Chinese Business Review (ISSN 1537-1506) Vol.12, No.2, 2013

Chinese Business Review

Volume 12, Number 2, February 2013 (Serial Number 116)

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Chinese Business Review

Volume 12, Number 2, February 2013 (Serial Number 116)

Contents Economics

Recent Experience of the Effects of Intervention on Exchange Rates 77

Yutaka Kurihara

An Insight Into the Promise and Problems of Combining Life History and

Grounded Theory Research 84

Bronwyn Betts

Human Resources Development and Migration: New Potential

Determinants for Monetary Policy 93

Gherghinescu Oana Rodica, Ciocîrlan Irina Georgiana

Management

Customer! The Forgotten Stakeholder 104

Themistokles Lazarides, Stamatios Kontsas, Electra Pitoska

Resolving Conflicts Within Multicultural Teams in Industrial Enterprises 113

Veronika Videnová, Dagmar Cagáňová, Paul Woolliscroft, Jana Makraiová, Miloš Čambál

Application of Management Information System Planning in Concurrent Engineering

for Wooden Furniture Industry 124

Sakkarin Choodoung, Uttapol Smutkupt

Creating the Foundation of a Healthcare Research Project 131

Bobeica Ana Maria

How Many Family Businesses Are There Really and Does ICT and Innovation

Improve Their Performance? 137

Steve MacFeely, Caitriona O’Brien

Chinese Business Review, ISSN 1537-1506 February 2013, Vol. 12, No. 2, 77-83

Recent Experience of the Effects of Intervention

on Exchange Rates

Yutaka Kurihara

Aichi University, Nagoya, Japan

Recently, foreign exchange rates have been highly volatile all over the world. This article reports on an empirical

examination of the effectiveness of foreign exchange market intervention in Tokyo foreign exchange market. In

Japan, intervention in the foreign exchange market has occurred frequently and largely. In 2010, exchange rates

fluctuated greatly, and the Japanese yen appreciated greatly against other foreign currencies. The Bank of Japan

(BOJ) conducted an intervention in the foreign exchange market and bought massive USD to weaken the yen. They

are expected to prevent too much appreciation of the yen, to promote export, and expansion of the economy. Recent

foreign exchange market intervention in Tokyo has been effective in preventing the Japanese yen from appreciating

against other currencies. Also, unsterilization has had a positive effect on depreciation of the yen. Moreover, news

announcements by the Bank of Japan (BOJ) has led to depreciation of the yen. Effective announcements would

increase the effects on markets. Sterilization in intervention and market communication are both taken into account

in this article. The BOJ’s news announcements seem to convey to markets adequately and communication between

the bank and markets functions well. Moreover, the past exchange rate (i.e., the signaling effect) also is important

to the movement of exchange rates. On the other hand, portfolio channel is not found.

Keywords: exchange rate, financial policy, foreign exchange market, intervention, sterilization, Tokyo,

unsterilization

Introduction

Recently, in contract to practices in other countries, official interventions in the foreign exchange market

have been increased in Japan. In 2010, exchange rates fluctuated greatly, and the Japanese yen appreciated

greatly against other foreign currencies. The Bank of Japan (BOJ) conducted an intervention in the foreign

exchange market and bought massive USD to weaken the yen on September 15, 2010, six and a half year since

the previous intervention had been performed in Japan. The yen depreciated by about 3% on the same day. After

that, the BOJ has repeatedly conducted interventions in the foreign exchange market. The number of times is

many, and the volume also is large in Japan compared to that in other countries. Other countries, such as the

* Acknowledgement: This work was supported by JSPS KAKENHI.

Yutaka Kurihara, Professor, Department of Economics, Aichi University. Correspondence to this article should be addressed to Professor Yutaka Kurihara, Department of Economics, Aichi University,

4-60-6 Hiraike Nakamura Nagoya, 4538777, Japan. E-mail: [email protected].

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RECENT EXPERIENCE OF THE EFFECTS OF INTERVENTION ON EXCHANGE RATES 78

United States, have not conducted interventions in the foreign exchange markets many times. There are some

possibilities that they do not emphasize intervention as the effectiveness of such measures is not highly regarded.

Along with large fluctuations of exchange rates, Japan and some other countries intervene in the foreign

exchange markets to attain stable exchange rates or to avoid too much currency appreciation. Many countries

would like to make their own currencies depreciate to promote exports and attain economic growth. An

examination of the effectiveness and influence on the markets become important. Some problems associated with

such interventions should be examined along with the impact of intervention on exchange rates. One important

aspect is to examine whether or not the interventions are sterilized, in which case the impact on exchange rates

may be diminished, according to economic theory. Also, news announcements to markets should be carefully

examined (Kim & Le, 2010). Effective announcements would increase the effects on markets. These problems

have not been discussed fully in the literature.

Historically, the BOJ started to disclose its intervention data in July 2001. Since then, some studies have

examined interventions; however, few have examined these effects for the recent period. The available data are

limited, sample period is very short, and the deterministic elements of exchange rates are various and changeable;

however, considerations of the possibilities in terms of the effects on foreign exchange rates becomes more

difficult and more important.

Klein and Rosengren (1991), Dominguez (1992), Dominguez and Frankel (1993), Neely (2000), and Reitz

and Taylor (2008) proposed that coordination of channels through intervention may be effective. Wang and

Yang (2009) performed an unconditional rolling correlation analysis for relationship intervention and reserve.

Kurihara (2011) indicated that foreign exchange market interventions influence the exchange rate level as

expected. The intervention is not only effective in changing the exchange level, but the contemporaneous effect

had a reverse sign. Park (2011) and Utsunomiya (2012) confirmed the presence of asymmetric volatility in the

foreign exchange markets. For asymmetry, Suardi and Chang (2012) showed the importance of the threshold

effect in the analysis of the effects of intervention because of the presence of asymmetry in the foreign exchange

market. Chen, Watanabe, and Yabu (2012) also showed that purchases and sales of US dollars as an intervention

cause correlation asymmetry in the United States but not in Japan and Germany. Also, the conditional correlation

is stronger when intervention is conducted frequency and the amount of intervention increase. Sinwaka and

Mkandawire (2012) used Markov-chain Monte Carlo methods and showed that a one trillion yen intervention

moved the yen/dollar exchange rate 1.8%. Ito (2004) indicated that intervention reduced the probability of the

exchange rate process staying in a regime characterized by disruptive tendencies. Kao and Wan (2012) analyzed

the effectiveness of foreign exchange market interventions by the Reserve Bank of Malawi and indicated that net

sales of US dollars by the central bank resulted in depreciation rather than appreciation. It means “leans against

the wind”.

This article examines the motivation for authorities and the effectiveness of intervention. Watanabe and

Yabu (2009) examined interventions in the foreign exchange market in Japan in an often-cited study. However,

exchange rates have fluctuated greatly and above all, interventions have been conducted often since 2010. In

2010, an intervention was conducted after six and a half years without any interventions, as mentioned above.

The purpose of this article is to examine the intervention in the Tokyo Foreign Exchange Market. Contrary

to previous studies, market communication and sterilization in intervention are both taken into account. Little


research has focused on or included these aspects.

This article is structured as follows: Section two presents a theoretical model; Section three shows the

empirical analysis with a focus on effectiveness of interventions. Finally, this article ends with a summary.

Theoretical Model

The exchange rate s (log) reflects the discounted value of market participants’ expectations about future

fundamentals sft + j:

1 ∑∞ | (1)

where is the discount factor and Ω is the information set available to participants. t denotes time. Foreign

exchange risk premium ρ is the return demanded by market participants in excess of the no-risk return, which is

the sum of the interest rate differentials at domestic country i relative to foreign country i* (Sarno & Taylor,

2001). Some experts believe it is natural that intervention has significant effects on market participants’

(fundamentalists’) confidence, regardless of whether the forecasting method relies on purchasing power parity

(PPP) only or on a PPP plus uncovered interest rate parity (UIP) condition. The interest rate differential can affect

the exchange rate changes by influencing the demand orders of the short-run fundamentals.

The dynamic model can be stipulated as:

Δst+1 = (i - i* + ρ) + 1 ∑∞ 1 1 | 1 1 | (2)

Which means that the change in the spot exchange rate has an expected element—the first term on the

right-hand side—and an unexpected element—the second term on the right-hand side, which is the new

information concerning fundamental elements that affect exchange rates. This equation reflects the hypothesis of

rational expectation for exchange rates.

Three channels affect exchange rates: (a) portfolio balance channel; (b) signaling channel; and (c)

communication channel.

For (a), interventions in the foreign exchange market can be understood to affect the exchange rate by

altering the foreign exchange rate risk premium ρ as noted by Reitz and Taylor (2012), for example. This

situation presents evidence of some effectiveness of official interventions that use the portfolio balance channel.

The risk-premium approach to exchange rate determination is one of the best known theories along with

purchasing power parity (PPP), monetary, and portfolio approaches.

The signaling channel (b) has recently received much attention. Interventions affect the expectations of

market participants and currency (asset) prices by signaling the information of either market participant. The

second term of the equation reflects this.

Finally, for (c), communication between policymakers and markets may affect currency prices, namely,

exchange rates. This channel implies that public announcements by financial authorities function as an element

that alters market views to cause exchange rates to move in a particular direction.

The addition of these three elements takes into account sterilization in foreign exchange markets, which

have a strong impact on the foreign exchange market.

To illustrate these functions, the following modified model is employed for empirical analysis:

Δst+1 = α0 + α1Δst + α2(i - i*) + α3INTERVENTIONt + α4POLICYt + α5ACCOUNTt (3)

The second term, Δs, on the right-hand side, checks the existence of the signaling channel exist. The third


term, i - i*, is the portfolio balance channel. The empirical analysis examines whether or not the premium exists.

For this analysis, the term α0 is included in the equation. The fourth term directly checks the effects of

intervention s’ on the foreign exchange market. The fifth term, POLICY, means the communication channel. The

final term, ACCOUNT, confirms the effects of sterilization/unsterilization. ACCOUNT is the change in the

current account balance at the BOJ. To check the effect of sterilization, equation (4), based on Watanabe and

Yabu (2009), is checked before equation (3) is regressed:

ΔACCOUNTt+2 = β0 ＋ β1INTERVENTIONt (4)

Empirical Estimation

In the 1990s, Japan experienced serious economic and financial crises after the bubble economy (huge rises

in stock and land prices) burst in 1991. To overcome these severe economic situations, the BOJ conducted the

zero interest rate policy from February, 1999, to August, 2000. The BOJ decided to “flexibly provide ample funds

and encourage the uncollateralized overnight call rate (interbank interest rate) to move as low as possible”.

The zero interest rate policy seemed to contribute to economic recovery. The BOJ stopped the zero interest

rate policy. However, the economy again became troubled. The BOJ then conducted a more aggressive financial

easing policy. On March 19, 2001, the BOJ decided to increase the outstanding balance of the current accounts at

the BOJ. This is called a quantitative easing policy. This policy has been conducted in some developed countries

since then. The main operating target for financial market operations in Japan changed from the uncollateralized

overnight call rate to the outstanding balance of the current account at the BOJ.

First, equation (4) is estimated in this study. The data are daily. For reasons explained later in this paper, the

sample period is from March 19, 2001, to December 31, 2012. The estimated result is as follows:

ΔACCOUNTt+2 = 33.6017 ＋ 0.6186INTERVENTIONt (5)

(0.8574) (0.0000)

Adj. R2: 0.0242; Prob (F-statistic): 0.0000; Durbin-Watson: 2.1242.

The figures in parentheses are p-values.

The results show that β1 is about 0.6 and significant (however, the constant term is insignificant). This result

means that about 40% of the volume of interventions is sterilized and 60% is nonsterilized. This analysis sets the

term ACCOUNT to 1 if ΔACCOUNTt+2 / INTERVENTIONt ≥ 0.5, and the term ACCOUNT to 0 if ΔACCOUNTt+2

/ INTERVENTIONt < 0.5.

POLICY is 1 if the BOJ changed financial policy and announced the change or 0 otherwise.

The data for interest rates are the money market rate (3-month). All the data are daily. The data source for

interest rates and the BOJ’s current account are from NIKKEI NEEDS. INTERVENTION data are from the Web

site of the Japan Ministry of Finance Japan and POLICY data are from the BOJ Web site.

The sample period is from 1991 to 2012 because of data availability, and the period is divided into two. The

break point is March 19, 2001, which was the starting time of the new quantitative easing policy. Since then, the

BOJ has conducted aggressive financial policy to combat deflation and recession. However, the data for the BOJ

current account was not available for the full sample period (from 1991 to 2012), so the analysis for this effect is

from March 19, 2001, to the end of 2012.

The empirical method is OLS and generalized method of moments (GMM), which is a robust estimator in


that, unlike maximum likelihood estimation, GMM does not require information about the exact distribution of

the disturbances. Instead of F-statistic, Hansen’s J statistics test is performed. This test checks whether or not the

model’s moment matches the data. In a GMM context, when there are more moment conditions than parameters

to be estimated, this test can be used to test the over-identifying restrictions. This method requires a decision

about which variables to use as instrumental variables. In equation (3), the lagged values of dependent and

explanatory variables are used as instrumental variables. The model is the equation (3) described in the previous

section. The results are shown in Tables 1 and 2.

Table 1

Exchange Rate Determination and Intervention

1991-March 18, 2001 March 19, 2001-2012

Method OLS GMM OLS GMM

C -0.0295 (0.2481)

-0.0235 (0.5615)

-0.0170 (0.3690)

-1.1607 (0.0812)

Δs 0.0302

(0.1358) -0.9367 (0.0000)

-0.0412 (0.0300)

0.8139 (0.0020)

i − i* -0.0086 (0.1613)

-0.0505 (0.0000)

-0.0026 (0.7259)

-0.1245 (0.2362)

INTERVENTION -2.04E-05 (0.3506)

-2.77E-05 (0.5713)

-5.17E-06 (0.4245)

0.0060 (0.0617)

POLICY -0.0137 (0.9527)

0.2842 (0.3380)

0.0444 (0.4868)

0.1787 (0.2102)

Adj.R2 0.0213 -0.9794 0.0022 -0.9556

Prob (F-statistic) 0.1653 - 0.1712 -

J-statistic - 0.0266 - 0.0052

Durbin-Watson 1.9994 0.9533 2.0020 1.8029

Note. Figures in parentheses are p-values.

Table 2

Exchange Rate Determination and Intervention Including Sterilization Effect

Method OLS GMM

C -0.0228 (0.2159)

-0.0089 (0.3298)

Δs -0.0419 (0.0202)

0.8653 (0.0000)

i − i* -0.0069 (0.3502)

-0.0045 (0.1104)

INTERVENTION 4.12E-05

(0.0000) 4.09E-05

(0.0000)

POLICY 0.0024

(0.9682) 0.0318

(0.6372)

STERILIZATION 0.1880

(0.0089) 0.1703

(0.0062) Adj.R2 0.0140 -0.8085

Prob (F-statistic) 0.0000 -

J-statistic - 0.0516

Durbin-Watson 1.9966 2.9954

Note. Figures in parentheses are p-values.

The results are almost as expected, and those derived using GMM are better than those from OLS, as

expected. GMM should be employed. The results show that interventions have recently generally been effective


in influencing the level of the yen-US dollar exchange rate. However, the results show that sterilization should be

taken into account as Watanabe and Yabu (2009).

The signaling channel (Δs) is confirmed to exist for both sample periods. However, the portfolio balance

channel (i − i*) does not exist. Rapid integration of financial markets and enormous increases in foreign

exchange markets seem to make this approach less effective. The findings for the communication channel

(POLICY) are not significant; however, the coefficients are positive, which indicates acceleration in the

depreciation of the Japanese yen as expected. Finally, the sterilization effect (STERILIZATION) is positive and

as expected. Unsterilization effects seem to exist strongly.

Conclusions

This article focused on interventions in the foreign exchange market in Japan. The empirical results show

that interventions have been conducted effectively. However, they depend on unsterilization to some degree. To

achieve effective and efficient interventions in foreign exchange market, it appears important to consider and

conduct sterilization or unsterilization in some cases. However, it is difficult and dangerous to judge that the

intervention policy was good. For example, in spite of the fact that the coefficient was opposite from the

expectation, there may some cases in which this approach might be able to prevent too strong

appreciation/depreciation of the yen to some degree. In such cases, interventions would be successful even if the

coefficients were not as expected.

The past exchange rate (i.e., the signaling effect) also is important to the movement of exchange rates. On

the other hand, it is interesting to note that portfolio channel was not found. However, this model hypothesized

rational expectation for exchange rates, so there is some possibility that the model does not fit well in the real

world.

The communication channel did not exist. However, exchange rate control is not the BOJ’s objective. The

Act stipulates the Bank’s principle of currency and monetary control as follows: “Currency and monetary control

by the Bank of Japan shall be aimed at achieving price stability, thereby contributing to the sound development of

the national economy”. The Ministry of Finance of Japan investigate, plans, and drafts matters concerning

foreign exchange and international monetary systems and their stability; adjustment of balance of payments;

management of the foreign exchange special account; foreign exchange rates; international organizations related

to economic cooperation or development; overseas loans and investment, and so on. However, the coefficients

were positive in the direction of depreciation of the yen. They are expected to prevent too much appreciation of

the yen, to promote export, and expansion of the economy.

In Japan, the frequency and volume of interventions have changed greatly. Compared to the past, the

number of times has decreased; on the other hand, the volume of one-time interventions has increased. Also, the

effects of interventions may have appeared later or sooner depending on the market situations. These elements

should be considered.

Recently, many countries have considered devaluation of their own currencies. The risk of such a strategy is

that it becomes incompatible if several economies pursue competitive devaluation to maintain or gain

competitiveness. However, there is not only the issue of consistency and conflict among policymakers who

attempt to pursue similar forward exchange market transactions via intervention. Sometimes coordination among


countries should be taken into account. This study has not considered this aspect.

Interventions have pros and cons, of course. Interventions sometimes may lose effectiveness, in which case,

financial policy, allocation or distribution of capital, and costs should be taken into account. Further study is

needed in this field.

References

Chen, Y., Watanabe, T., & Yabu, T. (2012). A new method for identifying the effects of foreign exchange intervention. Journal of Money, Credit & Banking, 44(8), 1507-1553.

Dominguez, K. (1992). Does central bank intervention increase volatility of foreign exchange rates? Cambridge: Harvard University.

Dominguez, K., & Frankel, J. (1993). Does foreign exchange intervention matter? The portfolio effect. American Economic Review, 83(5), 1356-1369.

Eria, H. (2012). The efficacy of central bank intervention on the foreign exchange market: Uganda’s experience. Journal of International Development, 24(2), 185-207.

Fratzsher, M. (2004). Official intervention in the foreign exchange market. In J. James, I. Marsh, & L. Sarno (Eds.), Handbook of exchange rates. London: Wiley.

Ito, T. (2004). Is foreign exchange intervention effective? The Japanese experience in the 1990s. In P. Mizen (Ed.), Monetary history, exchange rates and financial markets, essays in honour of Charles Goodhart (pp. 125-153). New York: Cheltenham.

Kao, C. W., & Wan, J. Y. (2012). Heterogeneous behaviours and the effectiveness of central bank intervention in the yen/dollar exchange market. Applied Financial Economics, 22(12), 967-975.

Kim, A. T., & Le, T. (2010). Secretary of bank of Japan’s yen intervention: Evidence of efficiency from intra-daily data. Journal of the Japanese and International Economies, 24(3), 369-380.

Klein, K., & Rosengren, E. (1991). Foreign exchange intervention as a signal of monetary policy. Retrieved from http://www.bos.frb.org/economic/neer/neer1991/index.htm#may/jun

Kurihara, Y. (2011). Is the Tokyo foreign exchange market efficient from two perspectives of forward bias and anomaly? Modern Economy, 2(2), 597-601.

Neely, C. J. (2000). Are changes in foreign exchange reserves well correlated with official intervention? Federal Reserve Bank of St. Louis, 82(5), 17-32.

Park, B. (2011). Asymmetric herding as a source of asymmetric return volatility. Journal of Banking &Finance, 35(10), 2657-2665. Reitz, S., & Taylor, M. P. (2008). The coordination channel of foreign exchange intervention: A nonlinear microstructural analysis.

European Economic Review, 52(1), 55-76. Reitz, S., & Taylor, M. P. (2012). FX intervention in the yen-US dollar market: A coordination channel perspective. International

Economics and Economic Policy, 9(2), 111-128. Sarno, L., & Taylor, M. P. (2001). Official intervention in the foreign exchange market: Is it effective and, if so, how does it work?

Journal of Economic Literature, 39(3), 839-868. Sinwaka, K., & Mkandawire, L. (2012). The efficacy of official intervention in the foreign exchange market in Malawi. African

Development Review, 24(2), 125-136. Suardi, S., & Chang, Y. (2012). Are changes in foreign exchange reserves a good proxy for official intervention? Journal of

International Financial Market, Institutions & Money, 22(4), 678-695. Utsunomiya, T. (2012). A new approach to the effect of intervention frequency on the foreign exchange market: Evidence from

Japan. Applied Economics, 45(26), 3742-3759. Wang, J., & Yang, Y. (2009). Asymmetric volatility in the foreign exchange markets. Journalof International Financial Markets,

Institutions & Money, 19(4), 597-615. Watanabe, T., & Yabu, T. (2009). The great intervention and massive monetary injection: The Japanese experience 2003-2004.

Working paper, Research Center for Price Dynamics, No. 12.


An Insight Into the Promise and Problems of Combining Life

History and Grounded Theory Research

Bronwyn Betts

Anglia Ruskin University, Cambridge, UK

This paper describes the research carried out in partial fulfilment of the degree of doctor of education. The study

was qualitative in nature with a phenomenological interpretive paradigm dominating the philosophical approach.

The research methods adopted combined life story and grounded theory. As far as the author has been able to

determine there are very few, if any studies which have applied this approach specifically to this area of research

which investigated the influence life history has on attitude to lifelong learning. Twenty five respondents were

interviewed in face-to-face informal interviews. The main aim was to elicit the respondent’s subjective

interpretation of the interaction between school, family, work, and learning within their lives. The researcher was

then able to identify when they occurred and what or who made them particularly meaningful. This paper describes

how initial decisions were made regarding the substantive area for the research. Sampling technique and method for

collecting the data is discussed and a worked example is given of how the data was analysed. It is intended that this

paper will give an insight into the challenge of combining these two much debated methods of research. The

empirical data lead to some interesting findings which educators and policy makers will find helpful in order to

strengthen the school, college, and workplace interface.

Keywords: life history, grounded theory, methodology, family, school, learning

The Raison D’être of the Research

At the inception of her doctoral studies the researcher was facilitating the reflective practice of a group of

students studying for a postgraduate degree in human resource management. An early observation was made as a

result of reading their reflective notes supported a perspective which pointed to the strong influence that

experiences in the early years had on their current (positive) attitude to learning. Therefore, the initial motivation

for the study was to seek further understanding of an otherwise little understood area, namely, the influence life

history can have on attitude to learning in later life.

The Theoretical and Methodological Framework

The study was a qualitative study with a phenomenological interpretive paradigm dominating the

philosophical approach adopted. The research methods were chosen because of their close association with this

Bronwyn Betts, Ph.D., Lord Ashcroft International Business School, Anglia Ruskin University. Correspondence concerning this article should be addressed to Bronwyn Betts, Lord Ashcroft International Business School,

Anglia Ruskin University, East Road, Cambridge, CB1 1PT, UK. E-mail: [email protected].

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AN INSIGHT INTO THE PROMISE AND PROBLEMS OF COMBINING LIFE HISTORY 85

paradigm and were used to explore the dynamics of the relationship between life history and attitude to learning.

As suggested by Baker, West, and Stern (1992) cited in Wimping and Gass (2000), the researcher’s own

philosophy and beliefs will form the bedrock on which the choice of research method is based. Additionally it is

imperative that the chosen method or methods are congruent with the research aims. In this study the author’s

own philosophical beliefs, the experiences of her students, the phenomenon under investigation, and the research

aim all directed the methods used for data collection and analysis.

The Chosen Methods

Life History

The history method was chosen to gather data as it focuses on the ways individuals account for and theorise

about their actions in the social world over time (Musson, 2004). In other words, it is basically retrospective. It

focuses on the stories people tell about their lives so far. Goodson and Sikes (2001) suggest that it helps achieve a

better understanding of the past in order to open up possibilities for the future and this was key in the decision to

adopt the life history method for data collection. The in-depth interview was favoured as the tool for the

collection for the data as it gave access to the respondents’ accounts of how life history may have influenced their

current attitude to learning. It was also chosen as it “fitted” with the epistemological standpoint adopted for the

data analysis which was grounded theory (Glaser & Strauss, 1967).

Grounded Theory

Although grounded theory is a method that can be used with any kind of data collection Glaser and Strauss

(1967), Glaser (1978), and Charmaz (2007, p. 28) suggest that intensive qualitative interviewing fits grounded

theory methods particularly well. Both grounded theory methods and intensive interviewing are open-ended yet

directed, shaped yet emergent, and paced yet unrestricted.

Grounded theory is a general, inductive, and interpretive research method which was originated in 1967 by

Glaser and Strauss (Glaser & Strauss, 1967). Its method for analysing data was chosen, as already alluded to,

because it fitted with the philosophical base of this research, that is to say the researcher did not set out to verify a

theory, but to develop a theory which sought to explain how past experiences can influence attitude to learning.

Grounded theory emphasises theory development. It focuses on unravelling the elements of experience then, as a

result of studying these elements and their interrelationships a theory is developed which enables the researcher

to understand the nature and meaning of an experience for a particular group of people in particular settings

(Glaser & Strauss, 1967).

The Research Process

Figure 1 provides an overview of the research process. Although the steps taken are presented in linear form,

in reality these are often cyclical and interdependent processes.

All methodological decisions were perceived to meet key requirements for doctoral research, that is to say

they fitted well with the research aims and philosophical underpinning. Identifying the substantive area to

research (step 1) was relatively straightforward. Notwithstanding the interest which the student’s reflections had

generated, the researcher’s own personal experiences had also contributed to the choice of direction that the

research would take. Her own personal experiences of school were not positive and consequently it has always


been a great puzzlement that throughout her adult life she had been motivated to engage in learning. This is all

despite the fact that much of the literature suggests that people’s willingness to engage in learning, particularly as

adults, depends to considerable extent on whether they draw on positive experiences from this period of initial

education and early years. Thus the study began with the identification of a substantive area which was of interest

to the researcher, rather than a narrowly focussed research question (Corbin & Strauss, 1998).

Figure 1. The research process.

The Role of the Literature in Grounded Theory Research

Whilst stage 1 did not cause too many problems step 2, data collection, was more problematic. When the

literature should be consulted is a fundamental issue in grounded theory work. For Glaser and Strauss (1967),

Glaser (1978), and Strauss (1987), the defining components of grounded theory practice include conducting the

literature review after the collection and analysis of empirical data. This presented something of a dilemma, as on

the one hand, the researcher was anxious to critique earlier studies to make comparisons with her findings from

the interviews, on the other hand she did not want to import preconceived ideas and impose them on her work

(Charmaz, 2007).

Step 1—The identification of substantive area to research

Step 2—Data collection

Step 3—Data analysis

Step 4—Final literature comparison and analysis

Identification of the sample

Life history interviews

Constant comparison

On-going memoing

Ongoing Literature Review

Open-coding

Axial coding


In the end, the decision was influenced by two writers. Firstly, McGhee, Glenn, Marland, and Atkinson

(2007), who suggests that the literature in grounded theory research is simply another source of data which should

be theoretically sampled along with other emergent data. Theoretical sampling according to Charmaz (2007) is

about: “Seeking pertinent data to develop your emerging theory. The main purpose of theoretical sampling is to

elaborate and refine the Categories, constituting your theory” (p. 96).

The second influence was Onion (2004) who claims that the literature can be used as a form of primary as

well as secondary data. Thus, as can be seen from Figure 1, a decision was made early in the research to delay the

first real move into the literature until the process of open coding had taken place and then use it to theoretically

sample.

The Sample

Grounded theory studies are characterised by theoretical sampling and this gave the study direction.

However in order for this process to start there needs to be an initial sample for some data to be collected and

analysed. Baker et al. (1992) maintain that the researcher using the grounded theory approach initiates the

sampling process by interviewing significant individuals who have the knowledge and experience that the

researcher requires, have the ability to reflect and articulate, and have the time. Thus, the sample chosen for the

study was selected because the participants could provide relevant sources of data, they were relatively diverse in

background but all shared a positive attitude to learning. Additionally, the size of the sample was quite small

which reflected the view of Goodson and Sikes (2001) who purport that research samples for life history research

are usually quite small. This relevance was determined by the requirements for generating and delimiting the

theoretical codes (Hutchinson, 1993 as cited in Cutcliffe, 2003). Within this initial sample the researcher was

concerned with generating as many categories as possible. Once these events or happenings had been categorised,

she then sampled the literature with the aim to purposefully gather data related to these categories.

Research Participants

All respondents were either engaged in promoting learning and development within their organisation, or

full-time students having recent past work experience and intending to re-join such organisations upon

graduation. All students were interviewed in face-to-face informal interviews. The respondents were all

interviewed in places convenient to them, either their places of work or at the college where they were attending

their course.

Table 1 shows the gender, age, mode of study, and the type of employing organisations of the participants.

The In-depth Interview

As can be seen from Table 1 that the respondents were quite diverse in terms of age and background. The

interviews began by the researcher asking the respondents to “offer a sequential account of their life” (Mann,

1992, p. 273), but more specifically throughout the narrative to focus on significant experiences of learning. The

main aim was to elicit the respondent’s subjective interpretation of the interaction between school, family work

and learning within their lives. She was satisfied that most of the criteria for a good interview were met. Briggs

(1986) suggests that good interviews are those in which the subjects are at ease and talk freely.


Table 1

Gender and Age of Participants

Gender Number

Female 18

Male 7

Age range Number

20-30 10

30-40 8

40-50 7

Mode of study Number

Full-time 10

Part-time 15

Employing organisation Number

Full-time students with recent past employment history 10

NHS 3

Private Training Organisation 2

Constabulary 2

Insurance Co. 1

Supermarket (a) 1

LEPRA 1

Supermarket (b) 1

Holiday Camp 1

Fashion Retailer 1

Construction Company 1

Learning Skills Council 1

Permission to tape the interviews was requested and given in all cases. Although transcripts of the interview

where taken the researcher was keen to ensure that her body language communicated personal interest and

attention.

Bogdan and Biklen (2002) advise that, when asking the respondent about the past, the interviewer suggests

that he or she think back to that time and try to relive it. This proved to be a valuable strategy in the interviews

when encouraging the respondents to contextualise their narrative, as did their reassurance that the interviewer

need not fear silence. Silence can enable subjects to get their thoughts together. Another helpful lesson that was

learnt was not to interrupt and change the direction of the narrative.

Ethical Considerations

Social science, like life, is shot through with personal, political, and ethical dilemmas (Plummer, 206, p. 277)

and this research was no exception to this. The implication for informants in life history research was a particular

concern. Goodson and Sikes (2001) suggest that it is not always possible to predict the sort of harm that

informants may experience as a consequence of their involvements. An enormous amount of thought and

attention was given in terms of what was going on in this regard and to the potential problems which may arise.

The British Educational Research Association (BERA, 2004) considers that all education-related research should

be conducted within an ethic of respect for the person. The participants in this research were active subjects and

as the researcher was also their tutor she had a responsibility to them. She was aware that the life history approach

to gathering data entailed reflecting on things that had happened in their lives, both good and bad. And she had a


responsibility to avoid any embarrassment and intimidation, or to expose confidentialities (Stake, 2000).

It was emphasised that participation was voluntary and they would not be prejudiced if they refused to

participate. They were assured of their right to withdraw their consent at any stage. The researcher was a senior

member of staff in the college where the research was conducted at the time and, as their tutor she knew them

reasonably well. This raised ethical issues about personal and professional responsibility. For in effect she was

“doing research in her own back yard” (Goodson & Sikes, 2001) with this in the forefront of her mind, she aimed

to establish mutuality, minimise communication barriers, and allay discomfort (Seiber, 1993).

Data Analysis Phase

As already alluded to detailed transcripts were made following each interview and the data examined several

times in order to develop explanations of the phenomenon being studied (Douglas, 2003, p. 46).

Memoing, or notes to self were made during and after the interviews. These were basically reflections on

feelings of the relationship with the informant; any doubts about the quality of some the data, and any remark that

related to a theory or concept which could be further explored in the literature (Strauss & Corbin, 1998). Any

issues were also noted which the researcher wanted to pursue further with the next contact or to re-interview at

some point (Miles & Huberman, 1994).

Initial Coding

The data in the transcripts and to some extent the memos was analysed phrase by phrase. This involved

taking each phrase, examining and labelling. The labels were referred to as categories, concepts, and properties.

This process of initial coding (or often referred to as open coding) requires application of what is referred to as the

“comparative method” (Pandit, 1996) that is to say broken down and questions asked. For example, “What did

this mean?”, “What is being referred to?’’, “Who was involved?”, and “When did this happen?”. The data are

then compared with data from the other interviews, grouped together and given a conceptual label. Table 2 is a

worked example. The first two respondents mentioned the influence of family in the early years, so this was

tentatively coded as “family influence”. The categories helped make sense of what the participant had said.

Whilst two participants mentioned the family influence, it was different depending on the context, characteristic,

behaviour, and impact of the family. Properties were then examined, for example, the type of behaviour in the

family, the extent of that behaviour and so on. The data from the coding were then used to theoretically sample

the relevant literature in order to elaborate and refine the categories constituting a theory.

Table 2

Initial Coding

Concept Key categories Properties

Family influence

Context Characteristics Behaviour Impact

Frequency Extent Behaviour type Duration

Axial Coding

The next stage in the process of analysis is axial coding. This process allowed the researcher to examine the

data more closely and identify relationships between the categories and properties identified in open coding. This


is done in order to develop core or major codes. Axial coding utilises a coding paradigm which involves the

researcher looking at the concepts, the context again and/intervening conditions involved. Consequences are then

looked at in order to bring out the central idea or core category. So for example, after family influence had been

analysed under the key categories and propertiesthe process of axial coding allowed her to think about the

material in new ways and examine the data more closely under a different coding paradigm. This enabled her to

build up a dense texture of relationships around the axes of the category being focussed upon. Hence Strauss and

Corbin’s (1998) definition of the process “axial coding”.

The emergent themes from axial coding as with the themes which emerged from the open coding procedure

were then explored in greater detail against selected literature. This led to the identification of relationships

between life experiences and attitudes to learning in later life.

Findings

The above process yielded a number of interesting findings and themes. The study presented evidence and

supports previous findings that underline the important influence family and school have on developing a

positive attitude to learning (Pugh, 1999; Pollard & Bourne, 2002; Nutbrown & Clough, 2006) and Pugh and

Duffy (2007). It adds to the vast volume of literature in this area, in so far as whilst it may be the case that adults

who are the best learners in terms of achievement come from homes value learning (Csikszentmihalyi, 1993), the

findings suggest that adults who have had bad experiences of learning within the home and school can and do still

go on to develop a positive attitude to learning in later life.

One respondent had a particularly negative experience at school and was told “she would never do anything

with her life”. She had remembered these words and they had, she claimed, made her more determined to succeed.

She went on to obtain a 2:1 degree, a post graduate diploma and aspire to a very senior position in her

organisation. Similar stories were told by many of the respondents. They were clearly driven by these negative

experiences.

Another central theme which was drawn out is that individual perceptions of learning can be a key influence.

The interviews bring out the differing perceptions and experiences of learning in schools and college as opposed

to learning in the workplace. The research supported Pollard and Bourne’s (2002) assertion that schools focus too

much on curriculum and teaching whilst paying insufficient attention to social factors. The findings from my

research support the viewpoint, which underlines the importance of making learning in schools more relevant and

individualised.

Finally the influence and importance of context and learning was a recurring theme in the study. The

respondents perceived the workplace environment as informal, supportive, and relevant in terms of meeting their

learning needs. Unlike school and to a certain extent colleges, workplaces are developing the whole person, not

just a single facet of the individual (Compton, Cox, & Santon Laanan, 2006). The conclusions suggested that this

research has shown the disjuncture between different phases of teaching (school, college, and the workplace).

Some Final Thoughts

The aim of this paper was to provide an insight into some of the issues of adopting grounded theory and life

history methodologies.


One of the biggest challenges of using grounded theory was adapting it to meet the researchers own needs. It

takes a degree of confidence to take the general principles and practices of grounded theory and vary them

according to individual research needs.

Grounded theory offers a set of guidelines rather than rigorous rules to be followed and as a novice

researcher the researcher could have adopted a more structured practically orientated approach. However with

grounded theory the data itself shapes the processes and product and for her it was important that she was not

totally relying on pre-conceived ideas and had the flexibility to pursue emerging themes.

Life history as a methodology presented its own challenges. The researcher should never underestimate the

importance of thoroughly familiarising themselves with this methodology and the associated ethical issues, some

of which have been discussed within this paper. The implications for the respondents and the researcher role in

particular require special consideration and attention. As reported earlier in this paper, it is not always possible to

predict the sort of harm that informants may experience as a consequence of their involvement (Goodson & Sikes,

2001).

Combining the two methodologies has not always been straightforward. However these two approaches

provided valuable experience and insight into conducting phenomenological research. It can be summed up by

Moustakas (1994):

In a phenomenological investigation the researcher has a personal interest in whatever she or he seeks to know, the researcher is intimately connected with the phenomenon, the puzzlement is autobiographical, making memory and history essential dimensions of discovery, in the present and extensions into the future. (p. 50)

References

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and development of high abilit. CIBA Foundation Symposium 178, Chichester, UK. Cutliffe, R. (2003). Methodological issues in grounded theory. Journal of Advanced Nursing, 31(6), 176-194. Douglas, D. (2003). Grounded theories of management: A methodological review. Management Research News, 26(5), 44-52. Glaser, B. G. (1978). Theoretical sensitivity. Mill Valley, C.A.: Sociology Press. Glaser, B., & Strauss, A. (1967). Discovery of grounded theory. Chicago: Aldine. Goodson, I., & Sikes, P. (2001). Life history research in education settings: Learning from lives. Buckingham: Open University

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of Advanced Nursing, 60(3), 334-342. Miles, M. B., & Huberman, A. M. (1994). Qualitative data analysis (2nd ed.). London: Sage.


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http://www.nova.edu/sss/QR/QR2-4/pandit.html Plummer, K. (2006). Documents of life: An invitation to a critical humanism. London: Sage. Pollard, A., & Bourne, J. (2002). Teaching and learning in the primary school. London: Open University. Pugh, G. (1999). Young children and their families: A community response. London: Falmer. Pugh, G., & Duffy, B. (2007). Contemporary issues in the early years. London: Sage. Seiber, J. E. (1993). The ethics and politics of sensitive research. In C. M. Renzetti, & R. M. Lee (Eds.), Researching sensitive topics

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Sage.


Human Resources Development and Migration: New Potential

Determinants for Monetary Policy*

Gherghinescu Oana Rodica

University of Craiova, Craiova, Romania

Ciocîrlan Irina Georgiana

ACZ Consulting, Craiova, Romania

The main objective of the present paper is to determine the potential impact the qualitative and quantitative

tendencies in the labor market on the decisions which influence the design of monetary policy worldwide. The

analysis is focused on how human resources and phenomena associated with them could influence potential growth

and, further on, how they can impact monetary policy decisions at national level for European countries outside the

euro area and at ECB level for the euro zone countries. Moreover, the paper will envisage potential macroeconomic

reactions (monetary decisions herewith included) to human resources dynamics. The economic variations are

regarded through the perspective of growth potential shown by the Research & Development sector and also

through the effects of labor force migration. The analysis of statistical data aims at pointing out the different

economic perspectives in the European Union, the United States, and Japan, also considering the disparities

between EU member states. The analysis is completed by the use of the ranking method, the conclusions stating

once more the crucial importance of the human factor in drawing monetary policy decisions.

Keywords: human resources, migration, monetary policy, Research & Development sector, economic growth,

labour force, job creation

Introductory Remarks

Contemporary economics acknowledge more and more the need to correlate monetary policy design with

the changing characteristics of the real economy.

Monetary policy determination, be it within a monetary or a direct inflation targeting regime, pays special

attention to the trend growth of GDP as one of its essential determinants.

A component which is incorporated in the potential growth rate and has gained significant importance

during the last decade in macroeconomic equations is the human factor. Labour markets in Europe are confronted

* Acknowledgment: This work was supported by the strategic grant POSDRU/89/1.5/S/61968, Project ID61968 (2009), co-financed by the European Social Fund within the Sectoral Operational Programme Human Resources Development 2007-2013.

Gherghinescu Oana Rodica, Ph.D. in Economics, Department of Economics and Business Administration, University of Craiova.

Ciocîrlan Irina Georgiana, MA in Economics, Department of EU funding, ACZ Consulting. Correspondence concerning this article should be addressed to Gherghinescu Oana Rodica, Craiova, 33A Putnei Street, ap. 7,

Craiova, Romania. E-mail: [email protected].

DAVID PUBLISHING

D

HUMAN RESOURCES DEVELOPMENT AND MIGRATION 94

with prolonged shortages of skilled workers especially in the tertiary sector. Fewer and fewer qualified human

resources enter the labour markets in public works, public services, and constructions as a consequence of

inadequate education strategies in the field of vocational education and training. Another associated phenomenon

is migration of labour force from Eastern to Western and Northern Europe, thus increasing the shortage of

workers on the Eastern markets and putting inflationist pressure on the origin markets of workers via remittances.

In such a context, labor markets play an important indirect role in the design and conduct of monetary policy,

highlighting the importance of labor as an important factor in the production functions of various economies. The

present paper comprises four parts: the first one is dedicated to analyzing the rationale behind establishing a

direct link between monetary policy and economic growth; the second part analyzes the role of human capital in

the economic growth process in contemporary economies; the third part depicts and researches into four main

challenges facing economic growth from the point of view of human resources, namely, lifelong learning,

mobility, rigidities, and displacement; and the fourth part is dedicated to conclusions.

Monetary Policy and Economic Growth

Monetary policy is not an objective per se but a mechanism that is put in place in order to better serve the

achievement of macro-economic objectives. Monetary policy objectives and instruments are designed in order to

support general macroeconomic objectives, among which economic growth is essential. Empirical attempts have

been made in order to establish a quantitative relationship between monetary policy and economic growth. In

economic literature they have been categorized as either deterministic (the Taylor rule) or normative (quantitative

benchmark definitions for money supply growth rate).

The Taylor rule provides recommendations on how the Federal Reserve should set the short-term interest

rates in accordance with the economic conditions in order to achieve its short-run goal for stabilizing the

economy and its long-run goal for inflation.

Starting October 1998, the Governing Council of the European Central Bank decided to announce a

reference value for the growth rate of the broad monetary aggregate (M3) having as regressors the potential

growth, the desired inflation rate (following the ECB’s definition of price stability as an year-on-year increase in

the HICP for the euro area of below 2%) and the estimate of trends in the inverse of the velocity of circulation of

money. A reference value for monetary growth of 4.5% per annum has been successively reconfirmed by the

ECB, based on the assumptions regarding a trend for potential growth in the range of 2%-2.5% and a decline in

M3 income velocity of 0.5%-1% per annum in the euro area.

This correlation mechanism does not, however, function automatically. There are several underlying factors

for GDP growth rate, some of them radically changing during the last decades. One of the very dynamic factors is

represented by human resources and their presence in the production function of a state under the categorization

of labor.

Human Capital and Economic Growth

Human capital is without any doubt a key variable in the macro-economic equation of every state. Its

quantity and quality exert impact on the level and trend of GDP growth together with other production factors.

While quantity is affected by low birth prospects across most of the developed countries, quality of the human


capital has gained importance through various initiatives such as investing more and more in education, as well as

in research and development.

Education increases the mobility of the workforce within a labor market and is therefore essential for the

functioning of a monetary union in which asymmetric economic shocks can no longer be absorbed by adapting

the exchange rate relations but have to be offset by flexible factors of production (Liebscher et al., 2006). In its

theory of optimum currency areas, Mundell (1961) has identified labor mobility as a strategic facet of an

optimum currency area. His argument was that, when this production factor moves freely within the monetary

area, adjustments to real shocks do not imply dramatic changes in the level of prices and income for member

states. If, on the contrary, mobility is low, the monetary union is not desirable. Education does not only increase

labor force mobility, but also its adaptability, productivity, and competitiveness, as key issues of Europe’s

revised Lisbon agenda. Although a time lag has been identified between the investment in education and its

results in terms of increased competitiveness and economic growth, there is clear evidence that education and

lifelong learning are an indispensable input for economic growth in the last decades.

Research and development (R&D) should become a driving force behind economic growth, job creation,

innovation of new products, and increasing quality of products.

A minimum set of six indicators can be used to assess the competitiveness potential of the EU economy in

the spirit of the Lisbon Strategy for growth and jobs (see Tables 1-6 and Figures 1-6): (1) gross domestic

expenditure on R&D; (2) tertiary graduates in science and technology per 1,000 inhabitants aged 20-29 years; (3)

the employment rate, calculated by dividing the number of persons aged 15 to 64 in employment by the total

population of the same age group; (4) labor productivity per person employed; (5) research and development

personnel, by sectors of performance; and (6) doctorate students in science and technology fields—total percent

of the population aged 20-29.

The findings are as follows:

(1) Unless properly financed, R&D is less likely to foster economic growth and job creation. If comparing

the gross domestic expenditure on R&D in the EU, USA, and Japan (see Table 1 and Figure 1), one can easily

notice that further investements should be made in this direction in the EU in order to achieve the goals of the

Lisbon Strategy.

Table 1 Gross Domestic Expenditure on R&D, Percent of GDP

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011EU-27* 1.86 1.88 1.88 1.87 1.84 1.84 1.84 1.85 1.92 2.02 2.01 2.03 Euro area 1.84 1.86 1.87 1.87 1.85 1.85 1.86 1.88 1.96 2.06 2.06 2.09 EU lowest percentage (Romania) (Cyprus)

0.37 0.25

0.39 0.26

0.38 0.3

0.39 0.35

0.39 0.37

0.41 0.41

0.45 0.43

0.52 0.44

0.58 0.43

0.47 0.49

0.46 0.5

0.48 0.48

EU highest percentage (Finland) 3.34 3.30 3.36 3.43 3.46 3.48 3.45 3.47 3.7 3.94 3.9 3.78 United States 2.73 2.74 2.64 2.67 2.67 2.58 2.61 2.69 2.82 2.87 - - Japan 3.05 3.13 3.18 3.20 3.20 3.17 3.32 3.46 3.47 3.36 - - Notes. * average calculated for the 27 Member** States (** as per January 1st, 2007); Source: Eurostat Statistics, 2012.

(2) Table 2 shows data on tertiary science and technology graduates in the EU as an indicator of the science

and technological potential of high-skilled graduates (see Figure 2).


Table 2

Tertiary Graduates in Science and Technology Per 1,000 Inhabitants Aged 20-29 Years

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

EU-27* 10.1 10.7 11.3 12.3 12.5 13.2 13.4 13.8 14.4 14.4 12.5

EU lowest level (Cyprus) 3.4 3.7 3.8 3.6 4.2 3.6 4.3 4.2 4.0 4.6 5.1

EU highest level (Finland) 16.0 17.2 17.4 17.4 17.9 18.1 17.9 18.8 24.3 19.0 24.2

USA 9.7 9.9 10.0 10.9 10.2 10.6 10.3 10.1 10.1 10.3 10.7

Japan 12.6 12.8 13.0 13.2 13.4 13.7 14.4 14.4 14.3 14.2 13.8

Notes. * average calculated for the 27 Member** States (** as per January 1st, 2007); Source: Eurostat Statistics, 2012.

As it can be noticed, huge disparities persist between different countries in the EU, which brings on the top

of the agenda the need to ensure homogenous priorities for higher education in the field of science and technology

accross Europe. The European Union needs to train and use on the labor market as many high-skilled graduates as

possible. This has been included among the priorities of the Bologna process and the financing priorities of the

European Social Fund.

(3) In the spirit of the Lisbon strategy for growth and jobs, there can be established a correlation between the

amounts of investments dedicated to R&D and the employment rate (see Table 3 and Figure 3).

Table 3

Employment Rate in Percent

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

EU-27* 66.6 66.9 66.7 67.0 67.4 68.0 69.0 69.9 70.3 69.0 68.6 68.6

EU—Changing composition 67.3 67.9 68.1 68.4 68.9 68.3 69.2 69.9 70.3 69.0 68.6 68.6

EU lowest rate (Greece) 61.9 61.5 62.5 63.6 64.0 64.6 65.7 66.0 66.5 65.8 64.0 59.9

EU highest rate (Sweden) 77.7 78.7 78.5 77.9 77.4 78.1 78.8 80.1 80.4 78.3 78.7 80.0

United States 76.9 76.1 75.0 74.5 74.5 74.8 75.3 75.3 74.5 71.3 70.5 70.4

Japan 74.0 73.8 73.1 73.2 73.4 73.9 74.5 75.3 75.3 74.7 74.7 74.9


(4) Both the level of expenditure on R&D and the level of investments in education are to be reflected in the

productivity per person employed (see Table 4 and Figure 4).

Table 4

Labor Productivity Per Person Employed EU 27 = 100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

EU-27* 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

EU—Changing composition 113.9 112.6 111.8 111.0 109.9 109.9 109.8 109.6 109.7 109.2 108.7 108.5

EU lowest rate (Bulgaria) 31.3 32.2 34.0 34.8 34.8 35.8 36.4 37.5 39.6 40.1 41.3 43.5EU highest rates (Luxembourg) (Belgium)

176.8 137.3

163.1 134.2

164.2137.1

168.2135.6

170.6132.6

170.3130.5

179.5129.3

180.0127.7

168.6 127.1

161.6 127.8

167.9128.3

169.8127.4

United States 142.5 140.9 140.9 142.6 143.5 144.4 140.6 139.4 138.1 140.9 142.9 143.5

Japan 100.6 99.6 100.1 100.8 100.9 100.3 97.5 97.5 95.3 92.9 96.4 95.1


(5) The information regarding the percentage of personnel currently working in the Research &

Development sector can be viewed below (see Table 5 and Figure 5).


Table 5 Research and Development Personnel, by Sectors of Performance, Head Count (Percent of the Labour Force)

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011EU-27* 0.90 0.91 0.92 0.93 0.93 0.95 0.98 1.00 1.03 1.04 1.05 1.08 Euro Area 1.00 1.00 1.01 1.00 1.01 1.02 1.05 1.08 1.12 1.14 1.16 1.17 EU lowest rate (Romania) 0.30 0.29 0.32 0.34 0.34 0.34 0.29 0.29 0.31 0.29 0.36 0.30 EU highest rates (Luxembourg) (Denmark)

1.97 1.33

- 1.39

- 1.49

2.06 1.45

2.18 1.47

2.16 1.50

2.14 1.54

2.18 1.61

2.18 1.98

2.06 1.90

2.16 1.96

2.11 1.96

Japan 1.33 1.29 1.25 1.29 1.31 1.35 1.37 1.37 1.33 1.33 - - Notes. * average calculated for the 27 Member** States (** as per January 1st, 2007); Source: Eurostat Statistics, 2012.

(6) The level of interest regarding the Research & Development sector amongst graduate students who wish

to pursue a career in this innovative domain, is reflected in the following table (see Table 6 and Figure 6).

Table 6 Doctorate Students in Science and Technology Fields—Total % of the Population Aged 20-29 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 EU-27* - - - - - - 0.27 0.30 - - - - EU lowest rates (Bulgaria) (Hungary)

0.11 0.10

0.13 0.15

0.14 0.01

0.16 0.48

0.19 0.17

0.20 0.17

0.22 0.18

0.22 0.16

0.19 0.16

0.16 0.16

0.16 0.17

-

EU highest rates (Finland) (Czech Republic)

1.30 0.45

1.34 0.55

1.33 0.59

1.23 0.67

1.32 0.73

1.33 0.79

1.36 0.68

1.38 0.72

1.36 0.81

1.30 0.81

1.29 0.84

-


The connection between schooling and economic growth and between education and the development of

financial markets has been also explored (Papademos, 2007). It has been pointed out that private returns on

investment in education ranged between roughly 6.5% and 9% and that social returns were possibly even higher

due to positive externalities. An additional year of formal schooling is associated with an increase in wages of

7.5% on average over the entire working life. Education can also influence growth via innovation. Higher

education levels foster innovation and the adoption of technological advances. Particularly the most

technologically advanced countries benefit from better education, which fuels growth in new sectors such as

pharmaceuticals and electronics.

Based on the analyses through the usage of the ranking method (see Table 7), it is concluded that, considering

the range of the appointed indicators, the most competitive country/Union in the Reaserch & Development sector is

the United States of America, followed by Japan and the European Union. The differences between the three

subjects of the analyses through the ranking method are not overwhelming, which can be a sign of a possible change

in the hierarchy, especially considering the emphasis on R&D in the European Union’s 2020 Strategy.

Applying the same ranking method but to different subjects (see Table 8), the analyses being focused this

time on the countries which have become part of the European Union since 2004, the most competitive latest

member of the European Union in the Research & Development sector is the Czech Republic, followed closely

by Slovenia. Between the first five scorings obtained, the difference is progressive, followed by a significant gap

between the ocuupant of the 5th spot, Lithuania, and the occupant of the 6th spot, Poland. As it was expected, the

last two countries which have been integrated in the EU in 2007, Romania and Bulgaria, have yet to become

competitive in the Research & Development sector.


Figure 1. Gross domestic expenditure on R&D, % of GDP.

Figure 2. Tertiary graduates in science and technology per 1,000 inhabitants aged 20-29 years.

Figure 3. Employment rate in %.


Figure 4. Labor productivity per person employed, EU 27 = 100.

Figure 5. Research and development personnel, by sectors of performance (% of the labour force).

Figure 6. Doctorate students in science and technology fields—Total percent of the population aged 20-29.

1.6

1.4

1.2

1

0.8

0.6

0.4

0.2

0

1.6

1.4

1.2

1

0.8

0.6

0.4

0.2

0


Table 7

Ranking Method—Indicators Regarding the R&D Sector Analysed for the EU, USA, and Japan

Country/ Union

Indicators—year 2009 Ranking method

Gross domestic expenditure on R&D, % of GDP

Tertiary graduates in science and technology per 1,000 inhabitants aged 20-29 years

Employment rate in %

Labor productivity per person employed EU 27 =100


Tertiary graduates in science and technology per 1,000 inhabitantsaged 20-29 years


Labor productivity per person employed EU 27 = 100

Cumulated ranks

Intermediary rank

Final rank

EU-27 2.02 14.4 69.0 100 3 1 3 2 9 2.25 3

USA 2.87 10.3 71.3 140.9 1 3 2 1 7 1.75 1

Japan 2.36 14.2 74.7 92.9 2 2 1 3 8 2 2

Note. Source: Eurostat, 2012.

Table 8

Ranking Method—Indicators Regarding the R&D Sector Analysed for the Latest 12 Member States of the EU

EU Country

Indicators – year 2010 Ranking method


Tertiary graduates in S&T per 1,000 inhabitants aged 20-29 years



R&D personnel, by sectors of performance Head count (% of the labour force)

Doctorate students in S&T fields —Total % of the population aged 20-29


Tertiary graduates in S&T per 1,000 inhabitantsaged 20-29 years



R&D personnel, by sectors of performance Head count (% of the labour force)

Doctorate students in S&T fields— Total % of the population aged 20-29

Cumulated ranks

Intermediary rank

Final rank

Romania 0.48 15.6 63.3 48.9 0.26 0.31 12 5 10 11 12 5 55 9.17 12

Bulgaria 0.57 11.4 65.4 41.3 0.49 0.16 10 7 5 12 8 11 53 8.83 11

Cyprus 0.48 5.1 75.4 90.7 0.32 0.20 12 12 1 2 11 7 45 7.50 7

Czech Republic

1.84 16.5 70.4 73.8 0.99 0.84 3 3 2 5 2 1 16 2.67 1

Estonia 2.38 11.3 66.7 69.3 0.77 0.56 2 8 4 7 3 2 26 4.33 3

Hungary 1.21 8.3 60.4 70.1 0.74 0.17 4 10 11 6 5 10 46 7.67 8

Latvia 0.70 10.7 65.0 54.8 0.49 0.19 8 9 6 10 8 8 49 8.17 9

Lithuania 0.92 18.7 64.4 62.5 0.75 0.23 5 1 9 9 4 6 34 5.67 5

Malta 0.73 8.0 60.1 93.7 0.64 0.03 7 11 12 1 7 12 50 8.33 10

Poland 0.77 15.8 64.6 66.8 0.46 0.19 6 4 7 8 10 8 43 7.17 6

Slovakia 0.68 18.3 64.6 81.5 0.67 0.50 9 2 7 3 6 3 30 5.00 4

Slovenia 2.47 14.8 70.3 80.5 1.24 0.43 1 6 3 4 1 4 19 3.17 2

Note. Source: Eurostat, 2012.

Challenges Ahead

Monetary authorities become more and more aware of the importance of labor as a variable in the

macroeconomic equations. This is particularly supported by certain recent phenomena such as: migration and

remittances; rigidity of labor and wages in certain markets and the rising importance of services and associated

labor in the production function.

Migration and Remittances

A relatively new phenomenon in the European Union is represented by the migration of low-skilled labor

force from Eastern to Western countries and the subsequent remittances for their family members left in the

origin countries. According to World Bank data, remittances at global level amounted for over 230 billion dollars


in 2004. For numerous European and Central Asia countries, remittances represent a second source of external

financing after foreign direct investments or could even be the main source of external financing as is the case of

Moldova and Albania. In low income countries, remittances represent approximately 20% of household expenses.

Moreover, in countries like Moldova, Serbia, and Montenegro, remittances account for half of total export

inflows, while in Albania and Bosnia-Herzegovina, they are almost equal to exports.

This type of phenomenon, if properly managed, can prove beneficial for both the origin and the destination

country of migrant labor. For the destination country it is a source of labor needed in the production function of

the economy, especially in sectors such as services, constructions, and agriculture as well as a dynamic factor for

the economy. For the origin country of migrant labor and, consequently, the destination country of remittances,

this is a poverty reduction factor. This inflow of foreign currency supports economic growth and helps increasing

the living standard, smoothing social tensions. Various econometric models show contradictory results as regards

the impact of remittances on economic growth. Chami, Fullenkamp, and Jahjah (2003) conclude that, because of

asymmetries and uncertainties, remittances have, at the end of the day, a negative impact on the economic growth

in their countries of destination. However, using a similar model with slight changes and additional institutional

variables, Mansoor and Quillin (2006) show that remittances stimulate economic growth. Irrespective of these

contradictions, there are issues that have general validity, namely: (1) the scope and rhythm of remittances

decrease in time as families tend to gather either in the origin or in the destination country; (2) remittances

improve the balance of payments of the country where migrant labor originates; and (3) while active, labor

migration tends to have negative social consequences such as breaks in families unity and poor performance of

children left at home by their parents as well as stagnation in the communities deprived by a large share of their

active labor force.

A very debated effect of remittances flows is the one related to the appreciation of the real exchange rate and

the connected macroeconomic effects, such as: adverse effects on the tradable sector of the economy affected by

the associated loss of international competitiveness; reductions in the labor supply of the tradable sector in favour

of the non-tradable sector, wage pressure, and price increase in the non-tradable sector; widening the current

account deficit when consumption driven by remittances is also directed towards tradable goods, thus increasing

the demand for imports; inflationary pressures when remittances flows do not leave the country and inflate

monetary aggregates; distortions in the sectoral allocation of investments, given the fact that most of the

remittances flows are directed towards the real estate market, thus artificially inflating the price of assets.

Rigidity of Labor and Wages in Certain Markets

A recent study carried out by the European Central Bank (Christoffel, Kuster, & Linzert, 2006) highlights

the role of labor markets for understanding business cycle fluctuations and the implications for monetary policy

in particular. The focus of the analyses is linked to the approach of rigid labor markets when conducting monetary

policy based on regimes such as inflation targeting. Rigid labor market regimes can influence monetary policy

transmission mechanism according to an algorithm similar to the following one: nominal wage rigidity, the speed

of mobilizing idle labor resources and the cost of mobilizing them all influence the marginal cost of labor; this

will be transposed in firms’ marginal cost as part of their price setting mechanism and finally feed aggregate

inflation. Hence, it can be stated that wage inertia level and the efficiency of labor demand-supply matching


process have a strong impact on monetary policy transmission mechanism. This is the reason for which the labor

market and wage flexibility have been considered key pre-requisites for an optimum currency area. The higher

the degree of wage rigidity, the stronger inflation persistence can be. In such a context, optimal policy should

deviate from the strict regime of inflation targeting and fully acknowledge the unemployment/inflation trade-off.

Thus optimal monetary policy should envisage a mix of inflation targeting and unemployment targeting.

Changes in the Production Function

If trend growth of GDP is a key ingredient for monetary policy determination, then volatility and

determination of trend growth must be understood as well as possible. Against this background it is worrying that

recently volatility of potential growth seems to have increased and its determination seems to have shifted,

whereas it is at first sight puzzling why and in which direction. Potential growth is the trend growth of the

economy. Actual growth is regarded as the result of this structural growth and the deviation from it due to the

business cycle stance. Insight in the level of structural or potential growth of the economy is important, e.g., for

monetary policy and to assess the employment situation. This is the more the case because short term economic

developments seem to have also become more volatile, less policy driven, and more difficult to explain

(Kolodziejak & Gherghinescu, 2005).

The trend is caused by underlying factors, which are the determinants of economic growth. These factors are

endowments or production inputs on the one hand and their respective productivity on the other hand. In the

history of economic thought it can be observed that the interest moves from the first sector of the economy,

agriculture, to the second, industry, in the course of the 19th century which also marks the birth of economics as

a science. Following the traditional concept of economic growth determination a capital stock that has been built

will always result in production as long as labour costs are in accordance with the competitive position or

technological position of that capital stock. However, with the preferences of the consumers drifted to the output

of the third and fourth sector of the economy, to commercial and non-commercial services, it is doubtful whether

a capital centred approach to potential growth determination is adequate. This is sometimes solved by the

introduction of human capital in the production function. What it is noticed nowadays is that the production

function of the economy changes in response to preference drifts, sectoral changes, and consumption changes.

Immigration/inflow of labor can trigger changes in the economic preferences for services that were previously

desired, e.g., because of aging, but not possible. Nowadays the service sector plays a major role in our economy.

In response to aging preference dynamics towards services may continue and deepen. Such an approach shows

that changes in the production function of the economy (i.e., shifts from the capital intensive sector—industry to

the labor intensive sector—services) are able to support economic growth even in economies characterized by

low accumulation, relatively low savings, and a relatively low capital output ratio (the case of USA or Canada).

This is in line with the Rybczynski (1955), a core result of Heckscher-Ohlin trade theory, stating that when a

region is open to trade with other regions, changes in regional relative factor supplies can be fully accommodated

by changes in regional output without requiring changes in regional factor prices.

Conclusions

Although historically ignored as significant variable for monetary policy decisions, human resources, under

their various facets, can play a crucial part in the formulation and transmission of monetary policy and are


definitely crucial for supporting economic growth.

Several conclusions have been depicted from the present paper as regards the relevance of incorporating

human resources and labor dynamics in macroeconomic analyses and, in particular, in monetary analyses.

(1) Labor is an important factor in the production function of many economies. Moreover, labor dynamics

among countries can initiate changes in the preference dynamics for certain sectors (i.e., services) that had not

been able to be satisfied before. This explains how economies with low accumulation, relatively low savings and

a relatively low capital output ratio, but open to immigration flows have been able to efficiently integrate this

labor into the services sector and gain economic growth.

(2) Although quantity of labor is affected by low birth prospects across most of the developed countries,

quality of the human capital has gained importance through various initiatives such as investing more and more in

education, as well as in research and development. It has been statistically demonstrated (even though with a time

lag) that investments in human resources support economic growth and encourage mobility and flexibility in the

labor market as prerequisites for the functioning of optimum monetary areas.

(3) Effects of the remittances flows can not be neglected while formulating monetary and exchange rate

policies in the recipient countries as they are likely to feed real exchange rate appreciation, inflation, and

distortions in certain markets.

(4) Wage inertia level and the efficiency of labor demand-supply matching process have a strong impact on

monetary policy transmission mechanism. In rigid labor markets, an optimal monetary policy based on inflation

targeting should not neglect unemployment targeting.

References

Chami, R., Fullenkamp, C., & Jahjah, S. (2003). Are immigrant remittance flows a source of capital for development? Palgrave Macmillan, 52(1), 55-81.

Christoffel, K., Kuster, K., & Linzert, T. (2006). Identifying the role of labor markets for monetary policy in an estimated DSGE model. ECB Working Paper Series, No. 635.

European Commission. (2005). New proposals for growth and jobs under the next Financial Framework 2007-13. Retrieved from http://www.europa.eu

Eurostat Statistics. (2012). Retrieved from http://www.epp.eurostat.ec.europa.eu/portal/page/portal/statistics/themes Faia, E. (2006). Optimal monetary policy rules with labor market frictions. ECB Discussion Paper No. 698. Janger, J., & Raunig, B. (2007). Human capital and economic growth—Summary of the 35th Economics Conference of the

Oesterreichische Nationalbank (pp. 106-114). Monetary Policy and the Economy No. 3. Kolodziejak, A., & Gherghinescu, O. (2005). Preference dynamics, migration and potential growth: Implications for monetary

policy. Finance-Challenges of the Future Review, No. 3. Liebscher, K., Christl, J., Peter Mooslechner, P., & Ritzberger-Grünwald, D. (2006). Financial development, integration and

stability (pp. 186-207). USA: Edward Elgar Publishing. Mansoor, A., & Quillin, B. (2006). Migration and remittances: Eastern Europe and the Former Soviet Union (Europe and

Central Asia Reports). Washington: World Bank Publications. Mundell, R. (1961). A theory of optimum currency areas. The American Economic Review, 51(4), 657-665. Papademos, L. (2007). Inflation and competitiveness divergences in the Euro area countries: Causes, consequences and policy

responses. Proceedings from The ECB and its Watchers IX, ECB Press. Rybczynski, T. M. (1955). Factor endowment and relative commodity prices. Economica, 22(88), 336-341.


Customer! The Forgotten Stakeholder

Themistokles Lazarides, Stamatios Kontsas, Electra Pitoska

TEI of Western Macedonia, Grevena, Greece

During last two decades a shift in marketing, corporate strategy, organizational, and market dynamics has been

recorded. A series of corporate scandals like ENRON and others has shown that corporations have a significant

impact on a number of stakeholders and particularly customers. The notion that the customers can shift from one

product or service provider to the other may not be as valid as some theories suggest. The markets are not perfect

mechanisms and customers are not rational decision makers. Although marketing has introduced the corporate

culture—the customer-centric approach, the results are not as positive as they should be. The paper shows that

marketing and corporate governance systems have many common elements and in fact they can be complementary

in practice and theory. To establish the connection-correlation between them, the author is going to review the

literature from both disciplines. As a next step, an analysis of impact of the customer as a party that has an interest

in the firm is going to take place. Finally, two examples of this impact will depict the importance of a change in

scope—goal, strategy, and practices used by both disciplines in achieving the firm’s mission and goals. The author

shows that both can be benefit from the integration of mechanisms, principles, and practices used by the marketing

and corporate governance. The paper is the first step to create a theoretical convergence framework for these

disciplines that seem completely separate. Marketing and corporate governance specialists and theorists may

design a more comprehensive and holistic approach to customer that is more customer friendly, more long term and

establishes a more successful and value creation (for both the customer and the corporation) relationship.

Keywords: corporate governance, marketing, customer

Introduction

Until now corporate governance and marketing were considered to be two different. Drucker’s (2001)

definition of marketing is:

Marketing and innovation are the two chief functions of business. You get paid for creating a customer, which is marketing. And you get paid for creating a new dimension of performance, which is innovation. Everything else is a cost center. (p. 31)

According to Drucker’s definition, auditing, accounting, human resource management, etc. are secondary

functions of the firm and the main focus should only be in marketing, research and development and production.

Themistokles Lazarides, Ph.D., Associate Professor, Applied Informatics in Administration and Economy, TEI of Western Macedonia.

Stamatios Kontsas, Ph.D., Adjunct Lecturer, Applied Informatics in Administration and Economy, TEI of Western Macedonia. Electra Pitoska, Ph.D., Associate Professor, Financial Applications, TEI of Western Macedonia. Correspondence concerning this article should be addressed to Themistokles Lazarides, Grevena, 51100, Greece. E-mail:

[email protected].

DAVID PUBLISHING

D

CUSTOMER! THE FORGOTTEN STAKEHOLDER 105

This approach of business has been dominant throughout the 1980s, 1990s, and the previous decade. What

came as a surprise during the last 10 years was that customers found themselves in many cases to be without

choices and loosing substantial assets, value or money by the lack of products and services.

The recent events, scandals, crises and the subsequent legal framework and business’ redesign of their

functions and priorities show a shift in the business approach towards the market, the customer, the stakeholder

and especially their role in the economy. A new consciousness is formulating. They corporations seem to

understand or they beginning to understand that the customer-centric approach is to narrow to achieve their

goals and mission. The main cause of the shift is the change in corporate mission and goals in the new approach

of the economy and market.

This does not mean that the customer-centric approach has no merit any more. It is a fact that the

customer-centric approach was short-term and narrow in scope. In the era of accelerated decline of the product

life cycle, product complexity, huge capital invested, and enormous sizes of corporations’ innovation per se

cannot create the foundations for sustainable corporate growth (i.e., the “war” between Apple and Samsung for

the table computer). Notions like stability, respect, accountability, ethos, corporate fame, and trust have become

important to the customer. Hence, corporations have begun to realize that success cannot be achieved by

looking outward (marketing), but inward as well (corporate governance).

Corporate Governance Approaches

There are many theories—approaches for corporate governance but only one is incorporating the customer

as an interesting party in the corporate agenda. The main theories that do not incorporate the customer are: (1)

Managerial hegemony theory (Mace, 1971; Vance, 1983; Lorsch & MacIver, 1989) which mainly focuses on

the dominant position of managers at the top administrative and monitoring corporate bodies; (2) Resource

dependence theory. According to this theory, boards of directors can be the facilitators of obtain resources form

the corporate environment and adapting to this environment (Pfeffer, 1972, 1973; Pfeffer & Salancik, 1978;

Pearce & Zahra, 1991; Goodstein, Gautam, & Boeker, 1994); (3) Agency theory (Barney & Hesterly, 1996;

Eisenhardt, 1988, 1989; Davis, 1991; Fama & Jensen, 1983; Jensen & Fama, 1983; Fama, 1980; Jensen &

Meckling, 1976, 1994). The agency theory argues that there are principals (owners, shareholders) and agents

(managers). Both parties are rationally committed, opportunistic, risk averse and selfish. The main problem that

the theory recognizes is the alignment of interests between principals and agents.

The only theory of corporate governance that explicitly or implicitly incorporates the customer is the

stakeholders theory. According to the stakeholder approach (Freeman, 1984; Donaldson & Preston, 1995;

Vinten, 2000, 2001) all parties that have potentially an interest or risk in the firms’ function can or must be

involved in its governing process. In the economic literature, many of the parties have been analyzed to define

the influence and their impact on the firm’s performance or on the governing process.

Despite the obvious interaction that exists between a firm and not directly engaged parts in the decision

making process and the governance of the firm, the stakeholder approach has received a lot of criticism by both

practitioners and academics. It was only until recently when the growing concern of society for matters as

environmental protection, corporate responsibility, and the rising power of consumers’ protection associations,

that triggered a fruitful discussion on the role of customers as a stakeholder in a firm.


Sternberg (1997), an opponent of the stakeholder theory has expressed some arguments that according to

her invalidate the stakeholder theory. The arguments can be categorized into four groups:

(1) Stakeholder theory is incompatible with business.

Stakeholder theory argues that none of the interesting parties should be favored when choosing corporate

goals. The diffusion of focus, or focus on cross many goals—stakeholders lead to reduced effectiveness.

The holistic definition of stakeholders creates a potentially very large set of stakeholders and a

correspondingly large set of interests. This number is not manageable. This led some to try to limit the number

of interested parties on three, four, or more groups. One of the problems of selecting and grouping specific

number of stakeholders is the fact that a person may be a member of more than one group (e.g., the executive

manager can be a shareholder; the shareholder may be a creditor, etc.).

From the above it appears that the stakeholder theory describes a large number of parties, large sets of

interests, and high degrees of significance interest. How the company’s management will achieve in designing

a methodology for achieving equilibrium between these many combinations? The goal appears unattainable and

therefore the theory, according to Sternberg, is incompatible with entrepreneurship per se. Faced with this

dilemma, the leadership of the administration is more likely to choose the most commonly accepted company

goal or mission and exclude groups and parties that they seem that they have no bargaining power or influence

in the company’s management.

(2) Stakeholder theory is incompatible with corporate governance.

One of the most important principles of corporate governance is accountability (the others are

responsibility, fairness, and transparency (OECD, 2004; Fremond & Capaul, 2002)). The stakeholder theory

argues that the management should be accountable to all stakeholders. Accountability diffusion reduces its

efficiency, respectively, because accountability has a specific aim: to explain the mechanism—process of

fulfilling the objectives and results of operations have been performed. The large number of targets because of

the large number of stakeholders makes accountability chaotic and therefore ineffective.

The lack of weights and measures, by which to make comparisons is another disadvantage. The lack of

comparative analysis of the accountability process reduces the efficiency and pertinence. So the dominant

parties are not accountable to anyone.

The most extreme view of Sternberg (1997) is that by reporting and balancing the executives or the

company’s management with all stakeholders violates an important corporate governance mechanism, the

confidence with which they invested shareholders when managers hired.

(3) Stakeholder theory of accountability is unjustified.

The logic of the theory is that the company’s success will come from the creation of long-term mutually

beneficial relationships with all stakeholders. These relationships are critical success factor of the strategic

objectives of the company and may directly contribute even to maximize financial performance. Sternberg and

other liberal theorists argue that this argument should not serve as a pretext for the extension of accountability

to all stakeholders.

The second question is purely moral. The stakeholder theory argues that relations with all parties should

be based mainly on strong and lasting relationships interdependent stakeholders, both at home and abroad of

the company environment. According to this theory, the only targets that should the company make are those


that achieve a balance between all and can be considered common. The question of Sternberg is: Why exclude

the objectives of individual parties that are not common and because the company is not accountable for them?

A third argument is a parallel with the government. Interested parties are “citizens” of a peculiar state and

have corresponding rights and especially the right of accountability. Sternberg (1997, p. 6) argues that the

parallelism does not apply because the governments have a monopoly of power and the right to use force,

which does not apply to corporations. The company is based on voluntary organizations and not pushing or

forcing anyone to do anything. There is always the option of leaving companies and no one can argue the same

for a country’s citizens.

A final argument for accountability is that companies use resources of society to achieve their goals and

therefore the company should be accountable to society for the use of these resources. This creates a “contract”

between the company and society. The “contract” is an informal non-explicit regarding the fallout of the rights

and obligations of both parties and does not include additional methods of enforcing terms.

(4) Stakeholder theory undermines ownership, representation, and wealth.

The diffusion of monitoring and supervision to all stakeholders is equivalent to the loss of ownership. The

owner—shareholder may designate the use of his property or to exercise control over the use of his property.

... the fact that property rights may be weakly enforced provides no justification for violating them. An overworked or lazy police force may make theft easier to accomplish; it does not give robbers the right to one’s goods. Despite what stakeholder theorists suggest, the fact that shareholders are sometimes unwilling or unable actively to protect their interests does not entitle other stakeholders to commandeer corporate property. (Sternberg, 1997, p. 8)

The diffusion of responsibility that agents have to everyone, rather than just to shareholders, is

undermining the relationship between agents and shareholders. The undermining of the critical partnerships can

have devastating effects on the functional and organizational balance.

The stakeholder theory has its roots in the continental—German and Japanese model of corporate

governance, where the influence of stakeholders is taken under greater consideration when designing strategies

and selecting objectives for the company. In these models the concept of business is institutional and

investment time horizon is long. These differences create an identification of capital owner with the company,

and thus, the capitalist will place greater emphasis on relations with the environment inside the company

because he realizes that over time these relationships are those that create stability within the business and

growth prospects.

Marketing

Marketing during the last four decades has made a significant impact on the business environment and

changed dramatically the way corporations are creating—selecting strategies, developing product and services,

organizing their structures and departments and mostly allocating their resources. The importance of marketing

is shown by the statement of Drucker (discussed in the Introduction section of the paper) and its inclusion to

every curriculum of business schools around the world. Although marketing is so important or because of it

scholars and practitioners do not agree on one single definition. The better definitions are focused upon

customer orientation and satisfaction of customer needs. As shown by the definitions below, marketing is

evolving and adapting to the new business environment and especially to the expectations of the customer for


the corporation.

“Marketing is the social process by which individuals and groups obtain what they need and want through

creating and exchanging products and value with others” (Kotler, 1994).

“Marketing is the management process that identifies, anticipates, and satisfies customer requirements

profitably” (The Chartered Institute of Marketing (CIM)).

The CIM definition (in common with Barwell’s definition of the marketing concept) looks not only at

identifying customer needs, but also satisfying them (short-term) and anticipating them in the future (long-term

retention).

“The right product, in the right place, at the right time, at the right price” (Adcock). This is a snappy and

realistic definition that uses McCarthy’s 4Ps.

“Marketing is essentially about marshalling the resources of an organization so that they meet the

changing needs of the customer on whom the organization depends” (Palmer). This is a more recent and very

realistic definition that looks at matching capabilities with needs.

During the last two decades a change in defining marketing has taken place. In 1994, a definition of

societal marketing (applicable to not-for-profit organizations such as charities or schools) appeared:

Marketing is the process whereby society, to supply its consumption needs, evolves distributive systems composed of participants, who, interacting under constraints—technical (economic) and ethical (social)—create the transactions or flows which resolve market separations and result in exchange and consumption. (Bartles, 1968, p. 32)

The societal marketing concept holds that the organization’s task is to determine the needs, wants, and

interests of target markets and to deliver the desired satisfactions more effectively and efficiently than

competitors, in a way that preserves or enhances the consumer and the society’s well-being.

Marketing scholars and practitioners now are promoting the idea that marketing is all about creating long

term successful relations with customers. Marketing is shifting its time horizon from short to long term and

from 4Ps to relationship building.

Marketing and Corporate Governance in the Post Scandals Era

For many years the basic framework for firms was that marketing can offer the customer-centric approach

as a tool to achieve the satisfaction of their customers. Firms use the marketing process or function to promote

their products and services, in order to maximize the firm’s performance and customer satisfaction. Therefore

marketing processes and strategies can and must be held accountable for the relationship among a firm and her

customers.

Market inflexibilities, imperfections or inefficiencies can lock customer to his/hers selection. Hence

customers have an interest in firm’s operation, since product discontinue, or failure to uphold its promise to

deliver the product at the appropriate and agreed time, place and condition can have an enormous effect on the

customers performance, well being, and satisfaction. Customer is the base on which the firm functions and

operates. Effective markets have a significant impact on the governing and marketing process. The pseudo

customer-centric approach used by many firms that expropriate customers can lead to low quality management,

business ethics, and corporate governance.

The basic framework of the paper is that marketing can offer the customer-centric approach as a tool to


achieve the stakeholder approach. Firms are using marketing process or function to promote their products and

to maximize the firm’s performance and customer satisfaction. Marketing can and must be accountable for the

relationship among the firm and the customer. As marketing is taking up a considerable amount of both assets

and financial resources (almost 25 percent of expenditures is directly attributed to marketing), is also

responsible, in part, for the financial results (sales, profits, and cash flows). Marketing expenditures have the

goal to retain and expand the customer base. An expanding, financially successful, firm must change

organizationally to address the new issues raised by the challenges of the sales size and growth rate. Managers

may overinvest in marketing strategies, or in the creation of new products (R&D), in the hope of increasing

market share, through sales, with beneficiary effects on their salary (bonus), and their reputation in the

managerial labor market. However that behavior can be damaging for the interests of shareholders as it can lead

to overinvestment and reduced profits for the firm in the short run. An expanding, financially successful, firm

must change organizationally to address the new issues raised by the challenges of the sales size and growth

rate, not only for her existing and new customers but also for the shareholders as well.

The direct connection between the financial results and marketing has lead to an organizational and

cultural change that for some firms is implicit and for some other explicit. The driving factor of marketing to

organizational change is the need to focus on customer needs. The paradox is that even though marketing has

been the driving force behind the firms’ performance and change, organizational economics has shown very

little value to the customer as a stakeholder.

A firm can, using the marketing process—practices or techniques, to attract customers. Market

inflexibilities, imperfections or inefficiencies can lock customer to his/hers selection. Hence, customers have an

interest in firm’s operation, since product discontinue, or failure to uphold its promise to deliver the product at

the appropriate and agreed time, place and condition can have an enormous effect on the customers

performance, well being, and satisfaction. Customer is the base on which the firm functions and operates.

Effective markets have a significant impact on the governing and marketing process. The pseudo

customer-centric approach used by many firms that expropriate customers can lead to low quality management,

business ethics, and corporate governance.

Marketing and corporate governance are interconnected. They have some commonalities and some

differences. The commonalities are:

(1) Mechanisms. Both corporate governance and marketing use the same fundamental mechanisms: Trust,

reputation, implicit, and explicit contracts.

(2) They are process oriented.

(3) They are interest—performance or value focused.

(4) They both have a need for an internal control mechanisms and audit protocols.

(5) Information plays a crucial role in determining the effectiveness, the policies, principles, practices, and

the structures used.

(6) There are the same options: loyalty, voice, and exit.

(7) The integration of marketing and corporate governance is driven by corporate culture.

(8) Activism (stakeholder-shareholder and customer) can play a significant role in achieving excellence

and stability.


The differences are:

(1) Marketing is outbound and corporate governance is mainly an inbound process.

(2) Marketing focuses on customer alone, whereas corporate governance focus is broader in scope.

Examples

The cases used in this paper have some common characteristics. The first one is that both firms were

located in USA and they both are in sectors that customers—people find that consumption is inflexible (energy

and communications). The second one is that both use long term contracts with their customers.

Enron

“Enron Corp.” manipulated the energy market practically every day during the 2000-2001 power crunch

and gouged Western customers for at least $1.1 billion, according to audiotapes and documents released

yesterday.

The records were uncovered by the same utility that last month released details of profanity-laced

conversations in which Enron traders gleefully gloat about ripping off “those poor grandmothers” in California

during the power crisis.

The latest release by the Snohomish Public Utility District provides another glimpse into how Enron

allegedly rigged the market at the same time millions of Californians were suffering blackouts and paying

sky-high electricity bills.

Snohomish wants an administrative law judge to order Enron to surrender up to $2 billion in ill-gotten

gains. California politicians want Enron to reimburse customers there at least $8.9 billion.

The latest documents show that Enron manipulated the market on 473 of 537 days from January 2000 to

June 2001, the utility said “…Enron filed for bankruptcy in 2001” (Retrieved from

http://www.baltimoresun.com/business/bal-bz.enron15jun15,0,6782458.story).

The example of Enron shows that the firm failed to incorporate in its culture the customer-centric

approach and mostly failed to create long term relationships with its customers

WorldCom (Feder, 2002)

In the case of WordCom, customers were concerned about the availability of service:

“The vast majority of WorldCom’s customers are residential users of standard long-distance and local

phone service. But the ones that hold the key to its future are large telecommunications, government, and

business customers. WorldCom is the world’s largest carrier of Internet traffic, and many of these customers

buy Internet capacity from the company’s UUNet subsidiary or obtain private data networks or other highly

profitable services from other WorldCom units.

Many large customers are likely to stick with WorldCom as long as the company maintains service levels,

if only because shopping elsewhere might force them to buy from several vendors what they receive in one deal

from WorldCom. Only AT&T can match WorldCom’s scope.

In addition, some major customers are bound by contracts running as long as three years that they cannot

easily escape”.

Customers as shown in these two examples are stakeholders that have significant interest in the normal


operation, function, and viability of the corporation. Corporations that failed to realize the notion of stakeholder

and the customer-centric approach didn’t succeed. Furthermore, they have created a climate of distrust and

market anxiety to customers and other market participants.

Conclusions

The paper has shown that the two disciplines—sciences have much in common and they can work

complimentarily in order to create a new approach—framework for the understanding of the corporate

environment. Both of them are considered cornerstones of business successes and their shortcoming or failure

cornerstones of business failures. The degree of importance for the two disciplines is different and varies from

sector to sector and from country to country. Nevertheless corporations that ignore them is almost certain that

will fail in the modern corporate environment.

Empirical research is needed in order to validate the theory that these two disciplines can converge and

find common ground. If the empirical research validates the connection then there is a strong connection

between organizational economics, financial analysis and marketing and the new marketing’s definition can

have more emphasis on the stakeholder approach than the previous one.

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Resolving Conflicts Within Multicultural

Teams in Industrial Enterprises*

Veronika Videnová, Dagmar Cagáňová, Paul Woolliscroft, Jana Makraiová, Miloš Čambál

Slovak University of Technology in Bratislava, Trnava, Slovakia

The aim of this paper is to highlight the issue of resolving conflicts within multicultural teams in industrial

enterprises. The authors build upon the concept of multiculturalism which seeks for possible ways to enable

different cultures to coexist and the means of communication between them. The authors base the study on the

assumption that extensively developed intercultural relationships lead to mutual understanding between people and

consequently to less interpersonal conflicts. In the introduction part, the authors explain the importance of

increased attention and interest in the area of multiculturalism. Industrial enterprises nowadays are increasingly

aware of this issue as they become more open to different cultures and they are confronted with intensive

international migration and previously isolated societies become more pluralistic. As a result of these processes,

individuals are more frequently in contact with members of different cultures. “Think globally, act locally” has

become a slogan for our society. This way of thinking and acting was transferred to almost all areas of life

(economic, political, and educational) and it is applied in the context of schools, societies, and enterprises as well.

The ability to understand and accept cultural diversity is becoming essential in the ordinary working environment.

It helps to create connections between emotional perception and rational acceptance. In practice, the offer of

training seminars about intercultural differences is widespread. Enterprises supporting the knowledge improvement

of their own employees have understood that a friendly working environment leads to increased motivation,

consequently reflected in their performance. The training focused on skills development in this area can help to

reduce interpersonal misunderstandings, bring new ways of conflict resolution and harmony in the workplace and

thereby also increase productivity. The authors focus on the “outdoor method” as an actual phenomenon, which is

used in teaching the topic of tolerance towards cultural diversity. They describe the individual stages of this method

* The paper is a part of the submitted VEGA project No. 1/0787/12, The identification of sustainable performance key parameters in industrial enterprises within multicultural environment.

Veronika Videnová, Ing., Ph.D. candidate at the Institute of Industrial Engineering, Management and Quality, Faculty of Materials Science and Technology, Slovak University of Technology in Bratislava.

Dagmar Cagáňová, M.A., Ph.D., Associate Professor, Senior Lecturer at the Institute of Industrial Engineering, Management and Quality, Faculty of Materials Science and Technology, Slovak University of Technology in Bratislava.

Paul Woolliscroft, M.Sc., Ph.D. candidate at the Institute of Industrial Engineering, Management and Quality, Faculty of Materials Science and Technology, Slovak University of Technology in Bratislava.

Jana Makraiová, Ing., Ph.D. candidate at the Institute of Industrial Engineering, Management and Quality, Faculty of Materials Science and Technology, Slovak University of Technology in Bratislava.

Miloš Čambál, M.Sc., Ph.D., Associate Professor, Director of the Institute of Industrial Engineering, Management and Quality, Faculty of Materials Science and Technology, Slovak University of Technology in Bratislava.

Correspondence concerning this article should be addressed to Veronika Videnová, Na hlinách 56, 91701 Trnava, Slovakia. E-mail: [email protected].

DAVID PUBLISHING

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RESOLVING CONFLICTS WITHIN MULTICULTURAL TEAMS 114

and introduce a modified version of Tuson’s model as an effective tool for conflict resolution in the workplace. The

tools introduced in this paper, place particular emphasis on actions to prevent conflicts in the workplace. This paper

builds upon the theory of knowledge processing and its role as a theoretical basis for knowledge development in the

area of multiculturalism. Furthermore, it teaches us to be tolerant towards others, their habits, culture, and history.

“Strangers” can be a source of experience for us and they can enrich our personal lives. Discussion of the issues

surrounding multiculturalism and also the identification of sustainable key performance parameters within

multicultural work environments can contribute to more effective conflict resolution in the workplace and promote

awareness towards the tolerant coexistence and social cohesion.

Keywords: multiculturalism, interculturality, conflict resolution, Tuson’s model, outdoor method

Introduction

If we seek to understand people, we have to try to put ourselves, as far as we can, in that particular historical and cultural background. It is not easy for a person of one country to enter into the background of another country. So there is great irritation, because one fact that seems obvious to us is not immediately accepted by the other society or does not seem obvious at all. One has to recognize that countries and people differ in their approach to life and their ways of living and thinking. If we wish to convince them, we have to use their language of the mind. (Adler, 2008, p. 69)

The submitted paper discusses the current issues of multicultural/intercultural management, through the

discussion of culture and its implications on management and resolve conflicts within multicultural team in

industrial enterprises. The topic of interculturality has become more important and relevant than it was in the

past, this is especially so since 2004 when Slovakia joined the European Union. Industrial enterprises nowadays

are increasingly aware of this issue as they become more open to different cultures and they are confronted with

intensive international migration and previously isolated societies become more pluralistic. As a result of these

processes, individuals are more frequently in contact with members of different cultures and there is

assumption that this creates a number of various conflicts. The conflicts have always been around us and

always will be in our life. After all, history is amply demonstrated. The wars between states, disputes between

businesses, quarrels between friends, divorce between husband and wife have been around forever and we have

become accustomed to these conflicts that they look almost normal in our everyday life.

Understanding of Cultural

Culture as a concept has many definitions and there is no single agreed definition of culture. It is commonly

defined as a set of habits, relationships, feelings, art and other features that characterise a society or social group.

These features regulate the behaviour and communication of culture.

Kominarec and Kominarecová (2005) state that the culture is created of shared history, experiences,

traditions and social customs. It is how we behave as individuals and in groups. Sometimes the culture is

considered to consist only of those parts that are visible. However, they lose their meaning without knowing the

other parts of culture. They are not easily accessible. Authors consider that culture consists of two equally

important parts—directly visible and invisible parts. Culture can be compared to the iceberg in Figure 1. A small

part of it is above the water surface, but much larger part is hidden underneath water surface. Authors claim that,

it is very important to know especially this part of culture. International managers need research into culture


because they need to be able to predict what behaviour is typical in routine situations and how members of the

culture group will behave in such situations. They should know both parts of culture. Generally, it could be said,

that it is recommended for managers and others people to be attentive to both parts of iceberg, as what is

perceived on the surface has its roots in bottom part.

Figure 1. The cultural iceberg (Own elaboration based on Hall and Mildread, 1989).

The arrival of many foreign investors raises the important requirement—to build a corporate culture

respectful of the natural Slovak working environment, but also embrace differences, brought by foreign

investors. Coffield, Moseley, Hall, and Ecclestone (2008) state that corporate culture can be defined as a set of

attitudes and behaviour towards its employees and stakeholders. It is mostly reflected if another competitor

enters the market and in case of a merger. Mergers of companies, each coming from different cultural

backgrounds can sometimes be troublesome, not only for employees, but also often with regards to the

company’s financial position. In this context, it is highly appropriate to apply the principles of intercultural

education.

Intercultural and Multicultural Management

The globalisation of business has broadened interest in the intercultural and multicultural dimensions of

management. It is necessary to understand the meaning of these terms and differences between them. Held,

McGrew, Goldblatt, and Perraton (1999) state that globalisation is a process whereby worldwide

interconnections in virtually every sphere of activity are growing. Some of these interconnections lead to

integration/unity worldwide, others do not.

According to Landis and Wasilewska (1999), the terms cross-cultural, multicultural, and intercultural are

used seemingly as having similar or at least overlapping meanings. However, these can be separated:


Multicultural research focuses on several (usually more than two) cultures living side by side and deals with

basic psychological processes;

Intercultural is the most dynamic term of these focusing on the interaction between cultures on an

interpersonal level, for example, researching how the member of one culture is adjusting and acting in another

culture.

The main difference between intercultural and multicultural management is defined below. According to

authors, this paper is necessary in order to define and know this concept and differences for understanding this

issue:

Intercultural management is the most dynamic term of these focusing on the interaction between cultures on

an interpersonal level, for example, researching how the member of one culture is adjusting and acting in another

culture;

Multicultural management research focuses on several (usually more than two) cultures living side by side

and deals with basic psychological processes.

Resolving Conflicts Within Multicultural Teams in Industrial Enterprises

More and more often, we enter into relationships with other people from diverse culture backgrounds and

environments. This can cause the emergence of various conflicts of ignorance of other people and cultures. When

people think of the word “conflict”, they often think of wars or violence. However, conflict exists at all levels of

society in all sorts of situations. It is easy to forget that we experience conflict every day of our lives. Conflict

happens when two or more people or groups have, or think they have, incompatible goals. Conflict is a fact of life.

God made each of us in his own image, but he also made us unique. Therefore some of our views and opinions

will differ from those of others. Conflict often occurs because of a lack of respect for one another’s needs and

views. However, in most cases we resolve the conflict. From a personal level to international level, good

communication is usually used to overcome differences and to reach an agreement before violence breaks out. At

a personal level, we often do not realise we are overcoming our differences. It is important to remember that

conflict can be creative. Causes of conflict start because people do not agree about an issue. Issues of

disagreement in recent large-scale conflicts include territory, language, religion, natural resources, ethnicity or

race, migration, and political power. While a conflict starts because of an issue of disagreement, there are usually

background influences that fuel the conflict. The most important influence is power. Others include culture,

identity, and rights.

If managers want to prevent conflicts it is useful to know the concept of intercultural competence. Cagáňová,

Čambál, Luptáková, and Weidlichová (2010) defined that intercultural competency is an ability to understand

and interpret cultural differences, and to utilize this understanding to work effectively and successfully with

members of other cultures.

Resolving Conflicts at Work

Every society, organization, group, and family creates a culture of conflict, a complex set of words, ideas,

values, behaviours, attitudes, customs, and rules that powerfully influence how its members think about a

respond to conflict. Cultures of conflict are shaped in and by our experiences. They set parameters for what we

believe is possible when we are in conflict and define what we can reasonably expect, both of ourselves and of


others. They shape our capacity to ask questions, alter how we see our opponents and ourselves, and tell us what

is acceptable and what is not.

Every workplace and organization, school and neighborhoods, family and relationship generates spoken and

unspoken rules about what we should and should not say and do when we are in conflict. Each of these entities

produces a separate and distinct culture that exerts enormous pressure on us to respond to conflict in traditionally

expected ways.

In conflict resolution workshops, we often ask, “What is one word or phrase that expresses what you do or

feel when you are in conflict?” People’s initial responses often include words like anger, frustration, silence,

shame, fear, stress, avoidance, and repression, nearly all of which are negative. Authors then ask whether there

are any positive outcomes from conflict, and people call out words like change, intimacy, learning, growth,

opportunity, communication, resolution, forgiveness, listening, trust, and completion. The positive words

represent what we all want, what is possible, and what is at stake in our conflicts, while the negative words

represent how we feel, what we are doing to each other, and how we are trying to get it. But if you try to use

negative means to achieve positive ends, you will quickly discover that it is nearly impossible to “get there from

here” that anger does not translate into trust, any more than shame builds self-confidence. Try this yourself.

Consider a recent conflict or miscommunication you experienced. List the first words that come to mind

regarding your opponent, both negative and positive, without censoring yourself, and see what feelings and ideas

emerge from your subconscious. Then ask yourself what led you to use the negative words, how you might

implement the positive ones, and how it might be possible to resolve your conflicts by turning the negatives into

positives. For example, if you feel frightened by your opponent, consider what it might take to overcome your

fear, talk calmly about the problem, and let it go.

According to Wiley (2005), you may find that the positive words reflect a deeper understanding and that

working through your conflict could dramatically improve your relationships and communications, while the

negative ones reflect a profound frustration at your inability to do so. Yet the negative words are likely to keep

you locked in conflict and stuck in cycles of distrust, while the positive ones, to become real, require you to get to

the bottom of the reasons why you came up with the negative words in the first place and to honestly and

empathetically participate in dialogue with your opponent. Doing so automatically starts to transform the

negative words in positive ones at their source inside you. Usually often hear managers argue that conflict

resolution and effective communication take too much of their time or that it costs too much to conduct a retreat

at which employees work on improving their communication skills and resolving their disputes. But consider

how much time and money this organization wasted by not addressing its unresolved conflicts and how little time

it took to set things right. Authors rarely calculate the emotional and financial costs of living with conflict and do

not consider the time it takes to not communicate effectively or not resolve our conflicts. Authors rarely include

in bottom-line calculations the time people spend getting upset or sick over unresolved conflicts, the time

dissipated in gossiping or talking to others about them, and the time wasted by not focusing on work. Authors do

not weigh in the balance the loss of morale, motivation, customer satisfaction, and future business that result from

employee unhappiness or the amount of damage inflicted on work relationships by conflicts between friends,

colleagues, and co-workers.


Outdoor Methods and Tuson’s Model as Effective Tools for Conflict Resolution in the Workplace

There are a lot of possibilities about how we can resolve conflicts, but the best way is to prevent conflicts

before they happen. The training focused on skills development in this area can help to reduce interpersonal

misunderstandings, bring new ways of conflict resolution and harmony in the workplace and thereby also

increase productivity. The authors focus on the “outdoor method” as an actual phenomenon, which is used in

teaching the topic of tolerance towards cultural diversity. They describe the individual stages of this method and

introduce a modified version of Tuson’s model as an effective tool for conflict resolution in the workplace. The

tools introduced in this paper, place particular emphasis on actions to prevent conflicts in the workplace.

The ability to understand and accept the cultural differences is increasingly important in common working

environment. It helps to create the interconnection between how the differences are emotionally perceived and

how they are rationally processed. In practice, within the training market, there are many seminars and courses

offered in the field of multiculturalism and businesses that decided to invest in raising awareness of their

employees through various learning programs have understood the importance of creating friendly working

conditions within multicultural teams that consequently leads to motivation and performance increase.

The training aimed to develop intercultural tolerance skills can reduce interpersonal misunderstandings, as

well as bring new ways of conflict resolutions on the workplace.

Outdoor Methods

Working life, very similar to a personal life, has its brighter and darker sides. After a certain time the

working team can just like a couple slip easily into the stereotype and routine, or the exhaustion of unsolved

conflicts and persistent problems can occur. Whereas the couple found themselves in this situation is advised to

go for a holiday for few days or temporarily separate to find how to cope, the employers can offer their

employees outdoor training, thus actively relax with plenty of activities and games, which can moreover initiate

positive desired changes in an organization.

Outdoor methods are recently the most used among training methods with focus on gaining intercultural

knowledge. Through creating the trustful atmosphere at outdoor activities, the working team starts to open

towards the needs of all individuals who are then able and willing to point out the conflict reasons and they are

ready to try to find the best ways out. The outdoor training programs are based on a theory of “experimental

learning” or so called “adventure learning”, which means acquisition of knowledge through you own practical

experience. The firsthand experience is the best remembered one and better used in everyday life. Therefore the

courses participants must face various tasks full of challenge and need for decision making, where original and

unconventional solutions are mostly valued. Special case studies and physical activities are taken as model

situations in this kind of learning.

Essential features of outdoor training are:

Dynamic training programs based on first-hand experience;

Model situations and real situations solving;

Active participating within small groups;

Inspirational natural surroundings.


Outdoor training in most cases represents a combination of physical activities and learning seminars held

indoors. A team learning where on one side stands a group of lecturers and on the other side group of

participants is the most often used and team cooperation leads to better results, compared with individual

training. This kind of training enables to include such procedures that would be difficult to apply into a

common learning.

Advantages (strengths) of outdoor programs:

The creative approaches are developed to eliminate automated activities and routine;

Developing of fulfilled relationships rather than just formal structures;

Active behaviour rather than passive soaking of information;

Thanks to physical activities, the participants discover the joyfulness of physical exercising and

maintaining the good physical well-being. They include the analysis and feedback.

Tuson’s Model

In practice it is often seen managers or supervisors trying to manage the team of people within the

international company with the evident punctuality typical for Germans, but from the perspective of Slovak

employees they are very restrictive, leaving no space for flexibility and spontaneity. In the same moment we

can mention emotionality and expressiveness of Italians, modesty of Britons, or Japanese esteem and shyness.

Intercultural education is focused particularly on understanding and accepting of the principles of other

people’s acting. Every action promotes reaction and different reactions than expected can after some time

reflect in uncertainty or reducing of reassurance. Resolving conflict often depends on the skill of a leader. The

Tuson’s model gives low priority to efficiency (doing things right) but high priority to effectiveness (doing the

right things).

The authors of this paper characterize Tuson’s model according to three zones in Figure 2.

“Comfort zone”—it is the zone in which an individual feels safe, and is familiar with the environment,

people and the ways of working. But it is also an environment where he does not learn anything new, since he

acts based on his previous experience and knowledge and primarily he does not feel the need to change

anything.

“Learning zone”—or so called “stretch zone”—is represented by the space where an individual hits his

current limits of abilities and skills and finds out they can be developed beyond those borders. In most cases the

impulse for changing the way of acting or stepping out from worn out track comes from internal or external

environment.

“Panic zone”—usually means crossing the current limits of an individual and from the perspective of

gaining knowledge and skills there is no way further, because of the risk of regression, resulting from bad

experience and fear.

When conducting intercultural trainings we try to get the participants from the “comfort zone” to the

“learning zone” precisely by involving them into aforementioned outdoor activities. Firstly they might feel

uncertain about it, like being in the unknown environment. However with gradual learning and acquiring both

theoretical and practical knowledge and skills, their “comfort zone” expands.

From the intercultural perspective the “comfort zone” represents you own culture, whereas the “learning


zone” is represented by the space for interaction with other cultures and finally the “panic zone” is a source of

misunderstandings and social conflicts. The aim of outdoor learning is to simulate specific situations that can

help to extend the “comfort zone” range by being active in their “learning zone”. It helps to understand and

respect differences, raise the motivation to cooperate and act adequately to the situation.

Figure 2. Tuson’s model (Own elaboration based on Balogová, 2005).

“KEMSAC” Strategy—Strategy of Multicultural Education

According to Kominarec and Kominarecová (2005), KEMSAC Strategy model was originally developed

in educational practice. The letters in the word KEMSAC stand for the whole processes, which are the part of

this model and they will be explained below. KEMSAC model can be stated as an important tool for

multicultural education as well. This way of educational orientation could offer preconditions for personal

development within multicultural teams, whose individual members are able to take responsibility for their

behaviors and actions, they respect each other, can contribute to smooth communication and coexistence on

local as well as global level.

“K” for Knowing—the aim is to learn how to process information, develop and manage thinking, resolve

conflicts using algorithms and heuristics and finally how to explore. These mentioned abilities are essential for

coexistence in multicultural society.

“E” for Emotion—represented in methods for emotionality development, which are aimed to learn how to

acquire a self-positive attitude, feel positive about other people, work and world. In brief, it could be conclude

this is nothing more that emotional intelligence development.

“M” for Motivation—the theory tells us about ways how to motivate employees, maintain their interest in

the topics, particularly the issue of multiculturalism, which supports learning from each other, mutual

communication, understanding and creative problem solving. Experiential learning provides the learners

personal motivation, and if we use the relational frameworks and appropriate motivators (Kolb’s cycle of

learning, Gardner’s theory of multiple intelligence types, etc.), we can achieve high motivation in individuals

which will consequently result in their success, personal development, interests and needs increase and finally

problem solving competency.

Panic zone

Learning zone

Comfort zone

Usually harmfulor threatening


“S” for Socialization—the aim of the socialization is individual’s inclusion into society by the

socialization process in which the individual get familiar with the socially accepted values and dispose of

undesirable (unfavorable) attitudes instead. Compared to this, when taking a new job or upon transferring to

another job position, each employee has to undergo an adaptation process, which based upon active social

learning and results in working, social and corporate culture adaptability. The adaptation process uses methods

of which develop skills and abilities to communicate effectively, cooperate with others, help each other, but

also find their own way to the satisfaction based on good relationships on all levels (intrapersonal, interpersonal,

multicultural, etc.)

“A” for Autoregulation—means self-control, which represents pointing of internal energy the right way in

order to master emotions, wishes and achieve personal goals. In other words, it can be said it is pointing of

energy towards to the values like tolerance, respect, helpfulness, and endurance. Value education uses methods

that are based on self-reflection and self-evaluation and they help to recognize personal goals, sense of being,

ideas of personal fulfillment, and within the multicultural education equip team members with tools to observe

the attitudes and values expressions of people from different cultures.

“C” for Creativity—means discovering new unusual ways of coexistence of cultural different people and

also solving problems related to diversity in general. Methods of enhancing creativity in multicultural education

are aimed at revealing ways to improve our world.

Kolb’s Learning Cycle

According to Coffield et al. (2008), learning is the process whereby knowledge is created through the

transformation of experience. Kolb proposes that experiential learning has six main characteristics.

Authors of this paper identify and share Kolb’s opinion that learning is the process whereby knowledge is

created through the transformation of experiences. They propose to apply six main characteristics of experiential

learning to use on the multicultural education and for understanding what is multicultural education.

Authors define this characteristic of multicultural learning:

Multicultural learning is best conceived as a continuous process grounded in experience, not in terms of

outcomes;

Multicultural learning requires the resolution of conflicts between various cultures;

Multicultural learning is a holistic process of adaptation to the world and involves transactions between

the person, group, team, and the environment;

Multicultural learning is the process of creating knowledge that is the result of the transaction between

culture one country and culture of other country.

Kolb (2010) state that Kolb’s learning theory sets out four distinct learning styles, which are based on a

four-stage learning cycle. In this respect, Kolb’s model differs from others since it offers both a way to

understand individual learning styles, and also an explanation of a cycle of experiential learning that applies to

all learners. “Experiential” means relating to or resulting from experience while “experimental” means relating

to or based on experiment. Kolb uses the term “experiential” as his theory is based more on reflection of

experiences. While others use “experimental” when referencing experimental-inquiry a technique that requires

learners to test hypothesis (experiment) about content knowledge. Kolb theorized that the four combinations of


perceiving and processing determine one of four learning styles of how people prefer to learn. Kolb believes

that learning styles are not fixed personality traits, but relatively stable patterns of behavior that is based on

their background and experiences. Thus, they can be thought of more as learning preferences, rather than styles.

According to authors, it is necessary to explain the importance of increased attention and interest in the

area of multicultural learning. The Kolb’s theory of understanding we can also apply and use for multicultural

learning. It is source learning of development people which work together in workplace and they are from

diverse cultures. In team, where various people work together and they have diverse culture, habits, knowledge,

etc. all members are supposed to take care of each other and get to know each other. All mentioned attributes

are helpful in building of stable and effective multicultural teams. Finally, it helps to increase motivation to

work, productivity on workplace and performance of employees. Steps of multicultural learning process are

shown in Figure 3. This figure provides a learning cycle that involves four processes that must be present for

learning to occur. Depending upon the situation or environment, the learners may enter the learning cycle at

any point and will best learn the new task if they practice all four modes.

Figure 3. Kolb’s learning styles (Kolb, 2010).

Steps in the learning process according to Kolb (2010):

Concrete experience (feeling): Learning from specific experiences and relating to people. Sensitive to

other’s feelings;

Reflective observation (watching): Observing before making a judgment by viewing the environment from

different perspectives. Looks for the meaning of things;

Abstract conceptualization (thinking): Logical analysis of ideas and acting on intellectual understanding of

a situation;

Active experimentation (doing): Ability to get things done by influencing people and events through

action. Includes risk-taking.

Authors of this paper state some examples.

Learning to coach:

Concrete experience—Having a coach guide you in coaching someone else;

Active experimentation—Using your people skills with what you have learned to achieve your own

coaching style;


Reflective observation—Observing how other people coach;

Abstract conceptualization—Reading articles to find out the pros and cons of different methods.

Learning algebra:

Abstract conceptualization—Listening to explanations on what it is;

Concrete experience—Going step-by-step through an equation;

Active experimentation—Practicing;

Reflective observation—Recording your thoughts about algebraic equations in a learning log.

Conclusions

As the whole world becomes connected and globalized, we can see the interactions of different cultures in

every part of our lives, not only in professionally, but in personal relationships as well. People have various

backgrounds represented in their cultural identity, they have different expectations, ways of thinking and acting,

which sometimes can lead to misunderstandings and conflicts, therefore it is of great importance to place an

emphasis on understanding and accepting those coming from other cultures. This is the main reasons why is

necessary to know and apply multicultural education in industrial enterprises. This paper built upon the theory of

knowledge processing and its role as a theoretical basis for knowledge development in the area of multicultural

education. The authors explained the importance of increased attention and interest in the area of multicultural

education. In the paper, the authors described the strategy of “KEMSAC” and Kolbe cycle. Kolbe cycle usually

focuses on multicultural education in schools. The authors suggested this cycle to be applied for multicultural

teams in industrial enterprises. Furthermore, it teaches us to be tolerant towards others, their habits, culture and

history. “Strangers” can be a source of experience for us and they can enrich our personal lives.

This research in the area of multiculturalism, multicultural education and improve the performance of

multicultural teams will be continue, because the authors of the article carry out the research in this area during

the doctoral study.

References

Adler, N. J. (2008). International dimensions of oganizational behavior (2nd ed.). Boston, M.A.: PWS-KENT Publishing Company.

Balogová, B. (2005). Interkulturálne tréningy navodzujú atmosféru dôvery. Retrieved from http://podnikanie.etrend.sk/podnikanie-riadenie/interkulturalne-treningy-navodzuju-atmosferu-dovery.html

Cagáňová, D., Čambál, M., Luptáková, W. S., & Weidlichová, L. (2010). Intercultural management—Trend of contemporary globalized world, 21st EAEEIE. Electronics and Electrical Engineering, 6(102), 51-54.

Coffield, F., Moseley, D., Hall, E., & Ecclestone, K. (2008). Learning styles and pedagogy in post-16 learning: A systematic and critical review. Retrieved January 15, 2008, from http://www.lsda.org.uk/files/PDF/1543.pdf

Held, D., McGrew, A., Goldblatt, D., & Perraton, J. (1999). Global transformation. Stanford, C.A.: Stanford University Press. Hall, E. T., & Mildread, R. H. (1989). Understanding cultural differences: Germans, French, and Americans. Yarmouth, Maine:

Intercultural Press. Kolb, D. (2010). Experiential learning: Experience as the source of learning and development. Englewood Cliffs, New Jersey:

Prentice Hall. Kominarec, I., & Kominarecová, E. (2005). Multikulturalita a edukácia. Prešovská univerzita v Prešove, Fakulta humanitných a

prírodných vied. Landis, D., & Wasilewska, J. H. (1999). Reflections on 22 years of the international. Journal of Intercultural Relations, 23(4),

535-574. Wiley, J. (2005). Resolving conflicts at work: Eight strategies for everyone on the job. San Francisco, C.A.: Jossey-Bass.


Application of Management Information System Planning in

Concurrent Engineering for Wooden Furniture Industry

Sakkarin Choodoung, Uttapol Smutkupt

Chiang Mai University, Chiang Mai, Thailand

This research is a development in management information system (MIS) planning based on operation analysis and

development according to concurrent engineering approach and reestablishment of database management.

According to our case study industry, such industry currently used traditional network systems such as LAN, and

“Bus Network” Network Topology. Client/Server distributed computing has a problem with database management

in data redundancy, data inconsistency, and data independency. For Network Topology, Bus Network has problem

with multitasking since the network are able to handle only a set of data at a time so the traffic problem will occur

when multiple users request for the service. Thus, such condition is inconsistent with concurrent engineering which

must be able to access the data simultaneously. As a consequence, this study develops a network system, network

system of working system, using LAN and “Star Network” network topology. The file server processing

distributed is an application while database is stored in host computer or file server but the data will be processed in

users’ computer. When the user needs to access the data, file server will send it to the user and the user can further

analysis or manage such data in the user computer, so called “Hierarchical Database Model”. Hierarchical database

structure is easily developed like general organization command structure with different level of responsibility. In

details, the data level in the database is divided into three levels including DB1, DB2, and DB3, so development of

simultaneously systemic flow and access of various critical data is performed in parallel. Furthermore, this is

consistent with access of all three data levels including: Level 1 is overall dataflow of both inside and outside the

organization; Level 2 is dataflow of each division in the organization; and Level 3 is dataflow of subunit in each

division in the organization. After systemize flow and access of data with concurrent engineering as mentioned, it

provided optimal efficiency in the whole production system management reducing loss in the whole system of the

organization.

Keywords: management information system, concurrent engineering, wooden furniture

Introduction

Nowadays, to provide competitive capability in design and development process and production, it requires

Sakkarin Choodoung, Candidate Doctoral, Department of Industrial Engineering, Chiang Mai University. Uttapol Smutkupt, Ph.D. of Engineering, Assistant Professor, Department of Industrial Engineering, Chiang Mai University. Correspondence concerning this article should be addressed to Sakkarin Choodoung, Department of Industrial Engineering,

Chiang Mai University, 239 Huay Kaew Road, Muang District, Chiang Mai, 50200, Thailand. E-mail: [email protected].

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APPLICATION OF MANAGEMENT INFORMATION SYSTEM PLANNING 125

correct response to market demand as well as competition in timing which differs from the past with slow

changes in product because of low competitors. Hence, the low competitive market is called oligopoly then the

market behavior depends on manufacturer policy. In the past, all production has changed gradually which always

affected by the concept of lesser change causes lesser cost restraining development. At present, however,

market’s competition is extremely high so all manufacturer have to produce high quality product with low cost as

well as develop new product in minimum amount of time to response the consumer demand. Generally, the most

effective design development in very limited amount of time can be done with collection of specialists from

various field of expertise. Concurrent engineering approach to product design and development has two major

themes: The first theme is establishing an integrated product and process organization (PPO). This is referred

herein as process taxonomy; The second theme is applying this process taxonomy (or a set of methodology) to

design and develop a total product system. This is referred to as integrated product development (IPD). As a

result, it may say that concurrent engineering will accelerate the product to the market. The amount of time used

in product development in each type of product to plan about model development, technology, and

manufacturing process rushing the product into the market as fast as possible to provided benefits from the new

product. Therefore, it is unavoidable that the design development and production in parallel require cooperation

among various divisions both directly (i.e., R&D, production, QA & QC) and indirectly (i.e., inventory,

purchasing management, sales). If application of concurrent engineering lacks of good information management,

it will cause complexity and high risk of error. Hence, information management planning using IT system can be

an effective way to adapt concurrent engineering in practice. Walter I Kennevan described a popular concept for

MIS as an organized method of providing past, present, and projection information relating to internal operations

and external intelligence. It supports the planning, control, and operational functions of an organization by

furnishing uniform in the proper timeframe to assist the decision-making process. MIS system planning with

concurrent engineering is very suitable for a product with constantly change and development in model such as

communication devices, clothing, etc., still, this is also true with furniture industry which contains incessant

change and design development. Moreover, present furniture industry has tendency with smaller lot size with

more variety. As a result, this study considers the furniture industry as case analyzing with concurrent

engineering to adapt with planning Management Information System (MIS) in wooden furniture industry.

Research Methodology

Current Data Flow System

According to the case study industry’s data flow system, it indicates that the current work system contains

problem in ambiguity of data usage, objective, and destination. Thus, it shows low efficiency concerning with

input or cost of the system. The current work system has a problem with document processing time requiring

reduction in such time period to reduce the cost. Furthermore, it also indicates that each division store their own

data (see Figure 1) and the network system consisted of LAN, “Bus Network” network topology, and

client/server distributed computing.

Access of database in the case study industry shows problem from data file system including data redundancy,

data inconsistency, and data independency. For Bus Network (see Figure 2), the problem causes by only single

available set of data at a time so the traffic problem will occur when multiple users request for the service.


Figure 1. Current IT database system.

Figure 2. Bus network.

Development of New Work System

This is adaptation of engineering data management in concurrent engineering to facilitate the cooperation

among divisions providing data unification and correlation. Therefore, it can rapidly process considerable

amount of data and effectively store such data providing rapid access as well as accelerate the communication

through computer network whether in machine to machine or human to human or human to machine

communication. The processes are as follows.

Prioritize the data flow dividing into divisions including financial and account division, human resource

division, sales and marketing division, health and safety division, and engineering division for access of

necessary and related data.

Data correlation combing each division’s databases into single database system (see Figure 3). Network of

IT work system using LAN and “Star Network” network topology (see Figure 4).

Figure 3. Data correlation.

File Server Processing distributed computing. This is an application while database is stored in host

computer or file server but the data will be processed in users’ computer. When the user needs to access the data,

file server will send it to the user and the user can further analysis or manage such data in the user computer.

Finance and Accounting `

Sales and Marketing

Engineering

HR.

The health and safety

`

`

`

`

DBMS


Figure 4. Star network

Development of Database Access

For this study, the database is hierarchical database model. Hierarchical database structure is easily

developed like general organization command structure with different level of responsibility. However, data

stored in the database must have relationship as one to one or one to many, only. The top level data called “root”

while the lower level data called “child”. Therefore, the relationship of the data level can be described as “person

child relationship”. In this database, Person data level is able to have multiple “childs” while the “child” can only

have one “person”. In other words, an upper level data can have multiple lower level data but the lower level data

can only have one upper level data.

Advantage of this model is efficiency in data searching which causes by pre-prioritizing and predefined

correlation of data reducing unnecessary data searching. However, there is limitation in characterizing and

correlation defining of all data must be performed before structure building as well as limited searching capability.

Moreover, this structure is not universal.

Figure 5. Data flow diagrams inside the organization (DFDs Level 1).

Design and Development

Design and development of new work system based on concurrent engineering is organization’s IT system

design. This process applied the study results of current work system and problem in original system for

development of new work system based on concurrent engineering using Data Flow Diagrams (DFDs). After that,

`

Host

`

`

`

`


presentation to executives and users of case study factory was performed using DFDs as a tool to define range of

work system as well as help users to better understand the new system design.

Figure 6. Level 2 data flow diagrams of sales and marketing division (DFDs Level 2).

Figure 7. Level 2 data flow diagrams of production division (DFDs Level 2).

Figure 8. Level 3 data flow diagrams of financial and account division (DFDs Level 3).


System analysis is performed through DFDs to provide broadly understanding of data flow concept from

process or methods as well as result. Furthermore, this is consistent with access of all 3 data levels including:

Level 1 is overall dataflow of both inside and outside the organization (see Figure 5); Level 2 is dataflow of each

division in the organization, in this paper, illustrating by sales and market division and engineering division to

show data correlation with design and customer demand as shown in Figures 6 and 7; and Level 3 represents with

financial and account division with dataflow as shown in Figure 8.

Conclusions

Since engineering work system is main factory production, this study analyzes deeply in engineering data

flow. Generally, engineering division will access central data especially of division’s director for customer

demand, model, customer time requirement, or even customer preferred price for proper further operation

according to such conditions. Moreover, the engineering division also coordinates with various involved

divisions such as marketing division to ensure condition of the production, purchasing management division to

purchase parts and provide the reason of such purchase which can access in DB3. From there, manager will

submit analysis, report, and suggestion into DB2. The work of main engineering division can be divided as

follows: internally manage the division according to company goal, receive work order from marketing division,

design, develop, produce prototype, assess the price relating with marketing division. For the reason, these are

done with the mean to correct the understanding with the customer preventing errors, plan, and prepare the

material relating with purchasing management division, subject bills with purchasing management division and

financial division, plan, and operate production, monitor production employees and engineer for quality and

quantity relating with human resource division and safety division, and deliver finished and qualified product to

marketing division for further distribution. For all 8 aspects, the data is flow through DB2 for inter-division

communication.

For input data in DB3, they consist of production (material inventory, product preparation, product

shaping, product assembly, coloring, containing), maintenance (cutting edge, machine, unit system), store

(equipment, consumable, secondary), quality control (in-out system quality, inter-production quality).

With aforementioned data flow and access with concurrent engineering basis, the optimal efficiency of

whole production management and reduction of loss inside of whole organization can be archived.

References

Charoenchai, N. (2002). Modern product and industrial system. Chiang Mai: Faculty of Engineering, Chiang Mai University. Choodoung, S., & Smutkupt, U. (2012). Assessment’s DFM & DFA used for wooden furniture. Proceedings from International

Ph.D. Symposium on Industrial Engineering. Chiang Mai University, Thailand. Choodoung, S., & Smutkupt, U. (2012). Factor of successful wooden furniture design process. Proceedings from World Academy of

Science Engineering and Technology (WASET 2012). Chiang Mai University, Lucerne, Switzerland Edward, B., Magrab, S. K., Gupta, F., McCluskey, P., & Sandborn, P. A. (2010). Integrated product and process design and

development. New York, N.Y.: Taylor & Francis Group, LLC. Feirec, J. L. (1963). Wood working for industry. U.S.A.: Seventy printing. Franz, F., Kollmann, P., & Wilfred, A. C. (1975). Principles of wood science and technology. New York: Springer-Verlag Berlin

Heidelberg. Kengpol, A. (2004). Concurrent engineering. North Bangkok: King Mongkut’s Institute of Technology. Mitchell, P., & Watt, H. (2010). Strategies for the new american furniture industry. North Carolina: Cooperative Extension.


Prasad, B. (1997). Concurrent engineering fundamentals integrated product development. Upper Saddle River, New Jersey: PTR Prentice Hall.

Rujikiatkamjorn, P. (2010). Design methodology. Nation Science and Technology Development Agency Ministry of Science and Technology.

Skeist, I. (1977). Handbook of adhesives. New Jersey: Skeist Laboratories, Inc.. Sriboonchitta, S. (2008). Microeconomics. Faculty of Economics, Chiang Mai University. Sumin, K., & Hyun-Joong, K. (2006). Initial tack and viscoelastic properties of MF/PVAc hybrid resins used as adhesives for

composite flooring materials. Journal of Adhesion Science and Technology, 20(7), 705-722. Wagner, W. H. (1967). Modern woodworking tool materials and process. US: The goodheart-willcox company, Inc..


Creating the Foundation of a Healthcare Research Project

Bobeica Ana Maria

Academy of Economic Studies, Bucharest, Romania

The research topic of this paper develops a case study approach that builds on the foundations of Yin’s “linear

model” and “the best practice” used in theoretical case studies at international research literature. It discusses the

case study method and its role and focusing on research questions like healthcare branding, research design, and

methodic. Also presents the case study research theory for a research case study. The methods used in this paper are

based on hypothesis of a generic hospital branding strategy for the Romanian Private Hospital and also may apply

to the Romanian strategy of development of public healthcare entities and partnerships between public and private

healthcare entities. An empirical test of the relationships among branding loyalty and awareness, customer

satisfaction, trust and relationship commitment suggests that Romanian hospitals can be successful in creating an

image and positive brand equity if they can manage their customer relationships well. This can be done through a

coordinated strategy of management and marketing development of healthcare entities. The results highlight the

dominance of case-study research in qualitative marketing healthcare and highlight the importance of customer

relationships in the branding practice of healthcare marketing. It also shows that marketing managers can succeed

in creating positive brand equity and image if they can manage relationships with their customers well.

Keywords: healthcare marketing, research case study, branding in healthcare, customer relationship, brand equity,

healthcare research, case study research, quality of research, quality management

Introduction

The paper emphasizes on the best practice of a case study in the international literature, based on known

research and proposes a research model in the form a case study with multiple hypotheses and a research design

for the Romanian healthcare market. The importance of the research is everlasting by the fact that there is a

direct and positive connection between brand equity and customer relationship management. The entire

hypothesis proposed in this research is correct and represent a basis for a future analysis in a healthcare

research project of Romanian healthcare industry. Yin’s research theory as presented and discussed in this

paper and also “the best practice in practice” for a successful case study should be taken into account in order to

pursue, define, and succeed in creating a bright and intelligent research case study in the years to come where

branding and the principle defined by Gil Bashe are the basis for a successful healthcare marketing research.

Bobeica Ana Maria, Ph.D. candidate, Faculty of Marketing, Academy of Economic Studies. Correspondence concerning this article should be addressed to Bobeica Ana Maria, Sf Vineri 25, bloc 105c, ap 74, sector 3,

Bucharest, Romania. E-mail: [email protected].

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CREATING THE FOUNDATION OF A HEALTHCARE RESEARCH PROJECT 132

The Case Study Method: Definition and Typology

Defined most generally the case study is a description of a management situation. In the paper Case Study

Research—Designs and method, Yin (2003) emphasizes on three different types of case studies: exploratory,

descriptive any causal, and explanatory. Further to the classification of case studies, there are various options

available to the researcher in terms of the design or structure of the case study project. The researcher can

employ either a single or a multiple case designs depending on different design situations and further to this

dichotomy, can also choose between an embedded and a holistic case study design, reflecting unitary or

multiple units of analysis within the case or cases. Yin (2003) outcomes an additional classification of case

study designs: embedded and holistic designs. This classification relates to the level of analysis within the case

or cases. Thus Yin’s typology of case studies results in a 2 2 matrix composed of a single case embedded

design, single case holistic designs, and multiple cases embedded designs and multiple case holistic designs. If

a case study is about a single organization, such as hospital (healthcare industry) and embedded design might

yield outcomes which are the best method used in order to have some major results an impact the market.

Short History of Case Study Research

There is a chronology over years of the quality of the papers which referr to the case studies research

phenomena. All of these rerearch have been published in diffferent studies across the time but there is a

convergence of the authors on the next one: 1971-1979: During this period of time some eight case study were

published during this times. For all of these published case studies, the principal characteristic is the lack of raw

data presented to usual readers. 1980-1989: Nine cases have been published during this 1980-1989. In regards

to research quality, all of these cases actually provided less data than those published before, even though

suggested standards were beginning to emerge when you are referring to the quality of business research. So

very few researchers considered some issues of validity that we had to divert from all considerations of validity

(construct and internal) into a single category called “validity”. The authors of the study have chosen to focus

on external validity as a different issue as more authors at international level considered this, but at the end of

their articles as a future theme to study. 1990-1999: Between this period of time, 27 cases have been published

during 1990-1999. As with the previous period, the debate regarding quality in case study research was intense

in the economic and business disciplines and qualitative research began to be published largely also in

important marketing journals. Furthermore, practical (non-theory) books on qualitative methods of research and

case research were also widely available. The in depth analysis of the research cases published during this

period of time showed that 59% provided had no methodological details, 52% provided no details on secondary

sources used, some 67% did not use any triangulation, 55% of the papers provided no justification for the

method used, and 63% of the case studies presented no raw data. 2000-2006: 61 research cases were published

during this period of time. The analysis shows the view that authors are more likely to address the issues of

quality, although much more could be done in order to allow colleagues to make real based judgments about

the issues of validity, reliability, and even generalizing. In conclusion, 62% of the research justified their choice

of method, 89% case studies provided enough background case or industry details in order to make judgments

on the conditions of findings, 72% of them provided sufficient detail about their methods of study, 36% of

them have provided detail about the questions asked and engaged in any triangulation, 31% of case studies


provided details about the analysis procedures, and 26% of the case studies provided raw data. Given the

increase in the number of cases published during this period, the emerging issues in relation to quality were

also more complex. As well as the issues covered above in previous sections (evidence that would allow any

judgments of quality), practical quality concerns are presented in regards to data information from large

samples of multiple case studies, the use of multiple secondary data, and the relative importance of various

quality methods. As seen above there is a continuous improvement over the years in general study, concept, and

research of case studies related to the marketing industry focusing lately into the concept of “quality research”.

Also there is an important need in the near future to make an analysis on the studies already published in the

recent literature since 2006 and 2013. We hope that our findings will notice significant improvement in the case

study analysis and theory of best practice which are important in all areas involved and explained here.

Key Characteristics of Case Study

After Yin, the characteristics of case studies are the following: Phenomenon is to be examined in a natural

setting with data being collected by multiple means. Also one or few entities (person, group, or organization)

are to be examined in order to be in connection with the complexity of the unit which is to be studied

intensively. Many of the case studies analyzed are more suitable for the exploration, classification, and

hypothesis development stages of the knowledge process in research case studies where the investigator should

have a receptive attitude towards exploration of new routes. No experimental control or manipulations have to

be involved in this phase and also the investigator may not specify the set of independent and dependent

variables in advance of the research. Also the results that derived depend heavily on the integrative powers of

the investigator of the research where changes in the site selection and data collection used methodology could

take place as the investigator develops new hypotheses of work. The case study research is useful in the study

of “why” and “how” questions because it deals with operational things that are tracked over time rather than

using the frequency or incidence meanwhile the focus being on the contemporary events.

Establishing Objectives of Research for a Case Study

In the case of a “qualitative research” which is the latest “option” in the area of case study marketing

research, the objectives for a future research in the area of healthcare rebranding may include: Qualitative

research is concerned primarily with process, rather than outcomes or products. First objective: Looking on the

process of rebranding. Qualitative research is interested in meaningful results. Second objective: Focus on the

theory versus practice, the qualitative research is the primary instrument for data collection and analysis. Third

objective: Collecting relevant data and analysis qualitative research involves fieldwork. Fourth objective:

Interview with relevant people, discussion with key people involved in the process, or relevant marketing

executives in healthcare and quality leaders. Qualitative research is descriptive in that the researcher is

interested in process, meaning, and understanding gained trough words or picture. Fifth objective: Based on

relevant data collection, make assumptions. The process of qualitative research is inductive in that the

researcher builds abstractions, concepts, hypothesis, and theories from details. Sixth objective: Make

conclusions, and add personal opinions based on relevant material. The characteristics of a case study

objectives are: (1) the case study must be significant; (2) the case study must be complete; (3) the case study


must consider alternative perspective; (4) the case study must display sufficient evidence; and (5) the case study

must be composed in an engaging matter.

Best Practice in Practice for a Case Study

(1) Primarily theory building case studies. The authors provide a linkage between their research effort and

theory; (2) The selection of case study phenomena is based on the rationale of purposeful sampling; (3) These

case studies include different sources of data, namely, in-depth interviews, observation, and archival records; (4)

The selection of interview respondents ensures that data is collected from actors with different perspectives

with respect to investigated phenomena (e.g., employees, management, internal and external actors of a firm

etc.); (5) The authors explain the process of data analysis; more sophisticated methods to data analysis are

employed: pattern matching and constant comparison of findings with theory; (6) The coding process is often

conducted using specialized software such as Nudist, N Vivo, or Decision Support Analysis software; (7)

Findings are presented using: within and/or cross case study analysis, case history analysis, thematic analysis,

comparison between theory and data; and (8) The authors apply some triangulation techniques (data, between

method and investigator triangulation) and possibly seek respondent validation on case study findings and

reports presented. All of these results are presented in future analysis and improve our view of the best practice

in practice for a case study. This is important also for the development of the research method and the model

presented below in the actual case study of this paper.

Healthcare Branding and the 10 Most Important Principles of Branding

Characteristics of a good healthcare brand can be summed up in the “10 Principle of Branding” at outlined

in the Bashe and Hicks’s (2010) book Branding Health Services: (1) Deliver on functionality; (2) Have a right

window of safety; (3) Be right on price; (4) Speak with “one tongue”; (5) Be operationally effective versus

merely operationally efficient; (6) Be “Glocal” (see second principle above); (7) Be an “outside in” brand; (8)

Be loyal; (9) Franchise, franchise, franchise etc.; and (10) Ace out in the “affinity” department areas.

Theory and Hypothesis for the Research

Healthcare managers and marketers face unique challenges today, due in part to the role the health care in

contributing to public welfare and global crisis. Hospital marketing in Romanian latest history is particularly

challenging since there are not many private institutes, most of the system being public, and the public not

making any type of advertising in order to attract customers. As a result, Romanian hospitals depend heavily on

customer relationship management (CRM). This study identifies some key factors that influence the creation of

brand equity with the help of customer relationships: trust, customer satisfaction, relationship commitment,

brand loyalty, and brand awareness. An empirical test of the relationships among these factors suggests that

hospitals can be successful in the creation of image and positive brand equity if they can manage their customer

relationships well. Proposed hypotheses: H1: Trust influences brand loyalty positively (+); H2: Trust influences

brand awareness (+); H3: Customer satisfaction influences brand loyalty (+); H4: Customer satisfaction

influences brand awareness (+); H5: Relationship commitment influences brand loyalty (+); H6: Relationship

commitment influences brand awareness (+); H7: Brand loyalty influences brand equity (+); H8: Brand


awareness influences brand equity (+); H9: Brand equity influences hospital image (+); H10: Trust influences

hospital image (+); H11: Customer satisfaction influences hospital image (+); and H12: Relationship

commitment influences hospital image (+). This can be also seen in Figure 1 (see Research Model).

Figure 1. Research model: Structural path diagram of theory and hypothesis.

Research Design, Method, and Model of Research

All these Hypotheses in this study are correct. At a first view, Romanian hospitals should focus their

marketing efforts on customers that trust the healthcare entity or the doctors that practice in the hospital. They

should invest resources to create and maintain this high level of trust for their medical service with the hope

that it will lead to positive brand equity and hospital image. So hospitals should create and maintain strong

customer relationships in order to increase customers’ commitment. They must remember the importance of

creating brand awareness in order to create positive brand equity and hence cultivate hospital image. Finally,

hospital managers must learn how to connect their brand loyalty to brand equity. Government official must

implement effective communicational plans in the public sector and marketing managers in the private

healthcare institutions through advertising and customer relationship management (CRM). This study shows

that managers can succeed in creating positive brand equity and image if they can manage relationships with

their customers well. Also shows the direct connection between these two important characteristics of the

model as very important key factors between: trust, customer satisfaction, brand loyalty, and awareness.

Important Conclusions and Recommendations

Our intent in this paper was to clarify the nature of the case research method, explain why it might be

utilized in marketing research studies and offer some suggestions for future construction and improvement of

the research paper on healthcare marketing quality and rebranding. We would argue that our review has given

insight into what case researchers in this field mean by “case study” and the best practices they associate with

this methodology. The main finding here was that Yin’s literature was a strong influence, not just on the

methodological literature in industrial marketing, but on research practice as well. This can be found in the

Trust

Customer

Satisfaction

Relationship

Commitment

Brand

Awareness

Brand

Equity

Brand

Loyalty

Hospital

Image


pattern of citations, with Yin by far the most popular source, as well as the widespread use of some of his key

recommendations, particularly purposeful sampling, triangulation, and systematic data analysis. The managerial

implications emphasize the importance of continuing to meet core brand values yet becoming relevant to

contemporary needs. The findings underscore a company’s need to fully understand and preserve its core

values and also undertaken some major steps in order to fulfill its destiny and succeed in the future markets.

References

Bashe, G., & Hicks, N. (2000). Branding health services. Gaithersburg, M.D.: Aspen Publishers. Benbasat, I., Goldstein, D. K., & Mead, M. (1987). The case research strategy in studies of information systems. MIS Quarterly,

11(3), 369-386. Beverland, M., & Lindgreen, A. (2010). What makes a good case study? A positivist review of qualitative case research, industrial

marketing management, 1971-2006. Industrial Marketing Management, 39(1), 56-63. Diamond, P. (1992). Organizing the health insurance market. Econometrica, 60(6), 1233-1254. Dubois, A., & Gibbert, M. (2010). From complexity to transparency: Managing the interplay between theory, method and

empirical phenomena in IMM case studies. Industrial Marketing Management, 39, 129-136. Fox-Wolfgramm, S. J. (1997). Towards developing a methodology for doing: Qualitative research: The dynamic-comparative

case study method. Scandinavian Journal of Management, 13(4), 439-455. Hindle, T., Checkland, P., Mumford, M., & Worthington, D. (1995). Developing a methodology for multidisciplinary action

research: A case study. Journal of the Operational Research Society, 46(4), 453-464. Järvensivu, T., & Törnroos, J. A. (2010). Case study research with moderate constructionism: Conceptualization and practical

illustration. Industrial Marketing Management, 39, 100-108. Lee, A. S. (1989). A scientific methodology for MIS case studies. MIS Quarterly, 13(1), 33-50. Piekkari, R., Plakoyiannaki, E., & Welch, C. (2010). Good case research in industrial marketing: Insights from research practice.

Industrial Marketing Management, 39, 109-117. Size, M. (2005). Rebranding: A case study approach. Dublin: Dublin Institute of Technology. Stuart, I., McCutcheon, D., Handfield, R., McLachlin, R., & Samson, D. (2002). Effective case research in operations

management: A process perspective. Journal of Operations Management, 20, 419-433. Yin, R. K. (2003). Case study research—Designs and method. Thousand Oaks, C.A.: Sage Publications.


How Many Family Businesses Are There Really and Does ICT

and Innovation Improve Their Performance?

Steve MacFeely

Central Statistics Office, Cork, Ireland

University College Cork, Cork, Ireland

Caitriona O’Brien

Central Statistics Office, Cork, Ireland

Depending on the source, a reader may be left with the impression that Family Businesses (FBs) typically account

for between 75% and 95% of all enterprises operating in an economy. This study, using official structural business

statistics from Ireland, suggests that in fact family businesses may account for a considerably smaller share of the

business economy, something closer to 46%. This paper attempts to explain how such a discrepancy can arise.

Using the Annual Services Inquiry compiled by the Central Statistics Office (CSO) as the anchor dataset, micro

data are linked to the e-Commerce and ICT survey, Community Innovation Survey and VAT registrations datasets

in order to determine whether labour productivity in Family Businesses (FBs) is significantly different to that of

Non-Family Businesses (NFBs) and if Information and Communication Technologies (ICT) or innovation has an

impact. The paper also highlights the significant impact that Foreign Direct Investment (FDI) makes to the Irish

economy. This analysis is particularly relevant for a small open economy like Ireland where 31% of traded services

GVA and 15% of employment is generated by multinational enterprises.

Keywords: productivity, Foreign Direct Investment (FDI), sole trader

Introduction

Depending on the source, a reader may be left with the impression that Family Businesses (FBs) typically

account for between 75% and 95% of all enterprises operating in an economy. This study, using official structural

business statistics from Ireland, suggests that in fact family businesses may account for a considerably smaller

share of the business economy; something closer to 46%. This paper attempts to explain how such a discrepancy

can arise.

Using the Annual Services Inquiry (CSO, 2007a) compiled by the Central Statistics Office (CSO) as the

anchor dataset, micro data are linked to the e-commerce and ICT survey (CSO, 2006b), Community Innovation

Steve MacFeely, Ph.D., Assistant Director General, Central Statistics Office; Adjunct Professor, Centre for Policy Studies,

University College Cork. Caitriona O’Brien, BSc, Central Statistics Office. Correspondence concerning this article should be addressed to Steve MacFeely, Central Statistics Office, Skehard Road, Cork,

Ireland. E-mail: [email protected].

DAVID PUBLISHING

D

HOW MANY FAMILY BUSINESSES ARE THERE REALLY 138

Survey (CSO, 2008b) and VAT registrations datasets in order to determine whether labor productivity in Family

Businesses is significantly different to that of Non-family Businesses (NFBs) and if technology or innovation has

an impact.

Data Sources

A number of different official and administrative data sources are utilised in this study. These data sources

are summarised below.

The Annual Services Inquiry

The Annual Services Inquiry (ASI) is a sample survey of approximately 18,000 enterprises, compiling

structural business data such as turnover, employment, purchases, international trade etc.. The statistical unit used

for the ASI is the enterprise, where an enterprise is defined as the smallest legally independent unit. One return is

sought in respect of each enterprise covering all constituent branches or local units. The enterprise activity is

determined by the predominant activity of that enterprise and any turnover and employment etc. generated by

secondary or ancillary activity is classified to the primary activity. The surveys covers the NACE Rev.1.1

sections G, H, I, K, and O. Non-traded dominated sectors such as health, education, and defence are excluded.

VAT registrations file. Value Added Tax (VAT) was first introduced to Ireland on November 1st, 1972.

The VAT file provided by the Revenue Commissioners1

There is no universal agreement on the characteristics that define a family business (Handler, 1989). Some

to CSO contains enterprise registration data, such as

registration number, customer type (individual, company, partnership etc.), registration date, date ceased, entity

name etc..

E-commerce & ICT. The enterprise survey of e-commerce and ICT is a sample survey of approximately

8,000 enterprises and compiles general information on ICT systems and other data such as, use of Internet,

e-commerce via the internet, e-commerce via EDI, barriers to e-commerce and electronic sharing of information

using Supply Chain Management (SCM). It covers NACE Rev.1.1 sections D, F, G, H, I, J, K, and O. The scope

includes all enterprises with 10 or more persons engaged, with the exception of the construction sector where the

scope is limited to enterprises with 20 or more persons engaged. This is a challenging survey to conduct; ICT is a

quickly evolving and complex area, and consequently compiling comparable year-on-year data is not always

possible. The use of broadband is difficult to measure accurately, as the term “broadband” in itself is meaningless.

Many respondents believe they have “broadband” but cannot provide the technical specifications, which are

necessary to compile robust and meaningful statistics.

The Community Innovation Survey. The Community Innovation Survey (CIS) is a sample survey of

approximately 4,000 enterprises and compiles general information on the enterprise and data on product, process

or organisational innovation, ongoing or abandoned innovation activities, innovation expenditure, barriers to

innovation and intellectual property rights. The survey covers enterprises with 10 or more persons engaged in the

NACE Rev.1.1 sections C, D, E, I, J, and NACE divisions 51 and 72 and NACE groups 74.2 and 74.3.

Definition of Family Business

1 The Revenue Commissioners are the taxation and customs authorities in the Republic of Ireland.


have used the level of equity held by a single family as the criterion (Lansberg, Perrow, & Rogolsky, 1988)

whereas other criteria have ranged from family involvement in the management structure (Kepner, 1983) to

multi-criteria definitions (Smyrnios, Romano, & Tanewski, 1997). Litz (1995) proposed a categorization of

family business which defined a “pure” family business as being family managed and family owned. Others

such as Astrachan and Shanker (1996) have proposed a broader definition of family business based on a three

scale classification: broad, middle, and narrow. The broad definition includes little direct family involvement,

an intention to keep it in the family and the effective control of strategic development. On the other end of the

spectrum the narrow definition requires that the business be multi-generational, the family directly own and

run the business and at least one member of the family has significant management responsibility.

This scaling approach was further extended by Astrachen, Klein, and Smyrnios (2002) who developed what is

known as the “F:PEC” scale as a method for measuring the influence of the family in a business. This approach

defines the potential channels of influence a family can establish in a company (e.g., power, experience, or

culture).

The Annual Services Inquiry which is the main data source for this analysis, defines family businesses as:

An enterprise where one family holds more than 50% of the voting shares

and/or

A family supplies a significant proportion of the enterprises senior management and is effectively

controlling the business

and/or

An enterprise where there is evidence of more than one generation working in the business

and/or

An enterprise that is influenced by a family or a family relationship and that perceives itself to be a family

business.

It should be noted that unlike most business statistics definitions, for example, legal form of enterprise, the

definition of a family business is a somewhat subjective one. The impact of this subjectivity is nowhere more

apparent than when examining sole traders.

Other Definitions

For the purposes of this paper, the size of enterprises will refer to the number of persons engaged, unless

stated otherwise. Although not conforming to the European Union standard (Eurostat, 2008), given the relatively

large number of smaller enterprises in Ireland, greater granularity is required for enterprises that engage less than

50 persons. Consequently enterprise size classes are defined in Table 1.

Table 1

Enterprise Size Classes Size class Persons engaged

Micro 1-9

Small 10-19

Medium 20-49

Large 50+


Analysis in this paper is conducted at NACE Rev.1.12

NACE Section

(Eurostat, 2002) section level. Aggregating at this

level provides robust data and overcomes most (but not all) difficulties surrounding inadvertent disclosure of

confidential data. It of course, has the disadvantage of aggregating, highly heterogeneous business activities into

single cohorts. NACE Rev. 1.1 section aggregates are described in Table 2.

Table 2

NACE Rev. 1.1 Sections Description

G Wholesale & retail trade

H Hotels & restaurants

I Transport, storage & communications

K Real estate, renting & business activities

O Other community, social & personal services

Family Businesses—Summary Profile

In 2005, there were 38,927 FBs trading in the services sectors in Ireland, accounting for 46% of all

enterprises in those sectors. FBs employed over a quarter of a million persons and generated a total turnover of

€49.3 billion.

That only 46% of all enterprises are FBs seems low compared to statistics regularly quoted in Ireland or in

other international studies. For example, studies in Germany of the manufacturing sector in Baden-Wurttenberg

estimate that 78% of businesses were family run (Hauser, 2005). In the United States, FBs account for an even

larger proportion—86% (Keyt, 2007). Bornheim (2000) estimates that FBs account for 80% of enterprises in

Mexico and in Austria. Neubauer and Lank (1998) found that family businesses accounted for 75% of all

businesses in the United Kingdom, 70% in Portugal, 80% in Spain, 85% in Switzerland, 90% in Sweden, and

95% in Italy and the Middle-East. As already noted, there is no standardised definition for what constitutes a FB.

This lack of agreement is likely to be a contributing factor to the apparent discrepancy emerging from different

studies.

The distribution of FBs and NFBs across the enterprise size classes are more or less the same (see Figure 1).

Almost 88% of all services enterprises have less than 10 persons engaged; this holds for both FBs and NFBs. Less

than 2% of FBs had more than 50 persons engaged. Although FBs with less than 10 persons engaged accounted

for almost 41% of all services enterprises, these businesses only generated less than 9% of total Gross Value

Added (GVA). By contrast the 2% of FBs engaging 50 persons or more accounted for almost 8% of total traded

non-financial services GVA.

Overall, average FBs are smaller than NFBs but for most size classes the difference in size is negligible.

However, for enterprises with 50 or more persons engaged, there is a significant difference in scale, with large

FBs engaging an average of 150 persons compared with 215 persons for NFBs (see Figure 2).

The Sole Trader

The sole trader or individual proprietorships makes an interesting case study, perhaps providing some

2 NACE Rev.1.1—Statistical classification system of the European Union for economic activity.


insights into enterprise or entrepreneurial behaviour and motivation. Of the sole traders who filed returns for the

ASI, only 44% classified themselves as a FB. This is a curious result, as a sole trader might naturally be

considered a FB, in that there is only one person managing the business and consequently a sole trader and a FB

might reasonably have been considered synonymous. Certainly if all sole traders were automatically classified as

FBs, then this would add a further 22,000 FBs to the total. This re-classification alone would result in FBs

accounting for 72% of all business and might explain partly the very high proportion of FBs quoted in various

reports.

Figure 1. Number of family and non-family businesses by size class, 2005.

Figure 2. Average number of persons engaged in family and non-family businesses by size class, 2005.

But, what if, as the results suggest, sole traders are not automatically synonymous with FBs? What are the

differences between family and non-family sole traders? Perhaps, the motivations of each are quite different,

0

10,000

20,000

30,000

40,000

1 - 9 10 - 19 20 - 49 50 +

Non - Family

Family

Enterprises

Persons Engaged

0

50

100

150

200

250

1 - 9 10 - 19 20 - 49 50 +

Family

Non - Family

Persons Engaged

Persons


perhaps for example, a family sole trader is more concerned with succession (especially those approaching

transition or in subsequent generations) than maximising profit. These are questions probably better left to

behavioural economics rather than statistics. What we can say however is that labour productivity hints at

different behaviour, as GVA per person engaged for a non-family sole trader is typically 29% higher than for the

family equivalent.

When examining the split between family and non-family sole traders, it appears that the age of the

enterprise may play an important role in determining the way enterprises or entrepreneurs classify themselves.

Certainly when the age profile of individual proprietorships is examined an interesting pattern emerges.

Business demography statistics in Ireland are relatively new and thus no extended time-series are available

yet. However, using the VAT registrations data to estimate the age of sampled enterprises, sole traders were

clustered into four time periods. The data in Table 3 are presented as percentages for each time period.

Table 3

Percentage of Sampled Family and Non-family Sole Traders in each Time Period Family (%) Non-family (%) All (%)

Pre-1977 65 35 100

1977-1986 59 41 100

1987-1996 53 47 100

1997-2006 39 61 100

These data are also presented visually in Figure 3. What clearly emerges is that recently established sole

traders (i.e., those registered for VAT during the 10 year period 1997-2006) are less likely to classify themselves

as a FB. In stark contrast, those sole traders established before 1977 are more likely to classify themselves as a FB.

It should of course be noted that this is how enterprises classified themselves for the 2005 ASI, and not

necessarily how they might have classified themselves on establishment.

Figure 3. Percentage of sampled family and non-family sole traders by year of registration.

Is it possible that the motivation of a sole trader changes over time? Perhaps the marital status of the sole

trader or whether or not they have a family influences their view of themselves and the nature of their business.

35 41 47 61

65 59 53 39

0

20

40

60

80

100

Pre 1977 1977 - 1986 1987 - 1996 1997 - 2006

%

Family

Non - Family


Perhaps as a trader and the business get older, concerns over pensions and succession become more immediate

than establishing the business, market share or profit maximisation. Equally a FB that has successfully made the

transition to second or subsequent generations may become increasingly concerned with lineage. On the other

hand, many sole traders may grow and ultimately incorporate and perhaps those that do are more likely to be

NFBs, leaving more FB sole traders behind. With the data currently available it is not possible to trace the reasons

for these results. But perhaps it is not unreasonable to assume that some sole traders who established their

businesses over 20 or 30 years ago may have switched from being a NFB to a FB.

Productivity

Determining the appropriate measure of productivity for services sector activity is not always easy. In

Ireland, a measure of capital or multi-factor productivity are beyond the data currently available. Consequently an

analysis of “indicative labour productivity” is presented.

An exact measure of labour productivity cannot be calculated from the ASI. Firstly, GVA is estimated for

the full accounting year of each enterprise3

Employment in the ASI is simply a head-count of both full-time and part-time labour, rather than an exact

full-time equivalent (FTE) unit, which standardises labour units by the number of hours worked (or more

precisely the number of paid or remunerated hours worked). As working arrangements differ considerably by

sector, the impact of standardising the unit of labour utilisation will vary sector by sector. For example, one might

expect a greater range of part-time working conditions in the retailing or hospitality sectors. Equally, one might

reasonably expect the “normal” working week, in terms of hours to vary across sectors.

There are other challenges in linking hours worked to remuneration or output, as the only likely source of all

of these data is the employer or enterprise. Enterprises in sectors where there is a greater bias towards salaried

employment, rather than wages, may not record how many hours were actually worked but the hours

contractually remunerated (not necessarily the same thing). With regard to family businesses there may also be

measurement issues with regard to employment, as casual labour provided by family members may or may not be

included in the returns to CSO.

However, the ASI does provide sufficiently good data that some Indicative Labour Productivity (ILP)

measures (i.e., GVA per person engaged) can be calculated. Even using such a crude measure, the comparative

ILP between FBs and NFBs are striking.

whereas the measure of labour refers to a specific time point (for the

2005 ASI the reference week was the week ending 9 September). Consequently, the ASI does not adequately

measure seasonal peaks and falls in employment and thus may underestimate (or less likely overestimate)

employment and the number of persons engaged. The scale of this problem will likely differ by economic sector

and most probably affect sectors with greater seasonal employment variation more, such as the hospitality sector.

Secondly, the unit of labour is not clearly defined.

Overall, labour utilisation in FBs appears to be less than half as productive as labour employed by NFBs (see

Table 4). This ratio holds with minor variations in scale across most NACE sections of services activity. There

are two exceptions. The productivity differential between FBs and NFBs in the Hotel and Restaurant sectors is

3 This accounting year does not necessarily correspond with the fiscal or calendar year.


less severe at about 21%. For Section I, Transport, Storage and Communications the differential was significantly

higher—64%.

Table 4

Indicative Labour Productivity Measures Classified by Business Type, 2005 NACE Rev.1.1 Section

Business type

Average GVA per person engaged-All enterprises (€ 000)

Average GVA per person engaged-Irish Owned Enterprises (€ 000)

G Family business Non-family business

37 66

36 43

H Family business Non-family business

22 28

21 27

I Family business Non-family business

48 134

46 88

K Family business Non-family business

45 98

45 69

O Family business Non-family business

23 42

23 43

All Family business Non-family business

35 80

34 56

At first glance, differentials of such magnitude scarcely seem credible. But there are some rather unique

structural conditions in the Irish economy that might contribute to these very high differentials. Ireland is a small,

open, and highly globalised economy with a relatively small enterprise population but with a high degree of

Foreign Direct Investment (FDI). For example, foreign owned enterprises account for 82% of GVA and 49% of

total employment in the manufacturing sectors (CSO, 2007d). In the non-financial, traded, services sectors,

foreign owned enterprises account for 46% of GVA and 24% of total employment (CSO, 2007a).

There are relatively few foreign owned FBs whereas quite a number of large NFBs are foreign owned. ILP

for both the manufacturing and services sectors tends to be higher for larger firms and for foreign owned

enterprises (CSO, 2007c, p. 62). Accounting practices may partly explain this trend as the financial accounts for

foreign owned enterprises can be distorted by the impact of outsourcing, transfer pricing, merchanting, licensing

or royalty arrangements.

When foreign owned enterprises are excluded from the comparison, it makes little or no difference to FB

productivity but there are significant changes to some of the NFB indicative productivity figures. The overall

differential productivity between FBs and NFBs reduces from 56% to about 39%. At NACE section level, the

differentials for sections G, I, and K reduce considerably. For Sections H and O, the removal of foreign owned

enterprises makes little difference to the results. However, even when the distortionary effect of foreign owned

enterprises are removed, the overall conclusion is the same. NFBs appear to have considerably higher ILP than

FBs. A study of the Australian Business Longitudinal Survey 1995 -1998 provided similar findings (albeit less

extreme), concluding that “Family businesses, on average, are 21 per cent less productive than non-family

businesses” (Harris et al., 2002, p. 14).

A possible contributory factor is the ratio of part-time to full-time employees used by FBs and NFBs, 35%

of FBs employees are part-time in comparison with only 25% of NFBs (CSO, 2008a). An additional

measurement issue may also arise if FBs “employ” family members as casual labour. It is not clear whether these

family members are included in the employment count collected by the ASI. Thus, the comparability of ILP may


be affected, depending on how much casual labour is utilised by a FB, or whether they are recorded in official

statistics or not.

Figure 4. Difference in Average GVA per Person Engaged between Family and Non-Family businesses when foreign owned enterprises are excluded.

Influence of Information and Communication Technologies (ICT) on Productivity

The world is continually being remade by technology and innovation. Together, they have given rise to

pervasive computerisation, global communications, and the information or knowledge-based economy that

coexists with the industrial economy. Forfas (2007, p. 20) noted that “ICT is generally accepted as being one of

the drivers of productivity growth in modern economies”.

Consumers rely on the Internet for 24-hour banking, booking flights, reserving cinema tickets, and

increasingly for day-to-day grocery shopping. Capitalising on this usage of Information and Communication

Technologies (ICT) is a necessity for any enterprise wishing to thrive or survive in the modern business world.

In 2005, more than 15,200 (39%) of FBs reported they had e-mail but only 6,378 (16%) FBs had a website.

For both e-mail and website, usage by NFBs was higher but the difference was more pronounced for website take

up. It also appears that NFBs make better use of their ICT to generate sales. In 2005, NFBs generated over €17bn

(14.5% of their total turnover) from orders submitted via electronic format (i.e., either via e-mail, EDI or internet).

In comparison, FBs generated just over €4bn (8.5% of their total turnover). ICT take-up and usage varied across

the different economic sections; for Sections G and H where FBs are most active, the relative turnover generated

from via electronic sales did not differ significantly from NFBs. For other NACE sections, in particular, Sections

I and K the differences were stark. The most striking differential was in Section K where NFBs generated 21% of

their total turnover via ICT compared with only 6% for FBs (see Table 5).

Overall however, ICT take-up does appear to have a positive correlation with ILP. Across every size class,

for both FBs and NFBs, enterprises with e-mail and website and e-sales have a higher ILP (see Figure 5).

The 2005 ASI were linked to the 2005 e-Commerce & ICT survey at individual record level; a total of 831

enterprises were common to both datasets. Some basic t-tests on ICT systems and internet use/access were

conducted to determine whether ILP is greater for enterprises that have e-mail, a website, LAN, intranet and high

speed internet access than for enterprises that don’t have all of the above.

0

20

40

60

80

G H I K O All

All Enterprises

Irish Owned Enterprises

€ 000’s

NACE Section


The hypotheses tested were:

H0: The average GVA per person engaged for enterprises that have e-mail, a website, LAN, intranet and

high speed internet access is the same as the average GVA per person engaged for enterprises that do not.

H1: The average GVA per person engaged for enterprises that have e-mail, a website, LAN, intranet and

high speed internet access is different to the average GVA per person engaged for enterprises that do not.

Table 5

Use of E-mail, Web Site, and E-sales, 2005

Business type

NACE REV.1.1 sectors

Number of enterprises

With E-mail

With website

With orders via e-sales

Total turnover excl. VAT (€)

Turnover from orders submitted via e-sales (€)

Family Non-Family

G 15,763 13,472

5,922 4,897

2,382 2,518

1,692 1,935

36,123,282 62,312,898

3,359,505 6,436,031

Family Non-Family

H 6,364 4,083

1,243 916

730 600

409 264

3,994,526 5,116,473

136,547 169,817

Family Non-Family

I 3,124 3,402

841 1,054

311 514

311 368

3,001,822 19,197,375

361,837 4,416,752

Family Non-Family

K 11,097 20,186

6,653 12,358

2,676 5,213

1,652 3,547

5,470,072 29,465,644

318,668 6,060,525

Family Non-Family

O 2,578 3,918

563 1,094

278 690

136 218

694,907 2,185,419

15,041 82,731

Family Non-Family

All 38,927 45,061

15,221 20,319

6,378 9,535

4,200 6,332

49,284,610 118,277,810

4,191,597 17,165,855

Note. e-sales: e-mail, EDI, or Internet.

Figure 5. GVA per person engaged for family & non-family businesses by size class with and without email & website & e-sales.

Separate tests were done for family and non-family businesses. The results proved to be significant for FBs

where the test showed a p-value of 0.0002. In other words, there is sufficient evidence to reject the null hypothesis.

The mean GVA per person engaged for FBs that have e-mail, a website, LAN, intranet and high speed internet

access is almost €50,500 compared to just under €35,600 for FBs that did not have all of the above. The results of

the test for NFBs were less significant. The t-test gave a p-value of 0.0727 and this means that there is sufficient

evidence to reject the null-hypothesis at the 10% significance level. The mean GVA per person engaged for NFBs

that have e-mail, a website, LAN, intranet and high speed internet access is just under €241,300 compared to just

over €56,100 for NFBs that did not have all of the above. Thus, we conclude that both FBs and NFBs that have

0

20

40

60

80

100

120

140

< 50 50 - 250 250+

Family - no e - sales

Family - e - sales

Non - Family - no e - sales

Non - Family - e - sales

€ 000

Persons Engaged


e-mail, a website, LAN, intranet and high speed internet access have higher average GVA per person engaged

than firms that do not.

The second set of tests focussed on enterprise’s use of the internet for marketing purposes. T-tests were done

to determine whether or not ILP is greater for enterprises that use the internet for marketing their products and

providing product and price information than for those that do not.

The hypotheses tested were:

H0: The average GVA per person engaged for enterprises that use the internet for marketing the enterprise’s

products and facilitating access to product and price information is the same as the average GVA per person

engaged for enterprises that do not.

H1: The average GVA per person engaged for enterprises that use the internet for marketing the enterprise’s

products and facilitating access to product and price information is different to the average GVA per person

engaged for enterprises that do not.

Once again separate tests were done for family and non-family businesses. The results proved to be

significant for FBs where the test produced a p-value of 0.0067 and this gives us sufficient evidence to reject the

null hypothesis. The mean GVA per person engaged for FBs that use internet for marketing the enterprise’s

products and facilitating access to product and price information is just over €46,800 compared with just under

€36,300 for FBs that do not. We can therefore conclude that FBs that use internet for marketing enterprise

products and facilitating access to product and price information have higher ILP on average than those that do

not. The results were not significant for NFBs, where the t-test gave a p-value of 0.1713. Consequently, we have

insufficient evidence to conclude that there is any difference in labour productivity between NFBs that are using

internet for marketing enterprise products and facilitating access to product and price information and those that

are not doing so.

These results reinforce the findings from the ASI which indicated a link between ICT take-up and indicative

labour productivity. Some cautions should be exercised however regarding the magnitude and significance of

these relationships as no controls were made for other variables that are likely to influence productivity.

Nevertheless, the results are important as NFBs made proportionately a much greater investment in computers,

particularly hardware, than FBs did (CSO, 2007a).

Influence of Innovation on Productivity

As already noted, economies and societies are being continually reshaped by technology and innovation. To

test the impact of product and process innovation on ILP, the Community Innovation Survey (CIS) were linked to

the ASI at a unit record level. Respondents to the CIS were asked if they had engaged in any product or process

innovation during the three years 2004 to 2006. Product innovation was defined as the introduction of a new good

or service to market or a significantly improved good or service with respect to its capabilities. Process

innovation was defined as the implementation of a new or significantly improved production process, distribution

method or support activity for the enterprises goods or services. Enterprises were classed as “innovation active” if

they had engaged in either product or process innovation or both.

The benefits arising from the introduction of new processes or products usually take some years to realise,

and consequently linking to 2004-2006 CIS to the 2005 ASI is rather optimistic. Most likely, the benefits of


innovation developed during the 2004-2006 period will not manifest themselves in terms of ILP until 2007 at the

earliest. Nevertheless the datasets were linked, as innovation active enterprises in 2004-2006 may well have an

earlier history of innovation.

The microdata for the two datasets were linked yielding 408 enterprises common to both surveys. GVA per

person engaged was derived for these enterprises and some tests were done to establish whether or not there was

any difference in ILP between the enterprises that were innovation active and those that were not. Separate t-tests

were conducted for product and process innovation and for FBs and NFBs.

In each case the null hypothesis was:

H0: There is no difference between the average GVA per person engaged for enterprises that were

innovation active and those that were not.

And the alternative hypothesis was:

H1: The average GVA per person engaged for enterprises that were innovation active is different from the

average GVA per person engaged for enterprises that were not.

The results showed that there was insufficient evidence to reject the null-hypothesis in any case, in other

words, we could not conclude that there is a difference in ILP between enterprises that are innovation active and

those that are not. The results of the t-tests for product and process innovation are presented in Table 6.

Table 6

P-Values for Product and Process Innovation Family (p-value) Non-family (p-value)

Product 0.9681 0.5239

Process 0.4174 0.2944

Conclusions

FBs account for over 46% of all enterprises and almost 40% of total persons engaged in the non-financial

traded services. Although this seems low by international standards, it may be explained by the fact that sole

traders and FBs are not synonymous. The results also suggest that the age of an enterprise, or the CEO, may have

an influence on whether an enterprise is reported as a FB or not.

The results show that FBs make an important contribution to the Irish economy. They are predominantly

Irish owned enterprises which may play an important stabilising role in an increasingly globalised economy. FBs

may be an important, and until now, largely unrecognised determinant for assessing labour productivity. This

may have implications for assessing firm activity and performance.

The impact of technology would appear to make an important contribution to firm performance. There is a

clear correlation between e-sales and Indicative Labour Productivity (ILP). However the direction of causality

cannot be determined and further analyses are required to control for a range of possible variables that might

influence productivity before we can be confident about the significance of these relationships.

The impact of innovation is inconclusive at this stage but this is not surprising. It takes several years to

develop a product and establish it in the marketplace. The effects of a process change are also likely to take some

years before they are clear. Consequently this remains as work for the future. There are also new data sets coming


on stream, such as the International Sourcing. Linking the micro data from this dataset to the ASI will provide a

new and rich avenue for researchers to mine.

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Chinese Business Review (ISSN 1537-1506) Vol.12, No.2, 2013

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