when human capital is included in the measurement of wealth, the multi-index CAPM is able to explain 28 percent of the cross-section of average returns. When, in addition, betas are allowed to vary over the business cycle, the multi-index CAPM is able to explain 57 percent of the results. Pettengill, Sundaram and Mathur (1995) use monthly returns data from the New York Stock Exchange common stocks for the period January, 1926 to December, 1990.They argue that the previous studies have ignored this conditional relation and have therefore arrived at misleading results such as those reported by Fama and French (1992). By the term conditional relation, they mean that the positive relationship between return and beta is subject to the condition that the market return exceeds the risk-free rate. They suggest that the beta be estimated separately for periods of positive and periods of negative realized excess market return. Using this approach, they find that the single-index CAPM is alive and healthy. From the foregoing review, it is clear that the evidence for the singleindex CAPM has been mixed. While some studies have confirmed the predictions of the theory, others have reported evidence against it Thus, the picture is not very coherent, and more work on multi-index models such as multi-index CAPM and APT is needed in order to.try to unravel the exact picture. Elton and Gruber (1988) show that by employing a multi-index model (e.g., APT) rather than a one-index model allows the creation of an index which is more closely related to the desired index. One of the advantages of the multi-index model is that it can be simplified and used just as the single index model. Empirical research on the multi-index models has grown since the pioneering work of Ross (1976). Broadly speaking, there are two major approaches to testing the APT or multi-index CAPM. The first assumes that the factors explaining returns are unknown, hence factor analysis is applied (Roll and Ross, 1980; Cho, Elton and Gruber, 1984, 1988, 1989; Connor and Korajczyk, '1986; Elton and Gruber, 1988, 1989). The second assumes that the factors are known beforehand so that the two-stage regression approach of Fama and MacBeth is applied straightforwardly (Sharpe, 1982; Grinold and Kahn, 1994). Management

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Khoon and Gupta 325 Roll and Ross (1980) in their classic study of APT, applied factor analysis to 42 groups of 30 stocks using daily data for the time period July, 1962 to December, 1972. They fihd at least three factors that are significant. Cho, Elton and Gruber (1984) repeat the Roll and Ross methodology, and find further factors which are significant. They then simulate a set of data using the zero beta (single-index) CAPM while utilizing the same means and variances on the returns for each stock that' were present in the original data. The number of factors that are found to be significant is consistent with the zero beta (single-index) CAPM. Connor and Korajczyk (1986) provide a test of multi-index modeling using the asymmetric principal components technique proposed by Chamberlain and Rothschild (1981). They find that with five factors, they can explain the extra return on small firms and in January; the inference is better than the single-index CAPM based on a value-weighted index. For Japan, Elton and Gruber (1988, 1989) find that a five-factormulti-index model does a better job of explaining and predicting expected returns than does a single-index CAPM. Fama and French (1993) specify a set of portfolios (which mayor may not include the market portfolio) which are thought to capture the influences affecting securities' returns. These portfolios are selected on the basis of a belief about the types of securities and/or economic influences that affect security returns. The bases are: â&#x20AC;˘ Difference in return on a portfolio of small stocks and large stocks (small minus large). Difference in return between a portfolio of high book to market stocks and a portfolio of low book to market stocks (high minus low). â&#x20AC;˘ Difference between the monthly long-term government bond return and the one-month treasury bill return. Difference in the monthly return on a portfolio of long-term corporate bonds and a portfolio of long-term government bonds. Fama and French (1993) have tested the model in a number of timeseries estimates. They conclude that "at a minimum, our results show that five factors do a good job in explaining a) common variations in bond and stock return and b) the cross-section variation of average returns." The multi-index model by itself is completely silent with respect to the identity of the factors in the factor structure that are priced. Dhrymes, Friend and Gultekin (1984) find that as the number of securities included in the factor analysis increases from 15 to 60 the number of significant Management

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326 Multi-Index Capital Asset Pricing Model: The Malaysian Case

factors increases from 3 to 7. They further suggest that the factors identified within any sub-group of a sample may not be the same as the factors identified in a second sub-group. Krishnamurthy (1982) finds five factors in his study. Trzcinka (1986) finds that there is no obvious way to choose the number of factors; however, the first five factors are more distinct. Jeyasreedham (1989) finds that there are four common factors that determine the returns in the KLSE. Connor and Korajczyk (1993) find evidence for one to six factors in the NYSE. Blin (1999) employs around two dozen factors for Advanced Portfolio Technologies (APT) software.

METHODOLOGY The motivation for the investigation into the multi-index CAPM is that there may be several factors that explain the cross-sectional variations in returns. The hypothesis to be tested in this study may be stated as "the risk exposures of KLSE securities to changes in the domestic portfolio proxied by KLCI, world portfolio as measured by the Dow Jones Industrial In,dex, company size (net book value or market capitalization), earnings per share, and dividend yield have a significant explanatory power on the cross-sectional variations in stock returns in the KLSE." The Data Month-end KLSE data were obtained from Pusat Komputer Professional (PKP), a company based in Pahang. The database contains daily closing prices, daily highs and lows and volume of transactions. Adjustments were made to take into account stock splits, rights and dividends. The sample selection criterion was that only companies listed before September, 1988 are taken, thereby excluding Second Board companies. All companies meeting this criterion were selected. The sample included in this study comprises 213 companies whose data are available for every month of the period of study between September, 1988 and June, 1997. Company-specific data were obtained from various issues of the Bank Negara Report and KLSE publications.

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The rate of return of the security i was calculated as follows:

R=lJ

(1)

P;(r-l)

Where R..t P.,t

= =

the rate of return of the security i at time t the closing price of security i at time t

Choice of Variables In the multi-index CAPM model, the company-specific variables are added to the market index of the single-index CAPM to make it a multi-index CAPM. Since most of the researohers find three to six factors are significant in their studies, this study therefore uses five factors for the estimation. Two alternative multi-index CAPM models are estimated. I~ all respects, the two models are the same except that in the second model, the independent variable of net book value used in the first model is replaced by market capitalization used in the second. Most earlier studies have used market capitalization but, in practice, many investors are keen to know about the net book value of companies before investing in their stocks. Thus, this study, unlike most earlier studies, considers also the net book value. The problem, however, is that net book value as a measure of size, may correlate highly with market capitalization. This necessitates the estimation of the two separate models, one containing market capitalization and the other containing, among others, net book value. Before going into the detailed methodology, a brief justification has been given below for the choice of the independent variables. There are six independent variables contained in the two multi-index models. The two models each have five independent variables as, in both cases, one of the six independent variables is not included for reasons explained in the previous paragraph. The six' independent variables are: Returns on the KLSE Composite Index (KLSE CI), returns on the Dow Jones Industrial Average, percentage change in market capitalization, percentage change in EPS, percentage change in divided yield, and percentage change in net book value.

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328 Multi-Index Capital Asset Pricing Model: The Malaysian Case

KLSE Composite Index (KLSE CI) The return in the KLSE CI is used as a proxy for the market portfolio. In theory, the market index should comprise all assets. But in practice, only a proxy is employed. The KLSE CI is considered the best proxy for our purposes because the EMAS i~dex (all share index) came into being only in the 1990s, while the sample for this study begins in 1988. The coefficient for the risk arising from the variations in the KLSE was expected to be positive.

Dow Jones Industrial Average The Dow Jones industrial average is also included in the model because the index is the most closely followed index among the hard-core stock mdices such as the Nikkei and the Hang Seng. It is employed as a proxy for the world market. Because of the growing levels of globalization. in which investment flows across borders with relative ease, it is expected that positive events in the Dow Jones may, during normal conditions, be transmitted to other markets such as the KLSE. Also, negative events in the Dow Jones may also get quickly transmitted to the KLSE during normal conditions. Thus, the risk arising from variations in the Dow Jones is expected to have a positive coefficient.

Market Capitalization Market capitalization is a measure of size. Previous studies have included a measure of size to ascertain whether there are differences between small and large firms. In theory, small firms have been found to have higher returns than large firms. Thus, the coefficient of risk arising from changes in size is expected to be negative.

Net Book Value Net book value is also employed as a proxy for size. That is why the two measures of size cannot all be used in one regression, hence necessitating two regressions, each of which contains either of the two measures of size. Many studies in the west have stressed the Importance of smaIlfirm effects as an important irregularity; for example, Basu (1977), Management

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Reinganum (1981) and Banz (1981) have shown that an important weakness of the single-index CAPM is its inability to explain firm-size effect. The issue of firm-size effect has also been investigated in the Malaysian context by Mansor Md. Isa and Ong Yew Jin (1992). However, Mansor and Ong did not conduct an explicit test of the multi-index model, so the exact effect of the firm size is unclear from their study. For the New York Stock Exchange, the effect of firm size has been investigated by Chan, Chen and Hsieh (1985) under the framework of the multi-index model. The failure of the single-index CAPM to explain the firm"size effect and the shortage of local research investigating its effect within the framework of the multi-index model is the main motivation for our choice of this variable in the tests for the multi-index CAPM. Earnings

Per Share

Earnings per share is included as previous studies have found share price to respond to changes in earnings. It is expected that risk arising from changes in earnings per share would have a positive coefficient because, ceteris paribus, the higher the earnings per share, the more likely it is that investors would make an investment in a particular stock. Dividend

Yield

The effect of dividend yield on stock returns has also received attention in recent years; for example, Keirn (1985) has explored the relationship between dividend yield and stock returns. His study follows closely that of Blume (1975) who finds a positive yield effect. Miller and Scholes (1982) argue that the yield-related effects associated with short-term definitions of dividends are due to information biases and not taxes. Keirn's study was aimed at furthering an understanding of the yield effects. His results indicate that yield effect occurs in January and that when January is excluded, the yield effect disappears. The rationale for the inclusion of dividend yield is due to the differentials in tax rates on capital gains and dividend income. The higher marginal tax rates of dividend income versus capital gains should make taxable investors prefer a dollar of pre-tax capital gain to a dollar of dividends. Brennan (1970) shows that dividend yield, when incorporated into a multi-index model, can perform better than the single index model. Given Management

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33e Multi-Index Capital Asset Pricing Model: The Malaysian Case

the conflicting findings on the effects of dividend yields, there is perhaps the need for a re-examination of this effect in the Malaysian context. Hence we have incorporated the choice of dividend yield as an explanatory variable in the multi-index model.

THE MULTI-INDEX CAPM The multi-index CAPM is specified in two forms as follows: Model I:

Rj = Pjo + Pj1 KLClj

+ Pj2DOWJONE

+ Pj4EPSj +PjsDIVYILI)

+ Pj3NETB004

+ 5j

(2)

Model 2:

Ri = P jO + Pjl KLCI j + P j2DOWJONE

+ Pj4EPSj+ Where R b KLCI DOWJONE NETBOOK MKTCAP EPS DIVYILD )

Pj5DIVYILDj

+ P j3MKTCAP j

+ 5j

(3)

return on the sectoral index risk estimates obtained for factors percentage change in KLSE composite index return on Dow Jones Industrial Average. percentage change in net book value percentage change in market capitalization .percentage change in earning per share dividend yield

The estimation of the multi-index CAPM procedure has been explained next. The data were divided into two sub-periods, the first covering the first 99 months and the second covering months 62 to 106. This is in the spirit of Fama and MacBeth (1973) and that of Abdul Ghani Shafie (1994). The Fama-MacBeth approach is preferred as it avoids the "error in variables" problem as indicated by Blume (1970). Under this method, the portfolios are formed on the basis of the beta values, the lowest beta stocks combined into portfolio 1, the second lowest beta Management

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Khoon and Gupta 331

stocks into portfolio 2, and so on, and the highest beta stocks being the last portfolio. The overlapping sample period is used to maximize the degrees of freedom without compromising on the quality of the estimates. We use a modified version of this method as applied by Shafie (1994), where the portfolios are formed on the basis of the sector groupings rather than the size of beta, while the other parts of the method remain the ,same as in Fama and MacBeth. The first sub-period is used to run a series of time series regressions to estimate equations 2 and 3 given above. In other words, 40 moving widows are formed with the first covering months 160, the second covering months 2-61, etc. until the fortieth, which covers months 40-99. For each window, the parameters of equations 2 and 3 are, estimated for each of the nine sectoral indices and saved for use in the second pass regressions. Thus, for each of the two forms. of the multi-index CAPM, 360 multiple regressions (i.e. 40 x 9) were run, giving a total of 1800 parameter estimates (i.e., 5 x 360).The choice of 40 windows was dictated by the desire of a good sample size so as to ensure quality estimates. In the second pass regressions, the returns of each of the nine sectoral indices were computed using 40 overlapping windows, with the first window.covering months 62-77, the second months 63-78, etc until the fortieth, which covers months 101-106. The cross-section regressions were then performed to obtain estimates of the following cross sectional equation:

Rj = Yo + yJJ, + Y2fJ2 + Y3fJ3 + y4fJ4

+ YsPs

(4)

Equation 4 is then estimated forty times each for the two forms of the multi-index CAPM. The first estimation uses data for the first window in the estimation stage as the independent variables, and the first window of the testing stage as the dependent variable. Thus, for each of the two models, 40 estimates of each of the parameters of Equation 4 are obtained. Since each of the gammas in Equation 4 is estimated 40 times for each of the two models, a t-test is calculated using the following formula in order to ascertain the significance of each of the parameters: t

Y, (5)

(J' Y;

,rn

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33-2 Multi-Index Capital Asset Pricing Model: The Malaysian Case FINDINGS The results for the multi-index CAPM begin with an examination of the correlations between stocks. This is important as it will help in shedding some light on the possibility of multi-collinearity, the presence of which can cause severe estimation problems. The correlation results are given In Table-I. Table-l Correlation Results for Variables used in the Multi-index CAPM OOWJONE

KLCI

-0.02 0.04 -0.02 0.00 -0.02

-0.14 0.12 -0.02 0.17

KLCI NETBOOK EPS MKTCAP DIVYIELD

NETBOOK

EPS

MKTCAP

0.07 0.21 -0,75*

0.00 0,00

-0.55

From the above table, it is noted that there is only one pair of variables (dividend yield and net book value) that appears to be significantly correlated at the I percent level (marked with an asterisk). Even in this case, however, the correlation coefficient is below 0.8. This means that it is likely that the multi-collinearity problem may not be too severe to warrant dropping of one of this pair of variables. Modell: The average results obtained from the 40 cross-sectional regressions are shown in Table-2. A number of observations can be made from this table. First, the R-square for the cross-section regressions is quite high, averaging 86.7 percent. Thus, taken individually, the R-square value indicates that the five betas of the first form of the multi-index CAPM explain a very high proportion of the variations in cross-sections of returns. The t-value for each of the parameters was computed and have been shown in Table-2. From the table, it is clear that, out of five, three t-ratios are significant at the 5 per cent level or better. The gamma for KLSE CI is significant and negative, and those of the Dow Jones and earnings per share are significant and positive. The size variable (net book value) Management

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Khoon and Gupta 333

and dividend yield do not have significant gamma estimates. It should be stressed that the gamma estimate of KLSE CI has an unexpe<;ted negative sign. This will be discussed further in a subsequent section. Table-2 Summary Test Results For The First Model Of The Multi-Index CAPM

KLCI

MEAN -0.0190 SID DEV 0.0504 N (WINDOW) 40 t-RATIO -2.3831

GAMMA ESTIMATES FOR DOW JONE MKTCAP EPS

0.2824 0.6726

-0.0011 0.0222

2.6557

-0.3133

DIV R YIELD SQUARE

0.0215 0.0393 40 3.4585

0.0064 0.0387

0.8673

40 1.0374

The results of the second specification are shown in Table 3. From the table, it is evident that the average R-square value is 0.85, which is again quite high by any standard. Thus, based on the overall explanatory power, the second form of the multi-index model also appears to perform well. However, the ultimate test of the model lies in the significances of the t-ratios. Looking at the results again in Table-3, it is clear that two out of five estimates of gamma are significant. The gamma estimate for the KLSE CI is significant but has the wrong negative sign. Similarly, the gamma estimate for size (i.e. market capitalization) is significant and negative. The remaining three gamma estimates do not have any reasonable significance: Dow Jones, EPS and dividend yield. Table-3 Summary Test Results For The Second Model Of The Multi-Index CAPM

KLCI

MEAN -0.0156 STD DEV 0.0442 N (WINDOW) 40 t-RATIO-2.2360

GAMMA ESTIMATES FOR DOW JONE MKTCAP EPS DIV R YIELD SQUARE 0.1798 0.6737 40 1.6877

Management

-0.0005 0.0015 40

-2.0516

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0.0022 0.0594 40 0.2368

0.0101 0.0566 40 1.1295

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334 Multi-Index Capital Asset Pricing Model: The Malaysian Case

The key point to note in the above results is that evidence is found in support of the multi-index CAPM. The model is found to have high explanatory power, although only four of the six variables have been found to be significant. How does this finding compare with those of earlier research? Using Fama and MacBeth's approach, Sanda (1999) in his PhD thesis finds evidence that there is a decisive rejection of the central plank of the single-index CAPM: a positive relation between return and beta. This study finds the same result. This is not surprising when we look closer at the KLSE CI. This study used the KLSE CI as the benchmark, and it is likely that other indices such as the EMAS index (all share index) could have led to different results. The choice of the KLSE CI was based on by the generally higher level of trading of its component stocks. The KLSE CI is a weighted average index of 100 stocks listed on KLSE and thet top 10 companies (market capitalization) account for about 57.5 percent movement of the KLSE CI (Table-4). Thus investors should be careful in interpreting the results of this study, given the aforementioned limitation. More empirical work is required to examine the extent to which alternative choices of market index affect the result. Table-4 KLSE Market Capitalization Analysis as at 30 June, 2001. Ranking

Company Name RM billion

Market Capitalization

1 2 3 4 5 6 7 8 9 10

TENAGA TELEKOM MAYBANK MISC PETGAS BAT SIME PBB COMMERZ GENfING COl\1PITE MAIN BOARD SECOND BOARD

27.184 27.182 24.228 12.843 10.982 9.922 9.210 8.617 7.104 6.162 249.38 378.50 15.57

Source: Investors Management

Digest, Mid July 2001.

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CONCLUSION Two specifications of the multi-index CAPM were estimated. This study showed that some of the coefficient estimates of the multi-beta CAPM turned out to be significant but, in some cases, with unexpected signs. The results showed that three variables in the first, and two in the second models were found to have significant explanatory power on the crosssectional variations in returns. In both the first and the second specifications of the multi-index CAPM, the risk arising from the variations in the composite index was found to be negatively related to stock returns. The implication of this for investors is that instead of being rewarded, they are in fact penalized for bearing risk arising from changes in the overall index. This implication is perplexing and worrisome because it runs counter to the conventional wisdom positing a positive relationship between risk and return. However, we find some comfort in the sign of two other variables, Dow Jones and EPS. In the first, specification of the multi-index CAPM, the risk arising from each of two variables has a positive coefficient, with the implication that investors are rewarded forbearing risk arising from developments in the international scene which are not captured by the composite index itself. This also implies that investors get compensated for bearing risk arising from changes in the earnings per share. These two sources of compensation for the risk borne by investors appear to dilute whatever adverse consequences the negative signs of the risk on the composite index might have. This study also finds market capitalization is negatively significant in the second model. This implies that investors who invest in smaller capitalization companies will be rewarded with larger risk-adjusted returns than stocks with larger market capitalization. The above conclusion is, of course, subject to our sample and our choice of the benchmark (KLSE CI). In particular, the results may not hold good for the second board companies and even for the post-Asian crisis of July, 1997 period. Thus, there is a lot of scope for further research in this area. REFERENCES Ariff, Mohamed, Mohamad Shamsher and Annuar Md. Nassir (1998) Stock Pricing In Malaysia. Kuala Lumpur: Universiti PutraMalaysia Press. Management

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200

336 Multi-Index Capital Asset Pricing Model: The Malaysian Case ing In Malaysia. Kuala Lumpur: Universiti Putra Malaysia Press. Banz, Rolf W. (1981) "The Relationship between Return and Market Value of Common Stocks," Journal of Financial Economics, vol. 9. Basu, S. (1977) "Investment Performance of Common Stock in Relation to Their Price-Earning Ratios: A Test of the Efficient Market Hypothesis," Journal of Finance, (32):3. Black, F., M.e. Jensen and M. Scholes (1972) "The Capital Asset Pricing Model: Some Empirical Tests," in Jensen (ed.), Studies in the Theory of Capital Markets, New York, Praeger. Blume, Marshall E. (1970) "On the Assessment of Risk," Journal of Finance, (26):1. Blume, Marshall E. (1975) "Betas and their Regression Tendencies," Journal of Finance, (30):3. ' Brennan, M. (1970) "A Note on Dividend Irrelevance and the Gordon Valuation Model," Journal of Finance, (26):5, December. Chamberlain, Gary and M. Rothschild (1981) "Arbitrage, Factor Structure, and Mean-Variance Analysis on Large Asset Markets," Working Paper, University of Wisconsin at Madison. Chan, K.C., N. Chen and D.A. Hsieh (1985) "An Exploratory Investigation of the Firm Size Effect," Journal of Finance, Vol. 14. Cho, D. Chinyung, Edwin 1. Elton and Martin l. Gruber (1984) "On the Robustness of the Roll and Ross Arbitrage Pricing Theory," Journal of Financial and Quantitative Analysis, (19):1. Connor, G and R. Korajczyk (1986) "Performance Measurement with the Arbitrage Pricing Theory: A new Framework for Analysis," Journal of Financial Economics, vol. 15. Connor, Gregory and Korajczyk, Robert A. (1993) "A Test for the Number of Factors in an Approximate Factor Model," Journal of Finance, vol. 48. Dhrymes, Pheobus l., Irwin Friend and N. Bulent Gultekin (1984) "A Critical Reexamination of the Empirical Evidence on the Arbitrage pricing Theory," Journet! of Finance, (39):2. Douglas, George (1968) Risk in the Equity Markets: An Empirical Apprelisal of Market Efficiency. Ann Arbor, Michigan University Microfilms, Inc. Elton, E. l. and M.l. Gruber (1988) "A Multi-Index Risk Model of the Japanese Stock market," Japan and the World Economy, (I): 1. Elton, E. J. and M. J. Gruber (1989) "Expectational data and Japanese Stock Prices," Japan and the World Economy, vol. 1. Fama, Eugene and J. MacBeth (1973) "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, vol. 71. Fama, Eugene F, and French, Kenneth R. (1992) "The Cross Section of Expected Returns," Journal of Finance, vol. 47. Fama, Eugene F. and French, Kenneth R. (1993) "Common Risk Factors in the Management

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Khoon and Gupta 337 returns on Stocks and Bonds," Journal of Financial Economics, vol. 33. Fama, Eugene F. and French, Kenneth R. (1995) "Size and Book-to-Market Factors in Earnings and Returns," Journal of Finance, Vol. 50. Grinold, Richard and Ronold Kahn (1994) "Multi Factor Models for Portfolio Risk," In A Practitioner's Guide to Factor Models, The Research Foundation of the Institute of Chartered Financial Analysts .. Jagannathan, Ravi and Wang, Zhenyu (1993) "The CAPM Is Alive and Well," Research Department Staff Report 165, Federal Reserve Bank of Minneapolis Jeyasreedharan, Nagaratnam (1989) "An Empirical Investigation of the Arbitrage Pricing Model on the Kuala Lumpur Stock Exchange," Unpublished MBA Dissertation, University of Malaya. Keirn, D.B. (1985)"A Further Investigation of the weekend effect in Stock Returns," Journal of Finance, (39):3. Kuala Lumpur Stock Exchange (1996) Investing In the Stock Market in Malaysia, Kualalumper: KLSE. Lintner, John (1965) "Security Prices, Risk, and Maximal Gains,From Diversification," Journal of Finance, (20):4.' Mansor Md Isa and Gng Yew Jin (1992) "The Performance of Malaysian Common Stocks in Relation to Their Price-Earning (PIE) Ratios and Market values," Malaysian Management Review, (27): 1. Merton, Robert (1973) "An Intertemporal Capital Asset Pricing Model," Econometrica, vol. 41. Miller, M.H. and M. Scholes (1972) "Rates of return in Relation to Risk: A Reexamination of Some Recent Finding:," in Jensen (ed.), Studies in the Theory of Capital Markets, New York: Praeger. Pettengill, G.N., S. Sundaram and I. Mathur (1995) "The Conditional Relationship between Beta and Returns," Journal of Financial and Quantitative Analysis, (30): 1. Reinganum, Marc R. (1981) "Empirical Tests of Multifactor Pricing Model," Journal of Finance, vol. 36. Roll, Richard and Ross, Stephen A. (1980) "An Empirical Investigation of the Arbitrage Pricing Theory," Journal of Finance, vol. 35. Ross, Stephen (1976) "The Arbitrage Theory of Capital Asset Pricittg," Journal of Economic Theory, vol. 13. Shafie, Ghani Abdul (1994) "The Effects of Common Economic Factors on International Equity Market, Capital Market Review Periodical, (2):2, KLSE and RIIAM. Sanda, A.U. G.S. Gupta and A.G. Shafie (1999) The Relation Between Risk and Return: An Empirical Test of the Capital Asset Pricing Model for Malaysia. Mimeo, Universiti Sains Malaysia Sharpe, William F. (1982) "Factors in NYSE Security Returns, 1931-1979," Journal of Portfolio Management, (8):2. Management

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MANAGEMENT OF WORKING CAPITAL: A COMPARATIVE STUDY OF INDIA, SINGAPORE AND THAILAND

P. K. Jain

Surendra S. Yadav

Working capital (WC) management is concerned with current assets (CAs). current liabilities (CLs) and their inter-relationship. WC management is a very vital aspect of corporate finance since. in the event of working capital being ill-managed. the viability of a company may be jeopardized. It is desirable that a company has neither inadequate working capital nor excessive amount of it. This paper examines the corporate practices in India. Singapore and Thailand in this very' important area. Secondary' data of 238 Indian. 86 Singaporean and 126 Thai companies have been analyzed. in addition to primary data obtained through a survey. The study reveals inter-alia that Indian companies have satisfactory levels of working capital. as reflected in their liquidity ratios. In the same manner. Singaporean companies are also wellplaced in meeting their short-term commitments in time. In contrast. a majority of Tllai companies does not have a comfortable position in honouring short-term obligations.

orking c.apital is referred to as the life and blood of a business firm. In the event of working capital being ill-managed, the flow of money gets choked, raw materials and supplies are interrupted, other dues and payments get delayed, clamour for clearance of outstanding obligations and commitment gathers momentum. All these may entail virtual stoppage of operations, jeopardizing the viability of the firm. While inadequate working capital has the potential to disrupt production and sales operations of otherwise well-run and well-managed firms, excessive working capital is equally unwarranted in view of its adverse impact on profitability. Hence, there is an imperative need for effective management of working capital. Working capital management is concerned with the problems that arise in attempting to manage current assets (CA), current liabilities (CL) and the inter-relationships that exist between them. The term current assets refers to those assets which in the ordinary course of business can

340 Management of Working Capital

be, or will be, converted into cash within one year or within the length of the operating cycle (whichever is more) without undergoing a diminution in value and without disrupting the operations of the firm. The major current assets are cash and bank balances, marketable securities, debtors and inventory. Current liabilities are those liabilities which are intended, at their inception, to be paid in the ordinary course of business, within a year, out of the current assets or earnings of the firm. The major current liabilities are creditors, short-term loans, bank overdrafts and outstanding expenses. The analysis is based on the secondary data of 238 companies of India, 86 companies of Singapore and 126 companies of Thailand, as also the primary data of 41 companies (28 from India, 10 from Singapore and 3 from Thailand) that responded to the survey. Indian companies have been divided into two categories, namely, domestic companies (DCs) and foreign controlled companies (FCCs). A foreign controlled company is the one in which foreign holdings (in percentage) are more than the share holding of any of groups such as financial institutions, corporate bodies, directors and relatives and the top 50 shareholders. The present paper presents aggregative analysis of CA and CL in terms of major liquidity ratios. It also provides working capital position (in terms 9f these ratios) pertaining to various industries. LIQUIDITY

MANAGEMENT

The importance of adequate liquidity to meet current or short-term maturing obligations as and when they become due for payment can hardly be over-stressed. In fact, maintenance of adequate liquidity without impairing profitability is the foremost requirement of sound and efficient working capital management. From this perspective, while excessive liquidity may be desired by the short-term creditors (as they are interested in the ability of the corporate firms to pay them in time), it may be undesirable or unwarranted to carry excessive funds on the part of corporate firms as such funds are either non-earning or earn very little. This apart, excessive liquidity may be indicative of slack management practices, as it might signal excessive inventories for the current requirements and poor credit management in terms of over-extended accounts receivables. At the same time, the firm may not be making full use of its current borrowing capacity. I Management

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JainandYadav 341 Corporate business firms should, therefore, maintain adequate liquidity in terms of "satisfactory" current ratio (CR) and acid-test ratio (ATR). What constitutes satisfactory level of these ratios depends on access to sources of funds and the ease with which these funds can be tapped in times of need. In general, a majority of the corporate firms in India have arrangements of short-term borrowings, say, in the form of bank borrowings or overdraft and cash credit limits from banks. Similar facilities are also in vogue in Singapore and Thailand. These facilities, then, should enable finance managers of corporate firms to operate on lower margins of working capital reflected in relatively lower current ratios, as well as acid test ratios (ATR)2. It may be worth mentioning here that, conventionally, current ratio of 2: I and acid-test ratio of 1:1 are considered to be satisfactory . While Table-l exhibits mean, median and quartile values of CR (based on year-end values) of the sample related to Indian corporate enterprises, the ATR measured on these parameters has been shown in Table-2. The segregated data on the domestic companies and foreign controlled companies in India for CR and ATR have been presented in Table-3 and Table-4 respectively. Data contained in Table-l and Table-3 indicate that both mean and median cUrrent ratio of the sample companies (DCs as well as FCCs) from the Indian private corporate sector have been less than 2: 1 for all the eight years (1991-98) of the study. Likewise, ATR has been lower than 1:1"in all these years (Table-2 and Table-4). Similar conclusions follow on the basis of quartile values for both sets of ratios. Thus, the empirical evidence supports the ex-hypothesi expectation stated above so far as the sample. from Indian corporate enterprises is concerned, that is, the firms opt for lower CR as well as lower ATR than the norm stated in literature. As per the trend also, virtually no change has been noted in respect of both types of ratios, the relevant mean figures pertaining to CR of Indian corporate enterprises being 1.50 and 1.49 for phase I (1991-95) and for phase II (1996-98) respectively. The median and quartile values, phase-wise, are also very close to each other. The corresponding ATR values are 0.56 and 0.59 for phase I and II respectively. Statistical 't' test further corroborates that there is no significant difference at 95 per cent level of confidence in CR and in ATR (Annexure-I) of the sample related to Indian companies during the period of the study. (Other 't' tests are also at 95 per cent level of confidence). Management

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Volume 5, Number

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2001)

342 Management of Working Capital Table-l Mean, Median and Quartile Values of Current Ratio of the Sample Pertaining to Indian Corporate Enterprises, 1991-98 Year

Number

Mean

Median

Quartile 1

Quartile 3

1991 1992 1993 1994 1995 1996 1997 1998

199 206 209 218 221 212 201 103

1.44 1.48 1.49 1.55 1.52 1.45 1.42 1.54

1.36 1.39 1.37 1.45 1.40 1.36 1.34 1.36

1.20 1.18 1.16 1.19 1.20 1.17 1.13 1.14

1.56 1.62 1.64 1.75 1.71 1.66 1.62 1.73

1991-95 1996-98 1991-98

224 220 225

1.50 1.49 1.53

1.39 1.36 1.40

1.18 1.17 1.19

1.65 1.68 1.69

Table-2 Mean, Median and Quartile Values of the Acid Test Ratio of the Sample Pertaining to Indian Corporate Enterprises, 1991-98 Year

Number

Mean

Median

Quartile 1

Quartile 3

1991 1992 1993 1994 1995 1996 1997 1998

200 205 208 219 222 211 203 53

0.46 0.49 0.52 0.59 0.73 0.54 0.59 0.66

0.42 0.45 0.47 0.51 0.49 0.49 0.46 0.54

0.27 017 0.29 0.31 0.31 0.29 0.31 0.39

0.58 0.62 0.62 0.71 0.72 0.67 0.70 0.83

1991-95 1996-98 1991-98

222 211 222

0.56 0.59 0.57

0.47 0.53 0.49

0.29 0.36 0.35

.0.66 0.75 0.69

The Indian corporate enterprises, inter-se, however, have manifested differences in both types of ratios. The FCCs have higher CR than Des (Table-3) in all the years covered by the study and this difference has been found to be significant as per 't' test (Annexure-I). Management

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Volume 5, Number 2 (Winter

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Jain and Yadav

Mean,

Year Domestic

median

343

Tabl~3 and quartile values of current ratio of domestic and foreign controlled companies in India, 1991-98 Mean

Number

Median

Quartile 1

Quartile 3

Companies

1991 1992 1993 1994 1995 1996 1997 1998

142 148 151 159 160 151 143 66

1.43 1.42 1.42 1.49 1.49 1.39 1.33 1.46

1.34 1.35 1.31 1.43 1.39 1.34 1.32 1.36

1.15 1.16 1.59 1.15 1.18 1.12 1.09 1.21

1.53 1.58 1.13 1.70 1.65 1.60 1.53 1.62

1991-95 1996-98

160 151

1.45 1.38

1.36 1.33

1.15 1.12

1.61 1.56

1991-98

160

1.43

1.35

1.14

1.60

Foreign Controlled Companies 1991 1992 1993 1994 1995 1996 1997 1998

57 58 58 59 61 61 58 37

1.46 1.63 1.67 1.73 1.61 1.58 1.63 1.7

1.46 1.49 1.44 1.49 1.43 1.37 1.54 1.50

1.25 1.33 1.30 1.33 1.24 1.20 1.2 1.15

1.64 1.73 1.84 1.96 1.78 1.88 1.90 2.08

1991-95 1996-98

61 61

1.62 1.63

1.47 1.47

1.28 1.19

1.77 1.95

1991-98

1.62

1.47

1.25

1.83

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344 Management of Working Capital

Table4 Mean, Median and Quartile Values of Acid Test Ratios of Domestic and Foreign Controlled Companies in India, 1991-98. Year

Number

Mean

Median

Quartile 1 Quartile 3

Domestic Companies 1991 1992 1993 1994 1995 1996 1997 1998

145 150 152 166 163 154 145 31

0.44 0.44 0.47 0.54 0.53 0.50 0.55 . 0.51

0.38 0.41 0.43 0.49 0.46 0.46 0.43 0.46

026 0.26 0.27 0.26 0.28 0.25 0.26 0.31

0.57 0.58 0.62 0.67 0.68 0.62 0.63 0.64

1991-95 1996-98

166 154

0.49 0.52

0.44 0.44

0.26 0.25

0.62 0.62

1991-98

166

0.50

0.44

026

0.62

Foreign Controlled Companies 1991 55 0.51 1992 55 0.61 1993 56 0.64 1994 53 0.75 1995 59 0.71 1996 57 0.67 1997 58 0.67 22 1998 0.87

0.50 0.54 0.56 0.61 0.55 0.56 0.58 0.75

0.35 0.42 0.40 0.44 0.41 0.37 0.41 0.48

0.64 0.77 0.79 0.84 0.88 0.81 0.91 0.93

1991-95 1996-98

59 58

0.64 0.67

0.56 0.56

0.40 0.40

0.78 0.84

1991-98

0.65

0.56

0.40

0.81

Similarly, the ATR has been observed to be significantly higher in respect of FCCs as compared to DCs during the entire period under reference and this difference has also been identified as significant (Annexure-I). Management

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Volume 5, Number 2 (Winter

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Jain and Yadav 345 Between ATR and CR, ATR is a more rigorous measure as it excludes inventories (considered to be the least liquid in the category of CA and pre-paid expenses which in fact are not available to pay CL). We, in our computations, have gone a step ahead and excluded debtors (outstanding for a period exceeding 6 months)3 in order to determine a more rigorous ATR both for DCs and FCCs separately (Table-5). The ATR (revised) values were considerably lower (0.29 for FCCs and 0.17 for DCs for the entire period of the study) than the initial ATR values for both types of companies (0.65 for FCCs and 0.5 for DCs). Inter-se, the ATR of FCCs was more than 1.7 times than that of DCs and found to be statistically significant, (Annexure-I). Table-5 Mean, Median and Quartile Values of Acid Test Ratio (Debtors Exceeding 6 Months) of Domestic Companies and Foreign Controlled Companies in India, 1991-98 Year Nwnber Domestic Companies 1991 146 1992 147 1993 152 1994 158 1995 154 1996 147 1997 162 1998 102

Mean

Median

0.12 0.13 0.14 0.17 0.22 0.18 0.22 0.20

0.09 0.06 0.08 '0.10 0.10 0.10 0.09 0.11

0.05 0.04 0.04 0.05 0.04 0.05 0.05 0.06

0.14 0.15 0.15 0.20 0.20 0.19 0.17 0.23

Quartile 1 Quartile 3

1991-95 158 0.17 1996-98 162 0.19 1991-98 162 0.17 Foreign Controlled Companies 1991 54 0.16 1992 56 0.25 1993 55 0.22 1994 58 0.30 1995 59 0.38 1996 59 0.31 1997 58 0.33 1998 45 0.33

0.09 0.09 0.09

0.04 0.05 0.05

0.18 0.17 0.18

0.08 0.13 0.15 0.16 0.15 0.15 0.15 0.17

0.05 0.06 0.07 0.07 0.08 0.08 0.08 0.06

0.17 0.33 0.30 0.30 0.33 0.32 0.33 0.33

1991-95 1996-98 1991-98

0.14 0.16 0.15

0.06 0.08 0.07

0.30 0.32 0.31

59 59 59

0.26 0.32 0.29 Management

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Volume 5, Number 2 (Winter

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346 Management of Working Capital In operational terms, the findings signify that the FCCs seem to be better placed vis-a-vis the DCs so far as their ability to meet short-term maturing obligations are concerned. However, both types of companies seem to be utilizing on cash credit limit facilities normally available from commercial banks to corporate business enterprises, in good measure. In contrast, liquidity position (as exhibited by CR and ATR) of Singapore corporate enterprises and Thai firms has been observed to be different as compared to Indian corporate firms. Data contained in Table6 comprise an eloquent testimony for the same. Table-6 Mean Values of Current Ratio and Acid-test Ratio of the Sample Pertaining to Singapore Corporate Enterprises (1991-96) and Thai Firms (1991-95) Number

Current ratio

Nqrnber

Acid-test ratio

43 53

76 79 42

1.84 1.73 1.80 1.69 1.70 1.73

50 55 70 75 41

1.21 1.16 1.13 1)1 1.14 1.22

1991-96

1.74

1.15

Thailand 1991 1992 1993 1994 1995

111 118 119 119 120

1.24 1.10 1.10 1.15 121

108 115 116 117 117

0.74 0.65 0.69 0.68 0.80

1991-95

124

1.16

122

0.71

Year Singapore 1991 1992 1993 1994 1995 1996

({)

Note: Extreme values (culTentratio greater than 5 and acid-test ratio greater than

3) have been excluded. For instance, the mean CR for Singapore corporate enterprises was 1.74 (ranging between 1.69 and 1.84) and mean ATR was 1.15 (range being 1.11-1.22) for the 6-year period (1991-96) covered by the study. Management

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Volume 5. Number 2 (Winter

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Jain and Yadav 347

Both these ratios (and in particuiar ATR) in respect of Singapore firms were considerably higher than those of the sample corporate enterprises from India. Similar conclusions follow on the comparison of median and quartile values related to these ratios of Indian and Singapore corporate firms (Table-7). Frequency distribution data pertaining to ATR (Table-9) provide further evidence on this. Besides, the vast majority of Singapore business firms had ATRs of more than one in all the years covered by the study. Likewise, a sizeable number of firms had CRs higher than two. Table...7 Median and Quartile Values of Current and Acid-test Ratio of Sample Related to Singapore Corporate Enterprises (1991-96) and Thailand (1991-95) Year

Median CR AlR

Quartile 1 CR AlR

1991 1992 1993 1994 1995 1996

1.53 1.47 1.47 1.59 1.46 1.58

1.00 1.03 0.98 1.08 1.05 1.12

1.23 1.14 1.17 1.21 1.24 1.33

0.74 0.76 0.80 0.86 0.79 0.89

2.29 1.88 2.17 1.85 194 2.14

1.49 1.31 1.25 1.32 1.43 1.53

1991-96

1.51

1.04

1.23

0.80

1.98

1.36

1991 1992 1993 1994 1995

1.07 0.98 1.07 1.04 1.04

0.59 0.53 0.58 0.57 0.57

0.79 0.71 0.68 0.66 0.66

0.37 0.35 0.36 0.37 0.38

1.34 1.29 1.35 1.43 1.51 '

0.98 0.79 0.92 0.85 0.93

1991-96

1.04

0.56

0.70

0.37

1.38

0.89

Quartile 3 CR AlR

Singapore

Thailand

Note: Extreme values (current ratio greater than 5 and acid-test ratio greater than 3) are excluded.

Management

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348 Management of Working Capital Table-8 Frequency Distribution of Current Ratio of Sample Related to Corporate Firms from Singapore, 1991-1996.

(Figures are in percentages) Current Ratio

1991

1992

1993

1994

1995

1996

(83)

(45)

(54)

(64)

(79)

Less than 1.0 1.0-1.5 1.5-2.0 2.0-2.5 2.5-3.0 3.0-4.0 4.0-5.0 Above 5.0

11.1 26.7 31.1 6.7 6.7 8.9 4.4 4.4

13.0 40.7 22.2 7.4 3.7 5.6 5.6 1.9

14.1 32.8 20.3 9.4 7.8 4.7 4.7 6.3

2.5 41.8 31.6 11.4 1.3 6.3 1.3 3.8

6.0 43.4 26.5 10.8 2.4 2.4 3.6 4.8

8.9 31.1 28.9 13.3 6.7 4.4

Total

100

6.7

Notes: 1. Totals may not tally (to 100) due to rounding-off of.the figures. 2. Figures in brackets are the number of sample companies. Table-9 Frequency Distribution of Acid-test Ratios of Sample Related to Corporate Firms From Singapore, 1991-96

(Figures are in percentages) Acid-Test Ratio

1991 (45)

1992 (54)

1993 (64)

1994 (79)

1996 (45)

7.6 3.8

3.6 10.8 25.3 31.3 12.0 7.2 3.6 6.0

4.4 8.9 20.0 33.3 13.4 11.1 4.4 4.4

100

Less than 0.50 0.50-0.75 0.75-1.00 1.00-1.50 1.50-2.00 2.00-3.00 3.00-4.00 Above 4.00

6.6 15.6 22.2 22.3 8.8 13.3 6.6 4.4

5.6 16.7 22.2 27.8 11.2 9.3 1.9 5.6

4.7 7.8 31.3 23.4 9.4 9.4 4.7 9.4

2.5 7,6 26.6 40.6 11.4

Total

100

Notes:

1995 (83)

1. Totals may not tally (to 100) due to rounding-off of the figures. 2. Figures in brackets are the number of sample companies.

Management

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Jain and Yadav 349 On the contrary, Thai corporate firms do not seem to be as wellplaced as Indian and Singapore corporate enterprises are in this regard. This is eloquently borne out by the fact that corporate enterprises in Thailand showed a mean value of 1.18; their median value was alarmingly low at 1.04. These values are considerably lower compared to their counterparts from India and Singapore. The low values of mean and median signify that Thai firms might have found themselves in difficult sitmltions (in the years covered by the study) to meet short-term maturing obligations in times of adversity as their margins of safety were too inadequate to ward off the worst of situations. It may not be out of place to mention here that short-term debt had constituted a major part of total debt obligations in the case of Thai firms. Clearly, Thai firms were and are exposen to a higher degree of financial risk in terms of not meeting their short-term maturing obligations, notwithstanding their adequate acid-test ratios. The above conclusion is further reinforced by the frequency distribution data pertaining to CRs of Thai firms; the frequency conc"entration was in the range of 0.5-1.0 in four out of five years covered by the study. Besides, data manifest that Thai firms in the range of nearly two -fifths to one-half had CRs of less than one (Table-lO), signifying, prima facie, their' clear inability to pay holders of current liabilities in full, let alone maintaining safety margins. Frequency distribution data based on ATR (Table-II) also indicate that nearly two-fifths of Thai firms do not seem to be quite comfortable to meet their short-terin maturing obligations. In effect, their short-term solvency primarily seems to be contingent on their ability to procure additional short-term debt or arrange to renew such existing debt.

Management

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350 Management of Working Capital

Frequency

Current

Table 10 Distribution Pertaining to Current Ratios of Sample Companies of Thailand, 1991-95

Ratio

Less than 0.5 0.5 - 1.0 1.0 - 1.5 1.5 - 2.0 2.0 - 2.5 2.5 - 3.0 3.0 - 5.0 Above 5.0 Total Notes:

1991 (111) 9.9 28.8 38.7 6.3 3.6 2.7 7.2 2.7

1992 (121) 10.7 38.8 27.3 9.1 4.1 0.8 3.3 5.8

1993 (122) 11.5 34.4 32.8 9.0 4.9 1.6 0.8 4.9

1994 (122) 14.8 33.6 29.5 9.8 4.1 1.6 4.1 2.5

1995 (119) 12.6 34.5 26.1 9.2 5.9 6.7 3.4 1.7

100

1. Total may not tally (to 100) due to rounding-off of the figures. 2. Figures in brackets are the number of companies

Frequency

Table 11 Distribution Pertaining to Acid -Test Ratios of Sample Companies of Thailand, 1991-95

Acid- Test Ratio

1991

1992

1993

1994

1995

Less than 0.25 '0.25 - 0.50 1.00 - 0.75 0.75 - 1.00 1.00 - 1.50 1.50 - 2.00 2.00 - 3.00 Above 3.00

111 12.6 27.0 18.9 14.4 15.3 4.5 4.5 2.7

121 14.9 28.1 24.8 13.2 5.8 5.0 3.3 5.0

122 10.7 31.1 26.2 9.0 10.7 5.7 1.6 4.9

122 9.8 30.3 24.6 13.9 9.0 3.3 4.1 4.9

119 10.9 28.6 22.7 12.6 11.8 2.5 9.2 1.7

100

Total Notes:

1. Total may not tally (to 100) due to rounding-off of the figures 2. Figures in brackets are the number of companies

Therefore, it is reasonable to conclude that Singapore corporate firms are better placed, followed by Indian companies, so far as their ability to pay Management

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351

or meet short-term maturing obligations are concerned; a majority of Thai firms, on the contrary, seem to be in the unsafe-zone' in this regard. INDUSTRY-WISE

ANALYSIS

The objective of this section is to examine whether there are variations in working capital margins maintained by various industry groups among the sample countries. Industry-wise grouping is primarily based on the standard classification followed by the major stock exchanges of each of these countries, namely, Bombay Stock Exchange of India, the Stock Exchange of Thailand and the Stock Exchange of Singapore. Relevant data in terms of CR and ATR of various industry groups of Singapore corporate enterprises and Thai firms are presented in Table12. As far as Singapore corporate enterprises are concerned, data exhibit industry-wise variations in respect, of both types of liquidity ratios. While current ratio ranged from 1.52 (Electronics and IT) to 1.89 (Trading and Manufacturing), the ATR ranged from 1.06 (Food and Beverages) to 1.24 (Engineering) during 1991-96. Table-12 Current Ratio and Acid-Test Ratios of Various Industries of Singapore (1991-96) and Thailand (1991-95) Industry group Singapore Trading & Manufacturing Engineering Food & Beverages Electronics & IT Thailand Pharmaceutical Products Machinery and Equipment Chemicals and Plastics Electronic Components Electrical Products and Computers Textile, Clothing and Footwear Energy Food and Beverages Communication Pulp and Paper

AlR

1.89 1.88

1.22 1.24 1.06 1.09

1.69 1.52 2.03 1.95

1.29 1.29 1.20 1.12 1.06 1.04 1.03 0.76

1.15 0.99 0.90 0.82 0.72 0.63

0.81 0.62 0.86 0.47

Note: Extreme values of CR (values greater than 5) and ATR (greater than 3) have been excluded from the observations. Management

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Volume 5. Number

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352 Management of Working Capital

Conceptually speaking, two industry groups, namely, Engineering and, Trading and Manufacturing, are better placed as compared to two other industries (Electronics and IT, and Food and Beverages) as far as their short-term financial position is concerned. As far as industry-wise variations among Thai firms on liquidity are concerned, analysis indicates that there are variations of greater magnitude among Thai industries as compared to their counterparts in Singapore. For instance, CR ranged from alarmingly low levels of less than one (0.76) for Pulp and Paper to very comfortable levels of 2.03 for Pharmaceutical Products. Three industry groups (Communications, Energy and Food and Beverages) have CRs marginally higher than one (the range being 1.03 to 1.06), signifying likely problems to be encountered by these industries too (apart from Pulp and Paper) in meeting short-term obligations. Industry groups which are the best placed in this regard are Pharmaceutical Products (CR of 2.03 and ATR of 1.15) and Machinery and Equipment (CR of 1.95 and ATR of 0.99). Other industries occupy intermediate positions: While in the case of Indian industries data disclose inter-industry variations both in respect of CR and ATR, for the two sub-phases and aggregate period of the study, most of the industries covered (in the sample) do not seem to have problems in meeting their short-term maturing obligations. It is corroborated by the fact that current ratios ranged from 1.35 (Electric Power) to 1.63 (Chemicals, Dyes, Pharmaceuticals and Plastics) during 1991-98. Likewise, ATR has ranged from an alarmingly low level of 0.26 (Sugar) to 0.69 (both for Chemicals, Dyes, Pharmaceuticals and Plastics as well as Electric Power). Three industries, namely, (i) Chemicals, Dyes, Pharmaceuticals and Plastics, (ii) General Engineering, and (iii) Textiles (arranged in descending order) have current ratios higher than the mean current ratio of all the industries taken together; other industry groups have lower current ratios (Table-13 and Table-14).

Management

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Jain and Yadav 353 Table-13 Current Ratio and Acid-test Ratio of Various Industries Related to India, 1991-98 Current Ratio 91-95 96-98 91-98

Industry Group

Steel, Metals and Alloys Textiles General Engineering Electronics, Electrical Equipments and Cables Chemicals, Dyes, Pharmaceuticals and Plastics Sugar Paper, Pulp & Hardboard Electric Power

Acid Test Ratio 91-95 96-98 91-98

1.41 1.59 1.57

1.46 1.47 i.57

1.42 1.55 1.57

0.52 0.53 0.61

0.51 0.52 0.61

0.52 0.5:~ 0.61

1.52

1.53

1.52

0.62

0.59

0.61

1.54 1.42 1.52 1.45

1.78 1.21 1.44 1.28

1.63 1.35 1.49 1.35

0.60 026 0.53 0.64

0.76 025 0.51 0.76

0.69 026 0.52 0.69

Table 14 Relative Share of Cash and Bank Balances as Percentage of Current Assets of Sample Pertaining to Indian Corporate Enterprises Number

Mean

Median

Quartile 1

1991 1992 1993 1994 1995 1996 1997 1998

198 205 209 219 219 215 204 53

5.79 5.56 5.71 6.25 6.25 6.87 7.15 7.17

4.18 3.79 3.82 4.09 3.65 4.11 3.91 4.33

2.52 1.78 1.85 1.96 1.64 2.04 1.62 2.55

6.92 6.97 7.28 8.01 7.47 7.85 7.11 9.13

1991-95 1996-98

22 215

5.92 6.94

3.88 4.23

1.92 2.01

7.28 7.22

1991-98

222

6.17

4.0

2.16

6.91

Quartile 3

The notable finding of the industry-wise analysis is that all industry groups (save Sugar), prima-facie, have satisfactory levels of liquidity ratios, signifying adequate levels of working capital. Management

& Change,

Volume

5. Number

2 (Winter

200 I)

354 Management of Working Capital CONCLUSION Thus, available data in respect of the sample companies from the three countries confirm the wide inter-industry variations in liquidity ratios. Serious consideration needs to be given by the respective governments as well as industry groups in these three countries in order to take corrective measures to take care of and rectify the areas of concern.

NOTES 1.

2. 3.

We feel that a better measure to judge liquidity is current ratio and acid-test ratio based on realizable sum of their constituents. As per this concept. these ratios should take into account profits that the firm is likely to earn on the inventories that it holds, make allowances for uncollectable debtors and unsaleable inventories and, above all look at the potential sum of shortterm borrowings to which firm has an easy access in times of need at very short call. Obviously, these ratios could not be computed on account of lack of relevant data. But it is commended that individual corporate enterprises should aim to measure such factors on the basis of suggested criteria in order to have a true insight into their liquidity positions. Such detailed data were available only for India. Please see, Spiller, E.A. (1977), Financial Accounting (Homewood, III: Richard D. Irwin), p. 644.

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Jain and Yadav 355

Summary

Annexure A-I of 't' tests for alternative

hypothesis

Value of 't' at

Nature of

Current ratio for the initial phase of liberalization (1991-95) and the subsequent phase of liberalization (1996-98) pertaining to the sample companies in India.

0.146

No Significant Difference

Acid test ratio for the initial phase of liberalization (1991-95) and subsequent phase of liberalization (1996-98) pertaining to sample companies in India.

0.799

No Significant Difference

Current ratio of FCC and DC in India, 1991-98

Zero

Significant Difference

Acid-test ratio of FCC and DC in India, 1991-98

Zero

Significant Difference

Acid-test ratio (excluding debtors 9utsourcing for a period exceeding 6 months) for the FCC and DC in India, 1991-98

Zero

Significant Difference

S. No.

't' test related to

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f WTO AND CURRENT ISSUES OF NEGOTIATION FOR INDIA: A PERSPECTIVE

Raj Agrawal The Seattle conference of WTO held in December, 1999 assumed importance and attracted wide publicity because of the efforts by a large number of member countries to seek an endorsement from the Conference for the launch of a comprehensive round of negotiations, covering a wide range of subjects. India's proactive agenda focused on highlighting its concerns arising out of the imbalances in several of the WTO Agreements, including those related to antidumping, subsidies, intellectual property, trade-related investment measures, and the non-realization of benefits to the extent expected from Agreements such as those on Textiles and Agriculture. India has also emphasized the necessity of operationalizing the Special and Differential Treatment clauses in the WTO Agreement and has brought out the difficulties faced through the increase in antidumping and antisubsidy investigations in areas where India and the developing countries have begun to acquire trade competitiveness. India resolutely opposed the inclusion of non-trade issues, like labour standards, in the agenda of the WTO. It also effectively created pressure 'for taking on board its implementation concerns. However, as no consensusbased conclusions could be reached on most of the issues before the Ministerial Conference, the work of the ministerial conference was suspended. India attaches the utmost importance to the rule-based trading system, predicated on equitable principles. with avoidance of linkage of trade with extraneous issues. India therefore looks forward to the resumption of the work of the Third Ministerial Conference. In so far as our commitments to the WTO are concerned, the progress is to work towards fulfilment on major items.

INTRODUCTION his article attempts to explore the immediate concerns of India by taking into consideration major imbalances inherent in the agenda of the WTO in the Third Ministerial Conference, The Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs), for example, extends a high'degree of protection to industrial production, but does not recognize the right of India while granting patents on products developed by using traditional knowledge or bio- resources of developing countries.

1 358 WTO and Current Issues of Negotiation for India Similarly, the Agreement on Subsidies and Countervailing Measures (ASCM) considers subsidies normally maintained in developed countries as non-actionable, while subsidies used by developing countries for development, diversification and upgradation are actionable. The Agreement on Trade Related Investment Measures (TRIMS), for example, prohibits stipulation of any local content requirements, which comes in the way of the industrialization process in developing countries.

INDIA AND WTO GATT 47 was an agreement concerned with cross-border transactions of trade in goods. Earlier, it had not covered intra-border transactions falling Within the sovereign territorial jurisdiction of the member countries. Nor did it concern itself with intangible goods like services, except marginally in regard to the limited aspect of the screen time quotas in favour 'of cinematography films of national origin and non-discriminatory treatment of the foreign films. The most important feature of GATT 47 was the implicit veto power it vested in each of its member countries, when an issue arose concerning change in the balance of rights and obligations as incorporated in the agreement. In theory, the soul of GATT 47 lay in its basic principle of nondiscrimination as the most favoured aspect with regard to national treatment.

NEW GATT: A PARADIGM SHIFT GATT underwent a sea change with the Agreement establishing the WTO which came into force on January 1, 1995. First and foremost, the implicit veto power of every member has been abolished for good. An issue which earlier required the concurrence of every member, now has been opened to a decision to be taken in terms of prescribed majorities. So, under the new dispensation, any new agreement casting additional obligations can be forced on the unwilling member(s) through exercise of the requisite majorities; and, if the member is not prepared to accept the obligation, it invokes so at the peril of being expelled, although such expulsion requires three-fourth majority. The only safeguard available is the use of prescribed majorities to oppose such moves; no longer can theimplicit veto provided by the GATT 47 be exercised by the weak members to protect their sovereign jurisdiction. Management

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The principle of consensus also has undergone a basic change in the New. GATT. Now the working of the principle of consensus has been modified with the introduction of written memoranda. Unless the objector openly and explicitly records the opposition, consensus will be presumed. It is needless to add that even such opposition can be dealt with and overruled with the prescribed majorities. Moreover, in case of dispute settlements, the decision will, in the last resort, be taken by the consensus of those e~cluding the parties to the proceedings, and eventually, by prescribed majorities. These changes are mainly in the areas of intellectual property rights, trade in services, investment measures, and trade restrictions on the grounds of balance of payments, agriculture and dispute settlement procedures. TRADE RELATED ASPECTS OF INTELLECTUAL RIGHTS (TRIPS)

PROPERTY

The national intellectual property regimes were never considered to be the subject matter of trade rules. Before the launch of the Uruguay round of trade negotiations, the matter appeared in GATT, only tangentially. What was brought up was the question of trade in counterfeit articles and the need for the concerned countries to enforce their national laws to effectively curb such practices. It is no coincidence that the entire approach and structure of the Annexure C, i.e., "Agreement on Trade-Related Aspects of Intellectual Property Rights" (TRIPS) runs diametrically opposite to our Patents Act, 1970. The Patents Act provides a perspective of public interest, defined in terms of the self-reliant growth of the industry and technology on the one hand, and the availability of essential drugs to the common man at affordable prices on the other. It looks upon the inventor's rights in a functional manner and tries to ensure that the monopoly inherent in the patents' regime is properly regulated in the public interest. To this end, it provides multiple tiers of safeguards in term of exclusions, restrictions on the term of patents, definition of working in terms of establishment license, license of right, ceiling on royalty and revocation of patents. TRIPS put the protection of private monopoly rights of the inveritor as the main, if not exclusive, objective of the new international regime for the protection of intellectual property rights. To this end, it does not permit any exclusion. It does not countenance denial of patents to products Management

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360 WTO and Current Issues of Negotiation for India in vital areas of drugs and pharmaceuticals and chemicals. It lays down a uniformly long term of twenty years for 'all products and processes. It equates imports with local production. The references to "public policy objectives" in the preamble are however, weak. The reference to technological innovation and transfer of technology in Article 7 is a toothless provision, with little sanction behind it. References to public health, nutrition and public interest in sectors of vital importance as provided in Article 8 are curlailed fatally as follows: "Provided that such measures are consistent with the provisions of this agreement." Sections 83 through 90 of the Patents Act, 1970 contain the vital elements such as the objective of transfer of technology, the criterion of reasonable requirements of public defined in broad welfare and developmental terms, compulsory licensing, ceiling on royalty etc. If we compare Article 31 of TRIPS with the preceding content of the Patents Act, we see a world of difference. There is nq reference here to the working of patents in the sense of the establishment of indigenous manufacture. On the other hand, Article 27 equates imports with local production. The perspective in Article 31 is non-availability for use as a result of the stalJrnate between the holder of the patent and its intending user; only if such a stalemate persists beyond a reasonable time, the prospect of "use without authorization" comes into being. The only new consideration introduced in TRIPS, in this context, is the need to correct anti-competitive practices. But this is understood to refer only to the domestic market situation and not to international oligopolies of multinational corporations. Moreover, the monopoly inherent in the product patents cannot be questioned on this ground. The strengths of our Patents Act are incompatible with the philosophy and approach of TRIPS in general, and Article 31, in particular. Post 2000 A. D., we will be forced to eliminate each of these strengths, if we continue to follow the mode of "compliance" with the WTO. In this context, the recent debate in certain quarters on whether the grant of Exclusive Marketing Rights (EMR) is a better or a worse option than advancing of the product patents provision sounds empty and unreal. The real question which needs to be decided is whether we can afford to follow the "compliance" mode in regard to the basic changes that will soon be forced on us and what are the costs these will entail on the national economy and development. Conversely, we need to understand what the costs of noncompliance would be. Management

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The question of whether we need to bring about fundamental changes in our national patent regime has not been examined thoroughly and objectively. Parliamentarians, legal luminaries, leading scientists and large sections of industry and business were vocal in,recognizing the merits of the national patents regime and opposed any changes in it. Arguments started appearing in favour of change only as part of the need or compulsion perceived by the government under relentless pressure from industrialized countries: There are also arguments in the nature of vague afterthoughts. For example, it has been said that we may gain by the introduction of product patents in terms of products based on our traditional knowledge. It is also argued that advances in technology since 1970 may have reduced the monopolistic content of product patents, particularly in drugs; and this changed situation will have to be taken into account. Moreover, there have been recent developments in biotechnology, where we may have certain advantages, and our Patents Act needs are-look in that context. All these arguments are being advanced qualitatively and that too, mainly, in support of the changes which were triggered not by any preceding national evaluation, but in response to international pressures of vested interests. In other words, no convincing case haS yet been established, taking into account the balance of advantages, for a thorough amendment of our patent regime; and yet, the "compliance" requirements of WTO are propelling us into a trajectory with known undesirable consequences of a serious nature. While the impending threat to our existing patents regime has been voiced by many experts, the more long-term and continuing threat that looms large has not received the same attention. TRIPS has a provision which casts an automatic obligatio~ on its signatories to accept the higher levels of protection of intellectual property rights, if the same have been approved by the members in other relevant international agreements. A number of exercises were undertaken in the forum of World Intellectual Property Organization (WIPO) to harmonize norms and standards of patent protection culminating in the draft treaties. Reportedly, these exercises are leading to "broadening" of patent rights, which tends to restrict the independent research and development leading to second and third generation inventions. Coming on top of the introduction of product patent, longer terms and very restrictive and narrow formulation of the possibility for "use without authorization," this kind of "upgradation" of the patents will spell very adverse consequences for indigenous Research and Management

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362 WTO and Current Issues of Negotiation for India

Development, lead to even a greater degree of dependence and also higher prices of drugs and pharmaceuticals. This meagre1y publicized exercise to internationalize the US system of patent protection in the name of harmonization of the standards and norms needs be discussed and resisted before if is too late. AGREEMENT

ON TRADE IN SERVICES

The Agreement on Trade in Services, which extends the jurisdiction of the New GATT into all inclusive intra-border transactions, has not yet started hurting us. This is for two reasons. The service agreement so far negotiated is at best, a sketchy one. We have been able to get away with small offer lists, more or less, including those sectors which were already in the international market, e.g., re-insurance. Moreover, the agreement leaves some margin of manoeuvaribility through specifi9ation of conditions and limits on opening, the number of branches for example, foreign banks to be opened. However, the pace is going to be accelerated. Dissatisfaction with the present level of access is already being loudly voiced. The priority attached to our market in insurance, telephone services, banking and other financial services is quite evident from the statements being made by multinationals and the governments of industrialized countries. The speed with which the government of the day had been pushing through the bill to open up the insurance sector, despite stiff opposition from many quarters, is also indicative of the pressures already being exerted to tackle the problem of higher tariffs and consequent public dissatisfaction. Further opening of the banking sector will also meet with stiff opposition from the trade unions as well as large sections of the public. In this situation, it is very likely that our performance in the renewed negotiations on service trade will be counted as totally inadequate. Further, then the question of continued sustainability of our position in the New GATT would come to the fore. TRADE

INVESTMENT

MEASURES

(TRIMS)

TRIMS give the developing countries a period of five years to eliminate the measures that have restrictive effects on trade. It also permits them to continue to maintain such measures on the grounds of the balance of payments difficulties, as recognized in the New GATT. We have virtually Management

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lost this ground recently. Already, the European Union has complained about some of our practices in the automobile sector where we insist on the manufacturers to introduce progressive indigenization. The export obligations constitute another such practice, which will be objected to. The time is fast approaching for us to be told to eliminate alLsuch policies and practices. What is even worse is the bridgehead surreptitiously being established in the review provision of TRIMS, which calls for an open-ended review of investment and competition policies. This exercise was initiated full two years in advance of the date specified in the agreement. The face-saving device of calling it a study and locating it in UNCT AD does not in any way reduce either the pace or the all-embracing and far-reaching nature of the real exercise, namely, bringing into existence a comprehensive international regime on investment which will eliminate all regulatory and policy making power of the nation states and leave the field free for the multinationals. This is the rebirth of the multinationals' "right to establish" with a vengeance, which the industrialized countries had not succeeded in inscribing into the agreement on trade in services. The demand for making the multilateral investment agreement an important part of the agenda of the impending round of trade negotiations has already gained ground and is difficult to resist. The emergence of such an agreement in the New GATT would constitute the ultimate act of annexation of the economic sovereignty of the developing countries by the powerful industrial states and their multinationals. REMOVAL

OF QUANTITATIVE

RESTRICTIONS

In the last four years, we have experienced the severe impact of the new system in the trade policy area. Article XVIII of GAIT 47 recognizes the right of the developing countries to maintain quantitative restrictions on imports. In fact, this is the only legally enforceable, exceptional right conferred on the developing countries under the GAIT. All other so-called special and differential measures in favour of the developing countries are either well-meaning exhortations or mere decisions without acquiring the status of a legal right. This right was diluted in the course of successive rounds of negotiations. Even so, the speed with which we have been stampeded into removing the restrictions in the last two years has been possible because of the final dilution of this right effected in the understanding on the balance of payments reached in the Uruguay Round and Management

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the tighter dispute settlement procedures which are part of the New . GATT. The effects of the removal of the import restrictions on ,medium, small, village and cottage industries have not yet become visible. As unemployment and loss of production and income will be felt more and more acutely in the corning years, the costs of the new system will be more readily palpable. EFFECT

ON AGRICULTURE

In the area of agriculture, while some ill effects of exposure to the international markets are already visible, the adverse impact of the agreement cannot be said to have been perceived as yet. This is because the immediate focus of the agreement was on Japan and Korea from the developing world, not so much on India. Indeed, the relatively higher levels of subsidies, which were allowed to developing countries, avoided any immediate problems from being created, particularly as the tight fiscal position was itself taking care of the situation in reality. The escape clause provided to maintain the subsidization of the public distribution system also helped in keeping clear of the disciplinary provision. But the situation is unlikely to remain the same. In all probability, India will be the target market for the new round, like Japan and Korea in the previous one. The international competitiveness of some of our important crops such as rice, sugar, oilseeds, rubber, and milk and dairy products is doubtful and removal of quantitative controls on imports and progressive reduction in tariff levels will put a big question mark on the future of the rural community in large tracts of our hinterland. With the continuing high levels of production and export subsidies in the temperate agricultural countries and the financial, market and Research and Development clout of their big agribusinesses, the new colonial pattern of agriculture may be imposed on countries like ours and the revamped agreement on agriculture which will emerge from the new round may well perform the facilitator's role. In this perspective, the costs of continued compliance may turn out to be colossal and truly prohibitive. DISPUTE

SETTLEMENT

PROCEDURES

Many commentators have warmly debated on the dispute settlement procedures in the New GAIT; and, purely in terms of the "efficiency" of the Management

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process, they have a point. We have, however, to test it in terms of our own experience. The multilateral system is supposed to be a strength for the weaker members, mainly through its sub-system of rule-based dispute settlement. Our gains have been minuscule. USA is reported to have withdrawn their case against us in respect of our not very significant exports of woolen blouses and shirts; and a single East European country lost to us in our case regarding their restrictions on exports of some automobile parts or accessories. But we received a stinging adverse finding in the American case against us in regard to the non-provision of EMR and mailing box for product patents in our Patents Act. While the merits of the way the case was argued could be debated, the point could also be made that, in the circumstances, we could not have escaped the ruling. The panel has said that they have taken into account the overall balance of the TRIPS negotiations, in order to arrive at their conclusion. This is not only a novel concept; it is al,so a very subjective and,misleading one. There is no authentic history available of the negotiations. It is likely that the panel has imported extra-judicial knowledge and prejudices in fortnI ing their idea of the balance. If the balance of negotiations were to be assessed, it would be more logical to take an overall view of the whole package of the Uruguay Round. This was not done, because that would have severely tilted the balance against the complainant. Despite the obviously objectionable reasoning, the panel has been able to set a dangerous precedent. Further, the panel also ruled that it is not for the country to decide the appropriate manner in which it would discharge its obligations, consistent with its constitutional system. It laid down a new principle of providing adequate legal security to the complainant and decreed that the govemmentof India must ensure a proper amendment to its patent law, and that it cannot take recourse to mere executive arrangements to discharge its obligations, notwithstanding the different opinion that the government may hold on this issue. This virtually amounts to laying down the legislative business for the sovereign Parliament. The mbst recent developments in the field of dispute settlement are even more disconcerting. The USA had refused to settle the question of phasing out of our quantitative restrictions on a bilateral, negotiated basis, even on the liberal terms offered by India, in line with the accelerated schedules agreed with other countries, including the European Union. They pursued the case in the dispute settlement mechanism of the WTO. Management

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The panel has ruled in favour of the USA. It has c~tegorically ruled that, under article XVIII B and in the circumstances of the case, India has no right to a phase-out of its balance-of-payments restrictions, which the dispute settlement system would have to "preserve" as provided by article 3.2 of the DSU. In simple language, the ruling has finally buried the only substantive right conferred on developing countries by GATT 47. The process of dilution of this right which started in the Tokyo Round of negotiations a long time back in the seventies has thus been taken to its logical end by formally extinguishing our claim to exercise autonomy in managing the external trade regime so as to safeguard our external financial position. Also, in one the blow, the safeguards that India had claimed in the Uruguay Round negotiations for its agriculture against the cheap imports of agricultural products from the heavily subsidized agri-businesses of USA and the EU have been demolished. We do not need any' further proof of the incapacity of the so-called rule-based system to function in an unbiased manner and in the interest of the weaker members. This is not merely a bias against the weaker members-iris a positive bias in favour of the USA. In the recent "banana dispute" between USA and the European Union, the dispute settlement panel not only ruled in favour of USA but also rejected the EU contention that USA did not have the right to suspend the concessions and thus upheld the unilateral action of USA. No wonder, the US trade officials gloated over the ruling. It was not specified that it is the USA that determined the terms and the price to be enforced. Whether it is punitive missile and air strikes in Iraq, Sudan or Yugoslavia or whether it is the unilateral withdrawal of trade concessions, the logic remains the same. The strong will not always wait for the multilateral, rule-based bodies to deliberate and decide the fine points of law or the basic issues of justice and equity within the framework of the comity of sovereign nations. They would go ahead and use their might and the multilateral bodies would be expected to compose the fine print in due course. In the WTO context, it could hardly have been otherwise. While negotiating the approval of the Final Act of the Uruguay Round Negotiations with their legislature, the US Administration had given an explicit understanding that, if three successive findings of the dispute settlement mechanism of the WTO were to go against them, USA would pull out of WTO. With this sword of Damocles hanging over their head, it is naiive

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to expect that the puny panels of WTO would dare to incur the wrath of USA in any major dispute affecting their interests. In fact, they are ensuring that successive rulings go in USA's favour. We have deemed it fit to dwell upon these aspects of the working of the dispute settlement mechanism only to point out the degree of intrusion and how erroneous is the impression that the multilateral, rule-based system is a bulwark of strength for the weak. STRA TEGIC CONCERNS We. have briefly surveyed the structure and working of the New GATT, and also looked ahead at some of the aspects of the future course that the system is likely to take. It is time to face the question of what we should do. What should be our strategy, in regard to the ongoing process of the compliance that is being forced on us on the one hand, and the new demands that are being made on us, on the other? The representatives of the developing countries, broadly speaking, seem to be voicing a three-fold strategy. First, they are insisting on the "implementation" of the earlier round, before launching the new one. This is not a particularly new idea. Those who are familiar with the trade negotiations in the past, will easily trace this slogan to the preparatory stage of the GATT Ministerial Meeting which was held in 1982 at Geneva,.resulting in a comprehensive Work Programme for GATT. The developing country delegations, which participated at the margin in the preparatory process initiated in 1981, chanted the mantra of "implementation" of the Tokyo Round, which had concluded only in 1979. Again, when in 1984, the pressures started building up for the new round, their theme song was the same "implementation" of the GATT Work Programme prior to talking about the new round. These slogan-based strategies worked, if at all, only to delay the commencement of the next round and, perhaps, to influence the balance of the negotiating agenda, to some extent. It is best to leave this part of the strategy to the negotiators in Geneva, for whatever it is worth. The way we are placed at present in the context of the New GATT, such worth is hardly likely to make a positive contribution. This is simply because, the more we harp on the implementation of agreements and the system, which are inherently heavily loaded against us, the more adverse the balance is going to be for us. Management

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~ 368 WTO and Current Issues of Negotiation for India

The second strand seems to be to insist on a consensus for the new agenda. We have no contention against this. But we should not forget that the meaning and process of the consensus had undergone further elaboration. Now, those who want to gain out of the consensus process, should be willing to venture out to block the decision openly, if it threatens to go against their interests and, further be in a position to mobilize the requisite majorities to achieve their objectives. This process of preparation presupposes collective identification of interests in concrete terms at the highest political levels, backed by a shared political vision. Even at the G-15 meeting, one looked in vain for such an exercise. At the national level, one has Xet to see any signs of the beginning of this process. The third element appears to be the reiteration of the other well-worn ' mantra, "special and differential treatment in favour of developing countries." As a result of the Uruguay Round Negotiations, this principle has been reduced to a mechanical addition of a few years in the implementation of the agreements and no significant inputs have been added. We have already seen how the only substantive and legally enforceabl) right of developing countries in the matter of maintaining autonomously, a determined regime of quantitative restrictions on its imports, has been thoroughly eroded, if not altogether destroyed. The Generalized System of Preferences in the markets of developed countries fpr the exports from developing countries, has lost much of its significance because of the general reduction in the tariffs in those markets, leaving lower and lower margins of effective preferences. We also have the example of even the least developed countries being offered a "generous" period of ten years to reach the level of intellectual property protection, which the industrialized countries themselves had taken more than a hundred years to reach. This is the implication of the spacious name of the special and differential treatment. It will require courage of extraordinary character to expect that the repetition of this mantra will yield some results in the future.

CONCLUSION No strategy can be worked out about where we stand vis-a-vis GATT. The preceding analysis elements of such a stand. While Management

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plistic stance that the only way out is to quit the New GATT, it is equally important to determine the bottom line, the non-negotiable minimu,m in the vital spheres. In respect of the existing jurisdiction of the new GATT, such a stand will inevitably 'embroil us in a series of serious litigations, which may ultimately have negative repurcussions in terms of enhanced tariffs in areas where it will hurt us the most. A national strategy to help out these vulnerable sectors will have to be worked out in advance. For example, in case of the patents law, we will have to determine the minimum rings of safeguards to be retained, not necessarily all those available in the Patents Act of 1970. In the light of detailed analysis, it should be possible to work out how our national patent regime should be structured. Consequently, it should be our effort to get the TRIPS reviewed so as to make it possible for us to attain convergence with the international system, without sacrificing our basic minimum. It is here that the question of mobilizing the requisite majorities becomes important and the Geneva diplomacy would have to be fully brought into play so as to evolve a collective identification of the interests of the developing countries. Similar detailed exercises will have to be carried out with regard to other such agreements for example, in agriculture and on services. In the course of the prolonged and, at times, turbulent, legal and trade battles that we will have to fight in the WTO and bilaterally, as part of this strategy, we may be forced to breach the New GATT discipline on quantitative import restrictions on the grounds of balance of payments. The stand that we will have to evolve in regard to the new negotiations on services will have to be in consonance with the requirements of such a contingency. In short, these areas of work would constitute the more important elements of the real "proactive" stand that we should develop. It should be clear that the approach suggested here is just the opposite of the one being followed at present and one that has been earlier described as the "compliance" mode. What we need is not the mistaken and omnibus emphasis on "implementation," but a well-argued and wellcoordinated case for a critical "review" of the agreements of the Uruguay Round. When it comes to the agenda of the new round, we should be equally clear as to what we will not allow and what we should like to include. If a single item were to be chosen for exclusion at all costs, it should be the international regime on investment. We have in the past resisted issues like labour standards and environment, rightly, as they were being Management

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370 WTO and Current Issues of Negotiation for India proffered as proxies for the neo-protectionism of the industrialized countries. But their danger potential is over-shadowed.by the impending investment regime. While the opposition to this agenda will have to be carried out by all possible means, it should be recognized that, if necessary, we should be prepared to face the worst consequences, including the highest penalty of expulsion. It is in the case of the new obligations proposed by means of additional annexures to the new Gf\TT that procedures for such an extreme step could be launched against us. Whether the process would actually end up in the imposition of the extreme penalty is a moot question. Such a step would need the mustering of the three-fourths majority of WTO against us. Even the single surviving super power may not find it easy to do that. Nevertheless, our objectives should be quite clear in deciding the minimum non-negotiable levels and we should not underestimate the consequences of such a strategy. What about the fresh agenda that we would wish to include in coming rounds of discussions? There are two types of such agenda. To begin with, there are items of our positive interest. Then there are those which have a high nuisance value for the opposite side. Sometimes the two happen to coincide. We must reintroduce the "movement of natural persons" which was unceremoniously slashed in the Uruguay Round. We must ask for free movement of skilled, semi-skilled and unskilled labour from the laboursurplus countries to the labour-deficit ones. We should also insist on "national treatment" in respect of the provision of welfare benefits and social security to the migrant labour and also in regard to the contributions that their local employers are required to make towards that purpose. We have noticed greater pressure being mounted by the industrialized countries for bringing in government procurement within the discipline of transparency, national treatment, non-discrimination, and barrier-free access. The most opaque, discriminatory and also dangerous government procurement is the procurement of arms. We should demand that this part of international trade, which today is an obscure oligopoly mixed up with the murky drugs trade and international mafia, should be brought under the international trade discipline. We should revive the issue of international regulation of the big multinationals operating as cartels and oligopolies to the detriment of the consumers, and bring it squarely under the topic of competition policy. We should ask for removal of the WTO-incompatible, national legisManagement

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Agrawal 371 lation like the section 301 of the U.S. Trade Act; and also the U.S. Laws, which have extra-territorial applications. In all these and similar items, a wider commonality of interests may emerge among developing countries. Exercises to identify such interests will provide the wherewithal for, and trigger the process of, forgoing the common stand of developing countries. The weapon of decision-making by the prescribed majorities is a double-edged weapon. It can also be made to work in our favour. To conclude, we should focus and target at the first requisite of any such strategy, that we must discard the present mode of thinking, the mode of "compliance" with the existing inequitable international order.

REFERENCES Business India (1999) 4-17 July, New Delhi. Gereffi, Gary (1995) "Production Systems and Third World Development," In Barabara Stalling (Ed), Global Change, Regional Response: The New International Context of Development. New York: Cambridge University Press Government of India (2000) Economic Survey. New Delhi: Ministry of Finance. Reserve Bank of India (RBI) (1999) Annual Report. World Bank (1996) India: Country Economic Memorandum. South Asia Region. Washington, D.C.; Prospects and Developing Countries. Washington, D.C. World Trade Organization (1995) International Trade: Trends and Statistics. Geneva: WTO -(1996) Annual Report, Vols. I and II: Geneva: WTO __ ( 199~) Annual Report, Vols. I and II. Geneva; WTO Yeats, Alexander (1998) Just How Big Is Global Production. WPS 871, Washington, D.C.: World Bank. World Bank (2QOO)Entering the 21st Century World Development Report 19992000, Washington, DC: World Bank. --(1998).Agricultural Policy Reform and the Least Developed and Net Importing Countries. Washington, D.C., World Bank. --(1999) A Proposal for Comprehensive Development Framework. Washington, D. c., World Bank. --(1999) World Development Indicators. Washington, D.C. (Draft), World Bank. Zurn, Michael (1998) "The Rise of International Environmental Politics: A Review of Current Research." World Politics 50.

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WORK MOTIVATION OF MANAGERS ECONOMY: A COMPARATIVE STUDY

Daisy Chauhan

IN A MIXED

S. P.Chauhan

A study of needs helps to explain and predict what, why and when certain goals or outcomes attain importance to a person. Organizational members as individuals, have strong drives that satisfy their personal goals and they in turn, contribute their efforts to the attainment of organizational objectives as a means of achieving their personal goals. In this respect, motivation is considered to be the key to individual well-being and consequently, organizational success. A desire to achieve what one wants to accomplish is one of the strongest motivators that stimulate high performance. Achievement-oriented people can be the backbone of most organizations. In the present study, comprising a sample of 180 middle-level managers, an attempt has been' made to find out the dominant motive among the managers of the three sectors viz, Government, Public and Private, and the relationship between lIlotives and role efficacy. Efforts have also been made to delineate the characteristics of achievement-oriented individuals.

INTRODUCTION n organizational response to the changes taking place in the economy can be two-fold: Structural changes and changed work methods. The first results in flattening of hierarchical levels through right-sizing or smart-sizing. Such change necessitates change in work methods by adding more work components to the existing job (job enlargement) or delegation of managerial authority and responsibility (job enrichment). Both these efforts have a direct bearing on the motivation and morale of organizational members. Organizational members are motivated to satisfy their personal goals and they contribute their efforts to the attainment of organizational objectives as a means of achieving their personal goals. In this respect, motivation is considered to be the key to individual well-being and organizational success. From an individual perspective, motivation is the key to an individual's productive life. A person's job performance depends on two

374 Work Motivation of Managers in a Mixed Economy broad factors, i.e., job performance is a function of two factors, ability and motivation. Ability determines what an individUal can do, while motivation determines what he will do (Vroom, 1964). Thus motivation plays a very . important role in improving the level of performance. People differ not only in their ability to do, but also in their will to do, that is, in levels or degree of motivation. Motives are the "whys" of behaviour or the reasons underlying behaviour. Individuals have a number of needs or motives like achievement, influence, affiliation, dependency and control. The intensity of these motives vary from individual to individual and one of these tends to be the dominant motive which determines priorities and style of functioning. From the organizational perspective, there is mounting pressure for increased and improved productivity. Motivating employees with traditional authority and financial incentives is becoming increasingly difficult. Moreover, beyond a point, financial incentives lose their attractiveness to individuals who are looking for something beyond that, may be in terms of recognition, appreciation, involvement, empowerment, learning opportunity, job enrichment, autonomy etc. It is in this context that the present study was carried out to identify the dominant motive among managers from the three sectors and to find out whether there is any significant difference among these sectors. Also, it was deemed .worthwhile to determine the relationship between the different motives and efficacy. The first step in studying motivational behaviour is to understand how a person's needs or motives are manifested in goal-directed behaviour. Each individual has a set of needs and satisfying these needs becomes a goal. A study of needs helps to explain and predict what, why and when certain goals or outcomes become more important to a person. Individuals join organizations because such entities provide a means of satisfying their needs. When there is an alignment of an individual's needs and goals with those of the organization or, in other words, there is a match between the competencies and capabilities of an individual with the job requirements of the organization, then the person is able to satisfy personal needs as well as the attainment of organizational goals through one's individual role; for example, existence needs (biological, physical and security) can be fulfilled with pay, physicaJ working conditions and job security, while affiliation needs (companionship, belonging and affection) can be met with opportunities for socializing and participation. Once these lower-end needs

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Chauhan and Chauhan 375 are fulfilled, we look for more fulfilling needs like growth needs (achievement, recognition, and advancement) which can be met by performing enriched jobs. According'to the VIE Theory of Vroom (1964), individuals respond differently to the same stimulus, depending on how they perceive the value of incentives (Valence), the belief that the task performance will be rewarded (Instrumentality) and the beIief that their effort will result in task accomplishment (Expectancy). Motivation is thus the result of needs, incentives and perceptual patterns of an individual. It is the key to individual succe~s as well as organizational effectiveness. As opposed to Maslow's hierarchy of needs, McClelland (1970) was of the view that many needs are not physiological and universal. He further opined that these are socially acquired and vary from culture to culture. Based on his research, he identified three types of acquired needs: The need for Achievement (n-Ach), the need for Affiliation (nAft) and the need for Power (n-Pow) which comprise Control and Influence.

TYPES OF MOTIVES Achievement Motive A desire to achieve what one wants to accomplish is one of the strongest motivators that stimulate high performance. A person with a high need for achievement tends to seek a high degree of personal responsibility, set realistic goals, take moderate risks, seek and use performance feedback and search for achieving opportunities. They are generally taskoriented and entrepreneurial. Need for achievement is a distinct human motive. A high need for achievement surfaces only when people believe that they can influence the outcome. Achievement-oriented people prefer to work on a problem rather than leave the outcome to chance. They set moderately difficult but potentially achievable goals. The positive influence of achievement orientation can be explained by a biological term known as the overload principle; for example, weight lifting strength cannot be increased by tasks that can be performed easily or that will cause injury. Lifting weights that are difficult enough to stretch the muscles but not so much as to cause injury can increase strength. In the case of managers, setting moderately Management

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376 Work Motivation of Managers in a Mixed Economy difficult but potentially achievable goals may be translated into an attitude of risk-taking, or rather, calculated risk-taking, directed towards achieving higher goals. Another characteristic of achievement-motivated people is that they are more concerned with personal achievement than the rewards of success. They do not reject rewards, but the rewards are not as essential as the accomplishment itself. Linking this to one of the requirements for personal development, where the primary motive is self-fulfillment and rewards or appreciation are considered as secondary, one would realize the importance of being achievement-oriented in working towards self-development. According to Mohan and Chauhan (1999), one's achievements, accomplishments and efficiency in the world of work are intimately related to one's level of motivation. It is the driving force, the energy that is needed to make one perform well. Research shows that certain qualities (behavioural dimensions) contribute to managerial effectiveness. One of the important factors that contribute to managerial effectiveness is motivation which contributes to the individual's success and organizational effectiveness. Managers are motivated to satisfy their personal goals and they contribute their efforts to the attainment of organizational objectives as a means of achieving these personal goals. Thus, motivation is crucial for the survival of .an individual, organization or society (Chung, 1977).

Affiliation Motive Affiliation motive includes companionship, belonging, love and affection and emotional support from others. Persons with high need for affiliation will be more sensitive to opportunities for social interaction and may even take steps to promote such opportunities. They are generally relationshiporiented.

Power Motive Power motive involves a person's desire to control or influence other people. Thus there are two faces of power motive--<:ontrol, the negative, personalized power to control others and influence, the positive socialized power to influence others or make an impact on others. In addition to the four motives identified by McClelland, two further motives which have been considered important have been considered. Management

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Dependency Motive The dependence motive is another motive relevant for organizational behaviour. It is characterized by a concern for direction for action and looking for direction from other sources. Dependence is expressed through lack of initiative, avoidance syndrome, excessive fear of failure, seeking favours from superiors and over-conformism (Pareek, 1994). Although it is generally regarded as a negative force, McGregor (1966) recognized the positive value of dependence in management.

Extension Motive The extension motive is the need to use power in doing something good for others which, in organizations, is known as socialized power. This need has been considered important for social development and McClelland termed it as concern for the common welfare of all and has been termed as the extension motive by Pareek (1968). Each of the above six motives has two dimensions: Approach. and avoidance. The approach-avoidance model was originally proposed by Atkinson (1964). This model was used mostly with achievement motive and was termed as "hope of success" or "fear of failure." This model also applies to other motives as these needs can be satisfied either by striving for the positive attainment of the goal (approach) or by reducing the possibilities of deprivation of the goal attainment (avoidance) (Pareek, 1981). Thus, the presence or lack of a particular motive arid the extent of approach or avoidance dimension for that particu1ar motive may be instrumental in making a manager effective or ineffectiye. In addition, effectiveness would also be influenced by the work environment in which the manager is working. MOTIVES

AND ROLE EFFICACY

It would be relevant here to see the relationship between motives and role efficacy. Deo (1993) found the role efficacy scores to be positively and significantly correlated with operating effectiveness indices on the six motives. Thus it is very clear that persons with high role efficacy tend to use their needs (motives) more effectively during their work in an organization, thereby showing less dysfunctional behaviour; or conversely, people with a high level of motivation are likely to perform better. Management

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378 Work Motivation of Managers in a Mixed Economy A study by Sen (1982) on the relationship between role efficacy and managerial behaviour measured in terms of approach (functional) and avoidance (dysfunctional behaviour) on the six motives, found that the approach for six motives was significant where the avoidance behaviour scores were negatively correlated. An experiment by McClelland (1965) for developing achievement motivation in an urban community in India revealed that the participants of the experimental group showed (statistically significant) increased levels of achievement motivation in terms of increased business activity level, successful starting of new business ventures and specific fixed productive capital investment. THE PRESENT STUDY The present study is an attempt to determine th~ dominant motive among middle level managers from the three sectors, viz., Government, Public and Private and to find out the relationship between motives and role efficacy. A study of 180 managers from the three sectors was carried out by using the questionnaire method. Two questionnaires namely, Motivational Analysis of Organization (Behaviour), (pareek, 1986) and Role Efficacy Scale (Pareek, 1980) were used for the study. An analysis of the raw data obtained through the questionnaires was carried out and mean and standard deviation were calculated. The results have been s:ummarized below. The dominant motive of the entire sample of 180 managers was found to be Achievement Motive (Mean: 69.19), followed by Influence (65.44) and Affiliation (62.18) (summarized in Table-I). Sector-wise analysis also indicated that in all the three sectors the dominant motive was that of Achievement. (Table-2). The Private Sector scored the highest on Achievement Motive (71.96), followed by Public Sector (68.51) and Government (67.62). On Influence too, the Private Sector scored the highest, followed by Government (65,85) and Public Sector (62.99). This is in line with some of the earlier studies which showed that managers from the public sector perceived themselves to be lacking in influence and autonomy. An earlier study (Mohan and Chauhan, 1999) also had similar results. As Singhal '(1994) explains, the reason for the need of influence being the lowest in the public sector could be the high degree of dependence on government and lack of autonomy,

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.Chauhan and Chauhan 379 Table-l Ranking of the Motives in Terms of Mean, SD of the Total Sample Motives

Mean

Achievement Influence Affiliation Dependency Extension Control

69.19 65.44 62.18 61.50 58.95 57.41

14.23 14.58 12.72 11.99 11.10 10.31

N=180 Table-2 Mean, SD and F Value of Motives in the Three Sectors Motives

F- Value

Achievement Influence Control Dependency Extension Affiliation

1.34 2.56 .69 .29 1.69 .26

Government Sector (53) Mean SD 67.62 65.85 58.09 61.85 58.58 62.64

Public Sector (78) Mean SD

14.24 14.61 9.54 13.25 11.79 13.76

68.51 62.99 56.38 60.74 57.69 61.41

15.58 15.18 12.48 12.77 12.53 14.18

Private Sector (49) Mean SD 71.96 68.92 58.31 62.33 61.35 62.92

11.59 13.03 6.74 9.11 6.94 8.59

In terms of percentages 46.7 percent (84) of the sample had Achievement as the dominant motive followed by Influence motive with 27.8 percent (50). The ranking of the Motives along with percentage of respondents having a particular motive is given in Table-3. Table-3 Ranking of the Motives in Terms of Percentage and Number Ranking

Motives

I II III N V VI

Achievement Influence Affiliation Dependency .Extension Control

Percentage of Respondents

Number

46.7 . 27.8 10.5 8.3 3.9 2.8 Management

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380 Work Motivation of Managers in a Mixed Economy

On Role Efficacy, the score of the entire sample was 81.18 (Table4). However, there was only a marginal difference among the three sectors, with government scoring the highest (81.62), followed by private sector (81.20) and public sector (80.87). On one of the dimensions of role efficacy i.e., Superordination, there was a marginal sectoral difference. Here, government scored the highest (2.19), followed by public sector (1.92) and private sector (1.63). Superordination is characterized by a person's ability to influence or work towards a larger cause beyond his own self and organization to cater to the needs of the society. The result of this study where government has scored above the other two sectors is in line with the functions and responsibilities bestowed on the government to work in the core sectors and contribute towards the nation. Table4 Mean, SD and F Value of Role Efficacy Dimensions of . Role Efficacy

F- Value

Centrality Integration Proactivity Creativity Inter-Role Linkage Helping Relationship Superordination Influence Growth Confrontation TOTAL ROLE EFFICACY INDEX

Government Sector (53) SD Mean

P.ublic Sector (78) SD Mean

Private Sector (49) SD Mean

.51 .00 .55 .36 .24 .03 2.25 .26 .94 .32 .09

2.40 2.74 2.57 2.87 3.43 3.40 2.19 2.77 2.70 3.87 28.94

1.15 1.18 1.28 1.35 .93 1.17 1.43 1.01 1.14 .48 5.55

2.81 2.73 2.65 2.65 3.37 3.42 1.92 2.88 2.53 3.86 28.51

3.69 1.23 1.17 1.45 .93 1.01 1.20 .85 1.09 .45 5.24

2.45 2.71 2.82 2.82 3.31 3.45 1.63 2.80 2.80 3.92 28.65

.89 1.19 1.22 1.74 .92 1.17 1.38 1.00 1.17 .28 6.00

.10

81.62

9.29

80.87

8.78

81.20

9.95

N=180 The results of correlational analysis showed that Role Efficacy has a positive relationship with all the motives' and a positive and significant relationship with three motives-Achievement, Influence and Dependence. Detailed figures have been are given in Table-5. The findings of the study are quite encouraging because the majority of the respondents scored high Management

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381

on the three motives mentioned above, i.e., achievement, influence and dependence, which have a significant and positive correlation with role efficacy. An earlier study (Mohan and Chauhan, 1999) also had similar find7 mgs. Table-5 between Motives and Role Efficacy

Correlation Dimensions

Achievement

Centrality Integration Proactivity Creativity Inter role-linkage Helping Relationship Superordination Influence Growth Confrontation Total role efficacy Role efficacy index

N=180

.07 .08 .14 .17* .11 .05 .05 .17* .19* -.03 .24** .24**

Influence Control -.00 .14 .09 .18* .05 .05 .10 .02 .19'-.08 .20* .18*

Dependence Extn. Affiliation .14 .08 .05 .11 .04 .12 .07 .03 .23* .12 .23* .22*

.02 .17 .05 -.03 - 03 .09 .08 -.01 .13 .05 .12 .10

*Significant at .01, **Significant at

.08 .07 .08 .05 -.01 .11 -.04 .04 .06 .08

.11 .10

.02 .08 .06 .07 -.11 -.03 .07 -.00 .20* .04 .llt .10

.001

From the above findings, it is quite evident that if there is a proper match between the needs and motives of the individual and the organizational goals or, in other words, there is an alignment of personal goals with organizational goals, then the roles assigned to the individuals will lead to improved performance which would ultimately contribute towards organizational effectiveness and individual satisfaction as shown by the dotted lines in Figure-I. To ensure a proper match between the needs and motives of the individuals and the organization's goals, organizations may adopt the assessment centre approach. The assessment centre is a process of assessing the actual or potential competence of an individual to perform a job by using multiple assessment techniques. These techniques may also include psychological tests as well as situational exercises and job simulations (Chauhan, 2000). Assessment involves the following two processe;s: â&#x20AC;˘ Detailed job analysis â&#x20AC;˘ Assessment of individuals' current and potential capabilities and competencies through multiple assessment techniques. Management

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382 Work Motivation of Managers in a Mixed Economy

PROPOSED ACTION PLAN On the basis of the above study and the earlier research findings an action plan has been proposed and flow-charted in Figure-l

Figure-l

r-----'

I I

r-----'

Organizational Effectiveness

I I

..J

Individual

Organization

Need or Motive

Goals

I I

Individual Satisfaction

_ Role

Organization-Individual Interlinkages (Dotted lines indicate the desirable state of person-job fit and consequent positive outcomes thereof)

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Chauhan and Chauhan 383 The above approach has two advantages: (1) Individuals are able to realize their inner potential which would lead to self-development and (2) individuals would better contribute more towards organizational effectiveness (Chauhan, 2000) ..

IMPLICATIONS AND RECOMMENDATIONS Work motivation depends on the personal commitment of an employee. A manager or an organization does not have direct control over an individual's motivation (Chung, 1977). However, an organization can influence the behaviour of its employees through organizational incentives, intrinsic as well as extrinsic. Extrinsic or substantive incentives include pay, working conditions and job security. Intrinsic incentives could be of two types: (1) Social or interactive which include group norms, trust and openness, risk-taking behaviour and. supervision; and (2) task or job-related which includes job enrichment, job enlargement and flexible working hours. Organizations could adopt the following strategies to motivate employees: Identify specific oganizational incentives which will satisfy different needs of different employees and try to provide these incentives. This process would enhance the value of the incentives â&#x20AC;˘ Rewards should be linked to performance either in terms of individual or gI;oup performance. This will greatly motivate the high performers Neal Gilbert and Charles Whiting (1993) warn that if professionals are not afforded the opportunity to self-actualize (through the process of increasing their competence and achievement) in their organizations, their only recourse will be to leave the organization. Employees who are not empowered will look elsewhere to empower themselves, perhaps placing their considerable talent in the hands of a competi~or. This is a formidable threat in knowledge-based organizations where the departure of two or three key individuals may mean the death knoll of the organization. Organizations should provide challenging opportunities to the achievementoriented managers through job enrichment, delegation, empowerment and encourage innovation and risk-taking and also have a proper succession planning for those with better potential to take up higher responsibilities. Thus it is important for organizations to maintain and sustain a high level of motivation among their employees so that they have a sense of satisfaction and fulfilment leading to better contribution towards organizational effectiveness. Management

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--~~~--------------------------------384 Work Motivation of Managers in a Mixed Economy

REFERENCES Atkinson, J. W. (1964) An Introduction to Motivation, Princeton; D. Van Nostrand. Whiting E. Charles and E. Neal Gilbert (1993) "Empowering Professionals," Management Review, June, 1993. See also McClelland David and David R. Burnham, "Power is the Great Motivator," Harvard Business Review, 73, JanuarylFebruary, 1995, pp. 126-130 Chauhan, Daisy (2000) "Developing Leadership Through Potential appraisal: The Assessment Centre Approach," paper presented at the International Conference "Developing Leaders, Teams and Organizations," 15-16 Dec., 2000, Management Development Institute, Gurgaon. Chung, K .R. (1977). Motivational Theories and Practies. Ohio: Graid and Inc. Deo, 1. P. (1993) "A Study of Some Psychological Correlates of Rale Efficacy in Organisations from the Information Technology Industry," Unpublished doctoral dissertation in Psychology, University of Bombay. McGregor, D (1966) Leadership & Motivation. Cambridge, MA: MIT Press. McClelland, D. C. (1965) "Achievement Motivation Can be Developed," Harvard Business Review. McClelland, D. C. (1970). "The Two Faces of Power," Journal of International Affairs. Mohan, Vidhu and Daisy Chauhan (1999) "The Role of Motives in Efficacy of Managers in Public and Private Sectors," Prestige Journal of Management and Research, Vol. 3, No. 1&2, April-October. Pareek, U. (1968) "Motivational Patterns and Planned Social Change," International Social Sciences Journal, 20(3). Pareek, U. (1980) "Dimensions of Role Efficacy," In Pfeiffer 1. W. and 1. E. Jones (Eds.). The 1980 Annual Handbookfor Group Facilitators, San Diego: Cilifornia University Associates. Pareek, U. (1986). "Motivational Analysis of Organisations: Behaviour (MAO-B)," In Pfeiffer 1. W. and L. D. Goodstein (Eds.). The 1986 Annual: Developing Human Resources University Associates San Diego. Pareek, U. (1994) Beyond Management. New Delhi: Oxford & IBH Publishing Co. Sen, P. C. (1982) "A Study of Personal and Organizational Correlates of Role Stress and Coping Strategies in Some public Sector Banks," Doctoral dissertation in Management, Gujarat University. Singhal, Sushila (1994) Senior Management: The Dynamics of Effectiveness. New Delhi: Sage Publication.

Management

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Volume 5, Number 2 (Winter

2001)

DISINVESTMENT IN PUBLIC SECTOR ENTERPRISES IN INDIA: A REVIEW.

Bhaskar Majumder In the New Economic Policy (NEP) declared by the Government of India (GOI) in June, 1991, the Government envisaged disinvestment of part of Government shareholdings in selected Public Sector Enterprises (PSEs) with effect from 1991-92. This paper is a review of the process of disinvestment in selected PSEs that is expected to ensure the stability and enhance the ef ficiency of these enterprises. In this context, this paper focuses on the recommendations of the Disinvestment Commission (DC) set up in August, 1996 in pursuance of the Common Minimum Programme (CMP) of the then United Front Government. The status of the DC vis-a-vis the GOI is examined in the context of the acceptance of the recommendations of the Commission. This paper suggests that if disinvestment is accepted as a step in the right direction, then the DC should have non-filiered autonomy to work By this, we mean non-jiliered placing of the Commission-recommended package measures to the Cabinet of the Central Government and ensuring that the outcome is communicated to the Commission without any delay. This also needs ensuring participation of the full-time chairman of the Commission in the Cabinet meeting with full power of a cabinet secretary. The Commission should have the responsibility to issue public notices from time to time about its decisions and recommendations submitted to the Government for disinvestment of PSEs. Both the Commission and the concerned Ministry of the Government have to ensure managerial autonomy in the PSEs, transparent governance in the PSEs, accountability of the corporate managers, incentives for productivity, and corruption-free performance. The incentives may be both enterprise-specific and personnel-specific. The ultimate goal is the same as those pledged by the Government, namely, stability and efficiency of the PSEs.

INTRODUCTION he economy of post-independence India was alleged to be largely delinked from the economies of the rest of the world during the early years of development, at least up to 1966 (Bhagwati and

386 Disinvestment in Public Sector Enterprises in India Desai, 1970). In a broader perspective, this delinking was linked with the question on state versus market, state having been assigned the lead role in development. The relevance of state-led industrialization, state being represented by the Public Sector Enterprises (PSEs) in the industrial sector that was attempted in India up to 1966 rested on a set of arguments. for example, in the early stage of development for the newly independent and partitioned India, the state had to capture the command. ing heights of the economy. The state was supposed to be competent to make lumpsum investment, explore new investment opportunities, and search for markets outside the country by trade-cum-diplomatic relations. In our view, it was not only a question of competence, but also a case of compulsion for the state to lead industrial investment and output. Given the initial resource constraint, development via heavy industrialization strategy, especially in the capital-intensive sector including infrastructure, had to be accomplished by the state. )'he large outlays required for such in-. vestment was beyond the capacity of private enterprises. In addition, such capital-intensive industries and industries in infrastructure with long gestation lag, no immediate profits and low stream of future profits, could be of no interest to the private entrepreneurs. State-owned and controlled infrastructure thus was planned to support private enterprises also in addi. tion to having a long-term economic objective. The objective of India's planning at least initially was developing a capital goods sector through state control (Chakravarty, 1997). In keeping with the general principles and goals of planning in India, the PSEs were set up. The specific objectives behind the setting up of these enterprises were: • Ensuring rapid economic growth and industrialization • Creating infrastructure for economic development Ensuring return on investment that generates resources for development • Promoting redistribution of income and wealth • Promoting balanced regional development Creating employment opportunities • Assisting the development of small scale and ancillary industries Promoting import substitutions, saving and earning foreign exhange for the economy of India (GOI, Dept. of Public Enterprises, 1999-2000, Vol. 1). The process of earlier planning continued uninterrupted till 1966. It can be said that the process of liberalization of the Indian economy was iniManagement & Change, Volume 5, Number 2 (Winter 2001)

Majumder 387 tiated by the Government of India (GOD only after this phase. Much later, since June 1991, the Government of India opted for an open outwardoriented policy. The GOI declared the New Economic Policy (NEP) in 1991. In this policy statement, the Government envisaged disinvestment of part of government shareholdings in the case of selected PSEs with effect from 1991-92. It was decided to refer to the Board for Ind~strial and Financial Reconstruction those public enterprises which are chronically sick for chalking out schemes for their revival or rehabilitation. For public participation, it was also decided to offer a part of the Government's share holding in the public sector to the mutual funds, financial institutions, and directly to the general public and the workers engaged in those enterprises (GOI, Dept. of Public Enterprises, 1999-2000, Vol.' 1). This planned disinvestment had two objectives; (i) ensuring financial discipline in these enterprises, and (ii) improving the performance of public enterprises (GOI, Dept. of Public Enterprises, 1998-99, VoU; GOI, 1996-97, Vol. 1). Attaining the objectives of financial discipline and improving the performance of public enterprises may be the consequence of factors other than disinvestment in enterprises. While dealing with disinvestment in PSEs we should keep in mind some other factors. The reason is that these other factors may be more significant than disinvestment as it is prima facie. These other factors are reduction of surplus workers in the production units, training of manpower, diversification of product-mix, materials management or inventory control, energy conservation, technology upgradation, visionary management of plants by workers' participation in the decision-making process etc. We are not analyzing in this paper the relative weightage of disinvestment vis-a-vis the other policy instruments that make a PSE or any production enterprise show improvement. We will concentrate only on disinvestment in PSEs that is expected to ensure stability and enhance the efficiency of these enterprises. This paper has been decided into four sections. In the first section, we analyze the growth of Public Sector Enterprises (PSEs) particularly in terms of investment during both pre-and post-NEP periods. This section includes a brief perusal on investment-linked impact on some selected economic indicators. In the second section, we analyze the nature of disinvestment in the PSEs. In the third section, we examine the role that disinvestment in the PSEs can play in improving the performance of the PSEs. Finally, we offer concluding comments in the last section.

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388 Disinvestment in Public Sector Enterprises in India GROWTH OF PUBLIC SECTOR ENTERPRISES IN TERMS OF INVESTMENT A perusal of the economic history of countries which are now called advanced capitalist economies reveals that these should properly be termed as mixed capitalist economies (Peston, 1980). Capital and labour in such mixed economies are free to move; in fact, capital remains for the' most part in private hands. The reason why these economies are called mixed may be that "both their private and public sectors are quite large" (peston, 1980). The public sector is large due to state initiation and intervention in production and supply of commodities and services. With this background, we need to be selective in tracing the growth and development of the PSEs in the Indian economy. We will concentrate on the number of enterprises, the level of investment in these enterprises, and the pattern of investment within these enterprises. The investment-linked impact is explained in terms of the share of these enterprises in national output, capacity utilization, sales and profit. We know that there are broader indicators for evaluation of these enterprises like employment, regional development, social and territorial security etc. Since these broader indicators are not very relevant in case of the non-PSEs, we confine ourselves to the selected conventional indicators. Investment in PSEs in post-independence Indian economy increased remarkably during the first two decades of planning from a very low base at Rs. 29 crores in 1951 to reach Rs. 6237 crores in 1974. The year 1951 marked the beginning of the First Plan and 1974 saw the end of the Fourth Plan. There was a big boost during the Fifth Plan and investment increased by two and a half times by the end. During the decade from mid-1970s to mid-1980s, investment in PSEs increased by seven times. The increase in investment between the terminal years, 1974 and 1985, was monotonic. The level of investment in PSEs in 1990, i.e, the end of the Seventh Plan, was sixteen times higher than the corresponding figure in 1974. During the 1990s this figure increased monotonically to be marginally less than double in 1997 relative to that in 1990. The high base of investment in PSEs attained by the 1990, i.e, over four decades of development, may be seen as a natural reason for its slower increase during 1990s. A similar picture emerges in the case of number of enterprises in India's public sector. From a low number at five in 1951, it reached 122 in 1974 and doubled in number in 1990 relative to that in 1974. The Management

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number of PSEs in 1990 marked the peak ofIndia's post~independence mixed capitalist development. During the 1990s, the number of PSEs remained more or less unchanged at around 240 with rapidly increasing investment. The level of investment in 2000 came to be two and a half times of what it was in 1990. This implies increasing investment in PSEs per unit during the 1990s. In fact, during the entire period since their emergence, there has been increasing investment intensity in the PSEs (Table-

1). Growth of Investment As on

01.04.51 01.04.56 01.04.61 31.03.66 01.04.69 01.04.74 31.03.79 01.04.80 01.04.85 31.03.90 01.04.92 31.03.97 31.03.98 31.03.99 31.03.00 Source:

Table-1 in Public Enterprises,

1951-2000

Total Investment (Rs. Crores)

Enterprises (Number)

Investment per Enterprise (Rs. Crores)

29 81 948 2410 3897 6237 15534 18150 42673 99329 135445 206655 221987 230140 252554

5 21

5.80 3.85 20.17 33.01 46.39

47 73 84 122 169 179 215 244 246 242 240 240 240

5U2 91.91 101.39 198.49 407.08 550.59 798.02 924.94 958.91 1052.30

GO!, Dept. of Public Enterprises, Public Enterprises Survey, 1998-99, VoU, New Dellii. GO!, Dept. of Public Enterprises, Public Enterprises Survey, 1999-2000, Vol. 1, New Delhi.

We can see now th~ pattern of investment within PSEs. The enterprises producing and selling goods commanded more than two-third of total investment in all PSEs during the 1990s while enterprises rendering Management

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services contributed less than one-third. Within the former cognate group, power (electricity) followed by steel, petroleum, coal ~nd lignite commanded most of the investment. For example, in 1990, these cognate groups captured half of total investment in PSEs or, more than two-third of investment in enterprises producing goods. In 1997, the investment share of these cognate groups stood at more or less the same in terms of percentage of total investment in PSEs but slightly higher as percentage of investment in enterprises producing goods. For enterprises rendering services, financial services commanded most of investment in such enterprises (GOI, Dept. of Public Enterprises, 1995-96, VoU; GOI; ibid, 1996-97, Vol. 1).

Investment-Linked

Impact: Selected Indicators

The performance of any enterprise is essentially investment-linked. Thus, there are several indicators for evaluating the performance of PSEs. We concentrate on some selected indicators like share of the PSEs in national output, sales to capital employed in the PSEs, capacity utilization, output as a percentage of capital employed, profit and profitability. In national output, some of the PSEs contributed very little during the first two decades of planning, some contributed moderately and some accounted for most of the output. Let us concentrate on some core PSEs. In terms of product-specific contribution of the PSEs in total national output of the respective products, we will cover the core PSEs and include fuel, basic metal industries, non-ferrous metals, and fertilizers. In 1968-69, coal produced in PSEscontributed less than one-fifth of national coal output, which increased to 98.0 percent in 1996-97. The reason was nationalization of coal mines in India in 1969. For petroleum, it was an increase from 50.0 percent in 1968-69 to 96.0 percent in 1996-97. For lignite, the PSEs contributed cent percent of national output during the years, 1968-69 to 1996-97. With respect to finished steel, the contribution of public enterprises was reduced from 56.0 percent in 1968-69 to 37.0 percent in 199697. For primary lead, it declined from cent percent to two-third of national level of the product. For nitrogenous fertilizer, it was a decline from 71.0 percent in 1968-69 to 32.0 percent in 1996-97. For aluminium and copper, the contribution of PSEs in national output became significant in 199697, being respectively 57.0 percent and 60.0 percent (GOI, Dept. of Public Enterprises, 1996-97, Vol. 1). Fuel includes coal, lignite and petroManagement

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leum. In each of these, the share of PSEs in national output increased gradually during the late 1990s to reach almost cent per cent. There was no significant change between pre-and post-nationalization period in percentage contribution of PSEs in national output of primary lead and zinc, both included in the category of non-ferrous metals. The contribution of the PSEs in these products, however, remained high at around 80.0 per cent for each, while for aluminium, the share of the PSEs was less than 50.0 percent of national output during the late 1990s. For finished steel the share of the PSEs in national output declined to as low as 30.0 percent in 1999-2000 from 55.68 per cent in 1968-69 (Table-2). Table-2 Share of Core PSEs in National Output, 1968-69, 1998-2000 (Percentage Share, Product-specific) 1968-69

Core PSEs

1998-99

1999-2000

FUll.. Coal Lignite Petroleum

17.66 100.00 50.83

87.75 97.22 90.71

96.73 100.00 NA

55.68

32.07

31.90

Nil 100.00 80.60

43.61 83.16 86.46

49.67 79.05 83.25

71.23 24.86

32.99 24.51'

BASIC METAL INDUSTRIES Finished Steel NON-FERROUS METALS Aluminium Primary Lead Zinc FERTlllZERS Nitrogenous Phosphatic

Source: GOI, Dept. of Public Enterprises, 1998-99, Vol. 1. GOI, Dept. of Public Enterprises, 1999-2000, Vol. 1.

Capacities are installed in enterprises for their optimum utilization. This, however, cannot avoid short-term excess capacity as a resultant of production in not-very-favourable environments." In PSEs, generally, initial capacity installed is large enough to show under-utilization of capacity Management

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392 Disinvestment in Public Sector Enterprises in India unless the enterprise can create and capture large markets. What we find regarding PSEs in the Indian economy is that 59.0 percent of public enterprises recorded capacity utilization of more than 75.0 percent in 199697 while 15.0 percent of public enterprises recorded capacity utilization between 50.0 percent and 75.0 percent. Thus, 26.0 percent of PSEs recorded capacity utilization of less than 50.0 percent in 1996-97 (GOI, Dept. of Public Enterprises, 1996-97, Vol. 1; GOI, ibid., 1998-99, VoU). In the following years, 1997-98, 1998-99, and 1999-2000, the number of PSEs recording capacity utilization of more than 75.0 per cent came to be 56.0, 51.0 and 58.33 respectively. The percentage of PSEs that recorded less than 50.0 percent of total capacity utilization was 27.0,29.0 and 28.50 respectively in 1997-98,1998-99, and 1999-2000 (Table-3). Table-3 Capacity Utilization in Public Enterprises, 1996-2000 Category Capacity Utilization A B C

1996-97

Number of Enterprises 1997-98 1998-99 1999-2{)00

More than 75.0 percent Between 50.0 and 75.0 percent Less than 50.0 percent

126 32 56

118 37 58

119 46

133 30

(f)

Total

214

213

234

228

Source: GOI, Dept. of Public Enterprises, 1998-99, Vol. 1. GOI, Dept. of Public Enterprises, 1999-2000,Vol. 1.

Among conventional indicators of performance of PSEs, one indicator is growth of sales relative to capital employed. During 1987-94, the percentage of sales to capital employed declined monotonically fJ;om 146.0 to 99.0. This indicator showed some improvement during 1994-99. During 1987-91 the indicator in enterprises producing and selling goods reflected the same pattern while the percentage for enterprises producing services declined monotonically. The percentage of sales to capital employed in PSEs producing goods had a fluctuating tendency during 199197 and increased steadily during 1997-2000. In 1999-2000, the sales to capital employed as a percentage reached 160.61 (GOI, 1996-97, Dept. of Public Enterprises, VoU; GOI, 1998-99, ibid., Vol. 1; GOI, 1999-2000, Management

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ibid, Vol. 1). The turnover as a percentage of capital employed remained static at around 113.49 in 1991-92 and 1998-99. In between in the 1990s, the ratio varied between 99.0 to 130.0. The other conventional indicators are profit and profitability. The percentage of gross profit to capital employed was more than 10.0 for all the years during 1987-99, while the percentage of net profit to capital employed varied between 2.0 and 5.0 during the same period. The absolute net profit of PSEs is a subtraction of total loss of loss-making enterprises from profit of profit-making enterprises. The number of enterprises making losses was large but less than their sister organizations making profits, so that net profit remained positive during 1987-99. This net profit, in fact, rose monotonically during 1990-97, reaching in 1997 a figure around five times of what it was in 1990. Net profit declined marginally in 1998-99 relative to what it was in 1997-98 (GOI, Department of Public Enterprises, 1996-97, Vol. 1). POST -NEP DISINVESTMENT

IN PSEs I

Partial disinvestment of equity holding by the Government followed the announcement of the New Economic Policy, 1991 and the recommendations of the Rangarajan Committee. Partial disinvestment of the Government equity holdings in PSEs effected in 1991-92 constituted 8 percent of Government holding in 30 public enterprises at a:total value of Rs. 3038 crores. The proceeds from disinvestment to the extent of 5 percent of equity holding in 16 enterprises effected in 1992-93 amounted to RS.1912 crores. In keeping with the policy of disinvestment in selected PSEs, upto March, 1999, 14 iterations of disinvestment of government equity have been completed in 39 PSUs. The Government equity was offered in this process to Mutual Funds, Financial Institutions, workers and the public. Disinvestment implies outright sale of assets or closure of the enterprise, or change of ownership or management of capital of the enterprises chosen (GOI, Dept. of Public Enterprises, 1998-99, Vol. 1). The Government of India constituted the Disinvestment Commission for the said purpose in August, 1996 in pursuance of the Common Minimum Programme (CMP) of the then United Front Government (Disinvestment Commission, October, 1999). The Commission was assigned the responsibility of advising the Government on the extent, mode" timing and pricing of disinvestment. The role of the DC thus is advisory. The Government of India is the ultimate authority to take a final decision on the Management

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companies to be disinvested as well as the mode of disinvestment, based on advice given by the DC. The PSEs will have to implement the decision of the Government under the overall supervision of the DC (Disinvestment Commissiorl., October, 1999). The First Report the DC submitted to the Government was in February, 1997. In keeping with the CMP, the DC accepted the criteria for classifying the PSEs as strategic, core and non-core units to decide the extent of disinvestment of government shares in these units. The Commission recommended the creation of a Disinvestment Fund for restructuring PSEs, wherever necessary, prior to disinvestment. This was in addition to funding the Voluntary Retirement Schemes for surplus employees in the PSEs, and funding social infrastructure projects (Disinvestment Commission, October, 1999). There occurred, however, a number of anomalies in the functioning of the Government in taking decisions about disinvestment and dealing with the DC; for example, in September, 1998, the Government proposed the formation of a Special Purpose Vehicle (SPV) for fast track privatization of some PSEs and sought the opinion of the Commission. The Commission suggested the formation of a National Shareholding Trust for improved investor perception in order to raise share values and generate substantial immediate receipts for the Government. The DC has conveyed that the Government did not respond to this. suggestion. The role of the Commission was significantly curtailed by the resolution of January, 1998 amending the Commission's terms of reference. In its Seventh Report submitted in March, 1998, the Commission conveyed its feeling that the role of the Commission in the disinvestment process had been considerably diluted. The Commission further informed in its Seventh Report that it was not aware if all its recommendations had been taken before the Cabinet for a decision (Disinvestment Commission, October, 1999). The Government has not in fact consulted the DC in its recent decision for major disinvestment of oil companies through crossholdings. These are contrary to the Government's decision for setting up the DC (Disinvestment Commission, October, 1999). In the near future, the Government ofIndia's Disinvestment Department is going to appoint an advisor for the proposed disinvestment of its 33.58 percent stake in the Calcutta-based public sector oil major IBP Co. Ltd .. The advisor's job includes assessment and valuation of IBP, suggestion of measures to enhance sale value, preparation of a detailed information memorandum and marketing of the offer. International oil majors are also expected to bid Management

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for IBP (The Hindustan Times, 2000, November). These decisions are independent of the recommendations of the DC. Let us see in general the position of the Government regarding the recommendations of the DC. Following the recommendations of the DC, the Government set up a disinvestment fund in September, 1996. The Government has also implemented the recommendation of the Commission regarding formation of a Standing Empowered Group (SEG) or a Core Group with a vIew to facilitate smooth implementation of the recommendations of the Commission. The Government has also accepted the recommendation of the Commission regarding the subsidiaries of PSEs. Apart from these three "green status" clauses of the recommendations of the Commission, the rest of the recommendations till the end of March, 1999 remained pending with the 'Government (Annexure-I). The GOI has decided to bring down government shareholding to 26.0 per cent, excepting the strategically important PSEs. As on 31.03.1999, we find no PSEs where present government shareholding is 26.0 per cent or less. We also find that there are only 10 PSEs where 25.0 or more of the shareholdinghas been divested as on 31.03.1999 (Table-4). Table-4 Disinvestment in PSEs as on 31 March, 1999 (Ranking of Selected PSEs by Disinvestment) SI. Name of the PSE No.

Disinvestment as a % Ranking of Total Shareholding

1 2 3

Hindustan Petroleum Corpn. Ltd Videsh San char Nigam Ltd. Mahanagar Telephone Nigam Ltd. 4 Hindustan Organic Chemical Ltd. 5 Indian Petrochemicals Corpn. Ltd 6 Bharat Earthmovers Ltd. 7 Container Corporation of India Ltd. 8 Bharat Petroleum Corpn. Ltd. 9 Bharat Heavy Electricals Ltd. 10 Bongaigaon Refineries Ltd. Note:

48.94 47.00 43.80 41.39 40.05 39.19 37.00 33.80 32.28 25.54

2 3 4 5 6 7 8 9

Present Government holding equals total shareholding (100.00) in the concerned PSE less total disinvested percentage, for the above enterpnses. Management

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396 Disinvestment in Public Sector Enterprises in India Central Government shareholding may be less than total shareholding minus present government holding if there is equity held by State Governments or other collaborators. In all the above cases, the disinvestment percentage includes dilution of Government Share holding by Public Issues or GDR Issues. For end of March, 2000, ranking of top ten PSEs by disinvestment has changed, displacing the 9th and lOth from the list of March, 1999. Modern Food Industries Ltd. and Gas Authority of India Ltd. with disinvestment of 74.0 and 32.66 as percentages respectively, have been included in the March, 2000 list. Source: GO!, Dept. of Public Enterprises, Public Enterprises Survey, 1998-99, Vol. 1, New Delhi. GO!, Dept. of Public Enterprises, Public Enterprises Survey, 1999-2000, Vol. 1, New Delhi.

The total investment in the top 10 PSEs in terms of investment amounted to around 50.0 per cent of total investment in 240 central PSEs as on 31.03.1999. The Government equity holding did not change in these enterprises as on 31.03.1999, i.e, there was no disinvestment in these top 10 PSEs (Table-5). These are obviously the potentially big players if investment is accepted as any indicator of size, nature of activities and future performance of any enterprise. The Government of India granted Navaratna status to eleven enterprises based on the comparative advantage of tbe enterprises chosen (Annexure 2). This included only three of ~he top 10 PSEs by size of investment, namely, NTPC, ONGC, SAIL (GOI, Department of Public Enterprises, 1998-99, Yo1.l). These Navaratnas, however, included eight of the top ten profit-making PSEs. The same list of Navaratnas included the topmost loss-making PSE, namely the Steel Authority of India Ltd (GO!, Dept. of Public Enterprises, 1998-99). The loss of SAIL had a direct link with leducing production in SAIL. Excepting pig iron, all the major products, namely, hot metal, crude steel, and saleable steel declined in volume during 1997~98 and 1998-99 relative to that in 1996-97 in SAIL (GO!, Dept. of Public Enterprises, 1998-99, Vol. 2). It is thus not clear if turnover, profit and profitability are the criteria for evaluation of the PSEs. Though the Steel Authority of India Ltd. (SAIL) has been included in the Navaratnas, there occurred disinvestment in this enterprise. This disinvestment stood at around 15.0 per cent of total shareholding. It is also not clear if granting the status of Navaratnas based on comparative advantages of the enterprise has anyManagement

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Majumder 397 thing to do with disinvestment in the concerned enterprises. The same is true for some other enterprises in the list of the Navaratnas. This includes the Bharat Heavy Electricals Ltd., Bharat Petroleum Corporation Ltd., Gas Authority of India Ltd., Hindustan Petroleum Corporation Ltd., Indian OIl Corporation Ltd., Indian Petroleum Corporation Ltd., Mahanagar Tele~ phone Nigam Ltd., Oil and Natural Gas Corporation Ltd. Videsh Sanchar Nigam Ltd. The only exception thus is National Thermal Power Corporation Ltd., which is enlisted in the Navaratnas with no disinvestment. Table-5 Top Ten PSEs in Terms of Investment as on 31.3.1999 SI. Name of the Enterprise

1 2 3 4 5 6 7 8 9 10

Investment (Total in Rs. Crores)

Investment as % of total investment in all. central PSEs

20498.43 Steel Authority of India Ltd. 17355.03 National Thermal Power Corpn. Ltd. 11946.48 Indian Railway Finance Corpn. Ltd. 10418.78 Coal India Ltd. 9706.02 Housing & Urban Dev. Corpn. Ltd. 9566.60 Power Grid Corpn. of India Ltd. 9428.21 Rashtriya Ispat Nigam Ltd. 9151.57 Oil & Natural Gas Corpn. Ltd. National Hydro-electrc Power Corpn. Ltd. 8803.00 7789.11 Rural Electrification Corpn. Ltd. 114663.23 Total

8.90 7.54 5.19 4.52 4.21 4.15 4.09 3.97 3.82 3.38 49.77

For end of March, 2000, Power Finance Corporation has replaced Oil & Natural Gas Corporation Ltd. for inclusion in top ten PSEs in terms of investment. Source: GOI, Dept. of Public Enterprises, Public Enterprises Survey, 1998-99, VoU, New Delhi. GOI, Dept. of Public Enterprises, Public Enterprises Survey, 1999-2000, Vol. 1, New Delhi. Note:

As we have seen, disinvestment is pursued when the enterprise needs financial discipline and improved performance. The inclusion of an enterprise is based on visible attainment of comparative advantages. The comparative advantages are ultimately reflected in profit and profitability. If Management

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we accept these propositions, it is difficult to link the selection of PSEs in the Navaratnas and the profitability of an enterprise like the SAIL, and disinvestment in the enterprises which have been included in the Navaratnas. Even if, at the extreme, we argue that the PSEs in the Navaratnas required hIgher degree of improved performance and hence the initiation of disinvestment in these enterprises, then disinvestment becomes all-encompassing, i.e, applicable and urgently so, for all the PSEs. A question may be raised about the marketability of the shares of lossmaking enterprises. SAIL, as the topmost loss-making PSE, can be cited as an example. The Union Budget of 1998-99 cited a credit of Rs. 5,000 crore that had been decided to be realized through disinvestment of Government-held equity in PSEs (Gal, Dept. of Public Enterprises, 1998-99, Vol. 1). In addition to disinvestment in PSEs satisfying the compulsion to' repay external debt of the Government, there arises the question of intra-PSEs disinvestment. For example, on requests received from three PSEs, namely ONGC, laC, and GAIL, the GOI disinvested part of its equity holding among these enterprises inter-se (GOI, Dept. of Public Enterprises, 199899, VoLl). The Budget also indicated that in the majority of cases, Government shareholding in Public Sector Enterprises would be brought down to 25 percent. However, the Government would continue to retain majority holding in certain PSEs which involved strategic considerations (Gal, Ministry of Finance, 1998-99, VoLl). The recent economic reforms by the Government include delicensing of coal and lignite, petroleum (other than crude) and its distillation products and bulk drugs, delicensing of sugar, dereservation of coal and lignite and mineral oils (Gal, Ministry of Finance, Vol. 1, 1998-99). Also, the Indian Electricity Act, 1910 and Electricity (Supply) Act, 1948 have been amended to ensure provision for private investment in power transmission (GOI, Ministry of Finance, 199899). In fact, through a series of statements on Industrial Policy, the private sector has been permitted to produce in key areas like oil exploration, power generation, telecommunication services etc. One purpose of the post -1991 disinvestment is to gamer resources for the PSEs. However, the generation of internal resources by the PSEs during 1961 to 1990, i.e, during the Third to the Seventh Plan, was comparable relative to the figures during the post-1991 period. For example, during the Seventh Plan, the generation of internal resources was three times than what it was during the Sixth Plan. The generation of internal reManagement

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Majumder 399 sources was as high as three times during the Eighth Plan compared to what it was during the Seventh Plan. During the Fourth Plan tIle generation of internal resources rose to more than four times than what it was during the Third Plan (Table-6). The higher rate of generation of internal resources might be linked with reasons concerned not only with higher productivity of the existing enterprises but also with the floating of new enterprises. The fact remains that the PSEs could generate internal resources at a rate higher than what they could during the period associated with disinvestment in PSEs. ThIs happened despite the multiple constraints often exogenously imposed on the PSEs in their setting up and in functioning (GOI, Dept. of Public Enterprises, 1998-99, Vol. 1). Table-6 Generation of Gross Internal Resources, Third Plan to Eighth Plan, 1961-1997 (Total in Rs. Crores) SI.No.

Plan

Amount

Multiple of the Preceding Plan

1 2 3 4 5 6

ill N V VI

2157 1260 3439 13768 37678 101212

4.39 2.72 4.00 2.73 2.68

vn VIII Total

Source: GOI, Dept. Vo1.1, New GOI, Dept. Vo1.1, New

157644

of Public Enterprises, Public Enterprises Survey, 1998-99, Delhi. of Public Enterprises, Public Enterprises Survey, 1999-2000, Delhi.

RA TIONALE OF DISINVESTMENT TERPRISES

IN PUBLIC SECTOR EN-

A liberalized regime "advocates the greatest possible use of markets and the forces of competition to coordinate economic activity. It allows to the state only those activities which the market cannot perform ... or those which are necessary to establish the framework within which the private Management

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â&#x20AC;˘ in India

enterprise economy and markets can operate efficiently ... " (Pearce, 1986). In essence; it means optimization of individual goals to the virtual exclusion of collective authority. It resembles laissez jaire. The legitimacy of public intervention in private economic activity raises the legitimacy of the mixed economy itself as an economic structure. In principle, economic transactions that follow private optimization goals are likely to have public consequences, which may be a sufficient reason for state intervention. The liberalization regime in Indian economy in principle does not ignore the positive role of the PSEs in India's industrialization (GOI, 1992-97, Vol. II). For ensuring a more positive and productive role of the PSEs, the Planning Commission of India has initiated reforms in public enterprises which involve "modernization, rationalization of capacity, product-mix changes, selective exit and privatization" (GO!, 1992-97, Vol. II). The objective is to make the PSEs viable, efficient and competitive. For this purpose, the Government considered disinvestment in PSEs a step in the , right direction. Disinvestment in Government holdings in the PSEs reduces Government liability while it increases public accountability. Such disinvestment is at the same time an instrument to raise resources in the Hands of the Government. In practice, the government has started encouraging private initiatives to dominate areas of investment allocation even before the NEP. For example, public sector investment proj~cted as a percentage of total investment came down from 57.6 in the Fifth Plan to 52.9 in the Sixth Plan, and further to 47.8 in the Seventh Plan and 45.2 in the Eight Plan (GO!, 1992-97, Vol. I). The Government believes that "private sector initiative can reduce the need for public sector investment" (GOI, 1992-97, Vol. I). The changed attitude of the Government of India is a reflection of the global changes since the 1970s when governments across countries have privatized state-owned enterprises (The Economist, 1999, April 10-16). The inclusion of the private sector as such does not necessarily involve retreat of the state in absolute terms though in relative terms it may amount to a retreat (Reddy, 1999). In our view, the relative power of the public versus the private sectors rests also on how the state visualizes the viable options for the state. The "open world" has not affected the prime power of the state within its borders (Beedham, 1999). It is not only because of market imperfection but also due to underdevelopment of markets that the State has to be an activist. The major investment decisions have to be shouldered by the state and executed through the PSEs. ,

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"Post-war Japan's development of its steel, coal, machinery, and shipbuilding industries illustrates this rational~ ..." (World Bank, 1997). The focus is on improving the performance of the PSEs. The performance of the PSEs depends more on promoting in-house Research and Development, improved quality of products by international standards, resulting in rising share in exports of knowledge-intensive products. Fiscal or financial measures executed by disinvestment measures alter the ownership pattern of the PSEs by security holding but cannot guarantee the uplift of the PSEs by indicators of international competitiveness. For raising returns per unit of investment, private initiatives are welcome, but the fact is that there remains no "crowding out" of investment when the industrial sector itself is still in a rising stage.

CONCLUSION Disinvestment in public sector enterprises since the declaration of the New Economic Policy, 1991, in principle, rests on objective evaluation of these enterprises. An objective evaluation of the performance of thelPSEs should rest on the objectives behind setting up of these enterprises. The PSEs were assigned the task of producing and supplying required capital goods, ensuring infrastructure build-up, and hence generate the roots of growth for other sectors of the economy. The functioning of the PSEs as the source of sectoral and macro-economic growth may also be seen as entrusting the public enterprises with the responsibility of attaining the commanding heights of the economy. Sales or profit was never mentioned as the objective behind setting up of the PSEs. Even now, the GOI mentions objectives other than sales and profits of these enterprises (GOI, 1992-97, Vol. I). Though in line with the policy of the Government, neither profit nor sales happens to be the central concern, in practice, the Government has increasingly urged the public sector enterprises to be profit maximizing enterprises (Bagchi, 1986). This may have been because of mounting losses by many public se~tor enterprises and burgeoning import bills following rising prices of capital goods. If, instead of raising productivity, profit maximization is targetted at by managers in public enterprises through price push or with the help of the Government through imposition of higher administered prices, the macro-economic outcome may show a path of public enterprise-led inflation. Management

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The State in India had to accept the role of an entrepreneur following the Second World War, the Independence Movement and the Partition. In a mixed capi~alist economic structure, the State attempted to perform its task through the public sector. The PSEs were entrusted with the responsibility of controlling capital goods industries. The strategy failed. The fact is that from the very selection of enterprises to their location and functioning, a complex matrix of interests often obstructed the performance of the PSEs. There are political managers and bureaucrats converted into rent-seekers in this nexus. In addition, there are powerful trade unions in PSEs, who effectively negotiate for increasing wages. At times, the managers in PSEs face the problem of achieving quick profits. The failure to do this becomes synonymous with non-viability of the plant and thus leads to a shift to another location. To check this possibility of shifting capital, these managers often tend to show high profits by quick extraction of minerals and metals or by producing goods for segments which reveal ready demand. The enterprise managers accept a high-cost enterprise by taking shelter under administered price. While profit maximization is the only objective for the private enterprises, the PSEs have multiple objectives, some of which are not explicit. It thus becomes difficult to identify the ailment of the PSEs. In. the absence of identification of the roots of the problems, a one-time sale of governmentheld security will only transfer the.risk on capital investment from the Gov~ emment to the mutual funds and people in general who pick up the equity. If disinvestment is accepted as a step in the right direction to ensure the stability and efficiency of the PSEs in operation, the Disinvestment Commission has to be allowed to work with autonomy. By this, we mean non-filtered placing of the Commission-recommended package measures to the Cabinet and ensuring that the outcome is communicated to the Commission without any delay. This also needs ensuring participation of the full-time Chairman of the Commission in the Cabinet meetings of the Central Government with full power of a cabinet secretary. The Commission should have the responsibility to issue public notices from time to time about its decisions and recommendations submitted to the Government for disinvestment of PSEs. Both the Commission and the concerned Ministry of the Government have to ensure managerial autonomy in the PSEs, transparent governance in the PSEs, accountability of the corporate managers, incentives for productivity and corruption-free performance. The incentives may be both enterprise-specific and personnel-specific. The Management

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ultimate goal is the same as those pledged by the Government, namely, stability and efficiency of the PSEs.

ABBREVIATIONS USED IX GOI

NEP PSEs TNCs

Disinvestment Commission Government of India New Economic Policy Public Sector Enterprises Transnational Corporations

REFERENCES Bag~hi, A.K. (1986) "Public Sector Industry and Self-Reliance in India,".in Bose, D.K. (Ed.), Review of the Indian Planning Process, Calcutta: State Publishing Society. Beedham, Brian (1999) "The New Geopolitics," in The Economist, July 31-Aug.6, London. Bhagwati, J. and P. Desai (1970) India, Planning for Industrialization. London: Oxford University Press. Chakravarty, Sukhamoy (1997) Writings on Development. Delhi: Oxford University Press. Disinvestment Commission, October (1999) Reports ix-xii, New Delhi. GOI, Ministry of Finance (1998) Economic Survey. GOI, Planning Commission (1992) Eighth Five Year Plan, Vol. I, New Delhi. GOI (1996) September Planning Commission, Draft Mid-Term Appraisal of the Eighth Five Year Plan, 1992-97, New Delhi. GOI, Department of Public Enterprises, Public Enterprises Survey. 1995-96, Vol. 1, New Delhi. GOI, Department of Public Enterprises, Public Enterprises Survey. .1996-97, Vol. 1, New Delhi. GOI, Department of Public Enterprises, Public Enterprises Survey. 1998-99, Vols. 1 and 2, New Delhi. GOI, Department of Public Enterprises, Public Enterprises Survey. 1999-2000, Vol. 1, New Delhi. . Pearce, David W (1986) The Dictionary of Modern Economics. London: Macmillan. Peston, Maurice (1980) "The Nature arid Significance of the Mixed Economy," in Ipsden, Lord Roll (Ed), The Mixed Economy, London: MacMillan Press. Reddy, Y. V. (1999) "State and Market, Altering the Boundaries andEmerging

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404 Disinvestment in Public Sector Enterprises in India New Balances," Economic and Political Weekly, Vol.xxxiv, Nos. 42 and 43, October. The Economist (1999) April 10-16, London. The Hindustan Times (2000) November 3, Lucknow. World Bank (1997) World Development Report. London: Oxford University Press.

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Annexure-I Status of the General Recommendations of the Disinvestment Commission, as on 31.3.1999. 51. No 1

General

Recommendations

Establish a !Jlsinvestment Fund; the National Renewal Fund may be merged with it. Delink the disinvestment process from the Budgetary Exercise 0 GOI Form a Standing Empowered Group (SEG).

Transfer management strategic buyer.

Reduce Government equity below the level of investmen being offered to the strategic bidder. Do not refer subsidiaries of PSEs to the Commission.

to the

Formulate a clear-cut policy statement on the terms of VRS and its implementation.

Review whether disinvestment 0 the PSEs through joint ventures or strategic sale be kept outside the purview of the Commission Involve the Commission regarding primary issues by any PSE.

Undertake disinvestmen decisions in the frame of general recommendations of the Commission. Restore the powers of monitoring and supervision of the Commission as envisaged in the Government notification dated 23 August, 1996. Set up a full time implementation machinery under the Ministry of Finance. Place the Commission Report as a whole before the Cabinet of the Central Government.

Purpose This will be used for temporary funding of losses of some PSEs in preparation of disinvestment. This may hinder achievement 0 the broad objectives of the disinvestment exercise. smooth This will ensure the implementation of the recommendations of Commission. This will help in determining the time frame for further dilution 0 the share holding of the PSE. This ensures credibility of the PSEs with the strategic buyers.

The decision in regard to subsidiaries is to be taken by the Boards of Management of the concerned PSEs. A pension cum insurance scheme could be thought of as an alternative to a one-time pavment. . This does not mean denied 0 the benefits, of detailed consideration by an independen bodv. This helps in taking a coordinated view and in recommending a mix between primary and secondary disinvestment. This enables proper valuation 0 Government shares and reduces loss to the national exchequer.

Status of the Recommendations Fund has been set up in September 1996. Decision awaited.

Core Group has been empowered as recommended Decision awaited.

Decision awaited

Government has decided not to refel subsidiaries of P.SEs to the Commission Decision awaited

Decision awaited

To restore the effectiveness 0 the Commission in the disinvestment process.

Decision awaited

This will give the best prices fo the shares disinvested by GOI

Decision awaited

This will enable the Government to appreciate the interconnected strategy of the various recommendations and take decisions thereon. Substantial amounts of foreign exchange can be eamed to strengthen our foreign exchange reserves.

Decision awaited

Decision awaited Give a big push to strategic sales recommended by the . Commission to optimize realization under the present state of capital markets Note: â&#x20AC;˘ The DC is an advisory body. The GOI mayor may not accept its recommendations. The status of the recommendation depends on the type of action taken by the Government. 14

406 Disinvestment

Navaratna

SI. No.

in Public Sector Enterprises

in India

Annexure-II Public Sector Enterprises,

as on 31.03. 1999

Navaratna PSEs

1. 2. 3. 4. 5.

Power Corporation Ltd. Oil and Natural Gas Corporation Ltd. Steel Authority of India Ltd. Hindustan Petroleum Corporation Ltd. Gas Authority of India Ltd. Indian Petro-Chemicals Corporation Ltd. Mahanagar Telephone Nigam Ltd. Bharat Heavy Electricals Ltd. Bharat Petroleum Corporation Ltd Indian Oil Corporation Ltd. Videsh Sanchar Nigam Ltd

6. 7.

8. 9. 10. 11. Note; Source;

The List has remained unchanged for 1999-2000. GOI, Department of Public Enterprises, Public 'Enterprises Survey, 1998GOI, Department of Public Enterprises, Public Enterprises Survey, 1999-2000, Vol. 1, New Delhi.

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MARKETING IMPLICATIONS OF THE BHAGAV ADGITA: A PRELIMINARY STUDY

Gautam Bhattacharya

The Bhagavadgita. excerpted from the ancient Indian epic, Mahabharata. is a religious text that has attracted innumerable commentaries over a period spanning many centuries. It has been interpreted as a religious text. a way of life. a significant philosophy in Hinduism and even as a beautifitl poem. Hailed as a universal text, it cuts across religions. creeds. castes and countries and has been revered as a body of knowledge that applies to the .human race as a whole. This study does not attempt at any kind of interpretation of the text. Billions of words have already been written in multiple languages on the teaching of the Bhagavadgita. However, all such writing. whether by philosophers or recently, by management thinkers, have centred on the text. Even in management, interpretations have been applied to themes such as leadership and motivation and have originated mainly from the areas of organizational behaviour and social sciences. This author could not trace any published work which examined the Bhagavadgita with a marketing orientation. In the absence of prior research. the study is of preliminary nature and examines the establishment of a need followed by a review of the Bhagavadgita as a product and as a brand. Since formal research methodology cannot be applied in such a context. focus group discussions, in-depth interviews and empirical thought have been the main bases for the study. Future work in this area would lead to further exploratory studies and brand implications of the Bhagavadgita.

INTRODUCTION

induism, as a religion, has had a complex evolution, mostly shrouded in folklore and verses which migrated across generations through word of mouth. On the other hand, it is a complex mix of myriad texts, commentaries and narrations that have been penned down, some substantiated, some not, in the form of philosophical reflections as well as the supernatural and the mystic. Further, Hinduism has had perhaps the unique osmotic capability of absorbing into itself, diverse faiths, beliefs, sects and even religions that, in the course of the turbuManagement & Change, Volume 5, Number 2 (Winter 2001) ~ 2001 Institute for Integrated Learning in Management. All Rights Reserved.

408 Marketing Implications of the Bhagavadgita lent history of this ancient country, have invaded, been invited in, wandere? in and intermixed with local faiths and beliefs. Documenting the plethonc texts that this all-encompassing megafaith has attracted is far beyond the capabilities of this writer, neither is it the purpose of this study. Further, billions of words have been written, in ancient as well modem, occidental as well as oriental languages about Indian religious texts, commencing with the Vedas and progressing on to the epics, one of which, the Mahabharata, is the parent text of the Bhagavadgita (referred to in this article later as the Gita) on which the study focuses. Further., much has been written about the teachings of the Gita by a plethora of writers, philosophers and saints over a period of time spanning millenia. This study, a preliminary focus, will mainly feature the Gita as a religious text and examine it from the perspective of a marketing researcher. Not that management experts have left the Gita alone. L~adership and motivation have been the prime areas of focus of scattered management writers who have examined the Gita. But the entire body of management thought on the Gita has evolved from the organizational behavioural or the social sciences area. As such, this study claims a certain degree of deviation in examining a religious text that has top-of-the-mind recall across India in purely marketing terms. Before examining the Gita as a product or a brand, it would be pertinent to very briefly summarize the roots of Bhagavadgita (Annexure-I gives a more detailed synopsis). The Pandavas (descendents of King Pandu) and the Kauravas (descendents of King Kuru) had assembled for war on the battlefield of Kurukshetra. Dates as to the battle differ, but it could have been fought at any time between four to five thousand years ago. The story begins with Dhrtarshtra, who was born blind and his younger brother, Pandu, became the ruler. Yudhistra, the eldest son of Pandu as well as Duryodhana, the eldest son of Dhrtarshtra, were too young to rule. So, Bhisma, the eldest member of the family, ruled the empire. When the boys came of age, Dhrtarshtra wanted to oust Yudhisthra by foul means. Bhisma advised Dhrtarshtra to divide the kingdom and the Pandavas ruled from Indraprastha and the Kauravas from Hastinapur for a long period. The Panda vas prospered and Duryodhana, out of jealousy, invited Yudhistra to a game of dices. On the terms of the game as stipulated, which Yudhistra lost, the Pandavas had to leave their kingdom for a period of twelve years, when they were to live in the forest, followed by a period of living incognito for one year. At the end Management

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of the stipulated period, Yudhistra claimed his portion of the kingdom, but Duryodhana refused. This led to the war. Yudhistra had four younger brothers, of whom Arjuna was considered to be the mightiest, the greatest warrior in the world. Lord Sri Krishna, himself a great warrior, refused to take sides, but became the charioteer of Arjuna. At the commencement of the battle, Arjuna, faced with the debacle of a long and destructive war, where in order to win, he had to kill his cousins and relatives, laid down his weapons and declined to fight. The Gita commences here, where Lord Krishna dicourses with Arjuna, which comprises the text of the Gita. At the end of the discourse, Arjuna picks up his weapons and wins the battle which the Panda vas rightfully deserved to win (Annexure-II summarizes the teaching of the Gita).

RELIGION: ITS ROOTS AND INTERPRETATIONS The origin of religion is shrouded in deep mists of inadequate knowledge, conjectures, hypotheses and beliefs. This is but obvious and natural, since we have no documented record of prehistory. Religious beliefs or faiths that emerged subsequently have a more-or-Iess well-chronicled past. Our assumptions about the roots trace back to speculations based on sketchy documentation in the dawning period of history. Most documentation lead us to assume the roots of religion to be mooted in certain prerequisites, traits and influences in relation to the human being and the environment. Perhaps the first emotion which spawned the birth of religion was fear. Fear sourced from multiple roots; the first, from natural forces, floods, earthquakes, bushfires, and so on; forces seen, heard but hot understood; the second, from forces, felt but not understood; fear of darkness, of solitude; fear had justifiable and sometimes catastrophic consequences, like floods which washed away civilizations; fear was also ascribed intangible roots, the sources of myriad stories of ghosts and witchcraft; fear was ascribed to and centred on both animals and inanimate objects, the birth of belief in "supernatural" powers, the Oracle who spoke at Delphi in Greece, the three witches in Macbeth who chanted in thunder, lightening or in rain. Annexure-III traces briefly the roots of religion as documented from different sources. The next section entails hypothesizing religion as a need, for marketing begins with a need and ends with the fulfilment of it.

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THE NATURE OF NEED AND RELIGION As the doyen of modern marketing management, Kotler (1999) puts it, needs describe basic human requirements. His interpretation of "basic human requirements" has not, truly speaking, been very clearly elaborated upon, and the only option open, is to refer back to the epochial work of Maslow (1954) who categorizes needs into a pyramidal hierarchy with physiological needs (hunger, thirst etc.) forming the basic tier, safety (security, protection) the next, followed by social needs (belongingness etc.), esteem needs (self-esteem, recognition and status) and, at the apex, selfactualization. Herzberg (1966) suggested a simpler categorization, the two factor theory which categorizes needs into satisfiers and dissatisfiers. Let us now examine religion in this context. Ratcliffe (1915) opines that Dharma in India is a word with a more complex significance than the word religion has in the West. In India, Dharma embodies the social conception of law and conduct and worship. Dharma is the force or principle that binds together the union of traditional thought and faith, common custom, loyalty and understanding that makes of society an organic or religious unity. He interprets Dharma in terms of: i) ii) iii) iv)

Faith and practice of the past. A fresh conception of worship and of sacrifice. Social service. Recovery of civic sense and its reestablishment in -a fuller understanding of the Indian social order. v) Exaltation of work of positive character and of knowledge. This interpretation of religion as the core fabric on which society is woven has been beautifully explained by Halden (1913). Without such conduct and the restraints which it imposes there could be no tolerable social life, and real freedom from interference would not be enjoyed. It is the instinctive sense of what to do and what not to do in daily life and behaviour that is the source of liberty and ease. And it is this instinctive sense of obligation that is the chief foundation of society. Its reality takes objective shape and displays itself in family life and in our other civic and social institutions. It is not limited to anyone form, and it is capable of manifesting itself in new forms and of developing and changing old forms. Indeed the civic community is more than a political fabric. It includes all the social institutions in and by which the individual life is influenced such as Management

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Bhattacharya 411 the family, the school, the church, the legislature, and the executive. None of these can subsist in isolation ... ; together they and other institutions of the kind form a single organic whole, the whole which is known as the Nation.

The social aspect of religion is further reiterated by Sister Nivedita (1998) when she writes, "We ought to make our faith (to build an) aggressive society, by self-improvement; not only doctrinally ... but also spiritually by intensifying its activity ... what we need is to supplement religion by public spirit... and enlightened self-sense in which every member of the community has a part." This corroborates the findings of the focus group discussions summarized in Annexure-IV, where it is categorically mentioned that" ... my interpretation of religion is my work and people, friends, my family, people around me and one can practise religion by being committed, honest, unbiased and by caring about relation ... in work, be committed to whatever you are doing ... at home, fulfil whatever is expected of me as a wife, daughter-in-law, daughter, mother and so on." Religion therefore, can be viewed as a) Historifally, a safety need, for security and protection by deities, both idolized as well as the supernatural. b) A social need, as religion binds together a society and lays down norms of social behaviour as they are and as they should be; further" the temple, the pooja, the mosque or the church embody ritualistic ceremonies where the local population, at least periodicaHy, meet and interact. c) A driver of both personal and social goals and objectives and therefore, both a personal esteem need as well as a social need. d) Self-actualizer, for laying down ways of life, beliefs and values and aspirational goals. Religion as embodied and tangibilized in religious texts, then take the form of a category need. As Rossiter and Percy (1987) puts it, a category need can be defined as the buyer's perception of requiring something (a product or a service) to remove or satisfy a perceived discrepancy between the current motivational state and the desired motivat,ional state. Before examining religious texts in general, and the Gita in particular, we therefore, need to examine the nature of products and brands.

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THE NATURE OF PRODUCTS AND BRANDS Kotler (1999) defines a product as any offering that can satisfy a need or a want. He further elaborates on the range of products to include physical goods, services, experiences, events, persons, places, properties, organizations, information and ideas. Stanton et al. (1999) call a product a set of tangible and intangible attributes including packaging, colour, price, quality and brand, plus the seller's services and reputation. A product may be a good, service, place, person or idea ... consumers are buying want satisfaction in the form of benefits they expect to receive from the product. Kotler (1999) further identifies five levels of a product based on such perceived benefits; core, basic, expected, augmented and potential. A brand, as an extension of a product, has been explained very simply as an offering from a known source and, more comprehensively, as a name, term, sign, symbol or design, or a combination of them, intended to identify the goods or services of one seller or groups of sellers and to differentiate them from those of competitors (Kotler, 1999). On similar lines, Stanton et.al. (1999) call a brand a name and/or mark intended to identify the product of one seller or group of sellers and differentiate the product from competing products. Aaker (1996) relates the two and identifies the product through the dimensions of scope, attributes, quality and uses while he differentiates the . brand in terms of variables like original association, personality, symbols, customer relationship, emotional benefits, self-expressive benefits, user imagery and country of origin. Aaker (1991) further elaborates that the worth of a brand, brand equity, built over the years, is a function of loyalty, awareness, perceived quality, association and other proprietory brand assets. Kapferer (1997) calls the brand a focal point for all the positive and negative impressions created by the buyer overtime as he comes into contact with the brand, product, distribution channel, personnel and communication. He further opines that the value of a brand comes from its ability to gain an exclusive, positive and prominent meaning in the minds of a large number of consumers. Before we examine the Gita as a product and a brand, we need to examine such interpretation in terms of consumer perception of the Gita.

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PERCEPTION OF THE GITA Annexure- V summarizes various consumer perceptions of the Gita of prominent writers, philosophers and thinkers. We have listed below some of these perceptions which have been reiterated repeatedly in focus groups, interviews as well as in written texts. a) When disappointment stares me in the face, and all alone I see no ray of hope, I go back to the Bhagavadgita. b) It brings to man the highest knowledge, the purest love and the most luminous action. c) Its ideas are actually at work as a powerfully shaping factor in the revival and renewal of a nation and a culture. d) (It) is a bouquet, composed of beautiful flowers of spiritual truth. e) Moderation is the key note ... harmonising of all the constituents of men. f) It is on the strength of its poetic value. g) The song calls us to love and live. h) It is rich in beauty and full of poetic power. i) Its aim is supreme bliss. j) (It) is a book of life. k) (It) can be understood by the learned and those not much learned. 1) People ... the world over, be they of any creed or community, look to Gita.,. because of knowledge par excellence. m) (It) embodies universal knowldege. n) (It) is a scripture of man, hide-bound by no caste, creeds, country, race. 0) (It) is a Message for all mankind. p) Gita has a message which can be adapted to all systems and ideologIes. q) Its gospel of devotion to duty, without attachment or desire or reward, has shown the way to all men. r) Where Gita is read, there help comes quickly. While it is difficult to derive any kind of brand identity of the Gita from these views, primarily because the Gita exists simultaneously at various levels of the product hierarchy as defined by Kotler (1999) and referred to earlier, a brand image can definitely be conjectured from these and other statements collected during the course of this research.

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414 Marketing Implications ofthe Bhagavadgita Let us first look at contemporary conceptualization of brand identity. Kapferer (1995) posits that identity is on the sender's side. The purpose is to specify the brand's meaning, aim and self-image. Identity precedes images; to continue, brand image is on the receiver's side. The image refers to the way in which signals from the brand identity are decoded and embedded in the receiver's mind. Unfortunately, for the Gita, determining brand identity is a daunting task, far beyond the scope of this study and perhaps can be focused in later research. This is primarily so, since the Gita cannot be perceived as a single brand with a well-defined positioning platform and clearly defined identity. The Gita, per se, can perhaps be termed as the "mother" brand or perhaps as an umbrella brand. The identity has been coloured by the personal interpretations of hundreds of commentators who have, from Sankaracarya to Sridharswami and, from Swami Vivekananda to Dr. Radhakrishnan, commented on the Gita. The identity, one can hypothesize, as of now, remains unclear. The image, however, can be derived, even though to a limited extent, in this preliminary study. Any brand, if successful and sustaining, is positioned as a bundle of benefits. Unfortunately, benefits are motivationally ambiguous (Fennell, 1978). This is even more true for the Gita as the perceptual statements, quoted earlier in this section, illustrate. If we categorize the benefits as perceived by the target audience from these statements, one can arive at the following set of benefits: a) The most obvious benefit that one derives from the Gita is that it is pure poetry in its highest form and, as such, even non-believers in religion, or even atheists can appreciate the sheer poetic allure of the text. b) The Gita is a religious text, which is not confined to any particular religion, but supercedes all religions. People, irrespective of religious beliefs, creeds or castes can identity with the brand. c) The Gita is the source of the highest knowledge and a message for all mankind. d) The Gita is not merely a philosophy, but is a gospel of duty and action. e) The Gita is a succour, a solution to human problems, trials and tribulations. A bundle of benefits indeed! Unfortunately, as has been iterated in this article earlier, many experts have examined, analyzed and interpreted Management

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the text, but no one has, truly speaking, even begun to explore the complex myriad of questions that arise when one looks at the Gita as a brand. That the-.Gita is a product, is unquestionable. Unfortunately, over the centuries it has been treated as a commodity, with each commentator claiming to brand it. .As a result, we have a multiplicity of so-called brands based on the original so-termed commodity, the Gita. Therefore, the commentaries have been popularly perceived as brands, whether we refer to Sridharswami's commentary or Dr. Radhakrishnan's. The fact remains that any number of texts written on an all-encompassing, allpervading universal brand cannot transform it into a generic brand. The Gita as a brand, remains so, irrespective of the commentaries; for, it fulfils the basic prerequisites of a successful brand; a defined category need, awareness and a strongly positive brand attitude, a powerful and distinct brand image, even though the identity has been shrouded over centuries by the very vastness of the brand and its interpretations. CONCLUSION Strictly speaking, one cannot conclude on a topic of this nature. The intention, if one may say so, has been honourable, for, a text like the Gita has perplexed academicians, philosophers and sages with acumen far beyond that of this particular researcher. I can claim with certainty, only that, a ne.ed as well as a category need can be established; that the Gita is in offering and therefore a product; that it offers a bundle of benefits, with an image, if not clearly discemable image; therefore, it is a brand. The study is preliminary. Future work will focus on the myriad and complex nuances of this brand, which, perhaps, is unique in the plethora of brands prevalent in the world and provides much deeper insight into not only brands per se, but into marketing as an orientation for the human race.

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416 Marketing Implications ofthe Bhagavadgita Annexure-I The Origin of the Bhagavad Gita The scene of the delivery of the Bhagavadgita (The Song Divine), also known briefly as the Gita, by Sri Krsna to Arjuna is laid on the battlefield of Kuruksetra where the Pandavas and the Kauravas had assembled their armies for war. Scholars differ as regards the date of this battle, though they are inclined to think that it was a historical event. According to tradition the battle was fought at the end of the Dvapara-yuga. As Dhrtarastra was born blind, he could not rule the kingdom. So his younger brother Pandu became the Ruler. When Pandu died his sons were too young as also were Duryodhana, the eldest son of Dhrtarastra, and his younger brothers. Hence, Bhisma, the oldest member of the family, managed the affairs of the State. When the young boys came of age Duryodhana wanted to become the King by ousting Yudhisthira through foul means. But public opinion was in favour of Yudhisthira. So, in order not to antagonize the officials and the people, Bhisma advised Dhrtarastra to divide the kingdom between his sons, referred to as the Kauravas, and Pandu's sons called the Pandavas. This advice was fol. lowed. Accordingly the former ruled from Hastinapura and the latter from Indraprastha for thirty-six years. But Duryodhana was jealous of the prosperity of the Pandavas, and to ruin them he invited Yudhisthira to a game of dice, which resulted in the banishment of the Pandavas under the condition of living in the forest for tw.elve years and one year incognito. After the stipulaed period Yudhisthira claimed his portion of the kingdom, but Duryodhana refused, and this led to the battle of Kuruksetra. Yudhisthira had four brothers, Bhirna, Arjuna, Nakula and Sahadeva, Arjuna was considered the mightiest among the contemporary warriors. Sri Krsna, though Himself a formidable warrior and regarded as an Incarnation of God, vowed not to take up arms on either side, but agreed to become the charioteer of Arjuna. Through the political sagacity and able advice of Sri Krsna the result of the battle went in favour of Yudhisthira, who ascended the throne. The battle is described in all its details in the great epic Mahabharata and the Gita forms chapters 23 to 40 of the Bhismaparva of this epic. Source: Swami Gambhirananda (2000) Bhagavadgita, Calcutta: Advaita Ashrama.

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Annexure-ll A Brief Summary of the Teaching of the Gita There again, in the first section the pure Self meant by the word "thou" is asce11ained nationally through the Path of Action and its renunciation. These (following) steps in the disciplines for Liberation are being presented as the purpose of the Scripture (Gita). (The first step is) the performance of selfless work by rejecting rites and duties meant for personal gain and the prohibited actions. There again, the highest merit lies in repeating the name of and praising (the Lord) Hari. Gradually follows detachment from things here or hereafter, (complete control over the mind and the organs).Then, through the perfection of (curbing of the mind) renunciation becomes fully established. Thereafter follows (hearing and understanding of Vedanta) etc. for the elimination of doubt. Thereafter, through the perfection of that follows (profound meditation). As a result, when the mind becomes freed from ali the defects there arises the Knowledge of Reality from (hearing) the sentence. As for the complete eradication of nescience, that occurs on the rise of the Knowledge of Reality. Then, when the covering is removed, error and doubt become dispelled. Though the power of the Knowledge of Reality the results of actions (done in past lives) that have not commenced bearing fruit get wholly destroyed, to be sure, and the results of actions (done in the present life after the dawn of Knowledge) that are to bear fruit in the future do not accure. But, because of the disturbance created by the results of actions that have started bearing fruit (past impression) does not get destroyed. That is eliminated through, samyama, the strongest of all (the disciplines). The five disciplines, viz. yama etc. practised before become conducive to that samyama, which is a triad consisting of dharana (concentration), dhyana (meditation) and samadhi (absorption). However, absorption is quickly accomplished through special devotion to God. From that follows (elimination of the modifications of the mind) and (dissipation of past impressions). Knowledge of Reality, elimination of the modification of the mind as also the dissipation of past impressions, when these three are practised together, Liberation while still alive becomes firm. Total renunciation of all actions as a result of enlightenment is mentioned in the Upanisads for this purpose-that there may be effort for completing that very part (among those three) which remained incomplete before. He who has supreme devotion to the Deity, and as much of it to the guru as to the Deity, to him, indeed, to the great-souled one, these subject-matters that have been spoken of become revealed; it follows that devotion to God with body, mind and speech, under all conditions, becomes useful in this context. Management

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4-18 Marketing Implications of the Bhagavadgita The devotion cultivated in the preceding stage leads to the next stage. Otherwise, attainment of success is very difficult owing to the abundance of obstacles. If, however, owing to the unpredictability of the impressions acquired earlier (in past lives), someone becomes self-fulfilled in the beginning itself, like the dropping of a fruit from the sky, then the scriptures cannot be accepted as having been promulgated for him, because they have already served their purpose. The grace of God that descends as a consequence of persistence in the disciplines that were perfected in the previous lives is inscrutable! Although the preceding stage is thus acquired, devotion to God should still be cultivated for attaining the later stages. They cannot be attained without that (devotion). But in the state of being liberated while still alive no result of devotion is to be imagined: Adoring Hari is natural to them, like their being devoid of hate etc. Such is the greatness of Hari (Visnu) that, though free from bondage, the sages, who delight (only) in the self, render spontaneous devotion to Visnu. According to the sentence, Of them the man of Knowledge excels si~ce he is endowed with constant steadfastness and onepointed dev?tion, etc. this one who is full of loving devotion is declared to be the highest. Al this has been revealed by the Lord in the scripture Gita. Performanace of selfless work is declared to be the root cause of Liberation, and the hindrances to it are the demoniacal sins such as sorrow etc. from which follow deviation from one's natural duty, resource to what is prohibited, or action performed with selfish motive or egotism. Being thus ever under the influence of the demoniacal sins, a person becomes unfit for gaining the human Goal and suffers a series of afflictions. Pain is naturally repulsive to all the living beings in this world. Therefore sorrow, delusion, etc. which are its (pain's) causes, should alswys be shunned. The Lord has uttered this most esteemed Scripture with a view to enlightening a person who, being filled with this desire to know the means of eradicating sorrow, delusion, etc. which are inherent in the beginning less chain of mundane existence, and which are the causes of affliction and difficult to be got rid of, has become eager to attain the highest human Goal. Source: Saraswati, Madhusudana (2000) Bhagavad-Gita with the Annotation Gudhartha-Dipika. Translated by Swami Gambhirananda, Calcutta: Advaita Ashrama.

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Annexure-ill Roots of Religions The evolution of religion cannot be precisely determined owing to the lack of cleaily distinguishable stages, but anthropological and historical studies of isolated cultures in various periods of development have suggested a typology but not a chronology. One type ... practises magic and fetishism but considers the powers therein to be not supernatural but an aspect of the natural world ... Oceanic and African tribal beliefs include momentary deities ... and special deities (a particular tree inhabited by a malignant spirit ... ) ... related to objects of devotion, to rituals ... to priests ... to group participants in which the individual or the group is protected by, or against, supernatural beings. Some religions are revealed, as in Judaism (where God revealed the Commandments to Moses), Christianity (where Christ, the Son 0f God, revealed the Word of the Father) and Islam (where the angel Gabriel revealed God's will to Mohammed). Some ... are natural ... called philosophies of eternity ... Buddhist sects (where Buddha is recognized not as a God but as an enlightened leader), Brahmanism, and Taoism and other Chinese metaphysical doctrines. I In Hinduism, the Srutis are records of fundamental principles of spiritual life and the experience of spiritual giants the Sanathana Dharma, the eternal way, the Vedas et al. The Smritis propose models of God, Man and the Universe to fit into the general principles laid down by the Srutis.2 As Sister Nivedita writes, " ... the super social life is seen in its true relation to society, the goal is preached as attainable not only by the sadhu in the forest but also by the butcher in the town and the wife in the home."3 Muslims believe that people are born free of sin. It is only after they reach the age of puberty and it is only after they commit sins t~at they are to be charged for their mistakes ... However, the door of forgiveness through true repentance is always open. In Sikhism, a religion well ahead of its time when it was founded over 500 years ago, has more then two crore followers worldwide ... it preaches a message of devotion and remembrance of God at all times, truthful living, equality of mankind and denounces superstitions and blind rituals.4 Source: 1. http://www.encyclopedia.com/articles/10878typeso(ReligiousSystems.htm ] 2. http://www.geocities.com/Athens/Acropolis/1863/) 3. Sister Nivedta (1998) Religion and Dharma. Calcutta: Advita Ashrama 4. http://www .bcca.org/-cvoogtlReligion/Christiani ty.htrnl

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420 Marketing Implications of the Bhagavadgita Annexure-IV Summary of a typical focus group discussion I, frankly, do no believe in what is, conventionally, interpreted as religion. I do not believe much in idol worship. I do have a mandir at home, and I do worship in my own way but I do not place much credence in agarbattis, poojas etc. As for different forms of organized religion, it really does not make much difference to me what religion one belongs to. Some of my best friends belong to other religious. My interpretation of religion is my work and people, friends, my family, people around me and one can practise religion by being committed, honest, unbiased and by caring about relation ... in work, be committed to whatever you are doing ... at home, fulfil whatever is expected of me as a wife, daughter-in-law, daughter, mother and so on. Religious texts do not have much significance. I read the Bible in school, as part of the curricula. I bought a copy of the Gita from a book fair but I have read it only sporadically. I find it to be very practical, but I do not consider the Gita to be a religious text. It is more of a management text. It talks about decision-taking. I would accept most of what is being said, whether it is being taught by Lord Krishna or for that matter by Jesus Christ.

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r r

~ (

Bhattacharya

421

Annexure-V Selected Comments on the Gita I find a solace that I miss even in the sermon on the mount. When disappointment stares me in the face, and all alone I see no ray of hope, I go back to the Bhagavad Gita. . Mahatma Gandhi I believe that in all the living languages of the world, there is no book so full of true knowledge. It brings to man the highest knowledge, the purest love, and the most luminous action. Madan Mohan Malaviya Its influence is not merely philosophical or academic, but influence both for thought and action, and its ideas are actually at work as a powerfully shaping factor in the revival and renewal of a nation and a culture. Arvind Ghosh The Gita is a bouquet, composed of beautiful flowers of spiritual truths, collected from the Upnishads. Vivekananda The Gita is an epitome of the Whole Vedic teachings. Its aim is supreme bliss. Adi Shankaracharya These (writings of the inhabitants of India) will survive, when the British dominion in India shall have long ceased to exit. Warren Hastings Bhagavad Gita is enshrined in millions of hearts as the word of dod, and is acknowledged by all as one of the supreme treasures of human literature. Its gospel of devotion to duty, without attachment, or desire of reward, has shown the way for all men, who have sought for light in the dark problems of life. Rajagopalachari When Gita is read, there help comes quickly; where it is enquired into, chanted, taught or listened to, on: Earth, there undoubtedly, unfailingly, do I myself reside. Radhakrishnan

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422 Marketing Implications ofthe Bhagavadgita

REFERENCES Aaker, David A. (1991) Value of a Brand Name. New York: The Free Press. --(1996) Building Strong Brands. New York: The Free Press. --and Erich Joachimsthaler (2000) Brand Leadership. New York~ The Free Press. . Fennell, G. (1978) "Consumers' Perception of the Product-use situation," Journal of Marketing, 42(2). Halden, Viscount (1913) Higher Nationality. London: John Murray. Harzberg, Frederick (1966) Work and the Nature of Man. Cleveland: William Collins. http://www.bcca.org/-cvoogt/Religion/Christianity.html http://www.encyclopedia.com/articles/10878typeso(ReligiousSystems.htm ] http://www.geocities.com/Athens/ Acropolis/ 1863/) Kapferrer, Jean Noel (1997) Strategic Brand Management. London: Kogan Page. Kotler, Philip (1999) Marketing Management: Analysis, Planning, Implementation and Control. New Delhi: Prentice Hall of India. Maslow, Abraham (1954) Motivation and Personality. New York: Harper & Row. Rossiter, R. John and Larry Percy (1987) Advertising and Promotion Management. Singapore: McGraw-Hill Book Co. Saraswati, Madhusudana (2000) Bhagavad-Gita with the Annotation GudharthaDipika. Translated by Swami Gambhirananda, Calcutta: Advaita Ashrama. Sankaracarya (2000) Bhagavadgita. Calcutta: Advita Ashrama. Sister Nivedta (1998) Religion and Dharma. Calcutta: Advita Ashrama Stanton, William 1., Michael 1. Etzel, and Bruce 1. Walker (1994) Fundamentals of Marketing. Singapore: McGraw-Hill, Inc.

Management

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2001)

I CORPORATE GOVERNANCE PRACTICES IN INDIA: A STUDY

AND

REPORTING

Kamal Ghosh Ray

Corporate governance is concerned with conducting the affairs of a company in such a way as to ensure fairness to customers, employees, investors, vendors, Government and the society at large. Developments on the Company Law front have, traditionally, looked at the use and abuse of power by company directors, their responsibilities, and the rights of the shareholders. During the 1980s and I 990s, companies were advised by management experts to adopt information management practices that 'would enable them to share information freely with their stakeholders. This has become the main driving force behind various corporate governance imperatives. Equally relevant is the conflict of interests between minority and majority shareholders. Several models, from the Cadbllry Committee, Greenbury Committee,Blue Ribbon Committee, Hampel Committee, the Combined Code of London Stock Exchange, the GECD Code etc. and in India, the Confederation of Indian Industry's (CII) Code and Listing Agreement in Indian stock exchanh,es have looked at the various issues related to reporting and control of corporates in greater detail. Today, it is often felt that the regulatOlY measures arc ineffective and inefficient in many ways if not accompanied by a culture of self policing and selfregulation. This article attempts to focus on corporate governance from this perspective of reporting practices and assess the degree of seriousness with which we view reporting practices.

INTRODUCTION

he Indian corporate sector was, for long, dominated by familyowned businesses as opposed to professionally managed corporations. That apart, the license raj resulted in high governmental interference in the day-to-day affairs of most companies. These factors did not encourage ad~rence to strong corporate governance. Investor-friendliness remained a marginal concern of corporate governance initiatives in the 20th Century. Until recently, we had bank-based financial systems, and the main source of finance for corporates used to come primarily from Management & Change, Volume 5, Number 2 (Winter 2001) @ 200 I Institute for Integrated Learning in Management. All Rights Reserved.

424 Corporate Governance and Reporting Practices in India the banks. The companies were not affected by any kind of market for corporate control. Now, we have a fairly mature capital market based financial system and there exists a discernable, SEBI administered market for corporate control. As India moves along the lane of globalization, many companies may find themselves short of capital. One of the ways to address this shortage could be sourcing global capital by way of ADRs, GDRs, FDI, ECBs etc. Indeed, the desire to source capital by listing in exchanges abroad will force companies to ad<;>ptacceptable accounting standards like the US GAAP (Generally Accepted Accounting Practices).Both the Confederation of Indian Industries (CIl) and the Securities and Exchange Board of India (SEBI) have stressed the relevance of accounting standards, transparency of information and decision making and a wider range of financial and non-financial disclosures. In order to adhere to these, there is no alternative but to subscribe to the highest standards of corporate governance. In achieving this objective, corporates are to take care of other stakeholders like customers, suppliers and employees who are very important, perhaps the most important, constituents of corporate activities. Therefore, the main objective of a corporate governance code, as perceived by both SEBI and ClI, is to provide a management structure which ensures that corporate resources are optimally used to achieve the objective of creating shareholders' value. An examination of the Cadbury Committee report on Corporate Governance reveals that its focus is still on maximizing shareholders' wealth. However, the concept of an organization based on the maximization of shareholder wealth will give way to the societal stakeholder-concept, under which socially-responsive organizations are created. As we move further into this millennium, companies will increasingly be evaluated on their contribution to the welfare of society. In a market economy, corporates aim at creating shareholders' value. But the market economy may fail to take care of the interest of the society in general. Therefore, the Government legislates various statutes to protect the interest of the various stakeholders. However, there is always a gap between the time when a need for protection is felt and when the legislation is actually enacted. This necessitates self-regulatory measures by all institutions including corporates to behave like good citizens who are expected to take care of the interest of all other citizens (Sundar Pushpa, 2000). An example is the growing concern for environmental accounting and reporting by corporates

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Ray 425 and also acknowledgement of the need for social audit to evaluate how a corporate has performed in creating societal value which is a much broader concept than the shareholders' value.

CII AND CORPORATE

GOVERNANCE

While drafting the path-breaking Desirable Corporate Governance Code (1997-98), the CII task force recognized the concerns for the protection of investors' interests, promotion of transparency within business and industry and the need to move towards international standards in terms of disclosure of information by corporate sectors in order to develop a high level of public confidence in business and industry. In its Recommendation nO.7 (Cn, 1998) the task force urged upon the companies to report certain key information, inter alia, to the board of directors. A summarized version has been provided in Table-I. .

Salient Information

Table-l Needs Listed in Recommendation

NO.7

Annual operating plans, budgets and updated long term plans Capital budget, manpower and overhead budgets Quarterly results for the company, operating divisions or business segments Internal audit reports including cases of theft and dishonesty of material nature Show cause and demand notices from revenue authorities whose exposure exceeds 1 percent of net worth Default in payment of interest and principal on any sort Qf loans and deposits Substantial

payments towards goodwill,

brand equity and intellectual

property

It is really surprising that the above fundamental requirements for efficient running of business are being discussed in the subject of corporate governance after such a long period of silence. The whole gamut was due to the presence of different identities of so-called "management" and "board of directors." One of the main questions that emerges is why there should be different identities like "management" and "board of directors." This means that one of the big issues in corporate governance is the lack of transparency and proper disclosure within the management groups. Both the bodies should constitute "company management." Mistrust among management groups will continue to stand in the way of good corporate governance and perhaps no code of conduct can avoid it. The quantity, quality and frequency of financial and managerial disclosures, the Management

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426 Corporate Governance and Reporting PracticeS in India extent to which the directors exercise their fiduciary responsibilities towards shareholders, the quality of information that management shares with their boards and the commitment to run transparent companies that maximize long term shareholder value cannot be legislated at any level of detail. SEBI, LISTING NANCE

AGREEMENT

AND CORPORATE

GOVER-

SEBI's Kumaramangalam Birla Committee on Corporate Governance, at its first meeting on June 4, 1999, agreed that the basic objective of corporate governance should be "the enhancement of long-term shareholder value while at the same time protecting the interests of the other stake holders" (SEBI, 2000). Why are the shareholders accorded this primacy of treatment? The answer is essentially because they own a slice of the company through their shareholding. Creditors have fixed claims and employee remunerations are negotiated in advance of performance: As residual claimants, shareholders have the appropriate right to justify their claims, legally and morally, being the owners of the business assuming the highest degree of risks. According to the agency theory, the senior managers and the directors are the agents of shareholders. So the principal goal, according to this theory, is to maximize the utility 'of shareholders. It is, of course, :possible to exploit other stake holders like .customers or employees by offering benefits to the shareholders. While recognizing the recommendations of the cn Code, this com. mittee has also identified three key constituents of corporate governance viz., shareholders, board of directors and the management. It attempted to relate the' respective roles of these constituents. The committee considered accountability, transparency and quality of treatment of all stakeholders as the key aspects of corporate governance. In the century-old Indian corporate history, we still talk about transparency of appointment of directors as well as reporting financial and non-financial information. It is well known to every one that only a small fraction of shareholders has the opportunity of attending the AGM or EGM. While it is not practicable for the company to reach every shareholder for detailed clarification of the financial and non-financial facts, at the same time, it is a big achievement for the companies to get the annual accounts solemnized by a small fraction of shareholders Management

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Based on the Kumarmangalam Committee Report, SEBI directed Stock Exchanges on February 21,2000 to amend the Listing Agreement by inserting a new Clause no. 49 in the agreement which applies to all private and public sector listed companies. This clause deals primarily with corporate governance norms. The schedule of implementation of the Code of Corporate Governance has been given in Table-2. Table-2 Schedule of Implementation • • •

•

By all entities seeking listing for the first time, at the time of listing Within March 31,2001 by all constituents of either Group A of BSE or in S&P CNX Nifty index (as on January 1,2000) Within March 31, 2002 by all listed entities, with paid-up' share capital of Rs~10 crores and above or net worth of Rs 25 crores or more at any time in the history of the company Within March 31, 2003 by all listed entities wi~ paid-up share capital of Rs .3 crores and above .

The salient requirements of clause 49 of the Listing Agreement include: Required combination of executive and non-executive directors; formation of Audit Committee; remuneration, compensation and service contracts of directors; number of board meetings; contents of annual reports and information to be provided on management discussion and analysis to shareholders, etc. Annexure-l gives more detailed listing, adopted from clause 49. REPORTING

CORPORATE

GOVERNANCE

Sub-clause VII of the clause 49 of the Listing Agreement requires that there shall be a separate section in the annual report on Corporate Governance carrying a detailed compliance report on corporate governance with "mandatory" and "non-mandatory" requirements. Annexure-2 gives a more detailed listing of the requirements adopted from sub-c1ause- VII. PHILOSOPHY OF CORPORATE INDIAN CORPORATES

GOVERNANCE

It has been observed that m~ny professional Management

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companies

OF SOME

were already

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428 Corporate Governance and Reporting Pract!ces in India

reporting on corporate governance in their annual reports before it became mandatory for them. The declaration of philosophies on the code of governance reported by some of this companies have been reproduced below.

Infosys Technologies Ltd. "The company is committed to good corporate governance and has benchmarked itself against global best practices. The company provides detailed information on various issues concerning the company's business and financial performance. The company respects the inalienable rights of its shareholders to information on the performance of the company and considers itself a trustee of its shareholders" (Annual Report, 2000-200 I).

Asea Brown Boveri Ltd. "The company is committed to good corporate governance. The company fully understands the right of its shareholders to be informed on the performance of the company and considers itself as a trustee of its shareholders. The company has always provided detailed information on various issues concerning the company's business and financial performance to the shareholders. The basic philosophy of corporate governance in the company is to achieve business excellence and dedicate itself to increasing long-term shareholders' value, keeping in view the needs and interests of all of its stakeholders. The company is committed to transparency in all its dealings and places emphasis on business ethics (Annual Report, 2000).

Blue Star Ltd. "Blue Star's philosophy on corporate governance envisages the attainment of highest level of transparency and accountability in all facets of its operations including its dealings with shareholders, employees, Government and other stakeholders. The company has been disclosing detailed operational data even before the concept of transparency and corporate governance came into statute books. Blue Star believes that all its operations and actions must serve the ultimate goal of enhancing shareholder value. This is amply clear from its uninterrupted track record of dividend and consistent bonus issues in the past" (Annual Report, 2000-200 I). Management

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Cummins India Ltd . "Corporate Governance is a set of principles, processes and systems to be followed by the directors, management and all employees of the company for enhancement of shareholders' value, keeping in view interests of other stake holders. The integrity, transparency and compliance with laws in all dealings with government, customers, suppliers, employees and other stake holders are the objectives of good corporate governance" (Annual Report, 2000-2001). BSES Ltd. "The company's philosophy on the Code of Corporate Governance is: i) To ensure that adequate control systems exist to enable the board to efficiently discharge it~ responsibilities to all the stake holders of the company ii) To ensure that the decision making process is fair and transparent iii) To ensure fullest commitment of the management and the board to the maximization of shareholder value iv) To ensure that the employees of the company subscribe to the corporate values and apply them in their conduct and to ensure that the company follows globally recognized corporate governance practices" (Annual Report, 2000-2001). BSES was awarded the Golden Peacock Award by the Institute of .Directors for contribution in evolving healthy corporate governance practices. THE COMPANIES

ACT AND CORPORATE

GOVERNANCE

In consonance with the activities by different bodies in the area of corporate governance, a new section, 292A, was inserted in December, 2000, in the Companies Act,J 965 stipulating constitution of Audit Committee, broad terms of reference and its functioning. As per this section, this committee has to act as a link between management, external and internal auditors, and the board of directors. The Audit Committee has full access to financial data and is responsible for an overview of the financial reporting process, review of internal audit work, periodic interactions with external auditors and review of quarterly, half-yearly and annual financial Management

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430 Corporate Governance and Reporting Practices in India

results prior to approval by the Board. The Audit Committee has to look into audit methodology and audit planning in order to ensure quality and accuracy of the company's financial process and areas of concern. Most importantly, this committee has to look into major issues relating to financial reporting and compliances in addition to risk management. There are contrasts between clause 49 of the Listing Agreement and section 292 A of the Companies Act on issues like: Size of the company, nature of directorship and their knowledge on finance and accounting. The stock exchange requires that companies having paid-up capital of Rs 3 crores and above shall constitute an audit committee from the financial year 2002-2003 whereas the Companies Act prescribes a minimum paidup capital of Rs. 5 crores. In the Audit Committee, the Listing Agreement requires presence of a majority of "independent" non-executive directors with the chairman being independent and at least one such director having financial and accounting kriowledge. But no such provisions are there in section 292 A of the Companies Act. The law makers could, in consonance, have avoided these contrasts. However, on examination of the code of corporate governance and the Companies Act,1956, it is felt that the measures are being used in a narrow sense because they mainly focus on the activities of the board of directors and its relationship with the company. Truly speaking, corporate governance should refer to those decisions by the senior executives of the company which have impact on the stake holder groups. It is the exec,utives (including whole-time directors) in charge of various functional areas like marketing, operations, finance, human resource; etc, who are actually driving the day-to-day affairs of the company, not the non-executive directors. Historically, founder-directors or owner-directors or promoter-directors have dominated the total board. The big focus is on the debate, insider-dominated board versus outsider-dominated board. Why pay differentials between directors and other employees of the company are not becoming an issue in corporate governance is a very important and relevant question.

ACCOUNTING NANCE

STANDARDS AND CORPORATE

GOVER-

A major perspective which has for long been ignored in corporate governance is that of accounting standards. One must not expect good corManagement

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Ray 431

porate governance without having good accounting standards. The accounting standards programme has basically originated from the need for more consistent financial reporting. The Institute of Chartered Accountants of India (lCAI) has taken the lead in this area. On the basis Of the recommendations of the Kumaramangalam Birla Committee Report, ICAI promptly brought out Accounting Standards on "Segment Reporting", "Related Party Disclosure", "Lease Accounting", "Earnings per Share", "Consolidated Financial Statements" and "Accounting for Taxes on Income". However, the ICAI has a long way to go as compared to the United States. While the US has around 130 odd Accounting Standards, India has only 23 to its credit. Accounting standards are primarily regulations or rules that govern the preparation of financial statements. The overall purpose of financial statements is to identify criteria for determining whether information is useful for decision making by the users of financial statements. If the information has these qualities, it should be reported; if it does not have them, it should not be reported. In accomplishing this goal, some areas have been identified and form a hierarchy of qualities of useful information such as usefulness, relevance, reliability, comparability and uniformity. By the amendment to the Companies Act, in 1999, the provision for constitution of National Advisory Committee on Accounting Standards has been enacted. A new section, 210A, has been inserted whereby this advisory committee is to advise the Central Government on the formation and laying down of accounting policies and accounting standards for adoption by Indian companies. The advisory committee will consist of : A chairman, being a person of eminence and well-versed in accountancy, finance, business administration, business law, economics or similar disciplines. • One member each to be nominated by the Institute of Chartered Accountants of India, Institute of Cost and Works Accountants of India, Institute of Company Secretaries of India. • One representative each from Central Government, Reserve Bank of India, Comptroller and Auditor General of India, Central Board of Direct Taxes and Securities and Exchange Board of India. • Two members to represent chambers of commerce and industries, nominated by Central Government • One professor in accountancy, finance or business management in any university or deemed university. Management

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432 Corporate Governance and Reporting Practices in India

By the same amendment, sub-sections 3A, 3B and 3C have been inserted in section 211 whereby every profit and loss account and balance sheet of the company shall comply with the accounting standards recommended by ICAI and disclosure of non-compliance. There are some ethical issues in the accounting profession. Firstly, ac~ counting information has the characteristics of a private good or of a public good. Second, the accounting information is normally asymmetrically distributed among the individuals and groups who have stake in the enterprise, thereby having a stake in the information generation process. Information asymmetries are generated between "insider" and "outsider" users of information. Corporate insiders may have the tendencies to engage themselves indirectly in insider trading, if not directly, in the capital market to their own advantage. The accountants place high value on confidentiality of information about the employer company. They also possess information about misdeeds of the employers and on ethical grounds that might merit unauthorized disclosure. Agency theory suggests that managers have powerful financial incentives to disclose only that information to outsiders which gives the enterprise and its management a strategic advantage. Income smoothing or profit smoothing is one of the very commonly practised manipulations for strategic reasons but it is believed to be technically ethical by accountants. In the debate of corporate governance, a great amount of attention has been paid by both scholars and practitioners to the process of setting financial accounting and reporting standards. The most important issue is how a standard setting agency should fulfil the responsibilities to stake holders. Laying down accounting standards is neither easy nor it is free from criticism. Some argue that accounting standards do not give choices to the companies to report their financial matters, thereby influencing the quality of financial reporting. The risk-averse companies may like to adopt very conservative accounting policies while a risk-taking company will follow a relatively less conservative approach. Since each company is unique, one may argue that it should be allowed to adopt standards suitable for its particular business. By imposing rigid standards there is, of course, a danger that an artificial uniformity will be created and this will prevent the users from recognizing the unique aspects of a particular company. As mentioned earlier, the stock market-driven corporate governance has become very important today, requiring high quality disclosure practices. The development of disclosure systems is parallel to deManagement

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Ray 433 velopment of the accounting profession. Day by day, demands for delivering higher return and higher shareholder value are being voiced by investors; and this is leading to increasing demands for high quality public disclosure as a mark of accountability to the public. We have noticed, in most of the cases, that disclosures are restricted to the compliance of rules and regulations. As per clause 49 of Listing Agreement, the companies are to report on corporate governance in the annual reports on items listed in mandatory and non-mandatory segments. But some blue-chip companies have been found to have by-passed the non-mandatory requirements. In the disclosure debate, voluntary disclosure has gained importance. Disclosure of forward-looking information can be considered to be very relevant in the capital market. In the post -WTO scenario, mere compliance of accounting standards may not help. It is suggested that the ideas of reporting indications of the company"s likely future developments in terms of numbers should be propagated by the accounting profession to achieve better corporate governance. Forn:ardlooking information is interpreted as Forecasts of Revenues, Profits, Earnings per Share, Statements of Management's Plans and Objectives for Future Operations etc. UNLISTED

COMPANIES

AND CORPORATE

GOVERNANCE

The general concern about corporate governance so far has been centred only around large companies, and more specifically, on listed companies. One has completely ignored a large chunk of Indian business purely because they are not listed. It is not expected that good corporate governance is not required of unlisted companies because they are not accountable to the capital market. All the rules, regulations, debates on corporate governance are concerning private and public sector listed companies. Practically, unlisted companies have been spared and kept away from observing the code of corporate governance. There are many large, family-run, multinational, public sector unlisted companies which are very well known and have large other stake holders. Table-3 lists some of these companies.

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434 Corporate Governance and Reporting Practices in India Table-3 Major Unlisted Companies Companies

Maruti Udyog Tata Sons Hyundai Motors Jet Airways LG Electronics Nirma Consumer Bennett Coleman BALCO Samsung Cargill

Total Income

PAT (Figures in Rs. crores as of March 31, 2001)

9,687 2,428 2,353

2,004 Care

1,766 1,552 1,216 967 967 961

330 663

52 10

o 206 56 28 (-)15

Source: Compiled from Business World, November 19,2001.

In the latest survey by Business World-CMIE (Centre for Monitoring Indian Economy, Business World, November 19,2001), it was observed that:

â&#x20AC;˘

Unlisted companies report poor profit margins Unlisted firms pay lower salaries and wages Unlisted companies pay lower dividends

It is being argued that due to considerably higher level of corporate governance, listed companies are better performers and hence have greater access to additional capital. There is a necessity to have good corporate governance in sizeable unlisted companies for the protection of the interests of other stake holders, if not the shareholders. Dilmah New Zealand Pty. Ltd., a well known tea company, with their production base in Sri Lanka, mentions on the tea packets that "Dilmah is a family owned and managed company. A family that has successfully reflected its values in the cost, quality and integrity of the brand." Is this not a reflection of the practice of good corporate governance by a closely held company? It is generally argued that listing is synonymous with greater transparency. Many of the large Indian companies started as family-owned businesses and later on became public. But the debate is still on whether to list on stock exchanges. If a listed company feels that the market is Management

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Ray 435 not valuing the company rightly, then it may be motivated to go for delisting. By virtue of Regulation 21(3) of SEBI Regulation, Bharti Telecom delisted itself in 1999. In the debate of listing or not listing, sometimes the compulsions of not listing become very strong. The views of the promoters of some unlisted companies have been given in Annexure-3.

COMPLIANCE GROUP

OR COMMITMENT?

THE MURUGUPPA

In October, 2001 the Chennai-based Rs. 3,900 Crore family-run Muruguppa group has been awarded "Distinguished Family Business Award" by IMD, an internationally renowne6 Business School of Lausanne, Switzerland. The award has acknowledged the success of the family-promoted business organization that has demonstrated continuity, value creation, social contribution and change management. In addition to achieving superior business performance, the company has taken the responsibility for devel0ptnent of neglected areas in Tamil Nadu. A portion of annual profit is contributed to run educational institutions, research centres and health care activities. On the subject of social contribution, the fourth generation family member M. M. Murugappan says, "Ladies of the family oversee these activities to ensure a high standard of quality and service at virtually no cost to the citizens. The humility we derive from this reminds, us of our own beginnings and makes our lives more meaningful" (The Economic Times, December 14, 2001). The group has transformed the business from family-run to a professionally managed one. A corporate board has been formed with seven family members and three independent directors. The family chairman has stepped down and given the chance to an independent non-executive chairman. The group's commitment is towards excellent corporate governance through high quality of disclosure norms of international standards. The management has identified the seven most important factors responsible for excellent corporate governance and these are: 1. Willingness to take risks 2. Anticipating change and showing willingness to adopt change 3. Display of humanity 4. Combining hard work and sacrifice 5. Abundance of trust Management

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436 Corporate Governance and Reporting Practices in India 6. Dealing with affection 7. Operating with pride

In the case of unlisted companies, enterprise value is more sensible than shareholder value. It seems that the firm value ofa family controlled company may be dependent on the nature and extent of family influence under various corporate governance conditions. Undoubtedly, there is a unique corporate governance scenario under which family control may be more effective. Researches are suggested to understand the relationship between corporate value and corporate governance in unlisted familyowned or promoter-owned organizations (Misra Chandra et al., 2001). DOMINANCE

BY ACCOUNTING

PROFESSION

Corporate governance goes beyond numbers. Compliance of rules for corporate governance is subordinate to business ethics and commitment to all stake holders. The licence raj has gone but the audit-raj is very much dominating the affairs of corporates, sometimes unnecessarily and quite uncalled for. Corporate governance is just not a statement, it is the practice for the welfare of all associated with the company. One fails to justify the requirement of certification on the report of corporate governance (in annual report) by statutory auditors. In such certification, compliance has again become the core theme. To be very frank, such certification is superfluous. Mere compliance of the conditions of corporate governance as stipulated in the Listing Agreement does not assure efficiency of the management in the conduct of the affairs of the company that will provide value addition to all the stake holders. The external audit culture on non-financial areas shall be replaced by self-policing and selfaudit failing which good corporate governance may not be ensured. CONCLUSION Truly speaking, corporate governance goes far beyond laws. Good corporate governance is a state of the mind. It cascades a set of core values that need to be instilled at all levels of the organization. The accounting bodies have to continue to work on the unfinished agenda of corporate governance and accounting standards. Mere compliance may not mean that best practices are being followed by the company. Corporate governance does not imply high sounding proclamation of so-called good Management

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Ray 437 efforts by the company. Also, it does not mean paying a record dividend (e.g. 750 percent, as declared by VSNL). It is not robbing Paul to pay Peter. Indian corporates must get out of mere compliance and should concentrate on best practices through innovation, entrepreneurship and risk management, and must not indulge in insider trading to pave the path of fairness to all who are interested in corporate affairs. The hall-mark of good corporate governance should be honesty, integrity, ethics and values.

ABBREVIATIONS USED ADR AGM

BSE

err CMIE CNX

CRISll..,

ECB EGM FDI GAAP GDR ICAI

OECD SEBI

American Depository Receipt Annual General Meeting Bombay Stock Exchange Confederation of Indian Industries Centre for Monitoring Indian Economy Standard & Poor Crisil NSE Nifty Index Credit Rating and Information Services of India Ltd. External Commercial Borrowings Extra Ordinary General Meeting Foreign Direct Investment Generally Accepted Accounting Principles Global Depository Receipts Institute of Chartered Accountants of India Organization of Economic Cooperation and Development Securities and Exchange Board of India

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438 Corporate Governance and Reporting Practices in India Annexure-I Clause 49 of the Listing Agreement i)

ii)

Having optimum combination of executive and non-executive directors, not less than fifty percent of the board of directors being non-executive. At least one-third of the board to comprise independent directors in case of a non-executive chairman, or, At least half of the board should comprise independent directors in case of an executive chairman. Formation of a qualified and independent Audit Committee comprising and requrrmg:

Minimum of three members being non-executive directors, majority being)ndependent and at least one such director having accounting knowledge. Chairman of the audit committee being in independent director shall be present in AGM to reply to shareholders' queries. Heads of financ'e, internal auditor and representatives ,of external auditors to be present in the meetings when called for. At least three meetings to be held in a year with one meeting for finalization of accounts. Powers to investigate within its terms of reference and seek information from employees and outside professional advice, etc. Its role in company's financial reporting process, appointment and removal of external auditor Reviewing annual financial statements before submission to the board focusing on: • Changes in accounting policies and. practices • Management judgment on major accounting entries • Qualifications in draft audit report • Significant adjustments arising out of audit • Going concern assumptions • Compliance with stock exchange and legal requirements • Related party transactions Reviewing with management, internal and external auditors regarding adequacy of internal control, findings of investigations, suspected fraud or irregularities etc, Reviewing financial and risk management policies and discussion with external auditors regarding scope of audit and post-audit matters etc. Looking into substantial defaults in payment to shareholders (non-payment of declared dividends), depositors, debenture holders and creditors iii) Deciding remuneration and compensation and service contracts of all categories of directors and disclosures in annual reports, iv) Number of board meetings to be held not less than four in a year with a Management

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p---------~---------------j Ray 439 maximum gap of four months between two meetings wherein the infornlation to be made available being: Annual operating plans, budgets and updates Capital budgets and updates Quarterly results of the company, operating divisions and business segments Minutes of audit committee and other committee meetings Appointment of senior officials just below the board level Show cause or demand notice, fatal or serious accidents, pollution problems Any material financial default to and by the company, substantial nonpayment by customers Details of joint venture or collaboration Substantial payment for goodwill, brand equity or intellectual property Quarterly foreign exchange exposure and its management towards adverse movement of exchange rates Sale of assets, subsidiaries, and investments (not in the normal course of business) Non-compliance of regulatory requirements and shareholder servicing v) Annual report to contain management discussion and analysis on matters relating to: Industry structure and development Opportunities and threats '. Segment-wise and product-wise performance Outlook Risks and concerns Internal control systems and their adequacy Financial performance with respect to operational performance Material developments in human resources or industrial relations including number of people employed Management disclosure to the board on all material financial and commercial transactions where there is conflict between personal interest and company interest vi) Shareholders to be provided with specific information including brief resume for appointment and reappointment of directors, quarterly results on company's web site etc.

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--------,---------------------, 440 Corporate Governance and Reporting Practices in India Annexure-2 Requirements of sub-clause VIII of clause 49 of the Listing Agreement. The "mandatory" requirements are: Statement on company's philosophy on code of governance. Board of Directors: Category and composition, attendance in board meetings, etc. Audit Committee: Brief of terms of reference, composition, details of meetings and attendance, etc. Remuneration Committee: Brief terms of reference, composition, details of meetings and attendance, remuneration policy, details of remuneration, etc. Shareholders Committee: Head of the committee, compliance officer, complaints received and solved to the satisfaction of shareholders, pending share transfers, etc, General Body Meetings: Location and time where last three AGMs held, special resolutions, postal ballot, voting pattern, etc. Disclosures: Materially significant related party transactions, non-compliance of strictures or penalties imposed by SEBI, Stock Exchanges, statutory authority on any matter related to capital markets,etc. Means of Communication: Half-yearly report, quarterly result, in which newspapers nornlally published in, website where displayed, management, management discussion and analysis, etc. General shareholder Information: proposed AGM date, time, venue, financial calendar, book closure etc., stock code, market price data, perfornlance in comparison to BSE-Sensex, CRISIL-Index, dematerialization, outstanding GDRs/ADRs/Warrants/Convertible Instruments, plant locations, address for correspondences, etc. The "non-mandatory" requirements include: Chairman of the Board: If there is no executive chairman, there shall be a non-executive chairman who should be entitled to maintain chairnlan' s office at the company's expenses and reimbursement of expenses towards performance of his duties. Board to set up Remuneration Committee to frame policy on specific remuneration packages for executive directors. Shareholder Right: Half-yearly declaration of financial performance including summary of significant events in last six months to be sent to each shareholder. Postal Ballot: Shareholders who cannot attend general meeting should be able to vote by postal ballot for key decisions in matters like: Alteration of memorandum of the company Sale of whole or substantially the whole of the undertaking Management

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Ray 441 Sale of investments in companies, where the holding or voting right exceeds 25 percent Further issue of shares through preferential allotment or private placement Corporate restructuring Entering a new business area not germane to the existing business of the company Variation in rights attached to class of securities Change in management The non-mandatory requirements are to be implemented as per the discretion of the management. However, the disclosures of adoption or non-adoption of such non-mandatory requirements shall be made in the section on corporate governance of the annual report. Annexure-3 Views of Promoters of Major Unlisted Companies 1.

Adi Godrej, Director, Godrej & Boyce: Incorporated in 1932, Revenues: Rs. 810 Crore, PAT: Rs 49 Crore "It makes no sense listing companies, where the companies do not require additional funds for expansion or where the company may have significant assets other than those required for the}r normal business, which the stock market may not sufficiently value." Pradeep Garg, Managing Director, Kundan Rice Mills: Incorporated in 1971, Revenues: Rs. 1,197 Crore, PAT: Rs 5 Crore "If! have to take risk, I'd take it on myself. I would not want to put small investors into trouble unless I am 300 percent sure." Mehul Choksi, Managing Director, Gitanjali Gems: Incorporated in 1966, Revenues: Rs. 1,853 Crore, PAT: Rs 31 Crore "Confidentiality of intellectual property and cost savings are important advantages that accrue to an unlisted company" S S Lee, Managing Director, Samsung: Incorporated in 1995, Revenues: Rs. 967 Crore, PAT: Rs 28 Crore "Decision making is faster in unlisted companies since the process of holding a shareholders meeting is simpler" (source: Business World, 19 November, 2001)

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442 Corporate Governance and Reporting Practices in India

REFERENCES Balasubramanian V. (2001) "All in the Family," The Economic Times, December

14. Brooks, Leonard 1. (2000) Business & Professional Ethics for Accountants. Ohio: South- Western College Publishing. Confederation ofIndian Industry (ClI) (1998) Desirable COIporate Governance: A Code. New Delhi: ClI, April.. Datta Subhashish (2000) "Corporate Governance: Role of Audit Committee," The Management Accountant, 35(7), July. Demirag, Istemi S. (1998) C01porate Governance, Accountabili(}J and Pressure to Pelfqrm, An International Study. edited, Stanford: Jai Press, Inc .. Dubey Rajeev .(2001) "Flag Learners of Unlisted companies," Business World, 19 November. ICAI (2001) Guidance Note on Certification of Corporate Governance, May. Keasey Kevin, Steve Thompson and Mike Wright (1997) COlp(Jrate Governance: Economic and Financial Issues. edited, Oxford: Oxford University Press. Kendall Nigel and Arthur Kendall (1998) Real-world C01porate Governance. London: Pitman Publishing. McIntosh Malcolm, Deborah Leipziger, Keith Jones and Gill Coleman (1998) C01porate Citizenship: Successful Strategies for Respobsible Companies. London: Pitman Publishing. Mishra S. Chandra, Troud Randoy and Jan Inge Jenssen (2001) "The Effect of Founding Family Influence on Firm Value and Corporate Governance," Journal of International Financial Management, 12:(3), Autunm. Neelamegam, R. and V. Gopathy (2000) "Globalization and Corporate Governance in India," The Management Accountant, 35(7), July. Saeed Khawaja Amjad (2000) "Corporate governance: global experience," The Management Accountant, 35(10), October. Securities and Exchange Board ofindia (2000) "Report of the Committee on Corporate Governance," Bombay: SEBI. Sundar Pushpa (2000) Beyond Business: From Merchant Chari(y to C01porate Citizenship. New Delhi: Tata McGraw-Hill. Taxman (2001) Taxman's Companies Act. New Delhi: Taxman.

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BOOK REVIEWS Marketing Gaur, Sanjay Singh and Saggere V. Sanjay, Event Marketing and Management. New Delhi: Vikas Publishing House, 2001. 243pp. Rs.240/-. . Corporate image and brand building today have come to the forefront of all promotional activities. In this context, event marketing has become a powerful communication tool along with the other promotion tools, so much so that it has become a new specialized marketing field like advertising or direct marketing. Companies draw attention to their names and products with the help of multiple image building techniques that include news conferences, seminars, outings, exhibitions, contests and competitions, sports or fashion event sponsorships, that reach the target audience. The book is the answer to the marketers' need for design, execution and marketing of any event ranging from a press conference to a fashion show. The authors have covered the various aspects in event marketing and management with an Indian focus. As stated by the authors, the need for the book is certainly there because of the lack of literature in this area especially in the Indian context. Although companies have been holding press conferences and sponsoring events for a long time now, a need for an organized way of carrying out such activities has been felt even more keenly over the last couple of years. The desired mileage and results from events have become important. The authors have taken a lot of inputs from their own project for a leading event management company; this has given a real world flavour to the book. The book contains good examples of management and marketing of various events across the country. The events industry as per the authors should be touching a figure of Rs. 500 crores with an astonishing growth rate of 50 to 100 percent per year. The estimates are so good, that the need for a book on the subject is an absolute necessity.

Management & Change, Volume 5, Number 2"(Winter 2001) ~. 2001 Institute for Integrated Leal11ing in Management. All Rights Rescncd.

444 Book Reviews The book under review has been organized into three parts, introduction to events, event marketing and event management. The three parts comprise a total of 11 chapters. In the first section of the book, the author discusses events; their definitions, the need for events and how they are used in different areas of marketing and marketing communication. The first chapter introduces terms like events and event marketing and discusses basic concepts. The second chapter has discussed the diverse marketing needs addressed by events. This is a very useful chapter to get an insight into why it is important to know event. marketing and management. The section ends with a chapter on key elements of events. A checklist at the end of this section would have been useful. Further, a summary at the end of the section could have put together the key points and led onto the next section. The second section is on event marketing. It starts with event markets and the P's of event marketing. A section of interest for marketing students, it commences by looking at marketing strategy issues in the segmentation, targeting and positioning of events and then progresses on to the tactical decisions of the mix and implementation of the strategy. There is a chapter each devoted to event products, event pricing and event promotion. This section could have been started with a chapter on marketing planning, followed by the other chapters, in order to give a complete picture. A simple model or framework of marketing planning for events would also have added value to this section. The third section focuses on event management and the strategic issues in event management. It is divided into four chapters. The first chapter details on the event management tasks and certainly deserves more attention and detailing. Event management is critical and since the book is on event marketing and management,' a reader expects more from this particular chapter. The strategic marketing planning and the strategic alternatives for growth are well-written with appropriate examples. The last chapter is on performance evaluation where the authors discuss the different ways of measuring performance of events. This section could have been even more useful for students for analyses of market situations if a couple of case studies were appended. The book, on the whole, is useful, written in reader-friendly and lucid language. If one looks at the limitations, the authors could have added objectives and conclusions with each chapter, establish the need for the Management

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Book Reviews 445 chapter in the beginning and summarize it at the end, leading onto the next section. This aspect is missing in the text. Perhaps the authors would consider this recommendation in subsequent editions. References should come with each chapter; this ensures credibility of data and ease in further reading. There is only one comprehensive case in the book, which covers all the issues in events. Small cases or even comprehensive cases at the end of each section would enable one to look at the parts of event marketing and event management separately, develop a deeper insight and finally, a comprehensive case as given, should follow. A student would not be able to understand a comprehensive case without attempting a series of topical case studies earlier. Appendix C could have been made complete by providing a region-wise list of operations and also, the areas of expertise, website details, wherever possible, should have been included. People involved in organizing events for the first time will find a checklist or a flowchart or point-wise procedure very useful. This could be given in an appendix or as a summary at the end of the last section. The book is aimed at event professionals, beginners and also students and a variety of people would find it useful for successful event organization. The book comprises rich inputs of information content on event marketing and management. I am sure it will provide significant value addition to all who are interested in this subject. Sapna Popli Fellow-Marketing Area, Institute for integrated Learning in Management, Lodhi Institutional Area, New Delhi -110003. Singh, SukhpaI, Rural Marketillg Mallagemellt. New Delhi: Vikas Publishing House Pvt. Ltd. 2001. xii+142pp. Rs. 150/-. We have, most of us, been born, brought up and educated in the claustrophobic ally populated cities and have had but the opportunity and inclination to know or study or understand only what surrounds us, the city life, its problems, the solutions etc. So it is not surprising that we all understand the intricacies and minutities of soap and detergent markets, its distribution wars, Cola wars and its aftermath of mass irrelevance Management

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446 Book Reviews and irreverence, fast food chains' subtle differentiation strategics or the merchandising approach of the fashion labels. The talk of rural marketing will conjure up images for most of us of the penetration of toothpaste and shampoo via the satchet route and the "haats" and "melas" into the depths of the rural India. Some may profess that it includes the popularization and promotion, distribution and pricing of tube-wells and tractors; or how well black and white television has penetrated and subsequently been dethroned by colour television. While reading the book under review, my mind brought back memories of the long forgotten Krishi Darshan with its simplicity and rustic charm that probably none of my students have even a faint idea of. The basic concepts behind rural marketing have lucidly and succinctly been brought out right in the beginning of the book. In fact, the very first table in a matrix format summarizes the entire area. According to the author, the domain of rural marketing comprises three sets of interactions, rural to rural, rural to urban and urban to rural. But the author has limited the discussion and scope in this book to only marketing of rural inputs which comprises marketing of products like seeds, fertilizers, tractors, pesticides, credit and has not looked at the vast inflow of typically urban goods into the rural market. The marketing of consumer products in mel as and haats, the dynamics and distribution of rural produl:e as well as movements of the much-soughtafter urban goods, are conspicuous by their absence. In that sense the book should perhaps be rechristened as "Marketing of Rural Inputs." Chapters I and 2 are a stark contrast in writing style, being written in formal language targetted at academicians, to the subsequent chapters, which are easier on the eye and the mind. The book will appeal to a very select set of readers like marketing students studying courses on agriculture inputs imd those who have never been exposed to any form of rural marketing. Further, credibility could have been added to the book by formal references, as well as sources of compiled data. However, given the dearth of books in the area of rural marketing, the book, despite its shortcomings, needs to be lauded. Ritu Gupta Fellow, Marketing Area, Institute for Integrated Learning in Management, Lodhi Institutional Area, Lodhi Road, New Delhi-I 10003. Management

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Book Reviews 447

Khera, Pramod, Frallchisillg-the route map for rapid Busilless Excellellce. New Delhi: Tata McGraw-Hili Publishing Company Limited,

2001, i+xixpp.

price

not mentioned.

"Wave of the future," is how John Naisbitt describes franchising in his book "Mega Trends" describing it as the "single most successful marketing concept ever;" a statement that can be and is very much debatable especially by those who have written books on other subjects. Without doubt then, that a book of Indian origin, a work with details of behind-the~scenes of working out franchises was very much in order. The author is as worthy a proponent as they come, with firsthand experience of rewriting the rules for our market as well as abroad for his company, Aptech Ltd. Franchising is a system for distributing goods and services as well as an opportunity for entrepreneurs to operate a business under a recognized brand-name, on a modest investment so as to replicate success at a known cost. A franchise deal is one where the franchisor licenses its brand and/or its operating methods to a franchisee, who agrees to operate according to the terms of the franchise agreement. The franchisor provides the franchisee with support and supplies and exercises some cont~ol over the way the franchisee operates under the brand'. In exchange, the franchisee usually pays the franchisor a francl1ise fee and a continuing royalty for the use of the brand name and operating methods. Both make their own money. Rated as one of the world's all-time great marketing ideas, franchising provides a mechanism for ~orporates, big and small, to expand their reach quickly. To reiterate a by-now historic fact, this is how McDonald grew from a single hamburger restaurant near Chicago in 1955 to about 28,000 franchised outlets in 121 cities, each a near-perfect replica of the other. The book is well-structured with neat headings and well-drafted chapters in good sequencing. It gives adequate and sufficient details of the prerequisites and nuances of the business of franchising. The book carries portions of relevance for both the parties-the franchisor as well as franchisee. "Checklist for Franchising" is a good compilation (pp. 1417) but suggested que'stions for selecting and setting up franchising unit (Chapter 4, pp. 45-46) seem uninspired and too utopian. Let us take a a look at a sample. "Rate your response as 3, 2 or 1 depending on, "whether you agree totally, partially or not at all." A few sample stateManagement

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448 Book Reviews ments are: "Your motivation and drive to achieve succcess are very strong, "You are prepared to work long hours to make the business succeed, "You love to sell," "Your spouse is supportive of you starting a business" etc. Perhaps a more focused and probing set of statements would have added value considerably. What the book may possibly suffer from is over-generalization, which may have been a requirement too, for a book of this nature has to cut across categories and address broad issues irrespective of specifics. What could possibly have been done was to include more caselets and ex: amples in shaded boxes. On the whole, it is a worthy book; even the print quality is upto the mark. It should find readers among students seeking a reference on franchising for innumerable projects, dissertations and discussions; as well as practitioners, the ones looking at franchising as entrepreneurial options. Ritu Gupta _ Fellow, Marketing Area, Institute for Integrated Learning in Management, Lodhi Institutional Area, Lodhi Road, New Delhi-l 10003. Finance and Accounting Chakravarty, S. K., Accountancy for CA. FOUl,dation Course. New Delhi: New Age International (P) Ltd., 2001. 720pp. Rs. 275/paperback. Even though the target readers of the book are the aspirants of the Chartered Accountancy course in India, the book covers the syllabi of undergraduate levels of various Indian universiti~s as well as the intermediate courses of other accountancy and allied professional institutes. The book comprises twenty five chapters followed by the questions set at the C.A. Foundation Examination, on 'Fundamentals of Accounting' paper from November, 1996 to May, 2000 along with model answers. At the outset, the author has tried concisely to present the fundamentals of accounting in a very scientific manner, explaining the differences between cash basis and accrual basis of accounting as well as the hybrid system with interesting examples. The various conventions, concepts and postulates and the balance sheet equation have been explained Management

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very lucidly with numerical examples. The book starts with an introduction to accounting standards and its significance in financial reporting. The second chapter deals with double entry, single entry and quasi-single entry systems of recording business transactions up to the level of ledgers. Chapters 3 and 4 deal with cash book and bank reconciliation statement. While introducing the subject of bank reconciliation statement, various types of bank accounts and different types of crossings have been briefly explained to create interest amongst students. Unlike other accountancy books, trial balance has been covered separately in chapter 5 with various adjustments. Chapter 6 deals with subsidiary books. Rectification of errors, provision for bad debts and discount on debtors and creditors have been discussed with proper explanations in chapters 7 and 8. The basics for the preparation of final accounts for trading and non-trading organizations have been methodically discussed with many problems and their solutions in chapters 9 and 10. The accounts of lawyefs, doctors, accountants etc. are dealt with in chapter 11 very lucidly. Accounting for depreciation including reserves has been discussed with various tpeories and methods in chapter 12 followed by a number of problems and solutions. Chapter 13 is about inventory valuation, which has been discussed in the light of Indian accounting standards. The various adjustments that are required in physical stocking have been properly dealt with in this chapter. Technical aspects like 'consignment accounts, joint venture accounts, average due dates, bills of exchange and promissory notes and self-balancing and sectional balancing systems have been exhaustively treated in chapters 14 to 18. The very important aspects of partnership accounts comprising profit and loss appropriation, treatment of goodwill, admission, retirement and death of a partner as well as dissolution of partnership have been covered in exclusive style in chapters 19 to 24, with many illustrations. A typical chapter on amalgamation of sole proprietors' firms into a new partnership firm as well as conversion or sale of a partnership firm to a company has been incorporated at the end in chapter 25. A unique feature of the book is that it has set multiple choice and objective type questions at the end of each chapter, along with descriptive and numerical questions. Another distinguishing feature is its exclusive style of expression along with illustrations, problems and solutions supported by working notes. .

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450 Book Reviews The author has indeed made very sincere efforts to present the subject to the target readers with a great degree of clarity. The book will, therefore, prove very useful to not only to the C.A. Foundation students but also to other accountancy students at various levels.

Kamal Ghosh Ray (Dr.) Professor, Finance and Accounting Area, Institute for Integrated Learning in Management, Lodhi Institutional Area, New Delhi-l 10003.

Pandian, Punithavathy, Security Analysis and Portfolio Management. New Delhi: Vikas Publishing House Pvt. Ltd. 2001. 464pp. Rs. 180/- paperback. In recent years in India, "security analysis and portfolio management" has emerged as a separate academic discipline in the study of management and commerce. The objective of the subject is that the investors do not make their investment decisions in securities by their whims and fancies and by rumours as is popularly believed, but by rational analysis. In the present scenario, investment in the stock market is really a major challenge even for seasoned professionals, especially in the light of the recent US-64 debacle. The subject is very technical and very few books have been brought out in the Indian context. Dr. Pandian' s effort in writing this book is undoubtedly a commendable job in this regard. . The book has been divided into three parts. Part I elaborates, in the first 8 chapters, the basics of investment and different forms of securities of Indian stock markets. Part II, contained in 7 chapters, exclusively deals with different aspects of security analysis; whereas in Part III, 6 chapters are devoted to portfolio analysis. In the first two chapters, various types of corporate financial investments, government investments and investments in real assets have been very lucidly introduced to the readers. The primary capital market, including private placement, book building, bought-out deals, pricing of new issues have been discussed in brief in the third chapter, "New Issue Market." The fourth chapter on "The Secondary Market" primarily deals, in brief, with various aspects of the functioning of stock exchanges. The procedures of listing of securities in stock exchanges and the functioning of some of the important stock exchanges like BSE, NSE, ISE, OTCEI and the deposiManagement

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tory participant NSOL are discussed in brief in chapters 5 and 6. The seventh chapter, "Stock Market Indices," explains lucidly how stock market indices are computed and other related details. Part I of the book ends with SEBI, its functions and role in Indian capital markets. The technical subjects like risk, valuation of bonds and stocks, fundamental analysis, technical analysis and efficient market theory have been explained with theorems, diagrammes, examples, problems and solutions in chapters 9 to 14 very precisely and in such a way that lay readers who have some interests in investment, will be able to understand this technical subject. Part II ends with chapter 15 on discussion on derivatives, "Options and Futures" in such a lucid manner that the finance students and professionals would be able to understand this modem and critical area very easily. The author has very efficiently handled the most important and highly technical subject, portfolio construction, in chapters 16,to 18. She has used numerical examples to explain the difficult Makowitz and Sharpe Index Models for portfolio construction in such a way that the students will find it easily understandable. In chapter 19, she has explainedanother highly technical aspect, "Capital Asset Pricing Theory and Arbitrage Pricing Theory," with examples in a lucid manner. How a fund manager will proceed to evaluate his portfoHo performance has been dealt with in chapter 20 on "Portfolio Evaluation." To conclude, in chapter 21, she has analyzed portfolio revision as a tool to maximize overall returns from portfolios. The book provides basic understanding of the subject to any person interested in this area; be he an investor, a fund manager, a finance student, or an academician. The unique feature of the book is that it has covered a wide spectrum of the subject in a reader-friendly manner. It contains a good number of problems with solutions, descriptive questions followed by multiple-choice questions in almost each of the chapters. The sincere efforts of the author will prove helpful for the target readers. Kamal Ghosh Ray (Dr.) Professor, Finance and Accounting Area, Institute for Integrated Learning in Management, Lodhi Institutional Area, New Delhi-l 10003.

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452 Book Reviews

Organizational

Behaviour

Khorshed D. P. Madon and Homai McDowell, Office Administration and Management (3rd edition). New Delhi: Vikas Publishing House Pvt. Ltd., 2001. xx+339pp. Rs. 150/- paperback. The revised and updated edition of this book gives an overview of administrative management covering the overall aspects of the duties and responsibilities of the administrative manager and the work of the various departments in any business organization. The book under review has been divided into four main parts constituting eighteen chapters. Besides, the book also contains summary of each chapter, a feature usually not found in most of the books, select bibliography, and an index. Chapter one has dealt with the scope and functions of administrative management. The authors have also discussed the distinction between the two terms "administration" and "management". The role and qualifications of an administrative manager have been covered in this chapter. Chapter two has presented the basic principles of administrative organization. Different forms of organizations have been explained with the help of organizational charts. The authors have also dealt with recent innovations in organizational design in the concluding part of the chapter. Chapter three has focused on office systems, procedures and methods, beginning with the distinctions among these terms, followed by their relevance to management effectiveness. As organizations grow in size and complexity, and management is decentralized, the informational needs of management keep on increasing. Management's growing dependence on information is matched by its growing involvement with scientific management which has replaced, to a great extent, management by hunch or guesswork and has been substituted with management by facts and measurements. Chapter four has dealt with the concept of management information systems (MIS). Different forms of managerial reports have also been lucidly presented in this chapter. Chapter five has very systematically presented records management and control. The basic steps in any records operation have also been discussed. The chapter has ended with a brief note on the objecti yes of a records management programme.

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Chapter six has focused on forms design and control. Purpose and classification of office forms have also been dealt with in this chapter. The authors have also discussed principles of, and guidelines for, forms design and control. Chapter seven has been devoted to office communication services, beginning with the concept of communication process followed by various types of office manuals. The authors have explained various barriers to communication while concluding the chapter. It is a fact that a pleasing and conducive office environment creates better public relations as well as happier human relations. Chapter eight, entitled "environmental management" has dealt with these aspects in relation to the office. Chapter nine has presented some of the most widely used office machines and equipments. Chapter ten has dealt with data processing. Different types of data processing systems have been explained in terms of machines and equipment needed by these systems and their suitability for business organizations. This chapter also contains relevant details about computer systems, computer generations, computer programming, computer languages, feasibility of computer usage and data administration. Every manager, whether he or she is managing a firm, an office, a factory, a shop etc. has to act through people. They must, therefore, understand that personnel management is one of the basic functions that managers have to perform. The next six chapters of the book are devoted exclusively to important personnel functions. Chapter eleven has dealt with the basic principles of manpower planning followed by a brief note on various techniques for forecasting manpower requirements. Chapter twelve has covered another major function of personnel management, i.e., staffing. The authors have discussed the various sources of recruitment and the different steps involved in the selection process. Chapter thirteen is devoted exclusively to the discussion of, perhaps the most important step in the selection process, i.e., the interview. This chapter also provides a brief understanding about placement, induction programmes, and follow-up procedures. Chapter fourteen has focused on training, beginning with the concept and followed by various types of training programmes used in organizations. Management cannot rest with just performing the function of staffing the enterprise. Selecting and training employees must be followed with appraising employee performance and setting up of an effective system of compensation. Chapter fifteen is devoted exclusively to the disManagement

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2001)

454 Book Reviews cussion of wage determination and salary administration. This chapter also contains relevant details about some specific issues like job analysis, job evaluation, work measurement and work standards etc. Chapter sixteen has dealt with the concept of performance appraisal followed by various methods of appraisal. Chapter seventeen has dealt with the concept of leadership. The text includes discussion on issues like leadership qualities, leadership styles, and leadership functions. Chapter eighteen has focused exclusively on certain core motivational issues. The authors have also dealt \Yith differentmotivational theories. Job redesign has been explained in terms of job rotation, job enlargement, and job enrichment. On the whole, the authors should be commended for doing such an excellent job of assembling and elaborating on the various issues. They have drawn upon their vast experience to present a practical view on the subject matter. Use of charts, tables, diagrammes, and photographs to explain the theoretical input has indeed enriched the present text. However, the worth of the book could have been increased further, if Part III (Chapters 11 to 16) and Part IV (Chapters 17 and 18) had been supplemented with working exercises and cases for discussion, which comprise an important part of teaching and training today. Despite this, the present contribution is useful and a valuable one for both the academicians and students as a text book on administrative management. Further, the wealth of knowledge contained in this book makes it a must for every office administrator. Padmakali Mishra Assistant Professor, Organizational Behaviour Area, Institute for Integrated Learning in Management, Lodhi Institutional Area, Lodhi Road, New Delhi-I 10003. Anup K. Singh, Rajen K. Gupta and Abad Ahmad (Eds.), Designing and Developing Organizations for Tomorrow. New Delhi: Response Books (A division cloth.

of Sage Publications),

2001. 356 pp. Us. 495/

Managing change is probably the single most important issue today for all those who have undertaken the difficult task of managing organizations. There are increasing demands on organizations to be more flexibile, Management

& Change.

Volume 5, Number 2 (Winter

2001)

Book Reviews 455 responsive and efficient. Around the world, organizations, both big as well as small, face the inevitable prospect of change. Therefore, preparing organizations for emerging economic and geopolitical challenges has become paramount. Any kind of change invariably narrows down to changes in the mindset and behaviour of people. Changes in an organization demand new perspectives and strategies from change leaders and facilitators. The book under review is an attempt to reflect the concerns and responses of change leaders and change facilitators in the Indian context. It is largely based on the papers presented in a three-day national level seminar on "Organization Development and Designs in India" held in November, 1998 at the Management Development Institute, Gurgaon. -The book has been divided into three parts besides the introductory chapter. Chapter l, contributed by Rajen K. Gupta and Anup K: Singh, has dealt with the universal and culture-specific approaches to organizational change and development. A brief review of select literature on the cultural critique of organization development (OD) has also been presented in this chapter. The authors have discussed the outstanding features of the Indian psycho-cultural reality in the context of organizational development, management and designing while concluding the chapter. Part I, consisting of four chapters, focuses on concepts and issues in organization development (OD) and change. Chapter 2, contributed by Anup K. Singh, 'has presented the historical development of OD in India. The author has also dealt with the societal and organizational contexts in which OD unfolded itself as a discipline. The evaluation of OD in India has been described in three phases, i.e., the initial phase (the 1960s and 1970s), the consolidation phase (the 1980s), and the critical phase (the 1990s). The chapter has ended with a discussion on the current challenges in the sphere of OD as a profession and its future needs. Chapter 3, contributed by N Vittal, has addressed the issue of developing organizations for the 21 st century. The author has pointed out that improved communication needs and the growing pace of business would make that world even more closely linked than it is today. Further, he has suggested a combination of a positive attitude, a creative approach and sound common sense that may be the qualities that should guide managers in the 21 st century. Management

& Change,

Volume

5, Number

2 (Winter

2001)

456 Book Reviews

Chapter 4, entitled "A Road Map for Public Sector Organizations for Organizational Change," by C. R. Prasad, has advocated an integrated approach and the need for proactive measures. The a~thor has opined that, to catch up with the market and ensure the survival and growth of the Indian public sector, accelerated transformation has to be attempted. He has even suggested that creating a new organization or culture should proceed concurrently with or even prcede, other initiatives for organizational change. Leadership also plays a cardinal role in selecting and implementing change. Needless to say, it is often the most important change agent. Chapter 5, contributed by Tanuja Agarwala, has emphasized the complexity of the two important dimensions of the leadership process, i.e., setting goals and setting them in the Indian context. A brief description about some remarkable organizational transformations, caused by indigenous approaches to organizational change and development, has also been presented in this chapter. Chapter 8, contributed by Udai Pareek, has dealt with three types of contexts which need attention, namely, current global trends, the societal culture in which the organization functions and the organizational culture. The author has examined these contexts in detail, and argued that organizations can use culture as a source of competitive advantage. He has further pointed out that the culture of an organization can give it competitive advantage, provided it is rooted in the functional aspects of the country's culture. Chapter 9, contributed by Jai B. P. Sinha, has described two ways of initiating a search for new designs for organizations in the context of the 21 st century, i.e., by taking a sectoral view of the resources and constraints of organizations, and the stages of institution huilding in organizations. The author has argued that the two ways overlap and can be combined to examine the core patterns and preparedness of all types of organizations (i.e., public, private, large, small etc.) in order to suggest a comprehensive design. The chapter concluded by presenting the fundamental principles of designing work-centric organizations. Chapter 10, entitled "Managing Transition" by Karl Ulrich, has dealt with some of the major issues that Indian business will need to focus on while managing transition in a rapidly evolving environment. The author has pointed out that the need for transition results from failure to recManagement

& Change,

Volume 5, Number 2 (Winter

2001)

Book Reviews 457 ognize company crises in time. In such a situation, the strategy for transition must pursue two essential objectives if they are to be viable, i.e., ensure short-term survival, and effectively re-establish competitiveness. The author has pointed out that if the transition process is implemented systematically, the entire company undergoes a comprehensive reorganization. Chapter 11, entitled "Trust in Organizations," has been contributed by V. Anand Ram, Kavita Ghatge and. G. DeSilva. The authors have examined the need for trust in the context of downsizing in Indian organizations. They have also looked at some data pertaining to the level of trust between the employees and management of a large multinational engineering company, and discussed its implications in the sphere of the organization's priorities and dominant culture. In the end, they have also identified some of the ways in which trust has a bearing on organizational change, and suggested methods by which managers can help to create trust in an organization. Chapter 12, contributed by lshwar Dayal, has discussed certain characteristics of organizations in the context of the kind of demands that the market and technology are likely to make on the organization. Strategies needed to help people adjust to the new systems required by the emerging business situation have also been emphasized by the author. Part III, consisting of eight chapters, includes diverse cases and varied experiences from organization development and change. They provide an authenic picture of recent developments in the organization development area in India. Chapter 13, contributed by Nagendra P. Singh, has dealt with dilemmas, experiences and assumptions of those in leadership positions. The author has suggested that social entrepreneurship needs to be the mission of those interested in developing an organization in this era. Chapter 14, contributed by V. N. Kantha Rao, has described the initiatives taken to introduce changes in Teletube (IT), a division of Samtel Business Corporation, with a specific focus on domain-based OD. The author has very systematically presented the case study of TT, which provides an excellent illustration of how the transformation of the "people" dimension can have startling results. Chapter 15, contributed by Kishanjit Basu and Prasant Das, has presented a case study of organization development initiatives in regional rural banks (RRBs). A brief account of the process and results of the Management

& Change,

Volume 5, Number

2 (Winter

2001)

458 Book Reviews OD initiatives in Bardhaman Gramin Bank, a RRB in West Bengal, has also been described in detail by the authors. The chapter has concluded with the suggestion that the support of the top management and a system of performance-based rewards and incentives are imperatives for nurturing and sustaining the changes spurred on by OD. Cpapter 16, contributed by Rajesh Pandey, has presented a case study 'of a leading information technology organization. The OD intervention used was guided by the learning organization model of Jack Gilles. The intervention broadly followed the action research method which consisted of four main steps, i.e., diagnosis, intervention, evaluation and followup. Chapter 17, contributed by Sunil Abrol, commenced with the discussion of two models of people management, i.e., the traditional model and the empowerment model, based on different philosophies, approaches, and systems. The author has very crisply presented the case study of C-DOT, a premier Research and Development Centre in the field of telecommunication. He has pointed out that the success of C-DOT validates the assumption that creating a culture of trust and support can do wonders for an organization's performance. Chapter 18, contributed by Kuriakose Mamkoottam, is based on a study conducted in the Department of Post, Government of India, during 1995-96. The author believes .that structural reforms do not usher in the desired changes unless accompanied by a cultural transformation. He has further pointed out that, in the case of the Indian Department of Post, structural changes may not be introduced until major initiatives are taken to create an organization culture that is open to new ideas and knowledge. Chapter 19, entitled "Action Learning in an Intercultural Setting" has been contributed by Punam Saghal. This chapter has described the introduction and management of an action learning intervention in a developmental cooperation office of the British Government in India. The author has very appropriately presented the action learning intervention which was aimed at enabling the locally recruited Indian staff to develop appropriate personal and work-related skills, and initiate processes conducive to teamwork among employees from two diverse cultures. The chapter has been concluded by presenting an overall assessment of the intervention and the author's role as a "set. adviser".

Management

& Change,

Volume 5, Number 2 (Winter

2001)

Book Reviews 459 The last chapter of this edited work entitled "Confronting Human Resource/Industrial Relations Realities for Performance Improvement" has been contributed by Anil K. Khandelwal. This chapter has presented the initiatives taken by a nati"onalized bank to improve its business performance through better management of human resources (HR) and industrial relations (IR). The central thrust of this chapter is that it is possible for middle-level managers to develop a vision for change and take initiatives even in the public sector bank culture. The author has very systematically presented two case studies to provide evidence of this hypothesis. The chapter has also described seven foci of effective change management for improved performance in the context of the public sector. On the whole, this edited book covers the various issues concerning organization design, change and development in great depth in an eminently readable form. The wealth of knowledge, contributed by some ofIndia's well-known scholars and practitioners in the concerned area, makes this book a must for every personal and institutional library collection on management. Undoubtedly, this book will be an asset to academicians, practitioners and students in general and, those who are working in the area of organizational change and development in particular. Padmakali Mishra Assistant Professor, Organizational Behaviour Area, Institute for Integrated Learning in Management, Lodhi Institutional Area, Lodhi Road, New Delhi-1 10003. Miscellaneous Agarwala, P. N., A Comprehensive History of Business in India from 3000 BC to 2000 AD. New Delhi: Tata McGraw-Hili Publishing Company Limited, 2001. xx+722. Price not mentioned, hard. India, truly called a sub-continent in its full sense, is a plethoric myriad of cultures and sub-cultures, a vast variety of religious faiths and diverse languages and dialects. A survey of this country which spans even a single decade would by itself be a tremendous task. Anyone who contemplates to trace the course of development of business in India Management

& Change,

Volume

5, Number

2 (Winter

2001)

460 Book Reviews over a period which covers not decades, not centuries, not even a millennium, but a period of 5000 years, needs to be lauded for the very effort itself. Not that the author is unequal to this task. I have personally known Prof. P. N. Agarwala and have a very high regard for his exhaustive and extensive knowledge of business history, not only in India but across the world. As he himself puts it, in the course of his travels over five decades, he has covered 21 civilizations. How else would there be an attempt at this kind of a study? Arnold Toynbee, the world-renowned historian with whom the author had a close relationship, covered the history of the world in his "A Study of History" in two volumes. This book is a similar testimonial to a study of business history in our country. The book has been covered over five sections. This first section starts from the present scenario and traces trends in Indian business in recent times and raises issues pertinent to the future. This section is spread over 14 chapters and covers topics as diverse as small and medium enterprises as well as agencies in India, development of managerial capitalism and gives a brief outline of the works and achievements of what Prof. Agarwala terms as "The New Entrepreneurs", a comprehensive list commencing from the Birlas, Ambanis, Thapars, right up to Narayana, Murthi, Swaraj Paul and Azim Premji. The initial chapter as well as the concluding chapter examines the impact of the new millennium and a knowledge-based society and the consequent challenges for business. The second section goes 5000 years back and, in a brief period of three chapters, covers the Indus Vally civilization, India's ancient trade links, the roots of trade and commerce and comments upon commercial cities of the Indus Valley, Maurya and Gupta periods. While the treatment of this section is comprehensive, one however feels that a more exhaustive coverage of this period would have added much more value, specially since there are very few texts which cover commerce in India during this period. The third section takes a quantum jump and moves into the Delhi Sultanate period and in a span of nine chapters starts with the Cholas and Vijaynagar kingdoms, traces the Portugese and Anglo-Dutch commerce in India and outlines the course .of Indo-British Trade with an exhaustive coverage of the East India Company from its first roots in India upto the 18th century. The fourth section covers a crucial period, the pre-independence era. Management

& Change.

Volume 5. Number 2 (Winter

200 I)

BookReviews 461, It traces the roots of the chambers of commerce, the emergence of business communities and examines select industries like textiles, jute, chemicals etc. The last section, covering the post-independence period, focuses on the banking and insurance sectors and, in my opinion, the unrelated topics of concentration of economic power and the social responsibilities of business, apart from a brief concluding epilogue. To conclude, this book constitutes a very rich value addition to any serious observer of Indian business and its history. Perhaps more value, could have added by re-ordering the chapters in chronological sequence.

Gautam Bhattacharya Professor and Area Head, Marketing and Strategic Management, Institute for Integrated Learning in Management, Lodhi Institutional Area, Lodhi Road, New'Delhi-1,l0003.

Madhukar R. K., Business Communication and Customer Relations. New Delhi: Vikas Publishing House, 2001. 247pp. Rs.150/-. This conceptual work attempts to bring together systematically the two related topics of business communication and customer relations. The first four chapters offer simple explanations of the basic concepts of communication in a purely academic manner. The next five chapters attend to the more functional forms of communication such as letters, internal communication, interactive communication and report writing. As the focus of the book has been particularly on the services sector, a complete chapter has been devoted to the banking industry. This chapter mentions the essential components of letters written by. banks for different purposes; however, concrete illustrations would have made the reading more comprehensible. Considering that the focus of the book is on customer relations, more emphasis on letters to customers would have been appropriate in place of internal letters and business letters discussed in the book. Chapters 10 through 15 discuss the importance of customers and customer relations in business. The different chapters discuss policyrelated and practical aspects of customer complaints, customer service, customer focus and quality standards. Drawing from his personal experiences in bank marketing, the author has devoted a complete chapManagement

& Change,

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5, Number

2 (Winter

2001)

462 Book Reviews

ter to the dynamics of bank marketing. The chapter looks at the various concepts of marketing from a banker's perspective. But the treatment of concepts has been too simplistic to interest experienced executives from banks and other service industries. Another chapter on business communication and customer relations in the new millenium outlines the various forms of communication which have emerged as a result of the spread of information technology. Email, tele-conferencing, video conferencing and data-warehousing have been given an introductory treatment besides other forms of electronic communication. The last chapter makes an attempt to touch upon the ethical dimensions of customer relations. As the author mentions in the preface, the treatment of the subject'has been simple and sequential, but the same has led to the fact that the two streams of business communication and customer relations have been given parallel treatment in the book. Though the book has dealt with the two related topics with equal emphasis, it could not integrate the two properly. The author could have done more justice to the subject by giving more examples and illustrations of communication with customers in business communication-related chapters and vice versa. Due to its second objective of deliberately targetting a large body of convergent sections, viz. students, teachers, business practitioners and employees in the services sector, the concepts make simple reading for all sections. The book would provide good basic reading for students of business communication, but might not be able to retain the interest of business practitioners, employees in the services sector and teachers, mainly because of its simplistic treatment of the subject At the same time, the quotations and boxed text that supplement the on-going narrative in each chapter will interest the readers from all sections. Ms. Shiri Ahuja Assistant Professor, Human Resource Management Area, Institute for Integrated Learning in Management, Lodhi Institutional Area, New Delhi110003.

Management

& Change,

Volume 5, Number 2 (Winter

2001)

BOOKS RECEIVED

The following books were received for review purpose. Agarwala, P. N., A Comprehensive History of Business in India from 3000 BC to 2000 AD. New Delhi: Tata McGraw-Hill Publishing Company Limited, 2001. xx+ 722. Price not mentioned, paperback. Agrawal, Rita, Stress in Life and at Work. New Delhi: Response Books (A divisiol1 of Sage Publications Pvt. Ltd.), 2001. 281pp. Rs. 225 paperback. Anup K. Singh, Rajen K. Gupta and Abad Ahmad (Eds.), Designing and Developing Organizations for Tomorrow. New Delhi: Response Books (A division of Sage Publications), 2001.356 pp., Rs. 495 hard. Chakravarty, S. K., Accountancy for CA. Foundation Course. New Delhi: New Age International (P) Ltd., 2001. 72Opp. Rs. 275 paperback. Gaur, Sanjay Singh and Saggere V. Sanjay, Event Marketing and Management. New Delhi: Vikas Publishing House, 2001. 243pp. Rs:240 paperback. Khera, Pramod, Franchising-the route map for rapid Business Excellence. New Delhi: Tata McGraw-Hill Publishing Company Limited, 200 1, price not mentioned, paperback. Khorshed D. P. Madon and Homai McDowell, Office Administration and Management (3rd edition). New Delhi: Vikas Publishing House Pvt. Ltd., 2001. xx+ 339pp. Rs. 150 paperback. . Machiraju, H. R., Indian Financial System (Second Edition). New Delhi: Vikas Publishing House Pvt. Ltd., 2001. Rs. 180 paperback. Madhukar R. K., Business'Communication and Customer Relations. New Delhi: Vikas Publishing House, 2001. 247pp. Rs. 150 paperback Pandian, Punithavathy, Security Analysis and Portfolio Managerilent. New Delhi: Vikas Publishing House Pvt. Ltd. 2001. 464pp. Rs. 180paperback. Singh, Sukhpal, Rural Marketing Management. New Delhi: Vikas Publishing House Pvt. Ltd. 2001. xii+ 142pp. Rs. 150 paperback. Sushil and K. Momaya, Globalization Flexibility and Competitiveness: A Technology Management Perspective. New Delhi: Vikas Publishing House Pvt. Ltd., 2001. xvii+459. Rs. 750 hard. Varma, K.-Madhurendra, Managing More Effectively: A Professional Approach to Get the Best out of People (Second Edition). New Delhi: Response Books (A division of Sage Publications Pvt. Ltd.), 2001. 331 pp. Rs. 250 paperback. Venugopal, Pingali, Mqrketing Channel Management: A Customer-Centric Approach. New Delhi: Response Books (A division of Sage Publications Pvt. Ltd.), 2001. 187pp. Price not mentioned, paperback.

Balalrrishnan Parasuraman Jamal Khan M. R. Rao and A. K. Rao Shahid Mahmood Ch'ng Huch Khoon and G. S. Gupta

Information Technology and Teleworking in Malaysia: A Study Organizational Change as a Development Tool: A. Study Optimization in Media Planning: Development of a Model Service Quality in Education: An Exploratory Study Multi-Index Capital Asset Pricing Model: The Malaysian Case . I

P. K. Jain and Management of Working Capital: A Surendra S. Yadav Comparative Study in India, Singapore and Thailand Raj Agarwal WTO and Current Issues of Negotiations for India: A Perspective Daisy Chauhan and Work Motivation of Managers in a Mixed S. P. Chauhan Economy: A Comparative Study Bhaskar Majumdar Disinvestment Public Sector Enterprises in India: A Review Gautam Bhattacharya Marketing Implications of the Bhagavatgita: A Preliminary Study Kamal Ghosh Ray . Corporate Governance and Reporting Practices in India: A Study

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